AUD 2 - Other Reports

Question 1

What is OCBOA, and what bases of accounting do special purpose frameworks use?

Answer 1

Other comprehensive bases of accounting which include the cash, tax, and regulatory bases of accounting. OCBOA + the contractual basis. A regulatory basis intended for general use is also used.

Question 2

For special purpose frameworks, (1) what type of opinion is used for each, (2) which include a description of purpose for which special purpose f/s are prepared, (3) which include an emphasis-of-matter paragraph alerting readers about the preparation in accordance with a special purpose framework, and (4) which include an other-matter paragraph restricting the use of the auditor’s report?

Answer 2

1. ) Cash, tax, regulatory and contractual issue a single opinion on special purpose framework, and regulatory for general use issues a dual opinion on special purpose framework and GAAP.
2. ) Regulatory, regulatory for general use, and contractual.
3. ) Cash, tax, regulatory, and contractual.
4. ) Regulatory and contractual.

Question 3

How should an auditor issue their report when auditing a complete set of f/s and a single f/s or specific element?

Answer 3

The should issue a separate report and express a separate opinion for each engagement. They may be published together if sufficiently differentiated and the report on the complete set of f/s is unmodified. On the report for a specific element, indicate the date and nature of opinion of the complete set of f/s in an other-matter paragraph.

Question 4

When reporting on a complete set of f/s and single f/s of specific element, what should an auditor do if the opinion of the complete set of f/s is modified?

Answer 4

If relevant to audit of specific element, the auditor should express an unmodified opinion on the specific element ONLY if they are not published together, does not accompany the complete set, and does not constitute a major portion of the complete set and is not based on s/e or net income; otherwise, the specific element should express an adverse or disclaimer opinion accordingly. A single f/s is considered to be a major portion so an unmodified opinion is not acceptable under any circumstances.

Question 5

What should an auditor do when reporting on an incomplete presentation that is otherwise in accordance with GAAP?

Answer 5

The should include in the report an emphasis-of-matter paragraph that states the purpose for which the presentation is prepared and indicates that the presentation is not intended to be a complete presentation.

Question 6

What are the requirements when an auditor is asked to issue a report on a client’s compliance with contractual agreements or regulatory requirements in connection with a f/s audit?

Answer 6

The auditor must have audited the client’s f/s and may only issue negative assurance on compliance.

Question 7

When reporting on compliance, describe the basis for negative assurance and how the report should be issued?

Answer 7

When there are no identified instances of noncompliance, negative assurance, in the form of a statement that nothing came to attention that caused the auditor to believe that the entity failed to comply. If their are identified instance on noncompliance, the report should describe it. If an adverse or disclaimer of opinion is expressed on f/s, a report on compliance can only be issued when there are identified instances of noncompliance. The report should be in writing and may either be a separate report (audited f/s, negative assurance, and restricted use paragraphs) or provided in one or more paragraphs in an other-matter paragraph in the auditor’s report on the f/s.

Question 8

For reports on summary financial statements, when should the auditor not accept the engagement, what types of opinions may be issued, when should the auditor withdraw, and what are the main sections of the report?

Answer 8

The auditor should not accept unless they have also been engaged to audit the f/s from which they are derived. May issue an unmodified or adverse opinion, but not a qualified opinion due to summarized nature. Should withdraw when the auditor’s report on the f/s contain an adverse or disclaimer of opinion. Report should include an introductory paragraph, (identify the summary f/s, the audited f/s, references to the audit report of the f/s - date, opinion, emphasis-of or other-matter, statement not a substitute for f/s report), a mngt and auditor responsibility paragraph, and the opinion (state “are consistent” with audited f/s).

Question 9

What two levels of service with respect to unaudited f/s of a nonissuer can a CPA perform?

Answer 9

1. Compilation: no assurance, an attest engagement, no audit or review procedures performed, objective to present in the form of f/s info that is the representation of mngt w/o undertaking to express any assurance on the f/s.
2. Review: an assurance and an attest engagement, express limited (negative) assurance on unaudited f/s, based on inquiry and analytical procedures performed, objective to express limited assurance that there are no material modifications that should be made to the f/s to be in conformity with the applicable financial reporting framework.

Question 10

Who is the authoritative body designated to issue pronouncements in connection with the unaudited f/s of nonissuers, and what are the pronouncements issued known as and what do they provide standards with respect to?

Answer 10

• The Accounting and Review Services Committee of the AICPA.
• “Statements on Standards for Accounting and Review Services” (“SSARS”).
• Compilations and reviews of f/s and to engagements in which the accountant is engaged to compile or issue a compilation report on specified elements, accounts, or items of a nonissuer’s f/s or on pro forma financial info of a nonissuer.

