Koch’s Corner delivers concise, “need to know” summaries of important updates on accounting and assurance issues for privately-held companies.
By Richard Koch, CPA
Director of Quality Control at Gray, Gray & Gray
Upcoming 2021 calendar year end audits for privately held clients will be subject to new auditor reporting standards issued by the AICPA’s Auditing Standards Board (“ASB”). This suite of standards (Statements on Auditing Standards Nos. 134 – 141) will involve significant changes in the presentation and content of the auditors’ report. A high-level overview of the new auditor reporting standards follows, with an emphasis on the standards having the most significant impact on the presentation and content of the auditors’ report:
SAS No. 134, “Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements” (“SAS No. 134”)
The presentation and language of the auditors’ report under SAS No. 134 has been revised to create added visibility of the auditors’ opinion and increased transparency into the basis for the auditor’s opinion; as well as the responsibilities of both the auditors and entity management. Some of these provisions are:
- “Opinion” paragraph presented first;
- “Basis for Opinion” paragraph follows “Opinion;”
- Statement that the auditor is required to be independent and meet ethical responsibilities;
- Responsibilities of the auditor and entity management regarding going concern;
- Expanded description of the auditors’ responsibilities; and
- Voluntary – Auditor communication of key audit matters (“KAM’s”) when engaged to do so.
SAS No. 136, “Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA” (“SAS No. 136”)
SAS No. 136 addresses specific performance and reporting requirements for audits of ERISA plans; and for engagement acceptance, audit risk assessment and response, communication of reportable findings with those charged with governance, auditors’ responsibilities relating to ERISA-required supplemental schedules and Form 5500, and the form and content of the auditors’ report.
The new ERISA auditor reporting standard changes the form and content of the auditors’ report when management elects to exclude from the audit certain investment information held and certified by a qualified institution, as permitted by ERISA. This new report format will apply to engagements that formerly were known as “limited-scope” audits and are now called “ERISA Section 103(a)(3)(C)” audits.
Other New Auditor Reporting Standards
- SAS No. 135 – Omnibus Statement – Aligns ASB guidance with PCAOB standards in the areas of corporate governance, related parties and consideration of fraud in a financial statement audit;
- SAS No. 137 – Other Information in Annual Reports – Management’s written acknowledgement as to what document(s) constitute the annual report, so as to clarify the auditors’ responsibilities.
- SAS No. 138 – Concept of Materiality – Align “materiality” with the definitions used by the U.S. justice system, PCAOB standards, SEC and FASB. There is no expected impact on U.S. practice;
- SAS No. 139 – Amendments to Incorporate Auditor Reporting Changes from SAS No. 134 – Promote consistency with PCAOB and IASB standards when reporting on special purpose reporting frameworks;
- SAS No. 140 – Amendments to Incorporate Auditor Changes from SAS Nos. 134 and 137 – Amendments to supplementary information, interim financial information, compliance audits and internal control over financial reporting; and
- SAS No. 141 – Amendment to the Effective Dates of SAS Nos. 134-140 – Delays the effective date of SAS Nos. 134-140 by one year to December 15, 2021, to provide firms with more time to implement the new auditor reporting standards in response to the coronavirus pandemic; and allow early adoption of these new standards.
If you have questions regarding the adoption of the new auditor reporting standards, please contact me at (781) 407-0300, or via e-mail at firstname.lastname@example.org.