SAS 112 and SAS 115 Explanation to Key Clients
Tara Stanley, Kenya Irving and Cynthia Etzel
COM/530 Communications for Accountants
August 25, 2014
Gloria Davis

MEMORANDUM
TO: Clients of ACE Accounting
FROM: Kim Jones, Junior Accountant
DATE: August 25, 2014 SUBJECT: Statement of Accounting Standards SAS 112 and SAS 115 Auditing Changes

In response to the recent changes to the auditing processes, our company felt the need to clarify the changes and how they will affect your company. The SAS 112 and SAS 115 enforce changes to the auditing process for private companies, governments and non-profit organizations. These changes bring the audit process in line with current processes already in place for publicly held companies. The changes went into effect for audits of financial statements ending on or after December 15, 2006 and December 15, 2009 respectively. The significant changes apply to the definitions of internal control deficiencies, significant deficiencies and material weaknesses. The SAS 112 defines internal control deficiencies as “a design or operation of a control that does not allow management or employees to prevent or detect misstatements on a timely basis” (American Institute of CPAs, 2006). The SAS 115 further defines internal control deficiencies by adding the word correct to the definition. Under the SAS 112, auditors are required to note whether or not the internal controls could detect and prevent errors. Under the SAS 115, the auditors are also required to note whether or not a company has a process in place to correct the errors. The SAS 112 defines significant deficiencies as “a control deficiency or a combination of control deficiencies that adversely affects the entity’s ability to initiate, authorize, record, process or report financial data reliably in accordance with GAAP such that there is