Other Engagements, Reports, and Accounting Services Flashcards
What four (4) areas do auditors address in special consideration engagements?
- Audits of F/S prepared in accordance with a special purpose framework
- Audits of single F/S and specific elements, accounts, or items of a F/S
- Reporting on compliance (contractual or regulatory) related to audited F/S
- Engagements to report on summary F/S
Give examples of special purpose frameworks.
- Cash
- Taxes
- Contractual
- Regulatory
- Any other basis of accounting that uses a definite set of logical, reasonable criteria that is applied to all material items appearing in the F/S
Which of the following elements should be included in the auditor’s report when F/S are prepared on the cash or tax basis?
- Description of purpose for which the special purpose F/S are prepared
- Emphasis-of-matter paragraph alerting readers about the preparation in accordance with special purpose framework
- Other-matter paragraph restricting the use of the auditor’s report
Emphasis-of-matter paragraph alerting readers about the preparation in accordance with special purpose framework
Which of the following elements should be included in the auditor’s report when financial statements are prepared on the regulatory basis (not for general use) and contractual basis?
- Description of purpose for which the special purpose F/S are prepared
- Emphasis-of-matter paragraph alerting readers about the preparation in accordance with special purpose framework
- Other-matter paragraph restricting the use of the auditor’s report
An auditor’s report for financial statements prepared on the regulatory basis (not for general use) or contractual basis should include:
- Description of purpose for which the special purpose F/S are prepared
- Emphasis-of-matter paragraph alerting readers about the preparation in accordance with special purpose framework
- Other-matter paragraph restricting the use of the auditor’s report
Which of the following elements should be included in the auditor’s report when financial statements are prepared on the regulatory basis (for general use)?
- Description of purpose for which special purpose financial statements are prepared
- Emphasis-of-matter paragraph alerting readers about the preparation in accordance with special purpose framework
- Other-matter-paragraph restricting the use of the auditor’s report
An auditor’s report for F/S prepared on the regulatory basis for general use should include the description of purpose for which special purpose F/S are prepared.
What should included in an emphasis-of-matter paragraph included in a special purpose framework (other than regulatory basis financial statements intended for general use)?
- F/S are being prepared in accordance with special purpose framework
- refers to the note to the F/S that describes that framework
- state that special purpose framework is a basis of accounting other than GAAP
What type of information should an auditor gather prior to auditing a single F/S or a specific element of a F/S?
The auditor should obtain an understanding of the:
- purpose for the preparing the single F/S or specific element of a F/S
- intended users; and
- steps taken by management to ensure that the applicable financial reporting framework is acceptable under the circumstances
What are some the limitations surrounding an auditor’s report on a single financial statement, or a specified element, account, or item of a financial statement?
- item is stockholder’s equity = perform procedures necessary to express an opinion about financial position
- item is based on net income = perform procedures necessary to express an opinion about financial position and results of operations
- adverse or disclaimer opinion = auditor may not report on items that constitute a major portion of the financial statements. (the auditor may repot on nonmajor items, but such reports should not accompany the report on the financial statements)
Under US Auditing Standards (GAAS), when may an auditor issue a special report on a client’s compliance with contractual agreements or regulatory requirements?
Under GAAS, the auditor:
- must have audited the client’s financial statements and expressed an unmodified or qualified opinion (no adverse opinion or disclaimer)
- may only give negative assurance on the compliance
What type of opinion can an auditor issue on summary financial statements and when is that opinion appropiate.
- The auditor may issue either an unmodified opinion or an adverse opinion on the summary F/S, but cannot issue a qualified opinion due to the summarized nature of the financials.
- An unmodified opinion is appropiate when the auditor concludes that the summary F/S are consistent, in all material respects, with the audited F/S.
- An adverse opinion is appropiate when the summary F/S are not consistent, in all material respects, with the audited F/S, and management does not make the necessary changes.
Name five (5) elements of preparation, compilation, and review engagements.
- Three (3) party relationship (management, the accountant and the intended issuers)
- Financial reporting framework
- Financial statements or financial information
- Sufficient, appropiate evidence (review only)
- Written communication or report
Preparation, compilation and review standards require that the accountant establish an understanding with the client as to the services to be performed. What should be included in this understanding?
Engagement Letter
- description of the services
- objectives of the services
- management’s & accountant’s responsibilities
- identification of framework
-
explanation of limitations of service:
- the engagement cannot be relied upon to disclosure errors, fraud, or non compliance with laws and regulations
- the entity will be informed of any information indicating that fraud or noncompliance with laws and regulations have occurred
- description of other accounting services (if any)
- Preparation: agreement by management that each page of the F/S indicating “no assurance” or a disclaimer will be issued by the CPA
- Compilation or review: the report
According to SSARS, who must sign the engagement letter?
the accountant or firm of accountants
and
management or those charged with governance
Identify the performance requirements that are necessary when engaged to perform a preparation engagement.
- engagement letter
- understading of entity’s financial reporting framework
- prepare the F/S
- include statement in each page of the F/S of “no assurance” or issue a disclaimer
Identify the performance requirements that are necessary when engaged in a compilation.
- engagement letter
- knowledge of accounting principles and practices of the client’s industry
- general understanding of client’s business
- read the compiled statements to determine if appropiate in form and free from obvious material errors
- follow up on management when aware of fraud or noncompliance with laws and regulations, going concern issues, or consequent events. The accountant should consider the impact of the follow-up on the F/S, evaluate management conclusions, and consider the effect on the compilation report.
- Issue compilation report
What should be included in an accountant’s report on a compilation of a nonissuers F/S?
- management is responsible for the F/S
- Identify the entity, F/S, and date covered by F/S
- performed the compilation in accordance with SSARS
- did not audit or review the F/S
- not required to perform any procedures to verify the accuracy or completeness of the information
- do not express an opinion, a conclusion, nor provide any assurance on F/S
- signature
- city & state
- date of report
What are the reporting requirements with respect to compiled F/S when:
- Substantially all disclosures are omitted?
- Only limited disclosures are included?
- The auditor lacks indepence?
- statements that omit substatially all disclosures:
- accountant can only report if the omission is not intended to mislead issuers
- report must clearly indicate the omission
- compilation should be modified including an additional paragraph disclosing omissions
- statements that disclose limited disclosures:
- notes should be labeled “Selected Information-Substantially All Disclosures Required by GAAP Are Not Included”
- statements when the accountant lacks independence:
- the last paragraph of the report should disclose the lack of independence. The accountant is permitted, but not required, to disclose the reasons for the independence impairment.