COMMENTS BY PARAGRAPH

Transcription

1 Deloitte & Touche LLP Ten Westport Road Wilton, CT USA Tel: Fax: November 3, 2008 Michael Glynn American Institute of Certified Public Accountants 1211 Avenue of the Americas New York, NY Dear Mr. Glynn: We appreciate the opportunity to comment on the proposed Statement on Auditing Standards (SAS), Interim Financial Information (the proposed standard ). We are supportive of the development of the proposed standard and the changes made to accommodate the performance of reviews of interim financial information of nonissuers. We have included our more significant comments in the Comments by Paragraph section below. We also have comments and recommendations of a less significant or editorial nature on specific paragraphs within the proposed standard that are included in the Editorial Observations by Paragraph section below. In our recommendations in both sections for editorial or other specific changes, additions are noted in bold underline and deletions in double strike-through. COMMENTS BY PARAGRAPH 1. Footnote 2 to paragraph.05 refers to APB Opinion No. 28 as outlining the application of U.S. generally accepted accounting principles to the preparation of interim financial information, including specifying certain disclosure requirements for summarized interim financial information. The requirements within U.S. generally accepted accounting principles to provide for disclosures for interim financial information are not limited to APB Opinion No. 28. For example, FASB Statement No. 157, Fair Value Measurements, includes requirements for interim period disclosures about fair value measurements. Therefore, we recommend the addition of the following sentence at the end of this footnote to clarify that other FASB statements also provide for disclosure requirements for interim financial information. In addition to APB Opinion No. 28, other statements issued by the Financial Accounting Standards Board also include disclosure requirements for interim financial information. Further, we recommend adding guidance to permit application of the proposed standard to (1) other comprehensive bases of accounting, such as statutory bases of accounting, (2) IAS 34, Interim Financial Reporting, which sets the appropriate form and content of interim financial Member of Deloitte Touche Tohmatsu

2 Page 2 information under IFRS, and (3) bases of accounting specified by parent companies for consolidation purposes. 2. We have concerns about the condition readily available, as discussed in paragraph.05, and how it will be interpreted by readers. In order to further address the risk of a user obtaining an entity s interim financial information and an accountant s review report without also being provided a copy of or access to the entity s latest audited annual financial statements, we recommend adding a requirement that the interim review report include an explanatory paragraph (prior to the concluding paragraph) that directs the readers attention to the disclosure in the interim financial information that such interim financial information be read in conjunction with the annual financial statements. Accordingly, we recommend that paragraph.36 be revised to read as follows: Pursuant to paragraph.03 of this standard, an accountant is not required to issue a report on a review of interim financial information. However, if the accountant auditor is engaged to issue a written report or determines to issue a written report, the accountant's review report accompanying interim financial information should consist of the following: a. g. A statement referencing the disclosure that the interim financial information does not represent the complete financial statements of the entity and should be read in conjunction with the entity s latest annual audited financial statements. g.h. In addition, we recommend the following paragraph be added as the third paragraph of the example review reports within paragraph.37 through.39: As discussed in Note X to the accompanying interim financial information, the interim financial information does not represent complete consolidated financial statements of ABC Company and subsidiaries and should be read in conjunction with ABC Company s audited consolidated financial statements and related notes for the [fiscal] year ended [indicate the latest year ended]. Due to the addition of the paragraph described above, we recommend the following revision to the language within paragraphs.41 and.42 related to the example explanatory paragraphs: [Explanatory fourth third paragraph] 3. Footnote 26 to paragraph.38 identifies the comparative periods for the financial statements included in comparative interim financial information under Regulation S-X, which might result in the reader inferring that the requirements of Regulation S-X are required to be satisfied. We therefore recommend instead summarizing in footnote 26 the basic concepts of interim

