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Office of the Washington State Auditor Pat Mccarthy

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Office of the Washington State Auditor Pat Mccarthy Office of the Washington State Auditor Pat McCarthy February 10, 2020 Via Electronic Mail American Institute of Certified Public Accountants 1211 Avenue of the Americas, 19th Floor New York, NY 10036-8775 RE: Comments on Proposed Statement on Auditing Standards – Amendments to AU-C Sections 725, 730, 930, 935 and 940 The Office of the Washington State Auditor appreciates the opportunity to give input on the AICPA’s proposed standards. In our constitutional role as the auditor of public accounts, our Office performs the financial audit of the State of Washington and annually performs or reviews over 800 financial audits and over 350 single audits of the State’s agencies and all types of local governments, along with their component units. Our responses to the questions asked by the Auditing Standards Board are included below: Request for Comment Specific to AU-C Section 930: Our Office does not perform reviews of interim financial information and does not have comments regarding this section. Request for Comment Specific to AU-C Section 935: 1. Are the proposed amendments to the appendix appropriate and complete, including the proposed amendments to be consistent with current government requirements? If not, please suggest specific revisions. Overall, yes. However, the AU-C 700 paragraphs shown as “not applicable” in the updated standard (paragraph .A43) do not appear to align with the paragraphs considered not applicable in the current standard. Unless the change is intentional, the list should read .13-.17, .21-.44 and .46-.61. 2. Do you agree with how the combined report and separate reports are addressed in the standard? If not, please suggest specific revisions. Insurance Building, P.O. Box 40021 Olympia, Washington 98504-0021 (360) 902-0370 [email protected] We agree with the change to presenting the combined report on compliance and internal control as the default form of the report, since combined reports are more common in practice. However, it would be helpful to include an example of a separate report on internal control or specific guidance as to the order in which the various report elements should be listed, as it is not clear from the updated standard. Request for Comment Specific to AU-C Section 940: Our Office does not perform audits of internal controls over financial reporting and does not have comments regarding this section. Other Comments: AU-C 725 and AU-C 730 We appreciate the portions of the report related to supplementary information and required supplementary information have each been reclassified from “an other matter paragraph” to “a separate section.” AU-C 935 We are unclear why the definition of material noncompliance in paragraphs .11, .30.g.iv, and the Illustrative Combined Report in .A44 is not parallel to the definition of material misstatement in SAS 138 amendments to AU-C 700 and AU-C 320. Moreover, the proposed definition appears to contain circular reasoning. The determination of materiality should not be based on the auditor’s report on compliance – rather, what is reported should be based on the determination of materiality. We strongly suggest making this definition parallel to the definition of material misstatement and removing “based on the report on compliance” from the definition. If the definition is not intended to be parallel, we would request application guidance in the standard explaining how the auditor would adjust their consideration of materiality for noncompliance from their consideration of misstatements. Suggested edits for parallelism are as follows: Materiality statement for financial Parallelism edits to the proposed materiality audits statement in the Illustrative Combined Report in .A44 for compliance audits Misstatements are considered Noncompliance with the compliance requirements material if there is a substantial referred to above is considered quantitatively or likelihood that, individually or in the qualitatively material to compliance if there is a aggregate, they would influence the substantial likelihood that, individually or in the judgment made by a reasonable user aggregate, it would influence the judgment made by based on the financial statements. a reasonable user about compliance with the requirements referred to above of the government program as a whole based on the report on compliance Thank you for the opportunity to provide our comments. Any inquiries may be directed to me at (564) 999-8014. Sincerely, Scott Woelfle, CPA Director for Quality Assurance .
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