AUD CPA Exam “Clarity Project” Update + New AUD Review Giveaway

AUD Clarity Project GiveawayThe Audit Clarity Project Challenge results is out!

Congratulations to FutureCPA who won the AUD CPA Review System!

We appreciate that FutureCPA analyzes the difference in her own words, mentioning the key points and keeping it relatively short at the same time.

You Can Get Your Own Copy Here

If you would like to purchase your own copy, go straight to this page for a free demo or check out my evaluation on Gleim CPA.

FutureCPA’s Answer On The Difference Between The New And Old Format

The Auditing Standards Board (ASB) has redrafted almost all of the auditing sections in Codification of Statements on Auditing Standards (contained in AICPA Professional Standards) and now reflects the ASB’s established clarity drafting conventions.

What are the key changes involved in the Clarity Project?

  • Unqualified report for Non-public companies/non issuers changed to Unmodified report.
  • Explanatory paragraphs changed to Emphasis-of-Matter and Other Matter paragraphs.
  • Division of Responsibility changed to Group Financial Statements.
  • Principal Auditor changed to Group Engagement Partner.
  • A separate Subheading will be required for each portion of the report.
  • Report for public companies/issuers is similar to old audit report of 3 paragraphs.
  • Requirement paragraphs will be separated from the application text.
  • New Materiality guidelines are implemented.
  • PCAOB standards are also changing.

What are the improvements to the generally accepted auditing standards (GAAS)?

  • The objectives of the auditor
  • The requirements described for auditor compliance with the auditing standards.

Why are the objectives of the changes?

  • To make auditing standards easier to read, understand & apply.
  • To converge the standards of Auditing Standards Board (ASB) with the International Standards on Auditing (ISA) issued by the International Auditing and Assurance Standards Board (IAASB).

What is the new clarity format?

  • The new clarity format includes an introduction, objective, definitions, requirements, application and other explanatory materials.

Which audit areas are affected?

  • Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards
  • Terms of Engagement
  • Special Purpose Financial Statements
  • Audits of Group Financial Statements (Including the Work of Component Auditors)

Which audit areas are not affected?

  • Audit documentation
  • Auditor’s communication with those charged with governance
  • Risk assessment standards
  • External confirmation
  • Analytical procedures
  • Audit sampling
  • Auditing accounting estimates
  • Written representations
  • Subsequent events
  • Consideration of omitted procedures after the report release date

When does Clarity Project take effect on audits?

  • Effective for audits ending on or after December 15, 2012 and will replace existing Statements on Auditing Standards (SASs) in 2014.

When does Clarity Project take effect on AUD section of CPA exam?

  • From July/August testing window 2013.

Sources:

Comments

    • Stephanie says

      Hi Sumathi,
      Just do some quick searches on the internet on how the new AUD exam content (post-July) is different from the old version (pre-July). The changes are related to what’s called the “Audit clarity project” or “clarity standards”. You should be able to google these terms and write something down easily. No need to be long or fancy.

      Let me know if you have other questions! Stephanie

  1. John Tan says

    The 10 Gaas Standards no longer exist but it will still be tested in the upcoming exams until sometime next year when they will be phased out.

    Some notable changes are there will be changes in wording of the auditor’s report, standards on group audits, more consistent to allow easier reading, changes in 10 Gaas standards.

    The fundamental purpose if to ensure Gaas becomes easier to understand and to converge with the International Auditing Standards. The effective date for this SASs are for periods ending on or after December 15, 2012. All clarified SAS will have the new AUC section number in 2013 and AU in 2014. Instead of unqualified report, it now is unmodified report.

    Emphasis of matter and other matter paragraph replaces the explanatory paragraph. Non financial statement matter is referred to the other matter paragraph. Financial statement matter is referred in the emphasis of matter paragraph.

    Group engagement auditor replaces principle auditor and component auditor replaces other auditor.

    Management is responsible for the designing, implementation and maintaining of internal control. There is no longer a management responsibility reference in the introduction paragraph but instead a header for Management’s Responsibility for the Financial Statements.

    In the case of modified audit report – there is the introduction paragraph, Management’s Responsibility for financial statement, auditor’s responsibility, basis for modified opinion, and modified opinion.

    In an unmodified audit report (with emphasis of matter, other matter) – there is the introduction paragraph, Management’s Responsibility for financial statement, auditor’s responsibility, opinion, emphasis of matter, and other matter.

    In an unmodified audit report – there is the introduction paragraph, Management’s Responsibility for financial statement, auditor’s responsibility, and opinion.

  2. AKBAR SHAIKH says

    Over the past seven years the AICPA Auditing Standards Board (ASB) has aligned its agenda with the International Auditing and Assurance Standards Board (IAASB) in the Clarity Project, with a goal to converge U.S. GAAS and international standards on auditing (ISAs) by December 2012. The result will make GAAS for nonpublic companies easier to understand and apply, as well as more consistent across international borders, while avoiding unnecessary conflict with auditing standards for public companies issued by the PCAOB.

    The Clarity Project will result in the first complete redrafting and recodification of U.S. GAAS since 1972. While the practical implications of many of these changes to auditing standards may be subtle, some others will significantly affect audit practice as well as audit education. In addition, the organization and wording changes are significant, and the project itself is immense.

    The Clarity Project is more than a simple reshuffling and redrafting of auditing standards; it is an important move toward the globalization of auditing standards.
    Among the most significant changes are:
    • A change to a consistent and more readable format for all standards;
    • A change in the authoritative status of the traditional 10 generally accepted auditing standards;
    • Changes in the wording of the auditor’s report; and
    • Changes in standards for group audits.
    CHANGES EXPECTED IN CLARIFIED AND REVISED SASs
    The ASB’s plan for the Clarity Project is to completely revise and recodify all existing auditing (AU) sections of AICPA Professional Standards. In some cases, individual AU sections are being clarified “one for one” into individual clarified standards. In other cases, existing AU sections are being regrouped and clarified into one or more newly numbered standards. As a result, almost all topics currently associated with certain existing AU section numbers will be retitled and assigned AU section numbers different from those in the existing standards.

