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Statement on Auditing Standards - opening balances - initial audit engagements, including reaudit engagements.

Statement on Auditing Standards (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. ) Opening Balances--Initial Audit Engagements, Including Reaudit Engagements supersedes SAS No. 84, Communications Between Predecessor and Successor Auditors, as amended a·mend  
v. a·mend·ed, a·mend·ing, a·mends

v.tr.
1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive.

2.
, except paragraphs .03-. 10 and .14 (AICPA AICPA

See American Institute of Certified Public Accountants (AICPA).
, Professional Standards, vol. 1, AU sec. 315).
CONTENTS

Introduction
Scope of This Statement on Auditing
   Standards/1-2
Effective Date/3
Objective/4
Definitions/5
Requirements
Audit Procedures/6-13
Audit Conclusions and Reporting/14-18
Application and Other Explanatory Material
Objective/A1
Definitions/A2
Audit Procedures/A3-A16
Audit Conclusions and Reporting/A17-A18
Exhibit A: Illustration of Report With
   Disclaimer of Opinion on Results of
   Operations and Cash Flows and
   Unmodified Opinion on Financial
   Position/A19
Exhibit B: Illustrative Entity Consent and
   Acknowledgment Letter/A20
Exhibit C: Illustrative Successor Auditor
   Acknowledgment Letter/A21
Exhibit D: Comparison of Statement on
   Auditing Standards Opening Balances--Initial
   Audit Engagements, Including
   Reaudit Engagements With International
   Standard on Auditing 510 Initial Audit
   Engagements---Opening Balances/A22


INTRODUCTION

Scope of This Statement on Auditing Standards

1. This Statement on Auditing Standards (SAS) addresses the auditor's responsibilities relating to relating to relate prepconcernant

relating to relate prepbezüglich +gen, mit Bezug auf +acc 
 opening balances in an initial audit engagement, including a reaudit engagement. In addition to financial statement amounts, opening balances include matters requiring disclosure that existed at the beginning of the period, such as contingencies Contingencies (ISSN 1048-9851) is the bimonthly magazine of the American Academy of Actuaries, providing a large and diverse readership with general interest and technical articles on a wide range of issues related to the actuarial profession.  and commitments. When comparative financial statements are presented, the relevant requirements and guidance for comparative financial statements in the proposed SAS Forming an Opinion and Reporting on Financial Statements also apply The clarified SAS Planning an Audit includes additional requirements and guidance regarding activities prior to starting an initial audit. The proposed SAS Consistency of Financial Statements also applies with respect to the auditor's evaluation of the consistency of accounting policies between the periods presented and covered by the auditor's report, as well as the period prior to the earliest period reported on by the auditor auditor n. an accountant who conducts an audit to verify the accuracy of the financial records and accounting practices of a business or government. A proper audit will point out deficiencies in accounting and other financial operations. . The clarified SAS Terms of Engagements includes requirements and guidance with respect to communications with a predecessor auditor before accepting an initial audit engagement, including a reaudit engagement.

2. The provisions of this SAS, with respect to predecessor auditors, do not apply if the most recent audited financial statements are more than one year prior to the beginning of the earliest period to be audited.

Effective Date

3. This SAS is effective for audits of financial statements for periods ending on or after December December: see month.  15, 2012.

OBJECTIVE

4. In conducting an initial audit engagement, including a reaudit engagement, the objective of the auditor, with respect to opening balances, is to obtain sufficient appropriate audit evidence about whether (Ref: par. A1)

a. opening balances contain misstatements that materially affect the current period's financial statements and

b. appropriate accounting policies reflected in the opening balances have been consistently applied in the current period's financial statements or changes thereto there·to  
adv.
1. To that, this, or it.

2. Archaic In addition to that; furthermore.


thereto
Adverb

Formal

1. to that or it

2.
 are appropriately accounted for and adequately presented and disclosed in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[]

As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh.
 with the applicable financial reporting framework.

DEFINITIONS

5. For the purposes of generally accepted auditing standards Generally Accepted Auditing Standards, or GAAS, are ten auditing standards, developed by the AICPA, consisting of general standards, standards of field work, and standards of reporting, along with interpretations. , the following terms have the meanings attributed as follows:

Initial audit engagement. An engagement in which either (a) the financial statements for the prior period were not audited or (b) the financial statements for the prior period were audited by a predecessor auditor.

Opening balances. Those account balances that exist at the beginning of the period. Opening balances are based upon the closing balances of the prior period and reflect the effects of transactions and events of prior periods and accounting policies applied in the prior period. Opening balances also include matters requiring disclosure that existed at the beginning of the period, such as contingencies and commitments.

Predecessor auditor. The auditor from a different audit firm who has reported on the most recent audited financial statements or was engaged to perform but did not complete an audit of the financial statements. (Ref: par. A2)

Reaudit. An initial audit engagement to audit financial statements that have been previously audited by a predecessor auditor.

REQUIREMENTS

Audit Procedures

6. The auditor should read the most recent financial statements, if any, and the predecessor auditor's report thereon, if any, for information relevant to opening balances, including disclosures, and consistency in the application of accounting policies.

