2017 Update on Audit and Attest Standards (SASs and SSAEs)

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1 2017 Update on Audit and Attest Standards (SASs and SSAEs) Mike Glynn, CPA, CGMA Speaker Biography Michael P. (Mike) Glynn is a Senior Technical Manager in the AICPA Audit and Attest Standards Team. In this capacity, Mike serves as the staff liaison to the Accounting and Review Services Committee (ARSC). In addition, Mike supports the activities of Auditing Standards Board (ASB) and its subcommittees by assisting members in drafting and deliberating authoritative professional standards and interpretations. Prior to joining the Audit and Attest Standards Team, Mike was a technical manager in the AICPA SEC Practice Section (SECPS). In that capacity, Mike supported the Quality Control Inquiry Committee (QCIC) by participating in deliberations of QCIC cases and participating in meetings with the Securities and Exchange Commission regarding the SEC s oversight of the self-regulatory process. Prior to joining the SECPS, Mike was a technical manager in the AICPA Professional Ethics Division. Prior to joining the AICPA in April 1998, Mike worked at Ernst & Young LLP in New York. Mike also serves as a member of the New York State Society of CPAs Accounting and Review Services Committee. Mike is a graduate of Pace University with a BBA in public accounting. 2 DISCLAIMER Views expressed by AICPA employees are expressed for purposes of deliberation, providing member services and other purposes exclusive of practicing public accounting. Views expressed by AICPA staff do not necessarily represent the official views of the AICPA unless otherwise noted. Official AICPA positions are determined through certain specific committee procedures, due process and deliberation. 1

2 Session Objectives Recently issued standards and guidance for audits and attestation engagements for nonissuers Discuss the ASB s current active agenda Slide 4 Recently Issued Standards SSAE #18, Attestation Standard: Clarification and Recodification Issued April 2016 Effective for practitioners reports dated on or after May 1, 2017 Converged with standards of the IAASB Three-types of attestation engagements Examination (same level of assurance as an audit of historical financial statements) Review (same level of assurance as a review of historical financial statements) Agreed-upon procedures 2

3 SSAE #18 Recodification and Structure AT C 105, Concepts Common to All Attestation Engagements AT 20, 50, 101 and 201 Every engagement + AT C 205, Examination Engagements o r AT C 210, Review Engagements o r AT C 215, AUP Engagements + AT C 305, Financial Forecasts and Projections (AT 301) AT C 315, Compliance Attestation (AT 601) When applicable AT C 310, Reporting on Pro Forma Information (AT 401) AT C 320, Reporting on Controls at a Service Organization (AT 801) AT C 395 Management s Discussion and Analysis (AT 701) Key Changes of SSAE #18 Requires a written assertion from responsible party. If the responsible party is not the engaging party, the written assertion is not required but the use of the report is required to be restricted and the report is required to include a statement that that the responsible party did not provide an assertion. More detailed requirements Key Changes of SSAE #18 Obtain an engagement letter Requires the practitioner to request a representation letter for examinations and reviews Expands need to obtain understanding of the development of subject matter to assess risks Scope limitation options broadened AT 101 required disclaimer or withdrawal SSAE #18 permits qualified opinion if appropriate in practitioner s judgment Compilation of prospective financial information moved to the SSARSs 3

4 SAS No Amendment to SAS No. 122 Section 700, Forming an Opinion and Reporting on Financial Statement Audits Issued January 2016; effective for audits for periods ending on or after June 15, 2016 Clarifies that unless an audit is within the jurisdiction of the PCAOB, the auditor is required to conduct the audit in accordance with GAAS When the audit is not within the jurisdiction of the PCAOB, use the form of the report required by PCAOB standards with reference to GAAS We conducted our audits in accordance with the [auditing] standards of the Public Company Accounting Oversight Board and in accordance with auditing standards generally accepted in the United States of America SAS 132, The Auditor s Consideration of the Entity s Ability to Continue as a Going Concern Supersedes SAS 126 of the same title Effective for: audits of financial statements for periods ending on or after December 15, 2017 reviews of interim financial information for interim periods beginning after fiscal years ending on or after December 15, 2017 Revised to reflect FASB ASU No , using ISA 570 as the base SAS 132, The Auditor s Consideration of the Entity s Ability to Continue as a Going Concern Use applicable financial reporting framework, for example, if GAAP, then FASB or GASB Definition of substantial doubt Definition of reasonable period of time - One year from the date of the issuance of the financial statements for GAAP - May be longer than one year in the case of IFRS - If the FRF does not specify, then it is one year from the date of issuance Interim financial statements Disclosures & management s plan 4

