SAS Nos. 134 through 140 were issued by the Auditing Standards Board (ASB) to align U.S. and international standards and to communicate more information that is important to financial statement users. The standards were originally expected to be implemented
for periods ending on or after Dec. 15, 2020, but the issuance of SAS No. 141 allowed for a one-year delay due to COVID-19. As a result, the effective date for this group of standards is Dec. 15, 2021. The ASB recommends that the standards be implemented
concurrently, and early implementation is permitted.
SAS No. 134, Auditor’s Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, includes several important changes to
the auditor’s report. These include the order of paragraphs, the addition of key audit matters,1 a paragraph on going concern, and more detail regarding auditor and management responsibilities.
The audit opinion will
now be the first paragraph, a likely welcome change for audit committees and board members. The new standard provides for key audit matters – matters the auditor determines are the most important or significant – to be disclosed, but they
are not required. Key audit matters are to be included in the audit opinion when an auditor is engaged to do so.
In addition to the practical issues around rewriting opinions, there are several other items requiring attention. Auditors
must place more emphasis on disclosures as part of the risk assessment process and the fraud brainstorming process. Aggregating disclosure misstatements that are more than clearly trivial is required, and may not currently be part of workpaper documentation.
Further, significant risks need to be disclosed to those charged with governance as part of the planned scope and timing of the audit.
SAS No. 135, Omnibus Statements on Auditing Standards, was issued to align ASB guidance more
closely with Public Company Accounting Oversight Board (PCAOB) standards. The standard amends AU-C 260, Communication with Those Charged with Governance; AU-C 550, Related Parties; AU-C Section 240, Consideration of Fraud in a Financial Statement
Audit; and other sections. Importantly, it creates new auditor communication requirements for the following:
- Significant unusual transactions
- Difficult or contentious matters for which the auditor consulted outside the engagement team
- Uncorrected misstatements that could potentially cause material misstatements on future financial statements, even if considered immaterial to the statements under audit
SAS No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, requires enhanced audit quality and a revised auditor’s report on ERISA plan financial statements. Firms will want to ensure
that staff performing these audits are well-acquainted with the new standard, as it addresses issues found during Department of Labor reviews of audits of employee benefit plans.
SAS No. 137, The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports,
provides transparency with respect to the auditor’s responsibility for other information included in an annual report. The standard defines “annual report,” and requires management to provide written acknowledgement regarding which
document or documents comprise the annual report.
SAS No. 138, Amendments to the Description of the Concept of Materiality, aligns the definition of materiality with the U.S. judicial system. It is not expected to change practice.
SAS No. 139, Amendments to AU-C Sections 800, 805, and 810 to Incorporate Auditor Reporting Changes from SAS No. 134, includes technical corrections to align auditor reporting language for statements prepared following special purpose frameworks,
single financial statements, and specified elements, accounts, or items in a financial statement and summary financial statements.
SAS No. 140, Amendments to AU-C Sections 725, 730, 930, 935 and 940 to Incorporate Auditor Reporting Changes from SAS Nos. 134 and 137,
covers specific adjustments to the listed AUs. AU-C Sections 725 and 730 are amended to require reporting on supplementary information in a separate section of the auditor’s report instead of in an other-matter paragraph. AU-C Section 930 changes
reporting requirements with respect to reviews of interim financial information. AU-C Section 935 relates to reports under Uniform Guidance requirements. The combined report on compliance and internal control is to be the default report. In addition,
the definition of material noncompliance changed to align with materiality in SAS No. 138. AU-C Section 940 applies to audits of internal control over financial reporting that are integrated with an audit of financial statements. When issuing a separate
report on internal controls over financial reporting, a reference is to be made to the financial statements report.
It is important to ensure that firm training materials and practice aids incorporate these new standards. The changes are
more than administrative. They require some changes in practice and communication that may not be expected.
1 For more on key audit matters, see “Audit Opinions: Changes from Numerous ASB Statements” by Nancy J. Stempin, CPA, CGMA, CIDA, in the spring 2021 Pennsylvania CPA Journal.
Lisa A. Ritter, CPA, CFE, CITP, is partner in the Harrisburg office of Maher Duessel. She can be reached at email@example.com.