Special Purpose Reports Flashcards
Special Purpose Reports
Four main areas:
- Audits of financial statements prepared in accordance with a special purpose framework
- Single financial statement and specified elements, accounts, or items
- Contractual or regulatory compliance
- summary financial statements
Special Purpose Frameworks
Audits of financial statements prepared in accordance with a special purpose framework
Five special purpose frameworks:
First four are referred to as OCBOA (other comprehensive basis of accounting)
- Cash basis
- Tax basis
- Regulatory basis
- Any other basis with definite criteria (e.g. price level)
- Contractual basis
Cash basis
cannot use GAAP can’t say balance sheet
management responsbility paragraph
“in accordance with cash basis of accounting”
AR paragraph: unchanged
Opinion paragraph:
Financial statement titles
Accounting Basis used
Required EOM paragraph:
Required Refer to Note which describes the special purpose framework
States framework is other than US GAAP (ie an OCBOA)
Other Matter Paragraph
Required if framework is regulatory or contractual basis
Restricts use of report Not intended for general use
Problem with F/S using OCBOA
same as normal:
OCBOA Problem or disclosure problem:
- material = “except for” qualified opinion
- very material (pervasive) = adverse
Audit problem:
Scope problem- unable to gather evidence
-material = “except for” qualified opinion”
-very material (pervasive) = disclaim
Going concern problem
material - unmodified opinion
-required EOM paragraph
-raise doubt about entity’s ability to continue as a going concern
-very material (pervasive) = disclaim
Uncertainty causes misstatement
- material - “except for” qualified opinion
- very material (pervasive) = adverse
Uncertainty due to insufficient evidence (same as scope problem)
- material - “except for” qualified opinion
- very material (pervasive) = disclaim
Audit of single financial statement or specified items OCBOA
Audit of: B/S, I/S, CF, schedule of pension expenses, royalty income, etc.
Can be done as a separate engagement or in conjunction with an audit (for “far reaching” element like net income)
Must also audit interrelated items (sales & a/r, inventory and a/p, fixed assets & depreciation). Not required with international standards
Auditor required to understand:
- report’s purpose
- intended users
- management’s steps taken to determine appropriate reporting financial framework
Materiality determined in relation to the single financial statement or each element - not in relation to the aggregated financial statements or aggregated elements
Multiple Audit Reports
When auditing complete set of F/S AND a single F/S or a specified element, required to issue separate report with a separate opinion for each engagement
Reports can be published together if audit opinion on complete set of F/S is unmodified, and reports are differentiated.
Additional paragraphs - if report on complete set of F/S contains and OM or EOM paragraph, then opinion on single F/S or specified element must also contain the additional paragraph(s) if relevant
Specified Element Report
Report on specified element must have an Other Matter paragraph
Date of audit opinion on complete set
Type of opinion on the complete set
If audit opinion on the complete set of F/S is modified, and modification is related to the specified element, must express an adverse opinion on the specified element.
If audit opinion on the complete set of F/S is modified due to a scope limitation, must disclaim an opinion on the specified element.
Special Reports for Contractual or Regulatory Compliance: Objective
Objective is to express negative assurance (nothing came to auditors attention to make auditor believe that entity failed to comply)
- no instances of noncompliance
- unmodified or qualified opinion on F/S (not adverse or disclaimer)
- audit procedures were applied to regulatory requirements
Special Reports for Contractual or Regulatory Compliance: Adverse opinion or disclaimer on complete set of financial statements
Issue report ONLY if auditor has identified instances of noncompliance
Describe instances of noncompliance in the report
Special Reports for Contractual or Regulatory Compliance: Reports
Compliance report can be done as a separate report
other matter paragraph restrict use of the report
Compliance report can be included in auditor’s report on complete set of F/S
Other Matter paragraph would give negative assurance and restrict use of the report
Special Reports for Summary Financial Statements
Must be completed in conjuction with an audit
Can only issue an unmodified or adverse opinion on summary F/S
Unmodified means summary F/S are materially consistent with audited financial statements
Adverse opinion means summary F/S are NOT materially consistent with audited financial statements AND management refuses to correct
If adverse opinion or disclaimer on complete set of F/S, must withdraw from the summary F/S engagement and cannot express an opinion on the summary F/S
Reporting on Prospective Financial Statements
Forecasts - to client’ s best belief what will be expected financial position in the future.
- General use statement
- F/S or a report
Projection - given 1 or more hypothetical assumptions, what will be financial position in the future
-limited-use report
Reporting on Prospective Financial Statements: CPA Options
- Examination - similar to an audit. Examining prospective data, not historical. Objective is to express an opinion
Unmodified opinion - forecast or projection conforms with AICPA guidelines
Can also give qualified or adverse opinion - Compilation - No assurance given; independence is not required. Present management’s information in the form of a forecast or projection. Report must state an examination was not done.
- Agreed upon procedures - present findings of applying agreed-upon procedures
Reporting on Prospective Financial Statements: Report Requirement
Report must state that prospective results may not be achieved
CPA has no updating responsibility
