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Focus on Auditing: New Audit Standards Bring Changes To The Audit Report Letter

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The biggest change in auditing standards since 2012 will soon bring an entirely new look to the report letter which accompanies audited financial statements. These
May 26, 2021

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The biggest change in auditing standards since 2012 will soon bring an entirely new look to the report letter which accompanies audited financial statements. These changes are effective for audits of financial statements for periods ending on or after December 15, 2021.

Some of the more notable changes in the new report letter include:

  • Moving the opinion closer to the top
  • Adding a statement regarding auditor independence
  • Enhancing the focus on both management’s and the auditor’s responsibilities related to an entity’s ability to continue as a going concern
  • Incorporating a description of reasonable assurance and materiality
  • Including language which describes other required auditor communications

While the content of an entity’s report letter may vary due to specific facts and circumstances, an example of the new report letter wording is included below. Please reach out to your RubinBrown engagement team to discuss any questions you might have with regard to the new format of the audit report letter.

Independent Auditors’ Report

Board of Directors
Example Company

Opinion

We have audited the financial statements of Example Company, which comprise the balance sheet as of December 31, 2021 and 2020, and the related statements of income, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of Example Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Basis For Opinion

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditors’ Responsibilities For The Audit Of The Financial Statements section of our report. We are required to be independent of Example Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities Of Management For The Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about Example Company’s ability to continue as a going concern for one year after the date that the financial statements are available to be issued.

Auditors’ Responsibilities For The Audit Of The Financial Statements


Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with auditing standards generally accepted in the United States of America will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered 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.


In performing an audit in accordance with auditing standards generally accepted in the United States of America, we:

  • Exercise professional judgment and maintain professional skepticism throughout the audit.
  • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
  • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Example Company’s internal control. Accordingly, no such opinion is expressed.
  • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
  • Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about Example Company’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.

[Date of the Report]

 

Readers should not act upon information presented without individual professional consultation.

 

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