A proposed SAS

New SAS on Passing the Baton

T he American Institute of CPAs auditing standards board is seeking comments on an exposure draft that would supersede the 22-year-old Statement on Auditing Standards no. 7, Communications Between Predecessor and Successor Auditors . While not seeking to make radical changes, the proposed SAS recognizes changes in the auditor succession process over the past two decades.

"SAS no. 7 doesn't really address the proposal process that is common today," Stephen M. McEachern, an ASB member and chairman of the SAS no. 7 task force, told the Journal . (See "The Auditor Change Process," JofA, June96, page 73, for details on how auditors have been applying SAS no. 7). "In the ED, we've clearly laid out which communications between predecessor and successor auditors are required before an auditor accepts a new engagement and which are required after. There are more details on what the predecessor should supply, what the successor should look at and when."

Key features
Common in many firms have been standard letters from the predecessor auditor to the client clarifying the successor's access to working papers and from the predecessor to the successor auditor outlining the terms under which the successor will review working papers. The ED gives examples of both of these in appendices. Auditors would not be required to use these letters as is but could modify them, write their own or omit them entirely.

One interesting feature in the proposed successor auditor acknowledgment letter is suggested language about the relationship between successor and predecessor auditors: "The successor auditor will not provide expert testimony, litigation support services or otherwise accept an engagement to comment on issues relating to the quality of the predecessor auditor's audit."

"This was controversial language," said McEachern, "so as a compromise, it was put in the appendix rather than in the standard itself."

Another, related provision that might become controversial is the definition of evidential matter . After some debate, the ASB decided working papers were not evidential matter, thus offering some protection to the predecessor auditor. "We didn't want predecessor auditors to hold back working papers out of fear these papers would later be used against them," said McEachern. "The whole point of the standard is to try to keep the doors open, not give anyone a reason to close doors."

The ED (product no. 800107JA), which has the same title as SAS no. 7, is available from the AICPA order department at 800-862-4272 and AICPA Online. Comments are due June 16.


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