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Proposed Standard Regarding Consistency of Financial Statements |
In conjunction with its efforts to clarify generally accepted auditing standards for audits of nonpublic companies, the Auditing Standards Board of the American Institute of Certified Public Accountants recently issued a proposed Statement on Auditing Standards (SAS),Consistency of Financial Statements. To avoid unnecessary conflicts with the standards of the Public Company Accounting Oversight Board (PCAOB), the proposed SAS was drafted considering the requirements of PCAOB Auditing Standard (AS) No. 6, Evaluating Consistency of Financial Statements. AS 6 was issued to reflect the issuance of Financial Accounting Standards Board (FASB) Statement No. 154, Accounting Changes and Error Corrections, which is codified in FASB Accounting Standards Codification 250, Accounting Changes and Error Corrections. If finalized, the proposed SAS would supersede SAS No. 1, Section 420, Consistency of Application of Generally Accepted Accounting Principles, as amended. The proposed SAS does not change or expand SAS No. 1, Section 420 in any significant respect except as stated in the next paragraph.
Extant AU Section 420 paragraph .17 states that changes and material reclassifications made in previously issued financial statements to enhance comparability with current financial statements ordinarily would not need to be referred to in the independent auditor’s report. However, paragraph 17 of the proposed SAS requires the auditor to evaluate a material change in financial statement classification and the related disclosure to determine whether such a change is also either a change in accounting principle or an adjustment to correct a material misstatement in previously issued financial statements. If so, the requirements in the proposed SAS would apply.
If finalized, the proposed SAS would be effective for audits of nonpublic financial statements for periods beginning on or after December 15, 2010. This effective date is provisional but will not be earlier than December 15, 2010. The proposed SAS is available for comment until May 19, 2010 at http://www.aicpa.org/download/auditstd/ED_Consistency.pdf |