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SAS 112

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Financial Audit Reporting Internal Control ... Educate yourself-internal controls, understanding financial statements and disclosures ... – PowerPoint PPT presentation

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Title: SAS 112


1
SAS 112
A GRF PRESENTATION
  • Presented by
  • James Larson, CPA
  • Jeff Freedman

Gelman, Rosenberg Freedman CERTIFIED PUBLIC
ACCOUNTANTS
2
Basics of SAS 112
  • Implementation Date Audits of financial
    statements after December 15, 2006
  • What is a SAS? (Statement on Auditing Standards)
  • Who issues SASs?
  • What is the authority of SASs?
  • What type of entities do SASs cover?

3
Basic Requirements of SAS 112
  • Main requirements
  • Auditor must evaluate identified control
    deficiencies and determine whether they are
    significant deficiencies or material weaknesses
  • Auditor must communicate in writing significant
    deficiencies and material weaknesses to
    management and those charged with governance
  • Communication includes deficiencies communicated
    in prior audits but not yet remediated

4
Why was SAS 112 Issued?
  • Closer adherence to Sarbanes-Oxley Act
  • Mirrors increased emphasis on internal control in
    SASs 104 through 111 (new audit risk assessment
    standards applicable after December 15, 2007)
  • Correct looseness of SAS 60, which was replaced
    by SAS 112
  • Convergence with international standards

5
What Does SAS 112 Mean to CPA Firms?
  • More audit hours and upward pressure on audit
    fees
  • Requires increased understanding of and training
    regarding internal controls
  • More judgment calls regarding existence of and
    classification of control deficiencies

6
What Does SAS 112 Mean to CPA Firms? (Continued)
  • Increased communication between auditor and
    client management
  • More emphasis of the auditors role vs.
    management responsibilities
  • Increase in outsourcing of accounting services
    (including preparation of financial statements)
  • More internal control engagements

7
Financial Audit Reporting Internal Control
  • Definitions of Internal Control Deficiencies
    (Consistent with SAS No.112)
  • Significant deficiency a deficiency in
    internal control, or combination of deficiencies,
    that adversely affects the entitys ability to
    initiate, authorize, record, process, or report
    financial data reliably in accordance with
    generally accepted accounting principles such
    that there is more than a remote likelihood that
    a misstatement of the entitys financial
    statements that is more than inconsequential will
    not be prevented or detected.

8
Financial Audit Reporting Internal Control
  • Definitions of Internal Control Deficiencies
    (Consistent with SAS No.112)
  • Material weakness a significant deficiency, or
    combination of significant deficiencies, that
    results in more than a remote likelihood that a
    material misstatement of the financial statements
    will not be prevented or detected.

9
Reporting Internal Control Deficiencies
  • Old Definitions
    New Definitions SAS 112

10
Financial Audit Reporting Reporting Fraud,
Illegal Acts, Other Noncompliance, Abuse
  • When auditors conclude that any of the following
    has occurred or is likely to have occurred, they
    should include in the audit report the relevant
    information about
  • Fraud and illegal acts that are greater than
    inconsequential
  • A-133 Reporting
  • Material violations of contracts or grant
    agreements
  • Material abuse

11
Financial Audit Reporting Communicating
Significant Matters
  • Auditors may communicate the following matters
    when they become aware that such issues exist
  • Concerns or significant uncertainties about the
    fiscal sustainability of a major funder or
    program significant to the financial condition or
    operations
  • Unusual or catastrophic events that likely will
    have significant ongoing or future impact
  • Significant uncertainties
  • Any other matter that the auditor considers
    significant
  • Determining whether to communicate in the
    auditors report is a matter of professional
    judgment

12
Significant Control Deficiencies
  • Inability to prepare financial statements
  • Lack of timely reconciliations
  • Qualifications and training of employees
  • No monitoring of internal controls
  • Ineffective internal controls

13
Material Weaknesses
  • Significant audit adjustments
  • Restatement of prior financial statements for
    material misstatement
  • Uncorrected internal control deficiencies
  • Fraud by management
  • Management override
  • Deficiencies in IT controls
  • Ineffective oversight over financial reporting

14
What Can You Do?
  • Educate yourself-internal controls, understanding
    financial statements and disclosures
  • Eliminate all audit adjustments
  • Educate your governing body
  • Inventory your system-disclosures, processes and
    cycles, significant accounts
  • Be prepared to respond positively to a
    significant deficiency or material weakness

15
QUESTIONS?
  • Gelman, Rosenberg Freedman
  • Certified Public Accountants
  • 4550 Montgomery Avenue, Suite 650 North
  • Bethesda, MD 20814
  • 301-951-9090
  • www.grfcpa.com
  • James Larson, CPA
  • jlarson_at_grfcpa.com
  • Jeff Freedman
  • jfreedman_at_grfcpa.com

16
  • Thank you for your time!
  • Gelman, Rosenberg FreedmanCertified Public
    Accountants
  • Member of the American Institute of
  • Certified Public Accountants
  • Private Companies Practice Section
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