AICPA Issues SAS No. 98
By: Gary A. Porter, CPA
In September 2002 the American Institute of Certified Public Accountants (AICPA) issued Statement on Auditing Standards (SAS) No. 98, Omnibus Statement on Auditing Standards – 2002. Such an omnibus statement is issued periodically to “clean up” language in various other statements that is necessary, but not so extensive as to warrant issuance of a separate SAS. SAS No. 98 continues this tradition by modifying a number of other statements, the major points of which are paraphrased below.
SAS No. 95 – Generally Accepted Auditing Standards was clarified to state that appendixes to the SASs do not constitute auditing standards, but are classified as “Interpretive Publications.”
This change is effective upon issuance (September 2002).
SAS No. 25 – The Relationship of Generally Accepted Auditing Standards to Quality Control Standards modified wording to indicate that a firm of independent auditors has a responsibility to adopt a system of internal control that provides reasonable assurance that its personnel comply with generally accepted auditing standards in its audit engagements. In addition, the following new wording was added. “However, deficiencies in or instances of noncompliance with a firm’s quality control policies and procedures do not, in and of themselves, indicate that a particular audit engagement was not performed in accordance with generally accepted auditing standards.”
This change is effective upon issuance (September 2002).
On May 15, 2002, the AICPA also issued a proposed amendment to Statement on Quality Control Standards No. 2 – System of Quality Control for a CPA Firm’s Accounting and Audit Practice to reflect the same changes noted above.
SAS No. 47 – Audit Risk and Materiality in Conducting an Audit modified wording to indicate that “. . . the auditor should consider the effects, both individually and in the aggregate, of misstatements that are not corrected by the entity.” The new wording added below clarifies the auditor’s responsibility with respect to likely misstatements. “In evaluating the effects of misstatements, the auditor should include both qualitative and quantitative considerations. The consideration and aggregation of misstatements should include the auditor’s best estimate of the total misstatements in the account balances or classes of transactions that he or she has examined (hereafter referred to as likely misstatements), not just the amount of misstatements specifically identified (hereafter referred to as known misstatements). Likely misstatements should be aggregated in a way that enables the auditor to consider whether, in relation to the individual amounts, subtotals, or totals in the financial statements, they materially misstate the financial statements taken as a whole.”
This change is effective upon issuance (September 2002).
This means that if the auditor, based on tests performed, discovers a three percent error rate (known misstatements), that error rate should be projected to the remaining, untested transactions to arrive at an estimate of the likely misstatements. Then, the auditor must determine if the total misstatements are material. If so, presumably the auditor should expand the scope of their tests to the extent that projected misstatements are no longer material.
SAS No. 70 – Service Organizations is modified, and Interpretation No. 6 – Responsibilities of Service Organizations and Service Auditors With Respect to Subsequent Events in a Service Auditor’s Engagement is rescinded. Paragraphs number 57 through 60 were added to SAS No. 70 to indicate that the service auditor should inquire about subsequent events (1) that provide additional information about conditions that existed during the period covered by the auditor’s report, and (2) that arose subsequent to the period covered by the auditor’s report, but that may be of such significance that disclosure is necessary to prevent users of the financial statements from being misled. The SAS also suggests that the representation letter be modified to state that management has disclosed any subsequent events.
The effective date of this amendment is for reports issued on or after January 1, 2003, with earlier application permitted.
SAS No. 58 Reports on Audited Financial Statements was modified to clarify that the auditor’s report on comparative financial statements should be dated as of the date of completion of fieldwork for the most recent engagement.
This change is effective upon issuance (September 2002).
SAS No. 8 – Other information in Documents Containing Audited Financial Statements was modified to clarify that an auditor may express an opinion on other information that accompanies the basic financial statements if such information has been subjected to auditing procedures applied in the audit of the basic financial statements. Guidance is provided in SAS No. 29 – Reporting on Information Accompanying the Basic Financial Statements in Auditor-Submitted Documents.
This change is effective upon issuance (September 2002).
SAS No. 52 – Required Supplementary Information – was modified to require a change in the auditor’s report to state that the supplementary information required by GAAP must state “. . . accounting principles generally accepted in the United States has determined is necessary to supplement, although not required to be a part of, the basic financial statements.”
Further, if the auditor determines that the supplementary information contains material departures from guidelines established, or if there are unresolved doubts about adherence to the guidelines, then the auditor’s report must also reference “accounting principles generally accepted in the United States.”
This change is effective upon issuance (September 2002).
SAS No. 29 – Reporting on Information Accompanying the Basic Financial Statements in Auditor-Submitted Documents was modified for the same changes indicated in SAS No. 52 above.
All of the changes above impact auditors that issue audit reports on community associations. The most significant of the changes above is SAS No. 52, as that actually affects the wording of the report to be issued. The remaining changes affect audit procedures, but those are reflected in the auditor’s workpapers only, and are not seen by the public. However, they obviously have an impact on the audit firm’s quality control system, and potentially, the firm’s peer review. Consequently, all auditors should consider these items in planning their audit engagements.
Gary Porter, CPA began his accounting career with the national CPA firm Touche Ross in 1971. He is licensed by the California Board of Accountancy and the Nevada Board of Accountancy. Mr. Porter has restricted his practice to work only with Common Interest Realty Associations (CIRAs), including homeowners associations, condominium associations, property owners associations, timeshare associations, fractional associations, condo-hotels, commercial associations, and other associations.
Gary Porter is the creator and coauthor of Practitioners Publishing Company (PPC) Guide to Homeowners Associations and other Common Interest Realty Associations, and Homeowners Association Tax Library. Mr. Porter served as Editor of CAI’s Ledger Quarterly from 1989 through 2004 and is the author of more than 200 articles. In addition, he has had articles published in The Practical Accountant, Common Ground and numerous CAI Chapter newsletters. He has been quoted or published in The Wall Street Journal, Money Magazine, Kiplinger’s Personal Finance, and many major newspapers.
Mr. Porter is a member of Community Associations Institute (CAI), American Resort Development Associations (ARDA), and California Association of Community Managers (CACM). Mr. Porter served as national president of CAI in 1998 – 1999.