US to overhaul audit evidence rules to reflect blockchain
The US is planning to update the Audit Evidence Statement On Auditing Standards (SAS) to modernise the guidance for auditors to reflect increasing use of audit data analytics, blockchain and artificial intelligence (AI)
25 Jun 2019
In the latest exposure draft on revisions to auditing standards, the Auditing Standards Board (ASB) of the American Institute of CPAs (AICPA) has recognised the growing impact of emerging audit techniques and technologies on audit practice, particularly when it comes to evidencing data. It is now consulting with stakeholders on ways to update a number of audit standards to meet the changing technical audit environment.
'Emerging audit techniques, such as audit data analytics (ADA), and emerging technologies, such as artificial intelligence (AI), robotic process automation (RPA), and blockchain, offer both challenges and opportunities that will affect audits of financial and nonfinancial information into the foreseeable future,’ the AICPA said.
‘Given the rapid evolution of audit evidence sources that are available today, it is critically important that auditors have a robust, durable set of attributes that allows them to make consistent assessments about the sufficiency and appropriateness of audit evidence obtained,’ said Robert Dohrer, CPA, CGMA, AICPA chief auditor.
Once agreement on the revisions is reached, the Proposed Statement on Auditing Standards (SAS), Audit Evidence, will supersede SAS No. 122, Statements on Auditing Standards: Clarification and Recodification, and section 500, Audit Evidence.
‘This proposed SAS modernises our standards to recognise the sources of information and the technologies that were not available to auditors when the standard was last updated,’ added Dohrer.
The SAS addresses the evolving nature of business, increasing use of data analytics and automation, and issues that have arisen since the existing AU-C section 500 was originally issued in 2011. The issues include:
• use of information as audit evidence when emerging technologies are used by preparers and auditors (for example, audit data analytics and use of blockchain);
• application of professional scepticism;
• expanding sources of information to be used as audit evidence; and
• the accuracy, completeness, relevance and reliability of audit evidence.
The proposal includes a recommendation to shift the focus of the standard, including its objective to concentrate on helping the auditor assess whether sufficient and appropriate audit evidence has been obtained when the information is attained from sources not available in the past.
The board is gauging feedback on how this can be achieved, with its preferred approach being to establish ‘a multi-dimensional consideration of attributes and factors to be used in evaluating audit evidence obtained from any source and regardless of how the auditor acquired the information, including the use of automated tools and techniques’.
One of the important elements of the consultation is to drill down into the increasing complexity and diversity of information to audit, from legacy paper-based records to blockchain assets and intangibles, highlighting the importance of setting more robust guidance on evidence-based auditing, and verification of the reliability of information.
‘Certain information to be used as audit evidence, whether in paper or electronic form, provides evidence of the existence of an asset (for example, a document constituting a financial instrument such as a stock, bond, or a digital copy maintained by a financial institution of a mortgage and the related deeded property),’ the ASB stated.
‘Other information may provide only some evidence of existence of an asset (for example, a record viewed on a blockchain may be subject to consideration of the reliability of the blockchain itself). However, inspection of such information regarding existence may not necessarily provide audit evidence about ownership or value.
‘Similarly, inspection of tangible assets may provide audit evidence with respect to their existence but not necessarily about the entity’s rights and obligations or the valuation of the assets
If issued as final, the proposed SAS will be effective for audits of financial statements for periods beginning on or after 15 June 2021.
The closing date for comment is 18 September 2019. (More information, including the Explanatory Memorandum, may be found here.)