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AICPA RISK ASSESSMENT GUIDANCE
Knowledge-Based Audits™ of Construction Add-On Module
Accounting Research Manager’s (ARM) Knowledge-Based Audit (KBA) methodology is designed to help the auditor efficiently and effectively perform financial statement audits of nonpublic construction entities in accordance with auditing standards generally accepted in the United States of America (GAAS).
The knowledge-based audit is a risk-based audit methodology that emphasizes using knowledge of the construction entity to make the risk assessments in connection with a financial statement audit.
The more accurately an auditor assesses a contractor’s risks of material misstatement, the more assurance the auditor has that the procedures performed in response to the risk assessments will detect material misstatements. The primary drivers of the KBA approach are:
1. Obtaining an understanding of the contractor and its environment, including its internal control, sufficient to accurately assess the risks of material misstatement.
2. Designing and performing audit procedures that are responsive to the risks of material misstatement.
The KBA approach is designed to facilitate this flow of information. The forms, practice aids, and audit programs incorporated in this methodology should be customized to the specific circumstances of the contractor being audited or the specific nature of the engagement.
This methodology is presented as nine processes, as follows:
1. Pre-Engagement Procedures;
2. Risk Assessment Procedures: Obtaining an Understanding of the Entity and Its Environment;
3. Risk Assessment Procedures: Evaluating the Design of Internal Controls;
4. Assessing the Risks of Material Misstatement;
5. Performing Audit Procedures in Response to Assessed Risks;
6. Performing Audit Procedures: Tests of the Operating Effectiveness of Internal Controls;
7. Performing Audit Procedures: Substantive Tests;
8. Evaluating, Concluding, and Reporting Procedures; and
9. Audit Documentation Requirements.
The KBA of Construction provides over 230 risk assessment forms and practice aids in the KBA methodology to help the auditor gain knowledge of the entity and guide you through an audit.
Some new industry-specific tools include:
Payroll and Related Liabilities-Analytical Procedures - Designed to help the auditor document analytical procedures for payroll and related liabilies
Audit Program Uncompleted Contracts - Designed to document the audit plan for the testing of relevant assertions related to uncompleted contracts including costs and estimated earnings in excess of billings on uncompleted contracts, billings in excess of costs and earnings on uncompleted contracts, and the associated account where adjustments to these over and under and billing accounts are recorded, contract revenue.
Construction Management Contract Confirmation - Sample request for confirmation of construction management contract
Request for Confirmation of Subcontractor Payable - Sample request for confirmation of subconrtractor payable
Contract Receivable Confirmation - Sample request for confirmation of contract receivable
Activity Level Controls-PP&E - Designed to help document factors to consider regarding PP&E activity level controls
Activity Level Controls-Estimating and Project Management - Designed to help document factors to consider regarding estimating and project management
Governmental Prequalification Reporting for Contractors - Sample report for filing with agencies of federal, state, or county governments to qualify for bidding on or performing work
This industry-specific guidance is based off our exclusive KBA methodology.
CCH's own KBA:
facilitates compliance with GAAS
encourages more efficient audits through customized audit programs
helps auditors to identify and focus on risks
The new Knowledge-Based Audit (KBA) methodology was developed by CCH. This updated methodology emphasizes understanding your clients and their environment so you can accurately assess the risks of material misstatements. The KBA method focuses on information flow rather than document flow, enhances communication between engagement team members, and allows for ongoing evaluation of procedures. Practitioners are able to make informed risk assessments using their own professional judgment and expertise.
Communications Hub Enhances Audit Approach
The Knowledge-Based Audit methodology utilizes a set of integrated procedures, from pre-engagement all the way through evaluating, concluding and reporting. The results from each audit stage feed into the Communication Hub, which enables audit team members to easily view summaries of the significant matters, risks and findings discovered in the audit. This design ensures that important information is not overlooked or hidden in the details of numerous checklists and forms.
This module is available for $249 as an add-on to our main ARM products.
CCH KBA Available in Your Preferred Format
ProSystem fx® Engagement and KnowledgeTools
Experience complete interactivity with the KBA overview, tools and integration with the leading software solution. ProSystem fx® Engagement and KnowledgeTools provide you a complete and streamlined methodology, making it easier for you to comply to the risk assessment standards. Learn more about this unique offering.
Knowledge-Based Audits (KBA) publication
For practitioners that need access to a printed version of this content, CCH offers the KBA publication – allowing an inexpensive, portable method to learn how to comply to the risk assessment standards.
Learn more about Knowledge-Based Audits on Commercial Entities.
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