18 - IV: Other types of reports 1

Question 1

On application of framework requirements: Objectives (3)?

Answer 1

1. the acceptance of the engagement.
2. the planning and performance of the engagement.
3. reporting on the specific transaction or type of report.

Question 2

Hypothetical transaction: definition?

Answer 2

A transaction or financial reporting issue that does not involve facts or circumstances of a specific entity.

Question 3

Specific transaction: definition?

Answer 3

….involve facts and circumstances of a specific entity.

Question 4

Report on application of framework: which engagement must auditor not accept?

Answer 4

Involving hypothetical transactions.

Question 5

Report on application of framework: Acceptance: What are 2 things to consider? What understanding must be established w/management?

Answer 5

1. purpose of the request for a written report or oral advice.
2. the intended use of written report/oral advice.

That management will authorize consigning accountant to respond to the reporting accountant’s inquires, etc.

Question 6

Report on application of framework: planning/performance: what should reporting accountant do?

Answer 6

• Obtain an understanding of specific transactions/conditions involved.
• Review the requirement of GAAP or other framework.
• Request permission to consult w/ continuing accountant.
• Consult w/continuing accountant as to the facts.

Question 7

Report on application of framework: planning/performance: when is it not required to consult with continuing accountant?

Answer 7

1. when issuing a written report or provide oral advice about a specific transaction.
2. reporting accountant is engaged to provide recurring accounting advice/does not believe a second opinion is requested or have relevant info already.

Question 8

Report on application of framework: reporting: what 6 things should be included?

Answer 8

1. description of the engagement and refer to SAS (ACIPA).
2. identify the entity, describe transaction.
3. describe requirements of framework.
4. state that management is responsible..(and should consult with continuing accountant).
5. state that differences in facts may change report.
6. “Alert” should restrict distribution.

Question 9

Special purpose framework: what 3 things that are relevant to the objective?

Answer 9

1. The acceptance.
2. Planning/performance.
3. Forming an opinion/reporting.

Question 10

Special purpose framework: What are 4 basis?

Answer 10

1. Cash basis.
2. Tax basis.
3. Regulatory basis.
4. Contractual basis.

Question 11

Special purpose framework: acceptance: what 3 understandings must the auditor obtain? what agreement obtain?

Answer 11

The purpose of FS, intended users, steps taken by management to determine framework is acceptable.

Agreement of management that it understand responsibilities to include all necessary disclosures.

Question 12

Special purpose framework: planning/performance: what must the auditor do when there is an underlying contracts associated with engagement?

Answer 12

Obtain an understanding of sig interpretations of the contract made by management.

Question 13

Special purpose framework: planning/performance: when is interpretation “significant”?

Answer 13

when another reasonable interpretation would result in a material difference.

Question 14

Special purpose framework: reporting: how does it have to be reported? Exception to this rule?

Answer 14

Add an emphasis-of-matter paragraph.
*Indicate FS are based on a special purpose framework.
*Refer to the note that describes basis used.
*Point out that the basis is other than GAAP.
Add an other-matter paragraph to restrict distribution.

When FS are prepared according to regulatory basis for “general use”, neither paragraph should be added.

Question 15

Special purpose framework: reporting: what must the auditor do when the prescribed form or wording by law/regulation on the report is unacceptable?

Answer 15

Reword the prescribed form to make the working acceptable or attach separately an appropriately worded report.

Question 16

Which special purpose framework require a description of purpose?

Answer 16

Only regulatory basis (whether intended for general use or not) and contractual basis. (Cash basis and tax basis do not!)

Question 17

Which special purpose frameworks require an other-matter paragraph to restrict the distribution of the auditor’s report to specified users?

Answer 17

Only regulatory basis (if restricted) and contractual basis do. (Cash basis, tax basis, and regulatory basis intended for general use do not require such a restriction!)

Question 18

Individual FS/elements: Objective?

Answer 18

Appropriately address:

1. the acceptance.
2. planning/performance.
3. forming an opinion/reporting.

Question 19

Individual FS/elements: acceptance: what must be determined and what understanding must be obtained?

Answer 19

Determine whether the audit of a single FS or specific elements in accordance w/ GAAS is feasible.
Obtain an understanding of;
*the purpose of single FS/element.
*intended users.
*steps taken by management to determine framework is acceptable in circumstances.

Question 20

Individual FS/elements: planning/performance: what must the auditor obtain when the specific element is based on stockholder’s equity? On Net income or equivalent?

Answer 20

S: Sufficient appropriate audit evidence to express an opinion about financial position.
NI: ….to express an opinion about both financial position and results of operation.

Question 21

Individual FS/elements: reporting: can an auditor be engaged to audit the whole FS as well as a single FS or specific element? What are the reporting requirements? Can those two publish together?

Answer 21

Yes.
*Issue a separate report for each engagement.
*In the report on the single FS or specific element, identify the date/nature of the report on FS.
Yes, as long as the single FS/element is sufficiently differentiated from the whole FS.

