In May 2019, the AICPA Auditing Standards Board issued Statement on Auditing Standards (SAS) No. 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements. The standard is effective for audits of financial statements for periods ending on or after December 15, 2021 and includes several changes to the language and layout in the audit report.
SAS 134 was issued to create consistency with the auditor reporting model supported by the Public Company Accounting Oversight Board (PCAOB) and to converge auditing standards generally accepted in the United States of America (GAAS) with the auditor reporting standards promulgated by the International Auditing and Assurance Standards Board (IAASB).
The audit report previously included the opinion at the end of the report but under the new standard, the report places higher focus on the opinion by presenting it first. While the opinion language has not changed, the next section, called basis of opinion, is now required for all reports rather than just those with modified opinions. It will include four items:
- A statement that the audit was conducted in accordance with GAAS
- A reference to the section of the auditor’s report that describes the auditor’s responsibilities under GAAS
- 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
- A statement that the auditor believes that the audit evidence the auditor has obtained is sufficient and appropriate to provide a basis for the auditor’s opinion
The new standard also requires discussion key audit matters (KAMs) for no public entities, if those charged with governance engage auditors to report on KAMs. KAMs are matters that were the most significant, in the auditor’s professional judgement, in the audit of the financial statements. While presentation of KAMs is optional for nonpublic entities, they do increase transparency to the financial statement users about areas of higher risk of material misstatement, significant events, or transactions occurring during the year under audit or financial statement areas which include significant judgment.
If those charged with governance choose not to engage the auditor to report on KAMs in the audit opinion, the auditor will continue to report those items to those charged with governance either orally or in writing outside of the outside of the auditor’s report.
If engaged to report on KAMs, the auditor’s report will include:
- The primary reason for being designated as a KAM
- How the KAM was addressed in the audit
- Reference to the financial statement accounts or disclosures related to the KAM
After the basis for opinion section (or KAMs if required), the report will describe the responsibilities of management and the auditor. An additional disclosure is now required regarding management’s responsibilities to evaluate whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern for one year after the date that the financial statements are issued.
While this going concern analysis was previously required, the disclosure was only required if there was substantial doubt. Moving forward, all reports will include the reference to going concern even if substantial doubt does not exist. However, if substantial doubt does exist, this fact will be stated within a separate section clearly identified as “Substantial Doubt about the Entity’s Ability to Continue as a Going Concern” which replaces the former “Emphasis-of-Matter” which was considered to be too vague.
Finally, the auditor’s responsibilities section discusses professional judgement and skepticism and the evaluation of going concern in addition to the auditor’s communication with those charged with governance. By increasing this section and describing key points in a bulleted list, the standard looks to make the responsibilities easier to understand. The expanded descriptions of the responsibilities for both management and the auditor will provide more clarification for the financial statement users.
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