7. In instances in which the prior period financial statements were audited by a predecessor auditor, the auditor should request management to authorize the predecessor auditor to allow a review of the predecessor auditor's audit documentation and for the predecessor auditor to respond fully to inquiries by the auditor, thereby providing the auditor with information to assist in planning and performing the engagement. (Ref: par. A3-All)

Opening Balances

8. The auditor should obtain sufficient appropriate audit evidence about whether the opening balances contain misstatements that materially affect the current period's financial statements by

a. determining whether the prior period's closing balances have been correctly brought forward to the current period or, when appropriate, have been restated;

b. determining whether the opening balances reflect the application of appropriate accounting policies; and

c. evaluating whether audit procedures performed in the current period provide evidence relevant to the opening balances and performing one or both of the following: (Ref: par. A7-A9, A12-A14)

i. When the prior year financial statements were audited, reviewing the predecessor auditor's audit documentation to obtain evidence regarding the opening balances

ii. Performing specific audit procedures to obtain evidence regarding the opening balances

9. If the auditor obtains audit evidence that the opening balances contain misstatements that could materially affect the current period's financial statements, the auditor should perform such additional audit procedures as are appropriate in the circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact.
     2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or
 to determine the effect on the current period's financial statements. If the auditor concludes that such misstatements exist in the current period's financial statements, the auditor should communicate the misstatements to the appropriate level of management and those charged with governance Governance makes decisions that define expectations, grant power, or verify performance. It consists either of a separate process or of a specific part of management or leadership processes. Sometimes people set up a government to administer these processes and systems. , in accordance with the clarified SAS The Auditor's Communication With Those Charged With Governance (Redrafted). If the prior period financial statements were audited by a predecessor auditor, the auditor should also refer to paragraphs 12-13.

Consistency of Accounting Policies

10. The auditor should obtain sufficient appropriate audit evidence about whether the accounting policies reflected in the opening balances have been consistently applied in the current period's financial statements and whether changes in the accounting policies have been appropriately accounted for and adequately presented and disclosed in accordance with the applicable financial reporting framework.

Relevant Information in the Predecessor Auditor's Report

11. If the prior period's financial statements were audited by a predecessor auditor, and a modification was made to the opinion, the auditor should evaluate the effect of the matter giving rise to the modification in assessing the risks of material misstatement mis·state  
tr.v. mis·stat·ed, mis·stat·ing, mis·states
To state wrongly or falsely.



mis·statement n.
 in the current period's financial statements, in accordance with the clarified SAS Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (Redrafted).

Discovery of Possible Material Misstatements in Financial Statements Reported on by a Predecessor Auditor

12. If the auditor becomes aware of information during the audit that leads him or her to believe that financial statements reported on by the predecessor auditor may require revision, the auditor should request management to inform the predecessor auditor of the situation and arrange for the three parties to discuss this information and attempt to resolve the matter. The auditor should communicate to the predecessor auditor information that the auditor believes the predecessor auditor may need to consider, in accordance with the clarified SAS Subsequent Events and Subsequently Discovered Facts, which addresses the auditor's responsibilities when facts become known to the auditor after the date of the auditor's report that, had they been known to the auditor at that date, may have caused the auditor to amend the auditor's report. (Ref: par. A15) 13. If management refuses to inform the predecessor auditor that the prior period financial statements may need revision or if the auditor is not satisfied with the resolution of the matter, the auditor should evaluate (a) the implications on the current engagement and (b) whether to withdraw from the engagement or, when withdrawal is not possible under applicable law or regulation, 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. (Ref: par. A16)

Audit Conclusions and Reporting

14. The auditor should not make reference to the report or work of the predecessor auditor as the basis, in part, for the auditor's own opinion.

Opening Balances

15. If the auditor is unable to obtain sufficient appropriate audit evidence regarding the opening balances, the auditor should express a qualified opinion or disclaim an opinion on the financial statements, as appropriate, in accordance with the proposed SAS Modifications to the Opinion in the Independent Auditor's Report. (Ref: par. A17)

16. If the auditor concludes that the opening balances contain a misstatement that materially affects the current period's financial statements, and the effect of the misstatement is not appropriately accounted for or adequately presented or disclosed, the auditor should express a qualified opinion or an adverse opinion, as appropriate, in accordance with the proposed SAS Modifications to the Opinion in the Independent Auditor's Report.

Consistency of Accounting Policies

17. If the auditor concludes that

a. the current period's accounting policies are not consistently applied in relation to opening balances, in accordance with the applicable financial reporting framework, or

b. a change in accounting policies is not appropriately accounted for or adequately presented or disclosed, in accordance with the applicable financial reporting framework, the auditor should express a qualified opinion or an adverse opinion, as appropriate, in accordance with the proposed SAS Modifications to the Opinion in the Independent Auditor's Report.

Modification to the Opinion in the Predecessor Auditor's Report

18. If the predecessor auditor's opinion regarding the prior period's financial statements included a modification to the auditor's opinion that remains relevant and material to the current period's financial statements, the auditor should modify the auditor's opinion on the current period's financial statements, in accordance with the proposed SAS Modifications to the Opinion in the Independent Auditor's Report. (Ref: par. A18)

APPLICATION AND OTHER EXPLANATORY ex·plan·a·to·ry  
adj.
Serving or intended to explain: an explanatory paragraph.



ex·plan
 MATERIAL

Objective (Ref: par. 4)

A1. Audit evidence regarding opening balances and the consistency of accounting principles may include the most recent audited financial statements, the predecessor auditor's report thereon, the results of inquiry of the predecessor auditor, the results of the auditor's review of the predecessor auditor's audit documentation relating to the most recently completed audit, and audit procedures performed on the current period's transactions that may provide evidence about the opening balances or consistency.