    The ASB will issue many of the clarified standards in the form of one new statement on auditing standards (SAS) that will be codified in “AU section” format—just as the existing standards are codified.
    FORMAT OF NEW SASs
    The most obvious changes resulting from the Clarity Project will be the required format and wording of the standards. The typical format in a clarified SAS follows:

    Introduction. The “Introduction” describes the scope of the standard, provides essential material for understanding the nature of the standard, and notes the effective date.
    Objective. The “Objective” section provides the context for the requirements, providing the overall purpose for the requirements and establishing a framework for the application of judgment by the auditor in interpreting the standard.
    Definitions. The “Definitions” section defines any terms or expressions that are being introduced in a standard for the first time.
    Requirements. “Requirements” will be presented as unconditional (indicated by must) or presumptively mandatory (indicated by should). Most requirements will be expressed as a should, meaning that the auditor is required to comply with the requirement, but, in rare circumstances, may depart from the requirement by performing alternative audit procedures to achieve the intent of the requirement, provided that the auditor document justification for the departure. Requirements presented as a must need to be followed without departure.

    Application and Other Explanatory Material. It is important to note that the Application and Other Explanatory Material section is an integral part of the standard, and auditors are required to have an understanding of this section.
    CHANGE IN STATUS FOR GAAS
    One of the most basic changes being made in the clarified standards is the status of the 10 basic rules traditionally known as the generally accepted auditing standards (GAAS) contained in current AU section 150. Auditors have traditionally classified these 10 standards into three groups: general, fieldwork and reporting.

    Through the Clarity Project, the requirements included in the 10 standards have been incorporated into various clarified standards.

    CHANGES IN THE AUDITOR’S REPORT
    The clarified SAS, Forming an Opinion and Reporting on Financial Statements, along with the clarified SAS, Modification to the Opinion in the Independent Auditor’s Report, and the clarified SAS, Emphasis-of-Matter Paragraphs and Other-Matter Paragraphs in the Independent Auditor’s Report, will, in combination, supersede prior auditing standards associated with the auditor’s reports for financial statement audits, including most of AU section 508, Reports on Audited Financial Statements. The primary changes, once again, pertain more to the appearance and presentation of the report than to the substance that supports the auditor’s report.

    Additional guidance is provided and requirements added when the auditor has other reporting responsibilities, such as reporting on legal or regulatory requirements. Signature and date of the report will remain essentially the same as under current auditing standards.

    CHANGES IN STANDARDS FOR GROUP AUDITS
    One primary change that has been affected by the globalization effort is the introduction of the “Group Audit” standard, based on ISA 600 (revised), The Work of Related Auditors and Other Auditors in the Audit of Group Financial Statements.
    The clarified SAS, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors), will likely create significant changes in the scoping of multi-location audits.

    IMPACT ON STANDARDS FOR PUBLIC COMPANIES
    While the PCAOB has remained silent on the issue, the globalization of auditing standards by the ASB might be viewed as a precursor to the same type of project by the PCAOB. What impact might the Clarity Project have on standards for public companies, for which the PCAOB has sole authority?

    In 2003, the PCAOB adopted existing U.S. GAAS as interim standards, subject to periodic revision as the board deemed necessary. Since that time, the PCAOB has issued its own auditing standards in areas of the audit in which differentiated audit procedures or reporting requirements have been considered necessary. These areas largely pertain to audits of internal control over financial reporting as well as reports on those controls, audit documentation and engagement quality review.

    The PCAOB has not yet announced any changes resulting from the ASB’s Clarity Project.
    Source:http://www.journalofaccountancy.com/issues/2011/jun/20113792.htm

  3. Irfan Ahmad says

    Here is the summary of some major changes in new CPA AUD exam:
    •Unmodified report (old name was unqualified report) for Non-public companies/non-issuers.
    •Report for Public companies (issuers) is similar to old Audit report – (3 paragraphs)
    •Extra paragraphs are now called Emphasis-of-Matter and Other Matter paragraphs (previously called explanatory paragraphs).
    •Each portion of the report will require its own Subheading.
    •Division of Responsibility now called Group Financial Statements.
    •Qualified opinions now called Modified opinions (Qualified except for, Disclaimer and Adverse).

  4. Linda says

    I am attempting to study & take the CPA exam.
    I like everyone else don’t have the time.
    Your notes make it easier to concentrate on the important topics.
    Thank you for sharing your insight.
    Linda R

  5. says

    The Auditing Standards Board has redrafted the Codification of Statements on Auditing Standards to make it easier to understand and clarity.

  6. Cameron Bourque says

    I need this bad, I have having to juggle studying and working for a public accounting firm and the new update would help out a lot.

  7. Florence says

    Almost every standard is re-written so that it’s more comprenhensive. Several new requirements added in order for auditors to comply with GAAS.

    There are significant changes to audit reports. Unqualified report is now called unmodified report for non-public companies/issuers and now has 4 paragraphs. There are extra paragraphs called Emphasis-of-matter and Other Matter paragraphs, which are previously called explanatory paragraphs. Division of Responsibility is now called Group Financial Statements. Qualified opinions are now called Modified openions.

  8. Chris Landry says

    The Clarity Project was created in an effort to make auditing standards more streamlined in their content, and to converge U.S. standard with international standards. Although there are changes to standards and terminology in numerous areas, here’s the scoop on the changes to the audit report:
    Unmodified report (old name was unqualified report) for Non-public companies/non-issuers.
    Report for Public companies (issuers) is similar to old Audit report – (3 paragraphs)
    Extra paragraphs are now called Emphasis-of-Matter and Other Matter paragraphs (previously called explanatory paragraphs).
    Each portion of the report will require its own Subheading.
    Division of Responsibility now called Group Financial Statements.
    Qualified opinions now called Modified opinions (Qualified except for, Disclaimer and Adverse).

