If you have audited financial statements, you should anticipate significant changes to the form and content of your 2021 audit opinion.
The AICPA’s Auditing Standards Board (ASB) has issued Statement on Auditing Standards (SAS) No. 134, Auditor Reporting Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, which will become effective for periods ending on or after December 15, 2021.
The new SAS is meant to make it easier for users of the financial statement to understand the results of the audit and better emphasizes the auditor’s and management’s responsibilities. SAS No. 134 will also more closely align the AICPA’s auditing standard with those of the Public Company Accounting Oversight Board (PCAOB) and international auditing standards.
Changes to the Audit Report
One of the key changes is the organization of the report. The basic sections of the new audit report will be organized as follow:
No more searching for the auditor’s opinion, this will now come first! However, the wording of the opinion paragraph has not changed.
Basis of Opinion
This is a new section and must include a statement that the auditor is required to be independent of the auditee to meet ethical responsibilities. It also clarifies that the auditor must adhere to other ethical professional requirements.
Responsibilities of Management for the Financial Statements
This section has been enhanced to include a new paragraph that describes management’s responsibility to evaluate going concern matters.
Auditor’s Responsibilities for the Audit of the Financial Statements
This section has been revamped and reworded, but it will make it easier to understand the auditor’s responsibilities and certain key points will be described in a bullet point list.
Also included will be a paragraph regarding the auditor’s responsibilities to communicate certain matters with those charged with governance. This includes such topics as the scope and timing of the audit, significant audit findings, and certain internal control related matters.
SAS No. 134 also introduces the concept and framework for reporting on “Key Audit Matters” (KAMS), which an entity would have to specifically engage an auditor to report on. As reporting on KAMS inherently increases the scope of your audit, privately held companies, not-for-profits, and governmental entities will want to carefully evaluate if this is relevant to the audit, such as a third-party requirement. For most entities, this is not a required reporting requirement and will likely only be needed in limited cases.
Lastly, it is worth noting that the new SAS requires enhanced reporting on going concerns, including a separate section in the auditor’s report when substantial doubt exists.
Now that the new auditing standard is about to become effective, take time to evaluate its impacts on your organization and consider educating financial statement users about the new form and content of the auditor’s report.
If you have questions on the new auditing standard, reach out to a Clark Nuber professional.
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