Audit Reports

Question 1

How does a special purpose framework affect the audit report?

Answer 1

*Depends on the basis of the framework*

• Regulatory and Contractual
  
  • describe the purpose of the financial statements
  • if reg. prepared for limited use or contractual
    
    • emphasis of matter parargraph - F/s prepared with anotherframework, it is not GAAP, refers to note that describes it
    • other matter - restricts the use to specific parties
  • if prepared for reg - general use -
    
    • opinion on whether they are in accordance with GAAP (not)
    • opinion on if they are in accordance with SPF
• Cash or tax basis -
  
  • Emphasis of matter - F/s prepared with anotherframework, it is not GAAP, refers to note that describes it

Question 2

How does an auditor report on the audit of a single F/S, another specific element, account, or item?

Answer 2

• If also doing a complete financial statement audit
  
  • issue a seperate report with an opinion for each
  • include in the specific element report the date of the report and nature of opinion on the audit report for compomplete F/S
  • the audited specific element needs to be differentiated from the complete F/S - if not then ask mgmt to address this
• If complete F/S get modified opinion
  
  • and is relevent to specific item
    
    • specific gets adverse or disclaimer
    • can get unmodifed if not a major portion of F/S and does not accompany complete report

Question 3

How does an auditor report on compliance with requirements of contractual or regulatory requirements in a F/S audit?

Answer 3

• If nonCompliance not identified - Include in audit report when
  
  • noncompliance not identified
  • F/S opinion is unmodified or qualified
  • the requirements have been subject to accounting procedures
• If noncompliance identified - report should describe the noncompliance
• If audit opinion is adverse or disclaimed - only report when non comliance is identified
• “Our audit was not directed primarily toward…..” - include in report

Question 4

When should a user auditor refer to the service auditor in the audit report of the user entity?

Answer 4

• If an unmodified opinion - dont make reference
• If modified opinion - make reference if it is relevant to understanding the auditor’s modifiation

Question 5

What is a type 1 report, and what does it consist of?

Answer 5

A report on the adequacy of the design of internal control

1. Scope - nature and the specific date involved
2. Service org. responsibilities
3. Auditor responsibilities - (examination) disclaim an opinion on operating effectiveness
4. inherent limitations of internal control
5. Opinion - description represents what was designed and implemented and the controls are suitably designed
6. Restricted use

Question 6

What is a type 2 report, and what does it consist of?

Answer 6

Report on the operating effectiveness of internal control (design and effectiveness effectively)

1. Scope - nature and period involved (shoud cover reporting period of at least 6 months)
2. Service Org. responsibilities
3. Auditor responsisbilities (examination)
4. inherent limitations of internal control
5. Opinion - description represents what was designed and implemented, controls are suitably designed and operated effectively
6. Description of tests of controls
7. Restricted use

Question 7

What does the typical comfort letter consist of?

Answer 7

1. Intro - identifies registration statement and the F/S
2. Statement of independence of accountants
3. Positive assurance - of F/S compliance with SEC Act 1933
4. Negative assurance of
   
   1. unaudited interim statements (must first have knowledge of internal control)
   2. necessary material modifciations
   3. any changes to specified F/S items (if within 135 days of audit)
5. Concluding paragraph - limits distribution
6. Date - on or shortly after registration date
7. Addressee - client, named financial intermedaryish users
   8.

Question 8

What things distinguish GAGAS from GAAS?

Answer 8

• GAGAS requires report on internal control in all audits, and require written response from entity on any sig def. found
• GAGAS requires written report on compliance - general and specific
• GAGAS - must report any illegal acts that could result in criminal prosecution