Statements on Auditing Standards (SAS) Numbers 134-140

The American Institute of Certified Public Accountants (AICPA) has published its Audit and Accounting Guide, State and Local Governments, updated through March 1, 2021. This guide provides valuable guidance to auditors and accountants working in the area of state and local governments. It is intended to help practitioners properly record transactions according to generally accepted accounting principles (GAAP) and audit and report on those financial statements in accordance with generally accepted auditing standards (GAAS).

The most notable feature of the 2021 Guide is the inclusion of the illustrative reports implementing the reporting SAS’s, SAS Numbers 134-140. These SAS’s are effective starting with the year ending December 31, 2021.  

The following are significant changes made to this guide related to these new SAS’s.

Chapter 4, General Auditing Consideration. 

The most noteworthy changes revolve around SAS No. 137 The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports, as amended.  The new SAS provides:

  • clarification as to what “other information” is within the scope of the auditor’s procedures
  • additional guidance on the auditor’s objectives in reading other information
  • direction regarding the group auditor’s responsibilities for reading other information, when reference is made to a component auditor in the group auditor’s report

If the auditor becomes aware of information in the document that he or she believes is a material misstatement of fact but not a material inconsistency, the auditor should discuss the matter with the client. If the client agrees to make the correction, the auditor should determine that the correction has been made. If the client refuses to make the correction, the auditor should notify those charged with governance and consider other actions that might be appropriate, including obtaining advice from the auditor's legal counsel, withholding the auditor's report, or withdrawing from the engagement.

Chapter 16, Concluding the Audit. 

Implementing these SAS’s has contributed to significant changes that will be made to the auditor’s reports for all year ends subsequent to December 31, 2021. A new discussion of Key Audit Matters (KAMs) has been added in which government auditors are engaged to communicate KAMs.

Accordingly, the new auditor's report under these new SAS’s is divided into the following sections:

  • The Auditor's Opinion. This section should identify the entity whose financial statements have been audited and specify the dates or periods covered by each financial statement that the financial statements comprise.
  • Basis of Opinion. This section follows the opinion and includes an affirmative statement about the auditor's independence and fulfillment of the other ethical responsibilities in accordance with relevant ethical requirements relating to the audit.
  • Responsibility of Management for the Financial Statements. The second paragraph in this section addresses management's responsibility for evaluating going concern conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern, which should be twelve months beyond the financial statement date.
  • Auditor's Responsibility for the Audit of the Financial Statements. This section expands the description of the auditor's responsibilities for the audit and of key features of an audit. It requires statements that (1) the auditor's objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement whether due to fraud or error and to issue a report that includes the auditor's opinion, (2) reasonable assurance is a high level of assurance, but not absolute assurance, and is not a guarantee that an audit will detect a material misstatement when it exists, (3) the risk of not detecting a material misstatement resulting from fraud is higher than one resulting from error, (4) misstatements can arise from fraud or error and are considered material if they could reasonably be expected to influence the economic decisions users make based on the financial statements, (5) the auditor exercises professional judgment and maintains professional skepticism throughout the audit, and (6) the auditor's responsibilities include concluding on the entity's ability to continue as a going concern.
  • Required Supplementary Information, Supplementary Information, and Other Information Sections.  Requires reporting required supplementary information, supplementary information, and other information sections in a separate section in the auditor's report on the financial statements or in a separate report, instead of as an other-matters paragraph.