Auditing2

Question 1

What are the differences between the standard auditor’s report and a report on Special Purpose Financial Statements?

Answer 1

• Auditor’s report should describe the purpose for which the financial statements were prepared and refer to a note that contains that information
• Non-GAAP Titles
• Management Responsibility Paragraph (When management has a choice of financial reporting frameworks) must make reference that financial framework is acceptable
• Emphasis-of-Matter paragraph (not for Regulatory/Contractual General Use) Prepared in accordance with the applicable Special Purpose Framework, Refers to note in the FS, States the Special Purpose Framework is a basis of accounting Other than GAAP

Question 2

What are the differences between the standard auditor’s report and a report for a Regulatory/Contractual basis?

Answer 2

The auditor’s report should include an Other-Matter paragraph that restricts the use of the auditor’s report to those within the entity, the parties to the contact or agreement, or the regulatory agencies to which the entity is subject.

Question 3

What are the differences between the standard auditor’s report and a report for a Regulatory/Contractual basis - GENERAL USE?

Answer 3

The auditor should express an opinion about whether the financial statements are:
1. Fairly presented, in all material respects, in accordance with GAAP.
2. Prepared in accordance with the special purpose framework.
(This would be a dual opinion report because an opinion would be made on the Special Purpose Framework and the Generally Accepted Accounting Principles)

Question 4

May an audit of a single financial statement or of specific elements, accounts, or items of a financial statement be performed as a separate engagement or in conjunction with an audit of an entity’s complete set of financial statements.

Answer 4

Yes, separate or in conjunction.

Question 5

When auditing a complete set of financial statements and a single financial statement or a specific element of a financial statement, the auditor should:

Answer 5

• Issue a separate auditor’s report and express a separate opinion for each engagement.
• Indicate in the report on a specific element the date of the auditor’s report on the complete set of financial statements and the nature of the opinion expressed.

Question 6

What is included in an auditor’s report that is an incomplete presentation, but is otherwise in accordance with GAAP?

Answer 6

• State the purpose for which the presentation is prepared
• Refers to the note in the F/S
• Indicates the presentation is not intended to be a complete presentation

Question 7

What type of opinion is expressed on a compliance with aspects of contractual agreements or regulatory requirements related to audited financial statements?

Answer 7

A Negative Opinion and the auditor must have audited the financial statements.

Question 8

What are the two options for reports on compliance?

Answer 8

1. A separate report or provided in one or more paragraphs in the auditor’s report.
2. Included in the Auditor’s Report (Other-Matter paragraph)

Question 9

Under what circumstances may an auditor accept an engagement to report on a Summary of Financial Statements?

Answer 9

Only when that auditor has audited the financial statements.

Question 10

What type of opinion(s) are appropriate for a Report on Summary Financial Statements?

Answer 10

The auditor may issue an unmodified opinion OR an adverse opinion on the summary statements. A qualified opinion is not appropriate due to the summarized nature of these financial statements.

Question 11

Comparative Financial Statements - What should an auditor do when there is a service upgrade? (Current Period Reviewed, Prior Period Compiled = RC)

Answer 11

When the auditor performs a higher level of service in the current period, the report on the current period(s) should be updated and issued as the last paragraph of the current period’s report.

Question 12

Comparative Financial Statements - What should an auditor do when there is a service downgrade? (Current Period Compiled, Prior Period Reviewed = CR)

Answer 12

In the event the auditor has reviewed the prior period statements but compiled the current period statements, they can do one of the following:

1. Issue a compilation report and add a paragraph to the report on the current period statements.
2. Reissue the prior period review report.

Question 13

Comparative Financial Statements - What should an auditor do when there is a service downgrade (Current Year - Prepared, Prior Period Review OR Compiled = PC/R)?

Answer 13

In the event that the auditor have prepared the current period statements and either compiled or reviewed the prior period statements, there is no requirement to reference the prior period.

Question 14

What must a predecessor auditor do when the PRESENT compiled or reviewed prior period statements?

Answer 14

• Read the statements
• Compare to prior period statements
• Obtain a Letter from Successor Auditor (This is the same as Audited Statements, with the only difference being no Letter of Representation from Management)

Question 15

What must a successor auditor do when the predecessor compiled or reviewed prior period statement(s) are NOT PRESENTED?

Answer 15

-Make reference to the report of the predecessor auditors’ in the current report
OR
-Perform the level of service

Question 16

Comparative Financial Statements - What should an auditor do when there is a service downgrade (Unaudited current period, Compiled/Reviewed/Audited prior year)?

Answer 16

The unaudited financial statements should be clearly marked and the auditor should either:

1. Reissue the prior period report OR
2. Include an additional paragraph in the current report describing the responsibility explained for the prior period’s statements. (“no auditing procedures have been performed since the previous report date)

Question 17

Comparative Financial Statements - What should an auditor do when there is a service upgrade (Audited current period, Compiled/Reviewed/Unaudited prior period)?

Answer 17

When the current period statements are audited, the auditor should include an Other-Matter paragraph in the auditor’s report that includes: description of service performed, date of prior period report, any material modifications, a statement that service was less then scope then an audit and did not provide a basis for an opinion.

Question 18

What procedures must be performed for a review of Interim Financial Information (Issuer and Non-Issuer)?

Answer 18

“ULIARCPA”

• Understanding with the client should be established
• Learn and/or obtain sufficient understanding of the entity, its environment, including internal control
• Inquiries should be addressed to appropriate individuals
• Analytical procedures should be performed
• Review other procedures should be performed
• Client representation letter
• Professional judgment should be used to evaluate results
• Auditor should communicate results

Question 19

What does a comfort letter do?

Answer 19

A comfort letter is a letter from the auditor to the underwriter. It covers the period from the date of the last auditor’s report to the effective date of the registration. When a comfort letter is to be issued, the auditor is required to perform a review of the interim financial information. Positive assurance is provided to compliance, if audited. Negative assurance is provided to unaudited financial information, unaudited condensed interim financial statements, and capsule financial information.

Question 20

What types of reports are considered Attestation services?

Answer 20

• Compliance with laws and regulations
• Compliance with contracts
• Internal control
• Prospective information

Question 21

What are the eleven Attestation standards?

Answer 21

"TIPPY PASSER"
Five General Standards:
Training and proficiency
Independence
Performance due professional care in planning
Professional, adequate knowledge of subject matter
Your belief that subject matter is capable of evaluation
Two Fieldwork Standards:
Planning and supervision
Appropriate, sufficient evidence
Four Reporting Standards:
Identify the Subject Matter
Disclose significant reservations
Express conclusions
Restrict use of report

Question 22

What statements provide standards for Attestation services?

Answer 22

Statements on Standards for Attestation Engagements (SSAE)

Question 23

What are the three groups of Attestation types? What are the levels of assurance?

Answer 23

Examination (Positive Assurance)
Review (Negative Assurance)
Agreed-Upon Procedure (No assurance)

Question 24

What conditions must exist for a Agreed-Upon procedure engagement?

Answer 24

"IAMSURE"
Independence of Practitioner
Agreement of the parties
Measurability and consistency
Sufficiency of the procedures
Use of the report is restrict to specified parties
Responsibility for the subject matter
Engagements to Perform Agreed-Upon Procedures on Prospective Statements

Question 25

What are the major differences in financial forecasts versus financial projections?

Answer 25

A financial forecast statement reflects the expected financial results of a future period based on expected conditions and expected courses of action. It is for General and Limited Use.
A financial projection statements reflects the financial results of a future period based on hypothetical “what-if” assumptions. It is for Limited Use Only.

Question 26

What are the three types engagements for prospective financial statements?

Answer 26

Compilation engagement = Proper assembling of financial data (No Assurance)
Examination engagement = Evaluate financial data (Opinion, presented in conformity with AICPA guidelines and the underlying assumptions provide a reasonableness basis)
Agreed-Upon procedures engagement = Engagement in which a practitioner is engaged to issue a report of findings based on specific agreed upon procedures. Must include a summary of significant assumptions.

Question 27

What is a Proforma Financial Statement?

Answer 27

A financial statement used to demonstrate the effect of a proposed transaction or event by showing how it might have affected the historical financial statements, if it had occurred during the period covered by those statements.

Question 28

What are the major differences between a:
Preparation
Compilation
Review

Answer 28

Preparation = No audit or review procedures.  It is a non-attest service.  Independence not required. Issue a Disclaimer of Opinion or indicate No Assurance Provided)
Compilation = No audit or review procedures.  It is an attest service.  Independence not required, but must be disclosed.(No Assurance Provided)
Review = Express limited assurance on statements that that will apply analytical procedures and inquiry.  It is an attest and assurance engagement.  Independence is required.

Question 29

In a compilation, an accountant is required to have a general understanding of a client’s business, what are the major topics that should be completed?

Answer 29

"STAFF"
Staff qualifications
Transaction types and frequency
Accounting basis used to prepare financial statements
Form of the accounting records
Financial statements form and content

Question 30

Is it acceptable to issue comparative COMPILED financial statements in which one prior contains required GAAP disclosures and one does not?

Answer 30

NO, Compiled financial statements that omit substantially all of the disclosures required by GAAP are not comparable to financial statements including such disclosures. The accountant should not issue a REPORT on comparative financial statements when one or more, but not all, of the periods presented omit substantially all of the disclosures required by GAAP.