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The status of SAS 134 and 135

Effective dates delayed one year

Jerome R. Reutzel, CPA, MBT | June/July 2020 Footnote

Editor's note: Updated May 29, 2020

The COVID-19 pandemic has upended nearly every facet of every business. Forthcoming Statements on Auditing Standards (SAS) are no exception.

The effective dates for SAS 134 and 135 were recently delayed by the Auditing Standards Board (ASB) to provide relief because of the pandemic. The standards will now take effect for audits of financial statements for periods ending on or after Dec. 15, 2021. 

Let’s take a deeper look at what to expect as you consider SAS 134 and 135 in the next 18 months.

Statements on Auditing Standards 134 — Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements

SAS 134 is a series of new reporting standards, which include a new AU-C 701, Communicating Key Audit Matters in the Independent Auditor’s Report, and replaces AU-C 700, Forming an Opinion and Reporting on Financial Statements, AU-C 705, Modifications to the Opinion in the Independent Auditor’s Report, and AU-C 706, Emphasis-of-Matter Paragraphs and Other-Matter Paragraphs in the Independent Auditor’s Report.
The AICPA Auditing Standards Board has observed developments in the auditor reporting model in the United States and internationally. These changes are meant to improve the informational value and relevance of the auditor’s report.

The following are the most significant changes to the auditor’s report:
  • The “Opinion” section is presented first, followed by the “Basis for Opinion.”
  • The “Basis for Opinion” section includes a statement that the auditor is required to be independent and meet other ethical responsibilities.
  • The report includes a description of management’s responsibilities for assessing going concern provided the applicable financial reporting framework contains the requirement.
  • The communication of key audit matters (KAMs) would not be required for non-issuers unless the terms of the audit engagement include reporting KAMs.
  • The description of the responsibilities of management for the preparation and fair presentation of the financial statements is expanded to include a requirement to identify those responsible for the oversight of the financial reporting process, when those responsible differ from those who prepare the financial statements.
  • The description of the responsibilities of the auditor and key features of the audit are expanded.
Those matters that, in the auditor’s professional judgment, were of most significance in the audit or financial statements of the current period. KAMs are selected from matters communicated with those charged with governance.

Significant audit attention might include:
  • Account balances, classes of transactions or disclosure with a higher assessed risk of material misstatement.
  • Matters that pose challenges to the auditor in obtaining sufficient appropriate audit evidence or pose changes to the auditor in forming an opinion on the financial statements.
  • Complex and significant management judgments that result in difficult and complex auditor judgments.

Statements on Auditing Standards (SAS) 135, Omnibus Statement on Auditing Standards

SAS 135 is intended to more closely align ASB guidance with Public Company Accounting Oversight Board (PCAOB) standards by amending AU-C Section 260, Communications With Those Charged With Governance, AU-C Section 550, Related Parties, and AU-C Section 240, Consideration of Fraud in a Financial Audit.

The statement includes additional communications about the auditor’s views relating to the entity’s significant unusual transactions, related party transactions and the potential effects of uncorrected misstatements on future-period financial statements.

Early implementation

With the delay of SAS 134 and 135, early implementation is still permitted and the ASB expressed its intent that SAS 134–140 be implemented at the same time. Now is the time to plan for what’s ahead.

Jerome R. Reutzel, CPA, MBT, is a principal with the firm Boeckermann, Grafstrom & Mayer, LLC, performing in-charge and quality control responsibilities for the firm’s audit, accounting and tax clients. He has a very broad background of work experiences in accounting, consulting and taxation. His client base includes broker-dealers, franchisers, governmental entities, hotels, manufacturers, distributors, nonprofits, private schools, retailers and professional services.