[caption id="attachment_4364" align="alignright" width="346" caption="New audit standards will make your yearly audit more user-friendly."][/caption]
by Guest Blogger Barry T. Omahen, CPA, Managing Partner, Lindquist LLP Certified Public Accountants
The American Institute of Certified Public Accountants (AICPA) has issued new standards that may impact your future audit engagement. Statements on Auditing Standards (SAS) Nos. 122–125 (referred to as “Clarified Auditing Standards” or “Clarity Standards”) introduce changes that go into effect for financial statement audits for periods ending on or after December 15, 2012. For most entities, that means the standards will be effective for the year ending December 31, 2012, or later.
Some changes may affect all audit engagements
- Auditors are now required to review the terms of the engagement with you annually, even if you have a multi-year engagement letter.
- Management’s responsibilities are spelled out more clearly in the engagement letter as a result of the new standards, but management responsibilities are unchanged.
- The audit team is now required to ask you more questions regarding your legal and regulatory framework and to review correspondence with licensing or regulatory agencies, if applicable.
- All confirmations are now required to be in writing (verbal confirmation is no longer an option).
- Internal control communications (management letters) will now include a description of the potential effect of significant deficiencies or material weaknesses that the auditors identify through their procedures.
- The audit report (opinion letter) has changed, with added headings to distinguish each section and a more complete description of management’s responsibilities.
Certain changes may only apply in unusual circumstances
- When performing an audit on your organization for the first time, auditors are now required to perform and document various procedures on opening balances and consistent accounting procedures.
- If your organization uses a financial reporting framework (previously called basis of accounting) other than Generally Accepted Accounting Principles (GAAP), your auditors will need to discuss the appropriateness of the framework and may perform additional procedures regarding related-party transactions.
Some of the benefits of the clarified auditing standards include enhanced communication between your team and your auditors, improved audit quality and increased confidence in the audited financial statements.
These new standards will require auditors to redo much of the system evaluation work and memorandums that they carry forward from one audit to the next. As such, it’s encouraged that you work closely with your auditor to make these changes as smooth and efficient as possible!
For a more detailed version of this article, refer to Lindquist LLP’s website: http://www.lindquistcpa.com/AICPA-Audit-Clarity-Standards-11092012.htm
Barry T. Omahen, CPA, is Lindquist LLP's managing partner based in the firm’s San Ramon office. Barry specializes in serving the audit, accounting and reporting needs of not-for-profit organizations and employee benefit plans. He serves as the partner in-charge of the firm's quality control review and audit and accounting practice. He can be contacted at (925) 498-1546 or email@example.com.
Lindquist LLP provides this information for general guidance only. It does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.