Definitions (Ref: par. 5)

A2. Two predecessor auditors may exist: the auditor who reported on the most recent audited financial statements and the auditor who was engaged to perform, but did not complete, an audit of any subsequent financial statements.

Audit Procedures (Ref: par. 7)

A3. The auditor may initiate communications with management to authorize review of the predecessor auditor's audit documentation and for the predecessor auditor to respond fully to inquiries by the auditor, either before or after accepting the engagement. Relevant ethical and professional requirements guide the auditor's communications with the predecessor auditor.

A4. The predecessor auditor may request a consent and acknowledgment acknowledgment, in law, formal declaration or admission by a person who executed an instrument (e.g., a will or a deed) that the instrument is his. The acknowledgment is made before a court, a notary public, or any other authorized person.  letter from the entity to document this authorization in an effort to reduce misunderstandings about the scope of the communications being authorized. Exhibit B, "Illustrative il·lus·tra·tive  
adj.
Acting or serving as an illustration.



il·lustra·tive·ly adv.

Adj. 1.
 Entity Consent and Acknowledgement Letter," contains an illustrative entity consent and acknowledgement letter.

A5. It is customary for the predecessor auditor to make himself or herself available to the auditor and to make available for review certain audit documentation. The predecessor auditor determines which audit documentation is to be made available for review and which may be copied. The predecessor auditor ordinarily or·di·nar·i·ly  
adv.
1. As a general rule; usually: ordinarily home by six.

2. In the commonplace or usual manner: ordinarily dressed pedestrians on the street.
 permits the auditor to review audit documentation, including documentation of planning; risk assessment procedures; further audit procedures; audit results; and other matters of continuing accounting and auditing significance, such as the schedule of uncorrected misstatements, working paper analysis of balance sheet accounts, and those relating to contingencies.

A6. Before permitting access to the audit documentation, the predecessor auditor may request that the auditor confirm in writing his or her agreement regarding the use of the audit documentation. Exhibit C, "Illustrative Successor Auditor Acknowledgement Letter," contains an illustrative successor auditor acknowledgment letter.

A7. The extent, if any, to which a predecessor auditor permits access to the audit documentation or responds to inquiries from the auditor is a matter of the predecessor auditor's judgment. The predecessor auditor's denial or limitation of access may affect the auditor's assessment of risk regarding the opening balances or the nature, timing, and extent of the auditor's procedures with respect to the opening balances and consistency of accounting principles. (Ref: par. 7, 8(c))

A8. If the predecessor auditor permits access to the audit documentation, the auditor may review the predecessor auditor's audit documentation for information relevant to planning and performing the audit. The auditor's determination whether to use information resulting from such review as part of the auditor's risk assessment procedures or as evidence regarding the opening balances is influenced by the auditor's assessment of the professional competence and independence of the predecessor auditor. Although the predecessor auditor is not a component auditor, as defined in the proposed SAS Special Considerations--Audits of Group Financial Statements (Including the Work of Component Auditors), the auditor may make inquiries similar to those listed in that proposed SAS (1) concerning the professional competence and independence of the predecessor auditor. (Ref: par. 7, 8(c))

A9. The auditor's review of the predecessor auditor's audit documentation may provide audit evidence about the opening balances and consistency of accounting principles. However, the nature, timing, and extent of audit work performed and the conclusions reached are solely the responsibility of the auditor, as required by the clarified SAS Overall Objectives of the Independent Auditor Independent Auditor

An external auditor with a certified public accounting designation that qualifies him or her to provide an auditor's report.

Notes:
These auditors aren't affiliated with the company being audited.
 and the Conduct of an Audit in Accordance with Generally Accepted Auditing Standards. (Ref: par. 7, 8(c))

Considerations Specific to Governmental Entities (Ref: par. 7)

A10. In audits of governmental entities, legal or regulatory reg·u·late  
tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates
1. To control or direct according to rule, principle, or law.

2.
 limitations may exist on the information that the auditor can obtain from a predecessor auditor. Certain information may be identified as classified or otherwise prohibited pro·hib·it  
tr.v. pro·hib·it·ed, pro·hib·it·ing, pro·hib·its
1. To forbid by authority: Smoking is prohibited in most theaters. See Synonyms at forbid.

2.
 from disclosure by federal, state, or local laws or public safety or security concerns. For example, if a governmental entity that has previously been audited by a government audit organization (for example, the U.S. Government Accountability Office The Government Accountability Office (GAO) is the audit, evaluation, and investigative arm of the United States Congress, and thus an agency in the Legislative Branch of the United States Government. , a federal inspector general, an elected or statutorily appointed state auditor State auditors are executive officers of U.S. states. The office usually is created by the state constitution.
  • Alabama State Auditor
  • New Jersey State Auditor
  • North Carolina State Auditor
  • Ohio State Auditor
  • Minnesota State Auditor
 general, or other suitably qualified audit organization) engages a public accounting firm, the amount of access to audit documentation or other information that the government audit organization can provide an incoming auditor may be constrained con·strain  
tr.v. con·strained, con·strain·ing, con·strains
1. To compel by physical, moral, or circumstantial force; oblige: felt constrained to object. See Synonyms at force.

