AICPA Auditing Standards Update
Presented to
AGA PDC, Boise, ID
April 23, 2013
Presented by
Lela D. Pumphrey, CGFM, CPA, CIA, CMA
1
SAS 122 (issued in October 2011)--#1
Clarification and Recodification
• Clarified Statements on Auditing Standards
are effective for periods ending on or after
12/15/12, and will replace existing SAS’s in
2014. Until then, both SASs and clarified SASs
are available within the AICPA Professional
Standards.
 The following statements were issued in 2009 and
2010 and are currently effective
• SAS 117 (compliance audits)
• SAS 118, 119, 120 (supplementary information)
2
SAS 122 (Issued in October 2011)--#2
Clarification and Recodification
• As of February 2013, the ASB has redrafted all of the
auditing sections except AU section 322
• ASB intended to clarify existing standards and converge
them with ISA* and to avoid unnecessary conflict with
PCAOB^ standards. The purpose was to redraft, not to
create additional requirements, but in some cases the
results of the clarity project do create new or different
standards.
*International Standards on Auditing (ISA), issued by the International Auditing and Assurance
Standards Board (IAASB)
^Public Companies Accounting Oversight Board (PCAOB)
3
SAS 122 (Issued October 2011) #3A
Clarification and Recodification
• New Auditor’s Report (AU-C 210.A42)
 The new report changes very little from the current report.
It adds titles to each section
• Title
• Addressee
• Body
–
–
–
–
Report on the Financial Statements / Introductory
Management’s Responsibility for the Financial Statements
Auditor’s Responsibility
Opinion
• Report on Other legal and Regulatory Requirements (if needed)
• Signed
– Auditor’s Signature
– Auditor’s City and State
– Date of Audit Report
4
SAS 122 (Issued October 2011) #3B
Clarification and Recodification
• New Auditor’s Report (AU-C 210.A42)
 Previous Unqualified Report is now “Unmodified
Report” has 4 paragraphs
5
SAS 122 (Issued October 2011) #4A
Clarification and Recodification
• Principles Underlying an Audit (replacement
for 10 GAAS)
 Purpose of an Audit
 Provide an opinion about the financial statements
 Responsibilities (see separate slide)
 Performance (see separate slide)
 Reporting (see separate slide)
6
SAS 122 (Issued October 2011) #4B
Clarification and Recodification
• Principles Underlying an Audit
 Responsibilities
 Possess appropriate competence and capabilities
 Comply with ethical requirements
 Maintain professional skepticism and exercise
professional judgment
7
SAS 122 (Issued October 2011) #4C
Clarification and Recodification
• Principles Underlying an Audit
 Performance
 Obtain reasonable assurance about whether financial
statements are free of material misstatement
 Plan work and supervise assistants
 Determine and apply materiality level(s)
 Identify and assess risks of material misstatement
based on understanding of and entity and its
environment, including internal control
 Obtain sufficient appropriate audit evidence
8
SAS 122 (Issued October 2011) #4D
Clarification and Recodification
• Principles Underlying an Audit
 Reporting
 Express an opinion on financial statements in a written
report
 Whether financial statements present fairly in
accordance with financial reporting framework
9
SAS 123 (Issued in October 2011)
Omnibus Statement on Auditing Standards—2011
• This standard contains amendments that
conform SAS Nos. 117-118 to SAS No. 122 and
address other changes necessitated by the
Clarity Project.
10
SAS 124 (Issued in October 2011)
Financial Statements Prepared in Accordance with Financial
Reporting Framework Generally Accepted in Another Country
• This standard requires the auditor to include
an emphasis-of-matter paragraph to highlight
a foreign financial reporting framework in
stances where a report that is to be used in
the United States was prepared in accordance
with a financial reporting framework generally
accepted in another county, but also permits
the auditor to express an unqualified opinion.
11
SAS 125 (issued in December 2011)
Alert That Restricts the use of the Auditor’s Written
Communication
• This standard addresses the auditor’s
responsibility—when required or when the
auditor decides—to include in the auditor’s
report or other written communication issued
by the auditor in connection with an
engagement conducted with GAAS, language
that restricts the use of the auditor’s written
communication.
12
SAS 126 (Issued in 2012) --#1
The Auditor’s Consideration of an Entity’s Ability to
Continue as a Going Concern (Redrafted)
• This standard addresses the auditor’s
responsibilities in an audit of financial
statements with respect to evaluating
whether there is substantial doubt about the
entity’s ability to continue as a going concern.
• This is a clarity redraft of SAS 59 but it does
NOT converge to ISA 570, “Going Concern”
pending FASB’s accounting guidance on going
concern.
13
SAS 126 (Issued in 2012) --#2
The Auditor’s Consideration of an Entity’s Ability to
Continue as a Going Concern (Redrafted)
• It applies whether the financial statements are
prepared in accordance with a general
purpose framework or a special purpose
framework
14
SAS 126 (Issued in 2012) --#3
The Auditor’s Consideration of an Entity’s Ability to
Continue as a Going Concern (Redrafted)
• The standard does NOT apply to an audit of
financial statements based on the assumption
of liquidation (in the process of liquidation, owners have
decided to liquidate, or legal proceedings, including
bankruptcy, have reached a point at which liquidation is
probable)
• Auditor’s Responsibility
 To evaluate if there is substantial doubt about the
entity’s ability to continue as a going concern for a
reasonable period of time (substantial doubt).