Question 11

What are the five elements of compilation and review engagements?

Answer 11

1. A three-party relationship involving management, an accountant, and intended users.
2. An applicable financial reporting framework.
3. Financial statements of financial information.
4. Sufficient appropriate evidence (review only).
5. A written communication or report (either or for compilation unless they withdraw and a written review report for reviews).

Question 12

What is an engagement letter, and what does it include?

Answer 12

A documented understanding with management regarding the services to be performed for a compilation engagement. It includes the objective of the engagement, management’s responsibilities, the accountant’s responsibilities, the limitations of the engagement, a description of any other accounting services to be performed, and when applicable an agreement that the f/s are not to be used by a third party and a compilation report will not be issued.

Question 13

For a compilation, an accountant is require to have a general understanding of the client’s business and the accounting principles and practices used by the client including what?

Answer 13

STAFF:
Staff qualifications
Transaction types and frequency
Accounting basis used to prepare the f/s
Form of the accounting records
F/s' form and content

Question 14

What should be included in the documentation in a compilation engagement?

Answer 14

1. The engagement letter
2. Any significant findings or issues
3. Oral or written communications with mngt regarding fraud or illegal acts that came to the accountant’s attention

Question 15

What should be included in a compilation report?

Answer 15

CAR MR ARSOM

1. title
2. addressee
3. introductory paragraph: state the f/s have been Compiled and state that the accountant has not Audited or Reviewed the f/s and does not express an opinion or provide any assurance
4. mngt responsibility paragraph: Management is Responsible….
5. Accountant’s Responsibility paragraph: state conducted in accordance with Ssars issued by the aicpa and state the Objective of a compilation is to assist Management…
6. signature
7. date: of completion of compilation

Question 16

When are compiled financial statements acceptable that omit GAAP disclosures?

Answer 16

1. F/s are otherwise in conformity with GAAP.
2. Reason for omission was not deceive the user.
3. Compilation report warns the user of missing disclosures (fourth paragraph; “restricted use” not required).

Question 17

What are the performance requirements applicable to a review for nonissuers and issuers?

Answer 17

U LIAR CPA

1. Understanding with client should be established (engagement letter).
2. Learn and/or obtain sufficient knowledge of the entity’s business.
3. Inquiries should be addressed to appropriate individuals. *
4. Analytical procedures should be performed. *
5. Review - other procedures should be performed.
6. Client representation letter should be obtained from management. *
7. Professional judgment should be used to evaluate results.
8. Accountant (CPA) should communicate results.

Question 18

What should be included in the engagement letter for a review?

Answer 18

The objectives of the engagement, management’s responsibilities, the accountant’s responsibilities, and the limitations of the engagement.

Question 19

What should be included in the accountant’s report in a review engagement?

Answer 19

AMISAD MR FIR SALA

1. title
2. addressee
3. intro paragraph: statement review includes Analytical procedures to Management’s financial data and Inquiries and that a review is Substantially less in scope than an Audit…Does not express such an opinion.
4. Management’s Responsibility: fair presentation of F/s and maintaining Internal control.
5. accountant’s Responsibility: in accordance with Ssars issued by the Aicpa…Limited Assurance.
6. engagement results paragraph.
7. signature
8. date of accountant’s report.

Question 20

What should an accountant performing a compilation or a review do if they become aware of a GAAP departure?

Answer 20

They should modify the report with a separate paragraph at the end. In a review report, the engagement results paragraph would refer to the explanatory paragraph. Or withdraw.

Question 21

What should a continuing accountant do when the current period was review and the prior period compiled (service upgrade), what should they do when they current period is compiled and the prior period was reviewed (service downgrade), and what should they do when all periods were compiled or reviewed?

Answer 21

1. The report on the prior period should be updated and issued as the last paragraph of the current period’s report.
2. Issue a compilation report and add a paragraph to the report on the current period statements or reissue the prior period review report combined with the current period compilation report or presented separately from the current period compilation report.
3. Update the report on the prior period and issue it as part of the current report.

Question 22

What is the difference for performance requirements applicable to a review of interim financial information for nonissuers and issuers versus a review?

Answer 22

U LIAR CPA
Learn and/or obtain sufficient understanding of the entity, its environment, including internal control versus a sufficient understanding of the entity’s business alone.

Question 23

What is a comfort letter, and what is required of the CPA when one is to be issued?

