SAS Update · Overview 134 –Auditor Reporting and Amendments, Including Amendments Addressing...

SAS UpdateKATIE YATES

December 18, 2020

What is a SAS?❑ Statements on Auditing Standards

❑ Provide guidance to auditors on generally accepted auditing standards

❑ Issued by the Auditing Standards Board of the AICPA

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Acronyms❑ AICPA – American Institute of Certified Public Accountants

❑ ASB – Auditing Standards Board

❑ AU-C – Auditing Standards – Clarified

❑ ERISA – Employee Retirement Income Security Act

❑ FASB – Financial Accounting Standards Board

❑ IASB – International Accounting Standards Board

❑ IAASB – International Auditing and Assurance Standards Board

❑ PCAOB – Public Company Accounting Oversight Board

❑ SAS – Statement on Auditing Standards

❑ SEC – Securities and Exchange Commission

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Overview❑ 134 – Auditor Reporting and

Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements

❑ 135 – Omnibus Statement on Auditing Standards – 2019

❑ 136 – Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA

❑ 137 – The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports

❑ 138 – Amendments to the Description of the Concept of Materiality

❑ 139 – Amendments to AU-C Sections 800, 805, and 810 to Incorporate Auditor Reporting Changes from SAS No. 134

❑ 140 – Amendments to AU-C Sections 725, 730, 930, 935, and 940 to Incorporate Auditor Reporting Changes from SAS Nos. 134 and 137

❑ 141 – Amendment to the Effective Dates of SAS Nos. 134 – 140

❑ 142 – Audit Evidence

❑ 143 – Auditing Accounting Estimates and Related Disclosures

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SAS No. 141AMENDMENT TO THE EFFECTIVE DATES OF SAS NOS.134 -140

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SAS 141❑ Amends the effective dates of SAS Nos. 134 – 140 from

December 15, 2020 to December 15, 2021

❑ Issued in May 2020

❑ Effective upon issuance

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SAS 141❑ SAS Nos. 134, 136, 137, 139 and 140 are now permitted

to be early implemented.

❑ SAS Nos. 134 and 136-140 are interrelated and their effective dates were aligned so that these SASs would be implemented as a suite. The ASB recommends that all of these SASs be implemented at the same time.

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SAS No. 134AUDITOR REPORTING AND AMENDMENTS, INCLUDING AMENDMENTS ADDRESSING DISCLOSURES IN THE AUDIT OF FINANCIAL STATEMENTS

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SAS 134❑ Issued in May 2019

❑ Effective for audits of financial statements for periods ending on or after December 15, 2021 • December 31, 2021 and June 30, 2022 audits

❑ Introduces a new AU-C section 701, Communicating Key Audit Matters in the Independent Auditor’s Report

❑ Replaces AU-C sections 700, 705 and 706 and amends AU-C Section 260, 570 and various other sections

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SAS 134 – What changed?❑ AU-C section 700, Forming an Opinion and Reporting on

Financial Statements• Opinion section is required to be presented first, followed by

the Basis for Opinion section

• Basis for Opinion section ▪ Includes a statement that the auditor is required to be

independent of the entity and to meet the auditor’s other ethical responsibilities, in accordance with the relevant ethical requirements relating to the audit

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Financial Statements• Enhances auditor reporting relating to going concern

▪ Include a description of the respective responsibilities of management when required by the applicable financial reporting framework, and the auditor for going concern

• Amends AU-C section 570, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern▪ Include a separate section in the auditor’s report, when substantial

doubt exists, under the heading “Substantial Doubt About the Entity’s Ability to Continue as a Going Concern”

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Financial Statements• Expands the description of the auditor’s responsibilities

relating to professional judgment and professional skepticism, and the auditor’s communications to those charged with governance

• Amends AU-C section 260, The Auditor’s Communication With Those Charged With Governance▪ Requires the auditor to communicate with those charged with

governance about the significant risks identified by the auditor

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SAS 134 – Example of Auditor’s Report

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SAS 134 – What changed?❑ AU-C section 701, Communicating Key Audit Matters in

the Independent Auditor’s Report• Key audit matters are those matters that, in the auditor’s

professional judgment, were of most significance in the audit of the financial statements. Key audit matters are selected from matters communicated with those charged with governance.

