An auditor of a nonpublic company must conduct the audit in accordance with:
In May 2019, the AICPA issued Statement on Auditing Standards (SAS) No. 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, along with several other standards (SAS No. 134 – 140) covering the auditor’s report. These changes more closely align the auditor’s report for nonpublic company financial statements with those for public companies and companies audited under International Standards on Auditing, which also changed recently. With an effective date that covers audits of the calendar year 2021 reporting periods, we look at the objectives and implications. Show The objective of the new standards is to enhance the relevance of the audit report by improving transparency and understanding. Key changes from the standard include:
An example report under the new standards is below. It assumes the entity issues an annual report and the auditor is not engaged to report on key audit matters. Independent Auditor’s Report[Appropriate Addressee] Opinion We have audited the financial statements of ABC Company, which comprise the balance sheets as of December 31, 20X1, and 20X0, and the related statements of income, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1 and 20X0, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Basis for Opinion We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of ABC Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Responsibilities of Management for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about ABC Company’s ability to continue as a going concern for [insert the time period set by the applicable financial reporting framework]. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements, as a whole, are free from material misstatement, whether due to fraud or error and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. In performing an audit in accordance with GAAS, we:
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings and certain internal control–related matters that we identified during the audit. Other Information Included in the Annual Report [if applicable] Management is responsible for the other information included in the annual report. The other information comprises the [information included in the annual report] but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information, and we do not express an opinion or any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the financial statements, or the other information otherwise appears to be materially misstated. If based on the work performed, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report.
[Signature of the auditor’s firm] [City and state where the auditor’s report is issued] [Date of the auditor’s report]
About the AuthorJodi Prevost is a member of the Assurance and Advisory services practice of Frazier & Deeter. She specializes in audits of real estate, not-for-profit entities, country clubs, professional services firms, and manufacturing and distribution. Who sets auditing standards for nonpublic companies?The PCAOB seeks to establish and maintain high quality auditing and related professional practice standards for audits of public companies and other issuers, and broker-dealers in support of our mission to protect investors and further the public interest in the preparation of informative, accurate, and independent ...
Why would a nonpublic company have its statements audited?Nonpublic companies do not usually require an audit unless it is specifically requested by an interested party, such as a lender. Such organizations are often more sophisticated than the average investor, and possess significant knowledge about the audit client from sources other than the financial statements.
What are the 5 requirements of the independent auditor to conduct an audit in accordance to CAS?Requirements. Integrity.. Objectivity.. Professional competence and due care.. Confidentiality.. Professional behavior.. What is compliance and non compliance in audit?When compliance audit is part of a performance audit, compliance is seen as one of the aspects of economy, efficiency and effectiveness. Non-compliance may be the cause of, an explanation for, or a consequence of the state of the activities that are the subject of performance audit.
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