Understanding SAS No. 112; audit risk alert developed to help members.

• Position: American Institute of Certified Public Accountants commits for users to understand statement on auditing standards

To help practitioners better understand and implement the requirements of Statement on Auditing Standards No. 112, Communicating Internal Control Related Matters Identified in an Audit, the AICPA has developed an audit risk alert entitled Understanding SAS No. 112 and Evaluating Control Deficiencies: A Companion to SAS No. 112, Communicating Internal Control Related Matters Identified in an Audit. This audit risk alert summarizes the important aspects of the new standard and presents a number of short case studies designed to guide the auditor through the process of evaluating identified control deficiencies. To obtain this new risk alert, go to www.cpa2biz.com/stores/sas112.

During this past summer and fall, the Audit & Attest Team became aware that some practitioners may be misunderstanding certain concepts that are important to SAS No. 112. The most common misunderstanding is the belief that the auditor's drafting of the client's financial statements automatically results in a material weakness. Asking the auditor to draft the financial statements does not cause a control deficiency; however, it may be the result of a control deficiency. A control deficiency exists if the client does not have controls over the preparation of the financial statements, including the footnote disclosures, which would prevent or detect a misstatement in the financial statements. This misunderstanding and others are debunked in the audit risk alert.

Keeping a few simple but important underlying concepts in mind will help auditors successfully implement the new standard. The following are some key underlying concepts of SAS No. 112:

* The auditor cannot be part of a...