AICPA’s Auditing Board Plans to Issue 4 Standard-Setting Proposals in 2025
February 7, 2025
The AICPA’s Auditing Standards Board (ASB) is planning to publish four exposure drafts this year to seek comment on the following standard-setting projects: fraud; baseline attestation standards and sustainability subject matter section; and confirmations.
This timeline is based on presentation materials of the ASB workplan for 2025, which was discussed during a meeting of the board on January 29-31.
Fraud: Second Quarter Proposal
The ASB is planning to issue a proposal on fraud in the second quarter and discuss comment letters received in the fourth quarter.
The objective of the project is to revise AU-C Section 240, Consideration of Fraud in a Financial Statement Audit, and consider additional guidance or actions that might be taken to address issues related to the auditor’s responsibilities for fraud.
The ASB has undertaken this project partly based on the board’s academic research conducted in 2022 to 2023. Moreover, the ASB’s goal is to converge with international standards as appropriate. And the International Auditing and Assurance Standards Board (IAASB) is in the middle of its fraud standard-setting project and is planning to vote on International Standards on Auditing 240 (Revised) in March.
In addition, the fraud task force of the ASB is monitoring the PCAOB’s fraud project which is on its mid-term agenda. The AICPA’s goal is to align with the PCAOB’s standards if it will result in improvements in GAAS. The ASB writes audit standards for private companies whereas the PCAOB develops standards for public companies in the United States.
The ASB has so far discussed many aspects of the standard, including definitions of “fraud” and “fraud risk factors.”
The IAASB proposes to define fraud risk factors as “events or conditions that indicate an incentive or pressure to commit fraud, or provide an opportunity to commit fraud, or an attitude or rationalization that justifies the fraudulent action.”
The U.S. board is considering fraud risk factors as “events or conditions that indicate an incentive or pressure to perpetrate fraud, provide an opportunity to commit fraud, or indicate attitudes or rationalizations to justify fraudulent action.”
The differences are largely on the verb commit or perpetrate.
The term “perpetrate” means “to bring about or carry out.” The term “commit” means “to carry into action deliberately.”
The fraud task force explains that the term perpetrate would align with “having the incentive or pressure to plan a fraudulent action, while commit would relate to the opportunity for the action itself.”
Thus, the task force is recommending retaining the existing definition, including the term perpetrate and to avoid changing the definition that has been well-established in GAAS.
The ASB’s outreach highlighted the importance of the whistleblower hotlines and the internal audit function in identifying fraud. Thus, the board is considering including requirements for the auditor to obtain an understanding and make inquiries about the company’s whistleblower program.
Attestation Standards—ESG/Sustainability Project: Third Quarter Proposals
The ASB is planning to issue an exposure draft on baselines attestation standards and a separate proposal on sustainability subject matter section under the environmental, social, and governance (ESG)/sustainability attestation standards project in the third quarter.
The goal of the attestation standards project is to revise the standards to address emerging areas of assurance and achieve consistency with other standards.
On the ESG project, the ASB’s goal is to revise the attestation standards to provide requirements and guidance for practitioners reporting on sustainability information.
Among other matters, the board is considering a narrow revision in AT-C Section 210, Review Engagements, that would expressly permit a practitioner to issue a qualified conclusion when the practitioner is “unable to obtain sufficient appropriate review evidence on which to base a conclusion, and the practitioner concludes that the possible effects on the subject matter of undetected misstatements, if any, could be material but not pervasive.”
Today that is the requirement in AT-C Section 205, Assertion Based Examination Engagements, International Standard on Assurance Engagements (ISAE) 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information (Revised) for both reasonable and limited assurance engagements, and International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements.
The attestation standards task force is not proposing to revise AT-C Section 210 to permit a disclaimer of conclusion.
In the meantime, the board is comparing the requirements in ISSA 5000 to proposed revisions to baseline attestation standards on such things as other practitioners, preconditions/terms of engagement, and responding to the risks of material misstatement.
External Confirmations: First Quarter Proposal
The first proposal to be issued by the ASB will be on confirmations, and it is expected to occur in the first quarter, according to the work plan.
The board has been working on this project because the PCAOB adopted a new confirmation standard in September 2023. It is effective for audits of financial statements for fiscal years ending on or after June 15, 2025. And it is intended to better reflect today’s business environment and the increasing use of sophisticated technology that was not available when the existing standard was written three decades ago. The PCAOB also strengthened confirmation procedures to better help prevent fraud.
The ASB will consider aligning the effective date of confirmations with that of the proposed revisions on fraud. The task force believes that the same effective dates will allow a firm to change its methodology for both standards at the same time but allow commenters to have time to address each proposal separately.
The proposed language is “If issued as final, the proposed amendments would be effective for audits of financial statements for fiscal periods ending on or after a date decided after exposure, but no earlier than December 15, 2027. Early implementation is permitted.”
Other Projects
In addition to the four projects with a concrete timeline, the ASB is also working on several other projects that are not as far along.
In the fourth quarter of 2025, attestation standards on internal control will be discussed.
The board is also monitoring an artificial intelligence (AI) project by the Assurance Services Executive Committee. The objective of the ASB on this project is to consider “additional guidance or actions that might be taken to further encourage the effective and appropriate use of technology, including data analytics, to enhance audit quality.”
The ASB is monitoring other IAASB projects on audit evidence, definition of listed entity and public interest entity, and going concern. The board’s actions on these items are to be determined in the first quarter.
In addition, the ASB is monitoring the PCAOB’s recently completed projects: quality control; Auditing Standard 1000 on general responsibilities of the auditor; and technology-assisted analysis.
[Thomson Reuters]
