In May 2019, the Auditing Standards Board issued Statement on Auditing Standards Number 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements.
SAS 134 will make a lot of changes to auditing standards. The most visible impact likely will be complete revision of the audit report.
You can download a copy of SAS 134 at this link
SASs 135 through 140 also make lots of changes in audit procedures. A lot.
All of the documents are interrelated and will be effective at the same time.
Over the next year or two I will probably write more posts talking about the changes. For the meantime here’s an illustration of what the new report will look like.
As issued initially, the effective date would have been for audits of years ending on or after December 15, 2020. First financial statements affected would be December 31, 2020.
Then the pandemic hit.
In May 2020, the ASB issued SAS #141, Amendment to the Effective Dates of SAS Nos. 134-140.
You can download a copy here. This pronouncement defers effective dates of SAS 134 through 140 by one year.
All of them will now be effective for years ending on or after December 15, 2021. That means the long series of SASs will first be required for audits of December 31, 2021 financial statements.
Another change made by SAS 141 is the series of SAS may now be early implemented. This allows firms who were well underway towards implementation on 12/31/20 audits to continue their transition.
Sample of revised audit report
Independent Auditor’s Report
Board of Directors
Local Homeless Shelter
Report on the Audit of the Financial Statements
(not required when other reporting is not added at end of report)
I have audited the financial statements of Local Homeless Shelter (a not-for-profit corporation), which comprise the statement of financial position as of December 31, 2021 and 2020, and the related statements of activity, functional expenses, and cash flows for the years then ended, and the related notes to the financial statements. In my opinion, the accompanying financial statements present fairly, in all material respects, the financial position of Local Homeless Shelter as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
I conducted my audits in accordance with auditing standards generally accepted in the United States of America (GAAS). My responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of my report. I am required to be independent of Local Homeless Shelter and to meet my other ethical responsibilities, in accordance with the relevant ethical requirements relating to my audits. I believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for my audit opinion.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with U.S. generally accepted accounting principles, and for 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. In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about ABC Company’s ability to continue as a going concern for one year from the date the financial statements are issued.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users made on the basis of these financial statements. In performing an audit in accordance with GAAS, we:
- Exercise professional judgment and maintain professional skepticism throughout the audit.
- Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
- Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of ABC Company’s internal control. Accordingly, no such opinion is expressed.
- Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
- Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about ABC Company’s ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control–related matters that we identified during the audit.
Bright, Smart, and Company, CPAs
March 15, 2023
Assumptions in above example
If you want to take the risk of copying the above example, keep in mind a number of built-in assumptions:
- you are responsible for your audit report
- audit is performed by a sole practitioner
- financial statements are for a not-for-profit organization (this affects multiple elements of the report)
- two year comparative presentation
- no consolidation
- functional expense information is presented as a basic financial statement
- no modification to auditor’s report
- no supplemental information
- no reference to reporting for federal funding is included
Reference to country of origin
SAS 134 requires that the country of origin be identified for the audit rules followed and for the financial reporting framework. There is latitude in how the country of origin is described.
You will notice that I made reference to “U.S. generally accepted auditing standards” and “U.S. generally accepted accounting principles.” It is my vague impression this is a minority position for identifying the country of origin.
SAS 134 suggests examples of two alternative ways for referring to U.S. GAAP and U.S. GAAS.
For the financial reporting framework paragraph A34 says:
“…The identification of the applicable financial reporting framework in the auditor’s opinion is intended to advise users of the auditor’s report of the context in which the auditor’s opinion is expressed … For example, the applicable financial reporting framework may be identified as accounting principles generally accepted in the United States of America or U.S. generally accepted accounting principles …”
Paragraph closes with additonal examples of referring to IFRS or international SME framework.
For the auditing standards, paragraph A36 says:
“…For example, the auditor’s report may refer to auditing standards generally accepted in the United States of America or U.S. generally accepted auditing standards.”
Therefore you are free to use either the format of “U.S. generally accepted…” or “..generally accepted in the United States of America” format as you choose.
You can find a wide variety of auditor’s report illustrations in SAS 134. You will also find plenty of illustrations in whatever third-party tool set you subscribe to for your workpapers.