AICPA's Proposed New Auditing Standard Enhances Communication Between Past and Potential New Financial Statement Auditors
February 25, 2021
NEW YORK (February 25, 2021) – The American Institute of CPAs (AICPA) Auditing Standards Board (ASB) has issued the exposure draft (ED) Proposed Statement on Auditing Standards (SAS) Inquiries of the Predecessor Auditor Regarding Fraud and Noncompliance With Laws and Regulations (NOCLAR) to amend SAS No. 122, as amended, section 210, Terms of Engagement.
The standard requires immediate past auditors and presumed successor auditors, once management consents to the past auditor responding, to communicate about potential NOCLAR situations. Examples of NOCLAR situations include, but are not limited to, noncompliance with tax or pension laws and regulations.
“The Board’s overall objective is to help auditors properly understand potential issues in determining whether to accept an engagement,” said Jennifer Burns, CPA, AICPA Chief Auditor. “The proposed standard is designed to further the public interest by enhancing communication between past and potential new auditors. A refusal to consent by the client would be a significant red flag that the auditor would consider in determining whether to accept the engagement.”
The proposed SAS aligns with the International Ethics Standards Board of Accountants (IESBA) standards which became effective on July 15, 2017. It narrowly amends AU-C section 210 in AICPA Professional Standards to require an auditor, once management approves communication between auditors, to inquire about suspected fraud and matters involving NOCLAR.
Interested parties are encouraged to submit their feedback to the ASB at CommentLetters@aicpa-cima.com by June 30, 2021. Readers are encouraged to also consider and comment on the AICPA Professional Ethics Executive Committee’s (PEEC) exposure draft of proposed interpretations and definitions on this topic (comments also due by June 30, 2021).
You can find more information on the NOCLAR ED by listening to this ASB podcast.
About the AICPA Auditing Standards Board
The ASB is the senior committee of the AICPA designated to issue auditing, attestation, and quality control standards applicable to the performance and issuance of audit and attestation reports for non-issuers. Its mission is to develop and communicate comprehensive performance, reporting, and quality control standards and practice guidance to enable auditors of non-issuers to provide high quality, objective audit and attestation services at a reasonable cost and in the best interests of the profession and the beneficiaries of those services, with the ultimate purpose of serving the public interest by improving existing and enabling new audit and attestation services.
About the American Institute of CPAs
The American Institute of CPAs (AICPA) is the world’s largest member association representing the CPA profession, with more than 431,000 members in the United States and worldwide, and a history of serving the public interest since 1887. AICPA members represent many areas of practice, including business and industry, public practice, government, education, and consulting. The AICPA sets ethical standards for its members and U.S. auditing standards for private companies, nonprofit organizations, and federal, state, and local governments. It develops and grades the Uniform CPA Examination, offers specialized credentials, builds the pipeline of future talent, and drives professional competency development to advance the vitality, relevance, and quality of the profession.
