A new statement issued by the Auditing Standards Board (ASB) clears the way for audits of financial statements prepared in accordance with the Financial Reporting Framework for Small- and Medium-Sized Entities (SMEs) that the AICPA is developing.
Statement on Auditing Standards (SAS) No. 127, Omnibus Statement on Auditing Standards—2013, defines a new special-purpose framework in the auditing standards that utilizes a definite set of logical, reasonable criteria that is applied to all material items appearing in financial statements.
Previously, the special-purpose frameworks included in the AICPA Professional Standards had been limited to:
- Cash basis.
- Tax basis.
- Regulatory basis.
- Contractual basis.
The statement amends AU-C Section 800, Special Considerations—Audits of Financial Statements Prepared in Accordance With Special Purpose Frameworks, and takes effect for audits of financial statements for periods ending on or after Dec. 15, 2012. The new definition is similar to one that previously had been deleted from AICPA auditing standards because of lack of use.
The development of the Framework for SMEs, though, creates a need for the new special-purpose framework in the auditing standards. The AICPA’s objective is to provide a simple, robust, and reliable financial reporting framework for SMEs that are not required to file financial statements in accordance with GAAP.
An exposure draft of the framework was released Nov. 1; comments are due Jan. 30.
Component auditor amendment
In addition, the ASB’s new statement permits reference in the auditor’s report on group financial statements to component auditors’ reports on component financial statements in some cases.
SAS No. 127 permits such a reference when the group and component financial statements are prepared using different financial reporting frameworks if certain other criteria are met.
The statement amends AU-C Section 600, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors), and takes effect for audits of group financial statements for periods ending on or after Dec. 15, 2012.
—Ken Tysiac (firstname.lastname@example.org) is a JofA senior editor.