August 6, 2010
MEMORANDUM FOR: ABC Accounting Firm Clients
FROM: ABC Accounting Firm
SUBJECT: SAS No. 112, Communicating Internal Control Related Matters in an Audit
ABC Accounting Firm clients should be aware that the American Institute of Certified Public Accountants (AICPA) issued a Statement on Auditing Standards i.e. SAS No.112. The new standard provides guidance to an auditor on communicating internal control matters to the governing body, board of directors or equivalent body. This standard may result in our client’s receiving a letter from our firm officially communicating significant deficiencies or material weaknesses in internal controls.
SAS No.112 is an auditing standard and it must be followed by the Certified Public Accountants and Government auditors. With the guidance of SAS No.112, the auditors may identify and evaluate the client’s internal control over financial reporting. The new standard has stated that management is responsible for establishing and maintaining internal controls, including monitoring, and for the fair presentation in the financial statements of financial position, results of operations, and cash flows, including the notes to financial statements, in conformity with U.S. Generally Accepted Accounting Principles (GAAP).
Why the Change?
As many of you are aware, several corporate scandals helped prompt Congress to enact the Sarbanes Oxley Act. It is the law that was created by the Public Company Accounting Oversight Board (PCAOB) which is responsible for setting the accounting and auditing standards of publicly traded companies. The PCAOB issued SAS No.2, An Audit of internal Control Over Financial Reporting Performed in Conjunction With an Audit of Financial Statements. PCAOB acknowledged that they needed to clarify auditor’s communication of internal control matters of non-publicly traded entities and so SAS No.112 was issued. This new standard was also issued because the public’s perception was that...