Comments: Proposal on audit risk assessment

On November 25, Grant Thornton submitted a comment letter outlining the firm’s position on the Proposed Statement on Auditing Standards (SAS), Understanding the Entity and its Environment and Assessing the Risks of Material Misstatement, issued by the AICPA’s Auditing Standards Board. The firm supports the Board’s project to enhance the effectiveness of auditing standards related to the auditor’s risk assessment, and believes the proposed changes in definitions, coupled with the introduction of the “spectrum of inherent risk,” will be helpful in promoting audit quality.

However, we also note a few concerns with the proposed guidance:

• The level of prescription of the proposed requirements might reduce the overall scalability of the proposed standard. We believe that adopting the standard, as proposed, could exacerbate the execution challenges that currently exist in practice, particularly for auditors in the U.S. jurisdiction who also follow PCAOB standards.
• The volume of application guidance could make the proposed standard difficult to navigate. While we support the Board’s efforts to harmonize the proposal with international auditing standards, we strongly feel that this conformation should not be a rote alignment, with minimal changes and without due consideration of the U.S. jurisdiction and the AICPA standard-setting structure.

To read our comments in full, download the comment letter here.