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Auditing Standards

AU-C sections, explained.

What each AICPA AU-C section asks of the auditor, what to document and where firms get caught in peer review. Paraphrased and cited, never a substitute for the standard.

Schedule M-1 / M-2 / M-3Book-Tax Differences: Schedules M-1, M-2 and M-3 and How They Tie to the AuditHow Schedule M-1, M-2 and M-3 reconcile book income to taxable income on Form 1120, the $10 million asset trigger for Schedule M-3, a worked M-1 and M-2 example, and what auditors tie out against the financial statements and the tax provision.2 CFR 200.3032 CFR 200.303 Internal Controls Over Federal Awards: What Recipients Must Have and How Auditors Test ItWhat 2 CFR 200.303 requires of recipients and subrecipients: documented internal control over the Federal award aligned with the Green Book or COSO, compliance monitoring, prompt action on noncompliance and reasonable cybersecurity measures.2 CFR 200.3322 CFR 200.331 and 200.332 Subrecipient Monitoring: Subrecipient vs Contractor and Pass-Through DutiesWhat pass-through entities must do under 2 CFR 200.332: verify exclusion status, issue complete subawards, assess risk, monitor, follow up on audit findings, and how 200.331 separates subrecipients from contractors.2 CFR 200.4032 CFR 200.403 Allowability of Costs: The Eight Tests a Federal Award Cost Must PassThe criteria in 2 CFR 200.403 for allowable costs under Federal awards: necessary and reasonable, allocable, consistent treatment, GAAP, no double funding, documentation and budget period limits, with a testing approach and illustration.2 CFR 200.4142 CFR 200.414 Indirect Costs: The 15 Percent De Minimis Rate, Negotiated Rates and MTDCHow indirect costs work under the Uniform Guidance: the de minimis rate of up to 15 percent of modified total direct costs, negotiated rates, the one-time four-year extension, MTDC exclusions and what auditors test.2 CFR 200.5012 CFR 200.501 Single Audit Threshold: The $1,000,000 Test and What Counts as Federal Awards ExpendedWhen a single audit is required under 2 CFR 200.501: the $1,000,000 threshold, what counts as Federal awards expended under 200.502, program-specific audits, audit frequency and the reporting deadline.2 CFR 200.5182 CFR 200.518 Major Program Determination: Type A and Type B Programs, Risk Steps and CoverageHow a single audit selects major programs: the Type A threshold table, low-risk Type A, high-risk Type B, the four steps, 40 percent and 20 percent coverage, and the low-risk auditee criteria in 200.520.2 CFR 2002 CFR 200 Uniform Guidance Overview: Subparts A to F After the 2024 RevisionA practitioner overview of 2 CFR Part 200: what each subpart covers, the October 1, 2024 revision, the $1,000,000 audit threshold, equipment and de minimis changes, and what auditors and recipients must do.Regulation S-X Rule 2-01SEC Auditor Independence: Regulation S-X Rule 2-01 for CPA FirmsSEC auditor independence under Regulation S-X Rule 2-01: the general standard, financial, employment and business relationships, prohibited non-audit services, contingent fees, partner rotation and audit committee pre-approval.SOC 3SOC 3 Reports: The General-Use Trust Services Report and How It Differs From SOC 2What a SOC 3 report is, what it contains, how it relates to a SOC 2 examination under AT-C 205 and the Trust Services Criteria, who can receive it, and the points a CPA firm settles before issuing one.Forms 10-K, 10-Q, 8-KForm 10-K vs 10-Q vs 8-K: Reporting Deadlines and Where the Auditor Is InvolvedSEC periodic reporting compared: Form 10-K, 10-Q and 8-K deadlines by filer status, what the independent auditor does on each, and the 8-K items that involve the auditor, with a worked 2027 calendar.SSAE 18SSAE 18 Explained: The Attestation Standards and Which Sections Still ApplySSAE 18 created the AT-C attestation framework. See which AT-C sections it introduced, what SSAE 19, 20, 21, 22 and 23 replaced, and how SOC 1, SOC 2 and examination engagements fit.SSAE 22SSAE 22 and AT-C 210: Review Engagements Under the Attestation StandardsSSAE 22 replaced AT-C 210 for attestation review engagements. See the limited-assurance objective, adverse conclusions, procedures described in the report, the June 15, 2022 effective date and how a review differs from an examination.SSARS 25 and 26SSARS 25 and SSARS 26 