March 1999 Issue



By Judith M. Sherinsky

In September 1998, the Auditing Standards Board issued SAS No. 87, Restricting the Use of an Auditor's Report. SAS No. 87 provides guidance to help auditors determine whether an engagement requires a restricted-use report and, if so, what elements to include in that report. Existing auditing standards for engagements requiring restricted-use reports each contain guidance related to the applicable report. SAS No. 87 unifies that guidance.

A restricted-use report is one that is intended only for specified parties. The need for restriction on the use of a report may result from the purpose of the report, the nature of the procedures applied in its preparation, the basis of or assumptions used in its preparation, the extent to which the procedures performed generally are known or understood, or the potential for the report to be misunderstood when taken out of the context in which it was intended to be used.

SAS No. 87 replaces the terms "restricted," "distribution," and "general distribution" with the terms "restricted use" and "general use" because the SAS is based on the premise that auditors cannot control the distribution of their reports but can communicate to readers of their reports for whom the reports are intended.

The SAS states that an auditor should restrict the use of a report in the following circumstances:

* The subject matter of the auditor's report or the presentation being reported on is based on measurement or disclosure criteria contained in contractual agreements or regulatory provisions that are not in accordance with generally accepted accounting principles or another comprehensive basis of accounting. An example of such a report is a report issued under paragraphs 27-30 of SAS No. 62, Special Reports.

* The accountant's report is based on procedures specifically designed and performed to satisfy the needs of specified parties who accept responsibility for the sufficiency of the procedures. An example is a report issued under SAS No. 75, Engagements to Apply Agreed-Upon Procedures to Specified Elements, Accounts, or Items of a Financial Statement.

* The auditor's report is issued as a by-product of a financial statement audit and is based on the results of procedures designed to enable the auditor to express an opinion on the financial statements taken as a whole, not to provide assurance on the specific subject matter of the report. An example is a report issued under SAS No. 60, Communication of Internal Control Related Matters Noted in an Audit.

Although a report's use must be restricted in the circumstances described above, SAS No. 87 indicates that an auditor may restrict the use of any report, even one that ordinarily is a general-use report.

SAS No. 87 requires that an auditor restrict a single combined report if it covers both subject matter or presentations that ordinarily do not require a restriction on use and subject matter or presentations that require such a restriction. Nevertheless, it permits auditors to include a separate general-use report in a document that also contains a separate restricted-use report, without affecting the use of either report. As a conforming change, paragraph 47 of SAS No. 75 was amended to permit the inclusion of a separate agreed-upon procedures report (a restricted-use report) in a document that also contains a separate general-use report.

SAS No. 87 also deletes the words "or other specified third party" from the last sentence of the illustrative report in paragraph 12 of SAS No. 60, because those words are inconsistent with the guidance in paragraph 10 of SAS No. 87, which does not provide for the addition of other specified third parties as report users.

To help CPAs update their restricted-use reports, SAS No. 87 contains an appendix identifying all of the restricted-use reports in the SASs and in the AICPA audit and accounting guides. *

Judith M. Sherinsky, CPA, is a technical manager of audit and attest standards at the AICPA. The above article is reprinted with permission from In Our Opinion, the newsletter of the AICPA audit and attest standards group.

Douglas R. Carmichael, PhD, CFE, CPA
Stan Ross Department of Accountancy, Zicklin School of Business, Baruch College

John F. Burke, CPA
The CPA Journal

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