  9. Robert McDonald says

    Among the most significant changes are:
    A change to a consistent and more readable format for all standards;
    A change in the authoritative status of the traditional 10 generally accepted auditing standards;
    Changes in the wording of the auditor’s report; and
    Changes in standards for group audits.

  10. Katelyn says

    The changes that occured in AUD is the audit opinion from unqualified to unmodified and the auditors report. They added a management responsibility paragraph to the audit report.

  11. David McAnally says

    The Clarity Project was created in an effort to make auditing standards more streamlined in their content, and to converge U.S. standard with international standards.

    Changes to the audit report:
    Unmodified report (old name was unqualified report) for Non-public companies/non-issuers.
    Report for Public companies (issuers) is similar to old Audit report – (3 paragraphs)
    Extra paragraphs are now called Emphasis-of-Matter and Other Matter paragraphs (previously called explanatory paragraphs).
    Each portion of the report will require its own Subheading.
    Division of Responsibility now called Group Financial Statements.
    Qualified opinions now called Modified opinions (Qualified except for, Disclaimer and Adverse).

  12. Michael S says

    Clarity Project Update –

    New GAAS Format
    1. Intro
    2. Objective
    3. Definitions
    4. Requirements
    5. Other Explanitory Material

    10 GAAS Standards gone. But still necessary to know.

    Previously known as an Unqualified opinion is now considered an Unmodified opinion. Qualified opinion = Modified opinion.

    Audit Report – Unmodified
    1. Intro
    2. Management’s Responsibility
    3. Auditor’s Responsibility
    4. Opinion

    Audit Report – Modified
    1. Intro
    2. Management’s Responsibility
    3. Auditor’s Responsibility
    4. Basis for (Modified) opinion
    5. (Modified) Opinion

    Explanitory paragraph now referred to as Emphasis of Matter.
    Audit Report – Unmodified
    1. Intro
    2. Management’s Responsibility
    3. Auditor’s Responsibility
    4. Opinion
    5. Emphasis of Matter
    6. Other-Matter

  13. JEAN ZHANG says

    The Auditing Standards Board’s (ASB) clarified auditing standards are effective for periods beginning after December 15, 2012. Thus, the clarified standards are eligible to be tested on the 2013 CPA Exam.

    The biggest change is to the auditor’s report. The new report will have headings for each section and will be more explicit in defining the responsibilities for the financial statements and for the audit. Additionally, the term ‘unqualified opinion’ will be replaced with the term ‘unmodified opinion.’ In another change, a new standard on ‘group audits and component auditors’ replaces the existing standard on the use of ‘other auditors.’ The term ‘explanatory paragraph,’ which is currently used to draw attention to special items, is replaced with either an ‘emphasis-of-matter’ or ‘other-matter’ paragraph. No longer will the standards refer to ‘special reports.’ These are subsumed into various other standards on reporting responsibilities

  14. Ajan Nair says

    The most obvious changes resulting from the Clarity Project will be the required format and wording of the standards. The typical format in a clarified SAS follows:

    Introduction. The “Introduction” describes the scope of the standard, provides essential material for understanding the nature of the standard, and notes the effective date. The ASB decided to make the effective date for future clarified standards “for periods ending on or after” rather than “for periods beginning on or after.” This will ensure that the redrafted standards are not effective for audits of financial statements for periods that are shorter than 12 months in the first year the clarified SASs are effective.

    Objective. According to the AICPA, the foundation of the Clarity Project is the establishment of an objective for each auditing standard in order to better reflect a principles-based approach to standard setting. The “Objective” section provides the context for the requirements, providing the overall purpose for the requirements and establishing a framework for the application of judgment by the auditor in interpreting the standard.

    Definitions. The “Definitions” section defines any terms or expressions that are being introduced in a standard for the first time. For instance, in the Definitions section of SAS no. 120, the phrase “applicable financial reporting framework” is introduced. The ASB is drafting the revised standards with the viewpoint that these standards are neutral about the financial reporting framework used in the financial statements. This viewpoint allows for the possibility that the financial statements being audited have been prepared in accordance with frameworks other than GAAP (for example, IFRS).

    Requirements. “Requirements” will be presented as unconditional (indicated by must) or presumptively mandatory (indicated by should). Most requirements will be expressed as a should, meaning that the auditor is required to comply with the requirement, but, in rare circumstances, may depart from the requirement by performing alternative audit procedures to achieve the intent of the requirement, provided that the auditor document justification for the departure. Requirements presented as a must need to be followed without departure.

    Application and Other Explanatory Material. The “Application and Other Explanatory Material” section is indicated by applying an “A” prefix to the applicable paragraph number. This section of the standard uses the term may when providing examples and other explanatory information. It is important to note that the Application and Other Explanatory Material section is an integral part of the standard, and auditors are required to have an understanding of this section. This section also includes special considerations for audits of governmental entities and for audits of smaller, less complex organizations. Each finalized standard may also include an exhibit that notes any substantive differences with the applicable ISA.

  15. bankole says

    The Audit clarity project is the redrafting of most of audit sections in the Codification of Statement on Auditing Standards. It aims to aid CPA understanding of GAAS thereby improving compliance.
    All but one AU section 322 have been redrafted.
    The new codification uses “AU-C” sections numbers instead of the “AU” of old. The AU-C will revert to the AU when all the implementation have been completed.
    Here’s a partial list of Changes;
    Overall objectives of the independent auditor and conduct of an audit in accordance with GAAS.
    Terms of Engagement
    Quality control for engagement conducted with GAAS
    Audit documentation
    Consideration of fraud in a financial statement Audit
    Extrnal confirmations.

  16. says

    Hi Stephanie,

    Clearer requirements and guidance for group auditors are contained in a new standard developed as part of the AICPA Auditing Standards Board’s Clarity Project. The standard, AU-C 600, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors), particularly adds clarity for situations in which part of the work is performed by auditors other than the auditor who expresses the opinion on the financial statements of the group.

