With the recent release of SAS Nos. 112, 114 and 115, expectations have increased for auditors to openly and candidly communicate significant findings and issues related to the audit. This course will help you understand how to implement these standards as well as forms of auditor/accountant communications, including engagement and management representation letters, confirmations and auditor/accountant reports.
SAS Nos. 112 and 115 establish standards and provide guidance on communicating matters related to an entity's internal control over financial reporting including evaluating the severity of control deficiencies identified in an audit of financial statements.
SAS No. 114 identifies specific matters to be communicated and provides guidance on the communication process, in particular, the principal purposes of communication and the importance of effective two-way communication.
SSARS No. 1 establishes the standards by which compilation and review engagements are performed.
This course also includes an overview of engagement and management representation letters, confirmations, auditor/accountant reports and other types of communications.
OBJECTIVES
PREREQUISITE: Basic understanding of accounting and auditing principles
In this video, the standards and the types of communications will be discussed by co-moderator Anne Oestriecher, CPA, Registered Representative at Oestriecher Financial Management Services in Alexandria, LA; co-moderator Kurt Oestriecher, CPA, Partner with Oestriecher & Co., CPAs in Alexandria, LA, and presenter Russ Madray, CPA, CIA, CMA, CFM, President of the Madray Group, Inc., an accounting and auditing technical consulting practice.
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Course Overview
Auditor/Accountant Communications: SASs 112 & 115 and Other Critical Requirements presents a two-part overview of the authoritative standards and guidance on the auditor and accountant communication process. This course is intended to provide you the opportunity to understand how to implement these standards as well as other types of professional communications including engagement letters, confirmations, management representation letters, audit and accounting reports, and communications between predecessor and successor auditors and accountants. The course also includes the following value aids: SAS No. 112, SAS No. 114, SAS No. 115 and the AICPA Audit Risk Alerts - Understanding SAS No. 112 and Evaluating Control Deficiencies: A Companion to SAS No. 112 and Communicating Internal Control Related Matters in an Audit-Understanding SAS No. 115. The course is structured as follows:
• Part 1 - SAS Nos. 112 and 115, Communicating Internal Control Related Matters Identified in an Audit• Part 2 - Other Types of Auditor and Accountant Communications- Chapter 1: An Overview of SAS Nos. 112 and 115
- Chapter 2: Identifying Deficiencies in Internal Control
- Chapter 3: Evaluating Deficiencies in Internal Control
- Chapter 4: Communicating Deficiencies in Internal Control
- Chapter 5: Practice Issues
- Chapter 6: Engagement Letters
- Chapter 7: Confirmations
- Chapter 8: Management Representations Letters
- Chapter 9: Audit, Compilation, and Review Engagement Reports
- Chapter 10: Communications between Predecessor and Successor Auditors and Accountants
- Chapter 11: SAS No. 114, The Auditor's Communication With Those Charged With Governance
SAS No. 115
In October 2008, the Auditing Standards Board issued SAS No. 115, Communicating Internal Control Related Matters Identified in an Audit, which is effective for audits of financial statements for periods ending on or after December 15, 2009 (earlier implementation is permitted). SAS No. 115 supersedes SAS No. 112 and was issued to eliminate differences within the AICPA's Audit and Attest Standards resulting from the issuance of SSAE No. 15, An Examination of an Entity's Internal Control Over Financial Reporting That Is Integrated With an Audit of Its Financial Statements. SSAE No. 15 establishes standards and provides guidance to practitioners performing an examination of a nonissuer's internal control over financial reporting in the context of an integrated audit. SSAE No. 15 aligns the definitions of the various kinds of deficiencies in internal control and the related guidance for evaluating such deficiencies with the definitions and guidance in PCAOB No. 5, An Audit of Internal Control That is Integrated with an Audit of Financial Statements. SAS No. 115, in turn, aligns the definitions and related guidance for evaluating deficiencies in internal control with the definitions and guidance in SSAE No. 15.
Note. Since SAS No. 112 is still effective at the time this course is being produced, and SAS No. 115 permits early implementation during the same timeframe, this course will include references to and discussions of both standards throughout the material where applicable.
