The coronavirus pandemic created a challenging environment for CPA practitioners related to the new auditor reporting standards that were developed by the AICPA Auditing Standards Board (ASB).
CPAs and their clients will experience substantial benefits from implementing the new standards because they were developed 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.
But the difficulties created by the pandemic left many audit firms lacking the resources to implement the new standards in a timely and effective manner. As a result, the ASB has deferred the effective dates of its recently issued Statements on Auditing Standards (SASs) addressing auditor reports. With the issuance of SAS No. 141, Amendment to the Effective Dates of SAS Nos. 134–140, these SASs are now generally effective for audits of calendar year-end 2021 financial statements.
SAS No. 141 was issued May 1 and is available on the AICPA’s website.
Here are the top three things you need to know about SAS No. 141 and implementing SASs No. 134–140:
1. The effective dates of SASs 134–140 have been deferred for one year. SAS No. 141 defers the effective date to Dec. 15, 2021, for the following SASs:
- SAS No. 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, as amended by SASs No. 137, 138, and 140.
- SAS No. 135, Omnibus Statement on Auditing Standards — 2019.
- SAS No. 136, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA, as amended by SASs No. 138 and 140.
- SAS No. 137, The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports.
- SAS No. 138, Amendments to the Description of the Concept of Materiality.
- SAS No. 139, Amendments to AU-C Sections 800, 805, and 810 to Incorporate Auditor Reporting Changes From SAS No. 134.
- SAS No. 140, Amendments to AU-C Sections 725, 730, 930, 935, and 940 to Incorporate Auditor Reporting Changes From SAS Nos. 134 and 137.
This delay allows audit firms facing the challenges of dealing with COVID-19 pandemic aftereffects to focus on effective implementation of the new reporting model and related changes next year, when, hopefully, the distractions caused by the pandemic will have lessened. Auditors should refer to the specific effective date wording of each SAS and each amendment to other AU-C sections, because there are nuances to the effective dates. For example, the amendments to AU-C Section 930, Interim Financial Information, arising from SAS No. 140, will become effective for reviews of interim financial information for interim periods of fiscal years beginning on or after Dec. 15, 2021. Meanwhile, the effective date for the amendments to AU-C Section 935, Compliance Audits, in that same SAS, is for compliance audits for fiscal periods ending on or after Dec. 15, 2021.
2. Early implementation is permitted. SAS No. 141 lifts the prohibition against early implementation to enable those firms that choose to proceed with implementation sooner than the delayed effective date to do so.
When preparing to implement, it is important to recognize that this is not just adopting a new reporting model; various amendments to other AU-C sections may have performance implications for early in the audit. For example, SAS No. 134 amends AU-C Section 260, The Auditor’s Communication With Those Charged With Governance, to require the auditor to communicate significant risks identified by the auditor as part of the overview of the planned scope and timing of the audit communication.
3. The ASB recommends SASs No. 134–140 be implemented concurrently. SASs No. 134–140 are interrelated, as the ASB amended or conformed to the auditor reporting model adopted in SAS No. 134 with the issuance of the subsequent SASs. The effective dates of SASs No. 134–140 were aligned so that these SASs would be implemented as a suite, primarily to accommodate the amendments to the auditor reporting model. For example, SAS No. 138 amends SASs No. 134 and 136 with regard to the wording in the auditor’s report about when misstatements are considered material. Therefore, the wording of the auditor’s report would not be correct unless you considered the changes to the report arising from SAS No. 138.
Let’s explore a bit more about the interrelationship between these SASs and why the ASB recommends they be implemented concurrently. SAS No. 134 contains the following four AU-C sections that make up the main reporting model:
- AU-C Section 700, Forming an Opinion and Reporting on Financial Statements.
- AU-C Section 701, Communicating Key Audit Matters in the Independent Auditor’s Report.
- AU-C Section 705, Modifications to the Opinion in the Independent Auditor’s Report.
- AU-C Section 706, Emphasis-of-Matter Paragraphs and Other-Matter Paragraphs in the Independent Auditor’s Report.
AU-C Section 700 is the foundational standard for auditor reporting. However, it does not apply to audits of ERISA plan financial statements; SAS No. 136 (codified in AU-C Section 703, Forming an Opinion and Reporting on Financial Statements of Employee Benefit Plans Subject to ERISA) does. AU-C Section 703 is the foundational standard for forming an opinion and reporting on audits of ERISA plan financial statements. Like AU-C Section 700, it relies upon AU-C Sections 701, 705, and 706 of SAS No. 134 to complete the reporting model for ERISA plans. SASs No. 137, 139, and 140 amend other AU-C sections to align with the new reporting model that was created by SAS No. 134 as follows:
- SAS No. 137 amends AU-C Sections 700, 705, and 706 of SAS No. 134 to provide the framework for reporting in accordance with AU-C Section 720, The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports, when applicable.
- SAS No. 139 amends AU-C Sections 800, Special Considerations — Audits of Financial Statements Prepared in Accordance With Special Purpose Frameworks; 805, Special Considerations — Audits of Single Financial Statements and Specific Elements, Accounts, or Items of a Financial Statement; and 810, Engagements to Report on Summary Financial Statements, to align the reporting model with the circumstances covered by those AU-C sections. The new auditor reporting model applies regardless of the applicable financial reporting framework used to prepare the financial statements.
- SAS No. 140 contains the final amendments to the AU-C sections to completely align with the new reporting model. This SAS amends certain sections from the 900 series, Special Considerations in the United States.
In addition, SASs No. 135 and 138 amend numerous AU-C sections, including those that were created or amended by the other SASs in this series. See the table, “AU-C Sections Affected by SASs No. 134–140,” for a list of all the sections created, superseded, or amended by each of these SASs.
Because of these interrelationships, in order to follow the correct guidance, all the amendments arising from SASs No. 134–140 need to be considered concurrently.
Where to look for guidance
Because SASs No. 134–140 affect so many AU-C sections, the AICPA has decided to make two versions of AICPA Professional Standards available (online or printed book dated June 1, 2020).
For auditors who decide not to early implement, a version of Professional Standards will be available that does not include any SAS issued after SAS No. 133 (pre-SAS No. 134 version). This version of the Professional Standards will designate each section with a “B” to clearly distinguish them from the AU-C sections that have been updated for SASs No. 134–140. For example, for forming an opinion and reporting on financial statements under the standards currently effective, you would look for AU-C Section 700B for the appropriate guidance. We recommend use of this version of the AICPA Professional Standards issued as of June 1, 2020, until implementation of SASs No. 134–140.
For auditors who implement early (and to help them get ready to implement), there will be a post-SAS No. 133 version of the Professional Standards with all AU-C sections shown as amended by SASs No. 134–140 (and subsequent SAS as they are issued). These AU-C sections will not have a letter designation. Again, using the latest version is important to have all of the changes. Each section is clearly labeled as to whether it has been updated. Auditors should make sure they are using the right version for their audits.
For further help, visit the AICPA Coronavirus (COVID-19) Resource Center.
— Bob Dohrer, CPA, CGMA, is chief auditor; Linda Delahanty, CPA, is a senior manager; and Ahava Goldman, CPA, is an associate director, all with the AICPA. To comment on this article or to suggest an idea for another article, contact Ken Tysiac, the JofA’s editorial director, at Kenneth.Tysiac@aicpa-cima.com.