AUDITING STANDARDS BOARD ISSUES SAS NOS. 80 AND 81

By Anthony J. Mancuso, CPA

The Auditing Standards Board (ASB) issued SAS No. 80 An Amendment to Statement on Auditing Standards No. 31, Evidential Matter to incorporate the concept of evidential matter in electronic form. The amendment provides guidance when an auditor is engaged to audit an entity's financial statement where significant information is transmitted, processed, maintained, or assessed electronically. The statement includes examples of evidential matter in electronic form and provides that an auditor should consider the time during which such evidential matter exists or is available in determining the nature, timing, and extent of substantive tests. The statement states that an auditor may determine that in certain engagement environments where evidential matter is in electronic form, it would not be practical or possible to reduce detection risk to an acceptable level by performing only substantive tests. In such circumstances, an auditor should consider performing tests of controls to support an assessed level of control risk below the maximum for affected assertions. The statement is effective for engagements beginning on or after January 1, 1997. What this means is that, in some cases where evidential matter only exists in electronic form and for relatively short periods of time, the only way the auditor may be able to satisfy him- or herself that financial statement amounts are not materially misstated is by performing tests of the controls that are designed to assure the accuracy and reliability of the data in electronic form.

The ASB issued SAS No. 81 Auditing Investments to make guidance in this area consistent with recently issued accounting standards. The SAS supersedes AU Section 332 "Long-Term Investments," of SAS No.1, Codification of Auditing Standards and Procedures. The statement is applicable to financial statement audits containing assertions about investments in debt and equity securities and investments accounted for under the equity method of accounting. Guidance is provided relative to the evaluation of management's intent and the entity's ability to hold a debt security to maturity. In addition, guidance is provided on the valuation of investments, including auditing investments carried at cost and fair value and on evaluating other-than-temporary impairment conditions related to an investment. The statement is effective for audits of financial statements for periods beginning on or after January 1, 1997. Early application of the provisions of the statement is permissible. *