Requiring the Opinion section to be presented first in the auditor s report, followed by the Basis for Opinion section.

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1 Deloitte & Touche LLP 695 E. Main Street Stamford, CT Tel: Fax: May 21, 2018 Ms. Sherry Hazel American Institute of Certified Public Accountants 1211 Avenue of the Americas, 19 th Floor New York, NY USA Re: Proposed Statements on Auditing Standards Related to Auditor Reporting Dear Ms. Hazel: Deloitte & Touche LLP ( D&T, our, or we ) is pleased to respond to the request for public comment from the Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA) on its proposed Statements on Auditing Standards (SASs) related to auditor reporting 1 (the proposed SASs ) and proposed amendments addressing disclosures in the audit of the financial statements. Overall Comments We support the issuance of these proposed SASs in order to increase the informational value and relevance of the auditor s report for users. We are supportive of the revised requirements and believe they will result in achieving the overall objective to provide more information about significant aspects of the audit to investors and other financial statement users. In particular, we are supportive of the following changes to the auditor s report: Requiring the Opinion section to be presented first in the auditor s report, followed by the Basis for Opinion section. Requiring the Basis for Opinion section of the auditor s report to include an affirmative statement about the auditor s independence and fulfillment of the auditor s other ethical responsibilities in accordance with relevant ethical requirements relating to the audit. Expanding the description of the responsibilities of management for the preparation and fair presentation of the financial statements, including a requirement to identify those responsible for the oversight of the financial reporting process when those responsible for such oversight differ from those responsible for the preparation of the financial statements. Expanding the description of the responsibilities of the auditor and key features of an audit. 1 The proposed SASs related to auditor reporting include: Forming an Opinion and Reporting on Financial Statements. Communicating Key Audit Matters in the Independent Auditor s Report. Modifications to the Opinion in the Independent Auditor s Report. Emphasis-of-Matter Paragraphs and Other-Matter Paragraphs in the Independent Auditor s Report.

2 We are supportive of the ASB s strategy to converge with the standards of the International Auditing and Assurance Standards Board (IAASB) and are also supportive of the ASB s efforts to consider the standards of the Public Company Accounting Oversight Board (PCAOB) and whether the requirements and guidance in certain PCAOB standards could or should also be incorporated into the ASB s standards to enhance audit quality for audits of nonissuers. Given the IAASB and the PCAOB have updated their reporting standards, and while we are supportive of the changes within the proposed SASs, we recognize that questions and concerns may be raised about the ASB s strategic approach through the comment letter process on the proposed SASs related to the existence of two different forms of reporting in the United States (i.e., the PCAOB standards for issuers, and the AICPA standards for nonissuers). This situation may raise questions as to whether there needs to be additional thought and discussion in regard to the direction of reporting in the U.S., and we would therefore be open to further discussion and dialogue regarding such differences and the way forward should the ASB believe it is necessary. Based on our review of the proposed SASs, we believe there are certain implementation and other issues that should be further considered by the ASB. We discuss them below and further in Appendix A. Key Audit Matters While the communication of Key Audit Matters (KAMs) in accordance with proposed SAS Communicating Key Audit Matters in the Independent Auditor s Report ( proposed new AU-C section 701 ), would not be required for audits of nonissuers, we support the requirements related to KAMs when the auditor is engaged to communicate KAMs in the auditor s report. We do believe, however, that it is not sufficiently clear within the proposed standard that the communication of KAMs is not required for audits of nonissuers, but rather something that an auditor might be requested to do, or that may be required by law, regulation, or contractual agreement. We therefore suggest the ASB clarify that the communication of KAMs is not required for audits of nonissuers by adding the following as the first sentence in paragraph 1 of proposed new AU-C section 701: Communication of key audit matters is not required for audits performed in accordance with generally accepted auditing standards. In addition, we suggest the ASB modify the second sentence in paragraph 1 as follows (additions are noted in bold underline and deletions are noted in strike-through text): This proposed Statement on Auditing Standards (SAS) addresses the auditor s responsibility when the auditor is engaged requested or required to communicate key audit matters in the auditor s report. This update would be consistent with AU-C section 806, Reporting on Compliance with Aspects of Contractual Agreements or Regulator Requirements in Connection with Audited Financial Statements, paragraph 1, which states, This section addresses the auditor's responsibility when the auditor is requested to report on an entity's compliance with aspects of contractual agreements or regulatory requirements... If the word engaged is included in proposed new AU-C section 701 paragraph 1, we believe a corresponding edit would be necessary in AU-C section 210, Terms of the Engagement, paragraph 10. However, we do not believe it is necessary to use the term engaged when referring to a request or requirement (in the case of law, regulation or contractual agreement) for auditors to communicate KAMs in the auditor s report as this does not represent a standalone engagement but is rather an additional procedure the auditor would be performing in connection with the auditor s engagement to audit the financial statements. Similar modifications are necessary in paragraphs 4 and A7 of proposed new AU-C section 701 and all illustrations in the proposed SASs related to auditor reporting. 2

