The AICPA Auditing Standards Board (ASB) has proposed a Statement on Standards for Attestation Engagements (SSAE), An Examination of an Entity’s Internal Control Over Financial Reporting That Is Integrated With an Audit of Its Financial Statements.  This Standard is being proposed to converge the standard used for reporting on a nonissuer’s internal control over financial reporting with that used for reporting on an issuer’s internal control over financial reporting - Public Company Accounting Oversight Board Auditing Standard (AS) No. 5, An Audit of Internal Control That is Integrated with an Audit of Financial Statements. The proposed SSAE would supersede AT Section 501, Reporting on an Entity’s Internal Control Over Financial Reporting.  Among other provisions, the proposed SSAE:

• Revises the definitions of the terms significant deficiency and material weakness to conform with the definitions in AS 5.
• Discusses how to identify significant accounts and disclosures and their relevant assertions.
• Describes how to determine the likely sources of potential misstatements within a given significant account or disclosure.
• Introduces the top-down approach for identifying the most important controls to test.
• Incorporates the auditor's fraud risk assessment into the planning process for the examination of internal control and provides guidance on the types of controls used to identify and prevent material financial statement misstatements resulting from fraud.
• Addresses the following special topics:
• How an entity’s use of a service organization affects the examination of internal control;
• The use of a benchmarking strategy for entirely automated application controls; and
• Integrating in the examination of internal control the results of any additional tests of controls performed to express an opinion on the financial statements.

If finalized, the proposed SSAE would be effective for integrated audits for dates or periods ending on or after December 15, 2008.  The proposed SSAE is available for comment until August 12, 2008 at http://www.aicpa.org/download/auditstd/Final_AT_501_June_12_2008.pdf.
The ASB also has proposed a Statement on Auditing Standards (SAS), Communicating Internal Control Related Matters Identified in an Audit, which would conform the definitions of the various kinds of deficiencies in internal control and the related guidance for evaluating such deficiencies in AU Section 325, Communicating Internal Control Related Matters Identified in an Audit, with the definitions and guidance in the proposed SSAE.  If finalized, the proposed SAS would be effective for audits of financial statements for periods ending on or after December 15, 2009.  The proposed SAS is available for comment until August 12, 2008 at http://www.aicpa.org/download/auditstd/Final_AU_325_June_12_2008.pdf.

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