ARSC Clarity Project May 2010 1 ARSC Clarity Project • Background – ASB approved its clarity project in August 2007 • Goals: – Address concerns over length and complexity of standards – Make standards easier to read, understand and implement – Will lead to enhancements in audit quality 2 Convergence with International Standards • As part of the ASB’s clarity project, it worked toward convergence with International Standards on Auditing (ISAs) issued by IAASB – Clarity drafts use ISAs as base while avoiding unnecessary differences with PCAOB standards. – Most audits performed internationally are of nonpublic entities – therefore, ASB and IAASB have a similar focus Clarity Drafting Conventions • Introduction • Objective • Definitions – Terms used in the SAS are defined – Establish separate glossary of terms • Requirements • Application Material 4 Objective • Create objectives for each standard • Establish obligation relating to the objective • Provide a framework for the application of professional judgment • Outcome based goal • Difficult to achieve the overall objective of the audit if individual objectives are not achieved 5 Requirements & Application Material • Requirements expressed with must or should. • Application and other explanatory material presented in a separate section that follows the requirements • Application material indicated with may • Application and other explanatory material paragraphs numbered using an A prefix • Cross-referencing between requirements and related application material 6 Common Misconception • Application material is integral part of standard – auditor is required to understand it 7 Other • Special considerations sections – for governmental entities – for smaller, less complex entities • Exhibit of substantive differences with ISA 8 Audit and Attest Update Clarity Project ASB has issued 4 clarified SASs – SAS Nos. 117-120 Finalized but not issued 11 SASs Currently considering comments on 30 SASs 3 SASs in exposure 3 SASs not yet exposed 9 Audit and Attest Update Clarity Project It is expected that all but 6 clarified SASs will be finalized by October 2010 – remaining SASs finalized in January 2011 Once all clarified standards have been finalized, most will be issued in one SAS (SAS No. 12X) that will be codified in “AU section” format. 10 Clarity Project Effective Date Exposure drafts stated effective for audits of financial statements for periods beginning on or after December 15, 2010 (2011 year-end audits) Effective date will be delayed one year to periods ending on or after December 15, 2012 (2012 year-end audits) – Change makes effective for year-end but not interim periods. – Allow more time for updating firm methodologies and training. 11 Audit and Attest Update Clarity Project http://www.aicpa.org/Professional+Resources/Accounting+and+Auditing/Audit+ and+Attest+Standards/Improving+the+Clarity+of+ASB+Standards.htm • Clarity Project Explanatory Memorandum • Clarity Project Questions and Answers • Clarity Exposure Drafts • Clarity Final Standards 12 Proposed ARSC Clarity Project • Proposal to clarify the SSARSs in the same format as the SASs. • Will consider the international compilation and review literature but not converge at this time – Convergence will be considered when the IAASB issues revised compilation and review literature • Will use the post SSARS 19 AR sections as a base – Consider incorporating AR sections 110, 120, 200, 300, 400, and 600 into AR sections 80 and 90. 13 Proposed ARSC Clarity Project • Will consider but does not appear that separate sections for governmental entities and smaller, less complex entities is needed. Proposed ARSC Clarity Project • Proposed timeline: – November 2010 – First draft documents – April/May 2011 – ARSC to consider voting proposed SSARSs for exposure – September 2011 – Exposure period ends – November 2011 – ARSC to consider comment letters received – April/May 2012 – ARSC to consider voting for issuance 15 Proposed ARSC Clarity Project • Proposed effective date: – Effective for periods ending on or after December 15, 2013 (calendar 2013 compilations and reviews) – Early implementation would be permitted 16 Questions?