19 nebraska society of cpas W W W . N E S C P A . O R G We remind auditors of their responsibility to dedicate appropriate attention to assertions about presentation and disclosure in financial statements, such as whether all disclosures that should have been included in the financial statements have been included (completeness) and whether disclosures are clearly expressed (understandabi lity). Auditors should obtain suff icient and appropriate audit evidence related to the disclosures made in the notes to the financial statements. Required Disclosures and Materiality Yes, omissions are misstatements; however, immaterial disclosures are not required. A “required disclosure” should be understood as shorthand for “required for fair presentation in all material respects in accordance with the applicable financial reporting framework.” Further, paragraph 67 of GASB Statement No. 38, Certain Financial Statement Note Disclosures, and paragraph 6 of National Council on Governmental Accounting (NCGA) Interpretation No. 6, Recognition and Measurement of Certain Liabilities and Expenditures in Governmental Fund Financial Statements, indicate that the notes to the financial statements should not be cluttered with unnecessary and immaterial disclosures. Attendant circumstances and materiality must be considered in assessing the propriety of the notes to the financial statements. Statement on Auditing Standards (SAS) 138 provides guidance on evaluating materiality in the GAAS audit context. Concept of Materiality and SAS 138 SAS 138, Amendments to the Description of the Concept of Materiality, aligns the concept of materiality in AICPA professional standards with the descriptions used in the U.S. judicial system, Public Company Accounting Oversight Board (PCAOB), Securities and Exchange Commission (SEC), and Financial Accounting Standards Board (FASB) standards. The following describes the difference between the legacy guidance and revised description of materiality (emphasis added): Legacy Description • Misstatements, including omissions, are considered to be material if they, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users made on the basis of the financial statements. Revised Description • Misstatements, including omissions, are considered to be material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements. We feel that a “substantial likelihood they would inf luence” threshold for materiality is a higher hurdle than “could reasonably be expected to inf luence” threshold. This higher threshold could be beneficial in evaluating the significance of omitted disclosures which have been a source of numerous Matters for Further Consideration in peer review. Practice Note: SAS 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial GASB & FASB GAAP GASB GAAP GASB Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments, identif ies two authoritative sources of SLG GAAP categorized as “level A” and “level B”, and has a third level of GAAP a reporting entity may consider, consisting of nonauthoritative literature, including FASB pronouncements. FASB Concepts Statements contain many terms also used by GASB entities, along with their definitions. GAAP financial statements’ use of GAAP terminology would appear to consistently serve the public interest. FASB GAAP FASB Accounting Standards Codification (FASB ASC) 105, Generally Accepted Accounting Principles, specifically FASB ASC 105-10-051, indicates that the FASB ASC is the source of authoritative GAAP to be applied by nongovernmental entities. FASB ASC 10510-05-2 goes on to indicate that an entity shall first consider accounting principles ... within a source of authoritative GAAP for that entity and then consider nonauthoritative guidance from other sources, including, for example, FASB Concepts Statements, per FASB ASC 105-10-05-3. One of the most relevant FASB Concepts St atement s i s St atement of Fi nanc ia l Accounting Concepts No. 6, Elements of Financial Statements (SFAC No. 6). Statements, changes the auditor’s responsibilities related to addressing disclosures in the financial statements and makes extensive changes throughout the professional auditing literature related to an auditor’s responsibilities related to financial statement notes. Our report on SAS 134 addresses those changes. Common Terminology Issues in SLG and NFP Financial Statement Notes Below are some common and persistent terminology issues noted in both SLG and NFP financial statement disclosures. We believe users would benefit from clear and consistent terminology in SLG and NFP financial statement disclosures. Misunderstanding Basis of Accounting Issue 1: Occurrence Vs. Earning Some entities present a financial statement note that reads, “The entity follows accrual accounting. Under accrual accounting,
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