2.
 by such privacy or confidentiality laws or regulations. In situations when such communications are restricted, audit evidence may need to be obtained through other means and, if sufficient appropriate audit evidence cannot be obtained, consideration given to the effect on the auditor's opinion, in accordance with the requirement in paragraph 15.

A11. If a government audit organization engages a public accounting firm in an agency capacity to perform an audit of a governmental entity and such firm did not audit the financial statements of the governmental entity in the prior period, this is usually regarded as a change in auditors; therefore, this SAS applies.

Opening Balances (Ref: par. 8(c))

A12. The nature and extent of audit procedures necessary to obtain sufficient appropriate audit evidence regarding opening balances depends on such matters as the following:

* The accounting policies followed by the entity

* The nature of the account balances, classes of transactions and disclosures, and the risks of material misstatement in the current period's financial statements

* The significance of the opening balances relative to the current period's financial statements

* Whether the prior period's financial statements were audited and, if so, whether the predecessor auditor's opinion was modified

A13. For current assets Current Assets

Appearing on a company's balance sheet, it represents cash, accounts receivable, inventory, marketable securities, prepaid expenses, and other assets that can be converted to cash within one year.
 and liabilities, some audit evidence about opening balances may be obtained as part of the current period's audit procedures. For example, the collection (payment) of opening accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying  (accounts payable) during the current period will provide some audit evidence of their existence, rights and obligations, completeness, and valuation at the beginning of the period. In the case of inventories, however, the current period's audit procedures on the closing inventory balance provide little audit evidence regarding inventory on hand at the beginning of the period. Therefore, additional audit procedures, such as one or more of the following, may be necessary to obtain sufficient appropriate audit evidence:

* Observing a current physical inventory count and reconciling it to the opening inventory quantities

* Performing audit procedures on the valuation of the opening inventory items

* Performing audit procedures on gross profit and cutoff

A14. For noncurrent assets and liabilities, such as property, plant, and equipment; investments; and long-term debt, some audit evidence may be obtained by examining the accounting records and other information underlying the opening balances. In certain cases, the auditor may be able to obtain some audit evidence regarding opening balances through confirmation with third parties (for example, for long-term debt and investments). In other cases, the auditor may need to carry out additional audit procedures.

Discovery of Possible Material Misstatements in Financial Statements Reported on by a Predecessor Auditor

A15. Paragraphs 19-20 of the clarified SAS Subsequent Events and Subsequently Discovered Facts provide reporting guidance to the predecessor auditor who is requested to reissue re·is·sue  
v. re·is·sued, re·is·su·ing, re·is·sues

v.tr.
To issue again, especially to make available again.

v.intr.
To come forth again.

n.
1.
 a previously issued report on financial statements of a prior period when those financial statements are to be presented on a comparative basis with audited financial statements of a subsequent period. Paragraph A45 of the proposed SAS Forming an Opinion and Reporting on Financial Statements provides reporting guidance to the auditor reporting on comparative financial statements when the predecessor auditor is unable or unwilling to reissue the auditor's report on prior period financial statements that have been restated. (Ref: par. 12)

A16. If management refuses to inform the predecessor auditor that the prior period financial statements may need revision, or if the auditor is not satisfied with the resolution of the matter, the auditor may consult with his or her legal counsel in determining an appropriate course of action, including evaluating whether to withdraw from the engagement. (Ref: par. 13)

Audit Conclusions and Reporting

Opening Balances (Ref: par. 15)

A17. The proposed SAS Modifications to the Opinion in the Independent Auditor's Report addresses circumstances that may result in a modification to the auditor's opinion on the financial statements, the type of opinion appropriate in the circumstances, and the content of the auditor's report when the auditor's opinion is modified. The inability of the auditor to obtain sufficient appropriate audit evidence regarding opening balances may result in one of the following modifications to the opinion in the auditor's report:

a. A qualified opinion or a disclaimer of opinion Disclaimer of opinion

An auditor's statement that does not express any opinion regarding the company's financial condition.


disclaimer of opinion 
, as is appropriate in the circumstances.

b. An opinion that is qualified or disclaimed, as appropriate, regarding the results of operations and cash flows, when relevant, and unmodified Adj. 1. unmodified - not changed in form or character
unqualified - not limited or restricted; "an unqualified denial"

modified - changed in form or character; "their modified stand made the issue more acceptable"; "the performance of the modified aircraft
 regarding financial position. Exhibit A, "Illustration of Report With Disclaimer of Opinion on Results of Operations and Cash Flows and Unmodified Opinion on Financial Position," includes such an illustrative report.

Modification to the Opinion in the Predecessor Auditor's Report (Ref: par. 18)

A18. In some situations, a modification to the predecessor auditor's opinion may not be relevant and material to the opinion on the current period's financial statements. This may be the case when, for example, there was a scope limitation in the prior period but the matter giving rise to the scope limitation has been resolved in the current period.

