F/S Woth Special Purpose Framework Flashcards
Types
Cash basis
Tax Basis
Regulatory Basis
Contractual Basis
Preconditions
The auditor should obtain the agreement of management that it understands its responsibility to include all informative disclosures that are appropriate for the special purpose framework used, including (a) a description of the special purpose framework; (b) informative disclosures similar to those required by GAAP; (c) a description of any significant interpretations of the contract on which the special purpose financial statements are based, when applicable; and (d) additional disclosures beyond those specifically required that may be necessary to achieve fair presentation
Forming an Opinion and Reporting Considerations:
Description of the applicable financial reporting framework
The auditor should consider whether the financial statements are appropriately titled (should not use financial statement names that imply GAAP), include a summary of significant accounting policies, and adequately describe how the special purpose framework differs from GAAP. These differences do not have to be quantified, however.
Forming an Opinion and Reporting Considerations:Fair presentation
The auditor should determine whether informative disclosures are included similar to those required by GAAP, and whether additional disclosures are needed to achieve fair presentation.
Forming an Opinion and Reporting Considerations: Auditor’s report
The report should describe the purpose for which the financial statements are prepared (if regulatory basis or contractual basis) or reference a note containing that information about the special purpose framework used.
Forming an Opinion and Reporting Considerations: Alerting readers in an emphasis of matter paragraph
The auditor’s report on special purpose financial statements should include an emphasis of matter (“Basis of Accounting”) paragraph that (1) indicates that the financial statements are prepared in accordance with the applicable special purpose framework; (2) refers to the note that describes that framework; and (3) states that the special purpose framework is a basis of accounting other than GAAP. (The only exception to such an alert involves regulatory basis financial statements intended for general use for which no such alert is needed.)
Forming an Opinion and Reporting Considerations:Restricting the use of the auditor’s report to the intended users
The auditor’s report should also include an other matter paragraph that restricts the use of the auditor’s report to those within the entity, the parties to the contract⁄agreement, or the regulatory agencies to whom the entity is subject when the financial statements are prepared in accordance with either (1) a contractual basis of accounting; or (2) a regulatory basis of accounting. (The only exception to such a restriction involves regulatory basis financial statements intended for general use for which no such restriction is needed. And no such restriction applies to cash basis or tax basis.)
Forming an Opinion and Reporting Considerations: Regulatory basis financial statements intended for general use
If the financial statements are prepared in accordance with a regulatory basis of accounting and are intended for general use, the auditor should not include the emphasis of matter or other matter paragraphs. Instead, the auditor should express (1) an opinion as to whether the financial statements are prepared in accordance with GAAP (which they are not); and (2) an opinion in a separate paragraph as to whether the financial statements are prepared in accordance with the special purpose framework.
Forming an Opinion and Reporting Considerations: Auditors report prescribed by law or regulation
If the prescribed specific layout, form, or wording of the auditor’s report is not acceptable (or would cause the auditor to make an inappropriate statement), the auditor should either reword the prescribed form or attach separately an appropriately worded audit report.
Which special purpose frameworks require a description of purpose for which such financial statements are prepared?
Only regulatory basis (whether intended for general use or not) and contractual basis
Which special purpose frameworks require an emphasis of matter paragraph alerting readers to the special purpose framework?
Cash basis, tax basis, regulatory basis (if restricted), and contractual basis do. (Only regulatory basis intended for general use does not require such an alert!)
Which special purpose frameworks require an other matter paragraph to restrict the distribution of the auditor’s report to specified users?
Only regulatory basis (if restricted) and contractual basis do. (Cash basis, tax basis, and regulatory basis intended for general use do not require such a restriction!)
