Auditing standards board votes to finalize going concern guidance

The AICPA’s Auditing Standards Board (ASB) voted unanimously to issue a final going concern standard during a meeting from Jan. 9 to 12, 2017, in Fort Lauderdale, Florida.

The board plans to issue the final standard as Statement on Auditing Standards (SAS) No. 132: The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern, according to Ahava Goldman, senior technical manager for audit and attest standards on public accounting with the Association of International Certified Professional Accountants, which is an affiliate of the AICPA and the UK’s Chartered Institute of Management Accountants (CIMA) that launched this month.

The ASB agreed that the standard will reflect some changes recommended by the comment letters about Proposed SAS: The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern, which was issued in July 2016.

SAS No. 132 will supersede SAS No. 126, The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern (Redrafted), (AU-C Section 570), and will be effective for audits of financial statements for periods ending on or after Dec. 15, 2017, Goldman said.

The ASB decided that SAS No. 132 will not apply to audits of single financial statements, such as balance sheets, and specific elements, accounts, or items of a financial statement. Some auditors commented that the evaluation of whether there is substantial doubt about a company’s ability to continue as a going concern can be performed only on a complete set of financial statements at an enterprise level.

Some ASB members expressed concern that the interrelationship of all the auditing standards, highlighting exclusion of a specific standard could have unintended consequences, and the ASB noted that it may explore the standard’s applicability in audits of single financial statements or specific accounts.

The amended guidance is intended to promote consistency between the auditing standards and the FASB’s Accounting Standards Update (ASU) No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern. When SAS No. 126 was issued in 2012, U.S. GAAP lacked guidance for management’s going concern evaluation, and the call to cast doubts about a business's financial stability belonged to the external auditor. The FASB standard requires management to assess whether a company can meet its obligations for 12 months after issuing its financial statements.

The AICPA standard deals with the uncertainties auditors face when the going concern basis of accounting is not applied or may not be relevant, Goldman said. The auditor’s responsibilities exist whether management is obligated to follow a financial reporting framework, such as U.S. GAAP or another framework that does not require management to make a going concern evaluation.

At the meeting, the ASB also discussed a proposed exposure draft concerning audits of benefit plans covered by the Employee Retirement Income Security Act of 1974 (ERISA).

The planned standard is intended to help auditors better understand their responsibilities and provide users with more information about what auditors do, especially in situations when management limits the scope of the audit as permitted by Department of Labor rules and regulations for reporting and disclosure.

The ASB plans to meet by teleconference on Feb. 22 to vote on issuing an exposure draft.

The meeting also had a discussion of the comment letters responding to Exposure Draft, Proposed SAS: Auditor Involvement With Exempt Offering Documents, which was issued in July 2016.

The comments largely supported the proposal for including specific performance requirements for exempt offerings, or offerings of securities not registered with the SEC. The requirements apply when an auditor’s report accompanies the offering documents and the auditor assists the issuer in preparing the documents, reviews the documents at the issuer or seller’s request, writes an underwriter’s letter about the offering statement, or performs what the ASB defines as a triggering event that establishes an auditor’s responsibility for the offering.

The board decided to discuss the scope of the standard after a task force does more research about franchise offerings.

The ASB plans to consider finalizing the standard at its next quarterly meeting in May.

The meeting included a discussion of a draft of a proposed standard for a new service in which certified public accountants (CPAs) perform certain selected procedures without expressing an opinion. The standard-setting project is a joint effort with the AICPA’s Accounting and Review Services Committee (ARSC). Selected procedures engagements can be used for consulting work when the client and consultant have to decide how to structure the CPA’s work. The selected procedures report is designed to have the auditor explain the procedures carried out and the findings that resulted from them without providing assurance. The report’s use will not be restricted.

The ASB directed a task force that the standard should include a clear requirement that the CPA, before issuing the selected procedures report, let the engaging party know about the procedures performed. The acknowledgment would not mean that the engaging party is taking responsibility for the sufficiency of the procedures performed.

The ASB plans to consider a revised draft at its May 2017 meeting with the goal of issuing a proposed version of the change for public comment.

At the meeting, the board also discussed a draft of a proposal to revise the auditor’s report and decided to continue discussing the revisions at future meetings.

The project deals with convergence efforts with several audit reporting standards the International Auditing and Assurance Standards Board (IAASB) issued in 2015, including International Standard on Auditing (ISA) 700 (Revised), Forming an Opinion and Reporting on Financial Statements, and ISA 701, Communicating Key Audit Matters in the Independent Auditor’s Report. The proposed change requires an auditor report to discuss the matters that were most significant in the audit.

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