New Auditing Standards for Health Care Organizations

Effective for December 31, 2006:

SAS No.103 — Audit Documentation

This standard requires increased workpaper documentation (which means more questions from us and more requests for supporting documents) and, more importantly, a change in our report date. Historically our opinion has been dated the last date of fieldwork. Now it must be dated when the financial statement is completed, reviewed, and ready for processing. Any significant delay (such as waiting for the management representation letter, attorney confirmations, etc.) will result in the need for us to revise the report date and perform additional subsequent event procedures.

SAS No. 112 — Communication of Internal Control-Related Matters

This standard lowers the threshold for reporting internal control deficiencies, which means there will likely be more items noted during the audit that will require formal reporting. It also introduces the new term “significant control deficiency” and requires the organization’s personnel to be knowledgeable of external financial reporting requirements.

Effective for December 31, 2007:

SAS Nos. 104–111 — The Risk Assessment Standards

These eight new standards deal with an auditor’s risk assessment process. The new standards represent significant changes to the existing audit practice for all entities that undergo an audit.

The new standards primarily require:

• A deeper understanding of the organization and its internal control, including increased testing of those controls, for purposes of identifying the risks of material misstatement in the financial statements and what the organization is doing to mitigate those risks
• A more rigorous assessment of the risks of material misstatement based on that understanding, with additional emphasis on significant risks that call for special audit considerations
• A better linkage between the assessed risks and the audit procedures performed in response to those risks

These new audit standards will increase the hours required to conduct an audit and require more documentation and assistance from the organization than in the past.

SAS No. 114 — Auditor Communication with Those Charged with Governance

This new standard requires formal communication with an audit committee or the full board covering such topics as:

• Significant accounting policies
• Management judgments and estimates
• Significant audit adjustments
• Uncorrected possible adjustments
• Disagreements with management
• Difficulties encountered in performing the audit