Answer 23

A letter from the CPA to the named underwriter and/or certain other requesting parties just before the registration of a client’s securities. It covers the period from the date of the last auditors’ report to the effective date of the registration. It does not update the opinion on previously issued f/s. The CPA is required to perform a review of interim financial info in accordance with auditing standards.

Question 24

When does a comfort letter provide positive or negative assurance?

Answer 24

Positive regarding the accountant’s (CPA) independence and compliance (as to form) of the audited f/s with the SEC Act, and negative when the f/s were not audited or a review was performed on condensed unaudited interim f/s or capsule financial info.

Question 25

What is an attest engagement?

Answer 25

Those in which a practitioner (CPA) is engaged to issue or does issue an examination, a review, a compilation, or an agreed-upon procedures report on subject matter, or on an assertion about the subject matter, that is the responsibility of another party (usually mngt); it may be part of a larger engagement, such as a feasibility study or a business acquisition study.

Question 26

What are trust services, the five essential principles that guide the performance of trust service engagements, and the two different types?

Answer 26

1. Assurance and advisory services used to address the risks and opportunities related to info technology.
2. Security, availability, processing integrity, online privacy, and confidentiality.
3. (a.) WebTrust Engagements: provide assurance related to e-commerce; a client’s website is assessed. (b.) SysTrust Engagements: provide assurance with respect to the reliability of any defined electronic system.

Question 27

What standards apply to the following services: Audit engagements, compilation and review engagements, and attest engagements?

Answer 27

Audit: SAS (statements on auditing standards); PCAOB standards for issuers; Compilation and review: SSARS (statements on standards for accounting and review services); Attest: SSAE (statements on standards for attest engagements).

Question 28

What are the report types for the following attestation services: (1) agreed-upon procedures; (2) prospective f/s; (3) pro forma f/s; (4) internal controls; (5) compliance; and (6) MD&A?

Answer 28

1. Agreed-upon procedures.
2. Examination, Compilation, and Agreed-upon procedures.
3. Examination and Review.
4. Examination and Agreed-upon procedures.
5. Examination and Agreed-upon procedures.
6. Examination and Review.

Question 29

What do the 11 attestation standards include?

Answer 29

TIPPY-PASSER

a. 5 general standards
1. Training and proficiency
2. Independence
3. Performance/due professional care
4. Professional knowledge of subject matter
5. Your belief as to whether the assertion is capable of evaluation.
b. 2 fieldwork standards
1. Planning and supervision
2. Appropriate sufficient evidence
c. 4 reporting standards
1. identify the Subject matter of the assertion and the character of the engagement
2. disclose Significant reservations about the engagement
3. Express a conclusion
4. Restrict use of the report (in certain circumstances)

Question 30

What three groups do the conclusions expressed by a practitioner fall into?

Answer 30

1. Examination: a positive, high level of assurance, generally based on a variety of procedures, including search, verification, inquiry, and analysis.
2. Review: negative assurance, generally based on inquiry and analytical procedures.
3. Agreed-upon procedures: no assurance, but procedures and findings are listed.

Question 31

Agreed-upon procedures attestation engagements may be performed provided that which conditions exist?

Answer 31

“I-AM-SURE you can perform these agreed-upon procedures.”
1. Independence of the practitioner
2. Agreement of the parties
3. Measurability and consistency
4. Sufficiency of the procedures
5. Use of the report is restricted to the specified parties
6. Responsibility for the subject matter
7. Engagements to perform agreed-upon procedures on prospective f/s - must include a summary of significant assumptions.
Note: includes a disclaimer of opinion in report.

Question 32

What is the difference between a financial forecast and a financial projection?

Answer 32

A forecast is based on expected conditions and expected courses of action and is for general and limited use. A projection is based on hypothetical assumptions based on “what if” types of scenarios and are for limited use only.

Question 33

A practitioner is associated with prospective f/s primarily in one of what three ways, and what two statements do they all include?

Answer 33

1. Compilation engagement (no assurance/just assembled ok)
2. Examination engagement (the report is generally to be used by a third party; opinion)
3. Agreed-upon procedures engagement (disclaimer)
   Note: a review of prospective f/s is not allowed.
   They all must include a caution about achievability and that they are not responsible to update.

Question 34

Describe pro forma f/s?

Answer 34

They are not prospective, used to demonstrate the effect of future or hypothetical events by showing how it might have affected the historical f/s if it had occurred during the period covered by those f/s, may be examined or reviewed, should obtain written representation from mngt, and report should reference f/s info was derived from and whether they were audited or reviewed.