Source: SAS No. 112., June 30, 2006  (Supersedes SAS No. 60.)

Effective for audits of financial statements for periods ending on or after December 15, 2006.

 

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.

 

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.