April 30, 2003, letter commenting on the AICPA's December 2, 2002, exposure draft of seven proposed auditing standards related to audit risk

Apr 30, 2003

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This letter provides GAO's comments on the American Institute of Certified Public Accountants'(AICPA) December 2, 2002, exposure draft of seven proposed Statements on Auditing Standards Related to Audit Risk. We commend the AICPA's efforts to enhance auditor assessment of risk and the linkage between the auditor's risk assessment and the performance of audit procedures. We agree with the AICPA's goal of developing stronger auditing standards that are intended to effect a substantial change in auditor performance and thereby improve audit effectiveness. We support the objectives of the exposure draft and are especially pleased that the proposed standards call for the following: (1) Strengthening the requirement for auditors to understand and assess the entity and its environment, including internal control, and linking this understanding to risk assessment and the design of audit procedures. (2) Eliminating the default of assessing inherent and control risk at the "maximum" by requiring auditors to document the basis for their risk assessment, regardless of the risk assessment level. (3) Placing greater emphasis on testing financial statement disclosures for material misstatement.