5 SAS No. 133, Auditor Involvement With Exempt Offerings Issued July 2017 Issued in response to changes to A&A Guides for clarity project Moves best practices to required guidance Not expected to result in significant change in practice for auditors involved in municipal securities offerings Provides requirements and guidance related to exempt securities when the auditor is involved Effective for exempt offering documents where the auditor is involved that are initially distributed, circulated, or submitted on or after June 15, Early application is permitted. SAS No. 133, Auditor Involvement With Exempt Offerings Applies to offerings exempt from SEC registration rules SEC filings are addressed in AU-C section 925 Examples of exempt offerings addressed by SAS No. 133 include: Municipal securities Securities issued by non-profit religious, education, or charitable organizations Crowdfunding Small issues of securities (e.g. Regulation A offerings) Franchise offerings SAS No. 133, Auditor Involvement With Exempt Offerings What constitutes involvement? The auditor s report on f/s is included in an exempt securities offering AND The auditor performs any of the triggering activities Trigger activities are Assisting the entity in preparing information included in the offering document Reading a draft of the offering document at the entity s request Issuing a comfort letter Participating in due diligence discussions Issuing an attestation report on information relating to the exempt offering Providing written agreement for the use of the auditor s report in the offering document Updating the auditor s report for inclusion in the offering document 5

6 SAS No. 133, Auditor Involvement With Exempt Offerings Not triggered if the auditor does not know about the exempt offering May want to include engagement letter language about making the auditor aware when entity is going to market - This cause does not trigger Required procedures Read other information related to the offering Perform subsequent events procedures Standard Setting Projects in Development Auditor Reporting EBP ERISA audits Proposed new AU-C section (703) Revisions to auditor s report on EBPs to help auditors better understand their responsibilities and to provide users with more information about what auditors do, especially in a limited scope audit Reporting on compliance with certain provisions of laws, regulations, plan documents, and other agreements Required procedures for reporting on compliance Comment period ended September 29,

7 Auditor Reporting At its July 2017 meeting, the ASB voted to expose the following auditor reporting standards for public comment: Proposed SAS Forming an Opinion and Reporting on Financial Statements, to supersede AU-C section 700 of the same title Proposed SAS Modifications to the Opinion in the Independent Auditor s Report, to supersede AU-C section 705 of the same title Proposed SAS Emphasis-of-Matter Paragraphs and Other-Matter Paragraphs in the Independent Auditor s Report, to supersede AU-C section 706 of the same title Proposed SAS Communicating Key Audit Matters in the Independent Auditor s Report, which will create new AU-C section 701 of the same title Proposed amendments to various AU-C sections, including AU-C section 260, The Auditor s Communication With Those Charged With Governance and SAS No. 132, The Auditor s Consideration of an Entity s Ability to Continue as a Going Concern Auditor Reporting Also voted to expose the proposed SAS, The Auditor s Responsibilities Relating to Other Information Included in Annual Reports for public comment Will supersede AU-C section 720 Clarifies the documents subject to the proposed standard Extends the auditor s work effort to consider consistency with the auditor s knowledge Auditor Reporting GOAL: Enhancing the communicative value and relevance of the auditor s report Converge with IAASB s auditor reporting standards Expected to be issued as a final standard in