15
SAS 126 (Issued in 2012) --#4
The Auditor’s Consideration of an Entity’s Ability to
Continue as a Going Concern (Redrafted)
• Objectives
 Evaluate, and conclude, whether there is
substantial doubt (See separate slides)
 Assess the possible financial statement effects,
including adequacy of disclosure (see separate
slides)
 Determine the implications for the auditor’s
report (see separate slides)
16
SAS 126 (Issued in 2012) --#5
The Auditor’s Consideration of an Entity’s Ability to
Continue as a Going Concern (Redrafted)
• Responsibilities on Evaluation
 Consider whether the results of procedure
performed during the audit identify conditions
that indicate there could be substantial doubt and
consider if additional procedures are needed.
 Consider management’s plan
 Is it likely to mitigate the problems
 Perform procedures to obtain evidence about the
significant elements of the plan
 Assess whether it is likely that the plan can be
implemented.
17
SAS 126 (Issued in 2012) --#6
The Auditor’s Consideration of an Entity’s Ability to
Continue as a Going Concern (Redrafted)
• Requirements for Assessing the Possible
Financial Statement
 If the plan is likely to mitigate the reasons for
substantial doubt, consider the adequacy of
disclosures of conditions that caused the auditor
to have substantial doubt.
18
SAS 126 (Issued in 2012) --#7
The Auditor’s Consideration of an Entity’s Ability to
Continue as a Going Concern (Redrafted)
• Requirements for Assessing the Possible
Financial Statement
 The auditor should obtain written
representation from management
 Regarding the plan and the likelihood of successful
implementation
 That the financial statement contain disclosure of
all relevant matters
19
SAS 126 (Issued in 2012) --#8
The Auditor’s Consideration of an Entity’s Ability to
Continue as a Going Concern (Redrafted)
• Requirements for Determining the
Implications for the Auditor’s Report
 If the auditor concludes there is substantial doubt,
the auditor should include a going-concern
emphasis-of-matter paragraph that includes the
words
• Substantial doubt to continue to exist as a going
concern
 The auditor can also issue a disclaimer of opinion
20
SAS 126 (Issued in 2012) --#9
The Auditor’s Consideration of an Entity’s Ability to
Continue as a Going Concern (Redrafted)
• Requirements for Communication with TCWG
 If the auditor concludes there is substantial doubt,
he/she should communicate the following
• The nature of the conditions or events identified
• The possible effect on the financial statements and
adequacy of disclosures
• The effects on the auditor’s report
21
SAS 126 (Issued in 2012) --#10
The Auditor’s Consideration of an Entity’s Ability to
Continue as a Going Concern (Redrafted)
• The SAS provides application and other
explanatory material for implementing the
standard as well as an example of the
emphasis-of-matter paragraph.
22
SAS 127 (issued 2013) --#1
Omnibus Statement on Auditing Standards--2013
• Amends SAS 122
 Section 600, “Special Consideration—Audits of
Group Financial Statements” and
Section 800, “Special Considerations—Audits of
Financial Statements Prepared in Accordance with
Special Purpose Frameworks”
23
SAS 127 (issued 2013) --#2
Omnibus Statement on Auditing Standards--2013
• Amends SAS 122, Section 600
o SAS 122 precluded making reference to the audit
of a component auditor in the auditor’s report on
the group financial statements unless the CU’s
financial statements are prepared using the same
financial reporting framework as that used for the
group financial statements. This standard permits
such reference if certain conditions are met
24
SAS 127 (issued 2013) --#3
Omnibus Statement on Auditing Standards--2013
• Amends SAS 122, Section 600
o The amendment also adds a requirement, when
reference is made to CU auditor’s to disclose that
the auditor of the group is taking responsibility for
evaluating the appropriateness of the adjustments
to convert the CU to the framework used by the
group.
25
SAS 127 (issued 2013) --#4
Omnibus Statement on Auditing Standards--2013
• Amends SAS 122, Section 600
o SAS 122 precluded making reference to the audit
of a component auditor in the auditor’s report on
the group financial statements unless the CU’s
auditor has performed an audit that meets the
relevant requirements of GAAS.
o SAS 122 provided guidance on how the group
engagement partner may determine that the
audit meets the relevant requirements of GAAS.
26
SAS 127 (issued 2013) --#5
Omnibus Statement on Auditing Standards--2013
• Amends SAS 122, Section 600
o The amendments add additional guidance regarding
that determination
o The amendment adds a requirement that when the
CU auditor used other standards and supplemented
them to meet GAAS standards, the group auditor
must identify the other standards used and the
additional procedures performed.
o Amendments also clarify that the group engagement
team is required to determine CU materiality.