3 In addition, when the auditor is requested or required to communicate KAMs for a governmental entity, we believe specific application guidance should be provided to clarify the level at which communication of KAMs would be required due to the complexity of reporting on multiple opinion units for governmental entities and the importance of an appropriate understanding between the auditor and the entity. Amendments to Requirements and Application Material Related to Auditor s Reports on Internal Control over Financial Reporting and Compliance We noted that no revisions have been proposed to the requirements and application material related to auditor s reports on internal control over financial reporting in AU-C section 940, An Audit of Internal Control Over Financial Reporting That Is Integrated With an Audit of Financial Statements (AU-C 940) or to auditor s reports on compliance in AU-C section 935, Compliance Audits (AU-C 935). We suggest the ASB revise the reporting requirements in AU-C 940 and AU-C 935 to reflect the concepts included in the proposed SASs for clarity and consistency in the related reporting. The ASB should also consider if other revisions to AU-C 940 and AU-C 935 are needed. Other Information The proposed SAS requires the auditor to report in accordance with proposed SAS The Auditor s Responsibilities Relating to Other Information Included in Annual Reports ( proposed new AU-C section 720 ). While proposed new AU-C section 720 does not specify the location of the other information section, the illustrative examples in the proposed SASs include the section on other information after the Basis for Opinion section in the auditor s report. We suggest the ASB revise the illustrative examples to include the Other Information section after the Auditor s Responsibility for the Audit of the Financial Statements section. We also suggest a corresponding change to move paragraph 29 to follow paragraph 37 in Proposed SAS, Forming an Opinion and Reporting on Financial Statements ( proposed new AU-C section 700 ). See D&T comment letter on the proposed new AU-C section 720 for detailed commentary. Going Concern Governmental Considerations The Governmental Accounting Standards Board (GASB) standards do not define the going concern basis of accounting. Paragraph 31.b of proposed new AU-C section 700, includes a specific requirement for the auditor to describe that management is responsible for determining whether use of the going concern basis of accounting is appropriate. Given that the GASB standards do not define the going concern basis of accounting, we believe it would not be appropriate to include a statement that management has a responsibility of determining whether use of the going concern basis of accounting is appropriate in audit reports for governmental entities. Therefore, unless explicit agreement is obtained from the GASB that such a statement would be appropriate to include, we believe the requirement in paragraph 31.b should be revised for governmental entities and should only state that management is responsible for assessing the entity s ability to continue as a going concern in accordance with the applicable financial reporting framework. The Effective Date of the Proposed SASs The proposed SASs indicated that if issued they will be effective for audits of financial statements for periods ending on or after June 15, We believe that this effective date does not allow sufficient time for auditors to adequately prepare for the implementation of the proposed SASs. While we encourage the ASB to finalize the proposed SASs quickly, we believe that when deciding on the effective date, other changes auditors are facing need to be acknowledged (e.g., dealing with the auditing implications of the new accounting requirements regarding revenue recognition, leasing, and expected credit losses and also addressing the new PCAOB requirements related to communication of critical audit matters in auditor reports for issuers). We therefore suggest the ASB revise the proposed 3

