Spring 2013 issue of Horizons

prohibited services, the Yellow Book adopts a new conceptual framework that auditors must apply when determining whether a non-audit service will impair independence. The Yellow Book enumerates various threats to independence that the performance of a non-audit service might trigger. The auditor is then required to determine what safeguards the auditor will put in place in order to address these threats and whether independence is preserved after the safeguards are put in place. Finally, the auditor must document its determination that management of the auditee is willing and able to accept responsibility for the results of the non-audit service. It is possible that the application of this framework may lead auditors to conclude that they are no longer able to perform non-audit services for clients for which they have performed in past years. Finally, the 2011 Yellow Book explicitly states that preparation of the financial statements and footnotes for a client constitutes a non- audit service.

to the conceptual framework outlined above, including the identification of threats to independence, the implementation of safeguards, and the evaluation of management’s competency and willingness to accept responsibility for the financial statements. As a result, governmental entities that utilize their auditors to prepare their financial statements should expect additional language to be included in the engagement letter and management representation letter clarifying that management has the skills and knowledge necessary to accept responsibility for, and has accepted responsibility for, the financial statements. In summary, there will be a variety of changes to the manner in which audits will be conducted for governmental entities with December 31, 2012 fiscal year ends, and these changes will have tangible consequences for the auditee.

If you are responsible for the financial reporting of a governmental entity,

RubinBrown encourages you to discuss the implications of these changes with your auditor as you prepare for your next financial statement audit.

Auditors may still perform this non-audit service for clients, but they must adhere

RubinBrown’s Public Sector Services Group Through our extensive list of clients, including many cities and governmental entities, we understand the issues unique to the public sector.

Jeff Winter, CPA – Saint Louis Partner-In-Charge Public Sector Services Group 314.290.3408 jeff.winter@rubinbrown.com

Kaleb Lilly, CPA – Kansas City Partner Public Sector Services Group 913.499.4417 kaleb.lilly@rubinbrown.com

Bert Bondi, CPA – Denver Partner Public Sector Services Group 303.952.1213 bert.bondi@rubinbrown.com

Ted Williamson, CPA – Saint Louis Manager Public Sector Services Group 314.678.3534 ted.williamson@rubinbrown.com

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