F/S with Special Purpose Frameworks

Question 1

Which special-purpose frameworks require a paragraph in the auditor’s report to restrict the distribution of the report to specified users?

Answer 1

The contractual basis and regulatory basis (not intended for general distribution) require such a restriction. The cash basis, tax basis, and regulatory basis intended for general use do not require such restricted distribution.

Question 2

What is meant by the term “special-purpose framework”?

Answer 2

A financial reporting framework other than GAAP that is one of these bases of accounting:

1. )Cash basis
2. )Tax basis
3. )Regulatory basis
4. )Contractual basis
5. )Other basis that uses a “definite set of logical, reasonable criteria”

Question 3

When should the auditor’s report on an entity’s financial statements prepared in accordance with a special-purpose framework include a description of the purpose for which the financial statements are prepared?

Answer 3

Such a description would be required when the financial statements have been prepared on (1) the contractual basis or (2) the regulatory basis (whether intended for general use or not).

Question 4

Which special-purpose frameworks require an emphasis-of-matter paragraph (labeled “Basis of Accounting”) in the auditor’s report pointing out the special-purpose framework to readers?

Answer 4

The cash basis, tax basis, contractual basis, and regulatory basis (only if restricted). Such a paragraph is not required if prepared on a regulatory basis intended for general use.

Question 5

Identify the five sections of the auditor’s report normally associated with an entity’s financial statements prepared in accordance with a special-purpose framework.

Answer 5

1. )Identify the nature of the engagement and financial statements involved.
2. )Management’s responsibility.
3. )Auditor’s responsibility.
4. )Express the opinion (reference footnote that describes basis of presentation).
5. )”Basis of accounting”—reference footnote describing basis of presentation.

Question 6

When deciding whether to accept an engagement to report on financial statements prepared in accordance with a special-purpose framework, what three matters should the auditor consider?

Answer 6

1. )The purpose for which the financial statements are prepared
2. )The intended users of the financial statements
3. )The steps taken by management to determine that the framework is acceptable in the circumstances