SAS 118-120 Presentation by H Kyle Anderson and Bill Ellis 10 27 2011

SAS 118-120 Updates
A&A UPDATES
H. Kyle Anderson, CMA, CPA
Bill Ellis, CPA

A & A Update and Review, Inc

6514 Dobbins Bridge Road
Anderson, SC 29626
(864) 933-3815 Fax: (888) 411-7668
Website: www.aandaupdate.com
E-mail: kyle@aandaupdate.com
Skype: hkacpa

SAS 118-120 Updates
SAS 118:
Other Information in Documents Containing
Audited Financial Statements
AU Section 550
SAS 119:
Supplementary Information in Relation to the
Financial Statements as a Whole
AU Section 551
SAS 120:
Required Supplementary Information
AU Section 558

A&A UPDATES H. Kyle Anderson, CMA, CPA Bill Ellis, CPA

Objectives

What are the new reporting requirements when:
 Auditors are asked to read and comment on
supplementary/other information contained
in Audited Financial Statements.
 Auditors are engaged to report on the
supplementary information and give an
opinion regarding whether the information is
fairly stated in relation to the required basic
financial statements.
 Auditors are engaged to report on
supplementary information that a designated
accounting standards setting body such as
FASB, GASB, FAS and ISB requires the
information to be included with the basic


Objectives

 Auditor’s professional responsibilities for
supplementary information
 Required procedures
 Reporting requirements
 What is the Auditor’s responsibility when
management does not provide the
supplemental information or enable the
auditor to complete the required procedures?
 What are the resources available to the
Auditor to ensure these engagements are
conducted in accordance with GAAS?


Update from Clarity Project released October 2011

 SAS 118-120 were issued using Clarity
project standards and are currently effective.
 SAS 122, Statements on Auditing Standard:
 Clarification and Recodification,
 SAS 123, Omnibus Statement on Auditing
Standards – 2011, Released October
2011 amends SAS 118.
 The effective date for SAS 123 is for audits of
financial statements for periods ending after
12/15/2012.


Update from Clarity Project released October 2011

 SAS No. 118, Other Information in Documents
Containing Audited Financial Statements (issued
February 2010; became effective December 15, 2010.
Early Application permitted. Currently AU 550 / New AU-C
720.

 SAS No. 119, Supplementary Information in
Relation to the Financial Statements as a Whole
(issued February 2010; became effective December 15,
2010. Early Application permitted Currently AU 551 /New
AU-C 725.

 SAS No. 120, Required Supplementary
Information (issued February 2010; became effective
December 15, 2010. Early Application permitted
Currently AU 558 /New AU-C 730.


Material Coverage

 Today, we will cover material available on the
AICPA website at:
http://www.aicpa.org/Research/Standards/AuditAttes
t/Pages/SAS.aspx

 Please download AU 550, AU 551 and AU 558 prior
to the start of the webinar.

 The material covered will be referenced to the
current AU section and the new Clarity Project
section AU-C.


SAS 118
Other Information in Documents
Containing Audited Financial Statements
Scope
Auditor’s Responsibility for other information in audited
financial statements and the auditor’s report.

Auditors are required to read the other information to
determine if the credibility of the audited financial
statements could be undermined by material
inconsistencies between the financial statements and the
other information.

Effective Date
Effective for periods beginning on or after December 15, 2010
with early application permitted.

AU 550.01/ AU-C 720.01
AU 550.03 / AU-C 720.03

SAS 118
Definitions
 Inconsistency: conflicts with other
information and information contained in the
audited financial statements.
 Material inconsistencies may raise doubt
about the audit conclusions and basis for the
auditor’s opinion.
 Misstatement of fact: Other information
incorrectly stated or presented that may
undermine the credibility of the audited
 Other information: Other financial and
nonfinancial information excluding required
supplementary information.

AU 550.05 / AU-C 720.05

SAS 118
Requirements Reading Other Information

 The auditor should read the other information
to identify material inconsistencies.
 If material Inconsistencies are identified, the
auditor should determine if the information
needs to be revised.
 Material Inconsistencies identified after the
auditor’s report date and prior to release
should follow section 560, Subsequent Events
and Subsequently Discovered Facts.
 Material Inconsistencies identified after the
auditor’s report release should follow section
561, Subsequent Discovery of Facts Existing
at the Date of the Auditor’s Report.