• This section addresses the auditor’s judgement about what to communicate in the auditor’s report. It does not require the communication of key audit matters.

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SAS 134 – Example of Auditor’s Report with Key Audit Matters

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SAS 134 – What changed?❑ AU-C section 705, Modifications to the Opinion

• Aligns the form and content of the auditor’s report with the changes in section 700 when the auditor concludes that a clean auditor’s opinion in accordance with section 700 is not appropriate (qualified, adverse, or disclaimer of opinion).

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SAS 134 – What changed?❑ AU-C section 706, Emphasis-of Matter and Other-Matter

Paragraphs• Clarifies the relationship between Emphasis-of-Matter (EOM) and

Other-Matter paragraphs and the communication of key audit matters

• The use of the EOM and OM paragraphs are not a substitute for including the matter in the key audit matters section if the matter meets the definition of a key audit matters

• When key audit matters are communicated, the heading is required to use the term “Emphasis of Matter” or “Other Matter”

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Passcode #1

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SAS No. 135OMNIBUS STATEMENT ON AUDITING STANDARDS

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SAS 135❑ Aligns ASB guidance more closely with the PCAOB

❑ Issued in May 2019


❑ Amends AU-C sections 260, 550, 210 and 240, and various other sections

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SAS 135 – What changed? ❑ Amendments to AU-C section 260, The Auditor’s

Communication with Those Charged with Governance• The auditor should communicate:

▪ Significant unusual transactions

▪ Matters that are difficult or contentious for which the auditor consulted outside the engagement team

▪ Potential effects of uncorrected misstatements on future-period financial statements

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SAS 135 – What changed? ❑ Amendments to AU-C section 550, Related Parties

• Clarifies definition of related parties and is intended to have the same meaning as the definition used in the auditing standards of the PCAOB

• Enhances requirements to identify previously unidentified or undisclosed related parties or significant related-party transactions

• Enhances the auditor’s response to the risks of material misstatement associated with related-party relationships and transactions ▪ Whether the entity has properly identified its related party relationships and

transactions

• New procedures are required to test the accuracy and completeness of the related-party relationships and transactions identified by the entity

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• Auditor should inquire of management and others within the entity regarding:▪ The nature of the relationships (including ownership structure)

between the entity and related parties

▪ The business purpose of entering into a transaction with a related party versus an unrelated party

▪ Whether the entity entered into, modified, or terminated any transactions with these related parties, and if so, the type and business purpose of the transactions

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• Auditor should inquire of management and others within the entity regarding related party transactions:▪ that have not been authorized and approved in accordance with

the entity’s established policies or procedures regarding the authorization and approval of transactions with related parties.

▪ for which exceptions to the entity’s established policies or procedures were granted and the reasons for granting those exceptions.

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• Unless all of those charged with governance are involved in managing the entity, the auditor should inquire of those charged with governance (or the audit committee, or at least, its chair) regarding:▪ Their understanding of the entity’s relationships and transactions

with related parties that are significant to the entity and

▪ Whether any of those charged with governance have concerns regarding relationships or transactions with related parties and, if so, the substance of those concerns

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SAS 135 – What changed? ❑ Amendments to AU-C section 210, Terms of Engagement

• Amendment is intended to enhance guidance relating to obtaining information about related parties and significant unusual transactions from predecessor auditors.

• Inquiry of the predecessor auditor now includes their understanding of the nature of the entity’s relationships and transactions with related parties and significant unusual transactions

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SAS 135 – What changed? ❑ Amendments to AU-C section 240, Considerations of

Fraud in a Financial Statement Audit • Introduces the term significant unusual transactions and

define it as significant transactions that are outside the normal course of business for the entity or otherwise appear to be unusual due to their timing, size, or nature.

