Find Your Specialist


Contact Us

    Go Back

    Audit Reporting for Private Entities

    By Jodi Prevost CPA

    In May 2019, the AICPA issued Statement on Auditing Standards (SAS) No. 134, Auditor Reporting and Amendments, Including Amendments Addressing Disclosures in the Audit of Financial Statements, along with several other standards (SAS No. 134 – 140) covering the auditor’s report.  These changes more closely align the auditor’s report for nonpublic company financial statements with those for public companies and companies audited under International Standards on Auditing, which also changed recently.  With an effective date that covers audits of the calendar year 2021 reporting periods, we look at the objectives and implications.

    The objective of the new standards is to enhance the relevance of the audit report by improving transparency and understanding.  Key changes from the standard include:

    • Moving the opinion to appear first – The auditor’s opinion is now the first paragraph in the report, giving it more prominence.
    • Clearly titling sections – In an unmodified report, the opinion section is followed by the labeled sections: basis for the opinion, responsibilities of management for the financial statements and auditor’s responsibilities for the audit of the financial statements.
    • Expanding the description of auditor’s responsibilities – The report elaborates on the objective of an audit and auditor’s responsibilities and includes a statement that the auditor is required to be independent and to meet other ethical responsibilities.
    • Disclosing responsibilities for going concern – Both the responsibility sections of the report outline the responsibilities to evaluate (management’s responsibility) and conclude on (auditor’s responsibility) if conditions or events, considered in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern for a reasonable period of time.
    • Allows, but does not require, reporting on key audit matters (KAMs) – Auditors can be engaged to also report on KAMs, which are those matters that were communicated with those charged with governance and, in the auditor’s judgment, were of most significance in the audit. Without third-party requests, few nonpublic companies are expected to engage their auditors to report on KAMs, keeping such client and auditor discussions confidential.
    • Adding section for annual reports – SAS 137, The Auditor’s Responsibilities Relating to Other Information Included in Annual Reports, adds a section to the auditor’s report whenever the entity’s annual report is available for the auditor to read prior to issuance of the audit report. If an entity issues an annual report, even after the audit is complete, the auditor is required to read such information to consider if there are material inconsistencies with the audited financial statements. An annual report is “a document, or combination of documents, typically prepared on an annual basis by management or those charged with governance in accordance with the law, regulation or custom, the purpose of which is to provide owners (or similar stakeholders) with information on the entity’s operations and the entity’s financial results and financial position as set out in the financial statements. An annual report contains, accompanies or incorporates by reference the financial statements and the auditor’s report thereon and usually includes information about the entity’s developments, its future outlook and risks and uncertainties, a statement by the entity’s governing body, and reports covering governance matters. Annual reports include annual reports of governments and organizations for charitable or philanthropic purposes that are available to the public.”

    An example report under the new standards is below.  It assumes the entity issues an annual report and the auditor is not engaged to report on key audit matters.

    Independent Auditor’s Report

    [Appropriate Addressee]


    We have audited the financial statements of ABC Company, which comprise the balance sheets as of December 31, 20X1, and 20X0, and the related statements of income, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements.

    In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1 and 20X0, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

    Basis for Opinion

    We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of ABC Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

    Responsibilities of Management for the Financial Statements

    Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

    In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about ABC Company’s ability to continue as a going concern for [insert the time period set by the applicable financial reporting framework].

    Auditor’s Responsibilities for the Audit of the Financial Statements

    Our objectives are to obtain reasonable assurance about whether the financial statements, as a whole, are free from material misstatement, whether due to fraud or error and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control. Misstatements are considered 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.

    In performing an audit in accordance with GAAS, we:

    • Exercise professional judgment and maintain professional skepticism throughout the audit.
    • Identify and assess the risks of material misstatement of 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 ABC Company’s internal control. Accordingly, no such opinion is expressed. [In circumstances in which the auditor also has a responsibility to express an opinion on the effectiveness of internal control in conjunction with the audit of the financial statements, omit the following: “but not for the purpose of expressing an opinion on the effectiveness of ABC Company’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 our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about ABC Company’s ability to continue as a going concern for a reasonable period of time.

