The AICPA's Auditing Standards Board recently unveiled Statement on Auditing Standards (SAS) No. 134, titled "Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements." This release marks a significant step in aligning auditor reporting practices for non-issuers with recent updates to both PCAOB and international audit standards. The overarching goal is to enhance the clarity, transparency, and consistency of auditor reports.
Overview of SAS No. 134
1. Auditor’s Opinion at the Forefront
One notable change in SAS No. 134 is the relocation of the auditor's opinion to the beginning of the report. This adjustment aims to improve the visibility of the auditor's opinion, making it a focal point for stakeholders reviewing financial statements.
2. Basis for Opinion Section
Following the auditor's opinion, a new "Basis for Opinion" section is introduced to provide additional transparency into the auditor's responsibilities. Key elements of this section include:
- Adherence to GAAS: The auditor explicitly states that the audit was conducted in accordance with generally accepted auditing standards (GAAS), emphasizing the commitment to established auditing principles.
- Country of Origin: The country of origin, in this case, the United States, is identified, aligning with the global push for transparency in reporting standards.
- Auditor’s Responsibilities: The section outlines the auditor's responsibilities, emphasizing the commitment to independence and adherence to ethical requirements.
- Sufficiency and Appropriateness of Evidence: A statement is included regarding the auditor's belief in the sufficiency and appropriateness of the evidence obtained, serving as the foundation for the opinion.
3. Enhanced Reporting on Going Concern Uncertainty
SAS No. 134 brings modifications to the reporting language related to substantial doubt about an entity's ability to continue as a going concern. Notably, the standard language has been refined to explicitly assign accountability for the going concern evaluation to the entity's management. Simultaneously, the auditor's responsibilities are clarified to encompass judgments related to going concern uncertainty.
4. Modifications to Other SAS Sections
To ensure cohesiveness, SAS No. 134 necessitated modifications to various related sections of the SASs. This includes adjustments to example audit engagement letter language, providing a comprehensive and integrated approach to the updated reporting standards.
5. Key Audit Matters and Reporting
While the new SAS does not mandate the communication of key or critical audit matters for public entities, it acknowledges the possibility of auditors including such matters in their reports. The SAS offers guidance on identifying and reporting key audit matters, providing flexibility for auditors to address this aspect as relevant to the engagement.
6. Effective Date
SAS No. 134 is slated to be effective for audits of periods ending on or after December 15, 2020. Importantly, the standard does not allow for early implementation, ensuring a standardized transition period for auditors and stakeholders.
Implications and Considerations
The release of SAS No. 134 represents a comprehensive effort to modernize and enhance auditor reporting standards. By aligning with international and PCAOB standards, the AICPA aims to facilitate a more consistent global reporting framework. Key considerations for practitioners include:
- Visibility of Auditor's Opinion: Stakeholders will now encounter the auditor's opinion at the forefront of the report, promoting transparency and ease of access to this critical element.
- Enhanced Transparency: The "Basis for Opinion" section offers a detailed overview of the auditor's adherence to standards, ethical considerations, and the sufficiency of evidence.
- Going Concern Reporting: The refined reporting on going concern uncertainty brings clarity to the respective responsibilities of management and auditors in this critical area.
- Flexibility in Key Audit Matters Reporting: The SAS acknowledges the evolving landscape of reporting requirements and provides flexibility for auditors to address key audit matters as relevant to specific engagements.
- Effective Date Compliance: Practitioners need to ensure compliance with the effective date of December 15, 2020, for audits of periods ending on or after that date. Early implementation is not an option.
SAS No. 134 reflects a forward-thinking approach by the AICPA's Auditing Standards Board to enhance the relevance and effectiveness of auditor reporting. By embracing global standards and responding to evolving reporting
requirements, the AICPA is positioned to contribute to a more standardized and transparent financial reporting landscape.
Auditors and accounting professionals should approach the implementation of SAS No. 134 with a thorough understanding of the changes and a commitment to aligning their practices with the updated standards. The emphasis on transparency, the repositioning of the auditor's opinion, and the nuanced reporting on going concern uncertainty are notable shifts that practitioners should embrace for a more comprehensive and informative reporting process.
As the effective date approaches, practitioners must diligently prepare for the transition and ensure that their audit procedures and reporting methodologies align with the new standards. This includes updating engagement letters, revising reporting templates, and training audit teams to navigate the revised landscape effectively.
The flexibility provided regarding key audit matters reporting acknowledges the dynamic nature of the profession and offers auditors the latitude to address evolving reporting requirements as they emerge. This adaptability is crucial in an environment where financial reporting standards continue to evolve, reflecting the ever-changing complexities of the business world.
SAS No. 134 represents a significant step forward in aligning auditor reporting practices with global standards and contemporary expectations. The profession's commitment to transparency, accountability, and clarity is evident in the meticulous revisions introduced by the AICPA. As auditors embrace these changes, they contribute to the broader goal of fostering confidence in financial reporting and ensuring that stakeholders have access to information that is relevant, reliable, and aligned with the highest professional standards.