Question 22

Individual FS/elements: opinion: If the modified opinion on the whole FS is expressed and it’s relevant and pervasive to the specific element, what opinion must the auditor express?

Answer 22

Express an adverse opinion if involves misstatement.

Express disclaimer of opinion if involves scope limitation.

Question 23

Individual FS/elements: reporting: when emphasis-of-matter or other-matter paragraph is used in the report of the whole FS, what should the auditor do?

Answer 23

Include a similar paragraph if it is relevant to the single FS/element.

Question 24

Individual FS/elements: is the auditor permitted to report on an “incomplete presentation”? What’s the requirement?

Answer 24

Yes.
Include an emphasis-of-matter paragraph that;
(1) states the purpose of the presentation and refers to the note in FS that;
(2) indicates that the presentation is not intended to be a complete presentation.

Question 25

Individual FS/elements: when expressing an opinion on NI or stockholder’s equity, must the auditor also audit the whole FS?

Answer 25

Yes.

Question 26

Reports on compliance w/ contracts or regulatory requirements (special report): what can auditor express?

Answer 26

Negative assurance (that “nothing came to the auditor’s attention to cause the auditor to believe that entity failed to comply…”).

Question 27

Reports on compliance w/ contracts or regulatory requirements: what are 3 criteria to express negative assurance?

Answer 27

1. If the auditor did not find any noncompliance.
2. If the auditor expressed an unmodified or qualified opinion on the FS involved.
3. The covenants (or regulatory requirements) related to the accounting matters subject to the auditor’s procedures.

Question 28

Reports on compliance w/ contracts or regulatory requirements: what must the auditor report if noncompliance were identified? If the auditor expressed an adverse opinion of disclaimer of opinion on FS?

Answer 28

Report describing the noncompliance.

Only noncompliance when instance of noncompliance were identified.

Question 29

Reports on compliance w/ contracts or regulatory requirements: can this report presented separately from the FS report?

Answer 29

Yes. Ok together, too (add other-matter paragraph).

Question 30

Reports on compliance w/ contracts or regulatory requirements: what must the report include?

Answer 30

Alert to restrict the distribution.

Question 31

Service organization - user auditors: Objective when the user entity uses the service of a service organization?

Answer 31

1. Obtain an understanding of the nature/significance of the service provided and their effect on the user entity’s internal control relevant to the audit sufficient to assess the risks of material misstatement, and
2. Design/perform audit procedures that are responsive to those risks.

Question 32

What is service auditor?

Answer 32

A practitioner (NOT auditor) who reports on controls at a service organization

Question 33

What is service organization?

Answer 33

An organization or segment of an organization that provides services to user entities that are relevant to those user entities’ internal control over financial reporting.

Question 34

what is subservice organization?

Answer 34

A service organization used by another service organization to perform some of the services provided to user entities that are relevant to hose user entities’ internal control over financial reporting. (This SAS also applies to subservice organizations.)

Question 35

What is user auditor?

Answer 35

An auditor who audits and report on FS of a user entity.

Question 36

What is user entity?

Answer 36

An entity that uses a service organization and whose FS are being audited.

Question 37

What is type I report?

Answer 37

Report on management’s description of a service organization’s system and the suitability of the design of controls.

Question 38

What is type II report?

Answer 38

Report on management’s description of a service organization’s system and the suitability of the design and operating effectiveness of controls.

Question 39

What is complementary user entity control?

Answer 39

Controls that management of the service organization assumes, in the design of its service, will be implemented by user entities, and which, if necessary to achieve the control objectives stated in management’s description of the service organization’s system, are identified as such in that description.

Question 40

Service organization - user auditors: what understandings must the user auditor obtain re: service provided and IC?

Answer 40

Understanding of;

• user entity’s use of service organization and the effect on IC.
• relevant controls at the user entity and at the service organization to assess RMM.
• competence and independence of the service auditor through service auditor’s Type I or Type II report.

Question 41

Service organization - user auditors: what must he obtain when there is an expectation that IC at the service organization are operating effectively? Which report maybe helpful?

Answer 41

Obtain audit evidence about the operating effectiveness through Tests of controls.
Type II report.

Question 42

Service organization - user auditors: RMM: what must be determined re: complementary user entity controls identified by the service organization?

Answer 42

If it is relevant and if yes, test them.

Question 43

Service organization - user auditors: reporting: what opinion must the user auditor express if he is unable to obtain sufficient appropriate audit evidence about the service provided relevant to the FS?

Answer 43

Modify the opinion (qualified or disclaimer of opinion) for a scope limitation.

Question 44

Service organization - user auditors: reporting: should the report refer to the service auditor when user auditor expresses unmodified opinion? Modified opinion?

Answer 44

U: No.
M: if that would help users in understanding the modification.

