Related Reporting Topics II Flashcards
What may an auditor provide negative assurance for in a comfort letter?
Whether the entity’s unaudited interim financial information complies as to form with the accounting requirements of the Securities Act of 1933
What terms should an auditor avoid using in a comfort letter?
Terms of uncertain meaning, such as “general review,” “limited review,” “check,” or “test,” should not be used
Why? - Because an auditor performs a reasonable investigation to provide negative assurance in a comfort letter
Note: These terms should not be used unless the procedures to be performed are described in the comfort letter
What should a CPA’s report include when conducting a written report on the requirements of an applicable financial reporting framework to a specific transaction?
The CPA should include a statement that;
- Any difference in the facts, circumstances, or assumptions presented may change the report
What should an auditor’s report on financial statements prepared in accordance with a Special Purpose Framework include?
- statement that the basis of accounting is other than GAAP
- Reference to the note to the financial statements that describes the basis of accounting
- An opinion as to whether the financial statements are presented fairly, in all material respects, in accordance with the Special Purpose Framework (i.e. basis of accounting used for income tax)
What is the responsibility of an auditor practicing in the U.S. that;
- has been engaged to report on the financial statements of a U.S. entity that has been prepared in accordance with a financial reporting framework generally accepted in another country?
They should understand the framework
SIMPLY PUT: The auditor should obtain an understanding of the framework and identify the country of origin of the accounting standards used
What is a topic that is typically covered in a Comfort Letter?
An opinion as to whether the audited financial statements;
- comply in form with the accounting requirements of the SEC
NOTE: A Comfort Letter does NOT state or repeat an opinion about the fairness of presentation of the statements
When you think of a Comfort Letter - Think of Financial Information contained in registration statements filed with the SEC
What if a client requests an auditor to audit and report on the single element of net income?
Is this Possible?
Yes.
The auditor should obtain audit evidence relating to the fairness of the Financial position and results of operations
Why? - Because net income affects the balance sheet and the income statement
The auditor needs to obtain sufficient appropriate evidence to permit the expression of an opinion on the financial position and results of operations
How should supplementary information required by the FASB or GASB that management chooses to place in the notes to the financial statements be identified?
They should be identified as “Unaudited”
Why? - RSI is information that the designated accounting standards setter has determined must accompany the basic financial statements
- However, it is not a part of the basic statements and therefore is not required by the applicable reporting framework to be included
If the information is not required, not needed for fair presentation and clearly differentiated it should be identified as “Unaudited”
What can an auditor do if requested to express an opinion on specified elements, accounts, or financial statement items?
They may accept the engagement and express an opinion
*There is nothing wrong with this
What judgment factors should the auditor’s inquiries of management regarding required supplementary information (RSI) involve?
It should involve “Measurement and Presentation”
What is a MUST if an auditor should accept an engagement to report on summary statements?
The auditor MUST have been engaged to audit the financial statements from which the summary statements are derived
E.g. The auditor should NOT accept an engagement to report on summary statements unless;
- he has been engaged to audit the statements from which the summary financial statement are derived
What will an underwriter most likely receive when an auditor issues them an Comfort Letter?
Negative assurance on capsule information
E.g. This is -
(1) unaudited summarized interim information for periods subsequent to the periods covered by the audited financial statements; or
(2) unaudited interim financial information in the securities offering
What is a consideration for reports on financial statements prepared in accordance with a special purpose framework?
What will they most likely be issues with?
Compliance with aspects of regulatory requirements related to audited financial statements
What statement should be included in a CPA’s report WHEN their report is based on a review of interim financial information and presented in a registration statement (i.e. A Prospectus)?
A Statement that the Auditor’s review report is;
- not a part of the registration statement within the meaning of the Securities Act of 1933
What is the basis for negative assurance provided by a CPA?
An absence of nullifying evidence
E.g. Negative assurance consists of a statement by the auditor that;
- the results of procedures performed, did not caused the auditor to believe that specified matters do not meet specified criteria
What type of assurance is provided by Comfort Letters?
Comfort letters typically give NEGATIVE assurance on unaudited interim financial information
E.g. A typical comfort letter includes negative assurance on whether, if applicable; They are NOT required by the Securities Act of 1933
- unaudited IFI included in the registration statement materially complies as to form with the 1933 act and SEC pronouncements
Note: An auditor provides negative assurance on unaudited IFI included in the securities offering;
ONLY if he has performed a review in accordance with GAAS
What is an auditor’s responsibility for supplementary information (i.e. disclosure of pension information required by GASB)?
The auditor should apply certain limited procedures to the supplementary information and;
- report deficiencies in, or omissions of, such information
Note: This would be in an other-matter paragraph following the opinion paragraph and any emphasis-of-matter paragraph
What should an auditor do if they believe that financial statements prepared in Accordance with Special Purpose Frameworks are not suitably titled?
He should disclose his reservations in a basis for qualified opinion paragraph and QUALIFY his opinion
What is the best description of other information in documents containing audited financial statements?
Information presented in addition to the audited financial statements (e.g. report by management on operations)
NOTE: Other information can be financial or nonfinancial information; and
- is included in a document containing audited statements
What condition must an auditor meet in order to report on summary financial statements that are derived from audited financial statements?
The Auditor MUST:
- State whether the information is consistent with the audited financial statements
REMEMBER: Summary financial statements consist of historical information derived from financial statements audited in accordance with GAAS
The auditor should NOT accept an engagement to report on summary statements unless he has been engaged to audit the statements from which they are derived (i.e. the financial statements)
And the report should express an opinion on and state whether the summary statements are consistent, in all material respects, with the audited statements
What should be indicated based on a report of summary financial statements?
That the procedures performed included evaluating whether they are prepared in accordance with the applied criteria
E.g. This involves evaluating whether the summary statements are prepared in accordance with the criteria applied by management