    AU-C 600 contains provisions that are consistent with the risk-based requirements of current U.S. standards. AU-C 600’s guidance also is consistent with the international standard, ISA 600, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors), with the exception of a group auditor’s ability to reference the work of a component auditor.

    CPAs who participate in group audits will want to become familiar with changes in terminology described in the new standard.

    The group auditor’s responsibilities, including the extent of involvement in the work of component auditors, are more clearly articulated in the new standard.

    The impact of the new standard will depend on the approach the practitioner has taken in performing past group audits. The requirements generally are consistent with current best practices, but some specific requirements could create unnecessary work if the auditor does not understand the new standard or apply sound judgment.

    Thanks!

  17. Vivek Patel says

    The Clarity Project was created in an effort to make auditing standards more streamlined in their content, and to converge U.S. standard with international standards. Although there are changes to standards and terminology in numerous areas, here’s the scoop on the changes to the audit report:

    • Unmodified report (old name was unqualified report) for Non-public companies/non-issuers.
    • Report for Public companies (issuers) is similar to old Audit report – (3 paragraphs)
    • Extra paragraphs are now called Emphasis-of-Matter and Other Matter paragraphs (previously called explanatory paragraphs).
    • Each portion of the report will require its own Subheading.
    • Division of Responsibility now called Group Financial Statements.
    • Qualified opinions now called Modified opinions (Qualified except for, Disclaimer and Adverse).

  18. Anna Nguyen says

    Here’s a summary:
    -Unmodified report (old name was unqualified report) for Non-public companies/non-issuers.
    -Report for Public companies (issuers) is similar to old Audit report – (3 paragraphs)
    -Extra paragraphs are now called Emphasis-of-Matter and Other Matter paragraphs (previously called explanatory paragraphs).
    -Each portion of the report will require its own Subheading.
    -Division of Responsibility now called Group Financial Statements.
    -Qualified opinions now called Modified opinions (Qualified except for, Disclaimer and Adverse).

  19. Weny Acuna says

    Stephanie,
    Thanks very much for your e-mail.
    Thanks to Gleim for the opportunity of this chance AUD module for free. people like me, we really need it.
    Regards,
    Weny Acuna

  20. Charlie says

    Thanks for the opportunity to win the course but I don’t know about it and if I were to do all the research then do I really need the course? Concentrating on FAR right now – AUD next so I’ll worry about that when I get there. Love your site. Keep up the good work and helpful hints.

  21. Lovette Love says

    Make GAAS easier to understand
    GAAS principles based
    converge with International stds

  22. Nandu CP says

    Unmodified report (old name was unqualified report) for Non-public companies/non-issuers.
    Report for Public companies (issuers) is similar to old Audit report – (3 paragraphs)
    Extra paragraphs are now called Emphasis-of-Matter and Other Matter paragraphs (previously called explanatory paragraphs).
    Each portion of the report will require its own Subheading.
    Division of Responsibility now called Group Financial Statements.
    Qualified opinions now called Modified opinions (Qualified except for, Disclaimer and Adverse).

  23. Sanjita Das says

    Changes to Statements on Auditing
    Standards
    The clarified SASs introduce the following
    terms:
    •• Applicable financial reporting framework, examples of which include International Financial Reporting Standards and
    generally accepted accounting principles.
    •• Emphasis-of-matter and other-matter paragraphs replace explanatory paragraphs.
    •• Group engagement partner and component auditor replace principal
    auditor and other auditor, respectively.

    Changes that make explicit what was previously implicit in the standards include
    requirements to
    •• determine whether the applicable financial reporting framework is
    acceptable.
    •• have management agree to their responsibilities at the onset of
    engagement.
    •• apply quality control procedures at the audit engagement level.

    Additional requirements address
    •• changes to the wording of the auditor’s reports, including the use of
    paragraph headings and expansion of the description of management’s
    responsibilities.
    ••more specific procedures to detect illegal
    acts.
    •• opening balances in initial audits.

    The following SASs, while not significantly changing existing audit requirements, are the most substantially revised from the standards
    that they supersede:
    ••Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted
    Auditing Standards. This standard supersedes the 10 standards and all the general standards.
    •• Terms of Engagement. This standard clarifies procedures for engagement acceptance. Firms may need to restructure or revise their standard engagement letters.
    •• The suite of SASs that address special purpose financial statements.
    •• Group Audits (Including the Work of Component Auditors). This standard changes the focus in audits that involve the work of another auditor from the coverage by each auditor to the extent of the involvement of the group engagement partner (formerly referred
    to as the “principal auditor”). The extent to which this will change audit practice depends on firms’ current methodologies.

    The clarified standards did not substantially
    change requirements related to
    •• audit documentation.
    •• auditor’s communication with those
    charged with governance.
    •• risk assessment standards.
    •• external confirmations.
    •• analytical procedures.
    •• audit sampling.
    •• auditing accounting estimates.
    •• written representations.
    •• subsequent events.
    •• consideration of omitted procedures after the report release date.

  24. Liezl says

    I see a few have already commented. Trying my luck.

    Summarized them below in a gist.
    * The Clarity standards introduced the Group Audit standard, the Work of Related Auditors and Other Auditors in the Audit Group Financial Statements.
    * The Clarity standards have clearly stated the objectives of the auditor and the new requirements which auditors have to comply when conducting an audit in accordance with the traditional 10 GAAS.
    * The Clarity standards introduced new terminology or more readable format as a result of the international convergence.
    * The Clarity standards made significant changes to the verbiage of the audit reports and in a new format.
    – Unmodified report (used to be called the unqualified report) for Non-public companies/ non-issuers.
    – Extra paragraphs are now called Emphasis-of-Matter and Other Matter paragraphs (previously the explanatory paragraphs).
    – Division of Responsibility now called Group Financial Statements.
    – Qualified opinions now called Modified opinions (Qualified except for, Disclaimer and Adverse).
    New Format
    “Report on the financial statements”
    “Management’s Responsibility”
    “Auditor’s Responsibility” and
    “Opinion”

  25. says

    This year, the AUD Exam faces big changes, all of which fall under the initiative titled the Clarity Project. These changes will occur throughout Audit, predominantly with Audit Reports.

