New Rulings on Year 2000, Market Risk and Segment Disclosures

By Anthony J. Mancuso, CPA

The Audit Issues Task Force of the Auditing Standards Board recently issued following three interpretations:

Effect of the Year 2000 Issue on the Auditor's Consideration of an Entity's Ability to Continue as a Going Concern

SAS No. 59 states that an auditor has a responsibility to evaluate whether there is substantial doubt about the entity's ability to continue as a going concern for a reasonable time, not to exceed one year beyond the date of the financial statements being audited. The new interpretation states that the Year 2000 Problem may cause conditions and events in noncompliance computerized systems, actions of others affecting the entity; problems of customers, vendors, and service providers; and related costs.

The interpretation discusses the auditor's responsibility and states, "It is not necessary to design audit procedures solely to identify conditions and events that, when considered in the aggregate, indicate there could be substantial doubt about the entity's ability to continue as a going concern for a reasonable time."

Consequently, planning and performing procedures solely to identify conditions and events related to the Year 2000 Problem are not the auditor's responsibility. The auditor's responsibility is to consider the results of procedures performed in planning, gathering evidential matter, and completing the audit to identify conditions and events relating to the Year 2000 Problem.

The interpretation gives guidance on the auditor's responsibilities for related conditions and events that come to the auditor's attention, and provides a list of matters about which an auditor can obtain written representations from management to complement other auditing procedures. The interpretation also discusses management's responsibilities to assess the effects of the Year 2000 Problem and develop an effective remediation plan, and using a specialist to review management's remediation plans.

Commenting in a Comfort Letter on Qualitative Disclosures About Market Risk Made in Accordance with Item 305 of Regulation S-K

Item 305 of Regulation S-K, Quantitative and Qualitative Disclosures, requires certain quantitative and qualitative disclosures with respect to derivatives, other financial instruments, and derivative commodity instruments, collectively referred to as "market risk sensitive instruments."

The recently-issued interpretation of SAS No. 72, Letters for Underwriters and Certain Other Requesting Parties, states that an accountant should not comment on the Item 305 qualitative disclosures in a comfort letter regarding disclosures by registrants in accordance with Item 305 of Regulation S-K. SAS No. 72 states that accountants should comment only on information that is expressed in dollars (or percentages derived from such dollar amounts) and has been obtained from accounting records subject to the entity's controls over financial reporting, or derived directly from such accounting records by analysis or computation.

The interpretation also states that an accountant may not give positive assurance on conformity of information with the disclosure requirements of Regulation S-K. Negative assurance may be given only in circumstances where certain conditions are met.

Applying Auditing Procedures to Segment Disclosures in Financial Statements

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for the way public business enterprises disclose information about segments in annual financial statements and in condensed financial statements of interim periods issued to shareholders. SFAS No. 131 does not apply to nonpublic entities or to nonprofit organizations. The interpretation of SAS No. 31, Evidential Matter, indicates what the auditor's objective and considerations are when planning and applying auditing procedures for segment disclosures in an entity's financial statements.