Related Reporting Topics Flashcards
What would a Comfort Letter NOT contain?
Management’s determination of operating segments
Why? - Because this would usually be included in an audit
E.g. This would be a matter addressed in an audit;
- an engagement with a broader scope than that for the issuance of a comfort letter
What would normally be covered in a comfort Letter?
- independence of the CPA
- Changes in financial statement items during a period subsequent to the date and period of the latest financial statements
What is TRUE involving an engagement to express an opinion on one or more specific elements, accounts, or items of a financial statement?
Materiality MUST be related to the specified item rather than to the financial statements as a whole
E.g. This must be a measurement in relation to each element, account, or item reported NOT the financial statements as a whole
What should an auditor do if;
- They do not audit the complete set of statements of an entity but are asked to express an opinion on an entity’s profit participation in another entity’s net income?
The auditor should;
- perform procedures necessary to express an opinion on financial position and results of operations
Why? - Because the profit participation interrelates with balance sheet and income statement accounts
How should a prospectus refer to an auditor whose includes statement about their involvement in incorporated statements referenced in an SEC registration statement?
E.g. How should they be referred to?
Expert in auditing and accounting
Why? - Because such a report is included in the registration statement in reliance on the report of a named expert
How would you report if reporting on summary financial statements for an annual period; and
You decide to issue a unmodified opinion?
The report should;
- indicate whether the information in the summary financial statements is consistent, in all material respects, with the audited financial statements
What should an auditor do if engaged by a client to audit their Balance Sheet ONLY?
The auditor may audit ONLY the client’s Balance Sheet if;
- they can audit interrelated items
- the auditor complies with all AU-C sections relevant to the audit; and
- the audit is feasible
What should an auditor do when reporting on Required Supplementary Information i.e. RSI?
They should compare the required supplementary information for consistency with the audited financial statements
What is an auditor’s reporting responsibility when engaged to report on supplementary information in relation to the financial statements as a whole?
They should report on all the information
Who is the Comfort Letter usually addressed to?
And Who signs the Letter?
The Comfort Letter is usually addressed to;
- The Client’s Requesting Party and
- Signed by the client’s Independent Auditor
What should be included in a report on financial statements prepared in accordance with a Special Purpose Framework (i.e. cash receipts and disbursements basis)?
- An opinion as to whether the financial statements are fairly presented
- A reference to the note to the financial statements that describes the special purpose framework
- A statement that the audit was conducted in accordance with GAAS
What procedures would an auditor perform when reviewing interim financial information (IFI)?
- Applying Analytical procedures
- Reading the available minutes of the latest stockholders’ meeting
- Inquiring of the accounting department’s management
E.g. This type of review primarily involves performing analytical and inquiry procedures
What are NOT suitable titles for financial statements prepared using a special purpose framework?
- Statement of comprehensive income
- Statement of operations
- Income statement
Why? - Because this sort of terminology is understood to be prepared in accordance with GAAP
What would be a reason to modify an auditor’s report on a review of interim financial information?
Inadequate disclosure
Why? - Because it is not, in all material respects, in accordance with the applicable reporting framework
E.g. the auditor should, if feasible, include the information in the report
What is a requirement of an accountant conducting a review of interim financial information?
The CPA must maintain independence in mental attitude in all matters relating to the engagement
What should a CPA do when they have been asked to audit and report on one financial statement (i.e. balance sheet),not audit the other financial statements yet they will have access to the other statements?
The CPA may accept the engagement if;
- an audit in accordance with GAAS is practicable
What should a report on summary financial statements indicate?
E.g. What should be included?
- Procedures performed including evaluating whether the financial statements are prepared in accordance with the applied criteria
What type of opinion should the auditor express if management declines to present required supplementary information?
The auditor should express an;
- Unmodified opinion with an other-matter paragraph
Why? - Because omission of RSI does not affect the auditor’s opinion
e.g. such information is not part of the basic financial statements
What is a CPA’s responsibility for required supplementary information (RSI)?
To apply limited procedures to the information; and
- report its omission or the need for material modifications
E.g. The auditor at minimum should apply limited procedures and report on the RSI in an other-matter paragraph
What does a CPA typically do when performing a review of interim financial information (IFI)?
- Make inquiries of Management
- Perform analytical procedures
- Consider the results from the latest audit
What should an independent auditor do when asked to make an assertion on a report filed on a printed form designed by authorities; and
- the auditor believes is not justified?
They should reword the form
SIMPLY PUT: When a report form calls for an unjustified assertion, an auditor should reword the form
