New Audit Standards Effective December 15, 2012


As we plan for the upcoming audit season, the Audit Department at Contryman Associates, P.C. wants to let you know about some changes you may see during your next audit engagement. New standards will be in effect for audits of financial statements for periods ending on or after December 15, 2012. Some of the changes outlined will affect all audit engagements, but others only apply in certain circumstances.

We are happy to answer any questions you may have related to your upcoming audit. As always, we appreciate the opportunity to work with you and truly value our relationship with you.

 

 

Some changes may affect all engagements:
  • Before the audit begins, you can expect us to review the terms of the engagement annually with you, and if the terms have changed, expect us to issue a new engagement letter. In addition, you will note that management’s responsibilities will be spelled out more clearly in the engagement letter as a result of the new standards, although management responsibilities remain unchanged.
  • Expect our audit team to ask questions regarding your legal and regulatory framework, and expect us to ask to review correspondence with licensing or regulatory agencies. These procedures will allow us to better understand the environment in which you operate and to better assess risk.
  • All confirmations are now required to be in writing. In some circumstances, we may have relied on verbal confirmations; however, that is no longer an option. We may need your help to get cooperation from vendors, customers, and others if they are not responding to our confirmation requests quickly. We may ask you to provide access to vendor portals in order to ensure timely confirmations.
  • Our communications regarding internal control deficiencies will now include a description of the potential effect of significant deficiencies or material weaknesses that we identify through our audit procedures. We won’t quantify the potential effect; we’ll just give a description. We will also inform you of other deficiencies that we believe are sufficiently important but that don’t rise to the level of significant deficiencies or material weaknesses. The expanded reporting is intended to enhance your ability to address internal control issues and reduce the potential risk of material misstatement or fraud.
  • The audit report has changed, it now has headings to distinguish each section and a more complete description of management responsibilities. In some circumstances, new paragraphs may be included in the audit report to address special situations. We will discuss the new report format with you and will let you know if any special report paragraphs may apply to your engagement.

 

Additional changes may not affect all audit engagements:
  • We may ask questions to ensure our understanding of any special circumstances in your engagement, such as if you report using an accounting method other than U.S. generally accepted accounting principles (GAAP), issue a single financial statement, or issue summary financial statements.
  • If your company uses a service organization, such as an outside payroll processor or cloud computing provider, expect us to ask whether the service organization has reported any fraud, noncompliance with laws and regulations, or uncorrected misstatements that could affect your organization. We may have to adjust our audit procedures accordingly.
  • If your company uses a service organization, and we rely on the service auditor’s report as audit evidence, we will be required to evaluate the report in more depth. We may have to perform additional audit procedures, depending on our evaluation.

 

Some changes may only apply in unusual circumstances, some of which are listed subsequently.

If one applies to your engagement, we will discuss the changes in audit requirements with you in more detail.

  • If you have engaged us to perform an audit for the first time, we will discuss the procedures required in an initial audit (or reaudit).
  • If there are material changes in financial statement classifications from previously issued financial statements, expect us to perform additional procedures to evaluate the changes and possibly highlight them in the auditor’s report.

Again, this is an introduction to the required changes, and we will review those specific to your engagement in a follow-up meeting. We are embracing the changes to the audit process because they are expected to result in enhanced communication between your team and ours, improved audit quality, and increased confidence in the audited financial statements. After our meeting, our audit team will review the specific changes to your engagement and will communicate with you regarding any anticipated changes in audit scope and pricing.