sas 118-120 presentation by h kyle anderson and bill ellis 10 27 2011

SAS 118-120 Updates

A&A UPDATES

H. Kyle Anderson, CMA, CPA

Bill Ellis, CPA

A & A Update and Review, Inc

6514 Dobbins Bridge RoadAnderson, SC 29626

(864) 933-3815 Fax: (888) 411-7668Website: www.aandaupdate.com E-mail: [email protected]

Skype: hkacpa

http://www.aandaupdate.com/

mailto:[email protected]

SAS 118-120 Updates

SAS 118: Other Information in Documents Containing Audited Financial Statements AU Section 550

SAS 119: Supplementary Information in Relation to the Financial Statements as a Whole AU Section 551

SAS 120: Required Supplementary Information AU Section 558

A&A UPDATES H. Kyle Anderson, CMA, CPA Bill Ellis, CPA

Objectives

What are the new reporting requirements when:

Auditors are asked to read and comment on supplementary/other information contained in Audited Financial Statements.

Auditors are engaged to report on the supplementary information and give an opinion regarding whether the information is fairly stated in relation to the required basic financial statements.

Auditors are engaged to report on supplementary information that a designated accounting standards setting body such as FASB, GASB, FAS and ISB requires the information to be included with the basic financial statements.


Objectives

Auditor’s professional responsibilities for supplementary information

Required procedures

Reporting requirements

What is the Auditor’s responsibility when management does not provide the supplemental information or enable the auditor to complete the required procedures?

What are the resources available to the Auditor to ensure these engagements are conducted in accordance with GAAS?


Update from Clarity Project released October 2011

SAS 118-120 were issued using Clarity project standards and are currently effective.

SAS 122, Statements on Auditing Standard:

Clarification and Recodification,

SAS 123, Omnibus Statement on Auditing Standards – 2011, Released October 2011 amends SAS 118.

The effective date for SAS 123 is for audits of financial statements for periods ending after 12/15/2012.


Update from Clarity Project released October 2011

SAS No. 118, Other Information in Documents Containing Audited Financial Statements (issued

February 2010; became effective December 15, 2010.

Early Application permitted. Currently AU 550 / New AU-C

720.

SAS No. 119, Supplementary Information in Relation to the Financial Statements as a Whole

(issued February 2010; became effective December 15,

2010. Early Application permitted Currently AU 551 /New

AU-C 725.

SAS No. 120, Required Supplementary Information (issued February 2010; became effective

December 15, 2010. Early Application permitted

Currently AU 558 /New AU-C 730.


Material Coverage

Today, we will cover material available on the AICPA website at: http://www.aicpa.org/Research/Standards/AuditAttest/Pages/SAS.aspx

Please download AU 550, AU 551 and AU 558 prior to the start of the webinar.

The material covered will be referenced to the current AU section and the new Clarity Project section AU-C.


http://www.aicpa.org/Research/Standards/AuditAttest/Pages/SAS.aspx

http://www.aicpa.org/Research/Standards/AuditAttest/Pages/SAS.aspx

SAS 118

Other Information in Documents Containing Audited Financial Statements

Scope

Auditor’s Responsibility for other information in audited

financial statements and the auditor’s report.

Auditors are required to read the other information to

determine if the credibility of the audited financial

statements could be undermined by material

inconsistencies between the financial statements and the

other information.

Effective Date

Effective for periods beginning on or after December 15, 2010

with early application permitted.

AU 550.01/ AU-C 720.01AU 550.03 / AU-C 720.03


SAS 118

Definitions

Inconsistency: conflicts with other information and information contained in the audited financial statements.

Material inconsistencies may raise doubt about the audit conclusions and basis for the auditor’s opinion.

Misstatement of fact: Other information incorrectly stated or presented that may undermine the credibility of the audited financial statements.

Other information: Other financial and nonfinancial information excluding required supplementary information.

AU 550.05 / AU-C 720.05A&A UPDATES H. Kyle Anderson, CMA, CPA Bill Ellis, CPA

SAS 118

Requirements Reading Other Information

The auditor should read the other information to identify material inconsistencies.

