AS5 vs. SEC guidance 2217



  • Is it wrong to say that a company ‘adopted AS5’, because AS5 is really for the auditors? I know there are overlapping concepts, but I believe a closer description is that a company is following the new SEC guidance that was issued in response to AS5. Am I on the right track?



  • Hi,
    In my opinion, it is perfectly acceptable and more importantly, often preferable, for a Company to adopt AS 5 guidelines.
    Like AS 2, AS 5 affirms the ability of the auditor to rely on the work performed by others. For this reason, if a Company chooses to adopt the guidance in AS 5 (risk-based approach, focus on company level controls, etc.), the auditor, who may rely on the work performed by others (management), might be more apt to place increased reliance since AS 5 is the standard that is applicable to auditors.
    In short, the Company and its auditor are using the same guidelines to comply with SOX and this common approach helps to ensure that the supporting requirements found in AS 5 are satisfied for the auditor.
    Milan



  • It is not required that this be disclosed in public filings. However, I would think that it would be more appropriate to state that a company was following the latest SEC guidance when assessing the operating effectiveness of controls. Audit standards are guidance for auditors, not public companies. There is much that is similar between the SEC and PCAOB guidance that has been issued. That is by design as they worked together to ensure language and guidance was in sync.



  • Hi,
    I agree with Milan, especially because management may use the same methodology than external auditor for guarantee the alignment between them.
    Despite SEC Guide allows management has different approach from auditors and that is the main change between AS2 and AS5 (removing auditor evaluation on management assessment), the mayor trouble they may face during a certification process is related to divergent thoughts. When you give more importance to judgments, you make the process more personal and subject for divergences.
    SEC Guide is more generic than AS5.



  • Is it wrong to say that a company ‘adopted AS5’, because AS5 is really for the auditors? I know there are overlapping concepts, but I believe a closer description is that a company is following the new SEC guidance that was issued in response to AS5. Am I on the right track?
    Technically you are right.
    However, it is good practice for the company to pay heed to the AS5 requirements as these are, indeed, more detailed than the SEC guidance. Following these should also make the conversation with your auditor easier.


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