A19.

EXHIBIT A: ILLUSTRATION OF REPORT WITH DISCLAIMER OF OPINION ON RESULTS OF OPERATIONS AND CASH FLOWS AND UNMODIFIED OPINION ON FINANCIAL POSITION

Circumstances include the following:

* The auditor did not observe the counting of the physical inventory at the beginning of the current period and was unable to obtain sufficient appropriate audit evidence regarding the opening balances of inventory.

* The possible effects of the inability to obtain sufficient appropriate audit evidence regarding opening balances of inventory are deemed to be material and pervasive pervasive,
adj indicates that a condition permeates the entire development of the individual.
 to the entity's results of operations and cash flows. (1)

* The financial position at year-end is fairly presented.

* A disclaimer of opinion regarding the results of operations and cash flows and an unmodified opinion regarding financial position is considered appropriate in the circumstances.

INDEPENDENT AUDITOR'S REPORT

[Appropriate Addressee (communications) addressee - One to whom something is addressed. E.g. "The To, CC, and BCC headers list the addressees of the e-mail message". Normally an addressee will eventually be a recipient, unless there is a failure at some point (an e-mail "bounces") or the message is ]

Report on the Financial Statements(2)

We have audited the accompanying balance sheet of ABC Company as of December 31, 20X1, and were engaged to audit the related statements of income, changes in stockholders' equity and cash flows for the year then ended, and the related notes to the financial statements Notes to the financial statements

A detailed set of notes immediately following the financial statements in an annual report that explain and expand on the information in the financial statements.
.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America UNITED STATES OF AMERICA. The name of this country. The United States, now thirty-one in number, are Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Hampshire, ; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on conducting the audit in accordance with auditing standards generally accepted in the United States of America. Because of the matters described in the Basis for Disclaimer of Opinion paragraph, however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the income statement and the cash flow statement.

We conducted our audit of the balance sheet in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. (3) Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our unmodified opinion on the financial position.

Basis for Disclaimer of Opinion on the Results of Operations and Cash Flaws

We were not appointed as auditors of the company until after December 31, 20X0, and thus did not observe the counting of the physical inventories at the beginning of the year. We were unable to satisfy ourselves by alternative means concerning inventory quantities held at December 31, 20X0. Since opening inventories enter into the determination of the net income and cash flows, we were unable to determine whether adjustments might have been necessary relating to the profit for the year reported in the income statement and the net cash flows from operating activities reported in the cash flow statement.

Disclaimer of Opinion on the Results of Operations and Cash Flows

Because of the significance of the matter described in the Basis for Disclaimer of Opinion paragraph, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on the income statement and the cash flow statement. Accordingly, we do not express an opinion on the results of operations and cash flows for the year ended December 31, 20X1.

Opinion on the Financial Position

In our opinion, the balance sheet presents fairly, in

all material respects, the financial position of ABC Company as of December 31, 20X1, in accordance with accounting principles generally accepted in the United States of America.

Report on Other Legal and Regulatory Requirements

[Form and content of this section of the auditor's report will vary depending on the nature of the auditor's other reporting responsibilities.]

[Auditor's signature]

[Auditor's address]

[Date of the auditor's report]

A20.

EXHIBIT B: ILLUSTRATIVE ENTITY CONSENT AND ACKNOWLEDGMENT LETTER (Ref: par. 7, A4)

Paragraph 7 of this Statement on Auditing Standards requires that the auditor request management to authorize the predecessor auditor to allow a review of the predecessor auditor's audit documentation and for the predecessor auditor to respond fully to inquiries by the auditor, thereby providing the auditor with information to assist in planning and performing the engagement. Paragraph A4 states that the predecessor auditor may request a consent and acknowledgment letter from the entity to document this authorization in an effort to reduce misunderstandings about the scope of the communications being authorized. The following letter is presented for illustrative purposes only and is not required by professional standards.

[Date]

ABC Enterprises

[Address]

You have given your consent to allow [name of successor CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000.  firm] , as independent auditors for ABC Enterprises (ABC), access to our audit documentation for our audit of the December 31, 20Xl, financial statements of ABC. You also have given your consent to us to respond fully to [name of successor CPA firm] inquiries. You understand and agree that the review of our audit documentation is undertaken solely for the purpose of obtaining an understanding about ABC and certain information about our audit to assist [name of successor CPA firm] in planning and performing the audit of the December 31, 20X2, financial statements of ABC.

Please confirm your agreement with the foregoing by signing and dating a copy of this letter and returning it to us.

Attached is the form of the letter we will furnish fur·nish  
tr.v. fur·nished, fur·nish·ing, fur·nish·es
1. To equip with what is needed, especially to provide furniture for.

2.
 [name of successor CPA firm] regarding the use of the audit documentation.

Very truly yours,

[Predecessor Auditor]

By:--

Accepted:

ABC Enterprises

By:--

Date:--

A21. EXHIBIT C: ILLUSTRATIVE SUCCESSOR AUDITOR ACKNOWLEDGMENT LETTER (Ref: par. A6)

Paragraph A6 of this Statement on Auditing Standards states that the predecessor auditor may request that the auditor confirm in writing his or her agreement regarding the use of the predecessor auditor's audit documentation before permitting access to it. The following letter is presented for illustrative purposes only and is not required by professional standards.

