One of the most significant changes suggested by the SEC PCAOB in the Auditing Standard 2 is to permit the consideration of knowledge obtained in previous audits to plan during the current year audit. Thus, the nature, timing, and extent of testing can be tweaked by the auditor based on knowledge obtained during previous audits.

The auditor based on his understanding can concentrate on high risk areas, or alternatively rotate his audit tests. The PCAOB suggests that the auditor should consider the following approach for audits in subsequent years. So in addition to the risk assessment conducted in the previous year, the auditor should also take into account:

1. The nature, timing, and extent of the procedures performed in prior years.

2. The results of the testing performed.

3. Changes in the internal controls or the processes since the last audit.

The above three criteria are important in determining the scope of testing in subsequent periods. This change in AS2 will significantly help auditors in reducing their work intelligently.

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