PCAOB Standards Update: Embracing Technology-Assisted Audits for Enhanced Reliability
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- On March 5, 2025
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Compliance necessitates adherence to established requirements, but when these norms do not keep pace with technological advancements, those responsible often hesitate to embrace new developments. Noting this, the US Public Company Accounting Oversight Board (PCAOB) recently updated its auditing standards to address the evolving use of technology-assisted analysis in audits. This initiative, which we believe will greatly benefit auditors, aims to ensure that they leverage these advanced tools effectively while maintaining the reliability and sufficiency of audit evidence.
Key Amendments to PCAOB Standards
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AS 1105 – Audit Evidence
- Reliable Information: The amendments emphasize the auditor’s responsibility to evaluate the reliability of electronic information used as audit evidence. This includes testing the auditee’s controls over information technology general controls (ITGCs) and automated application controls, where applicable.
- Multi-purpose Use: Auditors can use technology-assisted analysis to serve multiple audit objectives. However, each objective must be achieved separately, ensuring comprehensive audit coverage.
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AS 2301 – The Auditor’s Responses to the Risks of Material Misstatement
- Tests of Details: Technology-assisted analysis can identify transactions and balances meeting specific criteria for further investigation. Auditors must determine whether these items indicate misstatements or control deficiencies, individually or in aggregate.
- Clarification and Relocation: The definition of “tests of details” was clarified and moved from AS 1105 to AS 2301 to avoid confusion with analytical procedures.
Impact of PCAOB Amendments: A Comparative Use Case Analysis
Use Case: Auditing Accounts Receivable
| Aspect | Procedure Before Amendment | Procedure After Amendment |
| Testing Controls | Auditors might perform limited testing of ITGCs and automated controls. Reliance on electronic data was often cautious due to uncertainties about the robustness of controls over electronic information. | Auditors are required to evaluate and test ITGCs and automated application controls thoroughly. This includes verifying the integrity of the electronic data through detailed testing of the controls over data entry, processing, and storage. |
| Reliability of Information | Reliance on electronic information was limited, with auditors often opting for manual verification methods to supplement electronic data, increasing the audit’s time and cost. | Auditors can now rely more on electronic data, provided they effectively test and validate the ITGCs and automated controls. This reduces the need for manual verification, streamlines the audit process, and makes it more efficient while ensuring the data’s reliability. |
| Use of Audit Evidence | Electronic data analysis was often used cautiously and separately for different audit objectives, sometimes leading to redundant procedures and increased audit time. | Auditors can use technology-assisted analysis for multiple audit objectives simultaneously. If each objective’s requirements are met, the same data analysis tool can be used to identify risks of material misstatement and perform substantive tests on flagged transactions. |
| Investigating Identified Items | Auditors typically used manual procedures to investigate flagged transactions, which was time-consuming and prone to human error. | Technology-assisted analysis can now systematically investigate flagged transactions, including all items that meet certain criteria (e.g., transactions above a specific amount). This method ensures a comprehensive review and reduces the chance of overlooking significant issues. |
| Tests of Details | The differentiation between tests of details and analytical procedures was often unclear. | The amendments provide clear definitions and guidance for performing tests of details. Auditors now have specific procedures to follow when using technology-assisted analysis for tests of details, ensuring consistency and clarity in the audit process. |
These changes enhance audit efficiency, reduce redundancy, and improve the reliability of audit evidence, leading to higher audit quality and better investor protection.
KNAV’s Opinion
A revolution requires all aspects of the environment to adapt, and the technological revolution in audit is no different. For it to flourish, compliance standards must evolve. The PCAOB’s decision to amend auditing standards is a positive step forward. Audit firms must grasp these changes’ significance and implement the necessary adjustments. It is crucial to update audit staff to align with these amendments and apply them in practice. Understanding the amendments is essential for successful implementation.
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