What You Need to Know About the Auditing Standards Board’s Major Revisions to the Auditor’s Report

A new year brings new changes! The Statement on Auditing Standards (SAS) No. 134, Auditor Reporting and Amendments, including Amendments Addressing Disclosures in the Audit of Financial Statements, which was issued by Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA) in 2019 has become effective for reporting periods ending on or after December 15, 2021. The new standard makes fundamental changes in the layout of the audit report, as well as the information required to be presented in all auditor reports issued under generally accepted auditing standards (GAAS).

The revised report intends to provide more transparency into the audit and the auditor’s report. The goal is to enable the user to better understand both management’s and the auditor’s responsibilities. The enhanced report also aims to provide additional guidance and clarity in the expanded sections of the auditor’s report related to the basis for auditor’s opinion, as well as both management’s and the auditor’s evaluation of conditions or events related to entity’s ability to continue as a going concern.

Below are some of what readers of the financial statements can expect to see in the new auditor’s report:

• The revised audit report begins with the audit opinion, rather than this being toward the end of the auditor’s report, as it most often was in the past.
• The audit opinion is now followed by a “Basis for Opinion” paragraph to set the users’ expectations for the auditor’s report. This new “Basis for Opinion” paragraph is now required in all auditor reports and it includes the following information:
  • A statement that the audit was conducted in accordance with GAAS in the United States;
  • A reference to a separate section of the auditor’s report that describes the auditor’s responsibilities under GAAS;
  • A statement that the auditor is required to be independent of the entity and to meet other ethical responsibilities; and
  • A statement regarding whether the auditor believes the audit evidence obtained during the audit is sufficient and appropriate for the opinion given.
• If engaged to do so, the next section includes an optional disclosure of key audit matters (KAMs) within the auditor’s report. KAMs are defined as those matters that, in the auditor’s professional judgment, were of most significance in the audit of the financial statements of the current period. This allows auditors to communicate significant matters to those charged with governance, such as areas of higher assessed risk of material misstatement, areas involving significant judgment, or significant events or transactions during the period. This disclosure is again optional and only included if the auditor is engaged to do so at the start of the audit.
• The next section of the revised auditor’s report, entitled “Responsibilities of Management for Financial Statements” contains expanded descriptions of the responsibilities of management in relation to the audit, including specifics about management’s evaluation of the entity’s ability to continue as a going concern.
• Lastly, there will now be a section entitled “Auditor’s Responsibilities for the Audit of the Financial Statements” consisting of expanded descriptions of the responsibilities of the auditor in relation to the audit. These include those related to the use of professional judgment and the maintenance of professional skepticism throughout the audit as well as procedures surrounding the identification and assessment of financial statement risk. In addition, there is now a description of the auditor’s role in obtaining an understanding of internal control, evaluating accounting policies and significant estimates made by management. It also includes a statement referencing the auditor’s conclusion as to whether in their judgment there are conditions or events that would raise substantial doubt about the entity’s ability to continue as a going concern. Finally, there are comments regarding the required communication with those charged with governance as well as the main items that would be communicated.

For further clarification around SAS No. 134 and how the new changes may impact your fund, please reach out to David Horton, Alicja Mierzwa or your Anchin Relationship Partner.