Module 5: Reporting

Question 1

Trust Services Principles

Answer 1

Security
Availability
Processing Integrity
Online Privacy
Confidentiality

Question 2

Service Organization Control (SOC) Reports

Answer 2

The AICPA has established three types of examination services that result in the following three types of CPA reports on service organization controls (SOC):
SOC 1 - Restricted use reports on controls at a service organization relevant to a user entity’s internal control over financial reporting.
SOC 2 - Restricted use reports on controls at a service organization related to security, availability, processing integrity, confidentiality, and/ or privacy.
SOC 3 - General use SysTrust reports related to security, availability, processing integrity, confidentiality, and/ or privacy.

Question 3

Several extremely important points relative to the outline of the Statement on forecast/ projections are

Answer 3

1) An accountant should not be associated with forecast/ projections which do not disclose assumptions.
2) Forecast may be for general or limited use, while projections are for limited use only.
3) Independence is NOT required for compilations (recall this is also the case for financial statement complications).
4) Concerning assurance provided: Know that a compilation report provides no assurance (again this is also the case with financial statement compilations); an examination report provides positive assurance with respect to the reasonableness of assumptions; and an agreed-upon procedures report provides a summary of findings.

Question 4

AICPA Assurance Services Executive Committee (ASEC)

Answer 4

Mission is to identify, develop, and communicate new assurance service opportunities for CPAs.

Question 5

Emphasis of matter paragraphs are added to audit reports in two situations:

Answer 5

1) When the professional standards require that, when material, the matter be brought to the attention of users in the auditor’s report in all instances and
2) when the auditor on a discretionary basis includes the matter in the audit report.

Question 6

Qualified Opinion

Answer 6

A qualified opinion is issued in both of the circumstances:

1) materially misstated financial statements and
2) Inability to obtain sufficient appropriate audit evidence. The likely effects, while material, are not considered pervasive.

Question 7

Adverse Opinion

Answer 7

An adverse opinion is issued when financial misstatements are materially misstated and the effects of the misstatement are both material and pervasive.

Question 8

Disclaimer of opinion

Answer 8

A disclaimer of opinion is issued in the second circumstance, when inability to obtain sufficient appropriate audit evidence has occurred and the possible effects are both material and pervasive. A disclaimer states that the auditor does not express an opinion on the financial statements.

Question 9

Three types of scope limitations include:

Answer 9

1) Circumstances beyond the control of the client (e.g. important accounting records were destroyed)
2) Circumstances relating to the nature and timing of the auditors work (e.g., the auditors were hired too late to observe the client’s beginning inventory).
3) The client (e.g., the client refused to allow the auditors to send confirmations to customers).

Question 10

Group Engagement Team should obtain an understanding of

Answer 10

1) whether the component auditor is competent and understands and will comply with all ethical requirements particularly independence.
2) The extent to which the group engagement team will be involved with the component auditor
3) Whether the group engagement team will be able to obtain necessary information on consolidated process from the component auditor.
4) Whether the component auditor operates in a regulatory environment that actively oversees auditors.