| Fall 2007 |
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TaxAdvisor
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Audit Standards Change for Coming Year
The Audit Risk Suite of Standards is effective for years beginning after
December 15, 2006 (in other words, 2007 calendar year end audits). These
standards are the most comprehensive set of new audit standards released in the
last 20 years. Though less in scope than the rules impacting public company
audits, these new standards parallel many of the key themes of The
Sarbanes-Oxley Act, including new requirements that auditors, amongst other
things, are required to:
- Obtain a more in-depth understanding of the company, its control
environment, key internal controls over significant classes of transactions,
and upper management's oversight role of financial reporting;
- Perform more rigorous assessment of the risks of where and how the
financial statements could be materially misstated;
- Improve the linkage between the risk assessment process and the specific
audit procedures performed;
- Increase communications with management and governing bodies before,
during, and after the audit; and
- Involve more experienced audit personnel at all stages in the audit
process.
The primary objective of these standards is to strengthen and enhance the
quality of the audit, an objective that Bober, Markey, Fedorovich & Company
fully supports. These standards are also expected to allow auditors to provide
more thorough input to organizations related to business operations, internal
controls, and fraud risks. We believe these standards will benefit all
stakeholders in the financial reporting process, especially those who rely on
audited financial statements in making decisions about an organization.
Following are some key areas in which you can expect to see auditors paying
more attention in making their risk assessments this coming year:
- Key controls over significant classes of transactions;
- Assessments of the risks of fraud within the company and the controls the
company has in place to identify and respond to such risks;
- Understanding management's process and controls for reporting financial
results;
- Assessing management's attitude conveyed to people throughout the
organization with respect to internal control and financial reporting;
- Understanding how management monitors the effectiveness of their systems
of internal controls and how they determine when and what changes are needed
to enhance the effectiveness of those systems.
So What Does This Mean for A Company and the Audit of their
Financial Statements?
The impact of these standards on management and leaders of the organization
is expected to be felt primarily through increased time from company personnel
and increased time from the auditors. Industry experts are estimating a 10-30%
increase in annual audit fees, dependent on the size of the organization and
other factors. Specifically, the new standards may require the auditors to:
- Request information and documentation from their clients that they did not
ask for in the past;
- Formally report to their clients internal control deficiencies and other
matters that they did not formally report in the past;
- Ask their clients to make adjustments to the financial statements that
they may not have made in the past.
Ways in which companies' staff can assist in making the audit process as
efficient as possible in an effort to minimize the increase in their audit fees:
- Begin updating and enhancing your documentation of internal controls; and
- Provide as much information in usable electronic formats (preferably Excel™).
Bober, Markey, Fedorovich & Company has
devoted and continues to devote substantial internal and external resources to
redesigning our audit process, including software that supports our new process.
Our engagement teams will be contacting our clients for initial planning
meetings for their audits and to provide more details about how that approach
will specifically affect their company or organization. Feel free to contact
your audit partner if you would like to discuss these new standards before our
meeting with you.
For our friends that are not current audit clients of Bober, Markey,
Fedorovich & Company, we would be pleased to serve as a resource to help you
better understand the implications of these new standards to your audit process.
Please call or email James E. Merklin, CPA, CFE at
jimm@bobermarkey.com
if you would like to talk further about the new standards and their
impact on your company.
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