In May 2006, the AICPA Auditing Standards Board (ASB) issued Statement on Auditing Standards (SAS) No. 112, Communicating Internal Control Related Matters Identified in an Audit. This SAS is effective for audits of financial statements for periods ending on or after December 15, 2006.
How the Standard Will Affect Your EBP Audits
SAS No.112 defines the terms significant deficiency and material weakness and provides guidance on evaluating the severity of control deficiencies identified in an audit of financial statements.
SAS No. 112 also requires you to make new communications, in writing, to management and those charged with governance regarding significant deficiencies and material weaknesses in internal controls that you note in your audits. For many employee benefit plans, this will be a change. For example, a situation where there is no one at the client who has the ability to prepare the plan financial statements would be at least a significant deficiency. And if the client lacks the ability even to understand the financial statements prepared by the auditor, it would be a material weakness. Other issues that may indicate a significant deficiency or material weakness include material adjusting entries, inability by the client to properly value its plan investments, a lack of segregation of duties, controls not communicated, or no management oversight of the third party administrator.
Resources
The Center and the AICPA have taken a number of steps to compile and develop resources to assist auditors in implementing this new standard. Those resources can be accessed through the following links:
SAS No. 112 - Communicating Internal Control Related Matters Identified in an Audit
Understanding SAS No. 112
This article, written by Charles Landes, Vice President—AICPA Professional Standards and Services, provides a discussion of many aspects of SAS No. 112. Learn More>>
Understanding SAS No. 112 and Evaluating Control Deficiencies - Audit Risk Alert
This audit risk alert provides a detailed discussion of several aspects of SAS No. 112, including identifying and evaluating control deficiencies and how the revisions will affect practice, and includes case studies. Learn More>>
SAS 103 and 112 Talking Points
This document outlines talking points to assist you in communicating the new requirements to your clients prior to commencing work to avoid confusion Learn More>>
SAS No. 112 Frequently Asked Questions
SAS No. 112 FAQ document is intended to address the most common practitioner questions and concerns related to applying SAS No. 112. Learn More>>
Questions and Answers Regarding the Application of SAS No. 112
These questions and answers will help you determine situations that might be considered significant deficiencies or material weaknesses. Learn More>>
SAS No. 112 Roundtable Discussion
The Center sponsored this roundtable discussion call on May 10, 2007. Hear Chuck Landes, Vice President—AICPA Professional Standards and Services, and members of the EBPAQC Executive Committee discuss SAS No. 112 and its implications to EBP audits. Learn More>>