The AICPA has issued a proposed Statement on Auditing Standards entitled:
UNDERSTANDING THE ENTITY AND ITS ENVIRONMENT AND ASSESSING THE RISKS OF MATERIAL MISSTATEMENT
The challenge for the reader is that the standard is 207 pages long and it amends 7 other standards.
The goal of the standard is admirable. The AICPA is trying to improve the auditors’ assessment of risks because deficiencies in the process of obtaining the required understanding of internal control is a common audit issue identified by practice monitoring programs worldwide.
As the standard says, “A proper identification and assessment of the risks of material misstatement drives the performance of a quality audit because a proper risk assessment is the basis on which the auditor plans and performs audit procedures and gathers audit evidence to support the audit opinion on the financial statements.”