    The Clarity Project was created in an effort to make auditing standards more streamlined in their content, and to converge U.S. standard with international standards. Although there are changes to standards and terminology in numerous areas, here’s the scoop on the changes to the audit report:
    Unmodified report (old name was unqualified report) for Non-public companies/non-issuers.
    Report for Public companies (issuers) is similar to old Audit report – (3 paragraphs)
    Extra paragraphs are now called Emphasis-of-Matter and Other Matter paragraphs (previously called explanatory paragraphs).
    Each portion of the report will require its own Subheading.
    Division of Responsibility now called Group Financial Statements.
    Qualified opinions now called Modified opinions (Qualified except for, Disclaimer and Adverse).

    While we’ve all been focused on the desperate tactics of the IASB to shove IFRS down everyone’s throats and make it seem way cooler than lame old GAAP, the AICPA Auditing Standards Board (ASB) has been quietly aligning its agenda with that of the International Auditing and Assurance Standard Board (IAASB). Dubbed The Clarity Project, the goal was to converge U.S. GAAS and international standards on auditing (ISAs) in the first total recodification of GAAS since 1972.

    The ASB’s clarified auditing standards are effective for periods beginning after December 15, 2012 which means they will be eligible to be tested on the CPA exam as early as July 2013.

    What this means for current and soon-to-be CPA exam candidates is that you should probably aim to get Audit out of the way before the new standards show up just to save yourself some study time.

    According to Dr. Bill Hillison, Professor Emeritus of Accounting at Florida State University and co-author of Gleim CPA Review Auditing materials, “The AICPA’s Auditing Standards Board redrafted its standards into a new Codification of Statements on Auditing Standards to make U.S. Generally Accepted Auditing Standards (GAAS) easier to read, understand, and apply. A goal of the ASB was to converge the standards with the International Standards of Auditing (ISA) and to eliminate the duplication that existed in the current standards.”

    “It’s not as bad as it looks,” says Dr. Hillison. “While there are some areas that dramatically changed, many of the standards remain basically the same conceptually.”

    Hillison says the biggest change is to the auditor’s report, which will now have headings for each section and be more explicit in defining the responsibilities for the financial statements and for the audit, presumably because “These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit” doesn’t make it explicit enough, obvs.

    If we pull up Autonomy’s latest annual report (you’ve heard what happened there by now, surely), we get a taste of the new finger-waving auditor’s report may look like:

    Respective responsibilities of directors and auditors
    As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

    We see how that turned out for Autonomy’s auditors, huh?!

    Anyhoo, one other big change is that the term “unqualified opinion” is out the window, replaced by the term “unmodified opinion.” Additionally, “explanatory paragraph” is replaced with either an “emphasis-of-matter” or “other-matter” paragraph, with no reference to “special reports.”

    The 10 Gaas Standards no longer exist but it will still be tested in the upcoming exams until sometime next year when they will be phased out.
    Some notable changes are there will be changes in wording of the auditor’s report, standards on group audits, more consistent to allow easier reading, changes in 10 Gaas standards.
    The fundamental purpose if to ensure Gaas becomes easier to understand and to converge with the International Auditing Standards. The effective date for this SASs are for periods ending on or after December 15, 2012. All clarified SAS will have the new AUC section number in 2013 and AU in 2014. Instead of unqualified report, it now is unmodified report.
    Emphasis of matter and other matter paragraph replaces the explanatory paragraph. Non financial statement matter is referred to the other matter paragraph. Financial statement matter is referred in the emphasis of matter paragraph.
    Group engagement auditor replaces principle auditor and component auditor replaces other auditor.
    Management is responsible for the designing, implementation and maintaining of internal control. There is no longer a management responsibility reference in the introduction paragraph but instead a header for Management’s Responsibility for the Financial Statements.
    In the case of modified audit report – there is the introduction paragraph, Management’s Responsibility for financial statement, auditor’s responsibility, basis for modified opinion, and modified opinion.
    In an unmodified audit report (with emphasis of matter, other matter) – there is the introduction paragraph, Management’s Responsibility for financial statement, auditor’s responsibility, opinion, emphasis of matter, and other matter.
    In an unmodified audit report – there is the introduction paragraph, Management’s Responsibility for financial statement, auditor’s responsibility, and opinion.

