AICPA Auditing Standards Board Proposes Standard to Improve Group Audit Quality
The AICPA Auditing Standards Board (ASB) is proposing a new Statement on Auditing Standards (SAS) intended to enhance the quality of group audits.
Some of the issues the proposed SAS, Special Considerations — Audits of Group Financial Statements (Including the Work of Component Auditors and Audits of Referred-to Auditors), looks to address are:
- Inadequate regard by the auditor of certain matters that may be relevant when determining whether to accept or continue a group audit engagement.
- Inadequate participation of the group engagement team in assessing the risks of material misstatement at the group financial statement level and in designing and performing appropriate responses to assessed risks.
- Deficiencies in communication between component auditors and the group engagement team during the planning and performance of the group audit engagement.
- Variability in the application of the concepts of component materiality and component performance materiality in a group audit, particularly in relation to the concept of aggregation risk.
- The need for additional guidance on documentation related to 1) restrictions on access to people or information and 2) the nature, timing and extent of the group engagement team's direction and supervision of component auditors and review of their work.
The ASB stated that the proposed SAS clarifies and emphasizes that all applicable AU-C sections in AICPA Professional Standards need to be applied in a group audit engagement. It also provides clarity on the scope and applicability of the proposed SAS, including through improvement of the definition of group financial statements. In addition, the proposed SAS includes subsections in each section detailing the requirements that apply when component auditors are involved and clarifies the interactions needed between the group auditor and component auditors.
The ASB stated that it is converging the proposed SAS with International Standard on Auditing (ISA) 600, Special Considerations — Audits of Group Financial Statements (Including the Work of Component Auditors) (ISA 600 [Revised]) of the International Auditing and Assurance Standards Board (IAASB) because the issues that led the IAASB to update its group audit standard are equally present and important in the U.S. and because it is not feasible for firms that perform engagements following IAASB and ASB standards to comply with fundamentally different standards for group audits.
If issued as final, the proposed SAS would supersede SAS No. 122, Statements on Auditing Standards: Clarification and Recodification, as amended, Section 600, Special Considerations — Audits of Group Financial Statements (Including the Work of Component Auditors), and would take effect for audits of group financial statements for periods ending on or after Dec. 15, 2026.