STATEMENT ON AUDITING STANDARDS No. 114

We would like bring to your attention one last Statement on Auditing Standards (SAS) that will impact financial statement audits for fiscal years ending after December 15, 2006, SAS No. 114 The Auditor’s Communication With Those Charged With Governance. SAS No. 114, which addresses matters that the auditor must communicate to those charged with governance of the organization, was issued December 19, 2006, and supersedes SAS No. 61 Communication With Audit Committees.

Why this new standard? SAS No. 114 was issued to address emerging practices in corporate governance and new expectations related to increased open, candid communications regarding significant findings and issues related to the audit.

What changed? SAS No. 61 letters were addressed to the Audit Committee, or to a group formally designated to oversee the audit process. If no audit committee or similar group existed, no SAS No. 61 communications were previously required under professional standards. SAS No. 114 changes the recipient of the communications, to whoever is charged with governing the organization, whether it is the President, the CEO, the Audit Committee, or the Board or Directors. This means that each and every organization audited will receive SAS No. 114 communications in the future. SAS No. 114 communications are generally consistent with the requirements under SAS No. 61, but includes certain additional matters and provides guidance on the communication process. In addition, the new standards distinguishes between those responsible for overseeing the strategic direction of the organization (i.e. those charged with governance), and those who are responsible for making decisions about how to execute the strategic directives (i.e. management). Note that management is responsible for the organization’s financial statements.

What types of issues will this communication cover? The SAS No. 114 communication will provide a type of “report card” related to the audit, including the following:
• Auditor’s responsibility under Generally Accepted Auditing Standards
• Significant accounting policies
• Significant accounting estimates
• Significant audit adjustments
• Disagreements with management
• Consultation with other independent accountants (“opinion shopping”)
• Issues discussed prior to retention of independent accountants
• Difficulties encountered in performing the audit
• Overview of the planned scope of the audit (New)
• Representations the auditor is requesting from management (New)

In summary, SAS No. 114 is intended to both expand communications and to stress the importance of effective two-way communication between those governing organizations and auditors. Please contact us if you have any questions.

Sincerely,

The Shareholders
Rubino & McGeehin, Chartered