In 2019 and 2020, the Accounting Standards Board (ASB) issued new Statements on Auditing Standards (SASs). These standards affect both NFPs and those who audit NFPs. For this article, we specifically discuss SASs 134-139 and 141. Because SAS 140 essential incorporates SASs 134-137, it won’t be individually addressed.
Adjustments to the Auditor’s Report
Several of the new SASs relates to the auditor’s report. The new standards reorganize the information required. Plus, additional information is needed in the report that hasn’t been necessary until now.
For example, SAS 134 affects the audit report by moving the opinion and basis of opinion paragraphs into the first section. And SAS 135 provides more guidance about the auditor’s views on significant unusual transactions and what to include as justification. Lastly, SAS 139 modifies the format of the report for audits specific to special purpose financial statements.
Changes to Audit Procedures
If your NFP has an employee benefit plan subject to the Employee Retirement Income Security Act, or ERISA, then SAS 136 alters the procedures used to audit this plan. Furthermore, it changes the auditor’s report on the financial statements. These revisions brought about by SAS 136 are meant to provide more details on the responsibilities of both the ERISA plan managers and the auditor.
With the issuance of SAS 137, NFPs and those who audit them have new guidance about determining an entity’s annual report. It also addresses audit procedures for financial and non-financial information in an organization’s annual report. And NFPs should now provide the listed documents to their auditors in a timely manner (i.e., prior to report issuance).
New Materiality Definition
The definition of materiality changed with the issuance of SAS 138. Materiality, based on past standards, has been a subjective term. The new definition of materiality is, “Misstatements, including omissions, are considered to be material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.”
Remove all the accounting jargon, and the new definition of materiality essentially means – a “material” amount would impact a user to act in some way, and an immaterial amount would not.
This new definition of materiality is important to both auditors and NFPs because items considered “immaterial” often do not – and should not – get much attention in an audit. Since materiality is a subjective term, very much dependent on the individual defining it, the ASB is aiming to create a clearer definition with SAS 138.
When Do These Standards Become Effective?
Because 2020 was SUCH a challenging year for everyone (including NFPs), the ASB realized that implementing all of these changes would be too much to ask. Therefore, it amended the effective dates of SASs 134-140. To do this, ASB issued SAS 141, which revises the effective dates for the new standards. They are now effective for audits of financial statements for fiscal years ending on or after December 15, 2021.
Help for Nonprofits
If you need help deciphering these current SASs and how they impact your organization, we can do it! Our knowledgeable staff has the experience to assist with not only SASs but other issues affecting NFPs.