The Auditors Report

ASB Update as of December 31, 1998

Kurt Pany, Arizona State University
Academic Member of the Auditing Standards Board

In this update, I summarize the ASB pronouncements approved for issuance during the year ending December 31, 1998, and highlight various projects still in progress. As always, feel free to contact me with any questions and comments.

1998 PRONOUNCEMENTS

SAS No. 86—Amendment to SAS No. 72, Letters for Underwriters and Certain Other Requesting Parties
SAS No. 86 amends portions of SAS No. 72, Letters for Underwriters, to reflect SSAE No. 8 (see below).

SAS No. 87—Restricting the Use of an Auditor’s Report
This SAS provides guidance to help auditors determine whether an engagement requires a restricted-use report and, if so, what elements to include in that report. A restricted-use report is one that is intended only for specified parties. The need for restriction on the use of report may result when:

  • The subject matter of the auditor’s report or the presentation being reported on is based on measurement or disclosure criteria contained in contractual agreements or regulatory provisions that are not in accordance with generally accepted accounting principles (or an other comprehensive basis of accounting).
  • The accountant’s report is based on procedures specifically designed and performed to satisfy the needs of specified parties who accept responsibility for the sufficiency of the procedures (e.g., agreed-upon procedures engagements).
  • The auditor’s report is issued as a by-product of a financial statement audit and is based on the results of procedures designed to enable the auditor to express an opinion on the financial statements taken as a whole, not to provide assurance on the specific subject matter of the report (e.g., SAS No. 60 [AU 325] on the communication of internal control-related matters noted in an audit).

Although a report’s use must be restricted in the circumstances described above, SAS No. 87 indicates that an auditor may restrict other reports, including those that are ordinarily general-use reports.

SSAE No. 8—Management’s Discussion and Analysis
This lengthy SSAE outlines approaches for examinations and reviews of MD&A. The SSAE provides guidance to assist the CPA in:

  • Accepting an engagement
  • Planning the engagement
  • Considering internal control applicable to the preparation of MD&A;
  • Obtaining sufficient evidence for an examination
  • Applying analytical procedures and inquiries for a review
  • Considering events subsequent to the balance-sheet date
  • Reporting

SSAE No. 9—Attestation Recodification
This SSAE:

  • Enables the CPA to report directly on a specified subject matter, such as internal control or on management’s assertion about internal control. For example, the CPA could now express a conclusion about internal control in part as:

    In our opinion, Brody Company maintained effective internal control over financial reporting as of December 31, 19XX, based upon criteria established in [identify criteria]. Alternatively, the CPA could continue to report on management’s assertion about internal control in part as: In our opinion, management’s assertion that Brody Company maintained effective internal control over financial reporting as of December 31, 19XX is fairly stated, in all material respects, based upon criteria established in [identify criteria].

  • Eliminates the requirement for a separate presentation of management’s assertion in certain cases where the assertion is included in the introductory paragraph of the CPA’s report.
  • Aligns attestation-reporting language with that included in SAS No. 58, Reports on Audited Financial Statements.
  • Provides guidance on the relationship between the Attestation Standards and the Quality Control Standards.

OTHER PROJECTS

Attestable Criteria Task Force
The objective of this task force is to improve and clarify the guidance on what constitutes acceptable “measurement criteria” (the GAAP for financial statement audits) for new engagements crafted under the attestation standards. The task force also will develop implementation guidance to help CPAs establish criteria for attestation engagements.

Attestation Recordation II Task Force
This task force is examining the SSAEs to improve their understandability and utility. The task force also will develop nonauthoritative guidance to help practitioners determine whether engagements are subject to the attestation standards, the consulting standards, or the auditing standards.

Electronic Dissemination of Audited Financial Information Task Force
This task force is considering issues concerning the electronic dissemination of audited financial statements, related auditors’ reports, and other information on which an accountant has reported. The task force is considering issues including:

  • Whether an accountant has an obligation to determine if his or her report and the information to which it relates will be electronically disseminated.
  • The accountant’s responsibility for the electronic version of information attested to and other information that might be associated with that information.

Financial Instruments Task Force
The task force is considering the auditor’s responsibility for auditing financial statement assertions for financial instruments. The task force has prepared a draft of a proposed SAS that provides a framework for auditing all financial instruments. The proposed SAS will provide guidance on how an auditor obtains a sufficient understanding of an entity’s internal control for situations in which a separate organization, such as a custodian, broker dealer, or bank trust department serves as part of an entity’s information system as it relates to the entity’s financial statements.

Year 2000 Issue
The ASB has been involved with a number of aspects of the Year 2000 Issue, and auditor responsibility with respect to it. The AICPA web site (www.aicpa.org) includes various advice and positions relating to this responsibility.

FINAL COMMENT

As of December 31, 1998 I have rotated off the ASB. It is my hope that AAA Audit Section members will provide Ray Whittington (DePaul University), my replacement, with excellent support throughout his term.

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