Explained: Review Materiality and Engagement-Level Quality ManagementSSARS No. 25 revised AR-C 90 on materiality and adverse conclusions in reviews; SSARS No. 26 added quality management to review, compilation and preparation engagements. Effective dates and what changes.SSARS 27SSARS 27: When AR-C 70 Applies to Client Advisory Services and When CS 100 Can Be ElectedSSARS 27 clarifies that AR-C 70 is not required for financial statements prepared as part of a CS 100 consulting engagement. The primary-objective test, effective date December 15, 2026, quality management and peer review effects, and documentation.IRC 172 and 382Net Operating Losses: The 80 Percent Limit, Carryforwards and Section 382How IRC section 172 treats net operating losses after 2017: the 80 percent taxable income limit, indefinite carryforward, limited carrybacks, the section 382 ownership change limit and the ASC 740 effects.SOC for CybersecuritySOC for Cybersecurity: The Description Criteria (DC 100) and the Cybersecurity Risk Management ExaminationWhat a SOC for Cybersecurity examination covers: the DC 100 description criteria, the control criteria, management's assertion, the practitioner's two opinions, general use, and how it differs from SOC 2 and SOC 3.SAS 146SAS 146 Quality Management for an Audit Engagement: What the Engagement Partner Must DoSAS 146 replaced AU-C 220 for audits under GAAS. See what the engagement partner must do on leadership, ethics, resources, supervision, consultation, EQR and documentation, and when it takes effect.SAS 149SAS 149 Transition: What to Change Before Your First Group Audit Under the New AU-C 600SAS 149 applies to group audits for periods ending on or after December 15, 2026. A practical transition list: scoping, component auditors, referred-to auditors, aggregation risk, instructions and documentation.SAS 151SAS 151: The Auditor's Responsibilities Relating to Fraud (Replaces AU-C 240)SAS 151 replaces AU-C 240 for audits of periods ending on or after December 15, 2028: the fraud lens in risk assessment, understanding fraud reporting programs, responses, communications, what stays the same and how to prepare.IRC 163(j)IRC Section 163(j) Business Interest Limitation: What Audit and Tax Teams Need to CheckSection 163(j) caps the business interest deduction at 30 percent of adjusted taxable income plus business interest income. See the ATI add-back for depreciation after 2024, small business exemption, carryforwards, Form 8990 and ASC 740 effects.IRC 174 and 174AIRC Section 174 R&E Expenditures: Capitalization vs Immediate ExpensingHow IRC 174 and new 174A treat research and experimental expenditures after P.L. 119-21: domestic expensing from 2025, foreign 15-year amortization, small business retroactivity, transition elections and deferred tax effects.IRC 168(k) and 179Bonus Depreciation and Section 179 for Audit Teams (2025-2026 Rules)How 100% bonus depreciation and the section 179 deduction work after P.L. 119-21: eligibility, acquisition date, election out, 2025 and 2026 section 179 limits, deferred tax effects and audit steps.AU-C 200AU-C 200 Overall Objectives of the Auditor: Reasonable Assurance, Skepticism and GAASWhat AU-C 200 requires: the overall objectives of the auditor, reasonable assurance, professional skepticism and judgment, audit risk, how to comply with GAAS and what a departure needs.ASC 210ASC 210 Balance Sheet: Current vs Noncurrent Classification and OffsettingASC 210 explained for preparers and auditors: the classified balance sheet, operating cycle, current and noncurrent classification, the four offsetting criteria in 210-20, and common misclassification errors.AU-C 210AU-C 210 Terms of Engagement: Preconditions, Engagement Letters and Changes in TermsWhat AU-C 210 requires before and after accepting an audit: preconditions, management's acknowledged responsibilities, engagement letter content, recurring audits, changes in terms and predecessor inquiries under SAS 147.AU-C 220AU-C 220 Quality Management for an Engagement: SAS 146 and the Engagement PartnerWhat AU-C 220 (SAS 146) requires: engagement partner responsibility for quality, ethics and independence, acceptance, resources, direction, supervision and review, consultation, engagement quality review and documentation.AU-C 230AU-C 230 Audit Documentation: Requirements, Deadlines and What to KeepWhat AU-C 230 