4 SASs to be effective for audits of financial statements for periods ending on or after December 15, 2019, or June 15, In addition, we believe that earlier implementation should be expressly permitted and guidance should be provided as to the need to implement all the proposed reporting SASs and proposed new section AU-C 720 concurrently. We also note that the effective date for the proposed SASs differs from the effective date in proposed new AU-C section 720; we believe the effective dates should be the same. These and other matters are discussed in further detail in the following appendixes, as applicable: Appendix A Request for Comment by the ASB. Appendix B Editorial Recommendations. * * * We appreciate the opportunity to provide our perspectives on the proposed SASs. If you have any questions or would like to discuss our views further, please contact Dora Burzenski, Sincerely, 4

5 Appendix A Request for Comment by the ASB This appendix includes responses for Request for Comment questions included in the proposed SAS pertaining to (1) significant changes from existing standards, (2) significant proposed amendments to existing auditor reporting standards, (3) issues for consideration, and (4) proposed amendments addressing disclosures in the audit of financial statements. I. Significant Changes From Existing Standards Proposed SAS Forming an Opinion and Reporting on Financial Statements (AU-C section 700) 1. Are the proposed revisions to existing requirements clear and understandable, and is the application material helpful in supporting the application of those requirements? D&T believes that the revisions to existing requirements are clear and understandable and the application is helpful in supporting the application of those requirements. 2. Are the descriptions of the responsibilities of management and the auditor relating to going concern (paragraphs 31b and 36biv) useful and understandable, in view of the calls for more information in the auditor s report about their respective responsibilities in this area? Would any modifications to the descriptions of management s responsibility be necessary for any specific financial reporting framework? Are there any concerns about possible confusion or misinterpretation about the auditor s responsibilities, in particular the requirement to conclude on the entity s ability to continue as a going concern, recognizing that the description is consistent with the requirement in paragraph.20 of AU-C section 570 (SAS No. 132)? D&T believes the descriptions of the responsibilities of management and the auditor relating to going concern are useful and understandable in view of the calls for more information in the auditor s report about the respective responsibilities of auditors and management in this area. For financial statements prepared in accordance with GASB standards, the going concern basis of accounting is not defined in the GASB standards. Therefore, as discussed above, we believe further consideration should be given as to whether additional application material is necessary, or whether a modified requirement is needed. 3. Will the requirement to identify those responsible for the oversight of the financial reporting process present any practical difficulties when those responsible for the oversight of the financial reporting process are also responsible for preparation of the financial statements (as may be the case, for example, in a small owner-managed entity)? D&T believes the requirement to identify those responsible for the oversight of the financial reporting process does not present practical difficulties as described in question Does the expanded description of the auditor s responsibilities, including the key features of the audit, provide useful information and greater transparency into what an audit is and what the auditor does? Are there any aspects of the auditor s responsibilities that should be added? D&T believes the expanded description of the auditor s responsibilities, including the key features of the audit, provides useful information and greater transparency into what an audit is and what 5

6 an auditor does. D&T does not believe there are any other aspects of the auditor s responsibilities that should be added. Proposed SAS Communicating Key Audit Matters in the Independent Auditor s Report (proposed new AU-C section 701) 5. What are your views regarding whether the requirements and guidance in the proposed SAS will be helpful for auditors in determining and communicating KAMs? D&T believes the requirements and guidance will be helpful for auditors in determining and communicating KAMs that will assist intended users in understanding the entity and areas of significant management judgement. 6. Is it sufficiently clear that the communication of KAMs is not required for audits of nonissuers? As noted above, we do not believe that it is sufficiently clear that the communication of KAMs is not required for audits of nonissuers. We therefore recommend that the introductory paragraph of proposed new AU-C section 701 explicitly state that the communication of KAMs is not required for audits of nonissuers. Proposed SAS Modifications to the Opinion in the Independent Auditor s Report (AU-C section 705) 7. Are the revisions to existing requirements clear and understandable, and is the application material helpful in supporting the application of those requirements? (Changes to extant AU-C section 705 described in the preceding section.) D&T believes the revisions to the existing requirements for modifications to the opinion in the independent auditor s report are clear and understandable and the application material is helpful in supporting the application of those requirements. Proposed SAS Emphasis-of-Matter and Other-Matter Paragraphs in the Independent Auditor s Report (AU-C section 706) 8. Are the revisions to existing requirements clear and understandable, and is the application material helpful in supporting the application of those requirements? D&T believes the revisions to the existing requirements for emphasis-of-matter and other-matter paragraphs are clear and understandable and the application material is helpful in supporting the application of those requirements. 9. Is the interrelationship between emphasis-of-matter or other-matter paragraphs and KAMs clear and understandable, recognizing that the communication of KAMs is not required for audits of nonissuers? If not, what additional guidance would be helpful? D&T believes the interrelationship between emphasis-of-matter or other-matter paragraphs and KAMs is clear and understandable. II. Issues for Consideration Issue 1 Timing of Communications With Those Charged With Governance 6

