Your organization’s audit might not be top-of-mind at the moment due to changing legislation relative to COVID-19. That said, it’s important for not-for-profits to keep up with updates to auditing standards so that there are no surprises when it comes time for your yearly audit. The Auditing Standards Board identified that there was a demand for more transparency, more information concerning areas of higher risk and more description of responsibilities in the independent auditor’s report. These requests were addressed in the most recent update, which was announced in May 2019. Read on to learn about the update’s major revisions featured in various sections of the audit report.
Statement on Auditing Standards 134 (SAS 134)
The revisions in SAS 134 are intended to enhance the communicative value and relevance of the auditor’s report, focus auditor attention on disclosures earlier in the audit process and encourage a holistic and integrated approach to audit disclosures throughout the audit. SAS 134 updates AU-C sections 700, 705 and 706 and introduces a new section 701.
SAS 134 is effective for periods ending on or after December 15, 2020. Early implementation is not permitted.
Forming an Opinion and Reporting on Financial Statements (AU-C 700)
In auditor’s reports prepared in accordance with section AU-C 700, the opinion paragraph is now presented first, and the basis for the opinion paragraph is presented second. The basis for the audit opinion must include the auditor’s independence requirements and ethical responsibilities for the audit in question. The audit report also expands descriptions of both management’s and the auditor’s responsibilities for going concern. When applicable, this section also maintains that the auditor must report on going concern. Lastly, if the auditor is engaged to do so, it provides a framework to communicate key audit matters (KAM).
Communicating Key Audit Matters in the Independent Auditor’s Report (AU-C 701)
New to the auditor’s report altogether, this section introduces the optional disclosure of KAMs within the auditor’s report. This allows auditors to communicate significant matters to those charged with governance that are deemed to be the most important or significant to the audit of the financial statements being reported on, as determined by the auditor using professional judgment. Including KAM in the auditor’s report is not required, and the auditor must be engaged to do so by those charged with governance in order to include KAM in the auditor’s report.
Modifications to the Opinion in the Independent Auditor’s Report (AU-C 705)
This section addresses the auditor’s responsibility to issue an appropriate report in circumstances where a modification to the auditor’s opinion on financial statements is necessary. The most recent update changes this section so that the form and content are now converged with International Standards on Auditing.
Emphasis-of-Matter and Other-Matter Paragraphs in the Independent Auditor’s Report (AU-C 706)
To conform with SAS 134, the Emphasis of Matter (EOM) paragraphs are now required to have an appropriate header to convey the purpose of the section. If the auditor addresses KAM in addition to EOM in this section, the heading should include the term “Emphasis of Matter” to differentiate the two. Lastly, SAS 134 allows for additional context to be added to the header if needed. For example, the header could say, “Emphasis of Matter – Subsequent Event”.
Although the economy has experienced many downfalls this quarter, your audit should not be one of them. Reach out to Sikich’s Not-For-Profit professionals today to learn more about changes you might see in the audit process this year.