Title: SAS 112
1SAS 112
A GRF PRESENTATION
- Presented by
- James Larson, CPA
- Jeff Freedman
Gelman, Rosenberg Freedman CERTIFIED PUBLIC
ACCOUNTANTS
2Basics 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?
3Basic 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
4Why 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
5What 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
6What 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
7Financial 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.
8Financial 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.
9Reporting Internal Control Deficiencies
- Old Definitions
New Definitions SAS 112
10Financial 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
11Financial 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
12Significant Control Deficiencies
- Inability to prepare financial statements
- Lack of timely reconciliations
- Qualifications and training of employees
- No monitoring of internal controls
- Ineffective internal controls
13Material 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
14What 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
15QUESTIONS?
- 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