Auditing


  The AICPA’s Auditing Standards Board (ASB) issued Statement on Auditing Standards (SAS) No. 126, The Auditor's Consideration of an Entity’s Ability to Continue as a Going Concern (Redrafted), as a result of its Clarity Project to supersede SAS No. 59, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern, as amended (AICPA, Professional Standards, AU section 341 and AU-C section 570).

SAS No. 126 does not change or expand SAS No. 59, as amended, in any significant respect. A summary is available at tinyurl.com/7jnx9s8.

The ASB moved forward with the clarity redraft of SAS No. 59, as amended, so that it is consistent with the format of the other clarified SASs that were recently issued as SAS No. 122, Statements on Auditing Standards: Clarification and Recodification; SAS No. 124, Financial Statements Prepared in Accordance With a Financial Reporting Framework Generally Accepted in Another Country; and SAS No. 125, Alert That Restricts the Use of the Auditor’s Written Communication.

However, the ASB decided to delay convergence with International Standard on Auditing 570, Going Concern, pending FASB’s anticipated development of accounting guidance addressing going concern.

SAS No. 126 is effective for audits of financial statements for periods ending on or after Dec. 15, 2012. SAS No. 126 is available for purchase at cpa2biz.com by searching for product number ASASST126P.

  Proposed amendments to auditing standards issued by the ASB include changes that would clear the way for audits of financial statements prepared in accordance with the special-purpose financial reporting framework for small and medium-size entities (FRF-SME) the AICPA is developing (see related article, “Back to basics: Proposed Framework for SMEs geared for reliability and simplicity,” page 32).

The proposal, Omnibus Statement on Auditing Standards—2012, would amend SAS No. 122 section 800, Special Considerations—Audits of Financial Statements Prepared in Accordance With Special Purpose Frameworks, by defining a new, special-purpose financial reporting framework for the purpose of audits.

Currently, the other special-purpose frameworks included in the AICPA Professional Standards are:

  • Cash basis.
  • Tax basis.
  • Regulatory basis.
  • Contractual basis.


The proposal would create a new, special-purpose framework in the standards that would accommodate the special-purpose FRF-SME that was expected to be ready for exposure in October. The framework would be defined as a definite set of logical, reasonable criteria that is applied to all material items appearing in financial statements.

This definition is similar to one that previously had been deleted from AICPA auditing standards because of lack of use. The previous definition, though, gave price-level accounting as a practical example. Since price-level accounting was practiced rarely—if ever—the definition had been eliminated.

The ED also proposes to amend AU-C section 600, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors). The proposal would permit referring to the audit of a component auditor in the auditor’s report on the group financial statements when the component’s financial statements are prepared using a different financial reporting framework than that used for the group financial statements if certain criteria are met. The ASB is specifically seeking comments on this issue.

The ASB had learned that, in practice, sometimes the component auditor is unfamiliar with U.S. GAAP, and the conversion adjustments are made up by group management so that the auditor can audit the conversion adjustments without having to get involved in the work of the component auditor. In those rare circumstances, the ASB believes it is appropriate to make reference to the audit of a component auditor.

The proposal is available at tinyurl.com/9k263e3. The comment period ended Oct. 31.

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