The Auditing Standards Board (ASB) of the AICPA has issued the new standard, Statement on Auditing Standards No. (SAS) 143, Auditing Accounting Estimates and Related Disclosures. SAS 143 supersedes SAS No. 122 Section 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures, and amends various other AU-C Sections in AICPA Professional Standards.
“This new auditing standard provides more robust guidance for auditors who are addressing an increasingly complex financial reporting environment,” said Bob Dohrer, CPA, CGMA, AICPA Chief Auditor. “In our current period of economic uncertainty and volatility, management’s asset impairment estimates are particularly important, and this standard will aid auditors in assessing them.”
What SAS 143 Does
New SAS 143 is one piece of a larger AICPA project to enhance audit quality (see the AICPA’s Enhancing Audit Quality Initiative). It enables auditors to address today’s new accounting standards and to enhance the auditor’s focus on factors driving estimation uncertainty and potential management bias.
Among the noteworthy changes, SAS 143 requires inherent risk and control risk to be assessed separately for accounting estimates.
SAS 143 addresses the auditor’s responsibilities relating to accounting estimates in an audit of financial statements. These include fair value accounting estimates and related disclosures. In the introduction, SAS 143 notes that in auditing accounting estimates, the auditor is responsible for obtaining “sufficient appropriate audit evidence about whether the accounting estimates and related disclosures in the financial statements are reasonable, in the context of the applicable financial reporting framework.”
The ASB has issued additional documents to assist practitioners in implementing the new standard, including:
SAS 143 will be effective for audits of financial statements for periods ending on or after December 15, 2023.
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The AICPA has updated its Practice Aid, Accounting for and Auditing of Digital Assets, to include new material on how to audit digital assets, with the focus on Client Acceptance and Continuance.
The Practice Aid, originally issued in December 2019, provides nonauthoritative guidance for financial statement preparers and auditors on accounting for and auditing digital assets under GAAP and GAAS. The new material is complementary to the accounting guidance previously issued in December. The new guidance is based on professional literature and experience from members of the AICPA Digital Assets Working Group (DAWG) and AICPA staff, and is specific to GAAS.
For purposes of applying the guidance, digital assets are defined broadly to include digital records, made using cryptography for verification and security purposes, on a distributed ledger (i.e., blockchain). Although all industries encounter change, the digital assets ecosystem is evolving rapidly. As firms seek to provide audits to entities within the ecosystem, they must give caution and consideration to unique risks and challenges.
The updated Practice Aid provides auditors with detailed information to consider when accepting or continuing audit engagements that involve digital assets. CPA firms seeking to provide audits to entities involved with digital assets need to ensure that they undertake only audit engagements that are appropriate. This requires evaluation of whether the audits can be performed in accordance with professional standards and applicable legal and regulatory requirements to enable an appropriate auditor’s report. The updated Practice Aid provides guidance to enable that evaluation.
Before accepting or continuing an engagement, firms need to assess items including: