CPA Accounting and Auditing Update

2011-09-12T13:05:00.000-06:00

Statement on Auditing Standards Consistency of Financial Statements
1. SAS Consistency of Financial Statements supersedes
a) SAS No. 1, section 420, Consistency of Application of Generally Accepted Accounting Principles, as amended (AICPA, Professional Standards, vol. 1, AU sec. 420), and
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b) SAS No. 58, Reports on Audited Financial Statements, paragraphs .16–.17 and .53–.57 (AICPA, Professional Standards, vol. 1, AU sec. 508).
2. Scope
a) This SAS addresses the auditor‘s evaluation of the consistency of the financial statements between periods, including:
(1) Changes to previously issued financial statements and
(2) The effect of that evaluation on the auditor‘s report on the financial statements.
3. Effective Date
This SAS is effective for audits of financial statements for periods ending on or after December 15, 2012.
4. Objectives of the Auditor – The objectives of the auditor are to
a) Evaluate the consistency of the financial statements for the periods presented and
b) Communicate appropriately in the auditor‘s report when the comparability of financial statements between periods has been materially affected by a change in accounting principle or by adjustments to correct a material misstatement in previously issued financial statements.
5. Requirements — This SAS covers the following areas:
a) Evaluating Consistency—The auditor should evaluate whether the comparability of the financial statements between periods has been materially affected by a change in accounting principle or by adjustments to correct a material misstatement in previously issued financial statements. The periods included in the auditor‘s evaluation of consistency depend on the periods covered by the auditor‘s opinion on the financial statements and include the year prior to the reporting period.
b) Change in Accounting Principle—The auditor should evaluate a change in accounting principle to determine whether the newly adopted accounting principle is in accordance with the applicable financial reporting framework, the method of accounting for the effect of the change is in accordance with the applicable financial reporting framework, the disclosures related to the accounting change are appropriate and adequate, and the entity has justified that the alternative accounting principle is preferable.
(1) If the auditor concludes that the criteria above has been met, and the change in accounting principle has a material effect on the financial statements, the auditor should include an
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emphasis-of-matter paragraph in the auditor‘s report that describes the change in accounting principle and provides a reference to the entity‘s disclosure.
(2) If the criteria above are not met, the auditor should evaluate whether the accounting change results in a material misstatement and whether the auditor should modify the opinion accordingly.
c) Correction of a Material Misstatement in Previously Issued Financial Statements—The auditor should include an emphasis-of-matter paragraph in the auditor‘s report when there are adjustments to correct a material misstatement in previously issued financial statements. The auditor should include this type of emphasis-of-matter paragraph in their report when the related financial statements are restated to correct the prior material misstatement. The paragraph need not be repeated in subsequent periods. The emphasis-of-matter paragraph should include
(1) A statement that the previously issued financial statements have been restated for the correction of a material misstatement in the respective period and
(2) A reference to the entity‘s disclosure of the correction of the material misstatement.
d) Change in Classification—The auditor should evaluate a material change in financial statement classification and the related disclosure to determine whether such a change is also either a change in accounting principle or an adjustment to correct a material misstatement in previously issued financial statements. If so, the requirements of the paragraphs above apply.

SAS Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report

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(1) Addresses circumstances when the auditor considers it necessary or is required to include additional communications in the auditor’s report that are not modifications to the auditor’s opinion.

(2) Uses the terms emphasis of matter and other matter paragraphs in the auditor’s report. The SAS describes an emphasis of matter as a paragraph included in the auditor’s report that refers to a matter appropriately presented or disclosed in the financial statements.

(3) Describes an other matter paragraph as a paragraph included in the auditor’s report that refers to a matter other than those presented or disclosed in the financial statements that, in the auditor’s judgment, is relevant to users’ understanding of the audit, the auditor’s responsibilities, or the auditor’s report.

(4) Change from current practice

(a) The number and nature of paragraphs included in the auditor’s report that address matters appropriately presented or disclosed in the financial statements (emphasis of matters) and matters other than those presented or disclosed in the financial statements (other matters) is not expected to change from current practice.

2. Changes from Existing Standards

a) Forming an Opinion and Reporting on Financial Statements

(1) Most significant changes to extant standards:

(a) A requirement to describe management’s responsibility for the preparation and fair presentation of the financial statements in more detail than what was required in extant AU section 508.

(b) The description includes an explanation that management is responsible for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework, and that this responsibility includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

(c) The ASB believes that this addition to the auditor’s report will communicate more clearly the responsibilities of management for the preparation of the financial statements.

(d) The SAS requires the use of headings throughout the auditor’s report to clearly distinguish each section of the report.

b) Modifications to the Opinion in the Independent Auditor’s Report

No significant changes exist from extant standards.

c) Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report

(1) Most significant changes to extant standards if the proposed standard was issued.

(a) Paragraph .11 of extant AU section 508 indicates that certain circumstances, although not affecting the auditor's unqualified opinion, may require that the auditor add an explanatory paragraph (or other explanatory language) to the standard report. The auditor may add an explanatory paragraph to emphasize a matter regarding the financial statements. As described in paragraph .19 of AU section 508, emphasis paragraphs are never required; they may be added solely at the auditor's discretion.

(b) Uses the terms emphasis of matter and other matter paragraphs.

(i) The SAS describes an emphasis of matter as a paragraph included in the auditor’s report that refers to a matter appropriately presented or disclosed in the financial statements. The SAS describes an other matter paragraph as a paragraph included in the auditor’s report that refers to a matter other than those presented or disclosed in the financial statements that, in the auditor’s judgment, is relevant to users’ understanding of the audit, the auditor’s responsibilities, or the auditor’s report.

(ii) Under the SAS, an emphasis of matter paragraph would refer to any paragraph added to the auditor’s report that relates to a matter that is appropriately presented or disclosed in the financial statements. Some of these paragraphs would be required by certain SASs, whereas others would be added at the discretion of the auditor, consistent with current practice.

(iii) All such paragraphs would be considered emphasis of matter paragraphs because they are intended to draw users’ attention to a particular matter.

(iv) The concept of an “explanatory paragraph” would no longer be included in U.S. generally accepted auditing standards (GAAS). Instead, additional communications in the auditor’s report would be labeled as either “emphasis of matter” or “other matter” paragraphs.

(c) The SAS, consistent with ISA 706, requires an emphasis of matter or other matter paragraph to always follow the opinion paragraph and be included in a separate section of the auditor’s report under the section heading “Emphasis of Matter” or “Other Matter.”

SAS Modifications to the Opinion in the Independent Auditor’s Report

2011-08-15T11:14:00.001-06:00

SAS Modifications to the Opinion in the Independent Auditor’s Report

(1) Addresses the auditor’s responsibility to issue an appropriate report in circumstances when, in forming an opinion in accordance with proposed SAS Forming an Opinion and Reporting on Financial Statements, the auditor concludes that a modification to the auditor’s opinion on the financial statements is necessary.

(2) The SAS defines a modified report to include a qualified or adverse opinion or a disclaimer of opinion.

(3) Addresses the issuance of a qualified, adverse, or disclaimer of opinion using the auditor’s judgment about the materiality of the matters giving rise to the modification and the pervasiveness of their effects or possible effects on the financial statements.

(4) The ASB believes that the terms material and pervasive, although not explicitly stated in extant AU section 508, are consistent with the concepts embedded in the extant standards and, therefore, will not change, but will, rather, support current practice.

(5) The ASB also believes that the framework, as discussed in the text and in the application material to the proposed SAS, will help auditors better apply the concepts in determining whether a modification to the opinion in the auditor’s report is appropriate.

(6) Consistency of Accounting Principles

(a) Extant standards (AU sec. 508 par. 16–.18 and AU section 420 par. .01–.05) require the auditor to include an explanatory paragraph in the auditor’s report if there has been a change in accounting principles or in the method of their application that has a material effect on the comparability of the company's financial statements. PCAOB Auditing Standard No. 6, Evaluating Consistency of Financial Statements, (AICPA, PCAOB Standards and Related Rules, Rules of the Board, “Standards”), contains the same requirement.

(b) The ISAs do not include a requirement for the auditor to include an emphasis of matter paragraph in the auditor’s report if there has been a change in accounting principles, provided that the nature and magnitude of the change is disclosed in the financial statements under audit.

(c) ISA 705 discusses consistency of application of accounting policies in the context of evaluating whether a material misstatement of the financial statements exists that would give rise to the need for a modified opinion. The proposed SAS Modifications to the Opinion in the Independent Auditor’s Report also contains this requirement.

(d) The ASB has determined that the auditing standards in the United States should retain the extant requirement and include an emphasis of matter paragraph in the auditor’s report if there has been a change in accounting principles or in the method of their application that has a material effect on the comparability of the entity’s financial statements. The redrafted, SAS (AU section 420), Consistency of Application of Generally Accepted Accounting Principles (AICPA, Professional Standards, vol. 1), requires the inclusion of an “emphasis of matter” paragraph in the auditor’s report.

SAS Forming an Opinion and Reporting on Financial Statements

2011-08-01T11:22:00.002-06:00

a) SAS Forming an Opinion and Reporting on Financial Statements

(1) Addresses the auditor’s responsibility to form an opinion on the financial statements as a whole.

(2) Addresses the form and content of the auditor’s report issued as a result of an audit of financial statements and is written in the context of a complete set of general purpose financial statements, prepared in accordance with a fair presentation framework.

(3) Specifically addresses situations when the auditor would be expressing an unmodified opinion on the financial statements and establishes the basic form of the auditor’s report. This proposed SAS also includes requirements and application material related to auditing and reporting on comparative financial statements.

(4) Comparative Financial Statements

(a) Extant AU section 508 includes guidance on comparative financial statements, which are common in the United States.

(b) The ISAs address comparative information in a separate standard—ISA 710.

(c) ISA 710 addresses reporting circumstances in other jurisdictions that are not relevant in the United States, including corresponding figures that are not covered by the auditor’s report.

(d) The ASB decided to include the requirements and guidance for comparative financial statements in this proposed SAS rather than have a separate SAS.

(e) The ASB believes that combining the guidance related to comparative financial statements and the guidance for issuing an auditor’s report in connection with an audit of financial statements will assist auditors when reporting in the United States.

(5) Auditor’s Signature

(a) Paragraph 37 of the SAS Forming an Opinion and Reporting on Financial Statements, consistent with ISA 700, Forming an Opinion and Reporting on Financial Statements, requires the auditor’s report to include the manual or printed signature of the auditor’s firm.

(b) In regard to this requirement, the ASB discussed the U.S. Treasury Department’s Advisory Committee on the Auditing Profession report, “Final Report of the Advisory Committee on the Auditing Profession to the U.S. Department of the Treasury” (Treasury Report) that was issued on October 6, 2008.

(c) This report urged the Public Company Accounting Oversight Board (PCAOB) to “undertake a standard-setting initiative to consider mandating the engagement partner’s signature on the auditor’s report.”

(d) The ASB discussed the recommendations in the Treasury Report and decided that it would not be appropriate for auditors of nonpublic companies to include the engagement partner’s signature in the auditor’s report.

(e) The SAS retains the requirement, consistent with ISA 700 and extant AU section 508 paragraph .08(i) to include the manual or printed signature of the auditor’s firm in the auditor’s report.

Statements on Auditing Standards, Special Considerations—Audits of Financial Statements Prepared in Accordance With Special Purpose Frameworks

2011-07-22T10:43:00.002-06:00

Special Considerations—Audits of Single Financial Statements and Specific Elements, Accounts, or Items of a Financial Statement

1. This Exposure Draft of proposed Statements on Auditing Standards (SAS), contained two proposed SASs. Those SASs were issued as:

a) Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks, and

b) Special Considerations—Audits of Single Financial Statements and Specific Elements, Accounts, or Items of a Financial Statement.

c) These SASs will supersede SAS No. 1, Codification of Auditing Standards and Procedures, section 544, Lack of Conformity with Generally Accepted Accounting Principles, as amended and SAS No. 62, Special Reports, as amended, except paragraphs 19–21(AICPA, Professional Standards, vol. 1, AU sec. 544 and 623, except paragraphs .19–.21).

d) Redrafts of AU sections 544 and 623 to apply the ASB’s clarity drafting conventions and to converge with International Standards on Auditing (ISAs).

2. Convergence

a) The SASs were drafted using ISA 800, Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks, and ISA 805, Special Considerations—Audits of Single Financial Statements and Specific Elements, Accounts or Items of a Financial Statement, as a base.

b) There are no differences between these SASs and ISAs 800 and 805 other than those for which the ASB believes a compelling reason for the difference exists.

c) The ASB has made various changes to the language of the ISAs to use terms or phrases that are more common in the United States, and to tailor examples and guidance to the U.S. environment.

3. Effective Date

The SASs will be effective for audits of financial statements for periods ending on or after December 15, 2012.

4. Changes From Existing Standards

a) SAS Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks is converged with ISA 800. It

(1) Addresses special considerations in the application of the AU sections to an audit of financial statements prepared in accordance with a special purpose framework, which now includes cash, tax, regulatory, or contractual basis of accounting.

(a) The cash, tax, and regulatory bases of accounting were commonly referred to as other comprehensive bases of accounting (OCBOA).

(b) The term OCBOA was replaced with the term special purpose framework. The new term no longer includes the broader concept of a definite set of criteria having substantial support that is applied to all material items appearing in financial statements.

(2) Requires the auditor to obtain an understanding of:

(a) the purpose for which the financial statements are prepared,

(b) the intended users, and

(c) the steps taken by management to determine that the special purpose framework is acceptable in the circumstances.

(3) Requires the auditor to obtain the agreement of management that it acknowledges and understands its responsibility to include all informative disclosures that are appropriate for the special purpose framework being used.

(4) Requires the explanation of management’s responsibility for the financial statements in the auditor’s report, and if management has a choice of financial reporting frameworks in the preparation of the financial statements, to make reference to management’s responsibility for determining that the applicable financial reporting framework is acceptable in the circumstances.

(5) Requires the auditor, if the financial statements are prepared in accordance with a contractual basis of accounting, to obtain an understanding of any significant interpretations of the contract that management made in the preparation of those financial statements and to evaluate whether the financial statements adequately describe such interpretations.

(6) Requires the auditor’s report, if the financial statements are prepared in accordance with a regulatory or contractual basis of accounting, to describe the purpose for which the financial statements are prepared or refer to a note in the special purpose financial statements that contains that information.

(7) Requires the auditor’s report to include specific elements if the auditor is required by law or regulation to use a specific layout, form, or wording of the auditor’s report.

b) SAS Special Considerations—Audits of Single Financial Statements and Specific Elements, Accounts, or Items of a Financial Statement is converged with ISA 805. It

(1) Addresses special considerations in the application of the AU sections to an audit of a single financial statement or of a specific element, account, or item of a financial statement.

(2) Clarifies that a single financial statement and a specific element of a financial statement includes the related notes.

(3) Related notes ordinarily comprise a summary of significant accounting policies and other explanatory information relevant to the financial statement or to the element.

(4) Requires the auditor, if the auditor is not also engaged to audit the entity’s complete set of financial statements,

(a) To determine whether the audit of a single financial statement or of a specific element of those financial statements in accordance with generally accepted auditing standards is practicable and

(b) To determine whether the auditor will be able to perform procedures on interrelated items.

(c) In the case of an audit of a specific element that is, or is based upon, the entity’s stockholders’ equity or net income or the equivalent, the proposed SAS requires the auditor to perform procedures necessary to obtain sufficient appropriate audit evidence about financial position, or financial position and results of operations, respectively.

(5) Requires the auditor to determine the acceptability of the financial reporting framework, including whether application of the financial reporting framework will result in a presentation that provides adequate disclosures to enable the intended users to understand the information conveyed in the financial statement or the element, and the effect of material transactions and events on the information conveyed in the financial statement or the element.

(6) Requires the auditor, if, in conjunction with an engagement to audit the entity’s complete set of financial statements, the auditor undertakes an engagement to audit a single financial statement or a specific element of a financial statement, to issue a separate auditor’s report and express a separate opinion for each engagement.

(7) Requires the auditor, if an audited single financial statement and an audited specific element of a financial statement are published together with the entity’s audited complete set of financial statements, to inform management that it may not publish the auditor’s report containing the opinion on the single financial statement or on the specific element of a financial statement together with the entity’s complete set of financial statements unless the auditor is satisfied with the differentiation or separation from the complete set of financial statements.

(8) Requires the auditor, if the opinion in the auditor’s report on an entity’s complete set of financial statements is modified, or that report includes an emphasis of matter or an other matter paragraph,

(a) To determine the effect that this may have on the auditor’s report on a single financial statement or on a specific element of those financial statements.

(b) In the case of an audit of a specific element of a financial statement, if the modified opinion on the entity’s complete set of financial statements is relevant to the audit of the specific element or an interrelated item of the specific element, the proposed SAS requires the auditor to:

(i) Express an adverse opinion on the specific element when the modification on the complete set of financial statements arises from a material misstatement.

(ii) Disclaim an opinion on the specific element when the modification on the complete set of financial statements arises from an inability to obtain sufficient appropriate audit evidence.

(c) Allows the auditor, if the auditor concludes that it is necessary to express an adverse opinion or disclaim an opinion on the entity’s complete set of financial statements as a whole but, in the context of a separate audit of a specific element that is included in those financial statements, the auditor nevertheless considers it appropriate to express an unmodified opinion on that element, to do so only if

(i) That opinion is expressed in an auditor’s report that is neither published together with nor otherwise accompanies the auditor’s report containing the adverse opinion or disclaimer of opinion; and

(ii) The specific element does not constitute a major portion of the entity’s complete set of financial statements or the specific element is not, or is not based upon, the entity’s stockholders’ equity or net income or the equivalent.

A new SAS is proposed to address the requirements in paragraphs .19–.21 of AU section 623 that relate to compliance with aspects of contractual agreements or regulatory requirements in connection with an audit of financial statements.

Statement on Auditing Standards, Engagements to Report on Summary Financial Statements

2011-07-18T05:54:00.003-06:00

1. This SAS:

a) Superseded SAS No. 42, Reporting on Condensed Financial Statements and Selected Financial Data (AICPA, Professional Standards, vol. 1, AU sec. 552).

b) Redrafted AU section 552 to apply the ASB’s clarity drafting conventions and to converge with International Standards on Auditing (ISAs).

2. Convergence

a) Drafted using ISA 810, Engagements to Report on Summary Financial Statements, as a base.

b) Differences between this SAS and ISA 810 for which the ASB believes no compelling reason exists for the difference have been eliminated.

c) The ASB has made various changes to the language of the ISA to use terms or phrases that are more common in the United States, and to tailor examples and guidance to the U.S. environment.

3. Effective Date

The SAS will be effective for audits of financial statements for periods ending on or after December 15, 2012.

4. Changes From Existing Standards

In converging with ISA 810, the proposed SAS:

a) addresses the auditor’s responsibilities for specified procedures and reporting formats when reporting on summary financial statements derived from financial statements audited by that same auditor.

b) Procedures required:

(1) requires the auditor to determine whether the criteria applied by management in the preparation of the summary financial statements are acceptable.

(2) requires the auditor to obtain management’s agreement that it acknowledges and understands its responsibilities for the summary financial statements, including its responsibility to make the audited financial statements readily available to the intended users of the summary financial statements. The audited financial statements need not accompany the summary financial statements.

(3) requires the auditor to request management to provide, in the form of a representation letter addressed to the auditor, written representations relating to the summary financial statements.

(4) stipulates specific procedures to be performed as the basis for the auditor’s opinion on the summary financial statements.

c) Reporting requirements. In addition to standard reporting elements the new standard:

(1) eliminates reporting on selected financial data

(2) stipulates specific elements of the auditor’s report, including management’s responsibility and a description of the auditor’s procedures.

(3) requires the auditor to deny an opinion on the summary financial statements when the auditor issued an adverse opinion or disclaimer of opinion on the audited financial statements. This type of report will require the auditor to:

(a) state that the auditor’s opinion on the audited financial statements contains an adverse opinion or disclaimer of opinion

(b) describe the basis for that adverse or disclaimer of opinion.

(c) state that, as a result of the adverse opinion or disclaimer of opinion, it is inappropriate to express, and the auditor does not express an opinion on the summary financial statements. The auditor is not required to include the paragraph describing the procedures. However the auditor should indicate that the report is prepared in accordance with the standards established by the American Institute of Certified Public Accountants.

d) clarifies the auditor’s responsibilities related to subsequent events and subsequently discovered facts when the date of the auditor’s report on the summary financial statements is later than the date of the auditor’s report on the audited financial statements.

e) includes requirements relating to comparatives, unaudited information presented with summary financial statements, and other information included in a document containing the summary financial statements and related auditor’s report.

Statement on Auditing Standards, Quality Control for an Engagement Conducted in Accordance With Generally Accepted Auditing Standards

2011-07-08T11:20:00.001-06:00

1. This SAS

a) Supersedes SAS No. 25, The Relationship of Generally Accepted Auditing Standards to Quality Control Standards (AICPA, Professional Standards, vol. 1, AU sec. 161).

b) Redrafts SAS No. 25 to apply the Auditing Standards Board’s (ASB) clarity drafting conventions and to converge with International Standards on Auditing (ISAs).

2. Convergence

a) Drafted using ISA No. 220 Quality Control for an Audit of Financial Statements, as a base.

b) There are no differences between this SAS and ISA No. 220 other than those for which the ASB believes compelling reasons exists.

c) The ASB has made various changes to the language of the ISA to use terms or phrases that are more common in the United States, and to tailor examples and guidance to the U.S. environment. The ASB believes that such changes will not create differences between the application of ISA No. 220 and the application of the proposed SAS.

3. Effective Date
The SAS will be effective for audits of financial statements for periods endingon or after December 15, 2012.

4. Changes from Existing Standards

a) Supersedes SAS No. 25, The Relationship of Generally Accepted Auditing Standards to Quality Control Standards (AICPA, Professional Standards, vol. 1, AU sec. 161).

b) The explanatory memorandum to the ASB's exposure draft of the redrafted Risk Assessment standards stated that paragraphs .28–.32 of extant AU section 311, Planning and Supervision (AICPA, Professional Standards, vol. 1), which address supervision in an audit, were omitted from the SAS, Planning an Audit "because it is expected that these requirements and guidance will be included in the proposed SAS, Quality Control for Audit Engagements when this proposed SAS is prepared in connection with convergence with ISA 220 (Redrafted), Quality Control for an Audit of Financial Statements, as part of the ASB's Clarification and Convergence project.”

c) The SAS contains requirements and application material that address specific responsibilities of the auditor regarding quality control procedures for an audit of financial statements.

d) Quality control systems, policies, and procedures are the responsibility of the audit firm.

e) The SAS specifies quality control procedures at the engagement level that assist the auditor in achieving the objectives of the quality control standards.

f) Since these procedures are required to be established by SQCS No. 8, A Firm’s System of Quality Control (Redrafted) (AICPA, Professional Standards, vol. 2, QC sec. 10), the SAS should not result in a change to existing practice.

g) The SAS would strengthen existing standards by making it easier for auditors to understand and apply those quality control procedures that apply to an audit of financial statements.

Statement on Auditing Standards, Related Parties (Redrafted)

2011-07-01T10:41:00.000-06:00

1. Supersedes the “Related Parties” section of SAS No. 45, Omnibus Statement on Auditing Standards—1983 (AICPA, Professional Standards, vol. 1, AU sec. 334). It represents the redrafting of the “Related Parties” section of SAS No. 45 to apply the Auditing Standards Board’s (ASB’s) clarity drafting conventions and to converge with International Standards on Auditing (ISAs).

2. Effective for audits of financial statements for periods ending on or after December 15, 2012.

3. Changes From Existing Standards

a) Extant AU section 334 is premised on the related party requirements in Financial Accounting Standards Board (FASB) Statement No. 57, Related Party Disclosures. Therefore it is focused on auditing the amounts and disclosures pursuant to GAAP the United States and is centered on the provisions of FASB Statement No. 57.

b) This SAS is framework neutral so it includes all approved financial reporting frameworks, including special purpose frameworks described in the SAS Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks.

c) The applicability of the objectives, requirements, and definitions in the SAS are irrespective of whether the framework establishes such requirements.

4. Scope

a) Addresses the auditor’s responsibilities relating to related party relationships and transactions in an audit of financial statements.

b) Expands on how the SASs Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (Redrafted), Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained (Redrafted), and Consideration of Fraud in a Financial Statement Audit (Redrafted) are to be applied in relation to risks of material misstatement.

c) The SAS Forming an Opinion and Reporting on Financial Statements requires the auditor to evaluate whether the financial statements achieve fair presentation.

d) The SAS Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks requires that the auditor (1) evaluate whether the financial statements include informative disclosures similar to those required by generally accepted accounting principles (GAAP), and (2) evaluate whether additional disclosures beyond those specifically required by the framework and related to matters that are not specifically identified on the face of the financial statements or other disclosures may be necessary for the financial statements to achieve fair presentation. Thus, this SAS applies to all audits of financial statements.

5. The SAS contains sections on:

a) Nature of Related Party Relationships and Transactions—Many related party transactions are in the normal course of business and they may carry no higher risk of material misstatement of the financial statements than similar transactions with unrelated parties. However, the nature of related party relationships and transactions may give rise to higher risks of material misstatement of the financial statements than transactions with unrelated parties.

b) Responsibilities of the Auditor:

(1) Because related parties are not independent of each other, financial reporting frameworks establish specific accounting and disclosure requirements for related party relationships, transactions, and balances to enable users of the financial statements to understand their nature and actual or potential effects on the financial statements. Therefore, the auditor has a responsibility to perform audit procedures to identify, assess, and respond to the risks of material misstatement arising from the entity’s failure to appropriately account for or disclose related party relationships, transactions, or balances.

(2) An understanding of the entity’s related party relationships and transactions is relevant to the auditor’s evaluation of whether one or more fraud risk factors are present, as required by the SAS Consideration of Fraud in a Financial Statement Audit (Redrafted), because fraud may be more easily committed or disguised through related parties.

c) An audit has inherent limitations, so an unavoidable risk exists that some material misstatements of the financial statements may not be detected, even though the audit is properly planned and performed in accordance with US GAAS. In the context of related parties, the potential effects of inherent limitations on the auditor’s ability to detect material misstatements are greater because management may be unaware of the existence of all related party relationships and transactions. Related party relationships may present a greater opportunity for collusion, concealment, or manipulation by management.

d) Planning and performing the audit with professional skepticism–The SAS Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards, requires the auditor to plan and perform the audit with professional skepticism. It is in context, given the potential for undisclosed related party relationships and transactions.

6. Requirements

a) Risk Assessment Procedures and Related Activities

b) Identification and Assessment of the Risks of Material Misstatement Associated With Related Party Relationships and Transactions

c) Responses to the Risks of Material Misstatement Associated With Related Party

d) Relationships and Transactions Evaluation of the Accounting for, and Disclosure of, Identified Related Party Relationships and Transactions

e) Communication With Those Charged With Governance

f) Documentation

Statement on Auditing Standards, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors)

2011-06-24T09:29:00.001-06:00

1. Supersedes SAS No. 1 section 543, Part of Audit Performed by Other Independent Auditors (AICPA, Professional Standards, vol. 1, AU sec. 543).

2. Drafted to apply the Auditing Standards Board’s (ASB’s) clarity drafting conventions and to converge with ISA 600, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors).

3. Will be effective for audits of financial statements for periods beginning on or after December 15, 2012.

4. The SAS was drafted using ISA 600 as a base.

(1) ISA 600 addresses group audits. It defines a group audit as an audit of group financial statements. Group financial statements are financial statements with more than one component. Component is defined as an entity or business activity for which management prepares financial information that should be included in the group financial statements.

(2) Under both ISA 600 and the proposed SAS, the auditor responsible for signing the auditor’s report on the group financial statements (referred to as the group engagement partner) is responsible for:

(a) the direction, supervision, and performance of the group audit engagement in compliance with professional standards and regulatory and legal requirements and

(b) determining whether the auditor’s report that is issued is appropriate in the circumstances.

b) Diverges from ISA 600 in that ISA 600 does not permit the auditor’s report on the group financial statements to make reference to another independent auditor (referred to as a component auditor), unless required by law or regulation to include such reference.

5. The SAS, consistent with extant AU section 543, permits the auditor’s report to make reference to a component auditor.

6. Contains requirements and application material that are not in ISA 600, which results in substantive differences in the wording of the objectives, requirements, and application material between ISA 600 and the proposed SAS.

7. The ASB’s convergence policy requires compelling reasons for differences between its standards and those of the IAASB. The ASB believes:

a) That the ability to make reference to the report of another auditor is appropriate in the United States.

b) No compelling practice issues suggest a need to change an approach that has always been permitted by generally accepted auditing standards (GAAS) in the United States.

c) The size, complexity, and diversity of some audits, in particular the federal government in which withdrawal or disclaimer of opinion are not viable options, make eliminating the option to make reference to a component auditor problematic.

d) That there will be considerable practical problems with access issues, particularly with equity investments, under the ISA approach.

e) That there is no difference in the effectiveness of the audit following either approach when the audits are conducted in accordance with GAAS.

8. When no reference is made to a component auditor in the auditor’s report on the group financial statements, no substantive differences in the requirements exist between ISA 600 and the proposed SAS.

9. This SAS contains Exhibit G “Comparison of Requirements of Statement on Auditing Standards, Special Considerations, Audits of Group Financial Statements (Including the Work of Component Auditors)” that shows the differences in requirements between the SAS and ISA 600.

10. The SAS is broader than AU section 543. It lists the procedures necessary for the group engagement team to perform in order to be involved with component auditors to the extent necessary for an effective audit. It explains the degree of involvement required when reference is made to component auditors in the auditors’ report.

11. Requirements —The requirements of the SAS address the following:

a) Acceptance and continuance considerations

b) The group engagement team’s process to assess risk

c) The determination of materiality to be used to audit the group financial statements

d) The determination of materiality to be used to audit components

e) The selection of components and account balances for audit testing

f) Communications between the group engagement team and component auditors

g) Assessing the adequacy and appropriateness of audit evidence by the group engagement team in forming an opinion on the financial statements

12. In situations when the group engagement partner does not make reference to a component auditor in the audit report on the group financial statements, all of the requirements of the proposed SAS apply, when relevant in the context of the specific group audit engagement.

Statement on Auditing Standards, Auditing Accounting Estimates, Including Fair Value Accounting Estimates and Related Disclosures (Redrafted)

2011-06-16T14:13:00.002-06:00

1. Supersedes SAS No. 57, Auditing Accounting Estimates and Auditing Fair Value Measurements and Disclosures and SAS No. 101, Auditing Fair Value Measurements and Disclosures (AICPA, Professional Standards, vol. 1, AU sec. 342 and 328).

2. Issued September 4, 2009 with a comment period that ended November 30, 2009.

3. Effective for audits of financial statements for periods ending on or after December 15, 2012.

4. Changes From Existing Standards

a) Does not change or expand SAS No. 57 or SAS No. 101 in any significant respect.

b) The SAS is restructured to reflect a more principles-based approach to standard setting.

c) As done in other revised SASs, certain requirements that are duplicative of broader requirements (in this case SAS No. 57 and SAS 101) have been moved to application and other explanatory material, consistent with ISA 540.

d) Consistent with the approach taken by the IAASB in the development of ISA 540 (Revised and Redrafted), Auditing Accounting Estimates, Including Fair Value Estimates and Related Disclosures, the proposed SAS combines AU section 342, Auditing Accounting Estimates with AU section 328, Auditing Fair Value Measurements and Disclosures (AICPA, Professional Standards, vol. 1).

5. Other considerations

a) The ASB considered the disposition of AU section 332, Auditing Derivatives Estimates (AICPA, Professional Standards, vol. 1) and concluded that many of the requirements of AU section 332 are redundant with or very similar to other requirements in the risk assessment standards.

b) Believe these are better addressed as interpretative guidance in the Audit Guide Auditing Derivative Instruments, Hedging Activities, and Investments in Securities.

c) A few requirements that were not covered elsewhere in the standards were included along with related application guidance in the SAS Audit Evidence Specific Considerations for Selected Items when AU section 331, Inventories and AU section 337, Inquiry of a Client’s Lawyer Concerning Litigation, Claims and Assessments (AICPA, Professional Standards, vol. 1), were redrafted for clarity and convergence using ISA 501 (Redrafted), Other Evidence as a base.

6. Supplements to the Exposure Draft

The Audit and Attest Standards Staff prepares supplementary materials for many of the proposed SASs. However, supplementary material for proposed SASs was not a part of the Exposure draft or the SAS and includes:

a) A matrix document, which compares ISA 540, the proposed SAS, and extant AU sections 342 and 328. The schedule contains the following:

(1) ISA 540

(2) The proposed SAS, marked to show differences in language between the ISA and the proposed SAS (new and deleted material are shown in colored track changes.)

(3) The requirements and guidance in extant AU section 342, mapped against the proposed SAS, to demonstrate how the material in AU section 342 has been reflected in the proposed SAS

(4) The requirements and guidance in extant AU section 328, mapped against the proposed SAS, to demonstrate how the material in AU section 328 has been reflected in the proposed SAS

b) Mapping documents, which map the requirements and guidance contained within SAS No. 57 and SAS No. 101 to the proposed SAS to demonstrate how the material in SAS No. 57 and SAS No. 101 has been reflected in the proposed SAS.

c) The supplementary materials can be found on the AICPA website, www.aicpa.org under the Professional Resources – Accounting and Auditing tab.

Redrafted Statement on Auditing Standards, External Confirmations

2011-06-11T08:43:00.002-06:00

1. This SAS

a) Supersedes SAS No. 67, The Confirmation Process (AICPA, Professional Standards, vol. 1, AU sec. 330).

b) Redrafts SAS No. 67 to apply the Auditing Standards Board’s (ASB’s) clarity drafting conventions and to converge with International Standards on Auditing (ISAs).

2. Convergence

a) Drafted using International Standard on Auditing (ISA) No. 560, Subsequent Events, as a base.

b) Differences between the proposed SAS and ISA No. 560, for which the ASB believes no compelling reason for the difference exists, have been eliminated.

c) The ASB has made various changes to the language of the ISA to use terms or phrases that are more common in the United States, and to tailor examples and guidance to the U.S. environment. The ASB believes that such changes will not create differences between the application of ISA No. 560 and the application of the proposed SAS.

3. Effective Date

The proposed SAS will be effective for audits of financial statements for periods beginning on or after December 15, 2012.

4. Changes from Existing Standards

a) Is not expected to change practice in any significant respect;

b) To reflect a more principles-based approach to standard setting, certain requirements that are duplicative of broader requirements in SAS No. 67 have been moved to application and other explanatory material, consistent with ISA No. 505. In the ASB’s view, this has not changed the overall effectiveness of the proposed SAS.

c) Most significant changes to existing standards are as follows:

(1) Responsibilities of the auditor when management refuses to allow the auditor to send a confirmation request. These responsibilities include inquiries as to reasons for the refusal, evaluating alternative procedures and impact on the risk assessment. When and if the auditor concludes that management’s refusal is unreasonable, or the auditor is unable to obtain relevant and reliable audit evidence from alternative audit procedures the auditor should include communicate with those charged with governance These procedures are not currently required by AU section 330.

(2) Added application material to the proposed SAS regarding the use of oral responses to confirmation requests as audit evidence.

(a) It clarifies that the receipt of an oral response to a confirmation request does not meet the definition of an external confirmation.

(b) Provides guidance on how the response may be considered part of alternative procedures performed in order to obtain sufficient appropriate audit evidence.

(c) The definition of confirmation has been changed.

(i) The ASB has expanded the ISA definition of an external confirmation to include direct access by the auditor to information held by a third party.

(ii) Third-party involvement is increasingly common, and the ASB believes that the inclusion of this concept clarifies the definition.

(iii) The ASB believes this clarification is an improvement to the ISA definition because it specifically addresses a situation that is becoming increasingly common, and this change to the ISA definition is not inconsistent with the intent of the IAASB’s definition.

Statement on Auditing Standards, Audit Sampling (Redrafted)

2011-06-04T06:42:00.001-06:00

1. This SAS

a) Supersedes SAS No. 39, Audit Sampling (AICPA, Professional Standards, vol. 1, AU sec. 350).

b) Redrafts SAS No. 39 to apply the Auditing Standards Board’s (ASB’s) clarity drafting conventions and to converge with International Standard on Auditing (ISA) No. 530 (Redrafted), Audit Sampling,

2. Convergence

a) Drafted using ISA No. 530 (Redrafted) as a base.

b) Differences between the proposed SAS and ISA No. 530 (Redrafted) for which the ASB believes no compelling reason for the difference exists have been eliminated.

c) The ASB has made various changes to the language of the ISA to use terms or phrases that are more commonly used in the United States, and to tailor examples and guidance to be more appropriate to the U.S. environment. The ASB believes that such changes will not create differences between the application of ISA No. 530 (Redrafted) and the application of the proposed SAS.

3. Effective Date

The proposed SAS will be effective for audits of financial statements for periods beginning on or after December 15, 2012.

4. Changes from Existing Standards

a) The SAS does not change or expand SAS No. 39 in any significant respect.

b) To reflect a more principles-based approach to standard setting, certain requirements that are duplicative of broader requirements in SAS No. 39 have been moved to application and other explanatory material, consistent with ISA No. 530 (Redrafted). In the ASB’s view, this has not changed the overall effectiveness of the proposed SAS.

Clarified SAS, Initial Audit Engagements, Including Reaudits—Opening Balances

2011-05-27T13:15:00.004-06:00

1. The SAS

a) Supersedes SAS No. 84, Communications Between Predecessor and Successor Auditors (AICPA, Professional Standards, vol. 1, AU sec. 315).

b) Applies the ASB clarity drafting conventions and converges with International Standards on Auditing.

2. Convergence

a) Drafted using International Standard on Auditing (ISA) No. 510, Initial Audit Engagements—Opening Balances, as a base.

b) Differences between the proposed SAS and ISA No. 510, for which the ASB believes no compelling reason for the difference exists, have been eliminated.

c) The ASB has made various changes to the language of the ISA to use terms or phrases that are more commonly used in the United States, and to tailor examples and guidance to be more appropriate to the U.S. environment.

3. Effective Date
The SAS will effective for audits of financial statements for periods ending on or after December 15, 2012.

4. Changes from Existing Standards

a) Incorporates guidance from ISA No. 510, Initial Audit Engagements—Opening Balances, which requires the auditor to obtain sufficient appropriate audit evidence about whether

(1) Opening balances contain misstatements that materially affect the current period's financial statements;

(2) Accounting policies reflected in the opening balances have been consistently applied in the current period’s financial statements, and whether changes in the accounting policies have been properly accounted for and adequately presented and disclosed in accordance with the applicable financial reporting framework.

b) Incorporates relevant guidance from SAS No. 84, as amended

c) Clarifies that initial audit engagements include reaudits, and eliminates from AU section 315 requirements and guidance directed to reaudits that are repetitive with other generally accepted auditing standards.

Significant Changes in Redrafted SAS on Risk Assessment

2011-05-20T10:18:00.004-06:00

SAS, Planning an Audit (AU section 311) (Redrafted)

(1) The ASB proposes to delete Paragraphs .05–.10 of AU section 311, Planning and Supervision, which address the auditor’s responsibilities about the early appointment of the independent auditor and establishing the terms of the engagement. These requirements are expected to be included in the proposed SAS, Terms of the Engagements, in connection with the convergence with ISA 210 (Redrafted), Agreeing the Terms of Audit Engagements.

(2) The ASB proposed to delete Paragraphs .28–.32 of AU section 311 which covers supervision in an audit. It is expected that these requirements and guidance will be included in proposed SAS, Quality Control for Audit Engagements, in connection with convergence with ISA 220 (Redrafted), Quality Control for an Audit of Financial Statements.

SAS, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (AU section 314) (Redrafted)

(1) Most of the paragraphs written in the form of presumptive and mandatory requirements, particularly in the content dealing with internal control are proposed to be moved to application guidance because the ISA was drafted in a more principles based manner.

(2) Paragraph .19 of AU section 314 contains a requirement of the auditor to perform the audit with professional skepticism. This requirement is proposed to be deleted from AU section 314 because it is addressed by the proposed SAS, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Generally Accepted Auditing Standards.

(3) Paragraph .45 of AU section 314 contains a requirement that the auditor consider whether the entity has disclosed a particular matter appropriately. This requirement is proposed to be deleted because it is expected that this requirement will be addressed when AU section 508, Reports on Audited Financial Statements is redrafted.

We have modified the ASB's Roadmap to Redrafted SASs to include the numbers of existing SASs linked to redrafted and clarified SASs. For a free email copy, please send a request to larry@cpafirmsupport.com.

Redrafted SASs, Audit Evidence and Materiality

2011-05-14T08:44:00.004-06:00

Significant Changes From Existing Standards

a) SAS, Audit Evidence (AU section 326) (Redrafted)

(1) Consistent with ISA 500, Considering the Relevance and Reliability of Audit Evidence, the ASB is proposing to transfer the requirements and guidance related to the auditor’s use of assertions from AU section 326 to AU section 314, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement.

b) SAS, Materiality in Planning and Performing an Audit (AU section 312) (Redrafted)

(1) To make the standard clearer and consistent with ISA 320 (Revised), Materiality in Planning and Performing an Audit, and ISA 450, Evaluation of Misstatements Identified during the Audit, the ASB separates AU section 312 into two separate standards.

(a) SAS, Materiality in Planning and Performing an Audit (Redrafted), would address the use of materiality in planning and performing the audit.

(b) A separate standard, Evaluation of Misstatements Identified During the Audit, would address the evaluation of misstatements identified during the audit.

(2) The definition of audit risk and its components are now defined in the SAS, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards.

(3) The ASB proposes to eliminate the mandatory requirement of the auditor to consider audit risk in an audit because the ASB believes that the consideration of audit risk is fundamental in the audit process, and an explicit requirement is not necessary.

(4) Paragraphs .62–.67 of AU section 312 address the auditor’s responsibilities to evaluate the overall effect of audit findings on the auditor’s report. The ASB proposes to delete these paragraphs from this section because it is expected that these requirements and guidance will be included in AU section 508, Reports on Audited Financial Statements (AICPA, Professional Standards, vol. 1), when AU section 508 is redrafted as part of the ASB’s Clarification and Convergence project.

E. Statements on Auditing Standards, Risk Assessment

2011-05-05T14:11:00.002-06:00

A. Statements on Auditing Standards, Risk Assessment

1. This section covers the following SASs:

a) SAS, Audit Evidence (Redrafted)

b) SAS, Materiality in Planning and Performing an Audit (Redrafted)

c) SAS, Evaluation of Misstatements Identified During the Audit (Redrafted)

d) SAS, Planning an Audit (Redrafted)

e) SAS, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (Redrafted)

f) SAS, Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained (Redrafted)

2. Supersedes the following:

a) SAS No. 106, Audit Evidence (AICPA, Professional Standards, vol. 1, AU sec. 326)

b) SAS No. 107, Audit Risk and Materiality in Conducting an Audit (AICPA, Professional Standards, vol. 1, AU sec. 312)

c) SAS No. 108, Planning and Supervision (AICPA, Professional Standards, vol. 1, AU sec. 311)

d) SAS No. 109, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (AICPA, Professional Standards, vol. 1, AU sec. 314)

e) SAS No. 110, Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained (AICPA, Professional Standards, vol. 1, AU sec. 318)

3. Represents the redrafting of SAS Nos. 106–110 to apply the ASB’s clarity drafting conventions and to converge with ISAs.

4. Convergence – The SASs were drafted using the following ISAs as a base:

a) ISA 300 (Redrafted), Planning an Audit of Financial Statements;

b) ISA 315 (Redrafted), Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and Its Environment;

c) ISA 320 (Revised), Materiality in Planning and Performing an Audit;

d) ISA 330 (Redrafted), The Auditor’s Responses to Assessed Risks;

e) ISA 450, Evaluation of Misstatements Identified during the Audit; and

f) ISA 500 (Redrafted), Considering the Relevance and Reliability of Audit Evidence

5. Effective Date – Effective for audits of financial statements for periods ending on or after December 15, 2012.

6. Background of ASB Risk Assessment Standards

a) Eight SASs (Nos. 104 – 111) known as the Risk Assessment Standards were issued by the ASB in March 2006. They were issued

(1) To provide extensive guidance concerning the auditor’s assessment of the risks of material misstatement in a financial statement audit, and the design and performance of audit procedures whose nature, timing, and extent are responsive to the assessed risks.

(2) Establish standards and provided guidance on planning and supervision, the nature of audit evidence, and evaluating whether the audit evidence obtained affords a reasonable basis for an opinion regarding the financial statements under audit.

b) They

(1) Emphasized the link between understanding the entity (its control, financial, operational and business environment) assessing risks, and designing further audit procedures.

(2) Introduced the concept of risk assessment procedures, which are considered necessary to provide a basis for assessing the risk of material misstatement.

(3) Risk assessment procedures are tests of controls and substantive procedures. With further audit procedures, they provide the audit evidence to support the auditor’s opinion on the financial statements.

c) The auditor should perform risk assessment procedures to gather information and gain an understanding of the entity and its environment, including inquiries, analytical procedures, and inspection and observation.

d) The auditor should document during the planning and performance phases:

(1) Assessed risks and the basis for those assessments and may no longer default to maximum control risk without documenting the basis for that assessment.

(2) How the risk of material misstatement at the financial statement level affects individual financial statement assertions, so that auditors may tailor the nature, timing, and extent of their audit procedures to be responsive to their risk assessment and findings.

The next few blogs will cover the significant changes to each of these new SASs. If you'd like a copy of a modified ASB roadmap that links existing auditing standards with the new redrafted SASs, please send your request to larry@cpafirmsupport.com.

Statement on Auditing Standards, Consideration of Fraud in a Financial Statement Audit (Redrafted)

2011-04-28T11:06:00.001-06:00

1. The SAS

a) Supersedes SAS No. 99, Consideration of Fraud in a Financial Statement Audit (AICPA, Professional Standards, vol. 1, AU sec. 316).

b) Redrafting of SAS No. 99 to apply the ASB’s clarity drafting conventions and to converge with International Standards on Auditing (ISAs).

c) Convergence – Drafted using ISA 240 (Redrafted), The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, as a base.

d) Differences between SAS No. 99 and ISA 240 (Redrafted) for which the ASB believes no compelling reason to be different exists have been eliminated.

e) The ASB made various changes to the language of the ISA during the drafting process to use terms or phrases that are more commonly used in the United States, and to tailor examples and guidance to the U.S. environment. The ASB believes that such changes will not create differences between the application of ISA 240 and the application of the SAS.

2. Effective Date – Effective for audits of financial statements for periods ending on or after December 15, 2012.

3. Changes from Existing Standards

a) Does not change or expand SAS No. 99 in any significant respect.

b) To reflect a more principles-based approach to standard setting, certain requirements that are duplicative of broader requirements in SAS No. 99 have been moved to application and other explanatory material, consistent with ISA 240 (Redrafted). The ASB’s view is that this has not changed the overall effectiveness of the proposed SAS.

4. Additions to the SAS

a) The Clarity Project of the ASB has added some sections to the redrafted SAS’s. In this case Objectives are added. Objectives refer to the objectives of the auditor. In this proposed SAS Objectives are to:

(1) identify and assess the risks of material misstatement of the financial statements due to fraud;

(2) obtain sufficient appropriate audit evidence about the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses;

(3) respond appropriately to identified or suspected fraud.

Statement on Auditing Standards, Audit Considerations Relating to an Entity Using a Service Organization (Redrafted)

2011-04-22T13:21:00.002-06:00

1. Introduction. This SAS

a) Supersedes SAS No. 70, Service Organizations (AICPA, Professional Standards, vol. 1, AU sec. 324), which contains guidance for auditors auditing the financial statements of entities that use a service organization (user auditors) and for auditors reporting on controls at a service organization (service auditors).

b) Contains guidance for user auditors. Guidance for service auditors will be contained in a new Statement on Standards for Attestation Engagements (SSAE), Reporting on Controls at a Service Organization, which is being exposed for comment concurrently with this SAS.

2. Affects Existing Standards

a) A user organization is known as a user entity.

b) In a type 2 report, the service auditor’s report would contain an opinion on the fairness of the description of the service organization’s system and on the suitability of the design of the controls for a period rather than as of a specified date, as it currently does.

c) A user auditor is permitted to make reference to the work of a service auditor in his or her report to explain a modification of the user auditor’s opinion. In those circumstances, the user auditor’s report would be required to indicate that such reference does not diminish the user auditor’s responsibility for that opinion. (As in extant AU section 324, the user auditor would be prohibited from making reference to the work of a service auditor in a user auditor’s report containing an unmodified opinion. The user auditor cannot divide responsibility for the audit of user’s financial statements by referring to the service auditor’s report.)

d) A user auditor is required to inquire of management of the user entity about whether the service organization has reported to the user entity any fraud, noncompliance with laws and regulations, or uncorrected misstatements. If so, the user auditor would be required to evaluate how such matters affect the nature, timing, and extent of the user auditor’s further audit procedures.

e) The SAS is applicable to situations in which an entity uses a shared service organization that provides services to a group of related entities.

3. Convergence

a) Drafted using the December 2007 exposure draft of International Standard on Auditing (ISA) 402 (Revised and Redrafted), Audit Considerations Relating to an Entity Using a Third Party Service Organization, as a base.

b) Differences between the SAS and the ISA 402 exposure draft, for which the ASB believes there is no compelling reason to be different, have been eliminated.

c) The ASB has made various changes to the language in the proposed ISA, including replacing terms or phrases used in the proposed ISA with those more commonly used in the United States, and tailoring examples and guidance so that they are more appropriate for the U.S. environment.

4. Effective Date

a) The SAS is effective for audits of financial statements for periods ending on or after December 15, 2012.

Statement on Auditing Standards Consideration of Laws and Regulations in an Audit of Financial Statements

2011-04-15T13:00:00.009-06:00

SAS Consideration of Laws and Regulations in an Audit of Financial Statements supersedes SAS No. 54, Illegal Acts by Clients (AICPA, Professional Standards, vol. 1, AU sec. 317).

Effective for audits of financial statements for periods ending on or after December 15, 2012.

1. Scope

a) Addresses the auditor’s responsibility to consider laws and regulations in an audit of financial statements.

b) Does not apply to other assurance engagements in which the auditor is specifically engaged to test and report separately on compliance with specific laws or regulations.

2. Effect of Laws and Regulations

a) The impact of laws and regulations on financial statements varies considerably.

b) The applicable laws and regulations constitute the legal and regulatory framework of the entity.

c) Some laws or regulations have provisions with a direct effect on the financial statements because they determine the reported amounts and disclosures required in an entity’s financial statements.

d) Other laws or regulations are to be complied with by management, or set the provisions under which the entity is allowed to conduct its business, but do not have a direct effect on an entity’s financial statements.

e) Some entities operate in heavily regulated industries (such as banks and chemical companies) while others are subject only to the many laws and regulations that relate generally to the operating aspects of the business (such as those related to occupational safety and health and equal employment opportunity).

f) Noncompliance with laws and regulations may result in fines, litigation, or other consequences for the entity that may have a material effect on the financial statements.

3. Responsibility for Compliance with Laws and Regulations

a) Responsibility of Management– Management’s responsibility, with the oversight of those charged with governance, is

(1) to ensure that the entity’s operations are conducted in accordance with the provisions of laws and regulations, including compliance with the provisions of laws and regulations that determine the reported amounts and disclosures in an entity’s financial statements.

b) Responsibility of the Auditor

(1) The requirements in this SAS are designed to assist the auditor in identifying material misstatement of the financial statements due to noncompliance with laws and regulations.

(2) The auditor is not responsible for preventing noncompliance and cannot be expected to detect noncompliance with all laws and regulations.

(3) The auditor is responsible for obtaining reasonable assurance that the financial statements as a whole are free from material misstatement, whether caused by fraud or error.

(4) The auditor is responsible for taking into account the applicable legal and regulatory framework during the planning and execution of the audit procedures.

(5) In the context of laws and regulations, the potential effects of inherent limitations on the auditor’s ability to detect material misstatements are greater for the following reasons:

(a) Many laws and regulations (relating principally to the operating aspects of an entity) typically do not affect the financial statements and are not captured by the entity’s information systems relevant to financial reporting.

(b) Noncompliance may involve acts designed to conceal it, such as collusion, forgery, deliberate failure to record transactions, management override of controls, or intentional misrepresentations made to the auditor.

(c) Whether an act constitutes noncompliance is ultimately a matter for legal determination, such as by a court of law.

(6) This SAS distinguishes the auditor’s responsibilities in relation to compliance with the following two categories of laws and regulations that may have a material effect on the financial statements of the company:

(a) The provisions of those laws and regulations generally recognized to have a direct effect on the determination of material amounts and disclosures in the financial statements, such as tax and pension laws and regulations.

(b) The provisions of other laws and regulations that do not have a direct effect on the determination of the amounts and disclosures in the financial statements but compliance with which may be:

(i) fundamental to the operating aspects of the business,

(ii) fundamental to an entity’s ability to continue its business, or necessary for the entity to avoid material penalties (for example, compliance with the terms of an operating license, regulatory solvency requirements, or environmental regulations).

c) Differing requirements are specified for each of the previously mentioned categories of laws and regulations.

(1) Auditor’s responsibility for the category referred to in (6) (a) is to obtain sufficient appropriate audit evidence regarding material amounts and disclosures in the financial statements that are determined by the provisions of those laws and regulations.

(2) Auditor’s responsibility for the category referred to in (6) (b) is limited to performing specified audit procedures that may identify noncompliance with those laws and regulations that may have a material effect on the financial statements.

d) The auditor is required to remain alert to the possibility that other audit procedures applied for the purpose of forming an opinion on financial statements may bring instances of identified or suspected noncompliance with laws and regulations to the auditor’s attention.

The Principles and Objectives for Redrafted SASs

2011-04-08T15:40:00.002-06:00

Here is a summary of the first redrafted and clarified SAS issued by the Auditing Standards Board which will become effective for periods ending after December 15, 2012:

Preface to Codification of Statements on Auditing Standards, Principles Underlying an Audit Conducted in Accordance With Generally Accepted Auditing Standards and Statement on Auditing Standards, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards

This released document contains two elements:

· Preface to Codification of Statements on Auditing Standards, Principles Underlying an Audit Conducted in Accordance With Generally Accepted Auditing Standards, and

· Statement on Auditing Standards, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards.

Changes from Existing Standards

Will supersede SAS No. 95, as amended, which contains the general, field work, and reporting standards (the 10 standards).

Consideration by the ASB of the 10 standards

· SASs are codified within the framework of the 10 standards, viewed as the historical basis for generally accepted auditing standards (GAAS). The clarity drafting conventions adopted by the ASB include establishing an objective or objectives for each SAS.

· The SAS establishes the overall objectives of the auditor, which are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thus, enabling the auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework; and to report on the financial statements, or otherwise as required by the SASs, in accordance with the auditor’s findings.

· Each SAS contains an objective, or objectives that provide a link between the requirements and the overall objectives of the auditor. The SASs taken together provide the standards for the auditor’s work in fulfilling the overall objectives of the auditor.

· If an auditor fulfills the overall objective of the audit and meets applicable ethical requirements, such as the AICPA Code of Professional Conduct, the ASB believes that the auditor will have fulfilled the requirements currently stated in the 10 standards. Accordingly, the proposed SAS does not contain 10 unconditional requirements that are the direct equivalent of the 10 standards.

Replacement of the 10 standards with principles

· To preserve the functions of the 10 standards, the ASB has developed the Principles Governing the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards (referred to as the principles).

· The principles identified in the preface:

§ have been drafted in the present tense.

§ are not requirements and

§ do not carry any authority.

§ are the fundamental principles that govern an audit and are supported by the objectives and requirements of the individual SASs.

Structure of the Principles

· The purpose of an audit (purpose). To provide financial statement users with an opinion by the auditor on whether the statements are presented fairly, in all material respects, in a manner that conforms to an applicable financial reporting framework

· Personal responsibilities of the auditor (responsibilities). These include competence and capabilities, compliance with appropriate ethical standards and approaching the work with appropriate professional skepticism and judgment.

· Auditor actions in performing the audit (performance). Perform the work necessary to be reasonably, but not absolutely, sure that the financial statements are free from material misstatement due to fraud or error.

· Reporting (reporting). Based on the results of the performance of the audit, express an opinion or state that an opinion cannot be expressed on the financial statements.

Applicable Financial Reporting Frameworks

The SAS introduces the following terms:

Financial reporting framework. A set of accounting principles that are used to determine measurement, recognition, presentation, and disclosure of all material items for preparing financial statements in accordance with principles generally accepted in the U.S.(GAAP), International Financial Reporting Standards (IFRSs), issued by the International Accounting Standards Board (IASB), or a special purpose framework prepared on a comprehensive basis of accounting other than GAAP (OCBOA– now referred as Special Purpose Framework).

Applicable financial reporting framework— The financial reporting framework adopted by management in the preparation and presentation of the financial statements.

Fair-presentation framework— Refers to a financial reporting framework that requires compliance with the requirements of the framework and acknowledges explicitly or implicitly that, to achieve fair presentation of the financial statements, it may be necessary for management to provide disclosures beyond those specifically required by the framework; or acknowledges explicitly that it may be necessary for management to depart from a requirement of the framework to achieve fair presentation of the financial statements. Such departures are expected to be necessary only in extremely rare circumstances. Current reporting requirements do not permit. departures from GAAP.

Regulatory and contractual-based framework—Refers to a financial reporting framework that requires compliance with the requirements of the framework, but does not contain the acknowledgments in (c) above This type of framework is referred to in the ISAs as a compliance framework; the term was changed for purposes of GAAS to regulatory or contractual-based framework to avoid confusion with the term compliance audit.

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ASB Clarity and Convergence Projects Produce 30+ New SASs

2011-04-02T10:45:00.004-06:00

The AICPA Auditing Standards Board (ASB) is involved in a project that is designed to make U.S. generally accepted auditing standards (GAAS) easier to read, understand, and apply. Since the creation of the Public Company Accounting Oversight Board (PCAOB) in 2004 the ASB has gone through a reorganization and has considered how best to meet its mission. In addition it has been cognizant of the increasingly widespread acceptance of International Standards on Auditing (ISAs).

The Board subsequently developed a plan to converge U.S. GAAS with the ISAs while, at the same time, avoiding unnecessary conflict with PCAOB standards. In order to converge SASs with ISAs the Board aligned its agenda with that of the IAASB and began to develop its standards based on the ISAs. This allows the ASB to consider projects simultaneously with the IAASB.

Clarity Project

The foundation of the Clarity Project is the establishment of an objective for each auditing standard to better reflect a principles-based approach to standard-setting. In March 2007 the ASB issued a discussion paper, Improving the Clarity of ASB Standards. As a result of the feedback the Board received on this discussion paper, the ASB established “clarity drafting conventions” that will be applied to all standards issued by the ASB after January, 2008.

The clarity drafting conventions are:

a) Establishing objectives for each of the standards
b) Including a definitions section, where relevant, in each standard
c) Separating requirements from application and other explanatory material
d) Numbering application and other explanatory material paragraphs using an A prefix and presenting them in a separate section (following the requirements section)
e) Using formatting techniques, such as bulleted lists, to enhance readability
f) Special considerations relevant to audits of smaller, less complex entities
g) Special considerations relevant to audits of governmental audits

The ASB currently is in the process of:

a) Redrafting all of the auditing sections in Codification of Statements on Auditing Standards,
b) Applying the clarity drafting conventions, and
c) Converging the material with the international auditing standards.

This process includes exposing clarity redrafts, considering comments, making changes, and finalizing the standards. The ASB has directed that all clarified and redrafted standards will be effective on the same date, (Standards that address current issues will have earlier effective dates.), for audits of financial statements for periods ending on or after December 15, 2012.

Currently, there are more than 20 finalized standards plus other proposed standards. While changes in the standards are for most subjects not consequential, auditors will need an understanding of the new standards when auditing entities for the year ending December 31, 2012. In future blogs, we plan to discuss and dissect each of the new finalized standards that are posted on the ASB's Clarity Project page of the AICPA website.

FAF Responds to Blue–Ribbon Panel

2011-03-15T17:41:00.002-06:00

The Financial Accounting Foundation (FAF), FASB’s parent organization, is forming a working group to review the adequacy and effectiveness of FASB’s efforts in setting standards for the private company and nonprofit sectors.

You’ll recall that the Blue–Ribbon Panel on Private Company Standards (the Panel) delivered its final report to the FAF earlier this year. At that time the Panel recommended that the FAF create a board separate from FASB that would set private company reporting standards. The creation of the working group is the next step in this process.

The working group will be composed of FAF trustees and staff and intends to issue an action plan in six to eight months on whether or how to devise rules that differ from those of public companies. It will conduct roundtable meetings, surveys and meetings with advisory and constituent groups. At the same time FAF will seek input on suggested improvements, including the solutions recommended by the blue-ribbon panel.

You may keep up with FAF, FASB, and the GASB at http://www.fasb.org/.

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FASB and IASB Continue Discussions on Leases

2011-03-05T19:17:00.002-07:00

As you know the FASB and IASB have been working on a project to get leases onto corporate balance sheets. The two boards have decided that there may be some reason to create two categories of leases. The original proposal would establish a single accounting method for all leases. The boards are now considering a proposal in which leases would look a lot like today's operating leases and capital leases. They have agreed to consider a structure where “finance leases” would be treated like an installment purchase, putting an asset on the balance sheet as well as a liability to be paid down over time. “Other-than-finance” leases would also appear on the balance sheet, but would flow through the income statement like today's operating leases because the financing element would not be considered significant.

The boards have asked their staff to establish indicators that would be used to identify the difference between the two types of leases and do some outreach to see if that would quell the criticism of the original proposal. They have softened their views on how companies should account for renewal options and other factors that lead to variable lease payments when it's not clear at the outset of the lease when or whether such circumstances would ever come into play.

In addition the boards

Decided to raise the threshold for deciding when lease renewal options should be included in the liability.
Tentatively concluded that lessees and lessors should follow the same basic guidelines for deciding if an obligation tied to some kind of variability would be included in the liability or the receivable.

More details on this discussion may be found in the February 16, 2011 Summary of Board Decisions on the FASB website, www.fasb.org.

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PEEC Issues Exposure Draft

2011-03-05T19:03:00.002-07:00

The Professional Ethics Executive Committee (PEEC) has issued an exposure draft, Omnibus Proposal AICPA Professional Ethics Division Interpretations and Rulings. This exposure draft covers proposed interpretations to various sections of the Professional Code of Conduct including Rule 101, Independence and revisions to Rule 101. It also contains a proposed revision to Conceptual Framework for AICPA Independence Standards, proposed definitions and deletions of various Ethics Rulings.

Comments on the proposed pronouncements must be received at the AICPA by May 31, 2011. The PEEC will evaluate the comments and may decide to publish one or more of the proposed pronouncements. Once published, the pronouncements become effective on the last day of the month in which they are published in the Journal of Accountancy, except if otherwise stated in the pronouncements.

The exposure draft is available for download on the AICPA Website, http://www.aicpa.org/InterestAreas/ProfessionalEthics/Community/ExposureDrafts

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SSARS No. 20 Issued

2011-02-26T13:54:00.003-07:00

Following up on the issueance of SAS No. 121 the Accounting and Review Services Committee (ARSC) issued SSARS No. 20, Revised Applicability of Statements on Standards for Accounting and Review Service. Issued February 2011, this SSARS is effective for reviews of financial statements for periods beginning after December 15, 2011. Early application is permitted.

SSARS No. 20 simply amends paragraph .01 of AR section 90, Review of Financial Statements, so that SSARSs do not apply when the provisions of SAS No. 100, Interim Financial Information, as amended by SASs No. 116, Interim Financial Information, and No. 121, Revised Applicability of Statement on Auditing Standards No. 100, Interim Financial Information (AICPA, Professional Standards, vol. 1, AU sec. 722), apply.

Information on AICPA standard setting activities are available on the AICPA website http://www.aicpa.org/ under the Interest and Research tabs.

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SAS No. 121 Issued by ASB

2011-02-26T13:41:00.003-07:00

The Auditing Standards Board (ASB) has issued SAS No. 121, Revised Applicability of Statement on Auditing Standards No. 100, Interim Financial Information. Issued in February 2011 this SAS is effective for interim reviews of interim financial information for periods beginning after December 15, 2011. Early application is permitted.

Looking back to February 2009, you’ll recall that the ASB issued SAS No. 116, Interim Financial Information, which amended SAS No. 100, Interim Financial Information,(AU section 722 of AICPA Professional Standards) to address the independent accountant’s professional responsibilities when the accountant undertakes an engagement to review interim financial information of a nonissuer. SAS No. 121 further amends SAS No. 100 to make AU section 722 applicable when the accountant audited the entity’s latest annual financial statements, and the appointment of another accountant to audit the current year financial statements is not effective prior to the beginning of the period covered by the review.

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Comparative Financial Statements After SSARS No. 19

2011-02-26T13:27:00.003-07:00

As you are aware, SSARS No. 19, Compilation and Review Engagements was effective for compilations and reviews of financial statements for period ending on or after December 15, 2010. Since SSARS No. 19 revised the reporting requirements for compilation and review engagements accountants have questioned how they should report when comparative financial statements are presented and the prior year compilation or review was not performed in accordance with SSARS No. 19.

The AICPA has issued guidance on how to handle this question in an article entitled Reporting on Compiled or Reviewed Financial Statements For Periods Ended on or After December 15, 2010 With Comparative Financial Statements For Periods Ended Before December 15, 2010.

AR section 200, Reporting on Comparative Financial Statements has been revised to reflect conforming changes necessary due to the issuance of SSARS No. 19. The reissuance of a prior year report on financial statements that the accountant compiled or reviewed in accordance with pre SSARS No. 19 literature is not a compilation or review of those financial statements. It is the reissuance of a report on a service previously performed and reported on. Therefore the accountant may use the SSARS No. 19 reporting format to reissue his or her prior year report. He or she does not have to reissue the report using the pre SSARS No. 19 report format.

Guidance from the AICPA contains examples of compilation and review reports on comparative financial statements prepared in accordance with accounting principles generally accepted in the United States of America for the years ended December 31, 2010 and 2009.

In addition to the above guidance, the AICPA also offers additional implementation guidance and training on SSARS No. 19, including:
Compilation and Review Engagements Guide
Compilation and Review Developments - Risk Alert
Personal Financial Statements Exhibit Companion to SSARS No. 19

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Proposed Statement On Auditing Standards

2011-02-12T13:08:00.002-07:00

The ASB issued Proposed Statement on Auditing Standards Alert As To the Intended Use of The Auditor’s Written Communication on December 21, 2010. The proposed SAS supersedes SAS No. 87, Restricting the Use of an Auditor’s Report (AICPA, Professional Standards, vol. 1, AU sec. 53]). The comment period ends April 29, 2011.

This proposed SAS is part of the ASB’s Clarity Project and

Eliminates the use of the term "restricted use" and instead addresses the intended use of such communications.

Establishes an umbrella requirement to include an alert as to the intended use of the auditor’s written communication when the subject matter of that communication is based on measurement or disclosure criteria that are determined by the auditor to be suitable only for a limited number of users who can be presumed to have an adequate understanding of the criteria, measurement or disclosure criteria that are available only to the specified parties, or matters identified by the auditor during the course of the engagement that are not the primary objective of the engagement (commonly referred to as a by-product report).

Modifies the guidance pertaining to single combined reports covering both (a) communications that are required to include an alert as to intended use and (b) communications that are for general use, which do not ordinarily include such an alert.

The proposed SAS would be effective for written communications related to audits of financial statements for periods ending on or after December 15, 2012, and, for all other engagements conducted in accordance with generally accepted auditing standards (GAAS), for written communications issued on or after December 15, 2012.

Proposed SASs are available for download on the AICPA's website http://www.aicpa.org/.

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ASU 2011–01

2011-02-12T12:56:00.004-07:00

FASB issued Accounting Standards Update Receivables (Topic 310) Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 in January 2011.

If you’ve been keeping track of ASUs you know the FASB issued 29 ASUs in 2010. In January 2011, FASB issued the first ASU of 2011. ASU 2011-01 was issued because of stakeholder concerns about new disclosure requirements in paragraphs 310-10-50-31 through 50-34 of the FASB Accounting Standards Codification® about troubled debt restructurings in one reporting period followed by a change in what constitutes a troubled debt restructuring shortly thereafter would be burdensome for preparers and may not provide financial statement users with useful information. They asked the Board to defer the effective date of the disclosure requirements for public entities about troubled debt restructurings in ASU No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, to be concurrent with the effective date of the guidance for determining what constitutes a troubled debt restructuring, as presented in proposed ASU, Receivables (Topic 310): Clarifications to Accounting for Troubled Debt Restructurings by Creditors.

FASB therefore issued this ASU. The amendments delay indefinitely the effective date of the disclosures about troubled debt restructurings in Update 2010-20 for public entities. The delay is intended to allow the Board time to complete its deliberations on what constitutes a troubled debt restructuring.

The effective date of the new disclosures about troubled debt restructurings for public entities and the guidance for determining what constitutes a troubled debt restructuring would then be coordinated. Currently, that guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011.

Accounting Standards Updates are available for download from the FASB's website, http://www.fasb.org/.

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Proposed Revised SAS

2011-02-12T12:35:00.007-07:00

The ASB has issued a proposed revised SAS Proposed Revised Statement on Auditing Standards Financial Statements Prepared in Accordance With a Financial Reporting Framework Generally Accepted in Another Country. It would supersede SAS No. 51, Reporting on Financial Statements Prepared for Use in Other Countries (AICPA, Professional Standards, vol. 1, AU sec. 534).

If this exposure draft looks familiar to you it is because the ASB issued an exposure draft, SAS Reporting on Financial Statements Prepared in Accordance With a Financial Reporting Framework Generally Accepted in Another Country on September 30, 2009. After revising the previous exposure draft for certain matters noted in comment letters, the ASB decided to reexpose the SAS (referred to in the exposure draft as the proposed revised SAS) to seek additional comments.

The proposed revised SAS says that when financial statements are prepared in accordance with a financial reporting framework generally accepted in another country, and such financial statements are intended for use in the other country, the proposed revised SAS would require the inclusion of an emphasis of matter paragraph that will highlight the foreign financial reporting framework in any report also intended for use in the United States, and permits an unqualified opinion.

This proposed revised SAS addresses circumstances in which an auditor practicing in the United States is engaged to report on financial statements that have been prepared in accordance with a financial reporting framework generally accepted in another country not adopted by a body designated by the Council of the AICPA (Council) to establish generally accepted accounting principles (GAAP) when such audited financial statements are intended for use outside the United States. This proposed revised SAS is not intended to preclude the use of such audited financial statements in the United States.

Note that this proposed revised SAS:

Does not apply to financial statements prepared in accordance with financial reporting frameworks established by the bodies designated by the Council.
Is applicable to engagements to report on financial statements prepared in accordance with a jurisdictional variation of IFRSs when the entity’s financial statements do not contain an explicit and unreserved statement in an appropriate note to the financial statements that its financial statements are in compliance with IFRSs as issued by the IASB.
Does not apply to engagements to report on financial statements of a U.S. subsidiary of a foreign registrant parent company that are presented in the parent company’s filing with the SEC when the subsidiary’s financial statements have been prepared in accordance with a financial reporting framework used by the parent company and audited in accordance with auditing standards generally accepted in the United States of America (GAAS).

The proposed revised SAS was issued in November 2010. The comment period ended January 31, 2011 and the SAS would be effective for audits of financial statements for periods ending on or after December 15, 2012.

Statements on Auditing Standards exposure drafts are available for download on the AICPA website www.aicpa.org.

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Proposed SAS Alert As To The Intended Use Of The Auditor’s Written Communication

2011-01-16T22:27:00.002-07:00

This Proposed SAS was issued December 21, 2010. The comment period ends April 29, 2011. The Proposed SAS supersede SAS No. 87, Restricting the Use of an Auditor’s Report [AICPA, Professional Standards, vol. 1, AU sec. 532]. It would be effective for written communications related to audits of financial statements for periods ending on or after December 15, 2012, and, for all other engagements conducted in accordance with generally accepted auditing standards (GAAS), for written communications issued on or after December 15, 2012.

The proposed SAS

Has been clarified to indicate that it applies to auditor’s reports and other written communications issued in connection with an engagement conducted in accordance GAAS.
Eliminates the use of the term restricted use and instead addresses the intended use of such communications.
Establishes an umbrella requirement to include an alert as to the intended use of the auditor’s written communication when the subject matter of that communication is based on (a) measurement or disclosure criteria that are determined by the auditor to be suitable only for a limited number of users who can be presumed to have an adequate understanding of the criteria, (b) measurement or disclosure criteria that are available only to the specified parties, or (c) matters identified by the auditor during the course of the engagement that are not the primary objective of the engagement (commonly referred to as a by-product report).
Modifies the guidance pertaining to single combined reports covering both (a) communications that are required to include an alert as to intended use and (b) communications that are for general use, which do not ordinarily include such an alert.
Indicates that the alert as to intended use pertains only to the communications required to include such an alert. Accordingly, the intended use of the communications that are for general use is not affected by this alert.

A copy of the exposure draft is available from the AICPA website, www.aicpa.org.

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ARSC Issues SSAE No. 17

2010-12-18T11:52:00.002-07:00

The Auditing and Review Services Committee (ARSC) has issued Statement on Standards for Attestation Engagements (SSAE) No. 17, Reporting on Compiled Prospective Financial Statements When the Practitioner's Independence Is Impaired, to amend paragraph 23 of SASE No. 10 section 301, Financial Forecasts and Projections (AICPA, Professional Standards, vol. 1, AT sec. 301), to permit, but not require, the accountant to disclose the reason(s) for an independence impairment in a report on compiled prospective financial information.

You’ll recall that SSARS No. 19 permits, but does not require, the accountant to disclose the reasons he or she is not independent in a compilation report. The exposure draft for this SSAE was issued in April 2010 because the ARSC determined that the attestation standards should also be revised so that the practitioner, if he or she chooses, can disclose the reasons for independence impairment in the compilation report on compiled prospective financial information.

SSAE No. 17 is effective for compilations of prospective financial information for periods ending on or after December 15, 2010, with early implementation permitted.

You may obtain a hard copy of this SSAE from www.cpa2biz.com.

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SSARS Exposure Draft

2010-12-18T10:03:00.004-07:00

The Accounting and Review Services Committee (ARSC) has issued an Exposure Draft Proposed Statement On Standards For Accounting And Review Services, The Use of the Accountant’s Name in a Document or Communication Containing Unaudited Financial Statements That Have Not Been Compiled or Reviewed (Amends Statement on Standards for Accounting and Review Services No. 19, Compilation and Review Engagements [AICPA, Professional Standards, vol. 2, AR sec. 60 par. .51-.55]). You have until April 29, 2011 to comment on this proposed amendment.

The amendment would be effective for unaudited financial statements that have not been compiled or reviewed for periods ending on or after December 15, 2011.

The proposed SSARS would create new paragraphs in AR section 60, Framework for Performing and Reporting on Compilation and Review Engagements to cover the accountant’s responsibilities when he or she permits the use of his or her name in a document or written communication containing unaudited financial statements that have not been compiled or reviewed.

This proposed SSARS would establish:

a requirement that prior to permitting the use of his or her name in a document or written communication containing unaudited financial statements that have not been compiled or reviewed the accountant should read the financial statements and other information in the document and consider whether such financial statements and other information appears free from obvious material misstatements and from material inconsistencies with other knowledge or information that the accountant may have obtained.
a nonreporting option when the accountant permits the use of his or her name in a document or written communication containing unaudited financial statements that have not been compiled or reviewed provided that the accountant requests that the client clearly indicate that the unaudited financial statements were not compiled or reviewed by the accountant.

You may obtain a copy of the proposed SSARS from the AICPA website http://www.aicpa.org/.

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ASB Issues SAS on Reports on Application of Requirements of an Applicable Financial Reporting Framework

2010-12-10T17:21:00.003-07:00

The Auditing Standards Board has issued Statement on Auditing Standards, Reports on Application of Requirements of an Applicable Financial Reporting Framework. This SAS supersedes SAS No. 50, Reports on the Application of Accounting Principles (AICPA, Professional Standards, vol. 1, AU sec. 625). It is effective for engagements that end on or after December 15, 2012.

This SAS covers the reporting accountant’s responsibilities when asked to issue a written report on either the application of the requirements of an applicable financial reporting framework to a specific transaction or the type of report that may be issued on a specific entity’s financial statements. It also applies to oral advice provided by the reporting accountant that the reporting accountant concludes is intended to be used by a principal to the transaction as an important factor considered in reaching a decision on the application of the requirements of an applicable financial reporting framework to a specific transaction or on the type of report that may be issued on a specific entity’s financial statements.

Because there are differing interpretations that may exist concerning whether and, if so, how existing accounting policies in an applicable financial reporting framework apply to new transactions or how new accounting policies in an applicable financial reporting framework apply to existing transactions, management and others may consult with accountants on the application of the requirements of an applicable financial reporting framework to those transactions or to increase their knowledge of specific financial reporting issues.

You should be aware that this SAS does not apply to:

a continuing accountant with respect to the specific entity whose financial statements the continuing accountant has been engaged to report on,
engagements either to assist in litigation involving accounting or auditing matters or to provide expert testimony in connection with such litigation,
professional advice provided to another accountant in public practice,
to communications such as position papers prepared by an accountant for the purpose of presenting views on an issue involving the application of the requirements of an applicable financial reporting framework, provided that these communications are not intended to provide guidance on the application of these requirements to a specific transaction.

You may download clarified auditing standards from the AICPA website at www.aicpa.org/InterestAreas/AccountingAndAuditing/Resources.

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ASB Issues Clarified SAS on Analytical Procedures

2010-12-10T17:06:00.007-07:00

The Auditing Standards Board has issued another clarified auditing statement, Analytical Procedures (Redrafted). This SAS supersedes SAS No. 56, Analytical Procedures (AICPA, Professional Standards, vol. 1, AU sec. 329) and is effective for audits of financial statements for periods ending on or after December 15, 2012.

This SAS covers the auditor’s use of analytical procedures as substantive procedures (substantive analytical procedures) and his or her responsibility to perform analytical procedures near the end of the audit that assist the auditor when forming an overall conclusion on the financial statements. This clarified SAS refers to two other clarified SASs, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (Redrafted) and Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained (Redrafted). These two SASs contain information on the use of analytical procedures as risk assessment procedures and the nature, timing, and extent of audit procedures in response to assessed risks.

You’ll recall that clarified SASs contain “objectives.” These objectives have to do with the objectives of the auditor. In this clarified SAS those objectives are:

to obtain relevant and reliable audit evidence when using substantive analytical procedures and
to design and perform analytical procedures near the end of the audit that assist the auditor when forming an overall conclusion about whether the financial statements are consistent with the auditor’s understanding of the entity.

You may download clarified auditing standards from the AICPA website www.aicpa.org/InterestAreas/AccountingAndAuditing/Resources.

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Revision to SSARS No. 1

2010-12-06T11:50:00.003-07:00

The Accounting and Review Services Committee (ARSC) has revised Interpretation No. 30 to SSARS No. 1 as amended. The revision provides guidance when the accountant reports on compiled or reviewed financial statements prepared in accordance with International Financial Reporting Standards (IFRS) and the required comparative financial information is not provided.

The question asked in the interpretation, “May an accountant apply the reporting guidance in AR section 100 when engaged to report on financial statements presented in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB)?” The answer, “Yes,” basically because the IASB has been designated by the Council of the AICPA as the body to establish international financial reporting standards for both private and public entities pursuant to Rule 202.

You’ll find this interpretation particularly useful because it contains examples of emphasis of matter paragraphs, modification of the third paragraph of the standard report when compiling financial statements that omit substantially all disclosure but are otherwise in conformity with IFRS, and a review report when you have been engaged to review the historical financial statements in accordance with ISRE 2400.

This revised interpretation also answers a question concerning IFRS’s requirement to disclose comparative information in respect of the previous comparative period for all amounts presented in the current year’s financial statement. Failure to do so would be a departure from GAAP. The interpretation contains an example of a paragraph that may be added to the accountant’s compilation or review report that covers this issue.

The revised interpretation will be conformed for the issuance of SSARS No. 19, Compilation and Review Engagements.

The revised interpretation may be downloaded at
http://www.aicpa.org/InterestAreas/AccountingAndAuditing/Resources

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ASB Reissues Proposed SAS

2010-11-28T20:03:00.002-07:00

The ASB has reissued an exposure draft, Proposed Revised Statement On Auditing Standards Financial Statements Prepared In Accordance With A Financial Reporting Framework Generally Accepted In Another Country. It will supersede SAS No. 51, Reporting on Financial Statements Prepared for Use in Other Countries. The exposure draft was issued November 9, 2010. The comment period ends January 31, 2011.

The ASB issued an exposure draft Reporting on Financial Statements Prepared in Accordance With a Financial Reporting Framework Generally Accepted in Another Country in 2009. However, after revising that exposure draft as a result of issues raised in comment letters, the Board decided to reexpose the SAS.

In the proposed revised SAS, when financial statements are prepared in accordance with a financial reporting framework generally accepted in another country, and such financial statements are intended for use in the other country, the proposed revised SAS would require the inclusion of an emphasis of matter paragraph that will highlight the foreign financial reporting framework in any report also intended for use in the United States, while permitting an unqualified opinion.

In addition the concept of limited use in the previous exposure draft has been eliminated in the proposed revised SAS.

Effective Date
The proposed revised SAS would be effective for audits of financial statements for periods ending on or after December 15, 2012.

The reissued exposure draft is available on the AICPA website, http://www.aicpa.org/.

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SQCS No. 8 Replaces SQCS No. 7

2010-11-19T16:44:00.002-07:00

As part of its clarity drafting conventions the ASB has issued Statement on Quality Control Standards (SQCS) No. 8, A Firm’s System of Quality Control (Redrafted). This SQCS supersedes SQCS No. 7. It was issued November 2010 and is effective as of January 1, 2012. Early application is permitted.

As with many of the redrafted standards SQCS No 8, does not change or expand SQCS No. 7 in any significant respect. Instead certain requirements that are duplicative of broader requirements in SQCS No. 7 have been moved to application and other explanatory material. This is consistent with International Standard on Quality Control No. 1, Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements.

Documentation

You should be aware that Paragraph 46 of SQCS No. 8 contains a requirement that procedures established for dealing with differences of opinion should enable a member of the engagement team to document that member’s disagreement with the conclusions reached after appropriate consultation.

You’ll recall that this requirement was included in SAS No. 108, Planning and Supervision (AICPA, Professional Standards, vol. 1, AU sec. 311, par. .32). The ASB believes that this requirement is more appropriately placed at the firm level for all engagements.

A summary of SQCS No. 8 is available on the AICPA website, http://www.aicpa.org/InterestAreas/AccountingAndAuditing.

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Original Auditing Standards: Where are they?

2010-11-12T18:32:00.004-07:00

Most of the news on auditing standards lately has been on Clarified Auditing Standards. As you know the Auditing Standards Board (ASB) has been working on redrafting, revising, and converging audit, attest, and quality control standards with international standards. But the clarified auditing statements are not effective until December 15, 2012. So meanwhile where do you find the current standards?

Since the AICPA revamped their website it is more difficult to find the standards. So for your information here’s the link:

http://www.aicpa.org/Research/Standards/AuditAttest/Pages/SAS.aspx.

On this page you’ll find a list of the SASs from No. 1 to 120, with links to their respective Auditing Sections (AU) in the professional standards. The list is current as of June 1, 2010.

Proposed ASU on Transfers and Servicing

2010-11-12T17:41:00.002-07:00

The FASB has issued an exposure draft on Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements designed to improve the accounting for repurchase agreements (repos) and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The comment period ends January 15, 2011.

As you are no doubt aware, in a typical repo transaction, an entity transfers financial assets to a counterparty in exchange for cash with an agreement for the counterparty to return the same or equivalent financial assets for a fixed price in the future. Under Topic 860, Transfers and Servicing, an entity may or may not recognize a sale upon the transfer of financial assets subject to repo agreements, based, in part, on whether the entity has maintained effective control over the transferred financial assets.

The proposed Update is designed to simplify the accounting for these transactions by removing from the assessment of effective control the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets, as well as implementation guidance related to that criterion.

Proposed ASUs are available on the FASB website, www.fasb.org.

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SEC Work Plan on IFRS Progress Report

2010-11-02T12:30:00.004-06:00

The SEC Staff has published its first progress report on the “Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers.” As you are aware the SEC has been studying whether to allow U.S. issuers in the U.S. to use IFRS. The SEC directed the SEC Staff to come up with a work plan to determine whether, when, and how current financial reporting system for U.S. issuers should be transitioned to a system that incorporates IFRS. The Work Plan was published in February 2010 and covers the following area:

Characteristics of IFRS and standard-setting process:

Sufficient development and application of IFRS for the U.S. domestic reporting system.
The independence of standard setting for the benefit of investors.

Transition considerations:

Investor understanding and education regarding IFRS.
Examination of the U.S. regulatory environment that would be affected by a change in accounting standards.
The impact on issuers, both large and small, including changes to accounting systems. changes to contractual arrangements, corporate governance considerations, and litigation contingencies.
Human capital readiness.

The update draws no major conclusions. However, you will find some areas of particular interest in the progress report including concerns about the funding of the IASB which is funded by voluntary contributions. In addition industry regulators are concerned about the general lack of industry-specific standards and practices in IFRS. Work is also being done to analyze federal and state tax impacts, audit regulation and standard setting and broker-dealer and investment company reporting. Another issue has to do with the method of any incorporation of IFRS because of the incorporation of ‘U.S. GAAP’ references currently in U.S. laws, contractual documents, regulatory requirements and guidelines, and similar documents.

You may download the Work Plan Progress Report at www,sec.gov/spotlight/gloabalaccountingstandards/workplanprogress102910.pdf.

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Compilation and Review of Personal Financial Statements

2010-10-29T19:24:00.003-06:00

Those of you who may be engaged to compile or review personal financial statements will find an exhibit issued by the AICPA to their Guide, Compilation and Review Engagements of interest.

The exhibit covers compilations and reviews of personal financial statements. It points out that AR section 80, Compilation of Financial Statements, and AR section 90, Review of Financial Statements (AICPA, Professional Standards, vol. 2) are applicable to compilations and reviews of personal financial statements in the same manner as to compilations and reviews of financial statements of commercial entities. The exhibit provides specific guidance regarding how those AR sections are applied in compilations and reviews of personal financial statements.

It reminds us that FASB ASC Section 274 says that personal financial statements should present assets at their estimated current values and liabilities at their estimated current amounts at the date of the financial statements.

It contains illustrations of engagement letters for compilations and reviews of personal financial statements; client representation letters; as well as illustrations of the accountant’s compilations and review reports.

This exhibit may be downloaded from the AICPA website at http://www.aicpa.org under InterestAreas/AccountingAndAuditing/Resources/CompReview.

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Blue-Ribbon Panel Picks Differential GAAP

2010-10-22T19:10:00.004-06:00

The Blue–Ribbon Panel on Private Company Standards (the Panel) met for the fourth time October 8, 2010 in New York. Previously the Panel has considered seven alternative standard–setting models and structures for private companies including one that retained the current model and two that incorporated IFRS for SMEs. They eliminated four of the models and retained three. The models were further delineated between a restructured FASB Board and a separate private company standards board.

At the October meeting after thoughtful discussion a majority of panel members favored differential GAAP and a separate board.

On October 19, 2010 at their fall meeting the AICPA Governing Council approved a resolution supporting work of blue ribbon panel on private company financial reporting. An overwhelming voice vote supported the resolution. The Council declared the profession's readiness to implement differential GAAP for private companies as determined by a separate standard-setting board.

Those recommendations will be included in a report to the Financial Accounting Foundation (FAF). The separate board would consist of people with private company experience and report to the FAF, which oversees the FASB and GASB.

How will differential GAAP affect your practice?
Tell us how you think it will affect your practice by adding a comment.

The minutes of the Blue-Ribbon Panel's meetings are available on FASB website, http://www.fasb.org/ under Standards.

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FAF/AICPA/NASBA Blue-Ribbon Panel on Standard Setting for Private Companies is Seeking Input from Accountants

2010-10-02T13:59:00.002-06:00

The American Institute of Certified Public Accountants (AICPA), the Financial Accounting Foundation (FAF; the parent organization of the Financial Accounting Standards Board (FASB)), and the National Association of State Boards of Accountancy (NASBA) have established a “blue ribbon" panel (the Panel) to address how accounting standards can best meet the needs of U.S. users of private company financial statements. The Panel will conclude its work and issue a report, with any recommendations on the future of standard setting for private companies, to the FAF Board of Trustees (the Trustees) in approximately one year. The Panel’s report will be made available to the public and the Trustees’ resulting action plan is expected to be exposed for public comment prior to that plan being finalized.

The Panel will comprehensively review the current system of standard setting for private companies in the U.S., including the following matters:

Who are the actual users of private company financial statements and how do they use GAAP financial statements in their decision making?
What is the key, decision-useful information that the various users need from GAAP financial statements?
Are current GAAP financial statements meeting those needs? Why or why not?
Are the benefits of GAAP financial statements outweighing the costs of preparing those statements for private companies?
How does standard setting for private companies in the U.S. compare to standard setting in other countries, both those that have adopted IFRS for Small and Medium-Size Entities and those that have not?
To the extent that current GAAP is not meeting user needs in a cost-beneficial manner, what are some possible alternatives for private company standards (e.g., separate, stand-alone standards; base-level standards for all entities with additional disclosure requirements for public companies) and what are the implications for standard-setter structure and/or processes?

The Panel is currently seeking input from accountants regarding these matters at: http://www.fasb.org/cs/ContentServer?site=FASB&c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176157332360 . The time to have our voices heard is now!

New Proposed ASU on Leases

2010-09-11T12:10:00.002-06:00

Back in March 2009 the FASB and the IASB issued a discussion paper, Leases: Preliminary Views. After considering the responses to this discussion paper, the two Boards have issued a Proposed Accounting Standards Update Leases (Topic 840). This proposed ASU was issued August 17, 2010. The comment period ends December 15, 2010.

The main proposal in the proposed ASU is that lessees and lessors should apply a right-of-use model in accounting for all leases (including leases of right-of-use assets in a sublease) other than leases of biological and intangible assets, leases to explore for or use natural resources and leases of some investment properties. This means that:

(a) a lessee would recognize an asset representing its right to use the leased (‘underlying’) asset for the lease term (the ‘right-of-use’ asset) and a liability to make lease payments.

(b) a lessor would recognize an asset representing its right to receive lease payments and, depending on its exposure to risks or benefits associated with the underlying asset, would either recognize a lease liability while continuing to recognize the underlying asset (a performance obligation approach); or derecognize the rights in the underlying asset that it transfers to the lessee and continue to recognize a residual asset representing its rights to the underlying asset at the end of the lease term (a derecognition approach).

Assets and liabilities recognized by lessees and lessors would be measured on a basis that:

(a) assumes the longest possible lease term that is more likely than not to occur, taking into account the effect of any options to extend or terminate the lease.

(b) uses an expected outcome technique to reflect the lease payments, including contingent rentals and expected payments under term option penalties and residual value guarantees, specified by the lease.

(c) is updated when changes in facts or circumstances indicate that there would be a significant change in those assets or liabilities since the previous reporting period.

For contracts that combine service and lease components, the right to receive lease payments and the liability to make lease payments would exclude payments arising from distinct service components and for the draft IFRS, non-distinct service components for lessors that apply the derecognition approach.

For leases of 12 months or less, lessees and lessors would be able to apply simplified requirements.

The exposure draft also contains proposed disclosures based on stated objectives. This includes disclosures about the amounts recognized in the financial statements arising from leases and the amount, timing and uncertainty of cash flows arising from those contracts.

ASUs are available on the FASB website, www.fasb.org under Standards.,br/>
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Proposed ASU on Disclosure of Certain Loss Contingencies

2010-08-20T15:18:00.004-06:00

The FASB issued Proposed Accounting Standards Update Contingencies (Topic 450) Disclosure of Certain Loss Contingencies on July 20, 2010. At that time the comment period was to have ended August 20, 2010. The FASB has extended the comment period to Sept. 20, 2010 as a result of feedback from early respondents. For public entities, the new guidance would be effective for fiscal years ending after December 15, 2010, and interim and annual periods in subsequent fiscal years. For nonpublic entities, the new guidance would be effective for the first annual period beginning after December 15, 2010, and for interim periods of fiscal years after the first annual period.

The FASB issued this proposed Update because investors and other users of financial reporting have expressed concerns that disclosures about loss contingencies under the existing guidance in Topic 450 do not provide adequate and timely information to assist them in assessing the likelihood, timing, and magnitude of future cash outflows associated with loss contingencies.

The amendments in this proposed Update would apply to all entities, both public and nonpublic, except that nonpublic entities would not be required to provide a tabular reconciliation of accrued loss contingencies.

Objective
This proposed Update would establish the following disclosure objective: An entity shall disclose qualitative and quantitative information about loss contingencies to enable financial statement users to understand (a) the nature of the loss contingencies (b) their potential magnitude and (c) their potential timing (if known).

To achieve this objective, an entity would consider the following principles in determining disclosures that are appropriate for its individual facts and circumstances for loss contingencies that meet the disclosure threshold:

a. During early stages of a loss contingency’s life cycle, an entity would disclose information that is available to enable users to understand the loss contingency’s nature, potential magnitude, and potential timing (if known). In early stages information may be limited and so disclosure may be limited. In subsequent reporting periods, disclosure would be more extensive as more information becomes available.
b. An entity may aggregate disclosures about similar contingencies (for example, by class or type) so that the disclosures are understandable and not too detailed.

Disclosures
The amendments in this proposed Update would require disclosure of certain remote loss contingencies. This expands the population of loss contingencies that are required to be disclosed to achieve more timely disclosure of remote loss contingencies with a potentially severe impact.

When assessing the materiality of loss contingencies to determine whether disclosure is required, an entity would not consider the possibility of recoveries from insurance or other indemnification arrangements.

The proposed amendments would retain the current qualitative disclosures. In addition to the quantitative disclosures required under GAAP, the amendments would require disclosure of publicly available quantitative information, other relevant nonprivileged information, and, in some cases, information about possible recoveries from insurance and other sources.

A public entity would be required to provide tabular reconciliations, by class, of recognized (accrued) loss contingencies that present the activity in the account during the reporting period.

Proposed ASUs are available on the FASB website, http://www.fasb.org/.

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Blue Ribbon Panel Asking for Feedback

2010-08-15T16:39:00.003-06:00

As you are no doubt aware, the Blue Ribbon Panel, a joint effort by the AICPA; the Financial Accounting Foundation (FAF) FASB’s parent organization; and the National Association of State Boards of Accountancy (NASB) has been discussing alternate models for private company financial reporting. The panel considered seven alternative models at its July meeting. They eliminated models that were based on IFRS and a model that effectively would have maintained the status quo. The three models that remain would result in differences in GAAP for private companies, where warranted, compared with GAAP for public companies. The three are:

U.S. GAAP with Exclusions for Private Companies—with enhancements
U.S. GAAP—Baseline GAAP with Public Company Add-Ons
Separate, Stand-Alone GAAP Based on Current U.S. GAAP

Another recommendation to come out of the panel’s discussion is consideration of a separate board for private companies under the FAF. FASB would still set public company standards and the new board would be made up of individuals that are focused on private companies. This “private companies board” would decide whether, what and how GAAP should apply to private companies starting with the FASB standards.

Now the panel is asking for your feedback. They are asking users of private company financial statements, preparers and practitioners to respond to a series of questions. The questions will help the panel in (1) discussing how accounting standards can best meet the needs of U.S. users of private company financial statements and (2) making recommendations. The questions are on fasb.org and must be submitted by Sept. 15. A summary of the responses will be distributed to panel members and participating observers. The summary will be included as part of the observer notes (a publicly available meeting handout) for the panel’s next meeting, Oct. 8 at the AICPA’s New York City office.

Take advantage of this opportunity to tell the panel what you think about private company accounting standards. And while you’re at it, tell us what you think about a separate accounting standards board for private companies by leaving a comment.

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Commission Studying the Future of Accounting Education

2010-08-07T19:31:00.002-06:00

Now's your chance to tell a new commission what you think needs to be taught to future accountants. The American Accounting Association (AAA) and the AICPA have formed a new commission to study possible future paths of higher education for students who plan on becoming accountants. The "Pathways Commission" will ask for input from all areas the accounting community. This includes individuals and representatives from organizations that impact the various current accounting education pathways.

According to Bruce Behn, University of Tennessee professor and chair of the commission, the commission's goal is to facilitate an open, transparent discussion to be supported by both technolgy and public discussions.

The commission recognizes the difficulty of sustaining the momentum for change in the dynamic environment of accounting practice and education. For this reason the commission's efforts are structured to continue into the future.

The commission was formed to study accounting pathways because a number of forces are affecting accounting education including:

Shortages of qualified teachers with accounting doctorates,
The need to revise the accounting curricula regularly in light of fast-paced business changes,
University budget constraints that threaten to make the cost of education prohibitive, and
The need for training in specialized areas to meet the profession's demands.

The commission will hold its first meeting Oct. 15-17 in Washington, D.C.

More information on the commission may be found at http://www.pathwayscommission.org/.

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ASU No. 2010

2010-07-31T22:30:00.004-06:00

The FASB issued ASU No. 2010–20, Receivables (Topic 310) Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses in July 2010.

The objective of this ASU is to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables. It is intended to provide additional information to assist financial statement users in assessing an entity’s credit risk exposures and evaluating the adequacy of its allowance for credit losses. Currently, a high threshold for recognition of credit impairments impedes timely recognition of losses.

Amendments in this Update:

Apply to all entities, both public and nonpublic. Affect all entities with financing receivables, excluding short-term trade accounts receivable or receivables measured at fair value or lower of cost or fair value.
The extent of the effect depends on the relative significance of financing receivables to an entity’s operations and financial position.

Disclosures

This Update requires an entity to provide disclosures that facilitate financial statement users’ evaluation of the following:

The nature of credit risk inherent in the entity’s portfolio of financing receivables
How that risk is analyzed and assessed in arriving at the allowance for credit losses
The changes and reasons for those changes in the allowance for credit losses.

To achieve the above objective, an entity should provide disclosures on a disaggregated basis. The amendments in this Update define two levels of disaggregation—portfolio segment and class of financing receivable.

Effective date

For public entities, the disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. Therefore, for calendar year issuers, the year end information will be presented for 2010, but activity for the year will not be presented until 1st quarter 2011.

For nonpublic entities the disclosures are effective for annual reporting periods ending on or after December 15, 2011.

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PCAOB Proposed AS Related to Confiramtions and Related Amendments

2010-07-23T16:44:00.003-06:00

If you or your firm audit public companies then you'll be interested in the PCAOB's latest proposed Auditing Standard. The PCAOB released Proposed Auditing Standard Related to Confirmation and Related Amendments to PCAOB Standards on July 13, 2010. The comment period ends September 13, 2010.

The proposed auditing standard, Confirmation,

Supersedes the Board's standard, AU section 330, The Confirmation Process, and related amendments to the Board's auditing standards.
Is applicable to all registered firms conducting audits in accordance with PCAOB standards.

The new standard:

Requires confirmation procedures for specific accounts.
Incorporates procedures in response to risk of material misstatement.
Updates the standard to reflect significant advances in technology.
Defines a confirmation response to include electronic or other medium.
Enhances requirements when confirmation responses include disclaimers and restrictive language.

In drafting the proposed standard the Board considered International Standard on Auditing (ISA) 505, External Confirmations, issued by the International Auditing and Assurance Standards Board (IAASB) and the Proposed Statement on Auditing Standards, External Confirmations (the ASB's proposed SAS), of the ASB of the AICPA.

The proposed auditing standard may be downloaded from the PCAOB’s website, www.pcaob.com.

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Proposed SAS Interim Financial Information (Redrafted)

2010-07-16T23:33:00.002-06:00

The ASB has issued another Proposed SAS as part of its Clarity Project. The Proposed SAS Interim Financial Information (Redrafted) will supersede SAS No. 116, Interim Financial Information (AICPA, Professional Standards, vol. 1, AU sec. 722). It was issued July 8, 2010. The comment period ends October 8, 2010.

The proposed SAS would be effective for reviews of interim financial information for interim periods of fiscal years beginning on or after December 15, 2012.

Changes from existing standards include:

Change of the term "accountant" to "auditor" because the scope of this proposed SAS is limited to a review of interim financial information performed by the auditor of the financial statements of the entity.
Consistent with the proposed SAS Revised Applicability of Statement on Auditing No. 116, Interim Financial Information, states that the proposed SAS is applicable when the auditor audited the entity’s latest annual financial statements and the appointment of an auditor to audit the current year financial statements is not effective prior to the beginning of the period covered by the review. This change in applicability will affect current practice in that the auditor may apply AU section 722 even when the auditor does not expect to be engaged to audit the current year financial statements and will allow for appropriate transition between auditors when there is a change in auditors.
The proposed SAS requires the auditor to issue a written report unless the review of the interim financial information is required by a third party and the third party does not require that the auditor performing the interim review issue a written review report. However, the proposed SAS permits oral reports for entities that are subject to external requirements to report in a manner that is substantially similar to the reporting required of issuers, pursuant to PCOAB AU section 722, Interim Financial Information (AICPA, PCAOB Standards and Related Rules, PCAOB Standards, Interim Standards). This change in requirements will affect current practice by limiting the circumstances in which an oral report is permitted.
The proposed SAS requires the auditor, before accepting the engagement, (i) to review the interim financial information to determine whether the financial reporting framework to be applied in the preparation of the interim financial information is acceptable and (ii) to obtain the agreement of management that it acknowledges and understands its responsibility for certain specified matters.
The proposed SAS requires a statement that the review of interim financial information was conducted in accordance with auditing standards generally accepted in the United States of America.

The Proposed SAS may be downloaded from the AICPA website, http://www.aicpa.org/.

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FASB Staff Draft on Financial Statement Presentation

2010-07-02T19:45:00.002-06:00

The FASB and the IASB took an unusual step on July 1, 2010 by issuing a Staff Draft of an Exposure Draft on Financial Statement Presentation that prescribes the basis for presentation of general purpose financial statements to ensure consistency with an entity’s financial statements for previous periods and to promote comparability with the financial statements of other entities. It sets out overall requirements for the presentation of financial statements, requirements for the structure of financial statements, and principles for classification and disaggregation of information in the statements.

The draft reflects the cumulative, tentative decisions made by the Boards concluding with their joint meeting in April 2010. Work on the project is continuing, and the proposals are subject to change before the Boards decide to publish an Exposure Draft for public comment.

This Staff Draft reflects the Boards’ decision to engage in additional outreach activities before finalizing and publishing an Exposure Draft. Those activities will focus primarily on two areas: (1) the perceived benefits and costs of the proposals and (2) the implications of the proposals for financial reporting by financial services entities.

While the Boards are not formally inviting comments on this staff draft they welcome input from interested parties. They expect to publish an Exposure Draft for public comment in early 2011.

Scope
An entity shall apply this proposed guidance in preparing and presenting general purpose financial statements in accordance with U.S. GAAP. It applies equally to all entities except a not-for-profit entity and a benefit plan within the scope of the FASB Accounting Standards Codification™ Topics 960, Plan Accounting—Defined Benefit Pension Plans; 962, Plan Accounting—Defined Contribution Pension Plans; and 965, Plan Accounting—Health and Welfare Benefit Plans. In addition investment companies and other entities identified in Codification paragraph 230-10-15-4 are not required to present a statement of cash flows.

This proposed guidance does not change the accounting principles and reporting practices in Codification Topic 270, Interim Reporting.

The Staff Draft is available on the FASB website, www.fasb.org.

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New Proposed ASU on Revenue Recognition

2010-07-02T19:30:00.002-06:00

The joint project on revenue recognition of the FASB and the IASB has resulted in a recently released Exposure Draft. The Proposed Accounting Standards Update, Revenue Recognition (Topic 605), Revenue from Contracts with Customers was issued June 24, 2010 with a comment period ending October 22, 2010. The Proposed ASU was issued to improve both U.S. GAAP and IFRSs standards that cover revenue recognition by removing inconsistencies and weaknesses in existing revenue recognition standards and practices; providing a more robust framework for addressing revenue recognition issues; improving comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; and simplifying the preparation of financial statements by reducing the number of requirements to which entities must refer.

Who is affected?
The proposed guidance would affect any entity that enters into contracts to provide goods or services that are an output of the entity’s ordinary activities, unless those contracts are within the scope of other requirements of U.S. GAAP or IFRSs.

You should be aware that the proposed guidance would supersede most of the guidance on revenue recognition in Topic 605. In addition, the existing requirements for the recognition of a gain or loss on the sale of some nonfinancial assets that are not an output of the entity’s ordinary activities (for example, property, plant, and equipment within the scope of Topic 360 or IAS 16, Property, Plant and Equipment, or IAS 40, Investment Property) would be amended to be consistent with the proposed revenue recognition and measurement requirements.

Main Proposals
The Proposed ASU specifies the principles that an entity would apply to report useful information about the amount, timing, and uncertainty of revenue and cash flows arising from its contracts to provide goods or services to customers. The core principle would require an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it receives, or expects to receive, in exchange for those goods or services.

It also specifies the accounting for some costs. An entity would recognize the costs of obtaining a contract as expenses when incurred. If the costs incurred in fulfilling a contract are not eligible for capitalization in accordance with other standards an entity would recognize an asset only if those costs relate directly to a contract; generate or enhance resources of the entity that will be used in satisfying performance obligations in the future; and are expected to be recovered.

The Proposed ASU also covers identifying the contract(s) with a customer; determining the transaction price;allocating the transaction price to the separate performance obligations; and recognizing revenue when a performance obligation is satisfied

The Proposed ASU requires disclosures to help users of financial statements understand the amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. An entity would be required to disclose more information about its contracts with customers than is currently required, including more disaggregated information about recognized revenue and more information about its performance obligations remaining at the end of the reporting period.

Effective Date
The Boards have not designated an effective date for this Proposed ASU.
The Proposed ASU is available for download at www.fasb.org

Tell us how you think it will affect your practice by adding a comment.

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ASU No. 2010 -18 on Receivables

2010-06-19T09:50:00.004-06:00

ASU No. 2010–18, Receivables (Topic 310) Effect of a Loan Modification When the Loan is Part of a Pool That is Accounted for as a Single Asset, a consensus of the FASB Emerging Issues Task Force was issued April 2010 and is effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010.

This ASU was issued to provide guidance on accounting for acquired loans that have evidence of credit deterioration upon acquisition.

Why Issued?
Diversity in practice has developed on whether a loan that is part of a pool of loans accounted for as a single asset should be removed from that pool upon a modification that would constitute a troubled debt restructuring. The objective of the amendments in this Update is to address the diversity in practice regarding such modifications.

Any entity that acquires loans subject to Subtopic 310-30, that accounts for some or all of those loans within pools, and that subsequently modifies one or more of those loans after acquisition is affected by this ASU.

ASUs are available on the FASB website, http://www.fasb.org/ under Standards.

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ASU No. 2010 -17 on Revenue Recognition, the Milestone Method

2010-06-19T09:44:00.005-06:00

ASU No.2010–17, Revenue Recognition–Milestone Method (Topic 605) Milestone Method of Revenue Recognition, a consensus of the FASB Emerging Issues Task Force was issued April 2010.

The objective of this ASU is to provide guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions.

Research or development arrangements frequently include payment provisions whereby a portion or all of the consideration is contingent upon milestone events such as successful completion of phases in a drug study or achieving a specific result from the research or development efforts. An entity often recognizes these milestone payments as revenue in their entirety upon achieving the related milestone, commonly referred to as the milestone method. Authoritative guidance on the use of the milestone method did not previously exist. Therefore, constituents have raised questions on when and whether the use of this method is appropriate.

