Discussion:SAS 112 Communication
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| 14 May 2008 | |
| I am bidding on an audit where the client has hired another outside accountant (not sure if he/she is a CPA)to prepare the financial statements. The financial statement prepartion significant deficiency/material weakness comment was included in the prior year managemnt letter and the client does not want it again. I have been told I will receive a full set of workpapers from the other accountant. My interpretation is that I can consider the other accountant when assesing controls over the preparation of financial statements and I need only determine that the other accountant is capable of preparing financial statements and has the skills necessary to prevent, detect and correct misstatements. As long as the client is capable, I can still prepare the financial statements with no required comment. | |
| 14 May 2008 | |
| My understanding is that you can consider the outside accountant in assessing the client's controls. You wrote:
"I need only determine that the other accountant is capable of preparing financial statements and has the skills necessary to prevent, detect and correct misstatements." You also need to be comfortable that the other accountant will perform procedures sufficient to prevent, detect and correct any misstatements that you could potentially make in the financials. ie its not that they are able but it is that they are capable and actually perform the necessary control activities. Just a slight difference. It sounds like you could probably be safe in not issuing the comment if you become comfortable with their ability and level of involvement. | |
| 14 May 2008 | |
| If the other accountant is not a CPA, posesses the capabilty to prepare financials but NOT related footnotes, the comment needs to be issued. Correct? | |
| 14 May 2008 | |
| I would issue the comment in that instance. Aren't the footnotes, as some say, "an integral part to the financial statements?" The other accountant could very well not be a CPA but be capable of preparing the financials. It is also OK if you provide them with a disclosure checklist so that they can go through it to ensure no disclosures were ommitted. After all, that is something that is easily available to them and you would only be doing it because it is convenient. | |
| 14 May 2008 | |
| Since the "other" accountant is acting as a Controller of sorts then yes, you absolutely consider him when assessing controls. If he does not prepare note disclosures (and a disclosure checklist) then he has not "prepared" GAAP (or OCBOA) statements and the deficiency would still exist. Unless they assert that he is capable but did not feel like it. Bottom line is if the client personnel, including independent contractors, are capable of preparing the statements, I think the deficiency goes away.
Of course, if this is a Yellow Book audit then you have independence standards to worry about. And, as pointed out by Dave, the controls must be in place and operating effectively or it doesn't really matter. | |
| May 14, 2008 | |
| Hmmm, I prepare the audit workpapers and statements (compiled) for a client that gets audited. I do not prepare notes to the statements. The auditor relies on my involvement as part of the client's internal controls. I don't think it's an issue that the statements are not prepared by the non-auditor. | |
| May 14, 2008 | |
| All three of us posted at the same time.
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| 14 May 2008 | |
| "So if I know how to prepare statements but choose not to, no comment is necessary? Whereas if I do not know how to prepare statements a comment is necessary? That does not seem right to me. "
If you draft the financials and I, as the controller or CFO, have the technical competency to have drafted them choose instead to review them in detail and am able to detect any errors you made how would I have a control deficiency? Maybe the client likes your formatting or the professional look of your statements and has you draft them for that purpose. That is the way our firm interprets it. However, firm policy is more strict and requires higher up approval if we prepare the FS and don't issue the 112 comment. Therefore, the result is that we always issue the comment if we prepare the FS (to avoid the hassle of approval outside the local office) even if the CFO is a CPA with 25 years in a big 4 firm and regularly attends CPE on financial reporting for the clients industry. I think that we take a little too conservative stance but the national guys never consulted me (go figure huh?). | |
| 14 May 2008 | |
| If I am an auditor with 20 years of experience preparing GAAP F/S and I am a Treasurer/CFO at a small nonprofit and I don't prepare the F/S for the small nonprofit because I have better things to do, and I review the F/S prepared by the auditor (at my request) and tie it back to my books and records I have a significant deficiency?
How does that make sense? | |
| May 15, 2008 | |
| Boy, did I mess that one up. Sorry, UT, my question was worded incorrectly. I act as controller for some of my clients. When I compile the financial statements, I do not prepare the notes even though I am quite capable of doing so. My question is the same as RKR's.
By the way, I would agree it sounds like your firm (UT) is extremely conservative. It reminds me of a peer reviewer who told me they put the paragraph about "going concern" on every report they issued when SAS 59 first came out. | |
Bushmaster (talk|edits) said: | 15 May 2008 |
| If the client is CAPABLE of preparing GAAP financials, you have no comment.
With respect to your audit, you will know PDQ if this outside accountant is capable when you get the financials. | |
