In late February, the Auditing Standards Board (ASB) of the AICPA approved eight new Statements on Auditing Standards (SASs) - collectively referred to as the Risk Assessment Standards.

The new statements, SAS No. 104 through SAS No. 111, will be effective for audits of financial statements for periods beginning on or after December 15, 2006. Early adoption is permitted. A summary of the new standards has been posted on the AICPA web site.

Collectively, the Risk Assessment Standards establish standards and provide guidance concerning the auditor’s assessment of the risks of material misstatement (whether caused by fraud or error) in a non-issuer financial statement audit; design and performance of tailored audit procedures to address assessed risks; audit risk and materiality; planning and supervision; and audit evidence.

In developing the Risk Assessment Standards, the ASB, which sets auditing standards for audits of privately held businesses and other “non-issuer” entities, had three objectives:

• a more in-depth understanding of the audited entity and its environment, including its internal control;
• a more rigorous assessment of the risks of where and how the financial statements could be materially misstated;
• improved linkage between the auditor’s assessed risks and the nature, timing and extent of audit procedures performed in response to those risks.

“The standards will result in more effective audits as a result of better risk assessments and improved design and performance of audit procedures to respond to the risks,” said John Fogarty, ASB chairman. “These standards will better help auditors focus on those areas where risk of misstatement is the greatest.”

“These standards, along with our standard on fraud, gets to the very heart of the audit process,” said Chuck Landes, AICPA vice president, Professional Standards and Services. “Implementation of the new standards may require auditors to change their approach and perhaps the nature of the audit procedures performed. We believe that these standards, with support from the AICPA, will allow our members to find ways to improve the effectiveness of their audit engagements.”

The new standards, available on or about March 8, 2006, may be purchased through the AICPA Store.

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