Statement In Support of Technology-Assisted Analysis Amendments Adopting Release

Remarks as prepared for delivery

Thank you, Chair Williams.

I am in support of adopting these amendments to Auditing Standard 1105, Audit Evidence, to AS 2301, The Auditor’s Responses to the Risks of Material Misstatement, and conforming amendments to AS 2501, Auditing Accounting Estimates, Including Fair Value Measurements.

The audit profession, like many other professions, must grapple with the impact of the growing use of technology. Our research around the broader topic of data and technology, which is ongoing, indicates that auditors have expanded their use of tools to perform technology-assisted analysis, or data analytics. As the days of paper-based auditing fade away, along with the fax machine, I support amending our existing standards to reflect the evolution of the use of data analytics in auditing.

Sufficient appropriate audit evidence remains a requirement, despite the evolution in the technology-based tools deployed to obtain that evidence. I believe these amendments will ensure that sufficient appropriate audit evidence remains the bar that auditors achieve when these tools are used in the audit.

I am pleased that most commenters on the proposal supported the Board’s efforts to modernize certain aspects of designing and performing audit procedures that involve technology-assisted analysis. I believe that we have been responsive to various commenters’ suggestions for clarification.

I would like to highlight just a few changes made in this adopting release in response to commenters viewpoints, which strengthen this standard. First, test of details is no longer described in comparison to analytical procedures. The description of test of details emphasizes that the audit procedures applied are appropriate to the particular audit objectives. By requiring auditors to focus on the audit objectives, it reduces confusion on the purpose of the procedures.

Second, paragraph 50 of Auditing Standard 2301 clarifies that the auditor has a responsibility when selecting specific items for testing to determine whether there is a reasonable possibility that the remaining items in the balance include a misstatement, individually or in the aggregate. This means the auditor cannot simply ignore the remaining untested portion of the population; the requirement, however, does not prescribe the exact nature, timing, and extent of procedures to be performed on the remaining items. This construct strengthens the principles-based nature of this aspect of the standard and is responsive to several commenters. 

Lastly, I would highlight that with the addition of paragraph 10A to Auditing Standard 1105, we incorporated some flexibility for auditor choice when evaluating the reliability of external information provided by the company in electronic form. Auditors can choose to test the information directly to determine whether it has been modified or test controls over receiving, maintaining, and processing the information. This approach retains the core responsibility of the auditor to evaluate the reliability of information provided by the company, while providing optionality on how the auditor chooses to test that the information is reliable.  

These revisions to the proposal, along with some other clarifications, help ensure that our standards can meet the moment as the audit profession evolves.

I would like to express my gratitude to the staff for the tremendous amount of rigor in carefully evaluating commenter responses to recommend clarifications and adjustments to this adopting release, including in the Office of the Chief Auditor, Barb Vanich, Dima Andriyenko, Dominika Taraszkiewicz, Donna Silknitter, Hunter Jones, Rob Kol, and Fran Lison; In the Office of Economic and Risk Analysis, Martin Schmalz, Erik Durbin, Michael Gurbutt, John Cook, Carrie Von Bose, and Nick Galunic; and in the Office of the General Counsel: Katherine Kelly, Vince Meehan, and Connor Raso. Thank you also to the individuals across our Division of Registration and Inspections, and Division of Enforcement and Investigation who contributed thoughts to this final release. Finally, my thanks to the SEC Staff within the Office of the Chief Accountant, as well as my fellow Board Members, their staff, and my staff.