[Date]

[Successor Auditor]

[Address]

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the December 31, 20X1, financial statements of ABC Enterprises (ABC). We rendered a report on those financial statements and have not performed any audit procedures subsequent to the audit report date. In connection with your audit of ABC's 20X2 financial statements, you have requested access to our audit documentation prepared in connection with that audit. ABC has authorized our firm to allow you to review that audit documentation.

Our audit, and the audit documentation prepared in connection therewith there·with  
adv.
1. With that, this, or it.

2. In addition to that.

3. Archaic Immediately thereafter.

Adv. 1.
, of ABC's financial statements were not planned or conducted in contemplation Contemplation
Compleat Angler, The

Izaak Walton’s classic treatise on the Contemplative Man’s Recreation. [Br. Lit.: The Compleat Angler]

Thinker, The

sculpture by Rodin, depicting contemplative man.
 of your review. Therefore, items of possible interest to you may not have been specifically addressed. Our use of professional judgment and the assessment of audit risk and materiality MATERIALITY. That which is important; that which is not merely of form but of substance.
     2. When a bill for discovery has been filed, for example, the defendant must answer every material fact which is charged in the bill, and the test in these cases seems to
 for the purpose of our audit mean that matters may have existed that would have been assessed differently by you. We make no representation as to the sufficiency or appropriateness of the information in our audit documentation for your purposes.

We understand that the purpose of your review is to obtain information about ABC and our 20X1 audit results to assist you in planning and performing your 20X2 audit of ABC. For that purpose only, we will provide you access to our audit documentation that relates to that objective.

Upon request, we will provide copies of audit documentation that provides factual information about ABC. You agree to subject any such copies or information otherwise derived from our audit documentation to your normal policy for retention of audit documentation and protection of confidential entity information. Furthermore, in the event of a third-party request for access to your audit documentation prepared in connection with your audits of ABC, you agree to obtain our permission before voluntarily allowing any such access to our audit documentation or information otherwise derived from our audit documentation, and to obtain on our behalf any releases that you obtain from such third party. You agree to advise us promptly and provide us a copy of any subpoena subpoena (səpē`nə) [Lat.,=under penalty], in law, an order to a witness to appear before a court. A subpoena ad testificandum [Lat. , summons summons: see procedure.
summons

In law, written notification that one is required to appear in court. In civil (noncriminal) cases, it notifies a defendant that he or she must appear and defend (e.g.
, or other court order for access to your audit documentation that include copies of our audit documentation or information otherwise derived there from.

Please confirm your agreement with the foregoing by signing and dating a copy of this letter and returning it to us.

Very truly yours,

[Predecessor Auditor]

By:--

Accepted:

[Successor Auditor]

By:--

Date:--

Even with management's consent, access to the predecessor auditor's audit documentation may still be limited. Experience has shown that the predecessor auditor may be willing to grant broader access if given additional assurance concerning the use of the audit documentation. Accordingly, the auditor might consider agreeing to the following additional limitations on the review of the predecessor auditor's audit documentation in order to obtain broader access:

* The auditor will not comment, orally or in writrag, to anyone as a result of the review about whether the predecessor auditor's engagement was performed in accordance with generally accepted auditing standards.

* The auditor will not provide expert testimony Testimony about a scientific, technical, or professional issue given by a person qualified to testify because of familiarity with the subject or special training in the field.  or litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute.

When a person begins a civil lawsuit, the person enters into a process called litigation.
 support services support services Psychology Non-health care-related ancillary services–eg, transportation, financial aid, support groups, homemaker services, respite services, and other services  or otherwise accept an engagement to comment on issues relating to the quality of the predecessor auditor's audit.

* The auditor accepts sole responsibility for the nature, timing, and extent of audit work performed and the conclusions reached in rendering See render.

(graphics, text) rendering - The conversion of a high-level object-based description into a graphical image for display.

For example, ray-tracing takes a mathematical model of a three-dimensional object or scene and converts it into a bitmap image.
 an opinion on the 20X2 financial statements of ABC.

The following paragraph illustrates the previous text:

Because your review of our audit documentation is undertaken solely for the purpose described previously and may not entail entail, in law, restriction of inheritance to a limited class of descendants for at least several generations. The object of entail is to preserve large estates in land from the disintegration that is caused by equal inheritance by all the heirs and by the ordinary  a review of all our audit documentation, you agree that (1) the information obtained from the review will not be used by you for any other purpose, (2) you will not comment, orally or in writing, to anyone as a result of that review about whether our audit was performed in accordance with generally accepted auditing standards, (3) you will not provide expert testimony or litigation support services or otherwise accept an engagement to comment on issues relating to the quality of our audit, and (4) you accept sole responsibility for the nature, timing and extent of audit work performed and the conclusions reached in rendering your opinion on the 20X2 financial statements of ABC.