requires in an audit file: the experienced auditor test, who-did-what sign-offs, the 60-day assembly deadline, 5-year retention and changes after the documentation completion date.AU-C 240AU-C 240 Fraud in a Financial Statement Audit: Requirements and the SAS 151 RevisionWhat AU-C 240 requires: auditor responsibilities for fraud, skepticism, the team discussion, presumed revenue and management override risks, responses, communications and documentation, plus SAS 151 timing.ASC 250ASC 250 Accounting Changes and Error Corrections: Restatement, Revision and Out-of-Period AdjustmentsASC 250 explained for practitioners: changes in accounting principle, estimate and reporting entity, correcting errors by restatement or revision, the SAB 99 and SAB 108 materiality framework, required disclosures and audit report effects, with a worked rollover and iron curtain example.AU-C 250AU-C 250 Noncompliance With Laws and Regulations: What the Auditor Must DoWhat AU-C 250 requires: the two categories of laws, procedures for each, identified or suspected noncompliance, written representations, communication with governance, reporting outside the entity and documentation.AU-C 260AU-C 260 Communication With Those Charged With Governance: Matters, Form and TimingWhat AU-C 260 requires: who those charged with governance are, the matters the auditor must communicate, significant findings, form and timing, two-way communication and documentation, with a practical checklist.AU-C 265AU-C 265 Communicating Internal Control Matters: Significant Deficiencies and Material WeaknessesWhat AU-C 265 requires: definitions of deficiency, significant deficiency and material weakness, evaluating severity, indicators of a material weakness, the written communication, its content and the 60-day deadline.ASC 280ASC 280 Segment Reporting and ASU 2023-07: Who Reports and What ChangedASC 280 segment reporting explained: which entities are in scope, the CODM, operating and reportable segments, the 10% and 75% tests, and what ASU 2023-07 added for significant segment expenses and single-segment entities.AU-C 300AU-C 300 Planning an Audit: Overall Audit Strategy, Audit Plan and DocumentationWhat AU-C 300 requires: planning as a continual process, preliminary engagement activities, the overall audit strategy, the audit plan, partner review, initial audit considerations and documentation, with SAS 146 changes.AU-C 315AU-C 315 Risk Assessment: SAS 145 Requirements and Common File WeaknessesWhat AU-C 315 (SAS 145) requires: inherent risk factors, the spectrum of inherent risk, significant risks, relevant controls, IT risks and documentation.AU-C 320AU-C 320 Materiality: Performance Materiality, Benchmarks and DocumentationHow AU-C 320 works: overall materiality, performance materiality, tolerable misstatement, common benchmarks, revising materiality and what to document.AU-C 330AU-C 330 Responding to Assessed Risks: Tests of Controls and Substantive ProceduresWhat AU-C 330 requires after risk assessment: overall responses, tests of controls, substantive procedures for each relevant assertion of each significant class, significant risks, confirmations, closing procedures and sufficiency.ASC 340ASC 340 Other Assets: Contract Costs (ASC 340-40), Capitalized Commissions and Prepaid ExpensesASC 340-40 explained: capitalizing incremental costs of obtaining a contract, costs to fulfill a contract, the one-year practical expedient, amortization, impairment and disclosures, plus how prepaid expenses fit under ASC 340 and what auditors test.ASC 350-60ASC 350-60 Crypto Assets at Fair Value (ASU 2023-08): Scope, Measurement, Disclosure and AuditASC 350-60 crypto assets explained: the six scope criteria, fair value measurement through net income, presentation, disclosures, transition under ASU 2023-08 and audit procedures for custody and valuation.ASC 410-20ASC 410-20 Asset Retirement Obligations: Recognition, Measurement and Audit ChecksASC 410-20 asset retirement obligations explained: scope, when to record the liability, fair value with a credit-adjusted risk-free rate, layering of revisions, accretion, lease restoration clauses and audit procedures.ERISA 412ERISA Fidelity Bond Requirement (Section 412): What Plans Must Carry and What Auditors CheckERISA Section 412 fidelity bond rules: who must be bonded, the 10% amount with the $1,000 floor and $500,000 or $1,000,000 cap, bond vs fiduciary liability insurance, Form 5500 reporting and audit checks for employee benefit plans.AU-C 450AU-C 450 Evaluation of Misstatements: Clearly Trivial, the SUM and What to DocumentAU-C 450 explained: clearly trivial, factual vs judgmental vs projected misstatements, the summary of uncorrected misstatements, with a worked example.ASC 460ASC 460 Guarantees: Scope, Recognition, Measurement and DisclosureASC 460 guarantees explained: the four guarantee types in scope, scope exceptions, the fair value of the stand-ready obligation, the contingent component under ASC 450, required disclosures and audit procedures.ASC 470-20ASC 470-20 Convertible Debt After ASU 2020-06: Models, Effective Dates and ASU 2024-04ASC 470-20 convertible debt after ASU 2020-06: the three accounting models, removal of the cash conversion and beneficial conversion feature models, effective dates for private companies, and induced conversions under ASU 2024-04.ASC 480ASC 480 Distinguishing Liabilities From Equity: Mandatorily Redeemable Shares and Share-Settled ObligationsASC 480 explained: the three classes of instruments that must be liabilities, the nonpublic company scope exception, measurement of mandatorily redeemable shares, and audit checks for buy-sell and redemption agreements.AU-C 500AU-C 500 Audit Evidence: SAS 142, Reliability, IPE and Selecting Items to TestWhat AU-C 500 (SAS 142) requires: sufficient appropriate audit evidence, relevance and reliability, information produced by the entity, external information sources, inconsistent evidence and the three ways to select items for testing.AU-C 501AU-C 501 Specific Audit Evidence: Inventory, Litigation and Segment InformationWhat AU-C 501 requires for inventory (count attendance, other dates, third-party custody), litigation and claims (inquiry, legal letters, refusals) and segment information, with practical points for small and mid-size audits.AU-C 505AU-C 505 External Confirmations: Control, Nonresponses, Exceptions and SAS 150What AU-C 505 requires: maintaining control of confirmation requests, management refusals, reliability of responses, nonresponses, exceptions, negative confirmations and what SAS 150 changes from 2028.AU-C 510AU-C 510 Opening Balances: Initial Audit Engagements and Predecessor AuditorsAU-C 510 explained: what the auditor does about opening balances in an initial audit, reviewing predecessor workpapers, inventory and reporting effects.AU-C 520AU-C 520 Analytical Procedures: Expectations, Thresholds and the Overall ReviewAU-C 520 analytical procedures explained: substantive analytics, building a precise expectation, setting the investigation threshold, and the overall review.AU-C 530AU-C 530 Audit Sampling: Sample Sizes, MUS and Evaluating ResultsAU-C 530 audit sampling explained: statistical vs nonstatistical, control test sample sizes, monetary unit sampling with a worked example, and evaluation.AU-C 540AU-C 540 Accounting Estimates: SAS 143 Requirements, Risk Factors and Management BiasAU-C 540 (SAS 143) explained: estimation uncertainty, complexity and subjectivity, assessing risk, three response approaches, management bias and the stand-back.AU-C 550AU-C 550 Related Parties: Identification, Significant Transactions and DisclosureAU-C 550 explained: how auditors identify related parties, test significant related party transactions, handle arm's length assertions and evaluate disclosure.AU-C 560AU-C 560 Subsequent Events: Report Date, Dual Dating and Subsequently Discovered FactsAU-C 560 explained: the three periods, required subsequent events procedures, dual dating, and what to do when facts surface after the report date.AU-C 570AU-C 570 Going Concern: What the Auditor Does and How SAS 134 Changed the ReportAU-C 570 explained: the auditor's evaluation of management's going concern assessment, evaluation period, substantial doubt and the SAS 134 report section.AU-C 580AU-C 580 Written Representations: What the Letter Must Cover and When Management RefusesAU-C 580 explained: required representations, dating the letter, who signs, what to do when management will not sign, and why the letter is not enough evidence.AU-C 600AU-C 600 Group Audits: SAS 149, Component Auditors and Referred-to AuditorsAU-C 600 group audits under SAS 149: risk-based scoping, component auditors as engagement team members, referred-to auditors, component