Auditing OCBOA

Question 1

Under what circumstances can an auditor report on a specified element of the financial statements that is derived from net income, such as “profit participation.”

Answer 1

The auditor can report on a specified element of the financial statement that is derived from net income when he/she has audited the entire set of financial statements.

Question 2

Describe special-purpose financial presentations that may be consistent or inconsistent with GAAP.

Answer 2

Financial statements presented on a prescribed basis resulting in an incomplete presentation, but otherwise consistent with GAAP; or
Financial statements prepared on a basis of accounting prescribed in an agreement, not in conformity with GAAP or other comprehensive basis of accounting.

Question 3

What changes should be made in an auditor’s report when reporting on financial statements prepared under another comprehensive basis of accounting (OCBOA)?

Answer 3

Add an explanatory paragraph before the opinion paragraph describing the basis used and refer to the footnote to the financial statements that describes the basis used; and
in the opinion paragraph refer to that same footnote re the financial statements that describes the basis of presentation used, since it differs from GAAP.

Question 4

What should be included in the auditor’s report when reporting on compliance with contractual agreements related to audited financial statements?

Answer 4

Affirm that the financial statements were audited;
Identify the specific covenants and provide negative assurance about compliance; and
Restrict the distribution of the report to the parties to the agreement.

Question 5

List some examples of an “other comprehensive basis of accounting” (OCBOA).

Answer 5

Financial statements prepared using the cash-basis of accounting;
Financial statements prepared using income-tax principles;
Financial statements prepared using regulatory accounting principles;
Financial statements prepared using any other basis having “substantial support.”