If material Inconsistencies are identified, the auditor should determine if the information needs to be revised.

Material Inconsistencies identified after the auditor’s report date and prior to release should follow section 560, Subsequent Events and Subsequently Discovered Facts.

Material Inconsistencies identified after the auditor’s report release should follow section 561, Subsequent Discovery of Facts Existing at the Date of the Auditor’s Report.

AU 550.06-550.14/AU-C 720.06–720.14AU 560 & 561 now AU-C 560


SAS 118

Material Inconsistencies AU 550.10 - 550.12 / AU-C 720.10 - 720.12

Discovered prior to the report release date requiring revision of the other information when management refuses to make the revision should:

Include an AU-C 706, Emphasis-of-Matter Paragraphs and Other-Matter Paragraphs in the Independent Auditor’s Report or

Withhold Auditor’s Report or

Withdraw from engagement if possible.

AU 550.06-550.14/AU-C 720.06–720.14A&A UPDATES H. Kyle Anderson, CMA, CPA Bill Ellis, CPA

SAS 118

Application and Other Explanatory Material

Other information required to be included by a designated accounting standards setter is addressed in AU 558, Required Supplementary Information and AU-C 730, Required Supplementary Information.

Management reports

Financial highlights

Ratios

Quarterly data, etc.

AU 550.A1/AU-C 720.A1A&A UPDATES H. Kyle Anderson, CMA, CPA Bill Ellis, CPA

SAS 118 Example

Other Matter Paragraph to Disclaim an Opinion

Identify the audit conducted to form an opinion on the basic financial statements

The other information is not a required part of those financial statements and has not been subjected to auditing procedures

No opinion or assurance is provided.

Change from SAS #122: AU 550.B, Comparison of Section 550, Other Information in Documents Containing Audited Financial Statements, With International Standard on Auditing 720, The Auditor’s Responsibility in Relation to Other Information in Documents Containing Audited Financial Statements has been removed in AU-C 720.B


SAS 119

Supplementary Information in Relation to the Financial Statements as a Whole

ScopeAuditor’s responsibility when engaged to report whether supplementary information is fairly stated in relation to the financial statements.

Such information is not necessary for financial statements to be in accordance with the applicable financial reporting framework

Effective Date

Effective for periods beginning on or after December 15, 2010

with early application permitted.

Objective

The auditor is to evaluate the supplementary information and

report whether the supplementary information is fairly stated,

in all material respects, in relation to the financial statements

as a whole.AU 551.01/AU-C 725.01AU 551.02/AU-C 725.02AU 551.03/AU-C 725.03


SAS 119

Definitions

Supplementary information: information presented outside the basic financial statements and not required for the financial statements to be in accordance with the applicable financial reporting framework.

AU 551.04/AU-C 725.04A&A UPDATES H. Kyle Anderson, CMA, CPA Bill Ellis, CPA

SAS 119

Requirements

Procedures to Determine Whether Supplementary Information is Fairly Stated, in All Material Respects, in Relation to the Financial Statements as a Whole

The auditor should determine that the supplementary information:

was derived from and relates directly to the financial statements.

relates to the same period

the auditor was the principal auditor in preparing the audited financial statements

an adverse opinion nor a disclaimer of opinion was issued, if so, see AU 551.11/AU-C 725.11

the supplementary information will be included with the audited financial statements, or made readily available by the entity


SAS 119

Requirements

Management’s Responsibility

Management should acknowledge and understands its responsibility to the auditor for

preparation of the supplementary information

provide written representations in AU 551.07g/AU-C 725.07g

include the auditor’s report with the supplementary information

present the supplementary information with the audited financial statements or make the audited financial statements readily available to the intended users of the supplementary information.


SAS 119

Requirements

Procedures the auditor should perform regarding the supplementary information include inquiry about the purpose of and the criteria used in

preparation

compliance with the applicable criteria

methods used to prepare and whether the methods have changed from prior periods

compare and reconcile with accounting records, other records and financial statements

significant assumptions or interpretations used in measurement or presentation

appropriateness and completeness of the information


SAS 119

Requirements

Procedures the auditor should perform regarding the supplementary information include Management’s written representations regarding

responsibility for presentation in accordance with the applicable criteria

belief information is fairly presented in accordance with the applicable criteria

the methods of measurement or presentation have not changed from prior period or the reasons for changes

significant assumptions or interpretations utilized in the measurement or presentation

audited financial statements will be made readily available if not included with the supplementary information.

