In July 2020, the Auditing Standards Board introduced a game-changing auditing standard—Statement on Auditing Standards No. 142, aptly titled "Audit Evidence." This new standard, effective for audits of financial statements concluding on or after December 15, 2022, takes a significant stride in shaping the landscape of auditing practices. Notably, early adoption is not prohibited, allowing auditors to proactively integrate its principles into their processes.
SAS No. 142 marks a departure from its predecessor, superseding Section 500, Audit Evidence, of SAS No. 122, Statements on Auditing Standards: Clarification and Recodification. Beyond this replacement, SAS No. 142 introduces amendments to various sections of the codification. The crux of its purpose is to redefine and elucidate the notion of audit evidence in the context of a financial statement audit.
Understanding the Essence of SAS No. 142
At its core, SAS No. 142 seeks to provide auditors with comprehensive guidance on the attributes to consider when assessing information as audit evidence. A cornerstone of this framework is the cultivation of professional skepticism—an essential quality for auditors.
Attributes Considered by the Auditor
The auditor, in their quest for robust audit evidence, is directed to evaluate information based on two key attributes: relevance and reliability. These attributes serve as beacons, guiding auditors in their scrutiny of the information's source. A critical aspect of this evaluation is determining whether the information corroborates or contradicts the assertions embedded in the financial statements.
Precision and detail emerge as imperative requisites for information to qualify as audit evidence. The auditor is tasked with ensuring the information's completeness and accuracy, a process that may necessitate additional audit evidence to address any identified gaps.
Leveraging Automated Tools and Techniques
In a nod to the digital age, SAS No. 142 recognizes the transformative potential of automated tools and techniques. Technologies like audit data analytics empower auditors by enabling the aggregation or disaggregation of information. Additionally, these tools facilitate the comparison of information derived from multiple sources—a capability that enhances the evaluation process.
Addressing Inconsistencies and Doubts
A pivotal mandate within SAS No. 142 is the obligation for auditors to respond decisively to inconsistencies or doubts regarding the reliability of audit evidence. When faced with disparities between sources or inconclusive outcomes from other audit procedures, auditors are empowered to modify or augment audit procedures. This flexibility ensures that the auditor's journey toward substantiating a reasonable assurance opinion remains unimpeded.
Ultimate Obligation of the Auditor
In the grand tapestry of auditing, SAS No. 142 assigns auditors the ultimate obligation of evaluating the information obtained comprehensively. This evaluation encompasses not only the individual results of audit procedures but also the overarching conclusion—an evaluation that informs the auditor's determination of whether sufficient and appropriate audit evidence has been amassed to lend support to their reasonable assurance opinion in the auditor's report.
Navigating the Terrain of SAS No. 142
As auditors acclimate to the provisions of SAS No. 142, the imperative is to not only comprehend its intricacies but also to assimilate its principles seamlessly into their audit methodologies. The redefined landscape of audit evidence brings forth both challenges and opportunities, heralding a paradigm shift in how auditors approach their engagements.
While SAS No. 142 illuminates a path forward, it's crucial to recognize that the content presented in this article is for informational purposes only and does not constitute tax advice. For advice tailored to your specific situation, consulting your own tax advisor is imperative.
In essence, SAS No. 142 ushers in a new era of precision and scrutiny, where auditors are equipped with a refined framework to discern, evaluate, and substantiate audit evidence. As the auditing profession continues to evolve, embracing these standards ensures not only compliance but also the delivery of audits that stand the test of precision and reliability. The journey through SAS No. 142 beckons—a journey where auditors tread with a heightened sense of discernment and a commitment to the highest standards of professional excellence.