This ASU provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. Vendors that provide research or development deliverables in an arrangement in which one or more payments are contingent upon achieving uncertain future events or circumstances are affected by this ASU.

It is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity’s fiscal year, the entity should apply the amendments retrospectively from the beginning of the year of adoption. A vendor may elect, but is not required, to adopt the amendments in this Update retrospectively for all prior periods.

ASUs are available on the FASB website, http://www.fasb.org/ under Standards.

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ASU 2010-16 on Entertainment Casinos

2010-06-19T09:28:00.012-06:00

ASU No. 2010-16, Entertainment–Casinos (Topic 924), Accruals for Casino Jackpot Liabilities, a consensus of the FASB Emerging Issues Task Force was issued April 2010 and is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The amendments should be applied by recording a cumulative-effect adjustment which is the difference between the amounts recognized in the statements of financial position before initial application of the amendments in the Update and the amounts recognized in the statement of financial position at initial application of those amendments.

The objective of this ASU is to address diversity in practice in the accounting for casino base jackpot liabilities. It addresses diversity in practice regarding whether an entity accrues liabilities for a base jackpot before it is won, or the entity is not required to award the base jackpot. Some entities do not accrue liabilities for a base jackpot before it is won because they could avoid the payment while other entities accrue liabilities for a base jackpot ratably over the period of play expected to precede payout.

Entities that generate revenue from gaming activities that involve base jackpots are affected by this ASU.

This ASU clarifies that (1) an entity should not accrue jackpot liabilities (or portions thereof) before a jackpot is won, if the entity can avoid paying that jackpot (2) jackpots should be accrued and charged to revenue when an entity has the obligation to pay the jackpot and (3) it applies to both base and progressive jackpots.

ASUs are available on the FASB website, http://www.fasb.org/ under Standards.

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ASU 2010-15 on Financial Services

2010-06-19T08:59:00.007-06:00

n April 2010 the FASB issued ASU No. 2010-15 Financial Services—Insurance (Topic 944) How Investments Held Through Separate Accounts Affect an Insurer’s Consolidation Analysis of those Investments (a consensus of the FASB Emerging Issues Task Force). The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2010. Early adoption is permitted and the amendments in this ASU should be applied retrospectively to all prior periods upon the date of adoption.

This ASU was issued to address practice questions on how investments held through the separate accounts of an insurance entity affect the consolidation analysis under Subtopic 810-10, Consolidation—Overall. It explains that separate accounts represent assets that are typically maintained by a life insurance entity for purposes of funding obligations to individual contract holders under fixed-benefit or variable annuity contract, personal plans, and similar contracts. The contract holder generally assumes the investment risk, and the insurance entity receives a fee for investment management, certain administrative expenses, and mortality and expense risk assumed. The accounting for separate accounts is outlined in Subtopic 944-80 Financial Services – Insurance – Separate Accounts. That Subtopic requires that the portion of separate account assets representing contract holder funds be measured at fair value and reported in the insurance entity’s financial statements as a summary total, with an equivalent summary total reported for related liabilities if all of the criteria in 944-80-25-2 are met.

Who is Affected?
Insurance entities that have separate accounts that meet the definition of a separate account in paragraph 944-80-25-2 when evaluating whether to consolidate an investment held through the separate account or through a combination of investments in the separate and general accounts are affected by this ASU. The accounting for situations in which an insurer’s general account has a controlling financial interest in an investment is not affected by the amendments in this Update and should follow existing GAAP on consolidations.

The amendments in this Update are specific to insurance entities that have separate accounts and should not be analogized for other entities in no-separate-account arrangements or other investment situations.

ASUs are available on the FASB website, www.fasb.org under Standards.

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Change in Qualifications for the CFF Credential

2010-06-16T18:05:00.004-06:00

Many of you may have the experience and qualifications to hold certification in forensic accounting. Since May 2008, the AICPA has had a such a credential. The credential, Certified in Financial Forensics (CFF), combines specialized forensic accounting expertise with the core knowledge and skills that make CPAs among the most trusted business advisers. This credential encompasses fundamental and specialized forensic accounting skills that CPA practitioners apply in a variety of service areas. If, in your practice, you supply services encompassing bankruptcy, insolvency and reorganization; computer forensic analysis; economic damages calculations; family law; fraud prevention, detection and response; financial statement misrepresentation; and valuations then you may be interested in holding the CFF.

To qualify, you must be an AICPA member in good standing, have at least five years of experience in practicing accounting, and meet minimum requirements in relevant business experience and continuing professional education.

Qualifications for the CFF are changing beginning September 1, 2010. After that date you must pass the CFF Examination to attain the CFF Credential. This exam is scheduled for September 29th through October 29th2010. Registration for the exam will begin September 1st and last through October 1st.

You can download the CFF application by going to the AICPA website http://www.aicpa.org/. Look under Interest Area, Forensic and Valuation Services.

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Proposed SSAE, Reporting on Compiled Prospective Financial Statements When the Practitioner’s Independence Is Impaired.

2010-06-12T21:54:00.002-06:00

The AICPA Accounting and Review Services Committee (ARSC) has issued a Proposed Statement on Standards for Attestation Engagements (SSAE) Reporting on Compiled Prospective Financial Statements When the Practitioner’s Independence Is Impaired. The proposed SSAE is a result of SSARS No. 19 which, as you are aware, permits, but does not require, the accountant to disclose the reasons he or she was not independent when performing a compilation of historical financial statements.

The ARSC determined that the attestation standards should also be revised so that the practitioner, if he or she chooses, can disclose the reasons for an independence impairment in the compilation report on compiled prospective financial information. The proposed SSAE would amend paragraph .23 of AT section 301, Financial Forecasts and Projections (AICPA, Professional Standards, vol. 1), to permit, but not require, the accountant to disclose the reason(s) for an independence impairment in a report on compiled prospective financial information.

The proposed SSAE was issued June 3, 2010. The comment period ends September 10, 2010

The proposed SSAE would be effective for compilations of prospective financial statements for periods ending on or after December 15, 2010, with early implementation permitted.

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Proposed SAS, Filings With The U.S. Securities And Exchange Commission Under The Securities Act Of 1933

2010-06-12T21:28:00.003-06:00

The AICPA Auditing Standards Board has issued another proposed SAS in its Clarity Project. The Proposed SAS, Filings With The U.S. Securities And Exchange Commission Under The Securities Act Of 1933 supersedes SAS No. 37, Filings Under Federal Securities Statutes, (AU sec. 711). The proposed SAS was issued June 1, 2010 with a comment period ending August 2, 2010. It is effective for audits of financial statements for periods ending on or after December 15, 2012.

You’ll recall that the ASB is converging its standards with the International Standard on Auditing (ISA) when an ISA corresponds to the proposed SAS. In the case of this proposed statement there is no ISA that corresponds to the proposed SAS.

As with many of the “clarified” statements this proposed SAS does not change or expand the SAS it supersedes in any significant respect. It does reflect a more principles-based approach to standard setting, so certain requirements that are duplicative of broader requirements in SAS No. 37 have been moved to application and other explanatory material.

You might find the ASB staff prepared supplementary material on this proposed SAS useful. It compares the proposed SAS with AU Section 711 and 9711 and is available on the AICPA website at www.aicpa.org/InterestAreas/AccountingAndAuditing/Resources.

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Modified Timeline for Convergence of FASB/IASB Major Standards

2010-06-12T20:47:00.005-06:00

The IASB and the FASB recently issued a joint statement on their convergence work.

In November 2009 the two Boards reaffirmed their commitment to improving International Financial Reporting Standards (IFRSs) and US GAAP and achieving their convergence. In that statement they affirmed June 2011 as the target date for completing the major projects in the 2006 Memorandum of Understanding (MoU), as updated in 2008. Then in their March 2010 report they described the progress they had made to date, explained some of the challenges they face in improving and converging their standards in certain areas, and reported changes made to certain project-specific milestone targets.

They also recognized the challenges that arise from seeking effective global stakeholder engagement on a large number of projects. As a result of concerns expressed by various stakeholders about their ability to provide high-quality input on the large number of major Exposure Drafts planned for publication in the second quarter of 2010, the two Boards are now in the process of developing a modified strategy to take account of these concerns. This strategy would:

Prioritize the major projects in the MoU to permit a sharper focus on issues and projects that will bring about significant improvement and convergence between IFRS and US GAAP.
Stagger the publication of Exposure Drafts and related consultations to enable the broad-based and effective stakeholder participation in due process.
Limit to four the number of significant or complex Exposure Drafts issued in any one quarter.
Issue a separate consultation document seeking stakeholder input about effective dates and transition methods.

The modified strategy retains the target completion date of June 2011 for many of the projects identified by the original MoU. The target completion dates for a few projects have extended into the second half of 2011. To see more of theFASB's activities go to their website, http://www.fasb.org/.

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Proposed ASU on Comprehensive Income

2010-05-28T23:13:00.003-06:00

The FASB issued the Proposed Accounting Standards Update Comprehensive Income (Topic 220), Statement of Comprehensive Income on May 26, 2010. The comment period ends September 30, 2010

Under the amendments in this proposed Update an entity would be

Required to report total comprehensive income and its components in two parts— net income and other comprehensive income—in a continuous statement of financial performance.
Required to display a total for each part
Required to display each component of net income and each component of other comprehensive income in that statement of financial performance.

The amendments in this proposed Update would not

Change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.
Change the option for an entity to show components of other comprehensive income gross or net of the effect of income taxes in the statement of comprehensive income as long as the tax effect for each component is disclosed in the notes to the financial statements or is displayed parenthetically on the statement of comprehensive income.
Affect how earnings per share are calculated or reported.

The amendments in this proposed Update would be applied on a fully retrospective basis to improve comparability between reporting periods.

Early adoption would be permitted, because compliance with the proposed amendments is already permitted. The amendments do not require any transition disclosures.

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Proposed ASU on Financial Instruments

2010-05-28T22:50:00.005-06:00

As you may recall the FASB and the IASB have been working on a number of joint projects. One of these projects is Accounting for Financial Instruments. As a result of this project FASB issued the Proposed Accounting Standards Update. Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities, Financial Instruments (Topic 825) and Derivatives and Hedging (Topic 815) on May 26, 2010. The comment period ends September 30, 2010,

Under this proposal,

Most financial instruments would be measured at fair value in the statement of financial position each reporting period.
For derivatives and financial instruments for which an entity’s strategy is trading the instruments, fair value would continue to be required, with all changes in fair value recognized in net income each reporting period.
Changes in the fair value of equity securities, certain hybrid instruments, and financial instruments that can be contractually prepaid in such a way that the holder would not recover substantially all of its investment also would be recognized in net income each reporting period regardless of an entity’s business strategy with respect to those financial instruments.
Financial instruments for which an entity’s business strategy is to hold for collection or payment(s) of contractual cash flows, the proposed guidance would recognize the utility to financial statement users of both fair value and amortized cost information by requiring a reconciliation from amortized cost to fair value on the face of the statement of position.
Financial liabilities would be accounted for similar to financial assets, thus reflecting how financial assets and liabilities are managed together.
Hedge accounting criteria would be simplified.

The FASB has scheduled a free webcast on Financial Instruments on June 30, 2010. You may register for it on the FASB website, http://www.fasb.org/.

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Consideration of Laws and Regulations

2010-05-18T17:41:00.003-06:00

The Auditing Standards Board recently issued a clarified auditing standard, SAS Consideration of Laws and Regulations in an Audit of Financial Statements. This Statement supersedes SAS No. 54, Illegal Acts by Clients (AICPA, Professional Standards, vol. 1, AU sec. 317).

It addresses the auditor’s responsibility to consider laws and regulations in an audit of financial statement and does not apply to other assurance engagements in which the auditor is specifically engaged to test and report separately on compliance with specific laws or regulations.

The Statement addresses:

The effect of laws and regulations on financial statements
The responsibility for compliance with laws and regulations (both management's and the auditor’s responsibility).

Of particular interest to auditors is that the Statement discusses the auditor’s responsibilities in relation to compliance with the two categories of laws and regulations:

(1) The provisions of those laws and regulations generally recognized to have a direct effect on the determination of material amounts and disclosures in the financial statements, such as tax and pension laws and regulations.
(2) The provisions of other laws and regulations that do not have a direct effect on the determination of the amounts and disclosures in the financial statements but compliance with which may be fundamental to the operating aspects of the business; fundamental to an entity’s ability to continue its business; or necessary for the entity to avoid material penalties.

This SAS is effective for audits of financial statements for periods ending on or after December 15, 2012.

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SSAE No. 16 Reporting on Controls at a Service Organization

2010-04-24T12:33:00.003-06:00

The ASB has issued Statement on Standards for Attestation Engagements (SSAE) No. 16, Reporting on Controls at a Service Organization. With the issuance of this standard the requirements and guidance for service auditors and user auditors moves from SAS No. 70, Service Organizations (AU section 324) to SSAEs. Recall that the entity that outsources a task or function is known as a user entity, and the entity that performs a service for user entities is known as a service organization. Examples of service organizations include investment advisers that invest assets for user entities or a data center that provides applications and technology that enable user entities to process financial transactions.

SSAE No. 16 contains the requirements and guidance for a service auditor reporting on a service organization’s controls. It enables a service auditor to perform two types of engagements:

A type 2 engagement in which the service auditor reports on the fairness of the presentation of management’s description of the service organization’s system and the suitability of the design and operating effectiveness of the controls to achieve the related control objectives included in the description throughout a specified period.
A type 1 engagement in which the service auditor reports on the fairness of the presentation of management’s description of the service organization’s system and the suitability of the design of the controls to achieve the related control objectives included in the description as of a specified date.

SSAE No. 16 is effective for service auditors' reports for periods ending on or after June 15, 2011. Earlier implementation is permitted.

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Blue-Ribbon Panel Holds First Meeting

2010-04-24T12:25:00.003-06:00

The first meeting of the panel was held April 12, 2010 in the New York offices of the AICPA. The key portion of the meeting featured the viewpoints of those panel members who use private company financial statements, including three lenders, a venture capitalist, a private equity manager, a surety, and a business owner.

Most members agreed that U.S. GAAP is seen as a gold standard in financial reporting, and that consistency of GAAP is key. In addition they said that financial statements are only a part of decision making and that management’s character plays an important role in those decisions. Panel members said in using financial statements, they make adjustments to fit their own needs and they would be willing to make further changes if GAAP were modified. But having too many exceptions and variances erodes the notion of what is considered to be generally accepted, they said.

At the panel’s next meeting preparers and auditors will share their viewpoints. In addition, representatives from the International Accounting Standards Board and the Canadian Accounting Standards Board will speak with the panel about IFRS for SMEs and Canadian GAAP for Private Enterprises.

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First Meeting of the Blue-Ribbon Panel on Private Company Financial Reporting April 12, 2010

2010-04-09T17:26:00.003-06:00

The first meeting of the Blue-Ribbon Panel on Private Company Financial Reporting will be held on Monday April 12, 2010 in New York City. A public portion of the meeting will take place from 10:30 a.m. to 4:30 p.m. This portion of the meeting will be accessible via live audio stream. You may access the audio by going to the FASB website, fasb.org. and clicking on “Listen to Webcast of April 12, 2010 Meeting of “Blue Ribbon Panel” on Standard Setting for Private Companies” under “Recent Activity and News.”

In the first half of the public portion of the meeting, various people will provide an overview of the history on the debate of private company standards within the U.S. financial reporting system, provide a briefing on world actions on private company financial reporting, and provide a briefing on the current U.S. standard-setting process. There will also be an expert discussion by James Castellano, former chairman of the AICPA’s Private Company Financial Reporting Task Force and 2002 AICPA Board of Directors chairman.

In the second half of the public portion of the meeting, panel members will discuss their views on the following issues:

Who are the actual users of private company financial statements?
What is the key, decision-useful information that the various users need from U.S. GAAP financial statements? Is there information you don’t need or can’t get?
Are current U.S. GAAP financial statements meeting those needs? Why or why not?
Do you routinely “adjust” the U.S. GAAP financial statements to meet your needs?
Are you concerned with the cost/benefit issues preparers experience in preparing U.S. GAAP financial statements?

The next meeting is scheduled for May 15, 2010.

How do you feel about the work of the Blue-Ribbon Panel? Is there a need for a separate set of standards for private companies? Tell us how you think it will affect your practice by adding a comment.

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Director Needed for New PCAOB Financial Reporting Fraud Resource Center

2010-04-07T12:17:00.003-06:00

It seems as if fraud is always with us. so one of the recommendations from the Treasury Advisory Committee on the Auditing Profession called for the creation by the PCAOB of a national center to facilitate the prevention and detection of financial fraud. As a result the PCAOB is developing the Financial Fraud Resource Center. The Center is expected to maintain and develop information related to financial reporting fraud and will publish public reports on financial reporting fraud risks.

The PCOAB is looking for someone to head up the Center. If you are looking for a job and have the following qualification you might be interested in becoming the Center's director. You need to be able to monitor emerging fraud risks (financial and nonfinancial) and developments (geoeconomic and geopolitical) in domestic and foreign capital markets, industries and public companies and analyze and interpret financial trends, developments and anomalies to identify factors that may contribute to financial reporting fraud.

One of the director’s first duties will be to work with the Board and senior PCAOB staff to set up the operations and activities of the new center. After the launch of the center, the director will be responsible for its day-to-day operations, including hiring and managing staff.

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White Paper for Members in Business and Industry Guide to Understanding Internal Control and Internal Control Services for Smaller Entities

2010-03-29T12:43:00.001-06:00

The AICPA recently issued a white paper on understanding internal control and internal control services directed to members in business and industry. The concept of internal control services is part of SSARS No. 19.

While practitioners must understand the concepts of internal control and internal control services, so must members in business and industry, including audit committees and managers. It’s important for these members to understand the concepts of internal control and independence and the effect they have on the CPA practitioners they hire to audit, review, or compile their financial statements, as well as perform internal control services.

While practitioners understand that if a CPA practitioner has established or maintained internal controls, including performing ongoing monitoring activities for a client, the CPA’s independence has been impaired and thus he or she is precluded from performing an audit or review engagement for that client. The client may not understand such limitations. The white paper addresses these issues.

