Auditor’s Report Changes for Audits of Financial Statements for Periods Ending on or After December 15, 2021

Auditor’s Report Changes for Audits of Financial Statements for Periods Ending on or After December 15, 2021

The American Institute of Certified Public Accountants (AICPA) Auditing Standards Board (ASB) has issued Statement on Auditing Standards (SAS) No. 134 through 140 – a suite of standards that affect the auditor’s report. The goal of these changes is to improve the transparency of the audit process and clarify the auditor’s requirements for audit users.

This article provides an overview of the changes with the most significant impact on the presentation and content of the auditor’s report, which are included in SAS No. 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements.

Effective Date

The suite of SAS No. 134 through 140 is effective for years ending on or after December 15, 2021.

Five Key Areas of Change

There are five key changes of the new standard with targeted enhancements to communicate the value of the auditor’s report. The key areas of change are as follows:

1. The order of the sections in the auditor’s report will change. The auditor’s report will now start with the opinion as opposed to ending with the opinion.

2. The Basis for Opinion section will state that the auditor is required to be independent and, ethically, can only reach a conclusion of a clean opinion based on review of appropriate documentation.

3. The Responsibilities of Management for the Financial Statements section will state the requirements of management, including the evaluation of whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a “going concern,” or a business that is expected to be able to continue operating for at least one year after the date the financial statements are issued. This will be a required paragraph in the audit report; currently, it is only included if substantial doubt exists.

4. The Auditor’s Responsibilities for the Audit of Financial Statements section will state the auditor’s requirements for evaluating judgements, estimates, internal controls and risks, including the evaluation of conditions and events that might raise substantial doubt about the Company’s ability to continue as a “going concern.” This currently is not included in the audit report, but it will be included in the audit report under SAS No. 134.

5. The Key Audit Matters (KAM) section is an optional reporting section that may be included for nonpublic companies when the auditor is engaged to report on KAM. KAM are considered matters that, in the auditor’s professional judgment, were of most significance in the audit of the financial statements of the current period. KAM are selected from matters communicated with those charged with governance.

Examples of KAM include:

  • Areas of higher risk
  • Areas of significant judgment
  • The effect on the audit of significant events or transactions

KAM will need to be discussed between the auditor and client management. However, the inclusion in the audit report will be determined as part of the engagement process. These will likely be similar to the critical audit matters used today with those charged with governance. This may be an opportunity to enhance existing critical audit matter communication.

Questions About the Upcoming Changes to the Auditor’s Report?

If you have questions or concerns about the upcoming changes to the auditor’s report, contact the Brown Plus Auditing Team today!

Posted In: Audit | Insights

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