Statements of Position

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Description

In making this proposal to eliminate the requirement that, when certain criteria are met, the auditor add an uncertainties explanatory paragraph to the auditor's report, the Auditing Standards Board (ASB) considered the following factors: 1. The issuance of Statement of Position (SOP) 94-6, Disclosure of Certain Significant Risks and Uncertainties, and previous changes to accounting standards have significantly improved the disclosure of risks and uncertainties in financial statements. 2. Under existing reporting standards, the absence of an uncertainties explanatory paragraph in the auditor's report could cause financial statement users to incorrectly conclude that the entity faces no significant risks or uncertainties. The current standard, therefore, has the potential to distract financial statement users from financial statement disclosures, including the disclosures required by SOP 94-6. 3. Existing reporting standards provide the auditor with the option of emphasizing a matter regarding the financial statements in the auditor's report by adding a separate paragraph to the report. This option is available to the auditor when he or she wishes to emphasize significant risks and uncertainties disclosed in the financial statements. 4. The required uncertainties explanatory paragraph does not and should not communicate new information to financial statement users. Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 5, Accounting for Contingencies, and SOP 94-6 establish standards for the disclosure of contingencies and certain significant estimates. If the financial statement disclosures are inadequate, the auditor is required to express a qualified or adverse opinion on the financial statements because of departures from generally accepted accounting principles (GAAP). 5. This proposal does not affect the provisions of Statement on Auditing Standards (SAS) No. 59, The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern (AICPA, Professional Standards, vol. 1, AU sec. 341) which requires that the auditor add an explanatory paragraph to the auditor's report when there is substantial doubt about an entity's ability to continue as a going concern. This proposed Statement amends SAS No. 58, Reports on Audited Financial Statements (AICPA, Professional Standards vol. 1, AU sec. 508). Among the more significant provisions of the proposed Statement are amendments that: 1. Eliminate the requirement that, when certain criteria are met, the auditor add an uncertainties explanatory paragraph to the auditor's report. 2. Expand the guidance in paragraph 37 of SAS No. 58 to indicate additional matters the auditor may wish to emphasize in the auditor's report. 3. Add a footnote to paragraph 37 of SAS No. 58 to reiterate that the addition of an emphasis of a matter paragraph to the auditor's report is optional rather than required. 4. Add a paragraph to SAS No. 58 to indicate that an auditor may disclaim an opinion on financial statements due to uncertainties. This reporting option was previously presented in footnote 11 of SAS No. 58.

ISBN

ed95-07-20t

Publication Date

1995

Relational Format

Book

Keywords

Audited financial statements -- Standards -- United States; Auditors' reports --Standards -- United States

Disciplines

Accounting | Taxation

Comments

Originally published by: American Institute of Certified Public Accountants; Copyright and permission to reprint held by: American Institute of Certified Public Accountants; Exposure draft (American Institute of Certified Public Accountants), 1995, July 20

Proposed statement on auditing standards : amendment to Statement on auditing standards no. 58, Reports on audited financial statements;Amendment to Statement on auditing standards no. 58, Reports on audited financial statements

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