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Updates to the AICPA’s SAS No. 134 through SAS No. 140

Mar 23, 2021

The AICPA’s Auditing Standards Board has published Statements on Auditing Standards (SASs): No. 134 through No. 140. Traditionally, SASs aren’t something the general public needs to understand. However, in this case, these SASs require broader understanding because there are vital decisions for business leaders who issue financial statements that result from these SASs. Below is a table that includes a summary of the SASs, topic, AU-C section affected, and issuance date:

134Auditor Reporting700, 701 (new), 705, 706May 2019
135Omnibus SASVariousMay 2019
136EBP ERISA Audits703 (new)July 2019
137Other Information720July 2019
138Amendments to the Description of the Concept of Materiality200, 320, 450, 600, 700, 703December 2019
139Amendments to Incorporate Changes from SAS 134800, 805, 810March 2020
140Amendments to Incorporate Changes from SAS 134 and 137725, 730, 930, 935, and 940April 2020

The following is a quick summary of what you need to know about these SASs:

SAS No. 134 changed the form and content for all auditor’s reports under Generally Accepted Auditing Standards (GAAS). The changes are intended to enhance the communicative value and relevance of the auditor’s report. It established a new auditing standard, AU-C Section 701, Communicating Key Audit Matters in the Independent Auditor’s Report (Section 701).

Section 701 addresses the auditor’s responsibility to communicate key audit matters (KAMs) in the auditor’s report if and when the auditor is engaged. The purpose of communicating KAMs is to provide greater transparency about the audit to the financial statement’s external users. The new standard addresses both the auditor’s judgment about what to communicate as well as the form and content of such communication.

The standard does not require the communication of KAMs in the auditor’s report. Those charged with governance decide for their organization whether or not the auditor reports on KAMs in the auditor’s report. KAMs are communicated with those charged with governance that, in the auditor’s professional judgment, were of most significance in the audit. KAMs may include, among other things:

  • Higher assessed risk of material misstatement areas or significant risks;
  • Areas that required considerable auditor judgment, such as accounting estimates; or
  • Significant events or transactions in the current period.

If engaged in reporting on KAMs, the auditor’s report will describe the following for each KAM item:

  • Primary reason for designation as a KAM,
  • How the KAM was addressed in the audit, and
  • Refer to the financial statement accounts or disclosures related to the KAM.

The communication of KAMs does not alter the opinion on the financial statements taken as a whole. The communication of KAMs in the auditor’s report may also provide intended users of the financial statements with a basis to further engage with management and those charged with governance about certain matters relating to the entity, the audited financial statements, or the performed audit. If the audit does not identify any KAMs, then the audit report will state that within the conclusion. Those who choose not to include KAMs in the auditor’s report will continue to receive written and oral communications from their auditor separate from the auditor’s report.

Section 706, Emphasis-of-Matter Paragraphs and Other-Matter Paragraphs in the Independent Auditor’s Report (Section 706), was changed to clarify the relationship between Emphasis of Matters (EOMs) and KAMs within the auditor’s report. When Section 701 is applied in an audit report, the EOMs paragraph does not substitute for a description of individual KAMs in the “Key Audit Matters” section of the auditor’s report. If the auditor’s report includes a KAM section, the EOMs heading is required to include the term “Emphasis of Matter.”

In addition, SAS No. 134 expanded the descriptions of management’s responsibilities relating to going concern evaluations and of the auditor regarding professional judgment and professional skepticism, going concern, and communications with those charged with governance.

SAS No. 135 amended AU-C 260, Communication with Those Charged with Governance, and AU-C 550, Related Parties, as well as various other sections. These amendments were intended to enhance audit quality by heightening the auditor’s focus on related parties and transactions with related parties and significant unusual transactions. Also, the standard established new communication requirements for:

  • Significant unusual transaction
  • Difficult or contentious matters for which the auditor consulted outside the engagement team
  • Uncorrected misstatements that could potentially cause material misstatements on future-period financial statements, even though they are considered immaterial to the financial statements under audit

If management communicated such matters to those charged with governance, the auditor does not need to communicate them at the same level of detail if he or she

  1. participated in management’s discussion with those charged with governance, and
  2. affirmatively confirmed to those charged with governance that management has adequately communicated.

SAS No. 136 requires enhanced audit quality and a revised auditor’s report on ERISA plan financial statements to provide better insight into the responsibilities of both management and the auditor. AU-C section 703 was newly created, and AU-C 700 no longer applies for ERISA plans. An ERISA limited scope audit is referred to as an ERISA section 103(a)(3)(C) audit, and the election to exclude certain investments is no longer considered a scope limitation. There are changes to audit procedures for ERISA section 103(a)(3)(C) audit, including

  • Precondition that the auditor inquire as to how management determined the entity preparing and certifying the investment information is a qualified institution
  • Emphasis that the auditor is required to determine the information that is certified and not certified to conclude which is required to be audited

Also, the auditor report for ERISA section 103(a)(3)(C) audit, includes:

  • A section entitled “Nature of ERISA section 103(a)(3)(C) audit”
  • Expanded management and auditor responsibilities sections
  • A two-part opinion addressing information not covered by the certification and procedures required by the SAS that were performed on the certified information

SAS No. 137 clarified that the auditor is required to apply procedures only to other information included in annual reports (or similar documents). It revised procedures to require the accountant to remain alert for misleading data, including if it omits or obscures information necessary for a proper understanding of a matter disclosed in the other report. It required a separate section to be included in the auditor’s report addressing additional information.

SAS No. 138 eliminated inconsistencies between the AICPA Professional Standards and the definition of materiality used by the U.S. judicial system and other U.S. standard setters and regulators.

SAS No. 139 includes technical corrections to align with auditor reporting language for statements prepared following special purpose frameworks, single financial statements and specific elements, accounts or items of a financial statement, and summary financial statements. The standard also includes updates to going concern considerations irrespective of whether the going concern basis of accounting is relevant to preparing the special purpose financial statements. The requirements of Section 570 apply regarding the auditor’s responsibilities to perform the following:

  • Based on the audit evidence obtained, conclude whether, in the auditor’s judgment, there are conditions or events considered in the aggregate that raise substantial doubt about the entity’s ability to continue as a going concern.
  • When such reasonable doubt exists, evaluate the adequacy of the financial statement disclosures.

SAS No. 140 amended the auditing standards to incorporate changes from SAS No. 134 and 137 to include

  • Supplementary Information (SI) and Required Supplementary Information (RSI) to be presented in a separate section of the audit report, not in the Emphasis of Matter (EOM) or Other Matter (OM) paragraphs. It must indicate that RSI is the responsibility of management.
  • A revision of the Auditor’s Review Report on Interim Financial Statements to not use the term “conclusion,” include a basis for results section, have a ‘responsibility of management’ section, and make the going concern paragraph a separate section of the report and not an EOM or OM paragraph.
  • Revisions for consistency regarding recent issuance of Uniform Guidance, OMB Compliance Supplement, and 2019 Yellow Book, including
  • Presented requirements for a combined report on compliance and internal control as the default report
  • Amended the definition of material noncompliance to align with SAS No. 138

Effective Dates: The initial effective dates of these seven SASs were for audits of private company financial statements for periods that ended on or after December 15, 2020. The AICPA’s Auditing Standards Board decided to defer the effective dates due to the COVID-19 pandemic for one year, making these seven SASs effective for audits of calendar year-end 2021 financial statements. The deferral means these seven SASs are effective for periods that ended on or after December 15, 2021.

If you have any questions or require further guidance, please contact your local CRI advisor.

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