EXPOSURE DRAFT PROPOSED STATEMENT ON AUDITING STANDARDS

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1 EXPOSURE DRAFT PROPOSED STATEMENT ON AUDITING STANDARDS Revised Applicability of Statement on Auditing Standards No. 116, Interim Financial Information (To supersede paragraph 5 of Statement on Auditing Standards No. 116, Interim Financial Information [AICPA, Professional Standards, vol. 1, AU sec. 722]) July 8, 2010 Comments are requested by October 8, 2010 Prepared by the AICPA Auditing Standards Board for comment from persons interested in auditing and reporting issues. Comments should be addressed to Sherry Hazel at shazel@aicpa.org.

2 Copyright 2010 by American Institute of Certified Public Accountants, Inc. New York, NY Permission is granted to make copies of this work provided that such copies are for personal, intraorganizational, or educational use only and are not sold or disseminated and provided further that each copy bears the following credit line: Copyright 2010 by American Institute of Certified Public Accountants, Inc. Used with permission. 2

3 Explanatory Memorandum CONTENTS Introduction... 4 Background... 4 Effective Date... 4 Changes from Existing Standards... 4 Guide for Respondents... 4 Comment Period... 5 Auditing Standards Board Members... 6 Exposure Draft Proposed Statement on Auditing Standards Revised Applicability of Statement on Auditing Standards No. 116, Interim Financial Information... 7 Page 3

4 Introduction EXPLANATORY MEMORANDUM This memorandum provides background to the proposed Statement on Auditing Standards (SAS) Revised Applicability of Statement on Auditing Standards No. 116, Interim Financial Information. This proposed SAS would supersede paragraph 5 of SAS No. 116, Interim Financial Information (AICPA, Professional Standards, vol. 1, AU sec. 722). Background In February 2009, the Auditing Standards Board (ASB) issued SAS No. 116, which revised the applicability of AU section 722, Interim Financial Information (AICPA, Professional Standards, vol. 1), such that the SAS does not apply when the provisions of Statements on Standards for Accounting and Review Services apply. Paragraph 5 of SAS No. 116 states the SAS is applicable when an auditor performs the audit of the latest annual financial statements and expects to be engaged to audit the current year financial statements. SAS No. 116 is not applicable when the auditor expects that a new auditor may be engaged for the current year. This proposed SAS would revise the applicability of SAS No. 116 to include engagements when the auditor expects that a new auditor may be appointed for the current year, but such appointment is not effective prior to the beginning of the period covered by the review. Effective Date The proposed amendment would be effective for interim reviews of interim financial information for periods beginning after December 15, 2011, with early implementation permitted. Changes From Existing Standards Paragraph 5 of SAS No. 116 states the SAS is applicable when an auditor performs the audit of the latest annual financial statements and expects to be engaged to audit the current year financial statements. Paragraph 1 of this proposed SAS would amend SAS No. 116 such that the SAS would be applicable when the auditor audited the entity s latest annual financial statements and the appointment of another auditor to audit the current year financial statements is not effective prior to the beginning of the period covered by the review. This change would allow for an appropriate transition between auditors when an auditor change is anticipated. Guide for Respondents Comments are most helpful when they refer to specific paragraphs; include the reasons for the comments; and, when appropriate, make specific suggestions for any proposed changes to wording. When a respondent agrees with proposals in the exposure draft, it will be helpful for the ASB to be made aware of this view. Written comments on the exposure draft will become part of the public record of the AICPA and will be available for public inspection at the offices of the AICPA for one year, beginning October 8, Responses should be sent to Sherry Hazel at shazel@aicpa.org and received by October 8,

5 Comment Period The comment period for this exposure draft ends on October 8,

6 Auditing Standards Board ( ) Darrel R. Schubert, Chair Ernest F. Baugh, Jr. Sheila M. Birch Brian R. Bluhm Robert E. Chevalier Jacob J. Cohen David D. Duree Charles E. Frasier Andrew M. Mintzer David M. Morris Kenneth R. Odom Thomas A. Ratcliffe Brian R. Richson Randy C. Roberts Thomas M. Stemlar Mark H. Taylor H. Steven Vogel Phil D. Wedemeyer Megan F. Zietsman Interim Reviews Task Force Brian T. Croteau, Chair Robert E. Chevalier George P. Fritz Beth A. Schneider AICPA Staff Charles E. Landes Vice President Professional Standards and Services Ahava Z. Goldman Technical Manager Audit and Attest Standards Richard Miller General Counsel and Secretary 6

7 Proposed Statement on Auditing Standards Revised Applicability of Statement on Auditing Standards No. 116, Interim Financial Information 1. The purpose of this amendment is to revise paragraph 5 of Statement on Auditing Standards (SAS) No. 116, Interim Financial Information (AICPA, Professional Standards, vol. 1, AU sec. 722), such that the SAS would be applicable when the auditor audited the entity s latest annual financial statements and the appointment of another auditor to audit the current year financial statements is not effective prior to the beginning of the period covered by the review. New language is shown in boldface italics; deleted language is shown by strikethrough..05 An accountant may conduct, in accordance with this section, a review of interim financial information if a. the entity s latest annual financial statements have been audited by the accountant or a predecessor; b. the accountant has been engaged to audit the entity s current year financial statements, or the accountant audited the entity s latest annual financial statements and expects to be engaged the appointment of another accountant to audit the current year financial statements is not effective prior to the beginning of the period covered by the review; c. the client prepares its interim financial information in accordance with the same financial reporting framework as that used to prepare the annual financial statements; and d. if the interim financial information is condensed information, all of the following conditions are met: i. The condensed interim financial information purports to conform with an appropriate financial reporting framework, which includes appropriate form and content of interim financial statements; for example, Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 270, Interim Reporting, and Article 10 of SEC Regulation S-X with respect to accounting principles generally accepted in the United States of America 5 or International Accounting Standard 34, Interim Financial Reporting, with respect to IFRS issued by the IASB may be appropriate financial reporting frameworks for interim financial information. ii. The condensed interim financial information includes a note that the financial information does not represent complete financial statements and should be read in conjunction with the entity s latest annual audited financial statements. iii. The condensed interim financial information accompanies the entity s latest audited annual financial statements or such audited annual financial statements are made 5 Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 270, Interim Reporting, outlines the application of U.S. generally accepted accounting principles (GAAP) to the determination of income when interim financial information is presented, provides for the use of estimated effective income tax rates, and specifies certain disclosure requirements for summarized interim financial information issued by public companies. In addition to FASB ASC 270, other FASB ASC guidance also includes disclosure requirements for interim financial information. 7

8 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 (for example, financial statements on an entity s Web site may be considered readily available, but being available upon request is not considered readily available). 2. This amendment is effective for interim reviews of interim financial information for periods beginning after December 15, Early application is permitted. 8

ASB Meeting May 24-26, 2016 EXPOSURE DRAFT PROPOSED STATEMENT ON AUDITING STANDARDS

ASB Meeting May 24-26, 2016 EXPOSURE DRAFT PROPOSED STATEMENT ON AUDITING STANDARDS ASB Meeting May 24-26, 2016 Agenda Item 1D EXPOSURE DRAFT PROPOSED STATEMENT ON AUDITING STANDARDS AU-C SECTION 570, THE AUDITOR'S CONSIDERATION OF AN ENTITY'S ABILITY TO CONTINUE AS A GOING CONCERN (REVISED)