Fall 2006 issue of Horizons

INDUSTRY PUBLIC SECTOR Deposit and Investment Risks ASK Rubi Brown

What is the Impact of the New Auditing Standards?

Fred Kostecki, CPA

significant strengthening of auditing standards that will improve the quality and effectiveness of audits. The new standards require a risk-based approach to the financial statement audit that entails: 1. A more in-depth understanding of the entity and its environment, including its internal control. This knowledge will be used to identify the risk of material misstatement in the financial statements and what the entity is doing to mitigate that risk. 3. Improved linkage between the assessed risks and the nature, timing and extent of audit procedures performed in response to those risks. Your auditors at RubinBrown are working hard to fully understand these new standards and to develop an approach to applying these requirements in a manner that is efficient, yet results in a financial statement audit of the highest quality. At RubinBrown, our mission is to help our clients build and protect value while at all times honoring our responsibility to serve the public interest. Not only will we fully comply with the new standards, we also will strive to continue to enhance the quality of our audits and to pro- vide value to our clients and all stakeholders. 2. A more rigorous risk assessment of material financial statement misstatement based on that understanding.

Complex and costly rules mandated for public company audits continue to trickle down to audits of non-public entities. As auditors, we work in a new world where regulators and the public are demanding more of the financial statement audit than ever before. The Sarbanes-Oxley Act of 2002 revamped the way audits are performed for public companies. The American Institute of Certified Public Accountants responded with Statement on Auditing Standards (SAS) No. 99, which required auditors of all entities, including those that are privately held, to identify and assess risks of fraud that could result in materially misstated financial state- ments. Now, the AICPA has issued 10 new auditing stan- dards that will significantly increase the effort required by auditors to complete a financial statement audit. Two of the new standards requiring significantly increased audit documentation and written communication regarding internal control related matters will take effect for 2006 audits, while the remaining eight new standards will apply to 2007 audits. These eight new standards will essentially require a new audit approach for all financial statement audits. The AICPA believes the new standards represent a

3 • summer 2006 issue