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AU Section 9411

The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles: Auditing Interpretations of Section 411 fn *

[1.]    The Auditor's Consideration of Accounting Principles Set Forth in Industry Audit and Accounting Guides

[.01–.04]

[Deleted September, 1984.]

[2.]    The Auditor's Consideration of Accounting Principles Promulgated by the Governmental Accounting Standards Board

[.05–.10]

[Withdrawn April, 1988 by SAS No. 52.]

3.    The Auditor's Consideration of Management's Adoption of Accounting Principles for New Transactions or Events

.11

Question—When an entity engages in new types of transactions or encounters new events that are material and for which there are no established sources of accounting principles, what should the auditor consider in formulating a judgment about the general acceptance and appropriateness in the circumstances of the accounting principles selected by management?

.12

Interpretation—When an entity adopts accounting principles in response to new types of transactions or events that are material and for which there are no established sources of accounting principles, the auditor should understand the basis used by management to select the particular accounting principle. In assessing the appropriateness of the accounting principle selected by management, the auditor may consider whether there are analogous transactions or events for which there are established accounting principles. If the auditor has identified analogous transactions or events for which there are established accounting principles, he or she should follow the guidance in section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles, paragraph .09. Section 411.09 states that "there sometimes are no established accounting principles for reporting a specific transaction or event. In those instances, it might be possible to report the event or transaction on the basis of its substance by selecting an accounting principle that appears appropriate when applied in a manner similar to the application of an established principle to an analogous transaction or event."

.13

In addition, the auditor also may consider the appropriateness of other accounting literature, as discussed in section 411.11 for nongovernmental entities or section 411.13 for governmental entities. The appropriateness of other accounting literature depends on its relevance to particular circumstances, the specificity of the guidance, and the general recognition of the issuer or author as an authority.

.14

Section 411.04 recognizes that an auditor's opinion that financial statements are presented fairly in conformity with generally accepted accounting principles should be based on his or her judgment as to whether the accounting principles selected and applied have general acceptance and are appropriate in the circumstances.

.15

Furthermore, in engagements where section 380, Communication With Audit Committees, applies, the auditor should determine that the audit committee (or its equivalent) is informed about the initial selection of and changes in significant accounting policies or their application. The auditor should also determine that the audit committee (or its equivalent) is informed about the methods used to account for significant unusual transactions and the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus.

[Issue Date: March, 1995; Revised: October, 2000.]

Footnotes (AU Section 9411 — The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles: Auditing Interpretations of Section 411):

fn * Title of section 411 amended, effective for reports issued or reissued on or after June 30, 2001, by Statement on Auditing Standards No. 93.