New Financial Statement Auditors’ Report
In May 2019, the Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA) issued Statement on Auditing Standards 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements (SAS 134). A significant part of SAS 134 changes the content and formatting of an audit opinion reached under Generally Accepted Auditing Standards in the United States (GAAS). The purpose of SAS 134 is to communicate more significant aspects of the audit with the reader of the auditors’ report as well as update the auditors’ report to more closely match the requirements of the International Auditing and Assurance Standards Board.
Under SAS 134, when an auditor issues their report with an unmodified opinion, here are some of the changes you may notice when comparing the new auditors’ report with the report issued prior to SAS 134:
- The Auditors’ Opinion paragraph has been moved to the beginning of the auditors’ report. Previously, the Auditors’ Opinion paragraph was at the end of the auditors’ report.
- In the Basis for Opinion section of the auditors’ report, a sentence has been added explaining the auditors’ responsibility to be independent of the company being audited, as well as the auditors’ ethical responsibilities under GAAS.
- In the Responsibilities of Management for the Financial Statements section of the auditors’ report, a sentence has been added describing management’s responsibility to evaluate the company’s ability to continue as a going concern for the period required by the applicable financial reporting framework (one year from the auditors’ report date under Generally Accepted Accounting Principles in the United States).
- There have been several additions made to the Auditors’ Responsibilities for the Audit of the Financial Statements section; this comprises describing key audit concepts and definitions, which include:
- An audit provides a high level assurance, but not absolute assurance.
- The risk of not detecting a material misstatement due to fraud is greater than that of not detecting a material misstatement due to error.
- A misstatement is material if it influences the judgment made by a reasonable user of the financial statements.
- Also, the Auditors’ Responsibilities for the Audit of the Financial Statements section now highlights, in bullet points, 4 key concepts when conducting an audit under GAAS:
- The auditors use professional judgment and maintain professional skepticism during the audit.
- The auditors gain an understanding of internal control, but do not express an opinion over it.
- The auditors evaluate the accounting policies and estimates made by management in the financial statements.
- The auditors conclude whether there are any conditions or events that raise doubt about the company’s ability to continue as a going concern for a reasonable period of time and the auditors communicate significant matters identified during the audit with those in charge of governance.
SAS 134 provides privately owned companies with the option to engage their audit firm to report on Key Audit Matters (KAM) within the auditors’ report. The auditors of publicly owned companies are currently required to report on Critical Audit Matters (CAM) as required by the Public Company Accounting Oversight Board in the United States (PCAOB). If the audit firm is engaged to report on KAM, an additional section will be added to the auditors’ report describing areas that in the auditors’ judgment, were most significant to the current year audit of the financial statements. CAM is a relatively new concept; auditors of large public companies first started reporting on CAM in 2019. The most common types of CAM reported by the auditors of public companies include revenue recognition, goodwill and intangible assets, income taxes, and business combinations.
SAS 134 is effective for audits of financial statements for periods ending on or after December 15, 2021; it was originally delayed for one year to provide audit firms relief related to challenges encountered during the coronavirus pandemic.
For more information, please contact James Boissonneault or your BNN advisor at 800.244.7444.
Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.