    We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings and certain internal control–related matters that we identified during the audit.

    Other Information Included in the Annual Report [if applicable]

    Management is responsible for the other information included in the annual report. The other information comprises the [information included in the annual report] but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information, and we do not express an opinion or any form of assurance thereon.

    In connection with our audit of the financial statements, our responsibility is to read the other information and consider whether a material inconsistency exists between the other information and the financial statements, or the other information otherwise appears to be materially misstated. If based on the work performed, we conclude that an uncorrected material misstatement of the other information exists, we are required to describe it in our report.


    [Signature of the auditor’s firm]

    [City and state where the auditor’s report is issued]

    [Date of the auditor’s report]


    About the Author

    Jodi Prevost is a member of the Assurance and Advisory services practice of Frazier & Deeter. She specializes in audits of real estate, not-for-profit entities, country clubs, professional services firms, and manufacturing and distribution.

    Read More

    Related Articles

    • 01.25.2023

      A New Year Means New Privacy Laws

      Ever since the General Data Protection Regulation (GDPR) came into effect in May 2018, US state privacy laws have been passed in Virginia, Colorado, Connecticut, Utah and, most pressing of them all, California. The California Privacy Rights Act (CPRA) went…

      Continue Reading
    • 01.19.2023

      The New Rules Under Section 174

      Internal Revenue Code Section 174 has long been used by taxpayers to deduct certain expenses related to research and experimentation (R&E) in the current year.  The code section was originally enacted in 1954 to eliminate uncertainty in the tax accounting…

      Continue Reading
    • 12.20.2022

      IRS Customer Service May Improve in 2023

      With 4,000 new customer service representatives and plans to hire 700 new Taxpayer Assistance Center (TAC) employees, taxpayers soon may get relief from endless hold times, no in-person help and unresolved problems.

      Continue Reading
    • 12.12.2022

      Reduce Taxable Income with IRA Distributions Transfers

      IRA owners who are age 70½ or over can transfer up to $100,000 per year to charity to reduce their taxable income. These transfers, known as qualified charitable distributions or QCDs, offer end-of-the year tax savings and can count toward required minimum distributions (RMDs) that taxpayers who are age 72 must make each year. Think of it as a tax-free charitable rollover of IRA funds.

      Continue Reading
    • 12.02.2022

      UK R&D Tax Reliefs – Where Are We Now?

      In the November 2022 Autumn Statement, the Chancellor announced significant changes to the current Research and Development (R&D) tax reliefs. The key announcements were a change to the applicable rate of the Research and Development Expenditure Credit (RDEC) and a…

      Continue Reading
    • 12.01.2022

      1099s Required for 2022 Tax Year

      Taxpayers earning income from selling goods or providing services may receive a Form 1099-K, Payment Card and Third-Party Network Transactions, for the first time in early 2023, when the 2022 forms are due. The requirement to file Forms 1099 have…

      Continue Reading
    • 11.28.2022

      IRS Uncovers $3.1 Billion in COVID Fraud

      The IRS Criminal Investigation department (IRS-CI) has partnered with the Justice Department to uncover and prosecute fraudulent activities related to the federal government’s COVID relief programs. To date, the IRS has conducted 840 investigations involving fraud amounts totaling more than…

      Continue Reading
    • 10.25.2022

      IRS Inflation Reduction Act Increases Funds

      The Inflation Reduction Act of 2022, enacted in August, increased funding for the IRS by $80 billion through 2031 for enforcement activities, operations support, systems modernization and taxpayer services. The legislative language, Treasury Secretary Janet Yellen and IRS Commissioner Charles…

      Continue Reading

    Privacy Overview

    When you use or access the Site, we use cookies, device identifiers, and similar technologies such as pixels, web beacons, and local storage to collect information about how you use the Site. We process the information collected through such technologies, which may include Personal Information, to help operate certain features of the Site (e.g., to prevent online poll participants from voting more than once), to enhance your experience through personalization, and to help us better understand the features of the Site that you and other users are most interested in.

    You can enable or disable our use of cookies per category.
    Always Enabled