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By John F. Burke, CPA,
The CPA Journal

In the last quarter of 1995, the Auditing Standards Board issued four statements on auditing standards and two statements on standards for attestation engagements. Included in these were SAS No. 78, Consideration of Internal Control in a Financial Statement Audit: An Amendment to SAS No. 55, and SSAE No. 6, Reporting on an Entity's Internal Control over Financial Reporting: An Amendment to SSAE No. 2, that are the subject of a separate article appearing this month. The remaining statements are amendments to existing standards.

SAS No. 76--Amendments to Statement on Auditing Standards No. 72, Letters for Underwriters and Certain Other Requesting Parties

This statement amends SAS No. 72 by providing reporting guidance in situations where one of the parties identified in paragraphs three, four, or five of that statement who is not an underwriter or other party with a due diligence defense under section 11 of the Securities Act of 1933 requests a letter without providing the representation letter described in paragraphs six and seven of that statement. Situations intended to be covered include municipal bond offerings. The example letter given is a form of agreed-upon procedures report. The amendments are effective for such letters issued after April 30, 1996 with earlier application encouraged.

SAS No. 77--Amendments to Statements on Auditing Standards No. 22, Planning and Supervision, No. 59, The Auditor's Consideration of an Entity's Ability to Continue as
a Going Concern, and No. 62, Special Reports

These amendments were made to existing literature to address perceived abuses to standards, some of which were encountered on peer reviews.

Planning and Supervision. The purpose of this change was to clarify that audit programs are required on all audits. This was done by adding the phrase "for every audit" to the present requirement. Apparently some practitioners took the position that the audit program they prepared and maintained in the papers for the first audit they performed for a client was sufficient for all subsequent audits. This amendment is effective for engagements beginning after December 15, 1995.

Going Concern. Some auditors have been issuing reports under SAS No. 59 by using conditional language such as, "If the company is unable to obtain additional financing..." The ASB has amended SAS No. 59 by adding a footnote that precludes the use of such conditional language. This amendment is effective for reports issued after December 15, 1995.

Special Reports. SAS No. 62 permitted additional distribution of statutory financial statements prepared under another comprehensive basis of accounting if such additional distribution was recognized as appropriate by an AICPA accounting or audit guide or auditing interpretation. Because of perceived abuses in practice, SAS No. 62 has been amended to eliminate these additional distributions, and such reports may only be issued for filing with the appropriate regulatory agency. Amendments are effective for audits of financial statements for periods ended on or after December 31, 1996.

SSAE No. 5--Amendment to Statement on Standards for Attestation Engagements No. 1, Attestation Standards

This amendment to SSAE No. 1 is a companion to SAS No. 77 and provides guidance on working papers for attestation engagements. Essentially, working papers are required and should indicate that the work was adequately planned and supervised and evidential matter was obtained to provide a reasonable basis for the conclusions in the report. This amendment is effective for engagements beginning after December 15, 1995.

SAS No. 79, Amendments to
SAS No. 58, Reports on Audited Financial Statements

SAS No. 58 has been amended by eliminating the requirement that, when certain criteria are met, the auditor adds an uncertainties explanatory paragraph to the auditor's report. This change was prompted by the issuance of SOP 94-6, Disclosure of Certain Significant Risks and Uncertainties. With the requirements of this document together with those of SFAS No. 5, Accounting for Contingencies, the reader of financial statements has sufficient information on an entity's risks and uncertainties, and an additional paragraph in the auditor's report does not, and should not, add any additional information. SAS No. 59 is not affected by this amendment and the auditor still has the option of adding an emphasis of a matter paragraph to the report when he or she wishes to call attention to certain risks and uncertainties disclosed in the financial statements. The statement is effective for reports issued or reissued on or after February 29, 1996, with earlier application permitted. *


Douglas R. Carmichael, PhD, CPA

Baruch College

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