Risk Assessment Standards - SAS Changes

Paper Summary:

This paper analyzes the effect the new risk assessment standards (SAS 104-111) will have on upcoming audits. The paper explains that the standards were put in place by the AICPA Auditing board to enhance audit quality and are to take place for all audits for a period that begins after December 15, 2006. The paper also points out that these standards will affect the way audits are conducted and will place a larger focus on areas considered riskiest and most susceptible to financial statement misstatement. The paper then evaluates why these changes were made, what these changes are, the impact these changes will have on audit firms, audit clients, and all the way audits will change including fees, scheduling and test works. In conclusion, the paper establishes that these standards have a large impact on how audits are conducted and how these standards will try to make audits more efficient and financial misstatements less common.

Table of Contents:
Introduction
Literature Review
Why What and How of SAS 104-111
How to Manage Effects of New Standards
Discussion
Final Comments

From the Paper:

"The fall season has often been the slow part of the year for auditors and audit clients with financial statements and tax returns out of the way, but this year has been different mainly due to the implementation of the Risk Assessment Standards SAS 104-111. The main change due to these standards is that companies no longer have to simply gain an understanding of internal controls of significant transaction classes, but now have to evaluate internal controls and create custom programs based on these evaluations to test these significant areas. This has resulted in firms calling clients and telling them that their fees may increase by 30 percent compared to years previous. This has also resulted in more preliminary work on audits being done during the planning phase of the audit. The way audits are completed will likely never be the same because of these standards."

Sample of Sources Used:

• AICPA. (2007a) "Risk Assessment Standards Nos. 104-111. American Institute of Certified Public Accountants, Inc., New York: New York. Retrieved November 26, 2007: http://www.ebpaq.aicpa.org/
• AICPA. (2007b) Summary of the Eight Audit Risk Assessment Standards, SAS nos. 104-111. American Institute of Certified Public Accountants, Inc. Retrieved November 28, 2007: http://www.aicpa.org/risk
• AICPA. (2007c) Risk Assessment Suite of Standards, (#057200JA), American Institute of Certified Public Accountants, Inc. Available: http://www.cpa2biz.com
• AICPA. (2007d) Auditing Standards, American Institute of Certified Public Accountants, Inc. Available: https://www.aicpa.org/
• AICPA. (2007e) Frequently Asked Questions. American Institute of Certified Public Accountants. Available: https://www.aicpa.org/About+the+AICPA/Frequently+Asked+Questions/

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