Title: New Auditing Requirements for Small Businesses
Abstract: ABSTRACT For many years accounting educators, professionals, and the small business community have called for different auditing requirements for small businesses. solution was to replace section 320, The Auditor's Study and Evaluation of Internal Control, of SAS No. 1 with the Statement on Auditing Standards No. 55, Consideration of the Internal Control Structure in a Financial Statement Audit, effective January 1, 1990. SAS No. 55 includes two exceptions that directly relate to small businesses. These exceptions allow the to make adjustments in the small business audit. requirements that the meet the Generally Accepted Auditing standards have not changed. small business community is likely to notice the difference only if the exceptions allow audits of some small businesses that were previously not large enough to incorporate a formal organizational structure or use extensive accounting procedures. INTRODUCTION Responsibilities of the have become a major issue within the last decade. Users are putting more confidence in statements to help them make decisions, which puts more pressure on the to make sure that these statements are presented correctly. Internal control of companies is one specific area where auditors have increased their focus. study and evaluation of internal accounting control is a fundamental part of every audit. The nature, extent and timing of the audit tests depend on the reliance that the places on the strength of internal accounting controls (Grollman and Colby, 1978). Internal control is also important because good internal control . . . can help to increase productivity by minimizing waste, unintentional errors, and fraud (Snyder, Broome and Zimmerman, 1989). MAIN ISSUE Most of the auditing pronouncements give a general list of requirements that companies must meet in relation to internal control. This list has brought about cries of anger from small businesses and the independent CPAs who perform audit services for small businesses. two major distinguishing characteristics of small businesses are concentration in one or a few individuals and the limited segregation of duties and functions in the accounting system (Anderson, Dycus and Welker, 1982; Monk and Tatum, 1988; Raiborn, Guy and Zulinski, 1983). These groups argue that these pronouncements were written with the large businesses in mind, which in turn means that the list of requirements focus on auditing the large business's internal control structure. These groups also argue that small businesses are not equipped to meet these requirements. An auditor, after performing the audit, can either present an unqualified opinion, a qualified opinion, an adverse opinion, or a disclaimer. An unqualified opinion is given when the financial statements taken as a whole present fatly the position, results of operations, and cash in conformity with generally accepted accounting principles (Ricchiute, 1989). An adverse opinion is given when the financial statements do not present fairly the position, results of operations, or cash in conformity with generally accepted accounting principles (Ricchiute, 1989). disclaimer of opinion means that an auditor does not express an opinion on the position, results of operations, or cash flows (Ricchiute, 1989). small businesses are worried that since they cannot meet the requirements presented in the auditing pronouncements, the will have to present a qualified opinion on the small businesses' statements. A qualification should be the exception rather than the rule (Anderson et al., 1982). Since small businesses use their statements to acquire loans or increase investment in companies just as large firms do, a qualified opinion might hamper these business transactions because users will question the accuracy of the statements. …
Publication Year: 1992
Publication Date: 1992-03-01
Language: en
Type: article
Access and Citation
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot