By: Thereza Austria, CPA
In February 2010, the Auditing Standards Board issued three new audit standards covering other and supplementary information included in audited financial statements. I know what you're thinking…"those are auditing standards, not accounting standards. I don't have to worry about that as an auditee." Well, not completely….
SAS 118
Other Information in Documents Containing Audited Financial Statements requires the auditor to read the other information because the credibility of the audited financial statements may be undermined by material inconsistencies between the audited financial statements and the other information. This other information can take many forms, such as a report by management or governance or financial highlights that is distributed to shareholders, or in the case of this audience, distributed to the general public for charitable purposes. It may also include other documents that management requests that the auditor devote attention. If any inconsistencies or material misstatements of fact are found, the auditor should consider revising the financial statements, other information, or even the opinion on the financial statements. Thus, it is imperative that management provides the auditors with the other information as early as possible before the report release date so that any issues may be resolved early and prevent any delays.
SAS 119
Supplementary Information in Relation to the Financial Statements as a Whole covers supplementary information, such as a Statement of Functional Expenses or Consolidating Financial Statements included with the basic audited financial statements. It is important to note however, for this SAS, "supplementary information" is defined as information that NOT required to be disclosed to comply with generally accepted accounting principles. Required information is covered in SAS 120 below. Auditors must opine on whether the supplementary information is fairly stated in all material respects to the financial statements as a whole. However, in order to do so, the auditor may need to perform additional procedures during the audit. For this audience, this will mostly involve increased focus on the estimates and assumptions used in expense allocations across different programs or even entities in consolidation…get those timesheets and affiliation agreements ready! The auditors will also require additional representations in the management representation letter including management's responsibility over the supplementary information. Further, specific wording changes will be made to the auditor's opinion stating that the supplementary information has been subjected to the auditing procedures applied to the basic financial statements, including comparing and reconciling such information to the basic financial statements.
SAS 120
Required Supplementary Information covers required information, such as a Schedule of Expenditures of Federal Awards. Additional audit procedures will include inquiring about the methods used to prepare the supplementary information, such as whether it has been measured and presented in accordance with prescribed guidelines, any changes to those methods, and significant assumptions and interpretations used. Like SAS 118 and 119, the auditors will need to compare the supplementary information to the basic financial statements and will require additional representations in the management representation letter.
All three of these standards will become effective for fiscal years beginning after December 15 2010, although early implementation is allowed. So, in order to ensure a smooth audit process for your calendar year 2011 (or fiscal year 2012) audit, we highly recommend that you and your auditor coordinate early any other or supplementary information that may need to be examined.
Contact Us
Thereza Austria is a manager in Tate & Tryon's Audit and Assurance Services department. For additional information or any questions, please contact Thereza at (202) 293-2200 or taustria@tatetryon.com.
