SAS 79: reporting on uncertainties.Statement on Auditing Standards' no. 79, Amendment to Statement on Auditing Standards no. 58, "Reports on Audited Financial Statements", drops a requirement without adding any new ones. It amends AMENDS. A satisfaction, given by a wrong doer to the party injured for a wrong committed. 1 Lilly's Reg. 81. 2. By statute 24 Geo. II. c. 44, in England, and by similar statutes in some of the United States, justices of the peace, upon being notified of an SAS (1) (SAS Institute Inc., Cary, NC, www.sas.com) A software company that specializes in data warehousing and decision support software based on the SAS System. Founded in 1976, SAS is one of the world's largest privately held software companies. See SAS System. no. 58 to delete the requirement that when certain criteria are met relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc uncertainties, an auditor must include an explanatory paragraph after the opinion paragraph in an auditor's report Auditor's Report Recorded in the annual report, the auditor's report tests to see that a corporation's financial statements comply with GAAP. This is sometimes referred to as the clean opinion. Notes: Most auditor's reports consist of three paragraphs. on financial statements. Issued by the American Institute of CPAs auditing standards board In the United States, the Auditing Standards Board (ASB) is the senior technical committee designated by the American Institute of Certified Public Accountants (AICPA) to issue auditing, attestation, and quality control statements, standards and guidance to certified public in December 1995, SAS no. 79 is effective for reports issued or reissued on or after February 29, 1996--with early application permitted. (See Official Releases on page 91. The amendment to SAS no. 58 has no effect on an auditor's considerations of "going concern" reporting. This is covered in SAS no. 59, The Auditor's Consideration of an Entity's Ability to Continue as a Going Concern. An explanatory paragraph also continues to be required for a consistency change. Before SAS no. 79 was issued, SAS no. 58 generally required an explanatory paragraph be added to the auditor's report whenever the financial statements were affected by an uncertainty if 1. It was probable the loss resulting from resolution of the uncertainty would have a material effect on the financial statements. 2. The entire or a material part of the loss was not subject to reasonable estimation. An explanatory paragraph also was required in some situations involving a reasonable possibility of a material loss. BASIS FOR AMENDMENT A brief review of uncertainties paragraphs may help clarify why the reporting standards were changed. Before the Financial Accounting Standards Board Financial Accounting Standards Board (FASB) Board composed of independent members who create and interpret Generally Accepted Accounting Principles (GAAP). issued Statement no. 16, Prior Period Adjustments, in June 1977, resolution of many uncertainties required restating the original financial statements in the period in which the uncertainty was resolved. For example, if an incident giving rise to product liability arose in 1960 and was resolved and quantified for the first time in 1962, the 1960 financial statements would be restated in 1962 to reflect the loss. Such restatements were called "prior period adjustments." In these situations it was perfectly reasonable to include an explanatory paragraph in the auditor's report on the 1960 financial statements alerting readers those statements might change--income for 1960 might differ when the uncertainty was resolved. Since Statement no. 16 eliminated virtually all prior period adjustments, the reason for issuing SAS no. 79 after 18 years may seem unclear. The answer is that some financial statement users viewed the uncertainties explanatory paragraph as a useful red flag--a feeling based at least partly on their concerns about the adequacy of financial statement disclosure of uncertainties. Uncertainties disclosure has been controversial and evolving. The single most important pronouncement on accounting for and disclosing uncertainties, FASB Statement FASB Statement A standard set by the Financial Accounting Standards Board regarding a financial accounting and reporting method. Essentially, FASB statements determine the acceptable accounting practices that Certified Public Accountants use in reporting no. 5, Accounting for Contingencies, was only two years old when Statement no. 16 was issued. Users were accustomed to seeing an explanatory paragraph in the auditor's report when the financial statements were affected by a material uncertainty. Some users therefore believed the uncertainties paragraph communicated information in addition to that disclosed in the footnotes. However, the accounting literature is extremely clear that the explanatory paragraph should not disclose information not disclosed in the financial statements. If financial statement disclosure is inadequate, a qualified or adverse opinion is required because of a departure from generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting . Since SAS no. 58 was issued in 1988, both GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). and practice related to the disclosure of uncertainties have continued to progress and government standards also have been expanded. Perhaps the most significant change was the adoption of Statement of Position 94-6, Disclosure of Certain Significant Risks and Uncertainties, which became effective in December 1995; it applies to all nongovernment entities and expands disclosure requirements related to risks and uncertainties. These new disclosures raise an additional concern about uncertainties paragraphs--that some financial statement readers may erroneously er·ro·ne·ous adj. Containing or