Statement on Auditing Standards - Consistency of Financial Statements

Article excerpt

Statement on Auditing Standards (SAS) Consistency of Financial Statements supersedes SAS No. 1, section 420, Consistency of Application of Generally Accepted Accounting Principles, as amended (AICPA, Professional Standards, vol. 1, AU sec. 420), and supersedes SAS No. 58, Reports on Audited Financial Statements, paragraphs. 16-.17 and .53-.57 (AICPA, Professional Standards, vol. 1, AU sec. 508).

CONTENTS

Introduction
Scope of This Statement on Auditing Standards/
Effective Date/
Objectives/
Definition/
Requirements
Evaluating Consistency/
Change in Accounting Principle/
Correction of a Material Misstatement in
   Previously Issued Financial
   Statements/
Change in Classification/
Application and Other Explanatory Material
Evaluating Consistency/
Change in Accounting Principle/
Correction of a Material Misstatement in
   Previously Issued Financial
   Statements/
Change in Classification/

INTRODUCTION

Scope of This Statement on Auditing Standards

1. This Statement on Auditing Standards (SAS)

addresses the auditor's evaluation of the consistency of the financial statements between periods, including changes to previously issued financial statements and the effect of that evaluation on the auditor's report on the financial statements.

Effective Date

2. This SAS is effective for audits of financial statements for periods ending on or after December 15, 2012.

OBJECTIVES

3. The objectives of the auditor are to

a. evaluate the consistency of the financial statements for the periods presented and

b. communicate appropriately in the auditor's report when the comparability of financial statements between periods has been materially affected by a change in accounting principle or by adjustments to correct a material misstatement in previously issued financial statements.

DEFINITION

4. For purposes of generally accepted auditing standards, the following term has the meaning attributed as follows:

Current period. The most recent period upon which the auditor is reporting.

REQUIREMENTS

Evaluating Consistency

5. The auditor should evaluate whether the comparability of the financial statements between periods has been materially affected by a change in accounting principle or by adjustments to correct a material misstatement in previously issued financial statements. (Ref: par. A1)

6. The periods included in the auditor's evaluation of consistency depend on the periods covered by the auditor's opinion on the financial statements. When the auditor's opinion covers only the current period, the auditor should evaluate whether the cur rent-period financial statements are consistent with those of the preceding period, regardless of whether financial statements for the preceding period are presented. When the auditor's opinion covers two or more periods, the auditor should evaluate consistency between such periods and the consistency of the earliest period covered by the auditor's opinion with the period prior thereto, if such prior period is presented with the financial statements being reported upon. The auditor also should evaluate whether the financial statements for the periods being reported upon are consistent with previously issued financial statements for the relevant periods. (Ref: par. A2-A3)

Change in Accounting Principle

7. The auditor should evaluate a change in accounting principle to determine whether

a. the newly adopted accounting principle is in accordance with the applicable financial reporting framework,

b. the method of accounting for the effect of the change is in accordance with the applicable financial reporting framework,

c. the disclosures related to the accounting change are appropriate and adequate, and

d. the entity has justified that the alternative accounting principle is preferable. …