3 Page 3 comparative periods as periodic updates to annual financial information rather than including the specific requirements of Regulation S-X. For example, footnote 26 might be revised to read as follows: As interim financial reporting is intended to be an update to year-end reporting, balance sheet information as of the most recent year end ordinarily would be presented for comparative purposes with the corresponding information as of the latest interim period. Likewise, the comparative presentation for income statement and cash flow information presented for the current interim period would be that of the corresponding interim period of the prior year. 4. Paragraph.46 identifies actions that the accountant is required to take if the client will not agree to include the accountant s review report in a document filed with a regulatory agency or issued to stockholders or third parties when the accountant has advised the entity that the accountant s report be so included. We recommend the addition of a requirement to communicate the client s failure to comply with the accountant s request to those charged with governance. For example, paragraph.46 might be revised by adding the following bulleted item after the second bullet point: Communicate the client s non-compliance with the request to those charged with governance. 5. Extant paragraphs.49 and.50, which have been deleted, include text that we believe continues to be applicable to nonissuers and would therefore be useful guidance to retain. We recommend adding back extant paragraph.49 in its entirety, as well as the first sentence of extant paragraph.50. EDITORIAL OBSERVATIONS BY PARAGRAPH Paragraph.01: We believe that the parenthetical words in the addition to the first sentence of this paragraph might be interpreted that Article 10 of SEC Regulation S-X establishes requirements for nonissuers. We recommend the following change: The purpose of this section is to establish standards and provide guidance on the nature, timing, and extent of the procedures to be performed by an independent accountant when conducting a review of interim financial information (as that term is defined in paragraph.02 of this section) when the interim financial information is intended to provide a periodic update to year-end reporting (for example, interim financial reporting in accordance with prepared following Article 10 of SEC Regulation S-X)... Paragraph.03: We believe the second sentence of paragraph.03 could be clarified with the following edits: Although this section generally does not require an accountant to issue a written report on a review of interim financial information, an accountant's review report should accompany the interim financial information if, in any information that accompanies the interim financial information, the entity states that the interim financial information has been reviewed by an independent public accountant or makes other reference to the

4 Page 4 accountant s association in any information that accompanies the interim financial information. Paragraph.05: The last three conditions set forth in paragraph.05, which are to be met in order for an accountant to conduct a review of interim financial information, are written as conditions that would normally occur after the accountant would want to accept the review engagement. Additionally, the lead-in to the bulleted conditions also includes another condition, which we believe would be clearer if included as a bulleted item. Accordingly, we recommend the following editorial changes to this paragraph: An accountant may conduct, in accordance with this section, a review of the interim financial information if (a) the accountant has audited the entity's latest annual financial statements or is auditing the current year financial statements and the entity s latest annual financial statements were audited by another auditor and (b) all of the following conditions are met: The accountant has audited the entity's latest annual financial statements or is auditing the current year financial statements and the entity s latest annual financial statements were audited by another auditor. The entity intends to presents interim financial information that purports to conform with generally accepted accounting principles (GAAP), which includes appropriate form and content of interim financial statements, for example, interim financial reporting prepared following Article 10 of SEC Regulation S-X (hereinafter collectively referred to as GAAP). The interim financial information will includes a note that the financial information should be read in conjunction with the entity s latest audited annual financial statements. The interim financial information will accompanyies the entity s latest audited annual financial statements or such audited annual financial statements are will be made readily available by the entity. The financial statements are deemed to be readily available if a third party user can obtain the financial statements without any further action by the entity (that is, being available upon request would not be considered to be readily available). Further, footnote 2 to paragraph.05 defines U.S. generally accepted accounting principles as GAAP. We recommend deleting the definition within this footnote, as it may cause confusion for readers whether GAAP refers to U.S. generally accepted accounting principles or just generally accepted accounting principles, particularly when GAAP is used to define generally accepted accounting principles in the first bullet of paragraph.05. Paragraph.08: In paragraph.08, the phrase interim information taken as a whole has been modified to state interim information as a whole. This same change has been made to paragraph.23 (sub-paragraph l) and the illustrative management representation letters. We do not understand why this change was made and we recommend that the previous language of taken as a whole be reinstated throughout the proposed standard, otherwise there will be an inconsistency between the proposed standard and other standards (e.g., AU 333, Management Representations). The title Expected form of the report should be formatted in non-bold, italics as it is part of paragraph.08 and not a heading.

