Question

I work for a company that uses accrual-based accounting, not that I'm directly dealing with the accrual accounts. I have an understanding of my role, accounts receivable, and how it plays into accruals. However, it does appear people outside of finance do sometimes struggle with the concept and with helping to keep finance aware of actions that need reporting, such things like offering a customer a special promotion for future sales not yet recorded.
When reading about the comparisons between US and International accounting practices, I again reflect on my personal experiences at work. I have heard of people within our organization refer to GAAP but not International Financial Reporting Standards (IFRS). We have three international offices, three different entities within our organization. I will be asking around at work to determine if the company prepares two separate financial statements due to having both have US and international business.
Our finance department is just finishing our yearly audit. I've learned the audit is heavily reviewing our US-based practices but also reviewing of our international. My question is how does the audit process differ between US and International, especially when the company being audited consist of both?

Answer 1

Auditing Standards Board (ASB) and Public Company Accounting Oversight Board (PCAOB) issue rules that are become generally accepted auditing standards (GAAS). International Standards on Auditing (ISA) are issued by International Auditing and Assurance Standards Board (IAASB). This is other area where US standards and international standards differ and is part of discussion on how these two standards can be aligned once the US adopts International Financial Reporting Standards(IFRS).       

     ASB auditing standards are for publicly traded companies and Clarity Project is an attempt to make GAAS easier to read, understand, and apply. Other objective of Clarity . The convergence project aims for making auditing standards coordinated and comparable between two standards. The Clarity Project is an attempt to make US auditing standards more competitive, compliance and easier for its users.

           There are five major differences between GAAS and ISA . First differences are about the documentation of audit procedures. The other differences are going concern considerations, internal control over financial reporting, risk assessment and use of another auditor. The major differences are again like IFRS and GAAP, rules based standards against principle based standards.            Documentation of audit procedures is one of the differences between GAAS and ISA. US standards are more prescriptive compared to that of international standards . PCAOB auditing standards require for auditors to obtain engagement letter before they start audit work. There is no such requirement under ISA. Other differences is regarding documentation retention policy. PCAOB standards requires the audit work to be retained for seven years whereas ASB only require for five years and ISA requires to retain for at least five years . These examples clearly demonstrate that US and international standards have major differences when it comes to engagement memo and document retention policy.         

    Going concern considerations is one of the other differences between US auditing standards and international auditing standards. ISA’s going concern period is at least one year but not limited only to one year. ASB is looking to see if going concern period should be limited to 12 months or should extend more than 12 months . It looks like all three boards have different standards. Bring all of these into one standards will make easier for its user but also for auditors.           

Internal control over financial reporting is another difference between PCAOB, ASB and ISA. Management must provide their assertion that they have effective internal controls in place over financial reporting and this should accompany audit report. ASB and ISA do not have these requirements explicitly expressed in their standards. ASB and ISA still require to test internal controls to make sure they are sufficient and functional.       

      Risk assessment is other important audit procedures where ASB, ISA and PCAOB standards differ. ISA specifically mentions to obtain understanding of entities business risks including operating in and strategic. Auditors under ISA should also assess how companies respond to these risks. ASB auditors are required to assess material misstatement based on companies and its operation.