1
Q
Special Purpose Frameworks
A
- cash basis
- tax basis
- regulatory basis
- contractual basis
2
Q
Addition to SAS 127 for Special Purpose Frameworks
A
*any basis that uses a definite set of logical, reasonable criteria that is applied to all material items appearing in the financial statements
3
Q
OCBOA
A
Other Comprehensive Bases Of Accounting
4
Q
Additional Requirements for the Auditor for OCBOAs
A
- obtain an understanding of:
* *the purpose
* *the intended users
* *the steps taken by management to determine that the applicable financial reporting framework is acceptable - obtain the agreement of management that it acknowledges and understands its responsibility
- obtain an understanding of any significant interpretations of the contract that management made in preparing the statements
5
Q
Auditor’s Report Requirements on Special Purpose Financial Statements
A
- describe the purpose of the financial statements (not for cash or tax)
- use non-GAAP titles
- management responsibility (determining applicable framework)
- emphasis-of-matter (except for regulatory intended for general use)
* *describes the framework used and that it is non-GAAP - other-matter paragraph (except for regulatory intended for general use)
* *restrict use of: contractual and regulatory
6
Q
Regulatory Basis Financial Statements Intended for General Use
A
express opinion on:
- fairly presented in all material respects, in accordance with GAAP
- prepared in accordance with the special purpose framework
7
Q
Auditor’s Report Prescribed by Law or Regulation
A
*if it is unacceptable, the auditor should reword it or attach a separate report
8
Q
Opinion Paragraph for Special Purpose Financial Statements
A
*fair on “that” basis
9
Q
Describing the other basis of accounting
A
*must do so in a Basis of Accounting paragraph after the opinion where the other method is specifically mentioned
10
Q
Special Types of Reports for Regulatory intended for General Use
A
*can have two different opinions (one for each framework)
11
Q
Ways to Audit Single Financial Statements and/or Specific Elements
A
- separate engagement
2. while doing the audit
12
Q
Specific Elements, Accounts, or Items of a Financial Statement Listed
A
- accounts receivable, allowance for doubtful accounts, inventory, recorded value of intangibles
- schedule of disbursements regarding a lease property
- schedule of profit participation or employee bonuses
13
Q
Acceptability of the Financial Reporting Framework
A
- purpose for individual item
- intended users
- steps taken by management to determine that the applicable financial reporting framework is acceptable in the circumstances
14
Q
Audit Procedures for Single Financial Statement or Item
A
*can perform additional procedures and rely on the audit if one was conducted
15
Q
Materiality for Single Financial Statement or Item
A
*materiality is for the given circumstance
16
Q
Important Steps for Auditors when Reporting on Complete Set of Financials and a Specific Element
A
- issue a separate opinion for each item
2. indicate in the separate report the nature of the opinion expressed on the whole statements
17
Q
Modified Opinion on Complete Set of Financials and Effect on Specific Report
A
- express adverse (GAAP)
- express disclaimer (GAAS)
* ability to express piecemeal opinion
18
Q
Piecemeal Opinion with Modified Opinion on Complete Set of Financials and Effect on Specific Report
A
only if:
- not published or accompany report on complete set
- not constitute a major portion of the complete financials
19
Q
What to do if the set of financial statements contain an emphasis-of-matter paragraph and you are expressing an opinion on one statement or item
A
*add a similar emphasis-of-matter to the report on the single statement or element
20
Q
Reporting on an Incomplete Presentation that is Otherwise in Accordance with GAAP for Specific Statement or Element
A
- include an emphasis-of-matter paragraph that identifies:
* *purpose for which the presentation is prepared
* *indicates that presentation is not intended to be a complete presentation
21
Q
Compliance with Contractual or Regulatory Requirements Related to Audited Financial Statements
A
- auditor MUST have audited the client’s financials
- can only give negative assurance
- cannot give negative assurance with adverse or disclaimer
22
Q
Report on Compliance
A
Option 1. Separate report
**negative assurance
**description of instances of noncompliance
**RESTRICTS USE
Option 2. Report Included in Auditor’s Report
**other-matter paragraph
**negative assurance
**description of instances of noncompliance
**RESTRICTS USE
23
Q
Engagements to Report on Summary Financial Statements
A
- auditor MUST have audited the client’s financials
- evaluate whether the statements adequately disclose their summarized nature
- if not accompanied by the financials statements, must describe where and if the audited statements are available
24
Q
Form of Opinion for Engagements to Report on Summary Financial Statements
A
- no qualified
* unmodified or adverse ONLY
25
What happens if the audited financials statements had an adverse or disclaimer and you are auditing the summary financial statements?