derived from error; mistaken: erroneous conclusions. [Middle English, from Latin err believe financial Statement disclosures related to risks and uncertainties are unimportant un·im·por·tant adj. Not important; petty. un  im·por tance n. unless the auditor's report includes an explanatory paragraph. These readers may disregard the disclosure in the financial statements in the absence of the auditor's red flag. This general concern was expressed as far back as 1978 by the commission on auditors' responsibilities (the Cohen cohen or kohen (Hebrew: “priest”) Jewish priest descended from Zadok (a descendant of Aaron), priest at the First Temple of Jerusalem. The biblical priesthood was hereditary and male. Commission). its report observed that "the absence of a qualification may lead financial statement users to believe a company faces no uncertainties that could materially affect its financial condition or operating results . . . the practice of qualifying opinions for some uncertainties may foster that erroneous belief Noun 1. erroneous belief - a misconception resulting from incorrect information error misconception - an incorrect conception ." The Cohen commission recommended elimination of mandatory uncertainties paragraphs for this reason and also because they do not add information to that disclosed in the footnotes. Considering the Cohen commission's recommendations and developments in risk and uncertainty disclosure requirements and practice by both government and nongovernment entities, the auditing standards board approved SAS no. 79 in November 1995. EMPHASIS OF A MATTER PARAGRAPHS Although SAS no. 58 no longer requires uncertainties paragraphs, auditors may always add an "emphasis of a matter" paragraph to a report on financial statements. The revised SAS no. 58 says "emphasis paragraphs are never required; they may be added solely at the auditor's discretion." Accordingly, auditors may continue to add a report paragraph emphasizing a risk or uncertainty that is properly disclosed in the footnotes. Auditors may wish to consider using emphasis paragraphs in industry-specific situations that previously resulted in uncertainties paragraphs and that are covered in AICPA AICPA See American Institute of Certified Public Accountants (AICPA). audit and accounting guides. For example, Brokers and Dealers in Securities, Employee Benefit Plans and Investment Companies afl contain guidance on reporting on uncertainties related to investments in securities for which no ready market exists and which were valued by the board of directors, plan administrator or general partner. This guidance is derive from SAS no. 58's now-eliminated uncertainties paragraph requirements However, if they so choose, auditors may still add a paragraph emphasizing this valuation matter. DISCLAIMERS OF OPINION Before SAS no. 58 was amended, footnote Text that appears at the bottom of a page that adds explanation. It is often used to give credit to the source of information. When accumulated and printed at the end of a document, they are called "endnotes." 11 made it clear that an auditor could disclaim dis·claim v. dis·claimed, dis·claim·ing, dis·claims v.tr. 1. To deny or renounce any claim to or connection with; disown. 2. To deny the validity of; repudiate. 3. an opinion if a material uncertainty affected the financial statements. SAS no. 79 does not change the auditor's ability to do this in similar situations. However, because footnote 1 1 was written in the context of uncertainties paragraphs, the language in SAS no. 79 is necessarily somewhat different. In paragraph 61, SAS no. 79 makes it explicitly clear that an auditor may disclaim an opinion whenever he or she is unable to form, or has not formed, an opinion on the financial statements. This general disclaimer provision includes the uncertainty situations previously covered by footnote 11. TRANSITION With the issuance of SAS no. 79, there is no requirement to include an uncertainties paragraph in the current auditor's report even if one was included in the prior year's report and the matter is still unresolved. RELATED ARTICLE: EXECUTIVE SUMMARY * SAS NO. 79 WAS ISSUED IN DECEMBER 1995 to amend SAS no. 58 by deleting the requirement that when certain criteria relating to uncertainties are met auditors must include an explanatory paragraph after the opinion paragraph in an auditor's report on financial statements. * THE CHANGES ARE EFFECTIVE FOR REPORTS issued or reissued on or after February 29, 1996; early application is permitted. SAS no. 79 deletes a requirement without adding any new ones. * FOR MANY YEARS SOME FINANCIAL STATEMENT users viewed the uncertainties explanatory paragraph as a useful red flag. This was based at least plenty on concerns about the adequacy of financial statement disclosure of uncertainties. * IF THEY WISH, AUDITORS MAY ADD an "emphasis of a matter" paragraph to a report on financial statements accentuating a risk or uncertainty that is properly disclosed in the footnotes. * WITH THE ISSUANCE OF SAS NO. 79, THERE is no requirement auditors include an uncertainties paragraph in the current report even if one was included in the prior year's report and the matter is still unresolved. LUTHER E. BIRDZELL Luther E. Birdzell (December 1, 1880 – February 23, 1973) was an American teacher and lawyer who served as a Justice of the Supreme Court of North Dakota from 1917 to 1933. He died at the age of 92 in 1973. External links
Arthur Andersen LLP, based in Chicago, was once one of the "Big Five" accounting firms (the other four are PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG), performing in New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. . He is a member of the AICPA auditing standards board and chaired the reporting on uncertainties task force. |
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