AUD Deck 10-Other Types of Reports

Question 1

Hypothetical Transaction-

Answer 1

A transaction or financial reporting issue that does not involve facts or circumstances of a specific entity. The reporting accountant should not accept any engagement involving a hypothetical transaction.

Question 2

Reporting Accountant-

Answer 2

An accountant, other than a continuing accountant, who prepares a written report or provides oral advice on the application of the requirements of an applicable financial reporting framework to a specific transaction or on the type of report that may be issued on a specific entity’s financial statements.

Question 3

Specific Transaction-

Answer 3

A completed or proposed transaction or group of related transaction or a financial reporting issue involving facts and circumstances of a specific entity.

Question 4

Special Purpose Framework-

Answer 4

A financial reporting framework other than GAAP that is one of the following bases of accounting: (1)cash basis, (2)tax basis, (3)regulatory basis, (4)contractual basis.

Question 5

Complementary user entity controls-

Answer 5

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 6

Service Auditor-

Answer 6

A practitioner who reports on controls at a service organization.

Question 7

Service Organization-

Answer 7

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.

Question 8

Type 1 report-

Answer 8

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

Question 9

Type 2 report-

Answer 9

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

Question 10

User Auditor-

Answer 10

An auditor who audits and reports on the financial statements of a user entity.

Question 11

User Entity-

Answer 11

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

Question 12

Service Auditor-

Answer 12

Practitioner who reports on controls at a service organization.

Question 13

A typical comfort letter usually consist of the following:

A-C

Answer 13

A)An introductory paragraph that identifies the particular registration statement and the audited financial statements and schedules with which the accountant is associated.
B)A statement as to the independence of the accountants.
C)Positive Expression of opinion-Whether the audited f/s & schedules comply as to form with the requirements of the Act and SEC.

Question 14

A typical comfort letter usually consist of the following:

D-G

Answer 14

D)Negative Assurance-Whether the unaudited condensed interim financial information complies as to form with the requirements of the Act & the SEC.
E)Negative Assurance-Whether any material modifications should be made to the unaudited condensed consolidated f/s.
F)Negative Assurance-Whether there has been any change during a specified period in capital stock; increase in long-term debt, or any decrease in other specified f/s items.
G)A concluding paragraph that limits the distribution of the comfort letter to specified parties for the purposes stated.

Question 15

Government Auditing Standards-(also known as Generally Accepted Government Auditing Standards or GAAS)-

Answer 15

Are issued by the U.S. Government Accountability Office (GAO’s “Yellow Book”) under the authority of the Comptroller General-GAGAS go beyond the fieldwork and reporting standards of GAAS and must be followed when required by law, or agreement.

Question 16

Governmental Audit Requirement-

Answer 16

A governmental requirement established by law, regulation, rule, or provision of contracts or grant agreements requiring that an entity undergo an audit or its compliance with applicable compliance requirements related to one or more government programs.

Question 17

Statements on Standards for Accounting and Review Services (SSARSs)-

Answer 17

Are issued by the AICPA’s “Accounting and Review Services Committee” (ARSC). These standards apply to reviews and compilations of financial statements for nonpublic entities (referred to as “nonissuers”).

Question 18

Framework for Compilation & Review Engagements-SSARS contain both “requirements” and “explanatory material.” Requirements-there are two categories: “unconditional” and “presumptively mandatory.”

Answer 18

1) Unconditional Requirements-The accountant is required to comply with an unconditional requirement without exception (indicated by the words “must” or “is required”.
2) Presumptively mandatory requirements-indicated by the word “should.”
a) The accountant is also required to comply with a “presumptively mandatory requirement”-but it allows for the possibility of exception.
b) In rare circumstances, the accountant may depart form a presumptively mandatory requirement. The accountant must document the justification for the departure and how the alternative procedures performed in the circumstances were sufficient to achieve the objectives of the presumptively mandatory requirement.

Question 19

Explanatory Material-

Answer 19

Defined as the text within a SSARS that may provide further explanation on the professional requirements or describe other procedures or actions possibly applicable to the auditor (practitioner).
A)Such explanatory material is intended to be descriptive and does not impose a professional requirement.
B)Explanatory material is identified by the terms “may”, “might”, or “could.”

Question 20

Compilation-

Answer 20

A compilation is a service, the objective of which is to assist management in presenting financial information in the form of financial statements without undertaking to obtain or provide any assurance that there are no material modifications that should be made.

Question 21

Review-

Answer 21

A review is a service, the objective of which is to obtain limited assurance that there no material modifications that should be made to the financial statements in order for the statements to be in conformity with the applicable financial reporting framework.