Changes to auditor’s report aimed at visibility and transparency

Oct 25, 2021 | Nonprofits

By Frank T. Ardito, CPA
Vice President & Director

When you receive your audited financial statements for the year ended December 31, 2021, there will be a change to the auditor’s report. The American Institute of Certified Public Accountants (AICPA) Auditing Standards Board issued a new standard on the auditor’s responsibilities when issuing an unmodified (“clean”) opinion and the report itself. The changes to the report apply to audits of all types of entities, including for-profit companies, nonprofit organizations and audits of employee benefits plans. While the new standard increases the auditors’ work behind the scenes in forming their opinion, the actual report will look different as well.

Visibility and transparency

Under the old format, the auditor’s opinion – the most import part of the report – was required to be the last paragraph. Under the new format the auditor’s opinion will be front and center as it is required to be the first paragraph of the report. The next paragraph will be a new section entitled “Basis for Opinion.” This section is intended to provide clarity as to the auditor’s responsibilities relating to independence and an explanation of the ethical requirements relating to any audit.

These changes were made to emphasize the auditor’s opinion and the basis for the opinion. The AICPA believes the new standard “will benefit users of audited financial statements by placing the auditor’s opinion at the front of the report for added visibility and providing necessary transparency into the basis for the auditor’s opinion.”

‘Going concern’ reporting changes

We hope that our clients are never in this situation, but there are occurrences when an auditor must address a client’s ability to continue as a “going concern.” In the business and accounting environment, a going concern is a company that is presumed to be capable of meeting its financial obligations and continuing operations for at least the next 12 months.

Under the new standard, going concern language will be highlighted in the auditor’s report. The enhanced reporting will include information on management’s responsibilities to evaluate the conditions that raise substantial doubt about an entity’s ability to continue as a going concern. Finally, this section will also include the auditor’s responsibilities to conclude in their opinion whether the entity can continue as going concern.

Enhancement to auditor’s responsibilities

The biggest change in this section is an explanation that the auditor’s responsibilities are for the audit as well as the auditor’s communication with those in charge of governance. Some of these enhancements will be presented as bullet points, a format that is easier to read.

It has been a while since changes were made to the auditor’s report, and the changes made by the AICPA stress visibility and transparency. These changes will make for a longer report than in the past, which clients will, no doubt, notice. However, the report should provide more clarity.

If you have questions about the enhanced audit report, please contact us.

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