Other Types of Reports

Question 1

What is considered supplementary information?

Answer 1

Info apart from the basic financial statements and from RSI (required supplementary information)

Question 2

If an auditor wishes to analyze an entity’s supplementary information, what standard should he follow?

Answer 2

AU 551, “Engagement to Report on Supplementary Information”

Question 3

What are some necessary conditions for an engagement to report on supplementary information?

Answer 3

(1) Financial statements must have been audited by same auditor
(2) Financial statement audit opinion must not be adverse or disclaimed
(3) Supplementary info should be for same period as financial statements
(4) If the supplementary info doesn’t accompany audited financials, it must be made “readily available”

Question 4

What counts as “readily available” information?

Answer 4

Information that can be accessed without further action by the entity (e.g. web download, but not a request for the entity to give info)

Question 5

If assessing supplementary information, what is the auditor not required to evaluate?

Answer 5

Internal control
Fraud risk
Subsequent events

Question 6

How should the auditor report on the supplementary information if it is presented with the financials?

Answer 6

Either (1) an explanatory paragraph after the opinion paragraph in the audit report or (2) a separate report

Question 7

How should the auditor report on the supplementary information if it is not presented with the financials?

Answer 7

In a separate report with:

• a reference to the report on the financials
• the date for that report
• the opinion in that report
• any changes from that report

Question 8

To what do special purpose reports apply?

Answer 8

(1) financials prepared under an OCBOA
(2) specific items in a financial statement
(3) compliance with contracts/regulations
(4) financial presentations required by contracts/regulations that are not GAAP or OCBOA
(5) financial info presented in a prescribed form that requires a prescribed auditor’s report

Question 9

In an OCBOA report, what should the titles be for different financial statements?

Answer 9

Whatever is suitable for the content of the statement under that OCBOA

Normal terms like “balance sheet,” “income statement,” etc. are for GAAP and may not apply well to an OCBOA

Question 10

How does an OCBOA report differ from an ordinary audit report?

Answer 10

Paragraphs 1 and 2 (introduction and scope) are the same, but paragraph 3 must state what the basis of presentation is and note that it differs from GAAP

Paragraph 4 includes the opinion

Question 11

If the auditor is assessing an entity’s compliance with some agreement, what kind of assurance should he give at best?

Answer 11

Negative assurance

Question 12

What would prohibit an auditor from giving negative assurance for an entity’s compliance with an agreement?

Answer 12

If the opinion on the financial statements as a whole is adverse or disclaimed

Question 13

What should be included in an auditor’s report that assesses compliance with an agreement?

Answer 13

Paragraph 1 - Financials were audited in accordance with GAAS
2 - Reference to the specific agreement; negative assurance
3 - Significant interpretations by mgmt of the agreement
4 - Restriction of the use of the report to the relevant parties

Question 14

Do other auditor reports include restrictive paragraphs?

Answer 14

Yes, e.g. OCBOA reports and reports on particular financial statements items also include paragraphs restricting the use of the report to the relevant parties

Question 15

What is an auditor’s defense if he is blamed by the SEC for a false or misleading statement in the auditor’s registration statement?

Answer 15

Either (1) that it was reasonable to believe the statements were correct and not missing material info; or (2) that the disputed claim in the registration statement does not represent his actual statement

Question 16

What are comfort letters?

Answer 16

Letters written by the auditor for underwriters and other requesting parties

They are not required but still common for underwriting agreements involving the sale of SEC-registered securities

Question 17

What is one purpose of a comfort letter to an underwriter?

Answer 17

To show that the underwriter has good grounds to know whether a registration statement is complete and accurate

This is because underwriters can be liable for incomplete or inaccurate registration statements

Question 18

When can other parties besides the underwriter receive a comfort letter?

Answer 18

Only when an attorney for the requester sends a written opinion to the auditor to show that the requester needs it as a matter of due diligence

Question 19

What are auditors prohibited from commenting on in a comfort letter?

Answer 19

Areas that are outside their expertise (e.g. requiring legal interpretation) and other facts not really related to what they audited (e.g. square footage of a facility)

Question 20

What information is generally permitted in a comfort letter?

Answer 20

(1) Amounts directly from accounting records (either in $ or %), and (2) amounts derived from accounting records by analysis or computation

Question 21

Should the auditor reiterate his audit opinion in the comfort letter?

Answer 21

No, since the different date of the report might be misleading

The same goes for negative assurance

Question 22

Should the auditor provide pro forma financial information in the comfort letter?

Answer 22

No, not unless he is sufficiently knowledgeable of the entity’s accounting and financial reporting

Question 23

What are some limitations for a review of interim financial information?

Answer 23

(1) Does not provide assurance that the auditor will uncover everything which would be identified in an audit
(2) Is not designed to assess internal cotrol

Question 24

Is an accountant required to issue a report when reviewing interim financial information?

Answer 24

Strictly speaking, no, but it should be included if the reviewed information makes reference to the accountant

Also, there should be a report if its absence would be misleading

Question 25

If an auditor reports on condensed financial statements derived from financials he’s already audited, what should the report include?

Answer 25

(1) That he’s expressed an opinion on the full financials
(2) The date of that audit report
(3) The opinion he actually expressed
(4) Whether the condensed info is fairly stated in all material respects

Question 26

If a client references the auditor in some document and states that condensed info has been derived from his audited financial statements, is the auditor required to report on the condensed info?

Answer 26

No, so long as the audited financials are included or mentioned with reference to info filed with a regulatory agency

Question 27

If the auditor reports on selected financial data, to what should his report be limited?

Answer 27

It should be limited to financial statements he has audited

If there are other sources of data besides financials he’s audited, the report should clearly distinguish them

Question 28

Can an auditor report on selected data from financial statements someone else has audited?

Answer 28

Yes, so long as the report says so and mentions that he is not expressing an opinion on the full financials

Question 29

If an auditor reports on selected financial statements derived from financials he’s already audited, what should the report include?

Answer 29

The same info as a report for condensed financial information

Question 30

If a client references the auditor in some document and states that selected info has been derived from his audited financial statements, is the auditor required to report on the selected info?

Answer 30

He must do the same as he would with condensed info

Question 31

If an auditor wishes to provide advice or a report on the application of accounting principle, what standard governs this?

Answer 31

AU 625, “Reports on the Application of Accounting Principles”

Question 32

What activities would not count as advice for the application of accounting principles?

Answer 32

• helping in litigation involving accounting (including expert testimony)
• giving advice to another public accountant
• writing position papers (e.g. articles, lectures)

Question 33

Can an auditor write a report for how accounting principles would apply to a hypothetical transaction?

Answer 33

No, it must be for a real transaction

Question 34

Does advice for the application of accounting principles need to be written?

Answer 34

No, it can be oral

Question 35

What is the standard for reporting on financial statements prepared for use in foreign countries?

Answer 35

AU 534, “Reporting on Financial Statements Prepared for Use in Other Countries”

Question 36

Under what conditions does AU 534 apply?

Answer 36

(1) The statements comply with a foreign GAAP
(2) The entity resides in the U.S.
(3) The auditor practices in the U.S.

E.g. there might be statements needed for non-U.S. investors

Question 37

Does AU 534 apply if there are not any GAAP for the foreign country?

Answer 37

Yes, but the auditor must then report, more generally, on whether the client’s principles and practices are appropriate and clearly disclosed

Question 38

What are different reports an auditor can use under AU 534?

Answer 38

Either a U.S.-style or foreign-style report (or both)

Question 39

What standard governs how an auditor should restrict his audit reports?

Answer 39

AU 532, “Restricting the Use of an Auditor’s Report”

Question 40

Under what circumstances should an audit report be restricted?

Answer 40

(1) If the report deals with contractual or regulatory requirements that don’t accord with GAAP or OCBOA
(2) If the report is a byproduct of a full financial statement audit

Besides management, TCWG, regulatory agencies, etc., the auditor can add other parties at his own discretion for (1), but not for (2)

Question 41

What should be included in a report to restrict its use?

Answer 41

A separate paragraph at the end with:

• a statement that it is restricted
• the parties to whom it is restricted
• a statement that other parties should not use it