8 Auditor Reporting Proposed SAS Forming an Opinion and Reporting on Financial Statements Would change the form and content for all auditor s reports issued for audits of non-issuers. - Consistent with the changes to the auditor s report resulting from the IAASB s new and revised ISAs, - Consistent with the new PCAOB auditor reporting model with respect to the positioning of the opinion and the basis for opinion sections. Proposed Significant Changes to the Auditor s Report Opinion section to be presented first, followed by Basis for Opinion Basis for Opinion section to include an affirmative statement about the auditor s independence in accordance with relevant ethical requirements relating to the audit, and fulfillment of the auditor s other ethical responsibilities Voluntary communication of KAM Required communication of auditor s responsibilities related to other information included in annual reports Proposed Significant Changes to the Auditor s Report Expanded description of the responsibilities of management For the preparation and fair presentation of f/s Identification of those responsible for the oversight of the financial reporting process, when different from those responsible for the preparation of the financial statements Expanded description of the responsibilities of the auditor and key features of the audit. 8

9 Independent Auditor s Report [Appropriate Addressee] Report on the Audit of the Financial Statements Opinion We have audited the financial statements of ABC Company and its subsidiaries, 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 and its subsidiaries as of December 31, 20X1 and 20X0, and the results of their operations and their 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. 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 independent of ABC Company in accordance with ethical requirements that are relevant to our audit of the financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Other Information [or another title if appropriate such as Information other than the Financial Statements and Auditor s Report Thereon ] Management is responsible for the other information [included in the annual report]. The other information comprises the [information included in the X 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 on it. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. 9

10 Responsibilities of Management and Those Charged with Governance 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; this includes 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 responsible for assessing ABC Company s ability to continue as a going concern in accordance with accounting principles generally accepted in the United States of America, and using the going concern basis of accounting unless management either intends to liquidate ABC Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing ABC Company s financial reporting process. 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 generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. 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. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of ABC Company s internal control. Accordingly, no such opinion is expressed. Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as the overall presentation of the financial statements. Conclude on ABC Company s ability to continue as a going concern and conclude on the appropriateness of management s use of the going concern basis of accounting. 10

11 We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies and material weaknesses in internal control that are identified during our audit. Report on Other Legal and Regulatory Requirements [The form and content of this section of the auditor s report would vary depending on the nature of the auditor s other reporting responsibilities.] [Signature of the auditor s firm] [Auditor s city and state] [Date of the auditor s report] Proposed non-assertion based examinations and reviews Project to revise SSAEs to permit non-assertion based examinations and reviews Enables practitioners to perform examination or review without an assertion from the responsible party. Practitioner may be the measurer of the subject matter. Timeline: May be exposed for public comment in early 2018 Final standards in late 2018/early Related Assurance Services: Upcoming Guides Data Analytics New auditing guide to replace Analytical Procedures Guide Address use of data analytics and other analytical procedures Cyber Security What s the effect on the audit of historical financial statements? What types of attestation engagements could be performed? Sustainability New attestation guide 11

Quality Control Practice Aid Revised and Improved! http://www.aicpa.org/interestareas/frc/pages /enhancingauditqualitypracticeaid.

12 Quality Control Practice Aid Revised and Improved! /enhancingauditqualitypracticeaid.aspx Helpful Information and Resources Authoritative standards for non-issuers (SASs, SSARSs, SSAEs, SQCSs) as of June 1 are available at AICPA Accounting and Auditing Technical Hotline (877) techinquiry@aicpa.org otline.aspx Center for Plain English Accounting AICPA PCPS national A&A resource center for firms aicpa.org/cpea Services: - Written responses to written technical inquiries - Monthly how-to A&A reports - Webcasts - Alerts - Content for firm newsletters 12

13 Questions? #AICPAnaaats 13

2015 Update on Standards for Audits, Reviews, Compilations and Engagements to Prepare Financial Statements

2015 Update on Standards for Audits, Reviews, Compilations and Engagements to Prepare Financial Statements Mike Glynn, CPA, CGMA mglynn@aicpa.org Session Objectives Discuss current issues with respect