Current through Register Vol. 51, No. 3, September 1, 2024
RELATES TO:
KRS
325.240,
325.340(1)(c)
NECESSITY, FUNCTION, AND CONFORMITY:
KRS
325.240(2) authorizes the
Kentucky State Board of Accountancy to promulgate administrative regulations to
establish and maintain a high standard of integrity and dignity in the
profession of public accounting. This administrative regulation is necessary to
ensure licensees follow specific accounting standards and principles that are
nationally and internationally recognized and in some instances required by
federal law, when performing a regulated activity. The Single Audit Act
Amendments of 1996, 31 U.S.C. 75 and 2 C.F.R. Subtitle A Chapter II Part 200,
require Generally Accepted Government Auditing Standards be adhered to when
performing of audits of state and local governments and nonprofit entities that
receive federal awards. 2 C.F.R. Subtitle A Chapter II Part 200 Subpart F of
the Office of Management and Budgets Uniform Administrative Requirements, Cost
Principles, and Audit Requirements for Federal Awards, provides the
government-wide guidelines and policies on conducting audits to comply with the
Single Audit Act, and reiterates the requirement to use Generally Accepted
Government Auditing Standards. The Sar-banes-Oxley Act of 2002, 15 U.S.C. 98,
authorizes the Public Company Accounting Oversight Board to establish standards
that licensees shall follow when performing audits of U.S. publicly traded
companies.
31 U.S.C.
330 authorizes the Secretary of the United
States Treasury Department to regulate licensees who practice before the
Internal Revenue Service. 31 C.F.R. Subtitle A, Part 10 contains the procedures
that licensees shall follow when practicing before the IRS. A CPA shall comply
with the reporting requirements in The Employee Retirement Security Act of
1974, 29 U.S.C. 18, when performing an audit of an employee retirement plan
created under the act. This administrative regulation establishes the standards
of practice for CPAs and public accounting firms.
Section 1. Definitions.
(1) "AICPA" means the American Institute of
Certified Public Accountants. (
www.aicpa.org)
(2) "Audit" means an engagement performed in
accordance with generally accepted auditing standards (GAAS) promulgated by the
American Institute of Certified Accountants (AICPA) to obtain reasonable
assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, thereby enabling the
licensee to express an opinion on whether the financial statements are
presented fairly, in all material respects, in accordance with an applicable
financial reporting framework.
(3)
"Board" is defined by
KRS
325.220(2).
(4) "Client" means a person or entity that
retains a licensee to provide a regulated activity as defined in
KRS 325.220(9)
(a).
(5) "Compilation" means an engagement to
apply accounting and financial reporting expertise to assist management in the
presentation of financial statements and report in accordance with the
Statements on Standards for Accounting and Review Services without undertaking
to obtain or provide any assurance that there are no material modifications
that should be made to the financial statements in order for them to be in
accordance with the applicable financial reporting framework.
(6) "DOL" means the United States Department
of Labor. (
www.dol.gov.)
(7) "Financial statement" means a
presentation of financial data, including accompanying notes, derived from
accounting records and intended to communicate an entity's economic resources
and obligations at a point in time, or the changes therein for a period of
time, in accordance with generally accepted accounting principles (GAAP) or
another financial reporting financial framework. General use financial
statements, financial forecasts, projections, and similar presentations are
considered financial statements.
(8) "GAAP" means generally accepted
accounting principles that describe accepted accounting practices at a
particular time and include broad guidelines of general applications and
detailed practices and procedures that provide a standard by which to measure
financial presentations.
(9) "GAAS"
means generally accepted auditing standards.
(10) "GAO" means the Government
Accountability Office. (
www.gao.gov).
(11) "IAASB" means the International Auditing
and Assurance Standards Board. (
www.iaasb.org)
(12) "IFAC" means the International
Federation of Accountants. (
www.ifac.org)
(13) "Licensee" is defined by
KRS
325.220(6).
(14) "PCAOB" means the Public Accounting
Standards Board. (
www.pcaobus.org)
(15) "Regulated activity" is defined by
KRS 325.220(9)
(a).
(16) "Review" means an engagement to obtain
limited assurance as a basis for reporting whether the licensee is aware of any
material modifications that should be made to the financial statements for them
to be in accordance with generally acceptable accounting principles or other
financial reporting framework, primarily through the performance of inquiry and
analytical procedures.
(17) "SEC"
means the United States Securities and Exchange Commission. (
www.sec.gov.)
