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 Not much going on here (that’s a first…) ◦ A few interpretations have been issued related to auditing pension information ◦ The ASB is currently evaluating.

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Presentation on theme: " Not much going on here (that’s a first…) ◦ A few interpretations have been issued related to auditing pension information ◦ The ASB is currently evaluating."— Presentation transcript:

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2  Not much going on here (that’s a first…) ◦ A few interpretations have been issued related to auditing pension information ◦ The ASB is currently evaluating some recent changes to the international standards on which the AICPA audit standards are based ◦ A task force of the AICPA Government Expert Panel is currently working on a new chapter for the AICPA State and Local Government Audit and Accounting Guide related to auditing pension data (rumor has it that the chapter is over 100 pages long so far) ◦ This would be a good time to do a refresher on what the AICPA Clarity Standards say about using the work of a specialist 2

3 What level of involvement should we have in establishing the actuarial assumptions? Can we rely on plan actuary as a management specialist? Employer Concerns: What level of involvement should the employer have in establishing the actuarial assumptions? Does the auditor of the plan possess the skills, knowledge, and experience related to the actuarial information in the standard? Does the auditor of plan include an actuarial specialist as part of the audit team? Plan Concerns: What role should we have in evaluating the actuarial assumptions? As auditor of the plan, do I have to engage auditor specialists for actuarial information? As auditor of the employer, did the auditor of the plan engage an auditor specialist to review actuarial information? Auditor Concerns: 3

4 The auditor must obtain an understanding of the actuarial methods and assumptions and assess their reasonableness and consistency of application. Investment Return Rate7.25% Wage Inflation Rate4.0% Pay increase Assumptions4.0% Assumed Retirement62 Rates of: Mortality, Disability, Retirement, and Marriage Actual Experience during 2008-2010 Period 4

5  Key census data ◦ Date of birth ◦ Gender (male or female) ◦ Date of hire or years of service ◦ Date of termination or retirement ◦ Marital status ◦ Spouse date of birth ◦ Eligible compensation ◦ Employment status  Auditing census data ◦ Active employees ◦ Inactive/retired  Resolving exceptions The auditor must test the reliability and completeness of the census data provided to the actuary 5

6 Definitions Auditor’s Specialist – Individual or organization possessing expertise in a field other than accounting or auditing, whose work in that field is used by the auditor to assist the auditor in obtaining sufficient appropriate audit evidence. An auditor’s specialist may be either an auditor’s internal specialist or an auditor's external specialist Management’s Specialist – An individual or organization possessing expertise in a field other than accounting or auditing, whose work in that field is used by the entity to assist the entity in preparing the financial statements 6

7 Description Management's specialists Auditor internal specialists and resources Specialists engaged by auditor Specialists are a member of the engagement team NoYes No - however, auditor directs their work Auditor evaluates competence, capabilities and objectivity of specialists Yes (AU-C-500.08(a),.A38-.A44) Yes (AU-C-620.09,.A15-.A22) Yes (AU-C-620.09,.A15-.A22) Specialists may assist auditor in obtaining an understanding of the entity and its environment, including its internal control No - however, they may provide relevant information Yes (AU-C-620.A5) Yes (AU-C-620.A5) 7

8 Description Management's specialists Auditor internal specialists and resources Specialists engaged by auditor Specialists may assist auditor in identifying and assessing risks of material misstatement No - however, they may provide relevant information Yes (AU-C-620.A5) Yes (AU-C-620.A5) Specialists may assist auditor in determining and implementing overall responses to financial statement level risks No Yes (AU-C-620.A5) Yes (AU-C-620.A5) Specialists may assist auditor in designing and performing further audit procedures to respond to the assessed risks at the assertion level, comprising test of controls or substantive procedures NoYes (AU-C-620.07 and.A5) Yes (AU-C-620.07 and.A5) 8

9 Description Management's specialists Auditor internal specialists and resources Specialists engaged by auditor Auditor obtains an understanding of the work of specialists Yes (AU-C-500.08(b) and A.45-.A48) Yes (AU-C-620.11 and.A25-A.29) Yes (AU-C-620.11 and.A25-A.29) Auditor evaluates the adequacy of the work of specialists Yes (AU-C-500.08(c) and.A49) Yes (AU-C-620.12 and.A35-.A42) Yes (AU-C-620.12 and.A35-.A42) Specialists may assist auditor in evaluating the sufficiency and appropriateness of audit evidence obtained in forming an opinion on the financial statements NoYes (AU-C-620.07 and.A5) Yes (AU-C-620.07 and.A5) 9

10 Do you need skills, knowledge and experience related to a particular area of accounting or auditing, or related subject matter? No No auditor specialist needed Ye s Does the engagement team possess the skills, knowledge and experience? Yes No auditor specialist needed Is there a firm specialist and/or firm resource that possesses the skills, knowledge and experience? Yes The firm specialist and/or firm resource is included as a member of the engagement team. The engagement team may need to engage an expert. No 10

11  The nature, scope, and objectives of the work of specialist  Whether specialist is employed by entity or is party engaged to provide relevant services  Extent to which management exercises control or influence or work of specialist  Competence and capabilities of specialist  Whether specialist is subject to technical performance standard or professional or industry requirements  Auditor’s ability to evaluate work and findings of specialist without assistance of auditor’s specialist 11

12  Statements on Standards for Accounting and Review Services (SSARS) have changed significantly ◦ The ARSC undertook a “clarity-like” revision of the SSARS, similar to what the ASB did with the SASs ◦ The result is SSARS 21, which effectively amends and supersedes all previous SSARS sections in the codification, except for Sec 120, Compilations of Pro Forma FS, which will be superseded by an additional clarity SSARS this year ◦ The following slides will take us through the changes for compilations, reviews, and a new(?) service labeled “preparation of financial statements” 12

13  STATEMENTS ON STANDARDS FOR ACCOUNTING AND REVIEW SERVICES 21 ◦ General Principles (Significant changes) ◦ Preparation of financial statements (New) ◦ Compilation engagements (Significant changes) ◦ Reviews (not much change) 13 Effective date would be for financial statement periods ending on or after December 15, 2015 (so effective for any 12-31-15 financial statements)

14  Intended to help accountants better understand their professional responsibilities  Sec 60 must be followed in additional to the section applicable to the type of work you are doing ◦ Covers things like ethical requirements, professional judgment, following the SSARS, quality control, and acceptance/continuance ◦ Also specifies a requirement that all SSARS engagements must have a signed engagement letter (signed by both parties) 14

15  Provides requirements and guidance when an accountant is engaged to prepare financial statements for an entity, BUT has NOT been engaged to perform a compilation, review or audit with respect to those financial statements  DOES NOT apply in situations where the accountant is not in public practice  This is a non-attest service (no assurance) 15

16  Why needed? ◦ In the past, compilations were required when an accountant was engaged to report on compiled financial statements, or submits” (presenting to management financial statements that the accountant has prepared) financial statements to a client or third parties ◦ Today, with the advent of new technology and other applications, it is becoming difficult to determine just “who” prepared the financial statements, and it was tough to tell when a third party might use them 16

17  No report is required, even if they are to be used by or presented to a third party  Since it is non-attest (no assurance) ◦ Now in harmony with Yellow Book treatment of FS preparation ◦ Also more consistent with practitioners who have considered FS prep a “management responsibility” and an essential part of an entity’s system of internal control ◦ The accountant need no longer be concerned with who prepared the FS, or who is using the FS, when issuing a compilation 17

18  Other issues with preparation ◦ Each page of the FS needs include a statement or legend stating, at a minimum, that “no assurance is provided” ◦ The accountant’s name need not be included in the statement or legend ◦ If the accountant is unable to include an appropriate statement or legend described above, the accountant must issue a disclaimer report, OR may perform a compilation in accordance with Sec 80 requirements, OR may resign ◦ Oh, and by the way, these services are excluded from peer review, if this is the only service that your organization performs ◦ AICPA Code of Conduct prohibits a CPA from being associated with FS that are misleading, so be careful ◦ What if I’m just assisting management with the preparation of FS, and I’m not really preparing ? Am I following this SSARS? No, you are not 18

19 19 Examples

20  A written, and signed, engagement letter or other suitable form of written agreement is required  A report is now required for all compilation engagements ◦ — It is no longer necessary to have the non-reporting exception that was previously afforded for financial statements that were prepared and presented by an accountant to management that were not intended for third party use. Such engagements will be covered by section 70. 20

21  Additional paragraphs are required when  — the financial statements are prepared in accordance with a special purpose framework.  — management elects to omit substantially all disclosures required by the applicable financial reporting framework.  — when the accountant’s independence is impaired.  — there is a known departure from the applicable financial reporting framework.  — supplementary information accompanies the financial statements and the accountant’s compilation report thereon. 21

22  Compilation report looks significantly different an audit or review report, i.e., one paragraph, no headings  Accountant no longer concerned with FS being general use or not  Management use only financial statements (SSARS 8 type stuff) will be eliminated  When the accountant is not independent, a statement to that effect is still required in the compilation report  Don’t have to disclose why the accountant isn’t independent, but if they voluntarily choose to disclose the why, ALL of the whys must be disclosed (not just part of them) 22

23  Primarily a clarity redraft of the pre-clarity review literature with very few changes  SSARS No. 21 does make clear that section 90 may be applied to historical financial information other than historical financial statements, such as specified elements, accounts, or items of a financial statement; supplementary information; required supplementary information; and financial information included in a tax return 23

24  The accountant’s review report will look different as SSARS No. 21 requires the use of headings in the report. The accountant is also required to name the city and state of the issuing office  Requirement will be met if the accountant’s review report is presented on the accountant’s letterhead and the letterhead contains the city and state of the issuing office 24

25  Although pre-clarity guidance stated that emphasis would never be added to a review report, this has now changed ◦ Emphasis of matter paragraph, or other matters paragraph will be required in certain situations  Inclusion of supplemental information and required supplemental information  Special reporting framework used  Several others 25

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