A5 Integrated Audits, Attestation Engagements, Compliance, and Government Audits

Question 1

What statement should be included in compilations for financial forecasts ?

Answer 1

1. Caveat : There will be differences between forecasted and actual results
2. the accountant has no responsibility to update the report

Question 2

What is the difference between a financial forecast and a financial projection? (both are prospective reports)

Answer 2

• Forecast - expected financial results for future period, based on expected conditions
• Projection - future results based on “what if” scenario. Results of hypothetical projections should have restricted use (only for banker, not all shareholders)

Question 3

When an audit firm includes a report on compliance within the audit report on the financials, in which paragraph does it belong?

Answer 3

Other matters paragraph

Question 4

What types of reports are covered by SSAE? Standards on Attestation Engagements

Answer 4

• -Agreed upon procedures
• -Prospective F/S
• -Proforma F/S
• -Compliance
• -MD&A
• -Service Organization

Question 5

What standards cover Compilations of Historical Financial Statements?

Answer 5

SSARs Statements on Standards for Accounting and Review Services

Question 6

What types of services are covered by SSARS?

Statement on Standards for Accouting and Review Services

Answer 6

• Preparation, Compilation, Review of FINANCIAL STATEMENTS

*Note: Non Financial Statments would fall under SSAE

*Assisting a client in preparing financials is not subject to SSARs guidance

Question 7

What additional requirements are included in a Single Audit ?

Answer 7

• Performance of additional procedures to test and report on compliance with laws, and rules that have a direct and material effect on major federal award programs and internal controls over compliance
• Schedule of findings of questioned costs

Required when entity EXPENDS more than $750K of federal financial assistance

• NOTE: Opinion is provided on compliance, but no opinion is provided on the internal controls over compliance

Question 8

When reporting on compliance in connection with audited financial statements, what type of assurance is provided?

Answer 8

Negative compliance, not an opinion

NO Opinion on compliance on connected to F/S

Can be issued in same report as F/S or separately. Use is restricted.

Question 9

When are tests of operating effectiveness of controls required when conducting a compliance audit?

Answer 9

1. The risk assessment includes an explanation of the operating effectiveness of controls over compliance
2. Substantive procedures do not provide enough evidence to support a conclusion
3. Tests of controls are required by the applicable governmental audit requirements

Question 10

In a SOC 1 Audit report, who provides the description of the service organization’s system?

Answer 10

Management

Type 1 report on internal controls should include management’s description of the service’s organization system

Question 11

What is an Agreed Upon Procedure engagement?

Answer 11

• In an agreed-upon procedures engagement, a client engages the practitioner to assist specified parties in evaluating subject matter or an assertion as a result of needs of the specified parties.
• The specified parties assume responsibility for the sufficiency of the procedures since they best understand their own needs.
• The practitioner does not provide an opinion or negative assurance; the report should be in the form of proce­dures and findings.
• A practitioner’s report on such engagements should indicate clearly that its use is restricted to those specified parties.
• Independence required
• EX: payroll compliance testing, medical claims testing, cost allocation studies

Question 12

What types of assessments could be included in Governmental performance audits ?

Answer 12

• Internal control
• Compliance
• Prospective analyses
• Effectiveness, economy, efficiency

Question 13

What type of opinion should be provided on an examination of a financial forecast which fails to disclose several significant assumptions used to prepare the forecast?

Answer 13

Adverse opinion.

Auditor should describe the assumptions in the accountants report.

Opinion is adverse since it fails to disclose significant assumptions.

Question 14

What should an auditor do when client wants a comparative compilation for two years, but one does not include all of the necessary disclosures?

Answer 14

Not issue a report on comparative financial statements when son, but not all of the periods presented omit substantially all of the disclosures required by GAAP

Question 15

What should be included in management’s assessment of internal control, as required for an integrated audit, per Section 404 of SOX?

Answer 15

1. State management responsibility for establishing and maintaining an adequate IC structure and procedures for financial reporting
2. Contain an assessment of the effectiveness of the IC structure and procedures of issuer for financial reporting

Question 16

What are the levels of services and assurances provided on Prospective Financial Statements?

Answer 16

• Preparation - similar to requirements for prep of historical
  
  • Must include summary of significant assumptions
• Compilation - in accordance with SSARS
  
  • Look for obvious errors
  • No assurance provided
  • disclaimer: prospective results may not be achieved
• Examination - express an opinion
  
  • in conformity with AICPA
  • assumptions are reasonable
• Review of prospective allowed
• Forecast is appropriate for general use, but can be limited, projections must be restricted use

Question 17

What is the difference between a SOC 1 report and SOC 2 report?

Answer 17

• SOC 1: report on design and implementation of a service organizations controls
  
  • Management’s description of service org’s system
  • Auditor’s opinion on fairness of management’s assertion
  • Restricted Use
• SOC 2:
  
  • report on design, implementation and effectiveness of a service organizations controls
  • Management’s description of service org’s system
  • Auditor’s opinion on fairness of management’s assertion and description on tests of controls
  • Restricted Use

Question 18

What are the different ways and levels which compliance with laws and regulations could be reported?

Answer 18

• Compliance report in connection with audited F/S : negative assurance
  
  • additional engagement, not required per SAS or PCAOB
  • Can be separate report or with F/S - will be restricted
• Examination of compliance: reasonable assurance (SSAE engagement )
• Agreed upon procedures of compliance: no assurance (SSAE engagement )
• Governmental Audits: report ON compliance and IC around compliance.
  
  • No opinion - only testing to make sure noncompliance is not causing material misstatement
• Single Audit - report ON compliance and IC around compliance.
  
  • Opinion on compliance for major programs

Question 19

What defines a major program for Gov’t Audits?

Answer 19

• Major programs determined by risk based approach - not auditor judgement
• High risk:
  
  • Over $750K in assistance
  • Classified as high risk
• Materiality determined separately in relation to each major program, not just financial statements taken as a whole.
  *

Question 20

What are single audits vs. program specific audits?

Answer 20

• Single Audits : entire organization and additional audit procedures on specific programs.
  
  • Report on the financial statements as a whole and specific programs
• Program specific audits: just the program, not the whole organization

Question 21

What should the auditor do Assuming no other material misstatements are found, and independent auditor determines that supplementary information is not fairly stated in relation to the basic financial statements as a whole?

Answer 21

Issue an unmodified opinion and add an other matter paragraph to describe the auditors positon on the supplementary information.