Abc Accountants

ABC Accountants, Incorporated 3157 E Elwod Street Phoenix, Az 85034-7209 March 16, 2015

Dear fellow employees: Changes have been made to the Statement on Auditing Standards (SAS) 112. In SAS 112 we were required to take a close look at Internal Control and determine whether control deficiencies were significant or a material weakness. SAS 112 required us to follow general guidelines to determine whether or not the controls were a significant deficiency. We were allowed a fair amount of judgment by taking into account the likelihood that an error would not be found. SAS 115 states that less judgment will be allowed to the auditors. A significant deficiency is defined as anything that should be brought to the attention of management. Auditors would be required to evaluate the absence of monthly bank reconciliations to determine whether the absence of reconciliations is a significant deficiency. A material deficiency is worse than a significant deficiency and this may indicate that a reasonable possibility exists that the client’s financial statements are materially misstated or inaccurate. In this case, the failure to reconcile bank statements would be considered a material weakness. The difference between SAS 112 and SAS 115 is subtle. It is important that auditors look closely at Internal Controls and determine, not only if the Controls can prevent and detect errors, but also if there’s a process in place to correct those errors. Another subtle difference is whether management should allow auditors to make adjusting entries to the books rather than have employees do the work.

The question must be asked that if they rely on the auditors to make the adjustments, should this be considered a deficiency. If the company is small, should management hire bookkeepers outside the company to make necessary adjustments to the books? Most importantly, it is a must that financial statements be balanced at the end of the year.