PCAOB approve new auditing standard AS5
On 24-May-07, The Public Company Accounting Oversight Board (PCAOB) voted to adopt Auditing Standard No. 5, An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements (AS5) to replace the infamous and expensive larger 161 page Audit Standard No. 2.
The new 98 page external auditing standard AS5 is principles-based, more risk-based and scalable, and designed to increase the likelihood that material weaknesses in internal control will be found before they result in material misstatement of a company's financial statements, and, at the same time, eliminate procedures that are unnecessary, and use the “work of others”.
PCAOB dropped the proposed AS6 on using the work of others and is retaining the existing 8 page AU sec. 322, "The Auditor's Consideration of the Internal Audit Function in an Audit of Financial Statements"
The quality auditing professionals will appreciate AS5 as it allows the external auditor to use the work of others to obtain evidence about the design and operating effectiveness of controls and eliminates the principal evidence provision. AS5 mentions 30x “work of others” 30 times, "operations" 16 times, and "IT 22 times; thus AS5 brings Operations, Quality, and IT into focus that can allow companies to rely more on existing resources, while reducing external expenses.