27
SAS 127 (issued 2013) --#6
Omnibus Statement on Auditing Standards--2013
• Section 800
o Adds an “Other Basis of Accounting” as a special
purpose framework
o SAS 122 introduced the term special purpose
framework which is a cash, tax, regulatory, or
contractual basis of accounting.
o This amendment add an other basis of accounting
that uses a definite set of logical, reasonable
criteria that is applied to all material items.
28
SAS 127 (issued 2013) --#7A
Omnibus Statement on Auditing Standards--2013
• Article on SAS 127 (AU-C section 600)
o There is an article in March 2013 Journal of
Accountancy, “Clarifying the Standard for Group
Audits”, explaining the changes.
o The new standard is consistent with ISA 600
except for the ability of the group auditor to
reference the work of a component auditor.
o The next slides on SAS 127 are based on that
article.
29
SAS 127 (issued 2013) --#7B
Omnibus Statement on Auditing Standards--2013
• Article on SAS 127 (AU-C section 600)
o Terminology
o Group auditor refers to group audit team and group
engagement partner (formerly principal auditor)
o Component auditor refers to an auditor performing
work on the financial information of a component that
will be used as audit evidence for the group audit. A
component auditor may be part of the group auditor’s
firm but in a different location, a network firm, or
another firm (formerly other auditor)
30
SAS 127 (issued 2013) --#7C
Omnibus Statement on Auditing Standards--2013
• Article on SAS 127 (AU-C section 600)
o Terminology
o Component refers to an entity or business activity for
which group or component management prepares
financial information required by an applicable financial
reporting framework (such as GAAP).
o Group is all the components for which financial
information is included in the group financial
statements. A group always has more than one
component.
31
SAS 127 (issued 2013) --#7D
Omnibus Statement on Auditing Standards--2013
• Article on SAS 127 (AU-C section 600)
o Terminology
o Group audit opinion is the audit opinion on the group
financial statements.
o Group financial statements include financial
information of more than one component. They may
be either consolidated or combined.
o Significant component is one identified by the group
auditor as being signification either because
o It is individually significant or
o It is likely to include significant risks of material misstatement
of the group because of its nature or circumstances
32
SAS 127 (issued 2013) --#7E
Omnibus Statement on Auditing Standards--2013
• Article on SAS 127 (AU-C section 600)
o Terminology
o Group audit opinion is the audit opinion on the group
financial statements.
o Group financial statements include financial
information of more than one component. They may
be either consolidated or combined.
o Significant component is one identified by the group
auditor as being signification either because
o It is individually significant or
o It is likely to include significant risks of material misstatement
of the group because of its nature or circumstances
33
SAS 127 (issued 2013) --#7F
Omnibus Statement on Auditing Standards--2013
• Article on SAS 127 (AU-C section 600)
o Group auditor is responsible for the direction,
supervision, and performance of the group audit
as well as the report.
34
SAS 127 (issued 2013) --#7G
Omnibus Statement on Auditing Standards--2013
• Article on SAS 127 (AU-C section 600)
o Group Audit Process
o Can the auditor serve as group auditor? If yes
o Can sufficient appropriate evident be obtained? If yes
o Perform Planning
o Determine engagement terms
o Develop audit strategy
o Understand the group
o Understand component auditors
35
SAS 127 (issued 2013) --#7H
Omnibus Statement on Auditing Standards--2013
• Article on SAS 127 (AU-C section 600)
o Will reference be made to component audit? If yes
o Provide % audited by component auditor
o Wish to name component auditor? If yes
o Obtain component auditor’s permission and name
the auditor and present its report.
36
SAS 127 (issued 2013) --#7I
Omnibus Statement on Auditing Standards--2013
• Article on SAS 127 (AU-C section 600)
o Additional steps by group auditor
o Set materiality for group and relevant components
o Respond to assessed risks
o Audit consolidation process
o Perform subsequent events procedures
o Communicate with component auditor
o Evaluate communication from component auditor
o Evaluate sufficiency and appropriateness of audit evidence
o Communicate with group management and TCWG
o Document the process
37
SAS 127 (issued 2013) --#7I
Omnibus Statement on Auditing Standards--2013
• Article on SAS 127 (AU-C section 600)
o Additional procedures for Group auditor when
assuming responsibility for Component Auditor’s
work
o Is the component of individual significant to the group?
If yes, audit component. If no
o Is component likely to include significant risks of
misstatement? If yes, audit component or audit
specific accounts. If no
o Perform analytical procedures performed at group level
for nonsignificant components
38
SAS 127 (issued 2013) --#7I
Omnibus Statement on Auditing Standards--2013
• Article on SAS 127 (AU-C section 600)
o Additional procedures for Group auditor when
assuming responsibility for Component Auditor’s
work
o Is planned scope such that sufficient appropriate audit
evident for group audit can be obtained? If yes,
communicate with component auditors. If no
o For further selected components, audit financial
information or specific accounts
39
Questions?
• The best part of any presentation is the end.
• Are there any questions?
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