The American Institute of CPAs has issued amendments to its auditing standards for when to reference the audit of a component auditor in the auditor’s report on the group financial statements.

Statement on Auditing Standards No. 127, Omnibus Statement on Auditing Standards—2013, amends Sections 600 and 800 of SAS No. 122.

Section 600 of SAS 122, “Statements on Auditing Standards: Clarification and Recodification,” precludes making reference to the audit of a component auditor in the auditor’s report on the group financial statements unless the component’s financial statements are prepared using the same financial reporting framework as that used for the group financial statements.

The new amendments permit making reference to the audit of a component auditor in the auditor’s report on the group financial statements when the component’s financial statements are prepared using a different financial reporting framework than that used for the group financial statements, if certain conditions are met. The amendments also add a requirement, when reference is made to a component auditor’s report on financial statements prepared using a different financial reporting framework, for the auditor’s report on the group financial statements to disclose that the auditor of the group financial statements is taking responsibility for evaluating the appropriateness of the adjustments to convert the component’s financial statements to the financial reporting framework used by the group. The amendments also add application material that addresses making reference when the financial reporting frameworks differ.

SAS 122 precludes making reference to the audit of a component auditor in the auditor’s report on the group financial statements unless the component auditor has performed an audit that meets the relevant requirements of generally accepted auditing standards. It provides guidance on how the group engagement partner may determine that the audit performed by the component auditor meets the relevant requirements of GAAS.

The new amendments clarify that requirement and add additional guidance regarding that determination. The amendments also add a requirement that when the auditor of the group financial statements is making reference to the audit of a component auditor and has determined that the component auditor performed additional audit procedures in order to meet the relevant requirements of GAAS, the auditor’s report on the group financial statements should indicate the set of auditing standards used by the component auditor and that additional audit procedures were performed by the component auditor to meet the relevant requirements of GAAS.

The amendments also clarify that the group engagement team is required to determine component materiality for those components on which the group engagement team will assume responsibility for the work of a component auditor who performs an audit or a review.

Section 800 of SAS 122 used the term “special purpose framework” to refer to a cash, tax, regulatory or contractual basis of accounting. The new amendments add an other basis of accounting that uses a definite set of logical, reasonable criteria that is applied to all material items appearing in financial statements to the bases of accounting defined as special purpose frameworks.

The amendments are effective for audits for periods ending on or after Dec. 15, 2012.