1 Audit and Attest Standards Update Ensuring Integrity: 4 th Annual Audit Conference Harold L. Monk, Jr. CPA, CFE Davis, Monk & Company

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Audit and Attest Standards Audit and Attest Standards UpdateUpdate

Ensuring Integrity: 4Ensuring Integrity: 4thth Annual Audit Annual Audit ConferenceConference

Harold L. Monk, Jr. CPA, CFEHarold L. Monk, Jr. CPA, CFE

Davis, Monk & CompanyDavis, Monk & Company

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Session ObjectivesSession Objectives

• Discuss the recent activities of the ASBDiscuss the recent activities of the ASB– Clarity projectClarity project– SAS No. 115, SAS No. 115, Communicating Internal Communicating Internal

Control Related Matters Identified in an Control Related Matters Identified in an AuditAudit

– SAS No. 116, SAS No. 116, Interim Financial InformationInterim Financial Information– SQCS No. 7, SQCS No. 7, A Firm’s System of Quality A Firm’s System of Quality

ControlControl

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Session ObjectivesSession Objectives– Newly approved SASs:Newly approved SASs:

•Compliance AuditsCompliance Audits

•Required Supplementary InformationRequired Supplementary Information

•Other Information in Documents Containing Other Information in Documents Containing Audited Financial StatementsAudited Financial Statements

•Supplemental Information in Relation to the Supplemental Information in Relation to the Financial Statements as a WholeFinancial Statements as a Whole

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Recent Auditing Standards Recent Auditing Standards Board ActivitiesBoard Activities

Clarity ProjectClarity Project

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ClarityClarity• BackgroundBackground

– Discussion paper issued March 2007Discussion paper issued March 2007– ASB considered comments received and ASB considered comments received and

approved direction forward August 2007approved direction forward August 2007

• Goals:Goals:– Address concerns over length and complexity Address concerns over length and complexity

of standardsof standards– Make standards easier to read, understand Make standards easier to read, understand

and implementand implement– Will lead to enhancements in audit qualityWill lead to enhancements in audit quality

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Clarity Drafting Clarity Drafting ConventionsConventions

• IntroductionIntroduction• ObjectiveObjective• DefinitionsDefinitions

– Terms used in the SAS are definedTerms used in the SAS are defined– Establish separate glossary of Establish separate glossary of

termsterms• Requirements and Application Requirements and Application

MaterialMaterial

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ObjectiveObjective•Create objectives for each Create objectives for each

standardstandard•Provide a framework for the Provide a framework for the

application of professional judgmentapplication of professional judgment

•Outcome based goalOutcome based goal

•Difficult to achieve the overall Difficult to achieve the overall objective of the audit if individual objective of the audit if individual objectives are not achievedobjectives are not achieved

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Requirements and Requirements and Application MaterialApplication Material• Application and other explanatory Application and other explanatory

material presented in a separate section material presented in a separate section that follows the requirementsthat follows the requirements

• Application and other explanatory Application and other explanatory material paragraphs numbered using an material paragraphs numbered using an A prefixA prefix

• Cross-referencing between requirements Cross-referencing between requirements and related application materialand related application material

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Clarity and ConvergenceClarity and Convergence

• Convergence with ISAsConvergence with ISAs– Removal of unnecessary differencesRemoval of unnecessary differences

• SupplementalSupplemental materials with EDs materials with EDs– Mapping of the requirements and guidance contained Mapping of the requirements and guidance contained

within extant AU section to the proposed SAS; andwithin extant AU section to the proposed SAS; and– Schedule of proposed changes in requirements and Schedule of proposed changes in requirements and

explanatory material as a result of redraftingexplanatory material as a result of redrafting..– Schedule of detailed changes in language between Schedule of detailed changes in language between

the proposed SAS and the ISAthe proposed SAS and the ISA. . – Exhibit of substantive differences with ISAExhibit of substantive differences with ISA

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Audit and Attest UpdateAudit and Attest UpdateClarity ProjectClarity Project

• Once finalized, they’ll be made Once finalized, they’ll be made available to practitioners.available to practitioners.

• However, the standards will not However, the standards will not become effective piecemeal.become effective piecemeal.

• With limited exceptions, all “clarified With limited exceptions, all “clarified standards” will become effective at standards” will become effective at the same time the same time – Most likely 2011 Most likely 2011

1111

Implementation IssuesImplementation Issues

Of Risk Assessment Of Risk Assessment StandardsStandards

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Q&A—Use of WalkthroughsQ&A—Use of Walkthroughs

• Question—How often do walkthroughs Question—How often do walkthroughs need to occur? need to occur?

• Answer—Auditors will most likely perform Answer—Auditors will most likely perform walkthroughs annually to document their walkthroughs annually to document their understanding of internal control and to understanding of internal control and to establish the continued reliance of audit establish the continued reliance of audit evidence obtained in prior periods.evidence obtained in prior periods.

TIS 8200.12TIS 8200.12

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Q&A—Journal EntriesQ&A—Journal Entries

• Question—Paragraph 52 of SAS No. 110 refers Question—Paragraph 52 of SAS No. 110 refers to “adjustments made during the course of to “adjustments made during the course of preparing the financial statements” to address preparing the financial statements” to address entries prepared by the client during the entries prepared by the client during the process of drafting the financial statements process of drafting the financial statements (rather than all entries posted in the accounting (rather than all entries posted in the accounting system at year end). Is this correct?system at year end). Is this correct?

• Answer—Yes, this requirement relates to entries Answer—Yes, this requirement relates to entries posted during the financial statement closing posted during the financial statement closing process. SAS 99 establishes requirements to process. SAS 99 establishes requirements to test journal entries during the audit period.test journal entries during the audit period.

TIS8200.16TIS8200.16

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Recently Issued StandardsRecently Issued Standards

Statement on Auditing Standards No. Statement on Auditing Standards No. 115, 115, Communicating Internal Control Communicating Internal Control Related Matters Identified in an AuditRelated Matters Identified in an Audit

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SAS 115SAS 115

• Effective for periods ending after Effective for periods ending after 12/15/0912/15/09– Early adoption is allowedEarly adoption is allowed

• Supersedes SAS 112 of the same titleSupersedes SAS 112 of the same title

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SAS 115SAS 115• Why revised? – Why revised? –

– To eliminate differences resulting from the To eliminate differences resulting from the issuance of SSAE No. 15, issuance of SSAE No. 15, An Examination of an An Examination of an Entity’s Internal Control Over Financial Reporting Entity’s Internal Control Over Financial Reporting That is Integrated With an Audit of Financial That is Integrated With an Audit of Financial StatementsStatements• SSAE 15 conform definitions of control deficiency, SSAE 15 conform definitions of control deficiency,

material weakness and significant deficiency to AS 5material weakness and significant deficiency to AS 5

– Provide for more professional judgmentProvide for more professional judgment– Not intended to reduce quality of Not intended to reduce quality of

communicationcommunication

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Control DeficiencyControl Deficiency• A deficiency in internal control exists A deficiency in internal control exists

when the design or operation of a when the design or operation of a control does not allow management or control does not allow management or employees, in the normal course of employees, in the normal course of performing their assigned functions, to performing their assigned functions, to prevent, or detect and correct prevent, or detect and correct misstatements on a timely basis. misstatements on a timely basis.

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Material WeaknessMaterial Weakness

• A material weakness is a deficiency, or a A material weakness is a deficiency, or a combination of deficiencies, in internal combination of deficiencies, in internal control, such that there is a control, such that there is a reasonable reasonable possibilitypossibility that a material misstatement of that a material misstatement of the entity’s financial statements will not be the entity’s financial statements will not be prevented or detected on a timely basis. prevented or detected on a timely basis. – Reasonable possibility = the likelihood of the event Reasonable possibility = the likelihood of the event

is either "reasonably possible" or "probable," as is either "reasonably possible" or "probable," as those terms are used in SFAS No. 5, those terms are used in SFAS No. 5, Accounting for Accounting for ContingenciesContingencies

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The Significant DeficiencyThe Significant Deficiency

• A significant deficiency is a A significant deficiency is a deficiency, or a combination of deficiency, or a combination of deficiencies, in internal control that is deficiencies, in internal control that is less severe than a material less severe than a material weakness, yet important enough to weakness, yet important enough to merit attention by those charged merit attention by those charged with governance.with governance.

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DeficienciesDeficiencies

• As with SAS 112, As with SAS 112, nothingnothing is an is an automatic material weakness or automatic material weakness or significant deficiencysignificant deficiency– Preparation of financial statementsPreparation of financial statements– Professional judgment must be appliedProfessional judgment must be applied

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• Revises the list of deficiencies in Revises the list of deficiencies in internal control that are internal control that are indicatorsindicators of a of a material weaknesses to consist of:material weaknesses to consist of:– Identification of fraud, Identification of fraud, whether or not whether or not

materialmaterial, on the part of senior management, on the part of senior management– Restatement of previously issued financial Restatement of previously issued financial

statements to reflect the correction of a statements to reflect the correction of a material misstatement due to fraud or errormaterial misstatement due to fraud or error

2222

DeficienciesDeficiencies– Identification by the auditor of a material Identification by the auditor of a material

misstatement of the financial statements misstatement of the financial statements under audit in circumstances that under audit in circumstances that indicate that the misstatement would indicate that the misstatement would not have been detected by the entity’s not have been detected by the entity’s internal control; andinternal control; and

– Ineffective oversight of the entity’s Ineffective oversight of the entity’s financial reporting and internal control financial reporting and internal control by those charged with governanceby those charged with governance

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• SAS 115 does not include the list of SAS 115 does not include the list of deficiencies that ordinarily would be deficiencies that ordinarily would be considered at least significant considered at least significant deficienciesdeficiencies

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CommunicationCommunication• Needs to be in writingNeeds to be in writing

– SAS 115 contains a revised illustrative written SAS 115 contains a revised illustrative written communication to management and those communication to management and those charged with governance of material weaknesses charged with governance of material weaknesses and significant deficienciesand significant deficiencies

• Prior year comments can be communicated Prior year comments can be communicated by reference to the prior year letterby reference to the prior year letter

• Best made by report release date but needs Best made by report release date but needs to be made by 60 days from release dateto be made by 60 days from release date

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Recently Issued StandardsRecently Issued Standards

Statement on Auditing Standards No. Statement on Auditing Standards No. 116, 116, Interim Financial InformationInterim Financial Information

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SAS 116SAS 116

• Effective for reviews of interim Effective for reviews of interim financial information for interim financial information for interim periods beginning after December periods beginning after December 15, 2009. Early application is 15, 2009. Early application is permittedpermitted

• Supercedes SAS 100Supercedes SAS 100

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SAS 116SAS 116

• Amends SAS 100/AU 722 to Amends SAS 100/AU 722 to accommodate reviews of interim accommodate reviews of interim financial information of nonissuers.financial information of nonissuers.

• Would apply when the interim Would apply when the interim financial information is intended to financial information is intended to provide a periodic update of year end provide a periodic update of year end reportingreporting

2828

SAS 116SAS 116• Applies when:Applies when:

– The entity’s latest annual financial The entity’s latest annual financial statements have been audited by the statements have been audited by the accountant or a predecessor;accountant or a predecessor;

– The accountant has been engaged to audit The accountant has been engaged to audit the entity’s current year financial statements, the entity’s current year financial statements, or the accountant audited the entity’s latest or the accountant audited the entity’s latest annual financial statements and expects to annual financial statements and expects to be engaged to audit the current year be engaged to audit the current year financial statementsfinancial statements

2929

SAS 116SAS 116– The client prepares its interim financial The client prepares its interim financial

information in accordance with the information in accordance with the same financial reporting framework as same financial reporting framework as that used to prepare the annual financial that used to prepare the annual financial statementsstatements

• If any of the following are not met, If any of the following are not met, the review should be performed in the review should be performed in accordance with SSARSs.accordance with SSARSs.

3030

SAS 116SAS 116• If the interim financial information is If the interim financial information is

condensed condensed all all of the following are met:of the following are met:– The condensed interim financial statements The condensed interim financial statements

purport to conform with an appropriate purport to conform with an appropriate financial reporting frameworkfinancial reporting framework

– The condensed interim financial information The condensed interim financial information includes a note that the financial information includes a note that the financial information does not represent complete financial does not represent complete financial statements and should be read in conjunction statements and should be read in conjunction with the entity’s latest annual audited with the entity’s latest annual audited financial statementsfinancial statements

3131

SAS 116SAS 116– The condensed interim financial The condensed interim financial

information accompanies the entity’s information accompanies the entity’s latest audited financial statements or latest audited financial statements or such audited annual financial statements such audited annual financial statements are made readily available by the entity.are made readily available by the entity.•Readily available = a third party can obtain Readily available = a third party can obtain

the financial statements without any further the financial statements without any further action by the entity.action by the entity.

– F/S on the web may be readily availableF/S on the web may be readily available– ““Available upon request” are not readily availableAvailable upon request” are not readily available

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SAS 117 - Compliance SAS 117 - Compliance AuditsAudits• Revises AU 801 by:Revises AU 801 by:

– Changing the titleChanging the title– Clarifying its ApplicabilityClarifying its Applicability– Establishing a requirement for the auditor to Establishing a requirement for the auditor to

adapt and apply GAAS to a compliance auditadapt and apply GAAS to a compliance audit– Identifies AU sections applicable to compliance Identifies AU sections applicable to compliance

auditsaudits– Defines terms related to a compliance auditDefines terms related to a compliance audit

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SAS 117 - Compliance SAS 117 - Compliance AuditsAudits• Revisions to AU 801 (continued)Revisions to AU 801 (continued)

– Identifies auditor requirements unique Identifies auditor requirements unique to compliance auditsto compliance audits•Design and perform further audit Design and perform further audit

procedures, including tests of details, to procedures, including tests of details, to obtain sufficient appropriate audit evidence obtain sufficient appropriate audit evidence about the entity’s compliance with each of about the entity’s compliance with each of the applicable compliance requirements in the applicable compliance requirements in response to assessed risks of material response to assessed risks of material noncompliance.noncompliance.

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SAS 117 - Compliance SAS 117 - Compliance AuditsAudits• Requirements (continued)Requirements (continued)

– Identify audit requirements specified in the Identify audit requirements specified in the government audit requirement that is government audit requirement that is supplementary to GAAS and GAS and perform supplementary to GAAS and GAS and perform appropriate proceduresappropriate procedures

– If audit guidance provided by government If audit guidance provided by government agency has not been updated or conflicts with agency has not been updated or conflicts with current GAAS or GAS, comply with the most current GAAS or GAS, comply with the most current applicable GAAS and GAS instead of current applicable GAAS and GAS instead of the outdated or conflicting guidancethe outdated or conflicting guidance

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Audit and Attest Standards Audit and Attest Standards UpdateUpdate

Other Current ASB ProjectsOther Current ASB Projects

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Audit and Attest Standards Audit and Attest Standards UpdateUpdateOther Current ASB ProjectsOther Current ASB Projects• Revisions to SAS 70Revisions to SAS 70

– Move Service Organization examination to AT Move Service Organization examination to AT StandardsStandards

• Revisions to auditing estimates and fair valueRevisions to auditing estimates and fair value• Withdrew SAS 69 to remove GAAP hierarchy Withdrew SAS 69 to remove GAAP hierarchy

for FASB, GASB and FASAB incorporationfor FASB, GASB and FASAB incorporation• Revise AU 534 “Financial Statements Prepared Revise AU 534 “Financial Statements Prepared

for Use in Other Countries” because IFRS is for Use in Other Countries” because IFRS is now recognized as equivalent U.S. GAAPnow recognized as equivalent U.S. GAAP

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Audit and Attest Standards Audit and Attest Standards Update-Other Current ASB Update-Other Current ASB ProjectsProjects• Newly approved standard – Newly approved standard – Proposed Proposed

Preface to the Codification of Statements Preface to the Codification of Statements on Auditing Standardson Auditing Standards and and

• Proposed Statement on Auditing StandardsProposed Statement on Auditing Standards – Overall Objectives of the Independent – Overall Objectives of the Independent Auditor and the Conduct of an Audit in Auditor and the Conduct of an Audit in Accordance With Generally Accepted Accordance With Generally Accepted Auditing StandardsAuditing Standards

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Proposed PrefaceProposed Preface

• Supersede SAS 95, Supersede SAS 95, Generally Accepted Auditing Generally Accepted Auditing StandardsStandards– Currently contains the general, field work, and reporting Currently contains the general, field work, and reporting

standardsstandards

• If an auditor fulfills the overall objective of the If an auditor fulfills the overall objective of the auditor and meets applicable ethical auditor and meets applicable ethical requirements, the ASB believes they will have requirements, the ASB believes they will have fulfilled the requirements of the 10 standards. fulfilled the requirements of the 10 standards. Accordingly the new SAS does not contain the Accordingly the new SAS does not contain the equivalent of the 10 standards.equivalent of the 10 standards.– They are restated in guiding fundamental principles.They are restated in guiding fundamental principles.

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Proposed PrefaceProposed Preface

• Proposed PrefaceProposed Preface– An audit is conducted on the premise that An audit is conducted on the premise that

management and those charged with management and those charged with governance have responsibilitygovernance have responsibility• For the preparation and presentation of the financial For the preparation and presentation of the financial

statements which includes the design, statements which includes the design, implementation and maintenance of internal controlimplementation and maintenance of internal control

• To provide the auditor with all information required or To provide the auditor with all information required or requested and unrestricted access to those within the requested and unrestricted access to those within the entityentity

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Proposed SAS – Overall Objectives of the Proposed SAS – Overall Objectives of the Independent Auditor and the Conduct of an Independent Auditor and the Conduct of an Audit in Accordance With Generally Audit in Accordance With Generally Accepted Auditing StandardsAccepted Auditing Standards

• Establishes the auditors overall responsibilities Establishes the auditors overall responsibilities when conducting an auditwhen conducting an audit

• Sets out the overall objectivesSets out the overall objectives

• Explains the nature and scope of an auditExplains the nature and scope of an audit

• Explains the scope, authority and structure of Explains the scope, authority and structure of GAASGAAS

• Includes requirements establishing the general Includes requirements establishing the general responsibilities of the auditor in all auditsresponsibilities of the auditor in all audits

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• Purpose of an audit is to enhance the Purpose of an audit is to enhance the degree of confidence that intended degree of confidence that intended users can place in the financial users can place in the financial statementsstatements– Achieved by the expression of an opinion Achieved by the expression of an opinion

by the auditor on whether the financial by the auditor on whether the financial statements are prepared, in all material statements are prepared, in all material respects, in accordance with an applicable respects, in accordance with an applicable financial reporting frameworkfinancial reporting framework•FASB, GASB, FASAB, OCBOA, IFRS (General FASB, GASB, FASAB, OCBOA, IFRS (General

Purpose / Fair Presentation) or Special Purpose Purpose / Fair Presentation) or Special Purpose FrameworkFramework

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• Opinion based on obtaining reasonable Opinion based on obtaining reasonable assurance financial statements are free assurance financial statements are free from material misstatementfrom material misstatement

• Opinion deals with financial statements Opinion deals with financial statements as a whole so auditor is not responsible as a whole so auditor is not responsible for the detection of misstatements not for the detection of misstatements not considered material.considered material.

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Proposed SAS – Overall Objectives of the Proposed SAS – Overall Objectives of the Independent Auditor and the Conduct of an Independent Auditor and the Conduct of an Audit in Accordance With Generally Audit in Accordance With Generally Accepted Auditing StandardsAccepted Auditing Standards• Auditor should comply with relevant Auditor should comply with relevant

ethical requirements including ethical requirements including independence and due careindependence and due care

• Auditor should plan and perform the audit Auditor should plan and perform the audit with professional skepticismwith professional skepticism

• Comply with all relevant AU sectionsComply with all relevant AU sections• Auditor should have an understanding of Auditor should have an understanding of

the entire text of an AU sectionthe entire text of an AU section• Auditor may make suggestions about or Auditor may make suggestions about or

draft in whole or in part the financial draft in whole or in part the financial statementsstatements

4444

AU 558 –AU 558 –Supplementary Supplementary InformationInformation

• Broken into three separate Broken into three separate standards:standards:– Required Supplementary InformationRequired Supplementary Information

– Other Information in Documents Other Information in Documents Containing Audited Financial StatementsContaining Audited Financial Statements

– Supplemental Information in Relation to Supplemental Information in Relation to the Financial Statements as a Wholethe Financial Statements as a Whole

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RSIRSI

• Required Supplementary Information is Required Supplementary Information is defined as information that a designated defined as information that a designated accounting standard setter requires to accounting standard setter requires to accompany an entity’s basic financial accompany an entity’s basic financial statemetnsstatemetns

• Objective is to communicate through a Objective is to communicate through a written report if the auditor has identified written report if the auditor has identified any material modifications that should be any material modifications that should be made to the RSI for it to conform with made to the RSI for it to conform with standardstandard

4646

RSIRSI

• Required procedures:Required procedures:– Inquire of management about methods Inquire of management about methods

of preparingof preparing– Compare information for consistency Compare information for consistency

with management responses to with management responses to inquiries, audited financial statements, inquiries, audited financial statements, other knowledge obtained during the other knowledge obtained during the auditaudit

– Obtain written representationsObtain written representations

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RSIRSI

• Provides Reporting GuidanceProvides Reporting Guidance– When all RSI is includedWhen all RSI is included– When a portion of RSI has been omittedWhen a portion of RSI has been omitted– When none of the RSI is includedWhen none of the RSI is included

• Auditors’ opinion on the basic Auditors’ opinion on the basic financial statements is not affected financial statements is not affected by any of the aboveby any of the above

4848

Other Information (OI) in Other Information (OI) in Documents Containing Audited Documents Containing Audited Financial StatementsFinancial Statements• Eliminates distinction between OI included Eliminates distinction between OI included

in an auditor submitted document and in a in an auditor submitted document and in a client-prepared documentclient-prepared document

• Auditor must read the OI to identify Auditor must read the OI to identify material inconsistencies, if anymaterial inconsistencies, if any

• Arrange to obtain the OI before release of Arrange to obtain the OI before release of the reportthe report

• Provides guidance if inconsistencies are Provides guidance if inconsistencies are identifedidentifed

4949

Proposed SAS - OIProposed SAS - OI• Eliminates the distinction between OI that Eliminates the distinction between OI that

is included in an auditor submitted is included in an auditor submitted document that contains the client’s basic document that contains the client’s basic financial statements and the auditor’s financial statements and the auditor’s report thereon and OI that is in a client report thereon and OI that is in a client prepared documentprepared document

• Auditor should read the OI to identify Auditor should read the OI to identify material inconsistencies with the financial material inconsistencies with the financial statementsstatements

5050

Proposed SAS - OIProposed SAS - OI• Auditor should make appropriate arrangements Auditor should make appropriate arrangements

with management or those charged with with management or those charged with governance to obtain the OI prior to the report governance to obtain the OI prior to the report release daterelease date

