Related Reporting Topics II

Question 1

What may an auditor provide negative assurance for in a comfort letter?

Answer 1

Whether the entity’s unaudited interim financial information complies as to form with the accounting requirements of the Securities Act of 1933

Question 2

What terms should an auditor avoid using in a comfort letter?

Answer 2

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

Question 3

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?

Answer 3

The CPA should include a statement that;

• Any difference in the facts, circumstances, or assumptions presented may change the report

Question 4

What should an auditor’s report on financial statements prepared in accordance with a Special Purpose Framework include?

Answer 4

• 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)

Question 5

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?

Answer 5

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

Question 6

What is a topic that is typically covered in a Comfort Letter?

Answer 6

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

Question 7

What if a client requests an auditor to audit and report on the single element of net income?

Is this Possible?

Answer 7

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

Question 8

How should supplementary information required by the FASB or GASB that management chooses to place in the notes to the financial statements be identified?

Answer 8

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”

Question 9

What can an auditor do if requested to express an opinion on specified elements, accounts, or financial statement items?

Answer 9

They may accept the engagement and express an opinion

*There is nothing wrong with this

Question 10

What judgment factors should the auditor’s inquiries of management regarding required supplementary information (RSI) involve?

Answer 10

It should involve “Measurement and Presentation”

Question 11

What is a MUST if an auditor should accept an engagement to report on summary statements?

Answer 11

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

Question 12

What will an underwriter most likely receive when an auditor issues them an Comfort Letter?

Answer 12

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

Question 13

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?

Answer 13

Compliance with aspects of regulatory requirements related to audited financial statements

Question 14

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)?

Answer 14

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

Question 15

What is the basis for negative assurance provided by a CPA?

Answer 15

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

Question 16

What type of assurance is provided by Comfort Letters?

Answer 16

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

Question 17

What is an auditor’s responsibility for supplementary information (i.e. disclosure of pension information required by GASB)?

Answer 17

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

Question 18

What should an auditor do if they believe that financial statements prepared in Accordance with Special Purpose Frameworks are not suitably titled?

Answer 18

He should disclose his reservations in a basis for qualified opinion paragraph and QUALIFY his opinion

Question 19

What is the best description of other information in documents containing audited financial statements?

Answer 19

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

Question 20

What condition must an auditor meet in order to report on summary financial statements that are derived from audited financial statements?

Answer 20

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

Question 21

What should be indicated based on a report of summary financial statements?

Answer 21

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