1. Presented by YOUR NAME THE DATE
The Effects of SAS No. 115
Presented by YOUR NAME THE DATE

2. Objectives
For you to gain an understanding of a new audit standard affecting your audit engagement and the specific impacts and potential outcomes that result from this standard

3. Why A New Standard?
As with SAS No. 112, the accounting profession believes the new SAS No. 115 may:
Heighten your awareness, as a business owner or someone charged with organizational governance, of internal control over financial reporting
Better enable you to assess your internal control needs and determine the costs and benefits of implementing any new controls to help minimize the risks of financial statement misstatements, including fraud

4. What is SAS No. 115?
Statement on Auditing Standards (SAS) No. 115, Communication of Internal Control Related Matters Identified in an Audit  
Supersedes SAS No. 112 by the same name
Provides new definitions of the terms material weaknesses and significant deficiencies
Provides guidance as to how to evaluate whether a deficiency in internal controls is a significant deficiency or materials weakness

5. Components of SAS No. 115
As with SAS No. 112, as your auditor we must evaluate identified control deficiencies
Then determine whether those deficiencies, individually or in combination, are significant deficiencies or material weaknesses

6. Components of SAS No. 115
We must communicate, in writing, significant deficiencies and material weaknesses to management and those charged with governance
This communication includes significant deficiencies and material weaknesses identified and communicated to management and those charged with governance in prior audits but not yet remediated

7. Definitions
Deficiency in Internal Control - A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis:
A deficiency in design exists when (a) a control necessary to meet the control objective is missing or (b) an existing control is not properly designed so that, even if it operates as designed, the control objective would not be met
A deficiency in operation exists when (a) a properly designed control does not operate as designed or (b) when the person performing the control does not possess the necessary authority or competence to perform the control effectively

8. Definitions
Material Weakness - A material weakness is a deficiency, or combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis

9. Definitions
Significant Deficiency A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance

10. Examples of Control Deficiencies
Examples of circumstances that may be control deficiencies, significant deficiencies, or material weaknesses include:
Inadequate design of internal control over the preparation of the financial statements being audited
Employees or management who lack the qualifications and training to fulfill their assigned functions

11. Examples of Control Deficiencies
Inadequate design of information technology (IT) general and application controls
Inadequate documentation of the components of internal control
Inadequate design of monitoring controls that assess the design and operating effectiveness of the entity’s internal control over time
Inadequate design of internal control over a significant account or process

12. Examples of Control Deficiencies
Insufficient control consciousness within the organization, for example, the tone at the top and the control environment
Absent or inadequate segregation of duties within a significant account or process
Absent or inadequate controls over the safeguarding of assets
This applies to controls that the auditor determines would be necessary for effective internal control over financial reporting

13. An Illustrative Example - #1
You have requested that we perform the functions necessary to prepare your financial statements since you do not have the resources with the adequate knowledge to prepare your organization’s financial statements according to generally accepted accounting principles

14. An Illustrative Example - #2
Your controller asks the auditor to calculate the year-end depreciation adjustment and gain or loss on sale adjustment
The adjustment is a material adjustment
The controller does not have the skill to determine the adjustment

15. An Illustrative Example - #3
Your bookkeeper, who maintains the company’s general ledger, is unable to record the investments and related investment activity because he does not understand the broker’s statement

16. Evaluating the Illustrations
These illustrations may be control deficiencies
We will then determine whether they are a significant deficiency or a material weakness based upon:
The magnitude of the potential misstatement resulting from the deficiency or deficiencies; and
Whether there is a reasonable possibility that the entity’s controls will fail to prevent, or detect and correct a misstatement
These are only some of the many examples of potential control deficiencies and are intended to be for illustrative purposes only and not comprehensive or specific to your audit

17. Communicating Deficiencies
Our consideration of internal control during your audit is not designed to identify all deficiencies in internal control that might be significant deficiencies or material weaknesses
We are only required to communicate in writing those control deficiencies we identify during the audit and determine to be significant deficiencies or material weaknesses, including those that have been previously communicated, whether verbally or in writing, that are not yet remedied

18. Evaluating Options
As a result of your audit, you may wish to have us help you:
Educate your management team and those charged with governance on internal controls as it relates to your organization’s financial reporting
Help you understand the costs and benefits of implementing appropriate controls
Assist in testing current controls or developing and implementing appropriate controls

19. Engagement Scope and Fees
Because we were already communicating in writing those control deficiencies we identified during the audit and determined to be significant deficiencies or material weaknesses, we do not expect any material changes in audit fees this year
However, if there are new control deficiencies or other issues that arise that affect the scope of the audit, we will communicate this to you as we become aware of them

20. Next Steps
We will complete and deliver the audit engagement letter to you
You can determine if there are issues you’d like to discuss or questions you’d like to have us address
We look forward to working with you and your team on your audit!

21. Contact Us At Anytime!
Feel free to contact us with any questions or assistance you need related to your audit at:
Audit Partner/Engagement Contact Name
Audit Partner/Engagement Contact Phone Number
Audit Partner/Engagement Contact Address