In My Opinion

In My Opinion

By Ben Ripple, CPA, Partner

Volte-face is a term described as an abrupt and complete reversal of opinion. Well, at least that is what Google tells me when I look up the term “volte-face.” Why do we care about the term volte-face? We care because your audited financial statements are about to go through a volte-face of their own.

In May 2019, back in simpler, less pandemic filled times, the Auditing Standards Board issued SAS 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements. The main effect of this standard is the complete reshaping of the auditor’s opinion. So, I wanted to take a moment to walk you through the changes to brace you for the new look before you find it in an upcoming audit.

I believe most of us who have reviewed an audited financial statement are familiar with the current layout of the opinion, but as a reminder, an unmodified opinion currently looks like this:

  • Opening paragraph identifying the entity under audit, statements audited, and timeframe of audit
  • Management’s Responsibility for the Financial Statements
  • Auditor’s Responsibility
  • Opinion
  • Signature, Location, Date

We have all seen this layout, we are all familiar with it, and we all love it. But soon, we are going to have to learn a new report. When SAS 134 is adopted, the layout of the opinion will be shuffled as follows:

  • Opinion
  • Basis for Opinion
  • Key Audit Matter (if applicable)
  • Responsibilities of Management for the Financial Statements
  • Auditor’s Responsibilities for the Audit of the Financial Statements
  • Signature, Location, Date

There are several changes in the report, but two of them jump out to me.

The first change is the relocation of the opinion from the end of the report to the beginning. This is mostly geographical, and it lumps the original opening paragraph in with the opinion paragraph. The wording in these paragraphs should not change significantly, but it is meant to signify that the auditor’s opinion is what is important and should be the first thing covered in the letter instead of the last.

The second change is the addition of key audit matters. This will not be a required part of the opinion, but it is used to put into the audit report any key matters identified during the audit that have been communicated to those charged with governance. These items would be the equivalent of critical audit matters in the opinions of public company audits. Areas of focus that could be included here based on looking at critical audit matters in public company opinions would include goodwill and intangible assets, revenue recognition, income taxes, and contingencies.

There are several other changes buried in these headings, including the addition of specific wording related to going concern consideration and more detailed descriptions of procedures performed by the auditor. Overall, these changes result in expanding the audit opinion from one page to two and a half pages in the example in the standard, and that increase is without adding any key audit matters. All of this is a far cry from the simple three-paragraph opinion we were using when I started in this profession.

This new standard is applicable for years ending on or after December 15, 2021. Hopefully this information has helped prepare you for the volte-face that is coming to your audit. If you have any questions on these upcoming changes, please reach out to your auditors now to be ready for the changes heading our way.

Ben Ripple updated

Benjamin R. Ripple Partner, Assurance Practice Leader, CPA

Ben is a partner in BRC’s assurance services. Since starting his career in 2001, Ben has worked with clients ranging from family-owned companies, to multinational corporations, to nonprofit and governmental entities requiring A-133 audits. Ben’s industry experience includes: Manufacturing and distribution Hospitality, including restaurants and hotels Investment companies Governmental and not-for-profit entities Affordable housing […]