Related Reporting Topics

Question 1

What would a Comfort Letter NOT contain?

Answer 1

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

Question 2

What would normally be covered in a comfort Letter?

Answer 2

• independence of the CPA
• Changes in financial statement items during a period subsequent to the date and period of the latest financial statements

Question 3

What is TRUE involving an engagement to express an opinion on one or more specific elements, accounts, or items of a financial statement?

Answer 3

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

Question 4

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?

Answer 4

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

Question 5

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?

Answer 5

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

Question 6

How would you report if reporting on summary financial statements for an annual period; and

You decide to issue a unmodified opinion?

Answer 6

The report should;

• indicate whether the information in the summary financial statements is consistent, in all material respects, with the audited financial statements

Question 7

What should an auditor do if engaged by a client to audit their Balance Sheet ONLY?

Answer 7

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

Question 8

What should an auditor do when reporting on Required Supplementary Information i.e. RSI?

Answer 8

They should compare the required supplementary information for consistency with the audited financial statements

Question 9

What is an auditor’s reporting responsibility when engaged to report on supplementary information in relation to the financial statements as a whole?

Answer 9

They should report on all the information

Question 10

Who is the Comfort Letter usually addressed to?

And Who signs the Letter?

Answer 10

The Comfort Letter is usually addressed to;

• The Client’s Requesting Party and
• Signed by the client’s Independent Auditor

Question 11

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)?

Answer 11

• 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

Question 12

What procedures would an auditor perform when reviewing interim financial information (IFI)?

Answer 12

• 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

Question 13

What are NOT suitable titles for financial statements prepared using a special purpose framework?

Answer 13

• Statement of comprehensive income
• Statement of operations
• Income statement

Why? - Because this sort of terminology is understood to be prepared in accordance with GAAP

Question 14

What would be a reason to modify an auditor’s report on a review of interim financial information?

Answer 14

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

Question 15

What is a requirement of an accountant conducting a review of interim financial information?

Answer 15

The CPA must maintain independence in mental attitude in all matters relating to the engagement

Question 16

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?

Answer 16

The CPA may accept the engagement if;

• an audit in accordance with GAAS is practicable

Question 17

What should a report on summary financial statements indicate?

E.g. What should be included?

Answer 17

• Procedures performed including evaluating whether the financial statements are prepared in accordance with the applied criteria

Question 18

What type of opinion should the auditor express if management declines to present required supplementary information?

Answer 18

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

Question 19

What is a CPA’s responsibility for required supplementary information (RSI)?

Answer 19

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

Question 20

What does a CPA typically do when performing a review of interim financial information (IFI)?

Answer 20

• Make inquiries of Management
• Perform analytical procedures
• Consider the results from the latest audit

Question 21

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?

Answer 21

They should reword the form

SIMPLY PUT: When a report form calls for an unjustified assertion, an auditor should reword the form