I CAN SEE CLEARLY NOW

Now I can see why everyone wants a piece of the action; first the FASB and now the ASB. Have you heard of The Clarity Project? It is a multi-year effort undertaken by the Auditing Standards Board (ASB) to reformat and redraft all of the existing U.S. auditing standards for nonpublic companies while converging them with the International Standards on Auditing (ISAs).

I personally think that the codification of the FASB standards was extremely beneficial since it combined more than 20 different sources of GAAP into one logical and orderly system. The benefits from the Clarity Project probably won’t be quite as dramatic as the FASB Codification because the auditing standards had already been codified but there will be benefits from the project. Those benefits will come from the goals of the project. The goals are to:

• Establish objectives for each of the standards and define the auditor’s obligations related to the objectives.
• Make structural and drafting improvements to the standards so they’re easier to read and understand.
• Include, in the explanatory material of the standards, special considerations related to audits of both governmental entities and small entities.
• Converge with the ISAs or clearly establish reasons for divergence from those standards.

Unless there is a practical need for issuing a standard earlier, all of the revised standards will be issued on the same date. The revised standards will be effective for periods ending on or after December 15, 2012, with early application prohibited. The previous effective date of December 15, 2010 was changed by the ASB in May of this year in order to allow more time for finalization of the standards as well as to give more time for training and updating of firm methodologies.

Similar to the FASB Codification project, you can expect an entirely new body of authoritative U.S. auditing literature for nonpublic companies starting in 2013. I think this revision of the auditing standards codification will be a significant step in improving the usability of the standards and in bringing the U.S. more in line with the international audit community. What do you think?