Question 45

Service organization - service auditors: Objectives: what must he evaluate to obtain reasonable assurance?

Answer 45

Whether;

• management’s description of the service organization’s system fairly presents the system.
• the controls related to the control objective stmts in management description were suitably designed.
• controls operated effectively when it’s included in the scope.

Question 46

What is the formal name of Type I report? What does it include?

Answer 46

Report on the management’s description of a service organization’s system and suitability of the design of controls.

1. Management description of the system.
2. A written assertion by management about whether in all material respects and based on suitable criteria (a) management description fairly presents the system, (b) controls were suitably designed.
3. Service auditor’s report that express an opinion on the 2 matters.

Question 47

What is the formal name of Type II report? What does it include?

Answer 47

Report on the management’s description of a service organization’s system and suitability of the design and operating effectiveness of controls.

1. Management description of the system.
2. A written assertion by management about whether in all material respects and based on suitable criteria (a) management description fairly presents the system, (b) controls were suitably designed, (c) controls are operating effectively.
3. Service auditor’s report that express an opinion on the 3 matters.

Question 48

Service organization - service auditors: what must he assess re: suitability criteria?

Answer 48

If management used suitable criteria in preparing the description, if controls are suitably designed, and (operating effectively for type II report - test of control).

Question 49

Service organization - service auditors: what’s the definition of service organization of system?

Answer 49

the policies and procedures designed, implemented and documented, by management of the service organization to provide user entities w/ the services covered by the service auditor’s report.

Question 50

Service organization - service auditors: what must he do to obtain evidence re: management description?

Answer 50

• Read the description.
• Determine whether the system has been implemented.
• Evaluate whether it is fairly presented.

Question 51

Service organization - service auditors: what must he do to obtain evidence re: IC?

Answer 51

Identify risks that threaten achievement of the control objectives.
Evaluate the linkage of the controls w/ those risks.
Perform tests of controls (for type 2 engagement).

Question 52

Service organization - service auditors: what are included in type 1 report?

Answer 52

• Scope: nature of the engagement and date.
• Service organization’s responsibilities.
• Service auditor’s responsibilities: reference attestation stds established by AICPA and describe an examination, disclaim an opinion on operating effectiveness.
• Inherent limitations.
• Opinion
• Restricted use

Question 53

Service organization - service auditors: what should be mentioned in opinion section (type 1)?

Answer 53

(1) that the description fairly presents the system that was designed and implemented as of the specific date, (2) that the controls related to the stated control objective were suitably designed to provide reasonable assurance that control objectives would be achieved if the controls operated effectively as of the specific date.

Question 54

Service organization - service auditors: what would be different between type 1 and 2 report?

Answer 54

Type II would have one more criteria under opinion.

Description of test of controls would be added after opinion.

Question 55

Service organization - service auditors: what should be mentioned in opinion section (type 2)?

Answer 55

(1) that the description fairly presents the system that was designed and implemented as of the specific date, (2) that the controls related to the stated control objective were suitably designed to provide reasonable assurance that control objectives would be achieved if the controls operated effectively as of the specific date, (3) that the controls tested operated effectively throughout the period.

Question 56

What is the restriction on Service Organization Control (SOC) 1 Report?

Answer 56

Restricted use reports on controls at a service organization relevant to a user entity’s internal control over financial reporting.

Question 57

What is the restriction on Service Organization Control (SOC) 2 Report?

Answer 57

Restricted use reports on controls at a service organization related to security, availability, processing integrity, confidentiality, and/or privacy.

Question 58

What is the restriction on Service Organization Control (SOC) 3 Report?

Answer 58

General use SysTrust reports related to security, availability, processing integrity, confidentiality, and/or privacy.

Question 59

What is so called comfort letters?

Answer 59

Letter for underwriters and certain other requesting parties from the entity’s auditor.

Question 60

What does a comfort letter do?

Answer 60

Help underwriters/certain parties (a broker-dealer or financial intermediary) for due diligence - They have liability when there is material omission or misstatement to a registration stmt by Section 11 of the Securities Act of 1933.

Question 61

Is comfort letter required?

Answer 61

No.

Question 62

Comfort letters: what is the procedures?

Answer 62

Meet with those parties to establish their needs, provide a draft.

Question 63

Comfort letters: who should it be addressed? Is this open to general use?

Answer 63

To client, named underwriters, broker-dealer, or applicable financial intermediary.
No. must restrict the distribution of report.

Question 64

Comfort letters: what’s included?

Answer 64

• Introductory paragraph: identify registrations stmts and FS.
• Stmts re: independence of the accountants.
• Positive assurance (“in our opinion”): Audited FS comply to SEC requirements - this is the only positive assurance.
• Negative assurance: whether;
• unaudited condensed or capsule interim info complies to SEC req.
• modification are needs for unaudited condensed consolidate FS.
• any changes in the amounts needed during a period after the last audit/review.