AU 550.06-550.14/AU-C 720.06–720.14
AU 560 & 561 now AU-C 560

SAS 118
Material Inconsistencies
AU 550.10 - 550.12 / AU-C 720.10 - 720.12

Discovered prior to the report release date
requiring revision of the other information when
management refuses to make the revision
should:
 Include an AU-C 706, Emphasis-of-Matter
Paragraphs and Other-Matter Paragraphs in
the Independent Auditor’s Report or
 Withhold Auditor’s Report or
 Withdraw from engagement if possible.

AU 550.06-550.14/AU-C 720.06–720.14

SAS 118
Application and Other Explanatory Material

Other information required to be included by a
designated accounting standards setter is
addressed in AU 558, Required Supplementary
Information and AU-C 730, Required
Supplementary Information.
 Management reports
 Financial highlights
 Ratios
 Quarterly data, etc.

AU 550.A1/AU-C 720.A1

SAS 118
Example
Other Matter Paragraph to Disclaim an Opinion
Identify the audit conducted to form an opinion
on the basic financial statements
The other information is not a required part of
those financial statements and has not been
subjected to auditing procedures
No opinion or assurance is provided.
Change from SAS #122: AU 550.B, Comparison of Section 550, Other
Information in Documents Containing Audited Financial Statements, With
International Standard on Auditing 720, The Auditor’s Responsibility in
Relation to Other Information in Documents Containing Audited Financial
Statements has been removed in AU-C 720.B

AU 550.A13/AU-C 720.A13

SAS 119
Supplementary Information
in Relation to the Financial Statements as a Whole
Scope
Auditor’s responsibility when engaged to report
whether supplementary information is fairly stated
in relation to the financial statements.

Such information is not necessary for financial
statements to be in accordance with the applicable
financial reporting framework

Effective Date
Effective for periods beginning on or after December 15, 2010
with early application permitted.

Objective
The auditor is to evaluate the supplementary information and
report whether the supplementary information is fairly
stated, in all material respects, in relation to the financial
statements as a whole.
AU 551.01/AU-C 725.01
AU 551.02/AU-C 725.02
AU 551.03/AU-C 725.03

SAS 119
Definitions
 Supplementary information: information
presented outside the basic financial
statements and not required for the financial
statements to be in accordance with the
applicable financial reporting framework.

AU 551.04/AU-C 725.04

SAS 119
Requirements
Procedures to Determine Whether
Supplementary Information is Fairly Stated,
in All Material Respects, in Relation to the
The auditor should determine that the
supplementary information:
 was derived from and relates directly to the financial
statements.
 relates to the same period
 the auditor was the principal auditor in preparing the
audited financial statements
 an adverse opinion nor a disclaimer of opinion was
issued, if so, see AU 551.11/AU-C 725.11
 the supplementary information will be included with
the audited financial statements, or made readily
available by the entity

AU 551.05/AU-C 725.05

SAS 119
Requirements
Management’s Responsibility
Management should acknowledge and understands its
responsibility to the auditor for

 preparation of the supplementary information
 provide written representations in AU 551.07g/AU-C
725.07g
 include the auditor’s report with the supplementary
information
 present the supplementary information with the
audited financial statements or make the audited
financial statements readily available to the intended
users of the supplementary information.

AU 551.06/AU-C 725.06

SAS 119
Requirements
Procedures the auditor should perform regarding
the supplementary information include
 inquiry about the purpose of and the criteria used in
preparation
 compliance with the applicable criteria
 methods used to prepare and whether the methods have
changed from prior periods
 compare and reconcile with accounting records, other
records and financial statements
 significant assumptions or interpretations used in
measurement or presentation
 appropriateness and completeness of the information

AU 551.07/AU-C 725.07

SAS 119
Requirements
Procedures the auditor should perform regarding
the supplementary information include
 Management’s written representations regarding
 responsibility for presentation in accordance with the
applicable criteria
 belief information is fairly presented in accordance with
the applicable criteria
 the methods of measurement or presentation have not
changed from prior period or the reasons for changes
 significant assumptions or interpretations utilized in the
 audited financial statements will be made readily
available if not included with the supplementary
information.
 There are no requirements regarding subsequent events
unless they come to the auditor’s attention.
 Follow AU 560 Subsequent Events or AU 561, Subsequent Discovery
of Facts Existing at the Date of the Auditor’s Report. AU-C 560,
Subsequent Events and Subsequently Discovered Facts. AU 551.07/AU-C 725.07
AU 551.08/AU-C 725.08

SAS 119
Reporting
The auditor’s explanatory paragraph (Other-Matter AU-C 706)
in the report or separate report should include the following
statements:
 audit was conducted to form an opinion on the financial
statements as a whole
 supplementary information is for additional analysis and not
a required part of the financial statements
 supplementary information is the responsibility of
management and derived from underlying accounting and
other records
 supplementary information has been subjected to the
auditing procedures including comparing and reconciling
such information directly to the underlying accounting and
other records in accordance to GAAS
 supplementary information is fairly stated in all material
respects when auditor issues an unmodified opinion
 any effect on the supplementary information if the auditor
issues a qualified opinion.

AU 551.09/AU-C 725.09

SAS 119
Reporting
Separate report on Supplementary information
 Separate reports on supplementary information should also
reference the report, the date and nature of opinion on the
Adverse or Disclaimed Opinion
on Financial Statements
 An auditor cannot express an opinion on supplementary
information when the audited financial statements contains
an adverse opinion or a disclaimer of opinion.
Materially Misstated
Other Supplemental Information
 Materially misstated Supplemental information should be
revised
 If management does not revise the supplementary the
auditor should either modify the auditor’s opinion in the
auditor’s report or if a separate report, withhold their report.
Meaning of Readily Available AU 551.10/AU-C 725.10
 Third party users should be able to obtain the audited AU 551.11/AU-C 725.11
financial statements without any further action by the entity AU 551.13/AU-C 725.13
AU 551.A9/AU-C 725.A9

SAS 119
Procedures
Performed on Supplementary Information

 Procedures in engagements included with the audit of
financial statements are not as extensive as a stand-
alone engagement

 No requirement to obtain a separate understanding of
the entity’s internal control or to fraud risk.

 Materiality can be considered in selection of
information to compare and reconcile to accounting
and other records
 Auditor can utilize testing
records, observation, examination of source
documents and other auditing procedures to
evaluating appropriateness and completeness of
supplementary information
AU 551.A10/AU-C 725.A10
 Auditor may consider performing procedures such as:
AU 551.A11/AU-C 725.A11
 updated representation letter AU 551.A12/AU-C 725.A12
 subsequent events procedures AU 551.A13/AU-C 725.A13
A&A UPDATES H. Kyle Anderson, CMA, CPA Bill Ellis,client’s
 letter of audit inquiry to the CPA lawyer AU 551.A14/AU-C 725.A14

SAS 119
Procedures

Contains the following explanatory paragraph report with audit
report and as a separate report examples for:

 Unqualified opinion on the financial statements as a whole
and the supplementary information is fairly stated

 Qualified opinion on the financial statements as a whole
and a qualified opinion on the supplementary information

 Auditor disclaims an opinion on the financial statements as
a whole and ion on the supplementary information

 Adverse opinion on the financial statements as a whole and
ion on the supplementary information

AU 551.A17/AU-C 725.A17
AU 9551/AU-C 9725

SAS 119
Procedures

Supplementary Information in Relation to the

 This contains guidance/questions and answers on dating the
Auditor’s report on Supplementary Information

 The report should not be dated earlier than the date the
auditor completes AU 551.07 procedures.

AU 551.A17/AU-C 725.A17
AU 9551/AU-C 9725

SAS 120
Required Supplementary Information

Scope
Auditor’s responsibility when engaged to report
on Required Supplementary Information that a
designated accounting standards setter requires
as part of an entity’s basic financial statements.
Effective Date
Effective for periods beginning on or after December 15, 2010 with early
application permitted.

Objective
The auditor should perform specified procedures necessary to
report if the entity presented the required supplementary
information according to guidelines established by the
accounting standards setter or if they have identified material
modifications required to be in compliance with those
guidelines.
AU 558.01/AU-C 730.01
AU 558.02/AU-C 730.02
AU 558.03/AU-C 730.03

SAS 120
Definitions
 Applicable financial reporting framework. The financial
reporting framework adopted by management or those
charged with governance deemed appropriate or required
by law or regulation.

 Basic financial statements. Financial statements
presented in accordance with an applicable financial
reporting framework excluding required supplementary
information.

