By Megan Broomfield, CPA
Statement on Auditing Standards (SAS) No. 114 supersedes the guidance contained in SAS No. 61, Communication with Audit Committees, as amended. This SAS establishes standards and provides guidance on matters to be communicated with “those charged with governance” for non-public entities. The standard is effective for periods beginning on or after December 15, 2006 (Early application permitted).
SAS No. 61 established communication requirements applicable to entities that either have an audit committee or that have otherwise formally designated oversight of the financial reporting process to a group equivalent to an audit committee. SAS No. 114 broadens the applicability of this communication to audits of all non-issuers and establishes a requirement for the auditor to communicate with those charged with governance certain significant matters related to the audit.
The standard defines the term “those charged with governance” as those with responsibility for overseeing the strategic direction of the entity and obligations related to the accountability of the entity, including overseeing the entity’s financial reporting process. However, it also acknowledges that governance structures vary and that it is not possible to specify for all circumstances the person(s) with whom the auditor is to communicate particular matters and that in instances when the appropriate person(s) are not clearly identifiable, the auditor and the engaging party should agree on the relevant person(s) within the entity’s governance structure with whom the auditor will communicate.
While the standard focuses on communications from the auditor to those charged with governance, the importance of effective two-way communication is also addressed. In particular, the standard considers effective two-way communication as assisting the auditor and those charged with governance in understanding matters related to the audit and in developing a constructive working relationship.
The standard identifies specific matters to be communicated. The communication requirements are generally consistent with SAS No. 61, however, certain additional matters must be communicated and additional guidance on other matters is provided.
Some of the more significant changes include:
· a requirement to communicate an overview of the planned scope and timing of the audit, and
representations the auditor is requesting from management,
· a requirement to evaluate the adequacy of the two-way communication between the auditor and
those charged with governance, and
· a requirement to document required communications with those charged with governance.
The standard should further open up the lines of communications between those charged with governance and the outside auditors.
Megan
Broomfield
, CPA, is a principal with Mengel, Metzger, Barr & Co. LLP and may be reached at Mbroomfield@mmb-co.com.
Reprinted with permission of The Daily Record 2007