7 10. Should the requirement in AU-C section 260 be more specific regarding the timing of communication about certain matters with those charged with governance, including whether there should be a requirement for certain communications to be made prior to issuance of the auditor s report? D&T believes the requirement in AU-C section 260, The Auditor s Communication With Those Charged With Governance (AU-C 260), does not need to be more specific regarding the timing of communication about certain matters with those charged with governance (and that such requirement should not be revised to require that certain communications be made prior to issuance of the auditor s report). The guidance included in AU-C 260 application material paragraph A50 provides helpful information on suggested timing for certain communications while acknowledging that communications will vary with the circumstances of the engagement. Issue 2 Addressee in the Auditor s Report 11. Please provide your views on the following: a. Would including the city and state of the addressee in the auditor s report be beneficial to users of the financial statements? D&T believes including the city and state of the addressee in the auditor s report is not necessarily beneficial to users of the financial statements. If the entity believes such information is useful, the entity should include such information in the notes to, or elsewhere in the financial statements. Alternatively, the auditor may include the information voluntarily or at management s request. D&T therefore agrees with the ASB s proposal to not require the entity s address to be included in the auditor s report. b. What would the practical implications be if such a requirement were adopted? Practical implications could be challenges that may result when the corporate office is in a different location than the office at which the principal books and records are maintained or where the entity is incorporated in a different state than the corporate office. The address information may in those cases be confusing to the users of the audited financial statements. Ultimately, we believe as stated above, that if this information is useful to the users of the financial statements, such information can best be voluntarily provided by the entity in the notes to the financial statements. III. Proposed Amendments Addressing Disclosures in the Audit of Financial Statements 12. Are the proposed changes appropriate and sufficient for purposes of enhancing the focus of the auditor on disclosures and, thereby, further enhancing audit quality? D&T believes the proposed amendments addressing disclosures in the audit of financial statements are appropriate and sufficient for purposes of enhancing the focus of the auditor on disclosures. 13. Are there any specific areas where, in your view, additional enhancements to either the requirements or application material would be necessary for purposes of effective auditing of disclosures as part of a financial statement audit? None noted. 14. Will the proposed changes to the assertions in AU-C section 315 help appropriately integrate the auditor s audit approach to the risk of material misstatement in the 7

8 disclosures with the audit work on the underlying amounts, thereby promoting a more effective audit of disclosures? D&T believes the proposed changes to the assertions in AU-C 315 will help integrate the auditor s audit approach to the risk of material misstatement in the disclosures with the audit work on the underlying amounts, thereby resulting in more effective audit procedures relating to disclosures. 8

