AICPA Auditing

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Auditing

Y2K and the Going Concern

The ASB is considering the possibility that the Y2K problem may not only cause problems for clients, but it may also stop them dead. The board recently issued an interpretation, "Effect of the Year 2000 Issue on the Auditor's Consideration of an Entity's Ability to Continue as a Going Concern" (see Official Releases, JofA, July98, page 95).

"One of the reasons we're issuing this interpretation is to clarify what our responsibilities as auditors are and—just as important—what they are not," said James S. Gerson, vice chairman of the ASB. "I think there's been some concern that significant segments of the profession are not sufficiently aware of the issue. The more interpretative material and other guidance we can provide the better off we are."

The interpretation says it is management's responsibility—not the auditor's—to assess the effects of the Y2K issue and develop an appropriate plan. Nor does the auditor have to plan and perform procedures solely to identify conditions and events relating to the Year 2000 issue. "This interpretation should not require any additional work on the part of the auditor," said Gerson, "unless, of course, there are signs that Y2K issues may indicate a problem that has to be investigated further."

SAS 21 Is Out

In 1997, FASB issued Statement no. 131, Disclosures about Segments of an Enterprise and Related Information, superseding Statement no. 14, Financial Reporting for Segments of a Business Enterprise. To keep auditors in line with the changes, the ASB rescinded SAS no. 21, Segment Information, which is inappropriate for those entities that have started using the new FASB standard.

To fill the void, the Audit Issues Task Force of the ASB has issued an interpretation, "Applying Auditing Procedures to Segment Disclosures in Financial Statements," of SAS no. 31, Evidential Matter, to provide guidance for audits of financial statements of entities that have implemented Statement 131. The interpretation (see Official Releases, page 96, in this issue) suggests a number of procedures that auditors should consider

In planning the audit.
In evaluating whether an entity has appropriately identified its reportable operating segments in accordance with Statement no. 131.
In evaluating the adequacy and completeness of management's disclosures about reportable operating segments and about related information, including products and services, geographic areas, and major customers.

The auditing interpretation was developed jointly with the Canadian Institute of Chartered Accountants.