Key Audit Matters Key Audit Matters (KAMs) are those matters that were communicated with those charged with governance and, in our professional judgment, were of most significance in our audit of the financial statements of the current period. Tese matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
[Description of each KAM in accordance with section 701, Communicating Key Audit Matters in the Independent Auditor’s Report, of this SAS]
Another key change under SAS 134
is that reporting for audits of employee benefit plans subject to the Employee Retirement Income Security Act of 1974 (ERISA) has been moved to a new section AU-C 703 in order to better align audit reporting with Department of Labor reporting requirements. Te most notable change is in reporting for ERISA Section 103(a)(3)(c) audits, more commonly known as limited scope audits. While the U.S. Department of Labor (DOL) has allowed limited scope audits for a number of years, the DOL requirement did not require the auditor to obtain sufficient, appropriate audit evidence to support an opinion. Terefore, the only reporting option available to the auditor was the disclaimer of an opinion. SAS 136 created AU-C 703, which now allows a dual audit report for ERISA plans subject to limited scope audits. Te audit opinion section will now include two opinions, one on the information that is not certified (and therefore subject to audit procedures) and the information that is certified. Te opinion section for an audit report issued under AU-C 703 will read as follows (assuming no modifications are necessary).
Opinion In our opinion, based on our audits and on the procedures performed as described in the Auditor’s Responsibilities for the Audit of the Financial Statements section: • Te amounts and disclosures in the accompanying financial statements, other than those agreed to or derived from the certified investment information, are presented fairly, in all material respects, in accordance with accounting principles generally accepted in the United States of America.
• Te information in the
accompanying financial statements related to assets held by and certified to by a qualified institution agrees to, or is derived from, in all material respects, the information prepared and certified by an institution that management determined meets the requirements of ERISA Section 103(a)(3)(C).
Review Reports Statement on Standards for Accounting
and Review Services 25 permits the accountant to issue an adverse conclusion. Prior to the issuance of this standard, the accountant was permitted to only issue an unmodified conclusion or a modified conclusion. Based on information obtained from stakeholders, the Accounting and Review Services Committee determined that it is in fact appropriate for the accountant to issue an adverse conclusion when a departure that is both material and pervasive is present in the financial statements. Te reasoning for prohibiting the adverse conclusion prior to the issuance of SSARS 25 was that due to the limited nature of a review engagement, sufficient procedures were not performed to issue an adverse conclusion. Te accountant was therefore required to withdraw from the engagement. Te committee, upon further review, determined that if an accountant had enough information from a review
engagement to come to such a conclusion and withdraw from the engagement, then a sufficient basis exists to issue an adverse conclusion.
An accountant performing a review
will now have to evaluate all departures that are identified and determine if the departure is material and/or pervasive. If no departures are identified or the identified departures are not material, an unmodified conclusion shall be issued. If identified departures are material, but not pervasive, a modified conclusion will be issued, with the departure disclosed. If the departure is material and pervasive, an adverse conclusion shall be issued and the departure disclosed. Pervasive is a term used, in the context of misstatements, to describe the effects on the financial statements of misstatements. Pervasive effects on the financial statements are those that, in the accountant’s judgement: • Are not confined to specific elements accounts, or items in the financial statements;
• If so confined, represent or could represent a substantial portion of the financial statements; and
• With regards to disclosures, are fundamental to users’ understanding of the financial statements.
Self-Study CPE Details
Interest Area:
Designed for: CPAs in industry and public
Understand the changes to engagements under AICPA Standards.
Level: Intermediate Prerequisite: None
MUST BE COMPLETED AND SUBMITTED BY AUG. 31, 2021 TO QUALIFY.
July/August 2021
CPAFOCUS
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