performance materiality and aggregation risk.AU-C 700AU-C 700 Forming an Opinion and Reporting: The SAS 134 Auditor's Report StructureAU-C 700 explained: how the auditor forms an opinion, the SAS 134 report sections and order, dating the report, comparative statements and what to check before issuing.AU-C 705AU-C 705 Modifications to the Opinion: Qualified, Adverse, Disclaimer and PervasivenessAU-C 705 explained: when to modify the opinion, pervasive vs not pervasive, qualified, adverse and disclaimer, management-imposed limitations and the report wording.AU-C 706AU-C 706 Emphasis-of-Matter and Other-Matter Paragraphs: When to Use Them and When Not ToAU-C 706 explained: when an emphasis-of-matter or other-matter paragraph is appropriate, required wording elements, placement, and why they never replace a modified opinion.AU-C 720AU-C 720 Other Information: SAS 137, Reading the Annual Report and the Report SectionAU-C 720 (SAS 137) explained: what counts as other information, reading and considering it, material inconsistencies, and the Other Information report section.AU-C 725AU-C 725 Supplementary Information: The In-Relation-To Opinion on Schedules Accompanying the Financial StatementsWhat AU-C 725 requires when the auditor reports on supplementary information such as consolidating schedules or a SEFA: procedures, the in-relation-to opinion, report wording and how it differs from AU-C 720 and AU-C 730.ASC 740-10Uncertain Tax Positions ASC 740-10 (FIN 48): Two-Step Process and DisclosuresASC 740-10 uncertain tax positions explained: the more-likely-than-not recognition test, largest-amount measurement, derecognition, interest and penalties, balance sheet presentation, and disclosures after ASU 2023-09.ASC 740-10Valuation Allowance on Deferred Tax Assets (ASC 740-10): Evidence, Cumulative Losses and Audit ApproachHow the ASC 740 valuation allowance works: the more-likely-than-not test, the four sources of taxable income, positive and negative evidence, cumulative losses, NOL limits, disclosures and what auditors test.AU-C 800AU-C 800 Special Purpose Frameworks: Auditing Cash-Basis, Tax-Basis, Regulatory and Contractual StatementsWhat AU-C 800 requires when financial statements follow a cash, tax, regulatory or contractual basis instead of GAAP: acceptability of the framework, disclosures, the basis of accounting paragraph and restricted use.ASC 830ASC 830 Foreign Currency Matters: Functional Currency, Remeasurement, Translation and Audit ProceduresASC 830 explained for audit teams: determining the functional currency, transaction gains and losses, translation and the cumulative translation adjustment, highly inflationary economies, cash flow and disclosure points, a worked example, and what to test.ASC 835ASC 835 Interest: Capitalized Interest on Construction and Imputed Interest on NotesASC 835 interest explained: qualifying assets, the avoidable interest calculation, capitalization rate, start and stop of the capitalization period, disclosures, a worked example, imputed interest and audit procedures.ASC 850ASC 850 Related Party Disclosures: Who Is a Related Party and What to DiscloseASC 850 related party disclosures explained: the definition of related parties, required note disclosures, control relationships, arm's length language, and how to build and test the related party list.ASC 860ASC 860 Transfers of Financial Assets: Sale vs Secured Borrowing and Factoring of ReceivablesASC 860 transfers of financial assets explained: the three conditions for sale accounting, secured borrowing treatment, factoring of receivables with and without recourse, journal entries, disclosures and audit procedures.AU-C 935AU-C 935 Compliance Audits: How GAAS Applies to Single Audits and Other Compliance OpinionsAU-C 935 explained: when it applies, how it works with 2 CFR 200 Subpart F and GAGAS, the opinion on compliance and reports required, which AU-C sections do not apply, and the SAS 146, 148 and 150 amendments with their effective dates.ASC 946ASC 946 Investment Companies: Scope, Fair Value Accounting and Required Financial StatementsASC 946 explained: the fundamental and typical characteristics that make an entity an investment company, fair value measurement, no consolidation of investees, the required statements, schedule of investments and financial highlights, cash flow exemption and audit points