9 Appendix B Editorial Recommendations The editorial recommendations are highlighted as follows: Additions are noted in bold underline and deletions are noted in strike-through text. The markup of the paragraphs follows the same numerical sequence/ordering of sections as structured in the proposed SAS. D&T recommends that the heading above paragraph A3 be changed to Considerations Specific to Audits Performed in Accordance with Government Auditing Standards and that the beginning of paragraph A3 be modified as follows, as the content in the paragraph is broader than just audits of governmental entities (e.g., the content applies to not-for-profit entities as well): For audits of governmental entities performed in accordance with Government Auditing Standards, the objective... D&T recommends the ASB deletes reference to emphasis-of-matter in paragraph 55 of the proposed SAS Emphasis-of-Matter Paragraphs and Other-Matter Paragraphs in the Independent Auditor s Report based on the definition of Emphasis-of-Matter and Other-Matter-Paragraph included therein. An Emphasis-of-Matter refers to a matter appropriately presented or disclosed in the financial statements, therefore, the matter included in paragraph 55 would be considered an other-matter paragraph. 55. When reporting on prior period financial statements in connection with the current period s audit, if the auditor s opinion on such prior period financial statements differs from the opinion the auditor previously expressed, the auditor should disclose the following matters in an emphasis-ofmatter or other-matter paragraph, in accordance with proposed SAS Emphasis-of-Matter Paragraphs and Other-Matter Paragraphs in the Independent Auditor s Report... D&T recommends the ASB update the Note included in the footnote on page 56 to remove the final standard and amendments are subject to approval by the SEC as well as update Illustration 7, An Auditor s Report on Consolidated Comparative Financial Statements Prepared in Accordance With Accounting Principles Generally Accepted in the United States of America When the Audit Has Been Conducted in Accordance With Both Auditing Standards Generally Accepted in the United States of America and the Auditing Standards of the Public Company Accounting Oversight Board to use the new form of PCAOB auditor s report. + Note: On June 1, 2017, the PCAOB adopted a new auditor reporting standard, AS 3101, The Auditor s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, and related amendments to its auditing standards. All provisions other than those related to critical audit matters are will be effective for audits of fiscal years ending or on after December 15, 2017, with a phased implementation of the provisions related to critical audit matters (fiscal years ending on or after June 30, 2019, for large accelerated filers, and fiscal years ending on or after December 15, 2020, for all other companies to which the requirements apply). The final standard and amendments are subject to approval by the SEC. D&T recommends the ASB update the Illustrations of Auditor s Reports on Financial Statements included in paragraph A82 of the proposed standard as follows: Remove Report on the Audit of the Financial Statements and Report on Other Legal and Regulatory Requirements headers in all of the report examples as they are rarely used. Rather, explain the option and circumstances when to include these headers in the application material only. Define the Company in the first paragraph as follows, ABC Company and its subsidiaries (the Company ). If the Company is not defined, there is inconsistency in including and its subsidiaries in the remainder of the auditor s report. Define the consolidated financial statements and related notes as follows, (collectively referred to as the financial statements ). The use of the term consolidated when 9

10 describing financial statements is inconsistently used throughout the illustrative report example (see yellow highlights below). Defining the consolidated financial statements and related notes will alleviate this issue. In the Auditor s Responsibilities for the Audit of the Financial Statements section of the auditor s report: The first sentence, Our objectives are to obtain reasonable assurance about whether... would read more clearly as, Our objectives in performing an audit in accordance with GAAS are to obtain reasonable assurance about whether... Auditing standards generally accepted in the United States of America is already defined in the Basis of Opinion section of the auditor s report, so use of GAAS is appropriate. The third sentence states that 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 made on the basis of these financial statements. Use of the financial statements may be for a purpose other than to make or influence economic decisions (e.g., use of financial statements by regulators, or users of financial statements of governmental entities). Therefore, we recommend deleting the word economic in the third sentence, or alternatively providing for the ability for such word to be deleted based on auditor judgement in the circumstances. As part of an audit in accordance with GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit is missing the word conducted and therefore should read, As part of an audit conducted in accordance with GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. Move the Other Information [or another title if appropriate, such as Information Other Than the Financial Statements and Auditor s Report Thereon ] section to the end of the auditor s report. These suggestions are applied below to Illustration 2 below, An Auditor s Report on Consolidated Comparative Financial Statements Prepared in Accordance With Accounting Principles Generally Accepted in the United States of America, Including Communication of Key Audit Matters but would also apply to the other illustrations included in paragraph A82, when applicable. 10

11 Independent Auditor s Report [Appropriate Addressee] Report on the Audit of the Financial Statements 2 Opinion We have audited the consolidated financial statements of ABC Company and its subsidiaries (the Company ), which comprise the consolidated balance sheets as of December 31, 20X1 and 20X0, and the related consolidated statements of income, changes in stockholders equity, and cash flows for the years then ended, and the related notes to the financial statements (collectively referred to as the financial statements ). In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of ABC the Company and its subsidiaries as of December 31, 20X1 and 20X0, and the results of its their operations and its 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 (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 independent of ABC the Company, and have fulfilled our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. 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 ] [Reporting in accordance with the reporting requirements in proposed SAS The Auditor s Responsibilities Relating to Other Information Included in Annual Reports see illustration 1 in the appendix of that proposed SAS.] 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 the 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 the Company or to cease operations, or has no realistic alternative but to do so. 2 The subtitle Report on the Audit of the Financial Statements is unnecessary in circumstances in which the second subtitle, Report on Other Legal and Regulatory Requirements, is not applicable. 11