*the auditor should withdraw
26
When is the auditor's report on the summary financial statements dated?
*after the date of the original audit report on the financial statements
27
Levels of Service for Reviews and Compilations
Compilation: no assurance
Review: limited assurance
28
Level of service when more than on service has been performed
*use the report that is appropriate for the highest level of service provided
29
Professional Standards used for Reviews and Compilations for Nonissuers
SSARS (Statements on Standards for Accounting and Review Services) - AICPA
30
SSARS Applicability
* reviews, compilations, report on specified elements, pro forma financial information
* does not apply for other accounting services, unless many adjusting or correcting entries are made
31
Elements of Compilation and Review Engagements
1. Three-party relationship (management, auditor, intended users)
2. Financial Reporting Framework
3. Financial Statements or Financial Information
4. Sufficient Appropriate Evidence (REVIEW ONLY)
5. Written Communication or Report
32
Materiality for Compilations and Reviews
*use professional judgment
33
Two instances where an engagement letter is presumptively mandatory
1. review
| 2. compilation
34
Compilation Requirements
1. knowledge of industry accounting principles and practices
2. understanding of client's business
* *S taff qualifications
* *T ransaction types and frequencies
* *A ccounting basis used
* *F orm of the accounting records
* *F inancial statements' form and content
3. reading the financial statements
4. fraud and illegal acts, going concern, subsequent events
35
Is independence required for a compilation?
No, you are not issuing an opinion
| **must disclose lack of independence
36
What should happen if the client refuses to furnish information needed when working on a compilation?
* consider withdrawing
| * you are NOT doing audit work
37
Documentation in a Compilation Engagement
1. engagement letter
2. significant findings
3. oral or written communications with management regarding fraud or illegal acts
38
Form for Compilation Report
```
C ompiled
A udited (NOT) or
R eviewed (NOT)
M anagement's
R esponsibility
A ccountant's
R esponsibility
S SARS used by AICPA
O bjective of a compilation is to assist
M anagement in presenting financial information
```
39
Compilation with Omission to All Disclosures
1. report clearly indicates the omission by including a fourth paragraph
2. omission is not intended to mislead any person who might be expected to use the financial statements
40
Compiled financial statements that omit GAAP disclosures are acceptable if:
1. statements are otherwise in conformity to GAAP
2. reason was not to deceive users
3. compilation warns the user (NOT RESTRICT)
41
Compiled financial statements depart from applicable financial reporting framework
disclose or withdraw
42
Compilation Engagement and Not Independent
disclose
43
Compilations of Personal Financial Statements
*SSARS not required if not credit (not used for any outside purpose)
44
Exception to Reporting Requirement for Compilations
* may use an engagement letter instead (plain paper report)
* use ENGAGEMENT LETTER and
* RESTRICT USE on EVERY PAGE
45
Review of Financial Statements Procedure
U nderstanding with the client should be established
L earn and/or obtain sufficient knowledge of the entity's business
I nquiries should be addressed
A nalytical procedures
R eview -- other procedures should be performed
C lient representation letter
P rofessional judgment used to evaluate results
A uditor communicates results
46
Items not Required when Reviewing Financial Statements
1. test internal control
2. perform audit tests
3. assess fraud risk
4. communicate with the predecessor accountant (cant be done, judgment call)
47
Key Component for Reviews that Must Be Received
Client Representation Letter
* management's responsibility for preparation and fair presentation
* dated once the review is completed
48
Professional Judgment to Evaluate Results of Review
* a review that is incomplete will prevent the issuance of a review report
* form and documentation including
* *engagement letter
* *significant findings
* *etc.
49
Review Report Outline
```
Review = negative assurance
A applied analytical procedures
M anagement's financial data
I nquiries of management
S ubstantially less in scope than an
A udit
D oes not express such opinion
M anagement's
R esponsibility
F inancial statements
I nternal controls
R esponsibility of accountant
S SARS issued by
A ICPA
L imited
A ssurance
*engagement results paragraph
*each page marked see independent accountant's review report
```
50
Is independence required for a review?