for funds.Form 1099-NEC / MISCForm 1099 Reporting Thresholds and Backup Withholding: What Finance Teams and Auditors CheckForm 1099-NEC and 1099-MISC thresholds for 2026, due dates, e-file rules, penalties, the 1099-K threshold, and the backup withholding process (24%, first and second B notices) with a vendor-testing illustration.ASU 2023-09ASU 2023-09 Income Tax Disclosures: Rate Reconciliation and Taxes PaidASU 2023-09 explained for preparers and auditors: the rate reconciliation categories and 5% threshold, taxes paid by jurisdiction, what private companies disclose, effective dates and transition.ASU 2024-03ASU 2024-03 Disaggregation of Income Statement Expenses (DISE): Requirements and Effective DatesASU 2024-03 (ASC 220-40) requires public business entities to disaggregate relevant expense captions into natural categories in the notes. Scope, required categories, selling expenses, effective dates after ASU 2025-01, and a worked table.GAGAS 2024Yellow Book 2024 Revision: What Changed From the 2018 Edition and When It AppliesThe 2024 Yellow Book (GAO-24-106786) change log: effective dates, the shift from quality control to quality management, what CPA firms already under SQMS 1 add, engagement quality reviews, peer review and KAM guidance.ASU 2025-05ASU 2025-05: Practical Expedient for Credit Losses on Current Receivables and Contract AssetsASU 2025-05 lets all entities assume current conditions persist when estimating CECL on current receivables and contract assets, and lets private companies count post-balance-sheet collections. Scope, dates, transition and audit points.ASU 2025-06ASC 350-40 Internal-Use Software and ASU 2025-06: Capitalization Without Development StagesASU 2025-06 removes the project-stage model from ASC 350-40 and sets capitalization on management authorization, probable completion and resolved development uncertainty. Effective dates, transition methods and audit evidence.AICPA CodeAICPA Code of Professional Conduct: Complete Guide to the SectionsA guide to the AICPA Code of Professional Conduct: the principles, Parts 1 to 3, the rules for independence, general standards, contingent fees and confidentiality, nonattest services and third-party providers.ASU TrackerASU Tracker 2023 to 2026: Effective Dates for Private CompaniesEffective dates of ASUs issued 2023 through September 2026 for private companies and other non-public entities, with first-year examples for calendar-year and June 30 clients, early adoption notes and which ASUs apply only to public business entities.2 CFR 200.512Federal Audit Clearinghouse: How to File the Single Audit Data Collection FormHow to file a single audit on FAC.gov: the 30-day and nine-month deadline in 2 CFR 200.512, the reporting package, SF-SAC workbooks, certifying officials, and resubmission rules.ASC 105GAAP Hierarchy: The FASB Codification, Entity Types and Sources of AuthorityHow US GAAP is organized: the FASB Accounting Standards Codification as the authoritative source, SEC content for registrants, GASB for governments, the PBE, NFP, EBP and private company entity types, and what to do when guidance is silent.GASB vs FASBGASB vs FASB: Which Standards Apply, How the Models Differ and What Auditors CheckGASB vs FASB compared for practitioners: who each board serves, the GAAP hierarchies, government-wide and fund statements, net position vs net assets, leases, pensions, and the dates for GASB 103, 104 and 105.2 CFR 200 App. XIOMB Compliance Supplement: How Auditors Use It in a Single Audit (2025 Edition)How auditors use the OMB Compliance Supplement (2 CFR 200 Appendix XI): the parts, the Part 2 matrix, the six-requirement limit, Part 3.1 and 3.2, safe harbor limits, programs not included, and the 2025 edition's effective date.Notice 2020-75Pass-Through Entity Tax (PTET): The SALT Workaround, Notice 2020-75 and the AccountingHow state pass-through entity taxes work, what IRS Notice 2020-75 says about deducting them, how the SALT cap change affects them, and how entities account for PTET under ASC 740 or as owner distributions.South Dakota v. WayfairState Economic Nexus After Wayfair: Sales Tax Exposure and the ASC 450 AccrualHow South Dakota v. Wayfair changed sales tax nexus, how economic nexus thresholds work, why an unregistered remote seller has a loss contingency, and how auditors test the nexus analysis and the ASC 450-20 accrual.