  26. says

    The Clarity Project is more than a simple reshuffling and redrafting of auditing standards; it is an important move toward the globalization of auditing standards.
    Among the most significant changes are:
    • A change to a consistent and more readable format for all standards;
    • A change in the authoritative status of the traditional 10 generally accepted auditing standards;
    • Changes in the wording of the auditor’s report; and
    • Changes in standards for group audits.
    CHANGES EXPECTED IN CLARIFIED AND REVISED SASs
    The ASB’s plan for the Clarity Project is to completely revise and recodify all existing auditing (AU) sections of AICPA Professional Standards. In some cases, individual AU sections are being clarified “one for one” into individual clarified standards. In other cases, existing AU sections are being regrouped and clarified into one or more newly numbered standards. As a result, almost all topics currently associated with certain existing AU section numbers will be retitled and assigned AU section numbers different from those in the existing standards.
    The ASB will issue many of the clarified standards in the form of one new statement on auditing standards (SAS) that will be codified in “AU section” format—just as the existing standards are codified.
    FORMAT OF NEW SASs
    The most obvious changes resulting from the Clarity Project will be the required format and wording of the standards. The typical format in a clarified SAS follows:
    Introduction. The “Introduction” describes the scope of the standard, provides essential material for understanding the nature of the standard, and notes the effective date.
    Objective. The “Objective” section provides the context for the requirements, providing the overall purpose for the requirements and establishing a framework for the application of judgment by the auditor in interpreting the standard.
    Definitions. The “Definitions” section defines any terms or expressions that are being introduced in a standard for the first time.
    Requirements. “Requirements” will be presented as unconditional (indicated by must) or presumptively mandatory (indicated by should). Most requirements will be expressed as a should, meaning that the auditor is required to comply with the requirement, but, in rare circumstances, may depart from the requirement by performing alternative audit procedures to achieve the intent of the requirement, provided that the auditor document justification for the departure. Requirements presented as a must need to be followed without departure.
    Application and Other Explanatory Material. It is important to note that the Application and Other Explanatory Material section is an integral part of the standard, and auditors are required to have an understanding of this section.
    CHANGE IN STATUS FOR GAAS
    One of the most basic changes being made in the clarified standards is the status of the 10 basic rules traditionally known as the generally accepted auditing standards (GAAS) contained in current AU section 150. Auditors have traditionally classified these 10 standards into three groups: general, fieldwork and reporting.
    Through the Clarity Project, the requirements included in the 10 standards have been incorporated into various clarified standards.
    CHANGES IN THE AUDITOR’S REPORT
    The clarified SAS, Forming an Opinion and Reporting on Financial Statements, along with the clarified SAS, Modification to the Opinion in the Independent Auditor’s Report, and the clarified SAS, Emphasis-of-Matter Paragraphs and Other-Matter Paragraphs in the Independent Auditor’s Report, will, in combination, supersede prior auditing standards associated with the auditor’s reports for financial statement audits, including most of AU section 508, Reports on Audited Financial Statements. The primary changes, once again, pertain more to the appearance and presentation of the report than to the substance that supports the auditor’s report.
    Additional guidance is provided and requirements added when the auditor has other reporting responsibilities, such as reporting on legal or regulatory requirements. Signature and date of the report will remain essentially the same as under current auditing standards.
    CHANGES IN STANDARDS FOR GROUP AUDITS
    One primary change that has been affected by the globalization effort is the introduction of the “Group Audit” standard, based on ISA 600 (revised), The Work of Related Auditors and Other Auditors in the Audit of Group Financial Statements.
    The clarified SAS, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors), will likely create significant changes in the scoping of multi-location audits.
    IMPACT ON STANDARDS FOR PUBLIC COMPANIES
    While the PCAOB has remained silent on the issue, the globalization of auditing standards by the ASB might be viewed as a precursor to the same type of project by the PCAOB. What impact might the Clarity Project have on standards for public companies, for which the PCAOB has sole authority?
    In 2003, the PCAOB adopted existing U.S. GAAS as interim standards, subject to periodic revision as the board deemed necessary. Since that time, the PCAOB has issued its own auditing standards in areas of the audit in which differentiated audit procedures or reporting requirements have been considered necessary. These areas largely pertain to audits of internal control over financial reporting as well as reports on those controls, audit documentation and engagement quality review.
    The PCAOB has not yet announced any changes resulting from the ASB’s Clarity Project.
    Source:http://www.journalofaccountancy.com/issues/2011/jun/20113792.htm

  27. futureCPA says

    What is the Clarity Project?
    The Auditing Standards Board (ASB) has redrafted almost all of the auditing sections in Codification of Statements on Auditing Standards (contained in AICPA Professional Standards) and now reflects the ASB’s established clarity drafting conventions.

    What are the key changes involved in the Clarity Project?
    Unqualified report for Non-public companies/non issuers changed to Unmodified report.
    Explanatory paragraphs changed to Emphasis-of-Matter and Other Matter paragraphs.
    Division of Responsibility changed to Group Financial Statements.
    Principal Auditor changed to Group Engagement Partner.
    A separate Subheading will be required for each portion of the report.
    Report for public companies/issuers is similar to old audit report of 3 paragraphs.
    Requirement paragraphs will be separated from the application text.
    New Materiality guidelines are implemented.
    PCAOB standards are also changing.

    What are the improvements to the generally Accepted auditing standards (GAAS)?
    The objectives of the auditor
    The requirements described for auditor compliance with the auditing standards.

    Why are the objectives of the changes?
    To make auditing standards easier to read, understand & apply.
    To converge the standards of Auditing Standards Board (ASB) with the International Standards on Auditing (ISA) issued by the International Auditing and Assurance Standards Board (IAASB).

    What is the new clarity format?
    The new clarity format includes an introduction, objective, definitions, requirements, application and other explanatory materials.

    Which audit areas are affected?
    Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards
    Terms of Engagement
    Special Purpose Financial Statements
    Audits of Group Financial Statements (Including the Work of Component Auditors)

    Which audit areas are not affected?
    Audit documentation
    Auditor’s communication with those charged with governance
    Risk assessment standards
    External confirmation
    Analytical procedures
    Audit sampling
    Auditing accounting estimates
    Written representations
    Subsequent events
    Consideration of omitted procedures after the report release date

    When does Clarity Project take effect on audits?
    Effective for audits ending on or after December 15, 2012 and will replace existing Statements on Auditing Standards (SASs) in 2014.

    When does Clarity Project take effect on AUD section of CPA exam?
    From July/August testing window 2013.

