AICPA passes new audit standards

Earlier this year, the American Institute of CPAs (AICPA) - the body that establishes standards for audits of nonpublic entities - passed a sweeping set of new standards that revise many fundamental auditing principles for audits of nonpublic entities. Though less in scope than the rules for public company audits, these new standards parallel many of the key themes of Sarbanes-Oxley, including new requirements that auditors:

• Obtain a more thorough understanding of their clients' operations, their business objectives and strategies, and their process for identifying and managing risks to achieve those objectives.
• Gain a deeper understanding of their clients' internal controls.
• Perform a more rigorous assessment of risks of material misstatement of the financial statements, whether due to error or fraud, with clearly documented linkage of the risks of material misstatement to the audit work performed.

The main objective of these new auditing standards is to strengthen the audit, said Dub Newell, audit partner at Cotton + Allen. "We also believe these standards will benefit all stakeholders in the financial reporting process."

Because these new standards demand a higher level of performance, there will be changes to the way audits are performed, Newell added. "The new standards, which will be fully in effect by January 1, 2008, will require more extensive procedures than in the past."

For more information on the AICPA's new audit standards and how this may affect your company, contact Newell at 502.589.6050.