There are no requirements regarding subsequent events unless they come to the auditor’s attention.

Follow AU 560 Subsequent Events or AU 561, Subsequent Discovery

of Facts Existing at the Date of the Auditor’s Report. AU-C 560,

Subsequent Events and Subsequently Discovered Facts. AU 551.07/AU-C 725.07AU 551.08/AU-C 725.08


SAS 119

Reporting

The auditor’s explanatory paragraph (Other-Matter AU-C 706) in the report or separate report should include the following statements:

audit was conducted to form an opinion on the financial statements as a whole

supplementary information is for additional analysis and not a required part of the financial statements

supplementary information is the responsibility of management and derived from underlying accounting and other records

supplementary information has been subjected to the auditing procedures including comparing and reconciling such information directly to the underlying accounting and other records in accordance to GAAS

supplementary information is fairly stated in all material respects when auditor issues an unmodified opinion

any effect on the supplementary information if the auditor issues a qualified opinion.


SAS 119

Reporting

Separate report on Supplementary information Separate reports on supplementary information should also

reference the report, the date and nature of opinion on the financial statements.

Adverse or Disclaimed Opinion on Financial Statements An auditor cannot express an opinion on supplementary

information when the audited financial statements contains an adverse opinion or a disclaimer of opinion.

Materially Misstated Other Supplemental Information Materially misstated Supplemental information should be

revised

If management does not revise the supplementary the auditor should either modify the auditor’s opinion in the auditor’s report or if a separate report, withhold their report.

Meaning of Readily Available Third party users should be able to obtain the audited

financial statements without any further action by the entity

AU 551.10/AU-C 725.10AU 551.11/AU-C 725.11 AU 551.13/AU-C 725.13

AU 551.A9/AU-C 725.A9 A&A UPDATES H. Kyle Anderson, CMA, CPA Bill Ellis, CPA

SAS 119

Procedures Performed on Supplementary Information

Procedures in engagements included with the audit of financial statements are not as extensive as a stand-alone engagement

No requirement to obtain a separate understanding of the entity’s internal control or to fraud risk.

Materiality can be considered in selection of information to compare and reconcile to accounting and other records

Auditor can utilize testing records, observation, examination of source documents and other auditing procedures to evaluating appropriateness and completeness of supplementary information

Auditor may consider performing procedures such as:

updated representation letter

subsequent events procedures

letter of audit inquiry to the client’s lawyer

AU 551.A10/AU-C 725.A10AU 551.A11/AU-C 725.A11AU 551.A12/AU-C 725.A12AU 551.A13/AU-C 725.A13AU 551.A14/AU-C 725.A14


SAS 119


Contains the following explanatory paragraph report with audit

report and as a separate report examples for:

Unqualified opinion on the financial statements as a whole

and the supplementary information is fairly stated

Qualified opinion on the financial statements as a whole

and a qualified opinion on the supplementary information

Auditor disclaims an opinion on the financial statements

as a whole and ion on the supplementary information

Adverse opinion on the financial statements as a whole and

ion on the supplementary information

AU 551.A17/AU-C 725.A17AU 9551/AU-C 9725


SAS 119


Supplementary Information in Relation to the Financial Statements as a Whole

This contains guidance/questions and answers on dating the

Auditor’s report on Supplementary Information

The report should not be dated earlier than the date the

auditor completes AU 551.07 procedures.

AU 551.A17/AU-C 725.A17AU 9551/AU-C 9725


SAS 120

Required Supplementary Information

ScopeAuditor’s responsibility when engaged to report on Required Supplementary Information that a designated accounting standards setter requires as part of an entity’s basic financial statements.

Effective DateEffective for periods beginning on or after December 15, 2010 with early

application permitted.

