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A88403 1 (2005-08-26)

handle is hein.gao/gaobadvus0001 and id is 1 raw text is: I AmGA Accountability * Integrity * Reliability United States Government Accountability Office Washington, DC 20548 August 26, 2005 Mr. John A. Fogarty, Chair Audit and Attest Standards American Institute of Certified Public Accountants 1211 Avenue of the Americas New York, New York 10036 Subject: Exposure Draft of Proposed Statements on Auditing Standards on Audit Risk, Dated June 15, 2005 Dear Mr. Fogarty: This letter provides the U.S. Government Accountability Office's (GAO) comments on the Auditing Standards Board's (ASB) June 15, 2005, exposure draft of proposed Statements on Auditing Standards (SAS) on Audit Risk. We commend the ASB's efforts to strengthen standards in the area of the auditors' assessment of the risks of material misstatement in a financial statement audit. We especially support the new emphasis on the linkage between the auditors' risk assessment and the design and performance of audit procedures whose nature, timing, and extent are responsive to the assessed risks. We are especially pleased that the proposed standards encourage auditor evaluation and testing of internal control by eliminating the option of defaulting to maximum risk without documenting the basis for that conclusion. In addition, we are pleased that the proposed standards clearly use must and should terminology and would require auditors to (1) quantify materiality, (2) quantify tolerable misstatement at less than materiality, and (3) communicate known and likely misstatements to management and to those charged with governance. These changes should enhance audit quality. We also commend the AICPA for its commitment to developing a related audit guide and training materials. The Board has requested specific comments related to clarification of misstatements identified by the auditor and to evaluating audit findings. We have addressed these important issues in Enclosure 1 to this letter. Our detailed comments on the proposed standards and amendments are included in Enclosure 2 to this letter. We ask that you consider closely our comment on the level of assurance provided in an audit, which is discussed on pages 1-2 (Enclosure 2) and is related to the amendments to SAS 1, and our comment on the need for auditors to evaluate the fair presentation of an entity's financial statements, which is discussed on pages 12-13 (Enclosure 2) and is related to the proposed standard on Performing

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