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IRS Will Require Disclosure of Uncertain Tax Positions

2010-03-27T09:41:00.002-06:00

An article in the April issue of the Journal of Accountancy documents questions and answers with IRS Commissioner Doug Shulman, (www.journalofaccountancy.com/Issues/2010/Apr/20102509.htm). The second question reads, "What can you tell CPAs who are concerned about the proposed reporting regime for uncertain tax positions?" His answer is basically that we need to be glad the IRS isn't exercising its legal authority and demanding all the FIN 48 working papers! Being the nice folks they are, the commissioner says they are only asking for a list of positions and the maximum exposure to those positions....for the time being!

Agree with this or not, monitoring tax compliance has become the burden of the return preparer under this proposal. Work to prepare the list of uncertainties and their maximum exposure will increase return preparation time considerably, not to mention the time that will be consumed by IRS follow-up inquiries and audits. On top of this, we can expect that failure to provide a complete list of uncertain tax positions could bring huge penalties. When is enough enough?

Speak now or forever hold your peace!The AICPA's Tax Division is collecting input to formulate a response to the IRS proposal at MemberinputonAnnouncement2010-9@aicpa.org. We can also respond directly to the proposal at www.irs.gov. Let your voice be heard!

FASB News Release

2010-03-24T11:16:00.000-06:00

NEWS RELEASE 03/11/10

FASB and IASB Issue Exposure Draft on the Reporting Entity Concept

Norwalk, CT, March 11, 2010—The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) today published for public comment the Exposure Draft (ED), Conceptual Framework for Financial Reporting: The Reporting Entity.

The ED is part of a joint project between the FASB and IASB to develop a common and improved conceptual framework that provides a sound foundation for developing future accounting standards. It discusses what constitutes a reporting entity, which in different situations could be a group of entities, a single entity, or only a portion of an entity.

The ED is available for download at www.fasb.org or www.iasb.org. Interested parties are encouraged to review and provide comment on the ED by the July 16, 2010 deadline. More information about the Conceptual Framework project is available at www.fasb.org or by visiting www.iasb.org.

Contacts:

Neal McGarity, Director of Communications, FASB, telephone: 203-956-5347, email: nemcgarity@f-a-f.org

Mark Byatt, Director of Corporate Communications, IASB,
telephone: +44 (0)20 7246 6472, email: mbyatt@iasb.org

Sonja Horn, Communications Adviser, IASB,
telephone: +44 (0)20 7246 6463, email: shorn@iasb.org

SAS No. 118 Other Information in Documents Containing Audited Financial Statements

2010-02-24T12:39:00.004-07:00

The ASB recently issued SAS No. 118, Other Information in Documents Containing Audited Financial Statements. It is effective for audits of financial statements for periods beginning on or after December 15, 2010 with early application permitted. Along with SAS No. 119, Supplementary Information in Relation to the Financial Statements as a Whole it supersedes the requirements and guidance in AU section 550. It also supersedes the requirements and guidance in AU section 551.

You’ll find that this Standard:

Eliminates the distinction between other information that is included in an auditor-submitted document that contains the client’s basic financial statements and the auditor’s report and other information that is in a client-prepared document.
Establishes a presumptively mandatory requirement that:
- the auditor read the other information of which the auditor is aware in order to identify material inconsistencies, if any, with the audited financial statements.
- the auditor make appropriate arrangements with management or those charged with governance to obtain the other information prior to the report release date.
- if it is not possible to obtain all of the other information prior to the report release date, that the auditor read such other information as soon as practicable.
- the auditor communicate with those charged with governance the auditor’s responsibility with respect to the other information, any procedures performed relating to the other information, and the results.
- if, on reading the other information, the auditor identifies a material inconsistency prior to the report release date that requires revision of the audited financial statements and management refuses to make the revision, that the auditor modify the auditor’s opinion in accordance with AU section 508, Reports on Audited Financial Statements (AICPA, Professional Standards, vol. 1).
- when the auditor identifies a material inconsistency prior to the report release date that requires revision of the other information and management refuses to make the revision, that the auditor communicate that matter with those charged with governance and include in the auditor’s report an explanatory paragraph describing the material inconsistency, in accordance with paragraph .11 of AU section 508; withhold the auditor’s report; or when withdrawal is possible under applicable law or regulation, withdraw from the engagement.
- when revision of the audited financial statements is necessary as a result of a material inconsistency with other information and the auditor’s report on the financial statements has already been released, that the auditor apply the relevant requirements in AU section 561, Subsequent Discovery of Facts Existing at the Date of the Auditor’s Report (AICPA, Professional Standards, vol. 1).
- when revision of the other information is necessary after the report release date and management agrees to make the revision, that the auditor carry out the procedures necessary in the circumstances.
- when revision of the other information is necessary after the report release date but management refuses to make the revision, that the auditor notify those charged with governance of the auditor’s concerns regarding the other information and take any further appropriate action.
- if, on reading the other information for the purpose of identifying material inconsistencies, the auditor becomes aware of an apparent material misstatement of fact, that the auditor discuss the matter with management. If, after discussion, the auditor still considers that there is an apparent material misstatement of fact, the statement establishes a presumptively mandatory requirement that the auditor request management to consult with a qualified third party, such as the entity’s legal counsel, and that the auditor consider the advice received by the entity in determining whether such matter is a material misstatement of fact.
- when the auditor concludes that there is a material misstatement of fact in the other information and management refuses to correct, that the auditor notify those charged with governance of the auditor’s concerns and take any further appropriate action.
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SAS No. 117 Compliance Audits

2010-02-24T12:09:00.004-07:00

The AICPA Auditing Standards Board (ASB) issued SAS No. 117, Compliance Audits in December 2009. It is effective for compliance audits for fiscal periods ending on or after June 15, 2010. Early application is permitted.

As you know governments frequently establish governmental audit requirements for entities to undergo an audit of their compliance with applicable compliance requirements. The ASB issued this SAS to address such governmental audit requirements. It supersedes SAS No. 74, Compliance Auditing Considerations in Audits of Governmental Entities and Recipients of Governmental Financial Assistance. It was primarily developed in response to the results of a federal study on the quality of audits performed under Office of Management and Budget Circular A-133, Audits of States, Local Governments and Non-Profit Organizations (also referred to as single audits), which showed that improvements were needed in many areas.

SAS No. 117

Establishes standards and provides guidance on performing and reporting (in accordance with GAAS, Government Auditing Standards, and a governmental audit requirement that requires an auditor to express an opinion on compliance) on an audit of an entity’s compliance with applicable compliance requirements of a governmental audit requirement. (For example, single audits and audits performed under the U.S. Department of Housing and Urban Development (HUD) Consolidated Audit Guide for Audits of HUD Programs.)

Updates SAS No. 74 to reflect changes in the compliance audit environment and incorporates the risk assessment standards.

Requires the auditor to adapt and apply the AU sections of AICPA Professional Standards to a compliance audit and provides guidance on how to do so.

Identifies the AU sections that are not applicable to a compliance audit,

Defines terms related to compliance audits and used in the SAS, and

Identifies the elements to be included in an auditor’s report on a compliance audit.

Going Concern is Still Going!

2010-02-20T15:31:00.001-07:00

Summary of FASB Decisions Reached to Date (As of 01/13/10)

Based upon discussions surrounding issues raised in comment letters received on the proposed FASB Statement, Going Concern, and subsequent Board meetings, the Board has decided the following:

To provide guidance that defines a going concern.
To clarify that the time period for the going concern assessment is not a bright-line 12 months but also is not intended to be an indefinite look-forward period.
To broaden the scope of the project to address three additional areas:

Next Steps

The staff will draft language to clarify the disclosure requirements related to management’s going-concern assessment, including the development of language to replace the term substantial doubt, and develop guidance surrounding the liquidation basis of accounting. The Board will review these developments and decide whether it will issue a revised Exposure Draft by the end of the first quarter of 2010.

Clarified Risk Assessment Standards

2010-02-10T14:38:00.003-07:00

As you are aware the Auditing Standards Board (ASB) is involved in a Clarity Project. Over the past few months existing Statements on Auditing Standards (SASs) have been redrafted to comply with clarity drafting conventions.

The ASB has issued six “clarified statements” related to risk assessment. You will recall that the ASB previously issued SAS Nos. 104-111 (the risk assessment standards) effective for audits of financial statements for periods beginning on or after December 15, 2006. The clarified Risk Assessment Standards are the redrafting of SAS Nos. 106-110.

The six clarified statements also converge with International Standards on Auditing (ISA). The statements are:

Planning an Audit
Materiality in Planning and Performing an Audit
Evaluation of Misstatements Identified During the Audit
Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (Redrafted)
Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained (Redrafted)
Audit Evidence (Redrafted)

The SASs are effective for audits of financial statements for periods beginning on or after Dec. 15, 2010. The effective date is provisional but will not be earlier.

When all the clarified SASs are issued, one SAS will be issued containing all clarified SASs in codified format.

The SASs are available for download on the AICPA’s web site, http://www.aicpa.org/.

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Accounting Standards for SMEs

2010-01-26T15:46:00.004-07:00

At least 35 countries around the world have indicated they will use international accounting rules for smaller businesses within three years. This number is from a straw poll conducted during a meeting of standards setters in September 2009. The International Accounting Standards Board (IASB) issued what is commonly referred to as IFRS for SMEs in July 2009. IFRS for SMEs is a result of the IASB’s seven-year project to produce a consistent set of accounting rules for small and medium-sized entities. SMEs make up 99% of the world’s unlisted companies.

The countries, many from developing and emerging economies, have indicated they will either require or permit the use of the international financial reporting standards (IFRS) for small and medium-sized businesses (SMEs) by 2013.

Now the AICPA, the Financial Accounting Foundation (FAF), and the National Association of State Boards of Accountancy (NASBA) have formed a “Blue-Ribbon Panel” to address accounting standards for private companies. According to the U.S. Census Bureau, there are 29 million privately held companies in the U.S. Many are small- and medium-sized organizations that report to a narrower range of financial statement users, such as lenders, venture capitalists, and insurers.

The chairman of the panel has been picked and the rest of the panel is supposed to be selected this month.

So here’s the question. Do you think a different set of accounting standards is needed for small-and medium-sized organizations?

Tell us how you think by adding a comment.

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In the Year 2010....

2010-01-16T09:56:00.000-07:00

Wasn't that the title of a song? Oh, I remember. It was "in the year 2525." Anyway, the year 2010 will be the beginning of a breath-taking trip into the future for accountants and auditors. In some ways, I feel like it's "backing into the future." Accounting standards are returning to a "principles based" set of rules, the way it was before we had the rules! Practiitoners and standards-setters are recognizing that risk drives the performance of all levels of accounting and auditing services, the common sense rule some of us "ancients" used back in the dark ages. Could it be we have come full circle and once again we're using our common sense to guide our work? If this is so, we need to make some changes to the ways we do things. Read on.

In the mid-1980s when the expectation-gap pronouncements nearly consumed us, common sense was covered up with all kinds of empirical studies, frameworks and formula approaches to their application. It took us a while to wade through the mire but most of us were able to recover our ability to think and reason. And then along came the flood tide of risk assessment standards in 2006, the beginning of accounting and auditing convergence projects and globalization of everything dear to us. I can still hear the sounds of CPA practiitioners gasping for air as they struggle not to go down for the third time!

You've probably heard the story of the man than went to the doctor with pain in his shoulder. As he extended his arm in a semi-circle over his head he complained, "This really makes my shoulder hurt." The doctor replied, "Well, don't do that anymore!" We've got to follow that doctor's advice and find ways to stop doing the things that are hurting our accounting and auditing practices! Here are some things that are causing CPA firms pain:

Accounting standards overload--We are responsible for complying with accounting rules that no one wants, not our clients nor the users of their financial statements!
Practice aids and forms dependency--Some CPA firms' staff personnel have been caught in the tsunami of auditing standards of the latter years and have grabbed the nearest practice aid to stay affloat. There is no time to understand, only paddle!
Fear of peer review--Intended as a way to help CPA firms improve the quality of their practices, in some states it has become adversarial and punitive in its purpose. Afraid of the power of a peer reviewer, we may protest but meekly but crawl back into our cage when the lion roars.

The doctor said, "Don't do that anymore!" We need to begin planning ways to avoid the application of cumbersome GAAP rules. We've got to train our staff personnel to know when, and when not, to use standard practice aids from major publishers. We must train our people to know the requirements of auditing standards so they can do the minimum amount of work in each engagement's circumstances. Once again, firms of all sizes must begin to create proprietary auditing practice aids that meet the needs of their client engagements and challenge the peer reviewer to prove them wrong!

It's time to stick our heads out the window and shout, "We're mad as hell and we're not going to take it anymore!" I mean right now! Post your "shout" on this blog and tell the standard-setters why you are fed up!

Can an Auditor Use the Prior Period's Control Risk Assessment?

2010-01-09T11:35:00.000-07:00

The risk assessment standards opened a door that was unexpected. Auditors were given permission, almost encouraged, to consider the affects of the prior period’s control risk assessment on the current period’s control risk assessment. Focusing on the performance of tests of controls, the standards indicated that if there was no significant change in policies, procedures or personnel, the prior year’s control risk assessment could be used in the current period.

To reach such a conclusion, the auditor must at least make inquiries of client management personnel. In fact, common sense would tell us that the best way to do this is by reviewing the prior year’s internal control documentation with client personnel. Often the reason for using flowcharts, this review should include a systems walk-though procedure with a handful of each type of transaction, probably at least 5. Once the flowchart (or an ICQ or memo) has been updated and the walk-through procedure documented with no significant change, the prior year’s control risk assessment can be use to develop cost-beneficial audit strategies and audit plans.

If there are significant risks of material misstatement found in updating internal control documentation, the prior year’s assessment can not be used to mitigate such misstatements. In this case, further substantive tests would be necessary to mitigate such risks and the control risk assessment may be higher than the prior year.

Being able to use the prior period's control risk assessment in the current period is an opportunity for HUGE time savings! This is another example of ways an auditor can comply with existing professional standards and, at the same time, increase small audits' profitability.

Private Companies Accounting Standards

2009-12-22T14:43:00.003-07:00

The AICPA, the Financial Accounting Foundation (FAF), FASB’s parent organization, and the National Association of State Boards of Accountancy (NASBA) are sponsoring a blue–ribbon panel that is charged with making recommendations on the future of standard setting for private companies. They will take on the issue of whether separate accounting standards are needed for private companies

This is not a new issue for the accounting profession. In the past other groups have wrestled with questions about accounting standards for U.S. private companies, but they mostly focused on technical issues. This panel is unique in that it has support from standard setters, the CPA profession, and state regulators.

The chairman and members of the panel will be named in January. Members of the panel will include individuals representing a variety of financial reporting constituencies, including lenders, investors and owners as well as preparers, auditors, and regulators.

While no deadline has been set for the panel’s work, recommendations are likely to come in 2010.

Let us know what you think. Should there be a separate set of accounting standards for private companies?

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New SSARS Approved - Non-Independent Review Not In It

2009-12-15T12:03:00.004-07:00

The AICPA Accounting and Review Services Committee (ARSC) approved a new compilation and review standard in November 2009. We have previously discussed the exposure draft that resulted in this new standard. The effective date of the new standard is for periods ending on or after December 15, 2010. However paragraph 2.21 may be implemented early. This is the paragraph that that allows CPAs to explain in their compilation reports the reasons why they are not independent.

There are two differences in the exposure draft and the final standard. The ARSC retained the concept of limited assurance rather than moderate assurance and the non-independent review is not part of the final standard. Because of the number of comments on this proposal, for and against, the ARSC decided to defer this issue so the Committee could hold additional meetings with key stakeholders.

The new SSARS contains a number of changes. One change of interest to small firms is that compilation guidance is separated from review guidance. Other significant changes include:

A discussion of how the accountant obtains limited assurance through the performance of review procedures.
The introduction of the term review evidence to the review literature.
A discussion of tailoring the review procedures based on the accountant’s understanding of the client’s industry, knowledge of the client, and awareness of the risk that he or she may unknowingly fail to modify the accountant’s review report on financial statements that are materially misstated.
A discussion of materiality in the context of a review engagement.
A requirement that an accountant document the establishment of an understanding with management through an engagement letter regarding the services to be performed.
Enhanced documentation requirements for compilation and review engagements.

The AICPA has issued a white paper, Significant Change for Compilation Reporting Requirements When Independence is Impaired. It is available from the AICPA at http://www.aicpa.org/.

Let us know what you think about the ability to issue a non-independent review report.

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Thinking Outside the Box--An Auditor's Greatest Gift!

2009-12-12T10:15:00.002-07:00

For all audit engagements, documentation must evidence compliance with the requirements of applicable SASs. Because SASs are written to be applicable to audit engagements of all sizes, compliance for a small audit engagement will likely be different than for a large audit. Audit documentation of compliance, therefore, is also likely to be different.

As we begin to think outside the box in planning, performing and documenting small audits, a CPA firm's quality control document must give the engagement executive the authority to make modifications that are tailored to the nature, size and complexity of a small entity. Our next step is to develop alternative documentation for use on our small audits.

In a December, 2009 article in the Journal of Accountancy entitled "Risk-Based Audit Best Practices" by Michael Ramos, CPA (a must read for all auditors!), this statement stands out:

"Once thought to be the purview of only the largest firms, growing numbers of audit firms are developing a more customized, firm-specific set of audit practice aids by creating their own forms or checklists for highly judgmental areas such as the documentation of internal controls."

Particularly on small audits, auditors can no longer afford to simply use all the practice aids of a major publisher! There are many ways to comply with quality control and auditing standards. Common sense and analytical thinking has always been a key to performing high-quality, highly-efficient audits and it still is today! With the increasing standards overload, CPA firms must begin to plan and use key audit documentation relative to the nature, size and complexity of an entity.

On December 23, 2009 I'm presenting a webcast on CPE Link, co-sponsored by AccountingWEB, entitled "Using Only Key Forms and the Most Efficient Documentation." In this webcast, I'll present an illustrative small audits alternative documentation plan which can be integrated with practice aids of major publishers. Participants in this webcast will receive beta copies of forms under development for my Small Audits Handbook along with written suggestions for their use. This webcast could be an auditor's greatest gift this holiday season! You can register on my instructor's page at www.cpelink.com. I hope to see you there!