Yes, there is limited assurance
51
Reporting on Departures from the Applicable Financial Reporting Framework for Reviews and Compilations
Report modification: separate paragraph disclosing the departure
Report modification not adequate: consider withdrawal
52
Reporting Fraud and Illegal Acts for Reviews and Compilations
appropriate level of management must be notified
53
Subsequent Discovery of Facts for Reviews and Compilations
Accountant
1. advise client to issue revised statements
2. make necessary disclosures and revisions
3. provide notification that the statements and report should not be relied upon
Client refuses
1. accountant's report must no longer be associated
2. notify any regulatory agencies
3. notify persons known to be relying or likely to rely on the financial statements
54
Change in Engagement
*changes must be justified
Acceptable
1. change in client requirements
2. misunderstanding as to nature of services
Unacceptable
1. engagement would uncover fraud
2. attempting to create misleading or deceptive financial statements
Scope Limitations
1. client refuses to allow correspondence with legal counsel
2. client refuses to provide a signed representation letter
55
Compilation/Review Report Not Permitted
Scope Limitations
1. client refuses to allow correspondence with legal counsel
2. client refuses to provide a signed representation letter
56
Reporting on Comparative Financial Statements (Options of Presentation)
1. current period reviewed and prior period compiled
**report on the prior period should be updated and issued as the last paragraph of the current period's report
2. current period compiled and prior period reviewed
**issue a compilation report and add a paragraph
or
**reissue the prior period review report (combined or presented separately
**no review procedures were performed after the date of the review report
57
Other Accountants Involved in Prior Periods (Comparative Financial Statements)
old accountant should perform the following procedures:
1. read the statements and the report of the current period
2. compare the prior period statements with those issued previously and currently
3. obtain a letter from the successor accountants stating they are not aware of any material effects on the prior period statements
58
Other Accountants Involved in Prior Periods (Predecessor's Report Not Reissued)
1. make reference to the report in the current report
or
2. perform that level of service themselves
59
Reporting Comparative Financial Statements when One Period is Audited
1. reissue the prior period
or
2. include an additional paragraph describing the responsibility assumed
**downgrade: no audit services performed
**upgrade: service was less in scope than an audit and did not provide a basis for an opinion
60
Review of Interim Financial Information Procedures
U nderstanding with the client should be established
L earn and/or obtain sufficient knowledge of the entity's business
I nquiries should be addressed
A nalytical procedures
R eview -- other procedures should be performed
C lient representation letter
P rofessional judgment used to evaluate results
A uditor communicates results
61
Engagement Letter for Interim Financial Information
1. objectives and scope of the engagement
2. management's responsibilities (I/C and F/S)
3. auditor's responsibilities (SAS or PCAOB standards)
4. limitations of the engagement (no opinion)
5. financial reporting framework
62
Inquiries for Interim Financial Information
*should be directed to members of management, though judgment can be used to inquire to lawyers and about going concern
63
Analytical Procedures for Interim Financial Information
* trends, ratios, budget vs. actual
| * may want to benchmark and compare to industry standards
64
Written Representation Letter from Management for Interim Financial Information
* required
| * F/S and adds I/C
65
Scope Limitations on Interim Financial Information
*unable to perform necessary procedures or management does not provide appropriate representations = no report
66
Interim Financial Statements use SSARS or PCAOB?
PCAOB
67
Departures from the Applicable Financial Reporting Framework for Interim Financial Information
*add a basis for modification paragraph (before conclusion)
68
Going Concern / Lack of Consistency
* disclosure in F/S is okay and can be modified and disclosed by auditor (not required)
* must be modified if it is not disclosed
69
What should interim financial information include in it if it is to be paired with audited financial statements?
should be marked "unaudited" or else the opinion must be disclaimed
70
What should interim financial information include in it if it is to be paired with a registration statement?
auditor should clarify that the report is not considered to be a report or part of the registration statement
71
Another name for a letter to an underwriter
comfort letter
| *a review is required when a comfort letter is to be issued
72
Assurance given in a comfort letter
negative assurance
73
Are comfort letters restricted use?
