THE US PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD (PCAOB) ADOPTED THE RENEWED AUDIT STANDARD (STANDARD 5) WHICH SHALL REPLACE AUDIT STANDARD NUMBER 2.

In addition PCAOB provided guidelines for implementation of the standard while taking into account the reliance on the work of others while executing the audit, non-dependency guidelines for accountants and amendments to temporary standards.

US Audit Standard Number 5 published by PCAOB regarding the audit for internal controls of the financial reporting states inter alia the following:

• The focus on the most important issues in execution of an audit for the internal controls, such as: implementation of the top down approach, implementation of the risk assessment approach, the new standard identifies three types of organizational controls which change in nature and accuracy and explains how each type has an effect on execution of the forms in the context of the other controls: indirect controls, supervising controls, direct controls.
• Cancellation of the audit procedures which are unnecessary for achieving the objectives of the audit, such as: cancellation of the requirements by an accountant to refer in his expert opinion to the management assessment process in regard to the internal controls on the financial reporting. Cancellation of this requirement is designed to save detailed examinations which are not essential in regard to the internal control for the financial reporting.
• Correlation of the audit to the size and the complexity of each company – the new standard guides the auditor to execute adjustment of the audit for the internal controls pursuant to the size and complexity of the audited company. The focus on the organizational controls shall enable the auditor to be consistent in the audit approach and make the examination of the controls more effective and beneficial in small and less complex companies.
• It corrected the definitions for “significant defect” and “fundamental weakness”. In particular the expression: “more than a distant reasonability” in the definition of “fundamental weakness” and “significant defect” was replaced with the expression “a logical possibility”.
• It added guidelines in regard to the existence of circumstances which should be referred to as no less than “a significant defect” and as indications indicate the existence of “a fundamental weakness” in the internal control.
• It is requesting that the auditors plan an audit for internal controls while using those same criteria which are required for planning and executing the audit for the annual financial reports.