Statement on Auditing Standards Consistency of Financial Statements
1. SAS Consistency of Financial Statements supersedes
a) SAS No. 1, section 420, Consistency of Application of Generally Accepted Accounting Principles, as amended (AICPA, Professional Standards, vol. 1, AU sec. 420), and
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b) SAS No. 58, Reports on Audited Financial Statements, paragraphs .16–.17 and .53–.57 (AICPA, Professional Standards, vol. 1, AU sec. 508).
2. Scope
a) This SAS addresses the auditor‘s evaluation of the consistency of the financial statements between periods, including:
(1) Changes to previously issued financial statements and
(2) The effect of that evaluation on the auditor‘s report on the financial statements.
3. Effective Date
This SAS is effective for audits of financial statements for periods ending on or after December 15, 2012.
4. Objectives of the Auditor – 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.
5. Requirements — This SAS covers the following areas:
a) Evaluating Consistency—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. The periods included in the auditor‘s evaluation of consistency depend on the periods covered by the auditor‘s opinion on the financial statements and include the year prior to the reporting period.
b) Change in Accounting Principle—The auditor should evaluate a change in accounting principle to determine whether the newly adopted accounting principle is in accordance with the applicable financial reporting framework, the method of accounting for the effect of the change is in accordance with the applicable financial reporting framework, the disclosures related to the accounting change are appropriate and adequate, and the entity has justified that the alternative accounting principle is preferable.
(1) If the auditor concludes that the criteria above has been met, and the change in accounting principle has a material effect on the financial statements, the auditor should include an
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emphasis-of-matter paragraph in the auditor‘s report that describes the change in accounting principle and provides a reference to the entity‘s disclosure.
(2) If the criteria above are not met, the auditor should evaluate whether the accounting change results in a material misstatement and whether the auditor should modify the opinion accordingly.
c) Correction of a Material Misstatement in Previously Issued Financial Statements—The auditor should include an emphasis-of-matter paragraph in the auditor‘s report when there are adjustments to correct a material misstatement in previously issued financial statements. The auditor should include this type of emphasis-of-matter paragraph in their report when the related financial statements are restated to correct the prior material misstatement. The paragraph need not be repeated in subsequent periods. The emphasis-of-matter paragraph should include
(1) A statement that the previously issued financial statements have been restated for the correction of a material misstatement in the respective period and
(2) A reference to the entity‘s disclosure of the correction of the material misstatement.
d) Change in Classification—The auditor should evaluate a material change in financial statement classification and the related disclosure to determine whether such a change is also either a change in accounting principle or an adjustment to correct a material misstatement in previously issued financial statements. If so, the requirements of the paragraphs above apply.
