Since the AICPA’s Auditing Standards Board issued Statement on Auditing Standards no. 112 in May 2006, practitioners have asked questions about the new standard’s effect on nonattest services, internal control over financial reporting and auditor independence.

SAS no. 112, Communicating Internal Control Related Matters Identified in an Audit, introduced terms, definitions and guidance for evaluating control deficiencies. It requires an auditor to communicate in writing to a client’s management and members of governing bodies any significant deficiencies and material weaknesses in internal control over financial reporting identified during an audit.

The brief fictional case studies that follow attempt to answer important questions related to the guidance, which is effective for audits of financial statements for periods ending on or after Dec. 15, 2006. The studies include explanations of the relevant requirements of SAS no. 112 and Interpretation 101-3, Performance of Nonattest Services. In all instances, “practitioner” means a member of the accounting firm who provides audit or nonattest services to an audit client of the firm.

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