Section 2. Standards of Practice. When
performing a regulated activity, a licensee shall comply with 29 U.S.C. 18 and
the following appropriate practice standards:
(1) The AICPA Professional Standards as
reflected in the following documents:
(a)
General Principles for Engagements Performed in Accordance with Statements on
Standards for Accounting and Review Services;
(b) Review of Financial Statements, SSARS 21
and 23;
(c) Review of Financial
Statements, SSARS 21, 23, and 24;
(d) Compilation Engagements;
(e) General Principles for Engagements
Performed in Accordance with Statements on Standards for Accounting and Review
Services, SSARS 21 and 23;
(f)
General Principles for Engagements Performed in Accordance with Statements on
Standards for Accounting and Review Services, SSARS 21, 23, and 24;
(g) Preparation of Financial
Statements;
(h) Statements on
Standards for Valuation Services;
(i) Review of Financial Statements:
Accounting and Review Services;
(j)
Special Considerations-International Reporting Issues; and
(k) Review of Financial Statements:
Accounting and Review Services Interpretation of Section 90.
(2) Government Auditing Standards,
Yellow Book;
(3) Auditing Standards
of the Public Company Accounting Oversight Board; and
(4) International Standards on Auditing
issued by the IAASB and published on the IFAC web site. (
www.ifac.org.).
Section 3. Accounting Principles.
(1) A licensee who is aware that the
financial statement or financial data of any entity contains a departure from
the applicable financial reporting framework that has a material effect on the
financial statement or financial data taken as a whole shall not:
(a) Express an opinion or state affirmatively
that the financial statement or financial data are presented in conformity with
the applicable financial reporting framework; or
(b) State that he or she is unaware of any
material modifications that should be made to the statements in order for them
to be in conformity with the applicable financial reporting
framework.
(2) Financial
statements may depart from the applicable financial reporting framework, if the
licensee:
(a) Demonstrates that due to unusual
circumstances the financial statements or data would otherwise be
misleading;
(b) Describes the
departure;
(c) States the
approximate effects, if practicable; and
(d) Explains the reasons why compliance with
the applicable financial reporting framework would result in a misleading
statement.
Section
4. Generally Accepted Auditing Standards. A licensee engaged to
audit financial statements shall comply with following standards:
(1) Generally accepted auditing standards for
audits of public companies required to register with the SEC shall use the
Auditing Standards of the Public Company Accounting Oversight Board;
(2) Generally accepted auditing standards for
federal agencies or entities receiving significant federal financial assistance
shall use Government Auditing Standards, Yellow Book issued by the GAO,
Comptroller General of the United States;
(3) Generally accepted auditing standards for
all entities except those specified in subsection (1) and (2) of this section
known as the AICPA Professional Standards and that includes the documents
listed in Section 2(1)(a) through (k) of this administrative regulation;
or
(4) International Standards on
Auditing issued by the IAASB and published on the International Federation of
Accountants Web site (
www.ifac.org)
in the following cases:
(a) The standards in
subsection (1) or (3) of this section, as applicable to the specific audit
engagement, do not prohibit the use of those standards; or
(b) The parent company of the entity being
audited is located in a foreign country and requires the use of those
standards.
Section
5. Practice before the Internal Revenue Service. A licensee shall
comply with the standards contained in the United States Department of Treasury
Circular Number 230 (2014) 31 C.F.R. Subtitle A, Part 10, (2014).
Section 6. Incorporation by Reference.
(1) The following material is incorporated by
reference:
(a) "AICPA Professional Standards,"
December 2015 Edition;
1. "General Principles
for Engagements Performed in Accordance with Statements on Standards for
Accounting and Review Services", December 15, 2015;
2. "Review of Financial Statements, SSARS 21
and 23", December 15, 2015;
3.
"Review of Financial Statements, SSARS 21, 23, and 24", December 15,
2015;
4. "Compilation Engagements",
December 15, 2015;
5. "General
Principles for Engagements Performed in Accordance with Statements on Standards
for Accounting and Review Services, SSARS 21 and 23", December 15, 2015;
6. "General Principles for
Engagements Performed in Accordance with Statements on Standards for Accounting
and Review Services, SSARS 21, 23, and 24", December 15, 2015;
7. "Preparation of Financial Statements",
December 15, 2015;
8. "Statements
on Standards for Valuation Services", June 2007;
9. "Review of Financial Statements:
Accounting and Review Services", February 2016;
10. "Special Considerations-International
Reporting Issues", June 15, 2019; and
11. "Review of Financial Statements:
Accounting and Review Services Interpretation of Section 90", February
2016;
(b) "Government
Auditing Standards, Yellow Book", July 2018 Edition;
(c) "Auditing Standards of the Public Company
Accounting Oversight Board", December 15, 2017 Edition; and
(d) "International Standards on Auditing,"
2017 Edition.
(2) This
material may be inspected, copied, or obtained, subject to applicable copyright
law, at the Kentucky State Board of Accountancy, 332 W. Broadway, Suite 310,
Louisville, Kentucky 40202, Monday through Friday, 8 a.m. to 4:30
p.m.
STATUTORY AUTHORITY:
KRS
325.240(2); 15 U.S.C. 98; 29
U.S.C. 18; 31 U.S.C. 75;
31 U.S.C.
330; 2 C.F.R. Subtitle A Chapter II Part 200
Subpart F; 29 C.F.R. Subtitle A Part 99; and 31 C.F.R. Subtitle A, Part
10.
