What Is SAS in Accounting and Why Does It Matter?

Statements on Auditing Standards (SAS) provide a framework for conducting financial statement audits in the United States. These standards ensure the quality and reliability of financial information, guiding auditors from initial planning to final reporting. Following SAS helps maintain consistency and credibility across audit engagements. SAS plays a fundamental role in providing assurance to users of financial statements, ensuring financial reports accurately reflect an entity’s true financial position. Adherence to these standards helps auditors perform their duties with integrity and contributes to public trust in the auditing profession and financial markets.

Defining Statements on Auditing Standards

Statements on Auditing Standards (SAS) are authoritative guidelines for auditors performing external financial statement audits of non-public entities. These standards are issued by the Auditing Standards Board (ASB) of the American Institute of Certified Public Accountants (AICPA).

Each SAS has a specific number and title, outlining detailed guidance on various aspects of the audit process, from initial client engagement to the issuance of the audit report. SAS are considered authoritative for auditors of private companies, also known as non-issuers.

For publicly traded companies, entities registered with the U.S. Securities and Exchange Commission (SEC), auditing standards are set by the Public Company Accounting Oversight Board (PCAOB). While both SAS and PCAOB Auditing Standards (AS) provide specific rules under Generally Accepted Auditing Standards (GAAS), they apply to different types of entities. The PCAOB’s standards initially adopted many of the AICPA’s auditing standards, but the PCAOB now issues its own standards for public companies.

Core Principles and Guidance of SAS

SAS provides broad categories of guidance addressing all phases of an audit engagement. These standards are built upon the three main categories of Generally Accepted Auditing Standards (GAAS): General Standards, Standards of Fieldwork, and Standards of Reporting. Adherence to these categories ensures a structured and professional approach to auditing.

General Standards address the auditor’s qualifications and professional conduct. This includes requirements for adequate technical training and proficiency, ensuring auditors possess the necessary skills and knowledge. Auditors must also maintain independence in mental attitude, meaning they must remain unbiased throughout the audit process to ensure objectivity. Exercising due professional care in performing the audit and preparing the report is also a fundamental aspect.

Standards of Fieldwork relate to the actual performance of the audit. Auditors must adequately plan the work and properly supervise any assistants involved in the engagement. A thorough understanding of the entity and its environment, including internal controls, is necessary to assess the risk of material misstatement in the financial statements. Auditors are also required to obtain sufficient appropriate audit evidence by performing procedures to form a reasonable basis for an opinion on the financial statements.

Standards of Reporting deal with the communication and presentation of the auditor’s findings and conclusions. Auditors are required to state whether the financial statements are presented fairly in accordance with the applicable financial reporting framework, such as Generally Accepted Accounting Principles (GAAP). The report must also identify any inconsistencies in the application of accounting principles and highlight inadequate disclosures. Finally, the auditor must express an opinion on the financial statements, or state reasons why an opinion cannot be expressed.

The Impact of SAS on Audit Quality

Adherence to Statements on Auditing Standards (SAS) contributes to the consistency, objectivity, and credibility of financial statement audits. By providing a uniform set of guidelines, SAS ensures that audits are performed with a consistent level of rigor and professionalism across various engagements. This helps to reduce variability in audit practices, leading to more comparable and reliable audit outcomes.

The value SAS provides lies in its ability to ensure that audits are conducted meticulously, leading to reliable financial reports. Auditors following SAS are required to perform comprehensive risk assessments, evaluate internal controls, and gather sufficient appropriate audit evidence. This systematic approach helps in detecting and preventing material misstatements, including those due to error or fraud, thereby enhancing the accuracy of the financial information presented.

This reliability in financial reporting benefits a wide range of users of financial statements. Investors, for example, rely on audited financial statements to make informed investment decisions, understanding the financial health and performance of a company. Creditors, such as banks and lenders, use these reliable reports to assess a company’s ability to repay debts and make lending decisions. Other stakeholders, including regulators and the public, gain assurance and confidence in the financial information, fostering trust in the capital markets.