Accounting Staffing Group

To: Accountants

From: Junior Accountant

Subject: Enhanced Formal Communication

Date: March 15, 2009

The New Statement of Accounting Standards (SAS) 112

This year management expects us to focus on internal control procedures on all audits. After the Enron fraud scandal, organizations claimed that the primary way fraudulent activities come to light within a company is through operational review of internal control. SAS No. 112 (Communication of Internal Control Matter Identified in Audit) replaces SAS No. 60 and is effective for periods ending after December 15, 2006. There are several important differences. Therefore our firm wants to insure that auditors inform and communicate the implications of the new auditing standard to our valued clients.

Management considers SAS No. 112 an important accounting standard to know, understand, and communicate effectively and efficiently. SAS No.112 “establishes standards and provides guidance on communicating matters related to an entity’s internal control over financial reporting identified in an audit of financial statements.”  (Landes, 2007)

As a result of the new auditing standard, the term “reportable condition” will disappear. Accountants must use the terms “significant deficiency” and “material weaknesses”. These terms describe control deficiencies in communicating the audit findings to the management and those charged with governance during audits. The fundamental principal deals with “identified control deficiencies and determine whether these deficiencies, individually or in combination, are significant deficiencies or material weaknesses.” (Landes, 2007)

Auditors must make clients understand the meaning and significance of these terms while avoiding the technical jargon. Therefore, in communicating to our clients, auditors need to use and help the client understand these terms. SAS No.112 requires that every “communication to management and those charged with governance must be in...