• Auditor should communicate with those charged Auditor should communicate with those charged with governancewith governance– The auditor’s responsibility with respect to OIThe auditor’s responsibility with respect to OI– Any procedures performed relating to the OIAny procedures performed relating to the OI– ResultsResults– When revision of the OI is necessary but management When revision of the OI is necessary but management

refuses to make the revisionrefuses to make the revision

5151

Proposed SAS - OIProposed SAS - OI• If material inconsistencies are If material inconsistencies are

identified, the auditor should determine identified, the auditor should determine whether the financial statements or the whether the financial statements or the OI needs to be revisedOI needs to be revised– If prior to the report release date and If prior to the report release date and

management refuses to make the revision:management refuses to make the revision:•Modify the report on the AFSModify the report on the AFS•Communicate with those charged with Communicate with those charged with

governancegovernance•Where permitted, withhold the report or Where permitted, withhold the report or

withdraw from the engagementwithdraw from the engagement

5252

Proposed SAS - OIProposed SAS - OI– If subsequent to the report release dateIf subsequent to the report release date

•Follow the requirements in AU 561Follow the requirements in AU 561

• If management refuses to make the revision, If management refuses to make the revision, the auditor should communicate with those the auditor should communicate with those charged with governancecharged with governance

5353

Proposed SAS - IRTProposed SAS - IRT• Establish as a condition for opining on the fair Establish as a condition for opining on the fair

presentation of other information in relation to the presentation of other information in relation to the financial statements as a whole that:financial statements as a whole that:– The other information was derived from and relates The other information was derived from and relates

directly to the underlying accounting records used to directly to the underlying accounting records used to prepare the financial statementsprepare the financial statements

– The other information relates to the same period as the The other information relates to the same period as the financial statementsfinancial statements

– The financial statements were audited and the auditor The financial statements were audited and the auditor served as the principal auditor served as the principal auditor

– Neither an adverse opinion or a disclaimer of opinion Neither an adverse opinion or a disclaimer of opinion was issued on the financial statementswas issued on the financial statements

5454

Proposed SAS - IRTProposed SAS - IRT

• In addition to the audit procedures, In addition to the audit procedures, the auditor shouldthe auditor should– Inquire of management about the Inquire of management about the

purpose of the other information and the purpose of the other information and the criteria under which it was preparedcriteria under which it was prepared

– Obtain an understanding about the Obtain an understanding about the methods for preparing the other methods for preparing the other informationinformation

5555

Proposed SAS - IRTProposed SAS - IRT– Compare and reconcile the other Compare and reconcile the other

information to the underlying accounting information to the underlying accounting records and other records used in records and other records used in preparing the financial statements or to preparing the financial statements or to the financial statements themselvesthe financial statements themselves

– Inquire of management whether there Inquire of management whether there were any significant assumptions or were any significant assumptions or interpretations underlying the interpretations underlying the measurement or presentation of the other measurement or presentation of the other informationinformation

5656

Proposed SAS - IRTProposed SAS - IRT– Evaluate the appropriateness and the Evaluate the appropriateness and the

completeness of the other information completeness of the other information considering procedures and other considering procedures and other knowledge obtained during the auditknowledge obtained during the audit

– Obtain written representations from Obtain written representations from managementmanagement

5757

Proposed SAS - IRTProposed SAS - IRT

• Include an explanatory paragraph in Include an explanatory paragraph in the auditor’s report that includesthe auditor’s report that includes– A statement that the audit was performed A statement that the audit was performed

for the purpose of forming an opinion on for the purpose of forming an opinion on the financial statements as a wholethe financial statements as a whole

– A statement that the other information is A statement that the other information is presented for the purpose of additional presented for the purpose of additional analysis and is not a required part of the analysis and is not a required part of the financial statementsfinancial statements