A22. EXHIBIT D: COMPARISON OF STATEMENT ON AUDITING STANDARDS OPENING BALANCES INITIAL AUDIT ENGAGEMENTS, INCLUDING REAUDIT ENGAGEMENTS WITH INTERNATIONAL STANDARD ON AUDITING 510, INITIAL AUDIT ENGAGEMENTS-OPENING BALANCES

This analysis was prepared by the Audit and Attest To solemnly declare verbally or in writing that a particular document or testimony about an event is a true and accurate representation of the facts; to bear witness to. To formally certify by a signature that the signer has been present at the execution of a particular writing so as  Standards staff to highlight substantive differences between Statement on Auditing Standards (SAS) Opening Balances--Initial Audit Engagements, Including Reaudit Engagements and International Standard on Auditing (ISA) 510, Initial Audit Engagements--Opening Balances, and the rationale therefore. This analysis is not authoritative and is prepared for informational purposes only. It has not been acted on or reviewed by the 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  (ASB ASB Asbestos
ASB Arbeiter Samariter Bund (German medical help organisation)
ASB Anti-Social Behaviour
ASB Accounting Standards Board (UK FRC)
ASB Aarhus School of Business
).

The ASB has made various changes to the language throughout the SAS Opening Balances--Initial Audit Engagements, Including Reaudit Engagements, in comparison with ISA 510, Initial Audit Engagements--Opening Balances. Such changes have been made to use terms applicable in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area.  and to make the SAS easier to read and apply. The ASB believes that such changes will not create differences between the application of ISA 510 and the application of the SAS.

Paragraph 7 of the SAS carries forward a requirement from paragraph .11 of AU section 315, Communications Between Predecessor and Successor Auditors (AICPA, Professional Standards, vol. 1), which states that the auditor, when the prior period financial statements were audited by a predecessor auditor, should request management to authorize the predecessor auditor to allow a review of the predecessor auditor's audit documentation and to respond fully to inquiries by the auditor. This requirement is not in ISA 510. The ASB believes this requirement is important because auditors may obtain information that is relevant to planning and performing the audit from the predecessor auditor's audit documentation.

Paragraph 6(c) in ISA 510 requires the auditor to perform one or more of three identified procedures, in addition to the procedures required in paragraphs 6(a)-6(b), to obtain sufficient appropriate audit evidence about whether the opening balances contain misstatements that materially affect the current period's financial statements. Two of the three procedures are (a) reviewing the predecessor auditor's audit documentation to obtain evidence regarding opening balances and (b) evaluating whether audit procedures performed in the current audit provide evidence relevant to the opening balances. The ASB does not believe that either of these procedures, on its own, provides sufficient evidence, and accordingly, the ASB has redrafted paragraph 8(c) of the SAS to require the auditor to evaluate whether audit procedures performed in the current period provide evidence relevant to the opening balances and also to perform one or both of the other procedures identified in paragraphs 8(c)(i)-(ii).

Paragraph 13 of the SAS incorporates requirements from paragraph .22 of AU section 315 concerning the auditor's response when management refuses to inform the predecessor auditor that the prior period financial statements may need revision or if the auditor is not satisfied with the resolution of the matter. These requirements are not in ISA 510. The ASB believes it is important to address this situation.

Paragraph 14 of the SAS incorporates a requirement from paragraph .13 of AU section 315 that states that the auditor should not make reference to the report or work of the predecessor auditor as the basis, in part, for the successor auditor's own opinion. This requirement is not in ISA 510. The ASB believes this requirement is necessary in the United States to clearly distinguish this situation from the circumstances in the proposed SAS Special Considerations--Audits of Group Financial Statements (Including the Work of Component Auditors) in which the auditor determines to make reference to the audit of a component auditor in the auditor's report on the group financial statements.

ETHICS INTERPRETATION REVISION

Ethics interpretations and rulings are promulgated prom·ul·gate  
tr.v. prom·ul·gat·ed, prom·ul·gat·ing, prom·ul·gates
1. To make known (a decree, for example) by public declaration; announce officially. See Synonyms at announce.

2.
 by the executive committee of the Professional Ethics professional ethics,
n the rules governing the conduct, transactions, and relationships within a profession and among its publics.

professional ethics liability,
n 1.
 Division to provide guidelines guidelines,
n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks.
 about the scope and application of the rules, but they are not intended to limit such scope or application. Publication of an interpretation or ethics ruling in the Journal of Accountancy constitutes notice to members. A member who departs from interpretations or rulings shall have the burden of justifying such departure in any disciplinary hearing.

The ethics material contained in this document will be effective on Feb. 28.

New language is shown in boldface See boldface font.  italics.

(The Professional Ethics Executive Committee has adopted editorial revisions to Interpretation No. 501-1, "Responses to Requests by Clients and Former Clients," under Rule 501, Acts Discreditable dis·cred·it·a·ble  
adj.
Harmful to one's reputation; blameworthy: discreditable behavior.



dis·cred
 [AICPA, Professional Standards, vol. 2, ET sec. 501 par. .02].)

Interpretation 501-1--Response to requests by clients and former clients for records

Terminology

The following terms are defined below solely for use with this interpretation:

* Client provided records are accounting or other records belonging to the client that were provided to the member by or on behalf of the client.

* Client records prepared by the member are accounting or other records (for example, tax returns, general ledgers, subsidiary journals, and supporting schedules such as detailed employee payroll records and depreciation schedules) that the member was engaged to prepare for the client.