yes
74
Type of Assurance for Comfort Level
POSITIVE: CPA's independence AND compliance as to form with SEC act assuming statements are AUDITED
NEGATIVE: statements are NOT AUDITED
75
Auditor should not comment or provide assurance on these items in a comfort letter
1. market risk sensitive instruments
| 2. qualitative disclosures
76
Attest vs. Audit
attest: auditing other than historical financial information
77
Standards that Apply to Services a CPA Provides
Audit: SAS or PCAOB
Compilation or Review: SSARS
Attest Engagement: SSAE
78
Major Types of Attest Engagements
1. agreed-upon procedures
2. financial forecasts and projections
3. pro forma financial statements
4. internal control over financial reporting
5. compliance
* *6. management's discussion and analysis (HUGE SEC requirement)
79
Eleven Attestation Standards
Five General
T raining and proficiency
I ndependence
P erformance/due professional care in planning and performance
P rofessional, adequate knowledge of subject matter
Y our belief that the subject matter is capable of evaluation (professional judgment)
Two Fieldwork
P lanning and supervision
A ppropriate, sufficient evidence to provide a reasonable basis
Four Reporting Standards
S ubject matter is identified
S ignificant reservations are disclosed
E xpress conclusions
R estrict use
80
When to restrict the use of the report for attest engagements
1. criteria are appropriate only to a limited number of parties
2. reporting on subject matter and a written assertion HAS NOT been provided
3. reporting on agreed-upon procedures
81
Additional Reporting Requirements for Attestations
1. report may be issued on the assertion itself or on the subject matter (presents fairly)
2. if reporting on the assertion, it needs to be in writing and accompany the report (would not be restricted in this case)
82
Scope Restrictions for Attestations
consider withdrawing
83
Conclusion Types for Attestations
Examination: positive assurance
Review: negative assurance
Agreed-upon procedures: no assurance
84
No Written Assertion in Attest Engagement
1. client is the responsible party --> withdraw
| 2. client is not the responsible party --> use should be restricted
85
Agreed-Upon Procedures Conditions
```
I ndependence of the Practitioner
A greement of the Parties
M easurability and Consistency
S ufficiency of the Procedures
U se of the Report is Restricted
R esponsibility for the Subject Matter
E ngagements to Perform Agreed-upon Procedures on Prospective Financial Statements (SUMMARY OF SIGNIFICANT ASSUMPTIONS)
```
86
Important item to include when working with prospective financial statements
SUMMARY OF SIGNIFICANT ASSUMPTIONS
87
Some Important Reporting Elements for Attest Functions
1. statement that the procedures were followed
2. statement restricting the use
3. include summary of assumptions for prospective financial information
88
Financial Forecasts and Projections
```
Financial Forecasts
**expected conditions and expected courses of action
**general & limited use
Financial Projections
**hypothetical "what if" scenarios
**limited use only
```
89
Three Types of Engagements for Interacting with Prospective Financial Statements
1. compilation = no assurance/just assembled ok
2. examination = opinion
3. agreed-upon procedures = disclaimer of opinion
* REVIEWS ARE NOT ALLOWED
90
Compilation of Prospective Financial Statements
* purpose: proper assembling
* no assurance
* not required to gather supporting evidence
* cannot issue if there is summary of significant assumptions
* results may not be achieved
* audit has no responsibility to update the report
* no statement that prospective F/S are in conformity with AICPA guidelines
91
Purpose of Examination of Prospective Financial Statements
* express an opinion on
1. conformity with AICPA guidelines (not in compilation)
2. underlying assumptions provide a reasonable basis
92
Examination of Prospective Financial Statements - Other Requirements
* independence is required
* evidence is required
* state opinion and that they are presented in conformity with AICPA guidelines
93
Modifications to the Opinion for Examination of Prospective Financial Statements
* AICPA presentation guidelines are not followed (qualified or adverse)
* significant assumptions are not disclosed (adverse)
* basis not reasonable (adverse opinion)
* scope limitation (disclaimer)
94
Agreed-upon Procedures for Prospective Financial Statements
* summary of significant assumptions
* disclaimer on whether the statements are presented in conformity with AICPA guidelines
* reasonable basis for assumptions
95
Partial Presentations of Prospective Financial Statements
limited use
96
Pro Forma Financial Statements Attest Requirements
* may be examined or reviewed
* *DO NOT NEED TO RE-EVALUTE I/C
* *DETERMINE MATH/COMPUTATIONS ARE CORRECT
* written representations from management
* make reference to the financial statements derived and state whether they were reviewed or audited
97
Management's D&A - Attestation
* may examine or review
| * statement is required by SEC for issuers