5858

Proposed SAS - IRTProposed SAS - IRT– A statement that the other information A statement that the other information

was derived from and relates directly to was derived from and relates directly to the underlying accounting and other the underlying accounting and other records used to prepare the financial records used to prepare the financial statementsstatements

– A statement that the other information A statement that the other information has been subjected to the auditing has been subjected to the auditing procedures applied in the audit of the procedures applied in the audit of the financial statements and certain financial statements and certain additional proceduresadditional procedures

5959

Proposed SAS - IRTProposed SAS - IRT– A statement that the purpose of the A statement that the purpose of the

additional procedures is to provide the additional procedures is to provide the auditor with a basis for expressing an opinion auditor with a basis for expressing an opinion on whether the other information is not on whether the other information is not misstated by an amount that would be misstated by an amount that would be material to the financial statementsmaterial to the financial statements

– If an unqualified opinion on the financial If an unqualified opinion on the financial statements is being issued, a statement that, statements is being issued, a statement that, in the auditor’s opinion, the other information in the auditor’s opinion, the other information is fairly stated in all material respects in is fairly stated in all material respects in relation to the financial statements as a relation to the financial statements as a wholewhole

6060

Proposed SAS (Exposure Draft) Proposed SAS (Exposure Draft) – – Quality Control for an Audit of Quality Control for an Audit of Financial StatementsFinancial Statements• Supersedes SAS No. 25, Supersedes SAS No. 25, The The

Relationship of Generally Accepted Relationship of Generally Accepted Auditing Standards to Quality Control Auditing Standards to Quality Control StandardsStandards

• Contains requirements and Contains requirements and application material that address application material that address specific responsibilities of the auditor specific responsibilities of the auditor regarding quality control proceduresregarding quality control procedures

6161

Proposed SAS (Exposure Draft) Proposed SAS (Exposure Draft) – – Quality Control for an Audit of Quality Control for an Audit of Financial StatementsFinancial StatementsEngagement partner should:Engagement partner should:• form a conclusion on compliance with form a conclusion on compliance with

independence requirementsindependence requirements• Be satisfied that appropriate procedures Be satisfied that appropriate procedures

regarding acceptance & continuance regarding acceptance & continuance have been followedhave been followed

• Be satisfied engagement team has Be satisfied engagement team has appropriate competence and capabilitiesappropriate competence and capabilities

• Proper reviews are performedProper reviews are performed• Sufficient evidence has been obtainedSufficient evidence has been obtained

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Documentation Required by Documentation Required by QC SASQC SAS

• Conclusions on compliance with Conclusions on compliance with independence requirementsindependence requirements

• Conclusions regarding acceptance & Conclusions regarding acceptance & continuance of clientscontinuance of clients

• Nature & scope of and conclusions Nature & scope of and conclusions resulting from consultationsresulting from consultations

6363

Documentation Required by Documentation Required by QC SASQC SAS

Engagement Quality Control Reviewer Engagement Quality Control Reviewer should document:should document:

• Procedures required by firm’s QC Procedures required by firm’s QC policies have been performedpolicies have been performed

• Date QCR was completedDate QCR was completed• Reviewer is not aware of any Reviewer is not aware of any

unresolved matters concerning unresolved matters concerning significant judgments and conclusionssignificant judgments and conclusions

6464

New SQCS Exposure DraftNew SQCS Exposure Draft

• Some requirements that are duplicative of Some requirements that are duplicative of broader requirements have been moved to broader requirements have been moved to application materialapplication material

• Requirement previously included in SAS Requirement previously included in SAS 108, 108, Planning and SupervisionPlanning and Supervision has been has been included in revised SQCS to make it included in revised SQCS to make it applicable to all engagementsapplicable to all engagements– Procedures established for dealing with Procedures established for dealing with

differences of opinion should enablel a member differences of opinion should enablel a member of the engagement team to document that of the engagement team to document that member’s disagreement with conclusions member’s disagreement with conclusions reached after appropriate consultationreached after appropriate consultation

6565

Questions?Questions?