12 Those charged with governance are responsible for overseeing ABC the Company s financial reporting process. Auditor s Responsibilities for the Audit of the Financial Statements Our objectives in performing an audit in accordance with GAAS 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 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 made on the basis of these financial statements. As part of an audit conducted in accordance with GAAS, 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 the Company s internal control. Accordingly, no such opinion is expressed. 3 Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Conclude on ABC the 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. 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 we identified during our audit. Other Information [or another title if appropriate, such as Information Other Than the Financial Statements and Auditor s Report Thereon ] [Reporting in accordance with the reporting requirements in proposed SAS The Auditor s Responsibilities Relating to Other Information Included in Annual Reports see illustration 1 in the appendix of that proposed SAS.] 3 In circumstances in which the auditor also has a responsibility to express an opinion on the effectiveness of internal control in conjunction with the audit of the financial statements, omit the following: but not for the purpose of expressing an opinion on the effectiveness of ABC the Company s internal control. Accordingly, no such opinion is expressed. 12

13 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] In addition, in illustration 4, An Auditor s Report on Consolidated Comparative Financial Statements Prepared in Accordance With Accounting Principles Generally Accepted in the United States of America When the Audit Has Been Conducted in Accordance With Both Auditing Standards Generally Accepted in the United States of America and International Standards on Auditing, in the Auditor s Responsibilities for the Audit of the Consolidated Financial Statements section of the auditor s report, references to ISAs in addition to GAAS were omitted twice. D&T suggests defining International Standards on Auditing in the Basis for Opinion section and including it in the section below as follows: Basis for Opinion We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS) and in accordance with International Standards on Auditing (ISAs). Auditor s Responsibilities for the Audit of the Consolidated 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 and ISAs 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 made on the basis of these financial statements. As part of an audit in accordance with GAAS and ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit.... As stated above, D&T recommends the ASB replace the word engaged with requested or required in proposed new AU-C section 701 as follows: This proposed Statement on Auditing Standards (SAS) addresses the auditor s responsibility when the auditor is engaged requested or required to communicate key audit matters in the auditor s report. As a result of this change, D&T recommends the ASB also replace the engaged with requested or required in the following instances: Proposed new AU-C section 701, paragraph 4, This proposed SAS applies to audits of complete sets of general purpose financial statements when the auditor is engaged requested or required to communicate key audit matters in the auditor s report. 13

14 Proposed new AU-C section 701, paragraph A7, This proposed SAS applies to audits of complete sets of general purpose financial statements when the auditor is engaged requested or required to communicate key audit matters in the auditor s report. Proposed new AU-C section 700, paragraph A83, Illustrations 1 6 in the Circumstances include the following section, final bullet The auditor has not been engaged requested or required to communicate key audit matters in the auditor s report. Proposed new AU-C section 705, paragraph A38, Illustrations 1, 2, 4, 7, 8, in the Circumstances include the following section, final bullet The auditor has not been engaged requested or required to communicate key audit matters in the auditor s report. Proposed new AU-C section 706, paragraph A17, Illustrations 1-4, in the Circumstances include the following section, final bullet The auditor has not been engaged requested or required to communicate key audit matters in the auditor s report. Proposed new AU-C Section 510, Opening Balances Initial Audit Engagements, Including Reaudit Engagements, paragraph A20 in the Circumstances include the following section, bullet The auditor has not been engaged requested or required to communicate key audit matters in the auditor s report. Proposed new AU-C Section 600, Special Considerations Audits of Group Financial Statements (Including the Work of Component Auditors), paragraph A97, Illustrations 1-2 in the Circumstances include the following section, bullet The auditor has not been engaged requested or required to communicate key audit matters in the auditor s report. 14