    Sources:
    http://www.aicpa.org/press/pressreleases/2012/pages/aicpa-offers-guidance-on-new-clarified-auditing-standards.aspx
    http://www.aicpa.org/research/standards/auditattest/pages/clarifiedsas.aspx
    http://www.cpareview.niu.edu/NewDevelopments.asp
    http://www.mncpa.org/publications/footnote/2012-09/AICPAs-clarity-project-effect-on-audits.aspx

  28. Chetan Bhatt says

    AICPA’s Clarity Project
    —————————————————————
    1.
    The ASB has completed the clarity redrafting of its last AU section in AICPA Professional Standards and has issued proposed Statement on Auditing Standards (SAS) Using the Work of Internal Auditors. This proposed SAS would supersede AU section 322 and AU-C section 610, The Auditor’s Consideration of the Internal Audit Function in an Audit of Financial Statements, and, among other amendments, would also significantly amend AU-C section 315, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (AICPA, Professional Standards).
    2.
    ASB) has redrafted almost all of the auditing sections in Codification of Statements on Auditing Standards.
    Generally accepted auditing standards (GAAS) now more clearly states the objectives of the auditor and the requirements with which the auditor has to comply when conducting an audit in accordance with GAAS.

    The purpose of redrafting the auditing standards is for clarity and convergence and not to create additional requirements, auditors will need to make some adjustments to their practices as a result of this project.
    To address practice issues, certain clarified SASs were issued in 2009 and 2010 and are effective. These standards are SAS No. 117, which deals with compliance audits, and SAS Nos. 118, 119, and 120, which deal with supplementary information.

    In October 2011, the following three SASs were issued in one publication:
    a) SAS No. 122, Statements on Auditing Standards: Clarification and Recodification
    b) SAS No. 123, Omnibus Statement on Auditing Standards2011
    c) SAS No. 124, Financial Statements Prepared in Accordance With a Financial Reporting Framework Generally Accepted in Another Country

    Explanations SAS122 and AUC Sections
    ———————————————–
    SAS No. 122 contains the Preface to Codification of Statements on Auditing Standards, Principles Underlying an Audit Conducted in Accordance With Generally Accepted Auditing Standards, and 39 additional clarified SASs. This statement recodifies and supersedes all outstanding SASs through No. 121 except
     SAS No. 51, Reporting on Financial Statements Prepared for Use in Other Countries;
     SAS No. 59, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern, as amended;
     SAS No. 65, The Auditor’s Consideration of the Internal Audit Function in an Audit of Financial Statements;
     SAS No. 87, Restricting the Use of an Auditor’s Report; and
     SAS Nos. 117–120
    This statement also withdraws SAS No. 26, Association With Financial Statements, as amended.
    “AU-C” Sections
    This statement contains “AU-C” section numbers instead of “AU” section numbers. “AU-C” is a temporary identifier to avoid confusion with references to existing “AU” sections, which will remain in AICPA Professional Standards through 2013. The “AU-C” identifier will revert to “AU” in 2014, by which time substantially all engagements for which the “AU” sections were still effective are expected to be completed.
    This statement recodifies the AU section numbers as designated by SAS Nos. 1–121. AU-C section numbers for clarified SASs based on equivalent ISAs are the same as the equivalent ISA numbers. AU-C section numbers for clarified SASs with no equivalent ISAs have been assigned new numbers. The ASB believes that this recodification structure will aid firms and practitioners that use both ISAs and generally accepted auditing standards. The exhibit, “List of AU-C Sections Designated by Statement on Auditing Standards No. 122, Statements on Auditing Standards: Clarification and Recodification, Cross Referenced to List of AU Sections in AICPA Professional Standards,” to this statement contains a complete two-part cross-reference listing of AU-C and AU section numbers as designated by this statement. View a master table of contents that reflects the new AU-C section number order.
    Explanation SAS 123
    ———————————
    SAS No. 123
    This statement contains amendments to
     SAS Nos. 117–118
     SAS No. 122, AU-C sections
    o 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards
    o 230, Audit Documentation
    o 260, The Auditor’s Communication With Those Charged With Governance
    o 705, Modifications to the Opinion in the Independent Auditor’s Report
    o 915, Reports on Application of Requirements of an Applicable Financial Reporting Framework
    aicpa.org/FRC
    These amendments conform SAS Nos. 117–118 to SAS No. 122 and address other changes necessitated by the Clarity Project.

    Explanation 124
    —————————
    SAS No. 124 supersedes the requirements and guidance in SAS No. 51, Reporting on Financial Statements Prepared for Use in Another Country, and redrafts that statement to apply the ASB’s established clarity drafting conventions. This statement requires the auditor, in instances where a report that is to be used in the United States was prepared in accordance with a financial reporting framework generally accepted in another country, to include an emphasis-of-matter paragraph to highlight the foreign financial reporting framework, but permits the auditor to express an unqualified opinion.

    Explanation 125
    ——————————————
    SAS No. 125 supersedes the requirements and guidance in SAS No. 87, Restricting the Use of an Auditor’s Report, and redrafts that statement to apply the ASB’s established clarity drafting conventions.
    This statement also contains amendments to
     SAS Nos. 117 and 119
     SAS No. 122, AU-C sections
    o 260
    o 265, Communicating Internal Control Related Matters Identified in an Audit
    o 800, Special Considerations—Audits of Financial Statements Prepared in Accordance With Special Purpose Frameworks
    o 806, Reporting on Compliance With Aspects of Contractual Agreements or Regulatory Requirements in Connection With Audited Financial Statements
    o 915
    o 920, Letters for Underwriters and Certain Other Requesting Parties
    This statement addresses the auditor’s responsibility, when required or the auditor decides, to include in the auditor’s report or other written communication issued by the auditor in connection with an engagement conducted in accordance with GAAS language that restricts the use of the auditor’s written communication. In an auditor’s report, such language is included in an other-matter paragraph.

