Major audit standard implementation: Are you ready?
October 4, 2021 | Faye Hayhurst, CPA
SAS 134–140: If your firm performs audits, they should be top of mind right now.
Statements on Auditing Standards (SASs) 134–140 were issued at various times from May 2019 through April 2020, and all were to be effective for audits of private company financial statements for periods ending on or after Dec. 15, 2020. The impact of the global pandemic led to implementation being deferred one year to Dec. 15, 2021, which is quickly approaching.
Of the seven standards, SAS 134 is the biggest because it changes the form and content for all auditor’s reports under Generally Accepted Auditing Standards (GAAS). Every firm that performs audits under GAAS must issue reports with the new language for financial statement periods ending on or after Dec. 15, 2021, to be compliant with professional standards.
Issuing a report with the new language is an absolute must. But there are other important aspects:
- Preparing clients for the change, so they are not caught off guard by the new report.
- Updating audit engagement letters so that the language is consistent with the new report.
SAS 134 also establishes a new auditing standard, AU-C Section 701, Communicating Key Audit Matters in the Independent Auditor’s Report. But don’t worry; this is optional and only required if those charged with governance at the audited organization have engaged the auditor to report on these matters.
Speaking of those charged with governance, SAS 135 amends AU-C 260, Communication with Those charged with Governance and AU-C 550, Related Parties, as well as other sections. The auditor will need to heighten focus on related parties, transactions with related parties and significant unusual transactions. There are also new requirements for what the communication with those charged with governance must include.
Although SAS 134 affects the most reports, SAS 136 is truly a blockbuster for audits of employee benefit plans. It creates AU-C Section 703, and AU-C Section 700 no longer applies to ERISA plans. Those “limited-scope audits” that so many benefit plans undergo? These audits will have the new, non-catchy name of “Section 103(a)(3)(C)” audits. The election to exclude certain investments from the audit is no longer considered a scope limitation. The audit report for employee benefit plans is completely revamped, and a section 103(a)(3)(C) audit will come with a two-part opinion. Some CPAs have long held the mistaken belief that limited-scope audits weren’t real audits since they included a disclaimer of opinion. The new standard makes crystal clear that an audit was performed, and an opinion is being issued.
These provide clarifications, eliminate inconsistencies, include technical corrections and amend other standards to incorporate changes from SAS 134 and 137.
Focus area for peer review
Peer reviewers will absolutely be looking for implementation of the new standards for any audit engagements after the effective date. Not implementing the standards properly or at the right time will most likely affect have a negative impact on the firm’s peer review report rating.
Fortunately, there is an abundance of audit update CPE available in webinar and self-study format to ensure that your firm has the latest information to be in full compliance with professional standards.
The big change is almost here. Be prepared!
More on audit standard implementation
Gain guidance on the audit report, which changes under these new standards. Get up to speed so you can ensure compliance and understand the latest requirements.
21SR-0054: The New Auditors' Reporting Standards (Virtual)
Nov. 2 | 8:30 a.m.–4:30 p.m. | 8 CPE
Topics: Accounting & Auditing, Business & Industry, Government, Not-for-Profit
Faye Hayhurst, CPA
Faye Hayhurst is the MNCPA director of finance and administration. She is committed to using numbers to tell relevant stories, although she also employs words, charts and occasionally clothing to communicate a message. While some have questioned her about the pressures of being the CPA for the MNCPA, Faye considers presenting financial information to fellow CPAs a dream job. Outside of storytelling with numbers, Faye enjoys directing her church's handbell choir, visiting national parks and other scenic places, and checking out the chocolate products at Trader Joe's. Faye can be reached at 952-885-5540 or email@example.com.
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