Impact of SAS 112 on Governmental Financial Audits 

Published January 17, 2007

NOTE: While SAS No. 115, Communication of Internal Control Related Matters Identified in an Audit (AICPA, Professional Standards, AU sec. 325), has superseded SAS No. 112 of the same name, the GAQC continues to make this event on SAS No. 112 available because we believe it continues to provide useful information about communicating internal control matters.  With that said, the primary changes from SAS No. 112 to SAS No. 115 were definitional changes in the terms significant deficiency and material weakness.  Auditors should be sure to listen to the event with these definitional changes in mind and refer to SAS No. 115 for the latest guidance.


Statement on Auditing Standards (SAS) No. 112, Communicating Internal Control Related Matters Identified in an Audit became effective for audits of periods ending on or after December 15, 2006. Of the many recent auditing standards issued by the AICPA, SAS No. 112 seems to be generating many questions. Therefore, the GAQC sponsored a member-only conference call titled, The Impact of SAS No. 112 on Governmental Financial Statement Audits, to assist members in understanding the provisions of this new standard and to provide members with an opportunity to have questions answered. The call was held on Thursday, January 4, 2007, from 1:00pm to 2:30pm (EST). Participants were able to ask questions and received a copy of the presentation slides.

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. SAS No. 112 supersedes SAS No. 60, Communication of Internal Control Related Matters Noted in an Audit. The following are some changes that have resulted from the issuance of SAS No. 112:

  • The term reportable condition is no longer used. The terms significant deficiency and material weakness are used to describe control deficiencies that must be communicated to management and those charged with governance.

  • Your communication to management and those charged with governance must be in writing.

  • Even if you communicated specific significant deficiencies and material weaknesses in previous years, as long as those deficiencies continue to exist, you must continue to communicate them.

  • The communication is best made by the report release date, but should be made no later than 60 days following the report release date.

The main purpose of the call was to provide members with an understanding of the above described changes. However, the call also briefly discuss the upcoming expected revisions to Government Auditing Standards to adopt the provisions of SAS No. 112 and also the status of an ongoing project between the AICPA and the U.S. Office of Management and Budget to determine how SAS No. 112 will affect audits performed under OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. It is likely that we will schedule another call in the near future to cover the Circular A-133 related issues in more detail.

The presenter, Mr. Chuck Landes, is Vice President of Professional Standards and Services Group for the AICPA. Chuck oversees the technical activities of the Auditing Standards Board (ASB), Accounting and Review Services Committee, Accounting Standards Executive Committee, and the PCPS Technical Issues Committee. He also serves as the AICPA's representative to the Committee of Sponsoring Organizations of the Treadway Commission. Chuck is a former member of the ASB and was a member of the Audit Issues Task Force. He is a former chair of the AICPA's Peer Review Committee of the Private Companies Practice Section of the AICPA. He served on the SEC Practice Section peer review committee as well as the AICPA Peer Review Board. Chuck is a past member of the board of directors of the Ohio Society of CPAs.

You should print out and have available the following attached presentation materials for reference during the archived call:

Impact of SAS No. 112 on Governmental Financial Audits Call Slides

The presenter addressed some of the questions within the time allotted for the call. However, all questions received will be posted and answered on the GAQC Member Discussion Forum soon. We encourage you to visit the forum to post additional follow-up questions. 

Thank you for your interest in this GAQC conference call. We hope that you find the information provided to be useful as you complete your governmental audits.

Listen to Archived Conference Call

For the best listening experience we recommend downloading the audio file which may take some time depending on the speed of your internet connection. To do so, right click the above link and choose "save target as" or "save link as" depending on your browser. After the download completes, play the call by double clicking the file icon or file name.


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