Proposed amendments clear way for audits of SME Framework financial statements

BY KEN TYSIAC

Proposed amendments to auditing standards issued today by the AICPA Auditing Standards Board (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.

The proposal, Omnibus Statement on Auditing Standards—2012, seeks to 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 is expected to be ready for exposure in October. The new special-purpose 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 making reference 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.

Comments are due Oct. 31.

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA senior editor.

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