Knowledge-Based Audits of Commercial Entities, 2007

The eight new risk assessment standards issued by the AICPA, which are effective for audits of financial statements for periods beginning on or after December 15, 2006 and therefore take effect for audit filings after December 31, 2007, demand that auditors of commercial, nonpublic companies depart from the prevalent "checklist-oriented" approach. The new standards place a premium on auditor judgment in the assessment of and response to risk, requiring auditors to address and evaluate materiality more thoroughly; know more about their audit clients; understand their clients' internal controls better than before; conduct a more vigorous risk assessment; and to document their approach and findings. Knowledge-Based Audits of Commercial Entities provides a unique approach for complying with the new audit standards. The knowledge-based audit approach: 1) facilitiates compliance with GAAS; 2) encourages more efficient audits through customized audit programs; and 3) helps auditors to identify and focus on risks. The results of one set of procedures become input for another. By following the KBA methodology, firms gain a deeper understanding of their audit clients. With all of the information at their fingertips, they are able to make informed risk assessments using their own professional judgment and expertise. The KBA methodology utilizes a set of integrated procedures, from pre-engagement all the way through evaluating, concluding and reporting. This handy reference comes with a back-of-the-book CD-ROM that contains all the workpapers: including the Knowledge-Based Audit documents that contain steps and procedures required by GAAS, correspondence, auditors reports, practice aids, checklists, and audit programs.