FOCUS on self-study CPE
changing. Are you ready? By Kurt Oestriecher, CPA
Kurt Oestriecher, CPA, is a partner with Oestriecher & Company CPAs in Alexandria, La., and is the partner in charge of He is past-president of the Louisiana Society of CPAs on numerous LCPA and facilitated CPE courses since 1992, has received the AICPA Outstanding Discussion Leader Award 13 Outstanding Discussion Leader Award.
pressure from other standard setters such as the Public Company Accounting Oversight Board (PCAOB) and international standard setting bodies, as well as demands from users of financial statements. Te changes required to audit reports under SAS 134 and review reports under SSARS 25 will be effective for Dec. 31, 2021.
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Audit report changes Key changes to the audit report under SAS 134 include moving the opinion paragraph to the opening paragraph and the option to include a Key Audit Matters (KAM) section of the report. By moving the opinion paragraph to the initial paragraph, the Audit Standards Board is emphasizing the opinion paragraph as the most important information that is communicated. Te auditor will still have the obligation to issue an unqualified, qualified, disclaimer or adverse opinion. Te opinion paragraph will be immediately followed by a “Basis of Opinion” paragraph. Te KAM paragraph is a new concept in
audits performed under AICPA audit standards but was introduced a few years ago in both International Auditing Standards and PCAOB Standards. While required under both IAS and PCAOB standards, the KAM Paragraph is optional for audits performed under AICPA standards. AU-C 701 contains the guidance for reporting on KAM, which are defined as:
“Tose matters that, in the auditor’s professional judgement, were of most significance in the audit of financial statements of the current period. Key audit matters are selected from matters
14 CPAFOCUS July/August 2021
hanges to audit, compilation and review reports on engagements under AICPA Standards are inevitable due to
communicated with those charged with governance.”
Te following issues are considered when determining if a key audit matter exists: • Areas of higher-assessed risk of material misstatement or significant risks identified in planning;
• Significant auditor judgments related to areas in the financial statements that involve significant management judgment, including accounting estimates that have been identified as having high estimation uncertainty; and
• Te effect on the audit of significant events or transactions that occurred during the period.
Te auditor is only required to include the KAM paragraph if both the auditor and the client agree to the paragraph by including the provision in the engagement letter. Te auditor can choose not to include the KAM paragraph without discussion with the client and is not required to document the reasoning for not including the KAM paragraph. In determining whether it is appropriate to include the KAM paragraph, the auditor should evaluate the value added to the report and how the information would be utilized by the users of the audit report. Because the KAM paragraph would not only list the matters but also describe the audit response to those matters, it is highly likely that the information would not add much value to the report, but would be used against the audit firm in the event of litigation or regulatory proceedings. An example of the KAM Paragraph is as follows:
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