 Designated accounting standards setter. A body
designated by the Council of the AICPA to promulgate
GAAP, including FASB, GASB, FAS & ISB

 Prescribed guidelines. The authoritative guidelines
established by the designated accounting standards for
measurement and presentation.

 Required supplementary information. Information
required to accompany an entity’s basic financial statements
that a designated accounting standards setter considers an
essential part of financial reporting.

AU 558.04/AU-C 730.04

SAS 120
Requirements
Auditor procedures for required supplementary
information should include:

a) Inquiry about the methods of preparing the information to
insure in accordance with guidelines, whether any methods
have changed and any significant assumptions or
interpretations

b) Comparison for consistency with management’s responses
to part a), the basic financial statements, and other
knowledge obtained during the regular audit

c) Management’s written representations regarding
 Responsibility for the required supplementary information
 Whether the required supplementary information is in
accordance with prescribed guidelines
 That methods of measurement or presentation have not
changed or the reasons for such changes
 Significant assumptions or interpretations utilized in the

AU 558.05/AU-C 730.05

SAS 120
Reporting
The auditor’s explanatory (Other-matter AU-C 706)
paragraph in the report should include the
following statements as applicable:
a) The required supplementary information is included and the
auditor complied with section 558.05, Procedures

b) Required supplementary information is omitted

c) Some information is missing and some presented properly

d) Identification of material departures from guidelines

e) Auditor could not complete requirements in section 558.05,
Procedures

f) Unresolved doubts exist regarding if presentation

AU 558.07/AU-C 730.07

SAS 120
Reporting
If all or some of the required information is
presented, the auditor’s explanatory (Other-matter
AU-C 706) paragraph in the report should include:
a) identification of the applicable financial reporting framework
and required supplemental information

b) identification of the designated accounting standards
requiring the required supplemental information

c) if procedures in section 551.05 were completed:

 statement auditor completed limited procedures
in accordance to GAAS

 The auditor does not provide an opinion or provide
assurance on the information due to limited procedures.

AU 558.08/AU-C 730.08

SAS 120
Reporting
If all or some of the required information is
presented, the auditor’s explanatory (Other-matter
AU-C 706) paragraph in the report should include:
d) if procedures in section 551.05 were not completed:
a) statement auditor was unable to complete limited procedures in
accordance to GAAS
b) The auditor does not provide an opinion or provide assurance
on the information due to limited procedures.
e) if some of required supplementary information is omitted,
the auditor should include statements noting:
a) the information omitted by management
b) the information was required by the designated accounting
standards setter
c) the auditor’s opinion on basic financial statements was
not affected.
f) Any material departures from the measurement or
presentation guidelines
g) Any unresolved doubts about measurement of presentation
compliance with guidelines.
AU 558.08/AU-C 730.08

SAS 120
Reporting
If all of the required information is omitted, the
auditor’s explanatory (Other-matter AU-C 706)
paragraph in the report should include the
following
a) The information omitted by management
b) The information was required by the designated accounting
standards setter
c) The auditor’s opinion on basic financial statements was
not affected.
Application and Other Explanatory Material
If the entity omits required supplementary information, the
auditor is not required to present the information

AU 558.09/AU-C 730.09
AU 558.A2/AU-C 730.A2

SAS 120
Examples of Reports
 The Required Supplementary Information
is included, the auditor has applied the specified
procedures, and no material departures from
prescribed guidelines have been identified

 All required supplementary information omitted

 Some required supplementary information
is omitted and some is presented in accordance
with the prescribed guidelines

 Material departures from prescribed guidelines
identified

 Specified procedures not completed

 Unresolved doubts about whether the required
supplementary information is in accordance with
prescribed guidelines

AU 558.A3/AU-C 730.A3

Thank you.
A&A UPDATES
H. Kyle Anderson, CMA, CPA
Bill Ellis, CPA

SAS 118-120 Presentation by H Kyle Anderson and Bill Ellis 10 27 2011

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to SAS 118-120 Presentation by H Kyle Anderson and Bill Ellis 10 27 2011

Similar to SAS 118-120 Presentation by H Kyle Anderson and Bill Ellis 10 27 2011 (20)

Recently uploaded

Recently uploaded (20)

SAS 118-120 Presentation by H Kyle Anderson and Bill Ellis 10 27 2011