* Supporting records are information not reflected in the client's books and records that are otherwise not available to the client with the result that the client's financial information is incomplete. For example, supporting records include adjusting, closing, combining, or consolidating journal entries (including computations supporting such entries) that are produced by the member during an engagement (for example, an audit).

* Member's working papers working papers
pl.n.
Legal documents certifying the right to employment of a minor or alien.

Noun 1. working papers
 include, but are not limited to, audit programs, analytical review schedules, and statistical sampling results, analyses, and schedules prepared by the client at the request of the member.

Interpretation

When a client or former client (client) makes a request for client-provided records, client records prepared by the member, or supporting records that are in the custody or control of the member or the member's firm (member) that have not previously been provided to the client, the member should respond to the client's request as follows: (1)

* Client provided records in the member's custody or control should be returned to the client, including reproductions of such records.

* Client records prepared by the member should be provided to the client, except that client records prepared by the member may be withheld if the preparation of such records is not complete or there are fees due the member for the engagement to prepare those records.

* Supporting records relating to a completed and issued work product should be provided to the client, except that such supporting records may be withheld if there are fees due to the member for the specific work product.

Once the member has complied with these requirements, he or she is under no ethical obligation to comply with any subsequent requests to again provide such records or copies of such records. However, if subsequent to complying with a request, a client experiences a loss of records due to a natural disaster or an act of war, the member should comply with an additional request to provide such records.

Member's working papers are the member's property and need not be provided to the client under provisions of this interpretation; however, such requirements may be imposed by state and federal statutes and regulations, and contractual agreements.

In connection with any request for client-provided records, client records prepared by the member, or supporting records, the member may:

* Charge the client a reasonable fee for the time and expense incurred to retrieve and copy such records and require that such fee be paid prior to the time such records are provided to the client;

* Provide the requested records in any format usable USable is a special idea contest to transfer US American ideas into practice in Germany. USable is initiated by the German Körber-Stiftung (foundation Körber). It is doted with 150,000 Euro and awarded every two years.  by the client; (2) and

* Make and retain copies of any records returned or provided to the client.

Where a member is required to return or provide records to the client, the member should comply with the client's request as soon as practicable practicable adj. when something can be done or performed.  but, absent extenuating circumstances Facts surrounding the commission of a crime that work to mitigate or lessen it.

Extenuating circumstances render a crime less evil or reprehensible. They do not lower the degree of an offense, although they might reduce the punishment imposed.
, no later than 45 days after the request is made. The fact that the statutes of the state in which the member practices grants the member a lien lien, claim or charge held by one party, on property owned by a second party, as security for payment of some debt, obligation, or duty owed by that second party.  on certain records in his or her custody or control does not relieve re·lieve
v.
1. To cause a lessening or alleviation of something, such as pain, tension, or a symptom.

2. To free an individual from pain, anxiety, or distress.
 the member of his or her obligation to comply with this interpretation. In addition, certain states have laws and regulations that impose obligations on the member greater than the provisions of this interpretation and should be complied with.

[Revised, effective February February: see month.  28, 2011. Revised, effective April 30, 2000, by the Professional Ethics Executive Committee. Revised, effective April 30, 2006, by the Professional Ethics Executive Committee.]

<FNT> (1.) Paragraph 22 of proposed Statement on Auditing Standards Special Considerations--Audits of Group Financial Statements (Including the Work of Component Auditors). </FNT>

Copyright [C] 2010 by American Institute of Certified See certification.  Public Accountants, Inc., New York New York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of
, NY 10036-8775. All rights reserved. For information about the procedure for requesting permission to make copies of any part of this work, please visit www.copyright.com or call (978) 750-8400. This Statement on Auditing Standards uses certain International Federation of Accountants The external links in this article or section may require cleanup to comply with Wikipedia's content policies.  CIFAC) copyright material, used with the permission of IFAC.

(1.) If the possible effects, in the auditor's judgment, are considered to he material but not pervasive to the entity's results of operations and cash flows, the auditor would express a qualified opinion on the results of operations and cash flows.

(2.) The subtitle sub·ti·tle  
n.
1. A secondary, usually explanatory title, as of a literary work.

2. A printed translation of the dialogue of a foreign-language film shown at the bottom of the screen.

tr.v.
 "Report on the Financial Statements" is unnecessary in circumstances when the second subtitle, "Report on Other Legal and Regulatory Requirements," is not applicable.

(3.) In circumstances when the auditor also has responsibility to express an opinion on the effectiveness of internal control in conjunction with the audit of the financial statements, this sentence would be worded as follows: "In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances." In addition, the next sentence, "Accordingly, we express no such opinion," would not be included.

(1.) The member is under no obligation to retain records for periods that exceed applicable professional standards, state and federal statutes and regulations, and contractual agreements relating to the service performed.

(2.) The member is not required to convert records that are not in electronic format to electronic format. However if the client requests records in a specific format and the member was engaged to prepare the records in that format, the client's request should be honored hon·or  
n.
1. High respect, as that shown for special merit; esteem: the honor shown to a Nobel laureate.

2.
a. Good name; reputation.

b.
.
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Date:Feb 1, 2011
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