Chapter 1 - An Overview of SAS Nos. 112 and 115, Communicating Internal Control Related Matters Identified in an Audit
Learning Objectives
After completing this chapter, the participant should
• Be familiar with the key differences between SAS Nos. 112 and 115, Communicating Internal Control Related Matters Identified in an Audit.
• Understand the unconditional requirements in SAS Nos. 112 and 115.
• Be able to identify the primary changes from the previous internal control communications auditing standard - SAS No. 60, Communication of Internal Control Related Matters Noted in an Audit.
SAS Nos. 112 and 115 What Has Changed, What Has Stayed the Same?
SAS No. 112
In May 2006, the AICPA's Auditing Standards Board (ASB) issued SAS No. 112, Communicating Internal Control Related Matters Identified in an Audit (AICPA, Professional Standards, vol. 1, AU sec. 325) which establishes standards and provides guidance on communicating matters related to an entity's internal control over financial reporting (internal control) identified in an audit of financial statements.
The ASB believes SAS No. 112 strengthens the quality of auditor communications concerning internal control matters noted in a financial statement audit. In particular, SAS No. 112
• Defines the terms significant deficiency and material weakness.
• Provides guidance on evaluating the severity of control deficiencies identified in an audit of financial statements.
• Requires the auditor to communicate, in writing, to management and those charged with governance, significant deficiencies and material weaknesses identified in an audit.
The AICPA also issued the Audit Risk Alert, Understanding SAS No. 112 and Evaluating Control Deficiencies-A Companion to SAS No. 112, Communicating Internal Control Related Matters Identified in an Audit, with the intent to help users understand and implement the requirements of SAS No. 112.
SAS No. 112 is included as Appendix A, and its Audit Risk Alert is included as Appendix B to this course material. Excerpts and examples from both are included throughout the course.
SAS No. 115
In October 2008, the ASB issued SAS No. 115, Communicating Internal Control Related Matters Identified in an Audit. SAS No. 115 supersedes SAS No. 112 and was issued to eliminate differences within the AICPA's Audit and Attest Standards resulting from the issuance of Statement on Standards for Attestation Engagements (SSAE) No. 15, An Examination of an Entity's Internal Control Over Financial Reporting That Is Integrated With an Audit of Its Financial Statements. SSAE No. 15 establishes standards and provides guidance to practitioners performing an examination of a nonissuer's internal control over financial reporting in the context of an integrated audit. SSAE No. 15 aligns the definitions of the various kinds of deficiencies in internal control and the related guidance for evaluating such deficiencies with the definitions and guidance in Public Company Accounting Oversight Board Auditing Standards No. 5, An Audit of Internal Control That is Integrated with an Audit of Financial Statements. SAS No. 115, in turn, aligns the definitions and related guidance for evaluating deficiencies in internal control with the definitions and guidance in SSAE No. 15.
The AICPA has also issued the Audit Risk Alert, Communicating Internal Control Related Matters in an Audit - Understanding SAS No. 115, which is intended to help users understand and implement the requirements of SAS No. 115.
SAS No. 115 is included as Appendix C, and its Audit Risk Alert is included as Appendix D to this course material. Excerpts and examples from both are included throughout the course.
Key Differences between SAS Nos. 112 and 115
In general, SAS No. 115 retains many of the provisions of SAS No. 112; it provides guidance to enhance the auditor's ability to identify and evaluate deficiencies in internal control during an audit, and then communicate to management and those charged with governance those deficiencies that the auditor believes are significant deficiencies or material weaknesses.
The key differences between SAS No. 112 and SAS No. 115 lie in the definitions of significant deficiencies and material weaknesses and the process for making that determination. Under SAS No. 112, the auditor applies the criteria of likelihood and magnitude described in the standard to determine if a control deficiency reached the threshold of a significant deficiency or material weakness. Under SAS No. 115, the same criteria are used; however, more judgment is allowed for in determining whether a control deficiency is a significant deficiency.
Revised Definitions
SAS No. 112 defines a significant deficiency as
A control deficiency, or combination of control deficiencies, that adversely affects the entity's ability to initiate, authorize, record, process, or report financial in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity's financial statements that is more than inconsequential will not be prevented or detected.
SAS No. 115 contains the following revised definition of a significant deficiency:
A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.
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