US auditing standards risk confusion

Proposed new risk assessment audit standards have come under fire from the US government, amid fears that they could create confusion among auditors and drive up audit costs for accounting firms and their clients.

The standards, proposed by the Public Company Accounting Oversight Board (PCAOB), focus on the risk assessment process and on the auditor’s response to identified risks in client financial reports. They offer new guidance on dealing with ‘material misstatements’ and other types of financial fraud, and advise auditors on how to plan and execute audits to address these problems.

The US Government Accountability Office (GAO) has heavily criticised the standards, which were originally proposed in 2008 and revised in December 2009 in response to calls for improvements.

Jeanette Franzel, the GAO’s managing director for financial management and assurance, said that the new plan incorporated modified versions of other established audit standards without providing clear explanations for the purpose or meaning of those differences.

‘This approach will increase the likelihood of misinterpretations, inconsistent application of the standards, and higher costs for all users with a disproportionate burden on smaller and midsized firms,’ Franzel said.

Reaction from audit firms was more mixed, with several expressing concern about the PCOAB approach, but the US Institute of Internal Auditors described the proposals as ‘high quality’ and said the changes made by the PCAOB had led to improvements in the standards.