BLS Insights

My Audit Report Changed…Should I Be Worried?

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Posted by Casey A. Foulk

There is a saying that whether we like it or not things must change and this year the format of audit reports are changing as a result of the AICPA’s Auditing Standards Board Clarity Project. The purpose of this project is to make current U.S. Generally Accepted Auditing Standards (GAAS) easier to read, understand and apply, especially across international borders. As a result of this project, a clarified statement on auditing standard (SAS) entitled Forming an Opinion and Reporting on Financial Statements was issued. This SAS changed the format and presentation of audit reports and became effective for periods ending on or after December 15, 2012, so many nonprofits will see this change when issued their audit reports by their auditors. To help these nonprofits become familiar with the changes they will see we have assembled the following summary of the most recognizable differences between the old and new formats.

  • Headings: The most obvious change to the report is the use of the following headings:
    1. “Management’s Responsibility for the Financial Statements”
    2. “Auditor’s Responsibility”
    3. “Opinion”

Past audit report formats did not contain headings.

  • Introduction Paragraph: This paragraph will state the name and type of entity whose financial statements have been audited, identify the title of each audited financial statement, and specify the period covered by the financial statements. It will no longer make reference to responsibility of the auditor or management. These responsibilities are now covered under two separate paragraphs.
  • Management’s Responsibility for the Financial Statements Paragraph: This paragraph describes management’s responsibility for the preparation and fair presentation of the financial statements, as well as their responsibility related to the design, implementation, and maintenance of internal control related to the preparation and fair presentation of the financial statements that are free from material misstatement.
  • Auditor’s Responsibility Paragraph: This paragraph describes the auditor’s responsibility to express an opinion on the financial statements, as well as a statement that the audit was conducted in accordance with generally accepted auditing standards in the United States. Compared to the old audit report, this paragraph contains a larger description of the audit process.
  • Opinion Paragraph: The Auditing Standards Board wanted the opinion to be clearly differentiated from the rest of the report. As a result, it received its own distinguishable paragraph. If an auditor issues an opinion other than unqualified, a preceding paragraph detailing the reason for the modified report must be utilized with an appropriate heading, such as, “Basis for Qualified Opinion,” “Basis for Adverse Opinion,” or “Basis for Disclaimer of Opinion.”

In addition to these paragraphs the auditor may use an Emphasis of Matter Paragraph to draw the user’s attention to a particular matter. This paragraph would follow the opinion paragraph.

Although the changes to the audit report are primarily related to appearance and presentation, it is still very important for management to read and understand the audit report received. Therefore, I would encourage your audit committee, management and/or board of directors to thoroughly read the new audit report and openly address any questions with your auditors.


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