ASB enhances communication in auditors’ reports

By Ken Tysiac

Over the last several years, leaders of the accounting profession have sought ways for auditors to be able to communicate more information that’s important to users of financial statements and auditors’ reports.

The AICPA Auditing Standards Board (ASB) issued standards Wednesday that are designed to enhance the communicative value of the auditor’s report and align generally accepted auditing standards (GAAS) with the standards issued by the International Auditing and Assurance Standards Board (IAASB) and the PCAOB.

The ASB issued:

“The auditor reporting suite of standards will benefit users of audited financial statements throughout the U.S. by placing the auditor’s opinion at the front of the report for added visibility and providing necessary transparency into the basis for the auditor’s opinion and the responsibilities of both entity management and auditors,” Bob Dohrer, CPA, CGMA, the AICPA’s chief auditor, said in a news release.

In the past five years, the PCAOB and the IAASB have issued auditor reporting standards that are designed to assist practitioners in satisfying users’ needs for more information. The PCAOB standard requires reporting of “critical audit matters” that are discovered during the audit, while the IAASB standard instructs practitioners on the reporting of “key audit matters.”

SAS No. 134 does not require reporting of key audit matters in an engagement but provides reporting requirements for communication of key audit matters in the auditor’s report when the auditor is engaged to do so.

SAS No. 134 addresses the auditor’s responsibility to form an opinion on the financial statements and provides new guidance for the form and content of the auditor’s report. The standard also contains requirements for when the auditor concludes that a modification to the auditor’s opinion on the financial statements is necessary, and when additional communications are necessary in the auditor’s report.

This suite of auditor reporting standards includes a new AU-C Section 701, Communicating Key Audit Matters in the Independent Auditor’s Report, and replaces the following AU-C sections in AICPA Professional Standards:

  • Section 700, Forming an Opinion and Reporting on Financial Statements.
  • Section 705, Modifications to the Opinion in the Independent Auditor’s Report.
  • Section 706, Emphasis-of-Matter Paragraphs and Other-Matter Paragraphs in the Independent Auditor’s Report

Establishing ‘Basis for Opinion’

SAS No. 134 requires that the “Opinion” section precede the “Basis for Opinion” section in the auditor’s report. SAS No. 134 also describes the contents of the “Basis for Opinion” section, which is now required for all reports, not just those with modified opinions. The “Basis for Opinion” section will set users’ expectations for the auditor’s report and will:

  • State that the audit was conducted in accordance with GAAS and identify the United States as the country of origin of those standards.
  • Refer to the section of the auditor’s report that describes the auditor’s responsibilities under GAAS.
  • Include a statement that the auditor is required to be independent of the entity and to meet other ethical responsibility requirements.
  • State whether the auditor believes the audit evidence obtained is sufficient and appropriate to provide a basis for the auditor’s opinion.

New requirements for going concern also are included in the new standard. If the financial statements do not include adequate disclosure about an entity’s ability to continue as a going concern for a reasonable period, new requirements for the auditor include stating in the “Basis for Qualified (Adverse) Opinion” section that:

  • Substantial doubt exists about the entity’s ability to continue as a going concern and that the financial statements do not adequately disclose this matter; or
  • Substantial doubt exists about the entity’s ability to continue as a going concern has been alleviated by management’s plans but the financial statements do not adequately disclose this matter.

Omnibus SAS

SAS No. 135 is designed to align ASB guidance more closely with that of the PCAOB, primarily by amending:

  • AU-C Section 260, The Auditor’s Communication With Those Charged With Governance.
  • AU-C Section 550, Related Parties.
  • AU-C Section 240, Consideration of Fraud in a Financial Statement Audit.

SAS No. 134 and SAS No. 135 take effect for audits of financial statements for periods ending on or after Dec. 15, 2020. Early implementation is not permitted.

For more information on the new standards, please visit the AICPA Financial Reporting Center and listen to "A new opportunity for auditors to communicate," on the JofA podcast.

Ken Tysiac ( is the JofA’s editorial director.

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