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SAS No. 136FORMING AN OPINION AND REPORTING ON FINANCIAL STATEMENTS OF EMPLOYEE BENEFIT PLANS SUBJECT TO ERISA

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SAS 136❑ Addresses specific performance and reporting requirements

for audits of ERISA plans and changes the form and content of the auditor’s report

❑ Issued in July 2019


❑ Creates a new AU-C section 703 and amends various other sections

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SAS 136 – What changed?❑ Addresses requirements for:

• Engagement acceptance

• Audit risk assessment and response, including the auditor’s consideration of relevant plan provisions

• Communications of reportable findings with those charged with governance

• The auditor’s responsibilities relating to the ERISA-required supplemental schedules and the Form 5500

• Form and content of the related auditor’s report

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SAS 136 – What changed?❑ “Limited-Scope Audits” are now referred to as ERISA

section 103(a)(3)(C) audits• Clarifies what is expected of the auditor, including specific

procedures when performing such an audit

• Establishes a new form of report that provides greater transparency about the scope and nature of the audit

• Describes the procedures performed on the certified investment information

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SAS 136 – What changed?❑ ERISA section 103(a)(3)(C) report:

• Scope and nature of ERISA Section 103(a)(3)(C) audit section are required to be presented first, followed by the opinion section and basis for opinion section

• Opinion section contains a two-part opinion addressing whether:▪ The amounts and disclosures in the ERISA plan financial statements that are not

covered by the certification are presented fairly in accordance with the applicable financial reporting framework

▪ The investment information in the ERISA plan financial statements related to the certified investment information agrees to or is derived from the certified investment information provide by a qualified institution

• Required other-matter paragraph to report on the ERISA-required supplemental schedules

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SAS 136 – What changed?❑ Non-ERISA section 103(a)(3)(C) Reports

• Key elements of these reports (formally referred to as “full-scope” reports) are the same as those in SAS No. 134, with the following exceptions:▪ The opinion section identifies the plan as an employee benefit plan

subject to ERISA▪ Expanded description of management’s responsibilities for the

ERISA section ▪ Includes new content in the other-matter paragraph relating to the

ERISA required supplemental schedules, including a new form and content opinion on the supplemental schedules

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SAS No. 137THE AUDITOR’S RESPONSIBILITIES RELATING TO OTHER INFORMATION INCLUDED IN ANNUAL REPORTS

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SAS 137❑ To enhance transparency relating to the auditor’s

responsibilities for other information included in annual reports and to reduce diversity in practice



❑ Supersedes AU-C section 720 and amends various other sections

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SAS 137❑ Other information

• Financial or nonfinancial information (other than financial statements and the auditor’s report) included in an entity’s annual report

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SAS 137❑ Annual report

• A document, or combination of documents, typically prepared on an annual basis by management or those charged with governance

• Purpose is to provide stakeholders with information on the entity’s operations and financial results and financial position as set out in the financial statements

• Contains, accompanies, or incorporates by reference the financial statements and the auditor’s report

• Typically includes information about the entity’s developments, future outlook and risks and uncertainties, statement by the governing body, reports covering governance matters

• Includes annual reports of governments and organizations for charitable or philanthropic purposes that are available to the public

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SAS 137 – What changed?❑ Clarification of documents that are within the scope of the

standard

❑ Includes a requirement that through discussion with management, the auditor should determine and obtain written acknowledgement, regarding which documents comprise the annual report, as well as the entity’s planned manner and timing of the issuance of such documents.• Intent is to ensure that the auditor and management understand

the documents that comprise the entity’s annual report and are therefore subject to auditor procedures

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SAS 137 – What changed? ❑ Reading the Other Information

• Consider whether a material inconsistency exists between the other information and the financial statements

• Remain alert for indications that:▪ a material inconsistency exists between the other information and

the auditor’s knowledge obtained in the audit

▪ a material misstatement of fact exists, or the other information is otherwise misleading

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SAS 137 – What changed? ❑ Reporting

• The auditor should include a separate section in the auditor’s report with the heading “Other Information” or other appropriate heading and include the following:▪ Management is responsible for the other information▪ Identify the other information and that it does not include the financial

statements and the auditor’s report▪ A statement that the auditor’s opinion on the financial statements does

not cover the other information and the auditor does not express an opinion or any form of assurance

▪ Auditor’s responsibility to read the other information and consider whether a material inconsistency exists or appears to be materially misstated

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SAS No. 138AMENDMENTS TO THE DESCRIPTION OF THE CONCEPT OF MATERIALITY

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SAS 138❑ Changes the description of the concept of materiality

❑ Issued in December 2019


❑ Amends AU-C sections 200, 320, 450, 600, 700, and 703

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SAS 138❑ Current description is consistent with the definition used

by the IASB and the IAASB

❑ Aligns the materiality concepts in AICPA Professional Standards with that of the U.S. judicial system, PCAOB, SEC and FASB

❑ Amendments are neither expected nor intended to change U.S. firm practice

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SAS 138❑ New description of materiality:

• Misstatements, including omissions, are considered to be material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

❑ Old description of materiality:• Misstatements, including omissions, are considered to be material

if they, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users made on the basis of the financial statements.

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SAS No. 139AMENDMENTS TO AU-C SECTIONS 800, 805, AND 810 TO INCORPORATE AUDITOR REPORTING CHANGES FROM SAS NO. 134

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SAS 139❑ To align the AU-C 800 series with SAS No. 134, 136 and

137

❑ Issued in December 2019


❑ Amends AU-C sections 800, 805 and 810

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SAS 139 – What changed?❑ AU-C section 800, Special Considerations – Audits of

Financial Statements Prepared in Accordance with Special Purpose Frameworks• Requires that a statement be added to the auditor’s report

indicating that the financial statements may not be suitable for another purpose when a description of the purpose for which the financial statements are prepared or a reference to a note in the special purpose financial statements that contains that information is required.

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SAS 139 - Example of Auditor’s Report

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SAS 139 - Example of Auditor’s Report

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SAS 139 – What changed?❑ AU-C section 805, Special Considerations – Audits of

Single Financial Statements and Specific Elements, Accounts, or Items of a Financial Statement• Addresses factors to consider in determining whether a

matter included in the auditor’s report on the complete set of financial statements is relevant in the context of an engagement to report on a single financial statement or a specified element of a financial statement.

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SAS 139 – What changed?❑ AU-C section 810, Engagements to Report on Summary

Financial Statements • Adds application paragraphs indicating that although the

auditor is required to include a statement in the auditor’s report on the summary financial statements when the auditor’s report on the audited financial statements includes communication of one or more key matters, the auditor is not required to describe the individual key audit matters or repeat the corresponding text in its entirety in the auditor’s report on the summary financial statements.

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Passcode #3

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SAS No. 140AMENDMENTS TO AU-C SECTIONS 725, 730, 930, 935, AND 940 TO INCORPORATE AUDITOR REPORTING CHANGES FROM SAS NOS. 134 AND 137

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SAS 140❑ Amends AU-C sections 725, 730, 930, 935 and 940 to

incorporate auditor reporting changes from SAS Nos. 134 and 137

❑ Issued in April 2020


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SAS 140 – What changed? ❑ AU-C section 725, Supplementary Information in Relation

to the Financial Statements as a Whole and section 730, Required Supplementary Information• Amended to require reporting in a separate section of the

auditor’s report as opposed to in an other-matter paragraph

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SAS 140 – What changed? ❑ AU-C section 930, Interim Financial Information

• The changes include the placement of the auditor’s review conclusion at the beginning of the review report on interim financial information

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SAS 140 – What changed? ❑ AU-C section 935, Compliance Audits

• Presenting requirements for a combined report on compliance and internal control as the default form of report, followed by requirements addressing when the auditor chooses to issue separate reports on compliance and on internal control over compliance▪ Reverses how the requirements are presented because combined

reports are more common in practice

▪ Amends the definition of material noncompliance to align with the description of materiality in SAS No. 138.

