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AICPA Clarity Project and Impact on Auditor Reports

Mark A. Guillaume, CPA, CCIFP
Mark A. Guillaume, CPA, CCIFP Director, Audit & Accounting, Construction & Real Estate Industry Group Co-Leader

AICPA clarity project and impact on auditor reportsIn 2009, the Financial Accounting Standards Board (FASB) launched the FASB Accounting Standards Codification to reorganize the thousands of U.S. Generally Accepted Accounting Standards (GAAP) pronouncements into roughly 90 accounting topics in order to make it more efficient and user friendly.  The FASB has also focused a lot of attention over the past several years on converging GAAP and international accounting standards.

Similar to the FASB, over the past seven years the American Institute of Certified Public Accountants Auditing Standards Board has been working to clarify U.S. Generally Accepted Auditing Standards (GAAS) and to converge them with International Standards on Auditing.  The AICPA recently completed its efforts and, as a result, issued new standards that will apply to the performance of audits as well as related audit reports.

For the majority of nonpublic companies, the Clarity Project will have little impact.  However, all companies can expect some significant changes in the format of the auditor’s report on the financial statements.  Changes to the traditional report format include the following:

  • The introduction paragraph will no longer discuss the responsibility of management or the auditor.
  • A new section of the report will be required, with the heading “Management’s Responsibility for the Financial Statements.”  This section will describe management’s responsibility for the preparation and fair presentation of the financial statements. It will also include a reference to management’s responsibility for the design, implementation, and maintenance of internal controls relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to error or fraud. The objective of this change is to ensure that users of the financial statements clearly understand that management, not the auditor, is responsible for designing and implementing internal controls that result in accurate financial statements.
  • The report will also include a new section titled, “Auditor’s Responsibility.” This section will include a statement related to the auditor’s responsibility to express an opinion on the financial statements based on the audit as well as the auditing standards applied in the performance of the audit. The objective of this section is to clearly contrast the role of the auditor with the role of management, so that users understand the limited role an auditor plays with respect to both internal controls and the preparation of financial statements.
  • The opinion paragraph will now be preceded by the heading “Opinion.”  If the auditor issues an opinion other than an unqualified opinion, the auditor is required to include a description of the reason for the modification under an appropriate heading, such as “Basis for Qualified Opinion,” “Basis for Adverse Opinion,” or “Basis for Disclaimer of Opinion.”

While these new opinions may take some time to get used to, they should ultimately help financial statement users better understand the roles and responsibilities of both management and the auditor for the preparation of financial statements, and strengthen confidence in the profession as a whole.  If you have any questions about the form or content of the new audit reports, please feel free to contact us.

Mark A. Guillaume can be reached at Email or 215.441.4600.

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Mark A. Guillaume, CPA, CCIFP

Mark A. Guillaume, CPA, CCIFP

Director, Audit & Accounting, Construction & Real Estate Industry Group Co-Leader

Construction Specialist, Real Estate Specialist, Owner Operated Private Companies Specialist, Private Equity-Backed Companies Specialist

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