The PCAOB approved AS 5 in May 2007 replacing the older standard As 2 on audit of internal controls over financial reporting. Most accounting firms and auditors are pretty happy with the new standard reason being the focus on substance over form. Whereas As 2 was considered key to SOX compliance, the new AS 5 does away with many of the prescriptive requirements of AS 2.

AS 2 required auditors to look for risks of significant deficiencies that could cumulate to a material weakness, This resulted in a checklist based audit approach which did not really meet the spirit of the enactment. The new auditing standard no. 5 focus on a risk based approach, giving more freedom to the auditors in deciding on walkthroughs, decisions on multi-location auditing, as well as focus on fraud risks. The PCAOB agrees that the new standard is to provide the auditor with more freedom to form a judgement. Many pundits argue that the new standard cuts a lot of thew auditors work, taking into account the walkthrough requirements and multi-location testing. But old timers auditors believe that the work pretty much remains the same. The apporaach might have changed, but the guy who signs the financial statement will have the same level of responsibility if not more.

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