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Ideal for self-study or on-site training!
SAS 112 places significant responsibilities on the auditors of non-public companies to communicate internal control deficiencies identified in an audit. SAS 112, combined with the requirements in the recently effective risk assessment standards, will likely increase the quantity and variety of control deficiencies required to be communicated to management and those charged with governance – not just in the initial year of discovery, but in each subsequent year until the deficiency is remediated.
This course focuses on compliance with the standard’s requirement by examining each stage of the decision making framework using numerous illustrations and practice exercises. The course also applies to managers of non-public companies to enable them to decide whether a control deficiency exists and how to correct it.
Objectives:Prerequisite:Basic understanding of accounting and auditing principles
In this video, Brahat (Bert) Merchant, MBA, CPA, Attorney, a New Jersey-based consultant and AICPA 2006 Outstanding Discussion Leader, discusses SAS No. 112 with William I. Eskin, CPA, President at WIE, Inc. in Baltimore, Maryland and AICPA 2005 Outstanding Discussion Leader, and Elizabeth S. Gantnier, CPA, Director of Quality Control at Stegman & Company in Baltimore, Maryland and AICPA 2006 Outstanding Discussion Leader.
*(149-min. video) The DVD disk contains the video presentation and a viewable copy of the Manual.
**The Additional Manual is for group study training only. Unlike other formats, it has no exam
answer sheet and cannot be used to earn self-study credit.
Overview
Course Objectives
During the course, you will
Background of SAS 112
Purpose
As to the purpose of issuing a new standard to replace SAS 60, the May 2005, exposure draft of SAS 112 indicates:
"This exposure draft is being issued to enhance the auditor's ability to identify and communicate to management and those charged with governance significant deficiencies and material weaknesses in internal control identified in a financial statement audit. The ASB believes that the proposed guidance will strengthen the quality of auditor communications concerning internal control matters noted in a financial statement audit."
Exposure Draft
In March 2003, the Auditing Standards Board (ASB) issued an exposure draft on the subject matter. After reviewing the comments, the ASB decided in September 2003 that additional changes to the exposure draft were needed. Some of the changes needed were to conform certain definitions and guidance with those in PCAOB AS No. 2, An Audit of Internal Control over Financial Reporting Performed in Conjunction with an Audit of Financial Statements. As a result, in December 2004, the ASB decided to re-expose the draft with some changes. The revised exposure draft was issued in September 2005. SAS 112 was unanimously adopted by all 19 members of the ASB and was issued in May 2006. It is effective for audits of financial statements for periods ending on or after December 15, 2006.
Relation to AS No. 2
The importance of these events lies in the fact that the issuance of SAS 112 is not a "knee jerk" reaction to the issuance of PCAOB AS NO. 2, as the first exposure draft was issued before the PCAOB AS No. 2 was issued.
Summary of SAS 112
Key Requirements
SAS 112, Communicating Internal Control Related Matters Identified in an Audit, supercedes SAS No. 60 and requires that whenever an audit opinion is issued or disclaimed, within sixty days of the audit report release date, written auditor communication be given to management and those charged with governance describing significant deficiencies and material weaknesses in internal control over financial reporting that were identified in course of the current audit (as well as those communicated in prior audits and still not remediated) and evaluated using the guidance and definitions in SAS 112 (which contains certain guidance and definitions found in PCAOB Auditing Standard 2).
Effective Date
SAS 112 is effective for the audit of financial statements for periods ending on or after December 15, 2006.
Application
SAS 112 applies to the audit of all non-issuers companies. Such companies range in size and complexity from small owner-operated entities to large multi-national entities. They also range from profit-motivated entities to not-for-profit entities. The divergence in entities poses a challenge to an auditor in applying SAS 112 because these entities vary as to the effectiveness and sophistication of their internal controls.
Effects on Audits
SAS 112 provides definitions of the kinds of control deficiencies that must be communicated, optional items that may be communicated, and illustrative communications. However, an auditor will need to understand the entity and its environment, analyze the facts and circumstances surrounding the control deficiency, and apply sound judgment in determining the items that must be communicated.
The SAS 112 requirement that the communication relating to internal control deficiencies be in writing may pose particular problems in audits of smaller entities. Since such entities may not have as elaborate internal control features as some larger companies do, the auditors of smaller entities are likely to identify and communicate significant deficiencies and material weaknesses. This may create unnecessary conflict between the auditor and the client. The prevention or resolution of such conflict will require better communication between the auditor and the client. This course includes tips and hints to that end.
Because SAS 112 may have a significant impact on auditors of smaller entities, many of the illustrations and exercises in this course are written as applicable to be smaller entities, including owner-operated entities.
Auditors of small entities should recognize that SAS 112 together with the requirements of the risk assessment standards (SAS 104-111) to have a significant impact on their work.1 These requirements are likely to cause an auditor to focus closely on more internal control, which may reveal control deficiencies that require communication under SAS 112.
Comparison of SAS 112 and SAS 60
Points of Comparison
Exhibit 0-1 shows the main points of comparison between SAS 112 and SAS 60.
| Exhibit 0-1
A Comparison of Major SAS 112 Provisions with SAS 60 |
||
| Point of Comparison | SAS 112 | SAS 60 |
| What must be reported | "Significant deficiencies" and "material weaknesses" | "Reportable Conditions," matters coming to the auditor's attention that, in his or her judgment, should be communicated to the audit committee because they represent significant deficiencies in the design or operation of internal control. |
| Guidance for determining what is to be reported | More detailed guidance in the Statement and examples in the Appendix as to what must be and may be reported | The guidance is less detailed and is in an Appendix. |
| Addressee | Management and "those charged with governance" | Management, audit committee, or others within the organization. |
| How to communicate | Must be in writing | Verbally or in writing |
| When to communicate | Within 60 days of "report release date" (see SAS 103) | No comparable requirement |
| Reporting format | Elaborate reporting that requires explanations of a "significant deficiency" and "material weakness". Also requires a disclaimer of opinion on internal controls | No comparable requirements |
About This Course
Contents
The material is divided in five chapters
The course Appendices includes SAS 112, background explanations of major control deficiencies, and cases illustrating the evaluation of deficiencies.
Illustrations and exercises are also included to reinforce or test the participant's understanding of this material.
Conventions
All quotations from authoritative sources are inset.
The following acronyms are used throughout the manual. They are presented below for convenient reference although they are also explained each time they are first used in the chapter.
733290
Customer Service
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