Sas Update - Caporicci & Larson - San Diego, Orange County, Oakland, and Sacramento

During 2005 and 2006, the American Institute ofSAS No. 107 - Audit Risk and Materiality in Conducting
Certified Public Accountants issued several newand Audit
standards to improve and clarify auditing standards inSAS No. 108 - Planning and Supervision
general.SAS No. 109 - Understanding the Entity and Its
There were two statements that were issued andEnvironment and Assessing the Risks of Material
became effective upon issuance:Misstatement
Statement on Auditing Standards (SAS) Numbers 102SAS No. 110 - Performing Audit Procedures in
and 103.Response to Assessed Risks and Evaluating the Audit
SAS No.102, Defining Professional Requirements inEvidence Obtained
Statement on Auditing Standards, clarifies steps inSAS No. 111- Amendment to SAS No. 39 - Audit
auditing standards that are "unconditional requirements"Sampling
defined by works such as "must" and "is required to";A greater understanding of the entity is required.
and steps that are "presumptively mandatoryAuditors are no longer able to assess control risk at
requirements" defined by words such as "should".maximum without a basis for that determination.
SAS No. 103, Audit Documentation, provides guidanceThere are several steps auditors must take in applying
on audit documentation as an essential element ofthe Risk Assessment Standards.
audit quality. This standard also gives guidance on theGathering Information - The auditors must begin with
date of the audit report which cannot be earlier thangathering information about the entity and its
the date on which the auditor has obtained sufficientenvironment, including its internal control. Information
appropriate audit evidence to support the opinion. As agathering should include at minimum information
result, the audit report date will need to be close to theobtained from external factors; information about the
date the reports are releasednature of the client; information in connection with the
The American Institute of Certified Public Accountantsobjectives and strategies and related business risks of
also issued the Risk Assessment standard in Marchthe client; information regarding the client's
2006. The project originated as a joint project withmeasurement parameters including a review of the
SAS No. 99, Consideration of Fraud in a Financialclient's financial performance; and information in
Statement Audit. These standards were issuedconnection with the client's internal controls.
because the Accounting Standards Board believesUnderstand the Entity - The auditor must also
that they will strengthen auditing standards and provideunderstand the entity and its environment, including its
a more in depth understanding of the entity and itsinternal control. The auditor must anticipate and
environment, a more rigorous assessment of materialevaluate what could go wrong, and be able to
misstatements and improved linkage betweensynthesize the information gathered to determine how
assessed risk and the nature, timing and extent ofit might affect the financial statements. The auditor
audit procedures performed.must also evaluate the design of the client's controls
The following standards are in the suite of SASsand determine if those controls have been
issued in connection with the Risk Assessmentimplemented (which is different than test of controls). In
standards:evaluating whether controls have been implemented,
SAS No. 104 - Amendment to SAS No.1- Codificationthe auditor should determine if there is an awareness
of Auditing Standards and Proceduresof the existence of the procedure in question and if
SAS No. 105 - Amendment to SAS No.95 - Generallythe staff implementing the control have a working
Accepted Auditing Standardsknowledge of how the procedure should be
SAS No. 106 - Audit Evidenceperformed.