AUD 5.6 - Reporting On Compliance

Question 1

In order for an auditor to issue a report on a clients compliance with contractual agreements or regulator requirements in connection with a financial statement audit, the auditor must have:

Answer 1

Audited the clients financials and may only issue negative assurance on compliance

Question 2

What is negative assurance?

Answer 2

Meaning that nothing came to the auditors attention

Question 3

Negative assurance may be give when:

Answer 3

1. There are no identified instances of noncompliance
2. The auditor expressed an unmodified opinion or qualified opinion on the financial statements
3. Applicable covenants or regulatory requirements have been subjected to audit procedures as part of the financial statement audit

Question 4

If an adverse or disclaimer of opinion is expressed on the financial statements, a report on compliance can…

Answer 4

Only be issued when there are identified instances of noncompliance

Question 5

The report on compliance should be..

Answer 5

In writing
A separate report OR provided in one or more paragraphs in the auditors report on the financials

Question 6

The attestation standards address two types of compliance engagements:

Answer 6

1. Compliance with specified requirements
2. Internal control over compliance

Question 7

This engagement deals with an entity’s compliance with requirements of specified laws, regulations, rules, contracts, or grants

Answer 7

Compliance with specified requirements

Question 8

This engagement deals with an entity’s internal control over compliance with specified requirements

Answer 8

Internal control over compliance

Question 9

The practitioner may be engaged to perform agreed-upon proceeds to assist users in evaluating the following subject matter or assertions:

Answer 9

Compliance with specified requirements
Internal controls over compliance
Or both!

Question 10

What are the practitioners objectives when performing agreed-upon procedures over compliance?

Answer 10

To present specific findings to assist users in evaluating an entity’s compliance with specified requirements or the entity’s internal control over compliance based on procedures agreed upon by the users of the report

Question 11

A practitioner may perform an examination engagement over compliance if the following conditions are met:

Answer 11

1. The responsible party accepts responsibility for compliance AND the effectiveness of the internal control
2. The responsible party evaluates the entity’s compliance
3. Sufficient evidential matter exists to support managements evaluation

Question 12

What standards govern the following types of engagements and what assurance is provided by each?
1. Compliance report in connection with audited financial statements
2. Agreed-upon procedures
3. Examination

Answer 12

1. Auditing Standards (SAS) - Negative assurance
2. Attestation Standards (SSAE) - No assurance
3. Attestation Standards (SSAE) - Reasonable assurance

Question 13

The audit risk of noncompliance is calculated by:

Answer 13

Risk of material noncompliance X detection risk