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ExpandAS No. 1: References in Auditors’ Reports to the Standards of the Public Company Accounting Oversight Board
ExpandAS No. 3: Audit Documentation
ExpandAS No. 4: Reporting on Whether a Previously Reported Material Weakness Continues to Exist
ExpandAS No. 5: An Audit of Internal Control Over Financial Reporting That Is Integrated with An Audit of Financial Statements
ExpandAS No. 6: Evaluating Consistency of Financial Statements
ExpandAS No. 7: Engagement Quality Review
ExpandAS No. 8: Audit Risk
ExpandAS No. 9: Audit Planning
ExpandAS No. 10: Supervision of the Audit Engagement
ExpandAS No. 11: Consideration of Materiality in Planning and Performing an Audit
ExpandAS No. 12: Identifying and Assessing Risks of Material Misstatement
ExpandAS No. 13: The Auditor's Responses to the Risks of Material Misstatement
ExpandAS No. 14: Evaluating Audit Results
ExpandAS No. 15: Audit Evidence
ExpandAS No. 16: Communications with Audit Committees
ExpandAS No. 17: Auditing Supplemental Information Accompanying Audited Financial Statements
ExpandAU Section 100 - Statements on Auditing Standards -- Introduction
ExpandAU Section 200 - The General Standards
ExpandAU Section 300 - The Standards of Field Work
ExpandAU Section 400 - The First, Second, and Third Standards of Reporting
CollapseAU Section 500 - The Fourth Standard of Reporting
AU Section 504 - Association With Financial Statements
AU Section 9504 - Association With Financial Statements: Auditing Interpretations of Section 504
AU Section 508 - Reports on Audited Financial Statements
AU Section 9508 - Reports on Audited Financial Statements: Auditing Interpretations of Section 508
AU Section 530 - Dating of the Independent Auditor's Report
AU Section 532 - Restricting the Use of an Auditor's Report
AU Section 534 - Reporting on Financial Statements Prepared for Use in Other Countries
AU Section 9534 - Reporting on Financial Statements Prepared for Use in Other Countries: Auditing Interpretations of Section 534
AU Section 543 - Part of Audit Performed by Other Independent Auditors
AU Section 9543 - Part of Audit Performed by Other Independent Auditors: Auditing Interpretations of Section 543
AU Section 544 - Lack of Conformity With Generally Accepted Accounting Principles
AU Section 550 - Other Information in Documents Containing Audited Financial Statements
AU Section 9550 - Other Information in Documents Containing Audited Financial Statements: Auditing Interpretations of Section 550
AU Section 551 - Reporting on Information Accompanying the Basic Financial Statements in Auditor-Submitted Documents
AU Section 552 - Reporting on Condensed Financial Statements and Selected Financial Data
AU Section 558 - Required Supplementary Information
AU Section 9558 - Required Supplementary Information: Auditing Interpretations of Section 558
AU Section 560 - Subsequent Events
AU Section 561 - Subsequent Discovery of Facts Existing at the Date of the Auditor's Report
AU Section 9561 - Subsequent Discovery of Facts Existing at the Date of the Auditor's Report: Auditing Interpretations of Section 561
ExpandAU Section 600 - Other Types of Reports
ExpandAU Section 700 - Special Topics
ExpandAU Section 800 - Compliance Auditing
ExpandAU Section 900 - Special Reports of the Committee on Auditing Procedures

AU Section 544

Lack of Conformity With Generally Accepted Accounting Principles

Source: SAS No. 1, section 544; SAS No. 2; SAS No. 62; SAS No. 77.
Issue date, unless otherwise indicated: November, 1972.

[.01]

[.01] [Superseded by Statement on Auditing Standards No. 2, effective December 31, 1974.]

Regulated Companies

.02

The basic postulates and broad principles of accounting comprehended in the term "generally accepted accounting principles" which pertain to business enterprises in general apply also to companies whose accounting practices are prescribed by governmental regulatory authorities or commissions. (For example, public utilities and insurance companies.) Accordingly, the first reporting standard is equally applicable to opinions on financial statements of such regulated companies presented for purposes other than filings with their respective supervisory agencies; and material variances from generally accepted accounting principles, and their effects, should be dealt with in the independent auditor's report in the same manner followed for companies which are not regulated. fn 1 Ordinarily, this will require either a qualified or an adverse opinion on such statements. An adverse opinion may be accompanied by an opinion on supplementary data which are presented in conformity with generally accepted accounting principles. [As amended, effective periods ending on or after December 31, 1974, by Statement on Auditing Standards No. 2. As amended by Statement on Auditing Standards No. 62, effective for reports issued on or after July 1, 1989.]

.03

It should be recognized, however, that appropriate differences exist with respect to the application of generally accepted accounting principles as between regulated and nonregulated businesses because of the effect in regulated businesses of the rate-making process, a phenomenon not present in nonregulated businesses (FASB Statement No. 71, Accounting for the Effects of Certain Types of Regulations [AC section Re6]). Such differences usually concern mainly the time at which various items enter into the determination of net income in accordance with the principle of matching costs and revenues. It should also be recognized that accounting requirements not directly related to the rate-making process commonly are imposed on regulated businesses and that the imposition of such accounting requirements does not necessarily mean that they conform with generally accepted accounting principles.

.04

When financial statements of a regulated entity are prepared in accordance with a basis of accounting prescribed by one or more regulatory agencies or the financial reporting provisions of another agency, the independent auditor may also be requested to report on their fair presentation in conformity with such prescribed basis of accounting in presentations for distribution in other than filings with the entity's regulatory agency. In those circumstances, the auditor should use the standard form of report (see section 508, Reports on Audited Financial Statements, paragraph .08), modified as appropriate (see section 508.35-.60) because of the departures from generally accepted accounting principles, and then, in an additional paragraph to the report, express an opinion on whether the financial statements are presented in conformity with the prescribed basis of accounting. [As amended by Statement on Auditing Standards No. 62, effective for reports issued on or after July 1, 1989. As amended, effective for audits of financial statements for periods ended on or after December 31, 1996, by Statement on Auditing Standards No. 77.]

Footnotes (AU Section 544 — Lack of Conformity With Generally Accepted Accounting Principles):

fn 1 When reporting on financial statements of a regulated entity that are prepared in accordance with the requirements of financial reporting provisions of a government regulatory agency to whose jurisdiction the entity is subject, the auditor may report on the financial statements as being prepared in accordance with a comprehensive basis of accounting other than generally accepted accounting principles (see section 623, Special Reports, paragraphs .02 and .10). Reports of this nature, however, should be issued only if the financial statements are intended solely for filing with one or more regulatory agencies to whose jurisdiction the entity is subject. [As amended, effective for audits of financial statements for periods ended on or after December 31, 1996, by Statement on Auditing Standards No. 77.]

Copyright © 2002, American Institute of Certified Public Accountants, Inc.