Clarity: bringing focus to the new clarity.

• Author: Boaz, Gerry
• Position: Statement on Auditing Standards No. 122 - Report

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In issuing its October 2011 Statement on Auditing Standards No. 122, Clarification and Recodification, the goal of the American Institute of Certified Public Accountants (AICPA) Auditing Standards Board (ASB) was to make auditing standards easier to read, understand, and apply, and to establish a more principles-based approach to standard setting. (1) The underlying driving force behind the change to auditing standards generally accepted in the United States was to bring together U.S. auditing standards with those of the International Standards on Auditing, issued by the International Auditing and Assurance Standards Board. (2) The change should result in more consistent application of the standards.

SAS 122 reduces the complexity of previous statements and prominently lays out the requirements auditors "must" or "should" perform, along with useful application and other explanatory material (some of which focuses on the government environment). It is not an earth-shattering alteration of auditing standards, and many of the substantive to current audit practices are in the group audits area, as well as changes to the auditor's report format and management representation letters.

THE NEW CLARITY FORMAT

The first noticeable change an auditor will see in SAS 122 is a new drafting convention called the clarity format (see sidebar). (3) This new format is clear, consistent, and easy to understand. The ASB redrafted all its standards in accordance with the following conventions: (4)

* Establishing objectives for each clarified standard.

* Including a definitions section, where relevant, in each clarified standard.

* Separating requirements from application and other explanatory material.

* Numbering application and other explanatory material paragraphs using an A- prefix and presenting them in a separate section that follows the requirements section.

* Using formatting techniques such as bulleted lists to enhance readability.

* Including, where appropriate, special considerations relevant to audits of smaller, less complex entities within the text of the clarified standard.

* Including, where appropriate, special considerations relevant to audits of governmental entities within the text of the clarified standard.

SUBSTANTIVE, CLARIFYING, AND FORMATTING CHANGES

First is the ever-revolving wheel of terminology changes. The clarified SAS 122 introduces the following new terminology: (5)

* Applicable financial reporting...