Objective

The auditor should perform specified procedures necessary to

report if the entity presented the required supplementary

information according to guidelines established by the

accounting standards setter or if they have identified material

modifications required to be in compliance with those

guidelines.AU 558.01/AU-C 730.01AU 558.02/AU-C 730.02AU 558.03/AU-C 730.03


SAS 120

Definitions

Applicable financial reporting framework. The financial reporting framework adopted by management or those charged with governance deemed appropriate or required by law or regulation.

Basic financial statements. Financial statements presented in accordance with an applicable financial reporting framework excluding required supplementary information.

Designated accounting standards setter. A body designated by the Council of the AICPA to promulgate GAAP, including FASB, GASB, FAS & ISB

Prescribed guidelines. The authoritative guidelines established by the designated accounting standards for measurement and presentation.

Required supplementary information. Information required to accompany an entity’s basic financial statements that a designated accounting standards setter considers an essential part of financial reporting.


SAS 120

Requirements

Auditor procedures for required supplementary information should include:

a) Inquiry about the methods of preparing the information to

insure in accordance with guidelines, whether any methods

have changed and any significant assumptions or

interpretations

b) Comparison for consistency with management’s responses

to part a), the basic financial statements, and other

knowledge obtained during the regular audit

c) Management’s written representations regarding Responsibility for the required supplementary information

Whether the required supplementary information is in accordance with prescribed guidelines

That methods of measurement or presentation have not changed or the reasons for such changes

Significant assumptions or interpretations utilized in the measurement or presentation


SAS 120

Reporting

The auditor’s explanatory (Other-matter AU-C 706) paragraph in the report should include the following statements as applicable:

a) The required supplementary information is included and the auditor complied with section 558.05, Procedures

b) Required supplementary information is omitted

c) Some information is missing and some presented properly

d) Identification of material departures from guidelines

e) Auditor could not complete requirements in section 558.05, Procedures

f) Unresolved doubts exist regarding if presentation


SAS 120

Reporting

If all or some of the required information is presented, the auditor’s explanatory (Other-matter AU-C 706) paragraph in the report should include:

a) identification of the applicable financial reporting framework and required supplemental information

b) identification of the designated accounting standards requiring the required supplemental information

c) if procedures in section 551.05 were completed:

statement auditor completed limited procedures in accordance to GAAS

The auditor does not provide an opinion or provide assurance on the information due to limited procedures.


SAS 120

Reporting

If all or some of the required information is presented, the auditor’s explanatory (Other-matter AU-C 706) paragraph in the report should include:

d) if procedures in section 551.05 were not completed:

a) statement auditor was unable to complete limited procedures in

accordance to GAAS

b) The auditor does not provide an opinion or provide assurance

on the information due to limited procedures.

e) if some of required supplementary information is omitted, the auditor should include statements noting:

a) the information omitted by management

b) the information was required by the designated accounting

standards setter

c) the auditor’s opinion on basic financial statements was

not affected.

f) Any material departures from the measurement or presentation guidelines

g) Any unresolved doubts about measurement of presentation compliance with guidelines.


SAS 120

Reporting

If all of the required information is omitted, the auditor’s explanatory (Other-matter AU-C 706) paragraph in the report should include the following

a) The information omitted by management

b) The information was required by the designated accounting standards setter

c) The auditor’s opinion on basic financial statements was not affected.

Application and Other Explanatory Material

If the entity omits required supplementary information, the auditor is not required to present the information

AU 558.09/AU-C 730.09AU 558.A2/AU-C 730.A2


SAS 120

Examples of Reports

The Required Supplementary Information is included, the auditor has applied the specified procedures, and no material departures from prescribed guidelines have been identified

All required supplementary information omitted

Some required supplementary information is omitted and some is presented in accordance with the prescribed guidelines

Material departures from prescribed guidelines identified

Specified procedures not completed

Unresolved doubts about whether the required supplementary information is in accordance with prescribed guidelines


Thank you.

A&A UPDATES

H. Kyle Anderson, CMA, CPA

Bill Ellis, CPA

sas 118-120 presentation by h kyle anderson and bill ellis 10 27 2011

Education

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