    Explanation SAS 126
    ———————————-
    SAS No. 126 supersedes the requirements and guidance in SAS No. 59, The Auditor’s Consideration of the Entity’s Ability to Continue as a Going Concern, as amended, and redrafts that statement to apply the ASB’s established clarity drafting conventions.
    aicpa.org/FRC
    The ASB moved forward with the clarity redraft of SAS No. 59, as amended, in order to be consistent with the format of the other clarified SASs that were recently issued as SAS Nos. 122–125. However, the ASB has decided to delay convergence with ISA 570, Going Concern, pending the FASB’s anticipated development of accounting guidance addressing going concern.
    This statement addresses the auditor’s responsibilities in an audit of financial statements with respect to evaluating whether there is substantial doubt about the entity’s ability to continue as a going concern. This SAS applies to all audits of financial statements regardless of whether the financial statements are prepared in accordance with a general purpose or a special purpose framework.This SAS does not apply to an audit of financial statements based on the assumption of liquidation (for example, when (a) an entity is in the process of liquidation, (b) the owners have decided to commence dissolution or liquidation, or (c) legal proceedings, including bankruptcy, have reached a point at which dissolution or liquidation is probable).

    Explanation SAS127
    ————————————–
    This statement contains amendments to SAS No. 122 section 600, “Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors),” and SAS No. 122 section 800, “Special Considerations—Audits of Financial Statements Prepared in Accordance With Special Purpose Frameworks.”
    The amendments to section 600
    • permit making reference to the audit of a component auditor in the auditor’s report on the group financial statements when the component’s financial statements are prepared using a different financial reporting framework than that used for the group financial statements, if certain conditions are met.
    • add a requirement, when reference is made to a component auditor’s report on financial statements prepared using a different financial reporting framework, for the auditor’s report on the group financial statements to disclose that the auditor of the group financial statements is taking responsibility for evaluating the appropriateness of the adjustments to convert the component’s financial statements to the financial reporting framework used by the group.
    • add application material that addresses making reference when the financial reporting frameworks differ.
    • clarify the requirement to preclude making reference to the audit of a component auditor in the auditor’s report on the group financial statements unless the component auditor has performed an audit that meets the relevant requirements of GAAS, and adds additional guidance regarding that determination.
    • add a requirement that when the auditor of the group financial statements is making reference to the audit of a component auditor and has determined that the component auditor performed additional audit procedures in order to meet the relevant requirements of GAAS, the auditor’s report on the group financial statements should indicate the set of auditing standards used by the component auditor and that additional audit procedures were performed by the component auditor to meet the relevant requirements of GAAS.
    • clarify that the group engagement team is required to determine component materiality for those components on which the group engagement team will assume responsibility for the work of a component auditor who performs an audit or a review.
    The amendment to AU-C section 800 adds an other basis of accounting that uses a definite set of logical, reasonable criteria that is applied to all material items appearing in financial statements to the bases of accounting defined as special purpose frameworks.

  29. Rashid says

    Clearer requirements and guidance for group auditors are contained in a new standard developed as part of the AICPA Auditing Standards Board’s Clarity Project.

  30. Sunny bhatia says

    In an effort to make U.S. generally accepted auditing standards (GAAS) easier to read, understand, and apply, the Auditing
    Standards Board (ASB) is in the process of redrafting all of the auditing sections in the Codification of Statements on Auditing
    Standards to apply the clarity drafting conventions and to converge with International Standards on Auditing (ISA).

    The codification of the clarified standards uses section numbering established by SAS No. 122, Statements on Auditing
    Standards: Clarification and Recodification, and contains “AU-C” section numbers instead of “AU” section numbers. “AU-C” is a
    temporary identifier to avoid confusion with references to extant AU sections, which will remain in AICPA Professional Standards
    through 2013. The “AU-C” identifier will revert to “AU” in 2014, by which time substantially all engagements for which the “AU”
    sections were still effective are expected to be completed.

    To reflect a more principles-based approach to standards setting, certain requirements that were duplicative of broader
    requirements within an extant AU section have been moved to application and other explanatory material within the clarified
    SAS. The ASB believes that this does not change the overall effectiveness of the clarified SAS. Additionally, certain requirements
    that were in one extant AU section may have been moved to a different AU-C section. The placement of these requirements does
    not create a difference between extant SASs as a whole and the clarified SASs as a whole.

    • Jaison John says

      In January, 2012, the AICPA issued a document entitled, Clarity Project: The goal of the project is to make existing U.S. auditing standards easier to apply and comprehend and to converge U.S. GAAS with International Standards on Auditing (ISA) issued by the International Auditing and Assurance Standards Board (IAASB). The Clarity Project was created in an effort to make auditing standards more streamlined in their content, and to converge U.S. standard with international standards.

      The Auditing Standards Board (ASB) has redrafted almost all of the auditing sections in Codification of Statements on Auditing Standards (contained in AICPA Professional Standards) now reflecting the ASB’s established clarity drafting conventions designed to make the standards easier to read, understand, and apply. Some of the changes as followed :-

      • Unmodified report (old name was unqualified report) for Non- public companies/non-issuers.
      • Report for Public companies (issuers) is similar to old Audit report
      • Extra paragraphs are now called Emphasis-of-Matter and Other Matter paragraphs (previously called explanatory paragraphs).
      • Each portion of the report will require its own Subheading.
      • Division of Responsibility now called Group Financial Statements.
      • Qualified opinions now called Modified opinions (Qualified except for, Disclaimer and Adverse).

  31. yaser says

    hi sir
    how are you?
    wishing you well
    hope to know all changes for the new CPA
    thanks too much

  32. Antonio says

    The Clarity Project was created in an effort to make auditing standards more streamlined in their content, and to converge U.S. standard with international standards. Although there are changes to standards and terminology in numerous areas, here’s the scoop on the changes to the audit report:
    Unmodified report (old name was unqualified report) for Non-public companies/non-issuers.
    Report for Public companies (issuers) is similar to old Audit report – (3 paragraphs)
    Extra paragraphs are now called Emphasis-of-Matter  and Other Matter paragraphs (previously called explanatory paragraphs).
    Each portion of the report will require its own Subheading.
    Division of Responsibility now called Group Financial Statements.
    Qualified opinions now called Modified opinions (Qualified except for, Disclaimer and Adverse).

  33. HAE RYONG KIM says

    I’m currently studying for CPA exam and it will be very great if you give me a chance to get this new audit review.

    Thank you,