5 Page 5 Paragraph.13 (footnote 8): The reference in footnote 8 should be to paragraph.27 rather than paragraph.29. Paragraph.17 (sub-paragraph f): This paragraph contains a footnote referencing guidance within Section 550 as well as a sentence that references Section 550. We recommend the following changes to remove the redundancy of these two references to Section 550: Reading other information in documents containing the interim financial information 11 to consider whether such information or the manner of its presentation is materially inconsistent with the interim financial information If the accountant concludes that there is a material inconsistency, or becomes aware of information that he or she believes is a material misstatement of fact, the action taken will depend on his or her judgment in the particular circumstances. Section 550, Other Information in Documents Containing Audited Financial Statements, provides guidance for the auditor s consideration of other information included in such documents, including guidance regarding determining the appropriate course of action. In determining the appropriate course of action, the accountant should consider the guidance in section 550, Other Information in Documents Containing Audited Financial Statements, paragraphs.04.06). Paragraph.19 (footnote 13): Footnote 13 to paragraph 19 refers to interim and annual reports. This terminology is typically used when referring to the SEC s reporting requirements for issuers. We recommend replacing reports with financial information when referring to interim periods and with financial statements when referring to annual periods to make the footnote more generic, as illustrated below: For example, in accordance with APB Opinion No. 28, Interim Financial Reporting, and Article 10 of Regulation S-X, contingencies and other uncertainties that could be expected to affect the fairness of the presentation of financial data at an interim date should be disclosed in interim reports financial information in the same manner required for annual reports financial statements. Such disclosure should be repeated in interim financial information and annual reports financial statements until the contingencies have been removed, resolved, or become immaterial. The significance of a contingency or uncertainty should be judged in relation to annual financial statements. Paragraph.23 (sub-paragraph d): The language in this representation example was edited to refer to controls rather than internal control. We recommend that the term internal control be reinstated in this paragraph, as well as throughout this standard, including the illustrative management representation letter examples. Paragraph.25 (footnote 19 and footnote 20): The last sentence of footnote 19 starts as follows: For example, the opinion states In this sentence, opinion should be capitalized, as in the extant standard, or edited to refer to APB Opinion No. 28. Footnote 20 should be revised as follows so that the language is consistent with AU Section 312: Section 312 paragraph.60 provides guidance with respect to the auditor s qualitative considerations in evaluating whether the financial statements are free of material misstatements are material.

6 Page 6 Paragraph.33 (footnote 23): The reference in footnote 23 should be to paragraph.23 (sub-paragraph l) rather than paragraph.23 (sub-paragraph k). Paragraph.38: In the Independent Accountant s Report example, the second paragraph should refer to our reviews as we are conducting reviews of comparative financial information. The second sentence of this paragraph should also include (statements) after interim financial information in order to be consistent with the other report examples. Paragraph.43: The title of this paragraph, Going-concern paragraph was included in the prior year s audit report; conditions giving rise to the paragraph continue to exist should be italicized to maintain consistency with the other paragraphs in this section. Paragraph.44: The example provided at the end of this paragraph should be indented and formatted to be consistent with the example presented in paragraph.43. Appendix C: The illustrative representation letters in Appendix C both refer to condensed financial statements in the opening paragraph. We recommend removing the word condensed to make the illustrative letters consistent with the language used in the proposed standard. In the first illustrative representation letter within representation number 1, (statements) should be added at the end of this sentence to make this representation consistent with the second illustrative letter. In the second illustrative representation letter, item 16 should refer to paragraph.23 rather than paragraph.21. We would be pleased to discuss our letter with you at your convenience. If you have any questions, please contact Megan Zietsman at (203) Sincerely, /s/ Deloitte & Touche LLP