Now that the calendar has turned to 2017, auditors will be following a new nomenclature with respect to citing auditing standards.
Remember, for example, the dreaded Auditing Standard No. 5 governing the audit of internal control over financial reporting? Now it will be known as AS 2201. Having a chat about required communications between auditors and audit committees circa Auditing Standard No. 16? Now you’ll be talking AS 1301. Any concerns over materiality in planning and performing the audit under Auditing Standard No. 11. Get comfortable calling it AS 2105 going forward.
The new system doesn’t make any substantive to change to any audit requirements, but it integrates old standards with newer standards, organizing them topically rather than chronologically. Gone is the distinction between standards written by the Public Company Accounting Oversight Board after it was formed under Sarbanes-Oxley in 2002 and those carried over from pre-regulatory professional standards labeled as “AU” sections. Now auditors will follow a single rulebook with all standards organized under the new system.
The entire collection of auditing standards that apply to all public company audits now contains five sections, which are organized so as to follow the flow of audit work. They include general auditing standards, audit procedures, auditor reporting, matters relating to filings under federal securities laws, and other matters associated with audits.
The PCAOB has provided a kind of cross-referencing index to help folks find the standards under they names they know in the new system. As new auditing standards are written by the PCAOB, they will be integrated into the sections where they apply instead of being tacked into the back of the book because they were the most recent adopted.
The change is not unlike that undertaken by the Financial Accounting Standards Board in 2009 when it transitioned the entire library of U.S. Generally Accepted Accounting Principles into a new, online, searchable Accounting Standards Codification, with all accounting guidance organized by topic rather than chronologically or by rule type.
FASB’s organization of the Codification was a bigger undertaking in part because the collection of accounting standards was larger, but also because it contained guidance with different weights of authority. Under the Codification, FASB had to clean up conflicts and assign all guidance equal authority.
The reorganization of auditing standards also led to a bit of housekeeping, with references to superseded standards removed, along with other inoperative language and references, the PCAOB said. The board finalized the new organizational system in March 2015 and secured approval from the Securities and Exchange Commission in September 2015, giving auditors and companies plenty of lead time to follow the new system beginning Jan. 1, 2017.