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SAS 140 – What changed? ❑ AU-C section 940, An Audit of Internal Control over Financial

Reporting That Is Integrated With an Audit of Financial Statements • When issuing a report on internal control over financial reporting,

requiring paragraphs to be placed within ▪ (a) the “Opinion” section following the opinion paragraph in the auditor’s

report on the financial statements that references to the report on internal control over financial reporting, and

▪ (b) the “Opinion on Internal Control over Financial Reporting” section following the opinion paragraph in the report on internal control over financial reporting that references to the report on the financial statements

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SAS 140 – What changed? ❑ AU-C section 940, An Audit of Internal Control over

Financial Reporting That Is Integrated With an Audit of Financial Statements • Revises requirements on how to report when issuing an

adverse opinion or disclaiming an opinion because of a scope limitation

• Addresses situations when management includes additional information in management’s report or includes additional information in a document containing management’s report and the related auditor’s report

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SAS No. 142AUDIT EVIDENCE

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SAS 142❑ Explains what constitutes audit evidence in an audit of

financial statements


❑ Effective for audits of financial statements for periods ending on or after December 15, 2022• December 31, 2022 and June 30, 2023

❑ Supersedes AU-C section 500, Audit Evidence

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SAS 142❑ Old objective: To design and perform audit procedures

that enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion.

❑ New objective: To evaluate information to be used as audit evidence, including the results of audit procedures, to inform the auditor’s overall conclusion about whether sufficient appropriate audit evidence has been obtained.

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SAS 142 – What changed?❑ Expanded guidance on evaluating whether sufficient

appropriate audit evidence has been obtained• Previously, the objective focused on the design and

performance of audit procedures to obtain sufficient appropriate audit evidence rather than evaluating the sufficiency and appropriateness of the audit evidence itself

• Establishes attributes of information to be used as audit evidence when evaluating whether sufficient appropriate audit evidence has been obtained by the auditor▪ Accuracy, completeness, authenticity, and susceptibility to bias

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SAS 142 – What changed?❑ Automated tools and techniques

• Explains how automated tolls and techniques, such as audit data analytics, drones or remote observation tools, may be used by the auditor

• Recognizes more prominently in the standard the increased use of automated tools and techniques

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SAS 142 – What changed?❑ Professional skepticism

• Incorporates the concepts surrounding professional skepticism throughout the standard

• Includes the auditor’s consideration of susceptibility of information to bias and whether the audit evidence obtained corroborates or contracts management’s assertions

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SAS 142 – What changed?❑ Management specialists

• Includes an amendment relocating content dealing with management’s specialists from section 500 to section 501, Audit Evidence – Specific Considerations for Selected items

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SAS No. 143AUDITING ACCOUNTING ESTIMATES AND RELATED DISCLOSURES

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SAS 143❑ Enables auditors to appropriately address the increasingly

complex scenarios that arise from new accounting standards that include estimates


❑ Effective for audits of financial statements for periods ending on or after December 15, 2023• December 31, 2023 or June 30, 2024

❑ Supersedes AU-C section 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates and Related Disclosures, and various other AU-C sections

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SAS 143 – What changed? ❑ Explains the nature of accounting estimates and the concept of

estimation uncertainty

❑ Provides information about scalability of the SAS for all types of accounting estimates, from those that are relatively simple to those that are complex

❑ Requires a separate assessment of inherent risk and control risk at the assertion level

❑ Includes an enhanced risk assessment intended to address the challenges auditors faces when auditing accounting estimates by providing risk assessment requirements that are more specific to estimates and addresses the increasingly complex business environment and complexity in financial reporting frameworks

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SAS 143 – What changed? ❑ Emphasizes that the auditor’s further audit procedures

need to be more responsive to the reasons for the assessed risks of material misstatement at the relevant assertion level

❑ Refers to relevant requirements in other AU-C sections and provides related guidance to emphasize the importance of the auditor’s decisions about controls relating to accounting estimates

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SAS 143 – What changed? ❑ Addresses the exercise of professional skepticism when

auditing accounting estimates

❑ Requires the auditor to evaluate, based on the audit procedures performed and the audit evidence obtained, whether the accounting estimates and related disclosures are reasonable in context of the applicable financial reporting framework

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Passcode #4

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Resources❑ AICPA

• www.aicpa.org/interestareas/frc/auditattest/auditing-standards-information-and-resources.html

• At a glance summaries

• Center for Plain English Accounting Alerts

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http://www.aicpa.org/interestareas/frc/auditattest/auditing-standards-information-and-resources.html

QUESTIONS?Contact me!

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Katie L. Yates, CPASenior [email protected]

mailto:[email protected]

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