July 22, 2022

SAS 134: The Auditor’s Report Is Changing: What to Expect

By Madeline DeMedal, CPA, Manager, Assurance Services

SAS 134: The Auditor’s Report Is Changing: What to Expect Nonprofit Assurance Services

As we look ahead to the coming months, many nonprofits will be completing their annual audit. These organizations will note certain key changes to their auditor’s report.


In May 2019, the AICPA Auditing Standards Board issued Statement on Auditing Standards (SAS) 134, Auditor Reporting and Amendments, including Amendments Addressing Disclosures in the Audit of Financial Statements. The goal of this standard is to increase transparency and align the reporting with the Public Company Accounting Oversight Board and the International Auditing and Assurance Standards Board. The effective date for this standard is for reporting periods ending after December 15, 2021. It is worth noting that the effective date was delayed one year from 2020 due to the Coronavirus pandemic. Below is an overview of the components of the new auditors’ report and executive summary of changes.

Components of the New Auditor’s Report (Unmodified Opinion)

  • Opinion
  • Basis for Opinion
  • Key Audit Matters, optional
  • Responsibilities of Management for the Financial Statements
  • Auditors’ Responsibilities for the Audit of the Financial Statements


To draw the reader’s attention to the auditor’s opinion, SAS 134 mandates that the opinion be presented first. As you may recall, in the past the opinion was presented towards the end of the report. Effectively, placing the opinion at the beginning of the report emphasizes its importance and cuts to the chase as to the auditor’s conclusion on management’s financial statements.

Basis for Opinion

The basis for opinion section was not previously required to be disclosed in reports with an unmodified, or “clean,” opinion. With the implementation of the new standard, readers will see a basis for opinion section that follows the opinion. This section must include a statement indicating the auditor is independent of the organization and has met other ethical requirements.

Key Audit Matters

One of the major changes in SAS 134 is that organizations now have the option to report key audit matters (KAMs). As noted, this is completely optional but was added to mirror public company reports, which require a similar reporting of critical audit matters. KAMs are subject to the auditor’s professional judgement and discretion. Examples of KAMs may include areas of higher assessed risk, judgements made by management, or significant events or transactions.

Responsibilities of Management for the Financial Statements

Similar to pre-SAS 134 auditors’ reports, the new standard requires disclosure of management’s responsibilities for the financial statements. These responsibilities include the preparation and fair presentation of the financial statements. In addition, the report states that management has responsibility over the design, implementation, and maintenance of internal controls in order to present financial statements free from material misstatement.

What is new, however, is that this section now also requires going concern verbiage. Under existing auditing standards, management is responsible for evaluating whether there are conditions or events that raise substantial doubt about the organization’s ability to continue as a going concern within one year. Current auditing standards also require the auditor to perform procedures addressing management’s evaluation regarding going concern status–the additional language in the report makes it explicitly known that the assessment of going concern is management’s responsibility. In addition, if substantial doubt does exist, a new section, titled Substantial Doubt about the Entity’s Ability to Continue as a Going Concern, is required. Previously this would have been reported as an Emphasis of Matter.

Auditor’s Responsibilities for the Audit of the Financial Statements

Under the old reporting model, the auditor’s responsibilities for the audit were included. However, the new model requires expanded descriptions. Below is an example of such responsibilities that you may see described in the new audit report:

  • Exercise professional judgment and maintain professional skepticism throughout the audit.
  • Identify and assess the risks of material misstatement in the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
  • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the organization’s internal control. Accordingly, no such opinion is expressed.
  • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
  • Conclude whether, in your judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the organization’s ability to continue as a going concern for a reasonable period of time.

Why You Need to Know

After implementation of this new standard, the audit report will provide greater transparency into the roles and responsibilities of each party and become easier for the reader to digest. You will see expanded descriptions of management’s and the auditor’s responsibilities that mirror such duties as described above. For organizations, this will be a good time to discuss KAMs with your Audit Committee (or with those charged with governance) and your Marcum team, as the KAMs will be included in the current year engagement letter. Please contact your Marcum assurance team with any questions regarding SAS 134.