Spring 2013 issue of Horizons

PUBLIC SECTOR

The three sections are:

Written Communication , which is also effective for December 31, 2012 year-ends. SAS 125 modifies the formatting and wording of these purpose paragraphs. In February 2013, the AICPA released illustrative audit reports that incorporate the various changes described in the preceding paragraphs. Governments interested in visualizing how these changes in auditing standards will modify their financial statement opinions may access the illustrative audit reports at http://tinyurl.com/SAS122-SAS125 . 2011 Government Auditing Standards Issued by the GAO As discussed above, the GAO puts forth Government Auditing Standards, which are additional standards above and beyond the AICPA’s professional standards that auditors must follow on Government Auditing Standards engagements. The publication containing these standards is bound with a yellow cover; accordingly, Government Auditing Standards are frequently referred to as “Yellow Book” standards. In 2011, the GAO issued a revised version of Government Auditing Standards, which is effective for financial statement audits for years ended December 31, 2012 and thereafter. The most substantial changes incorporated in the 2011 Yellow Book relate to auditor independence. In particular, the 2011 Yellow Book revises the criteria for determining whether an auditor may provide non-audit services to a client and still be independent for purposes of the financial statement audit. Under prior versions of Government Auditing Standards, the independence standards were more rules based; that is, the Yellow Book specified the services that auditors could or could not perform for auditees. The 2011 Yellow Book still contains a listing of non-audit services that are always impermissible. However, beyond these

1. Management’s Responsibility for the Financial Statements

2. Auditor’s Responsibility

3. Opinion

The first two sections are more specific about the extent of management’s responsibilities and the scope and limitations of an audit than was the case under the prior opinion wording format. These changes to the standard opinion wording will also result in similar changes to the standard wording included in the audit engagement letter and management’s representation letter. For some governmental entities, the audit of the financial statements is conducted in accordance with Generally Accepted Government Auditing Standards (GAGAS) as promulgated by the U.S. Government Accountability Office (GAO), in addition to the professional standards promulgated by the AICPA. This is typically occurs when the governmental entity has expended more than $500,000 in federal awards, thus requiring a single audit. When the audit is conducted in accordance with GAGAS, the financial statement opinion contains a paragraph referring to the separate Report on Internal Control Over Financial Reporting and on Compliance and Other Matters issued in accordance with GAGAS. SAS 122 also modifies the wording for this paragraph. Additionally, the Report on Internal Control Over Financial Reporting and on Compliance and Other Matters and the single audit report on Compliance and Internal Control Over Compliance contain concluding paragraphs discussing the purpose and intended users of these reports.

In December 2011, the AICPA issued SAS 125, Alert That Restricts the Use of the Auditor’s

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