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Flashcards in A1-6 Deck (23)
1

Which of the following is not true regarding an engagement to provide a written report on the application of the requirements of an applicable financial reporting framework?

a.

The reporting accountant's written report on the application of the requirements of the application of the applicable financial reporting framework should include a paragraph restricting the use of the report.

b.

A reporting accountant is prohibited from providing a report on the application of the requirements of an applicable financial reporting framework to a transaction not involving the facts and circumstances of a specific entity.

c.

The reporting accountant's written report on the application of the requirements of an applicable financial reporting framework should include an identification of the specific entity involved.

d.

A reporting accountant is prohibited from providing a report on the application of the requirements of an applicable financial reporting framework to a proposed future transaction involving the facts and circumstances of a specific entity.

Choice "d" is correct. A reporting accountant may report on the application of the requirements of an applicable financial reporting framework to a proposed future transaction as long as the transaction involves the facts and circumstances of a specific entity.

Choice "b" is incorrect. A reporting accountant is prohibited from providing a report on the application of the requirements of an applicable financial reporting framework to "hypothetical transactions," which are defined as those not involving the facts and circumstances of a specific entity. 

Choices "c" and "a" are incorrect. The reporting accountant's written report on the application of an applicable financial reporting framework should include an identification of the specific entity involved; a brief description of the nature of the engagement; a statement that the engagement was performed in accordance with AICPA standards; a description of the specific transaction(s); a statement of the relevant facts, circumstances, assumptions and source of the information; a statement describing the appropriate application of the requirements of the applicable financial reporting framework to the specific transaction or type of report; a statement that the preparers of the financial statements are responsible for proper accounting treatment; a statement that any difference in facts, circumstances or assumptions presented may change the report; a separate paragraph restricting its use to specified parties; and a statement indicating that the reporting accountant is not independent (if appropriate).

2

Before reporting on the financial statements of a U.S. entity that have been prepared in accordance with a financial reporting framework generally accepted in another country, an auditor practicing in the U.S. should:

a.

Receive a waiver from the auditor's state board of accountancy to perform the engagement.

b.

Be certified by the appropriate auditing or accountancy board of the other country.

c.

Understand the applicable legal responsibilities involved if the auditor plans to use the form and content of the auditor's report of another country.

d.

Notify management that the auditor is required to disclaim an opinion on the financial statements.

Choice "c" is correct. In an audit of financial statements prepared in accordance with a financial reporting framework generally accepted in another country, the auditor should obtain an understanding of the applicable legal responsibilities involved if the auditor plans to use the form and content of the auditor's report of another country. The auditor should also obtain an understanding of the purpose for which the financial statements are prepared; whether the financial reporting framework is a fair presentation framework; the intended users of the financial statements; and the steps taken by management to determine whether the applicable financial reporting framework is acceptable in the circumstances.

Choice "b" is incorrect. The auditor practicing in the U.S. would be able to report on the financial statements of the U.S. entity without obtaining certification in the other country.

Choice "d" is incorrect. The auditor need not disclaim an opinion on the financial statements prepared in accordance with a financial reporting framework generally accepted in another country.

Choice "a" is incorrect. A waiver to perform the engagement is not necessary.

3

In connection with a proposal to obtain a new client, an accountant in public practice is asked to prepare a written report on the application of the requirements of an applicable financial reporting framework to a specific transaction. The accountant's report should include a statement that:

a.

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

b.

The engagement was performed in accordance with Statements on Standards for Consulting Services.

c.

The guidance provided is for management use only and may not be communicated to the prior or continuing auditors.

d.

Nothing came to the accountant's attention that caused the accountant to believe that the financial reporting framework violated GAAP.

Choice "a" is correct. The reporting accountant's report on the application of the requirements of an applicable financial reporting framework should include a statement that should any facts or circumstances differ from those presented to the reporting accountant, the accountant's report may change.

Choice "b" is incorrect. The report should state that the engagement was performed in accordance with "AICPA Standards," not statements on Standards for Consulting Services.

Choice "c" is incorrect. The report's use is restricted to "specified parties," which may include parties other than management (e.g., the board of directors). Also, the preparers of the financial statements should consult with the entity's continuing accountant.

Choice "d" is incorrect. The report does not provide negative assurance with respect to GAAP; rather, it may describe the applicable financial reporting framework to be applied.

4

Blue, CPA, has been asked to issue a written report on the application of the requirements of an applicable financial reporting framework to a specific transaction by an entity that is audited by another CPA. Blue may accept this engagement, but should:

a.

Disclaim any opinion that the hypothetical application of the applicable financial reporting framework conforms with generally accepted accounting principles.

b.

Notify the entity that the report is for the general use of all interested parties.

c.

Consult with the continuing CPA to obtain information relevant to the transaction.

d.

Report the engagement's findings to the entity's audit committee, the continuing CPA, and management.

Choice "c" is correct. When issuing a report on the application of the requirements of an applicable financial reporting framework to a specific transaction, the reporting CPA should consult with the continuing CPA to obtain information relevant to the transaction. If the reporting accountant decides it is unnecessary to consult with the continuing accountant, then he or she must document the reasons for not consulting.

Choice "d" is incorrect. The reporting CPA has no obligation to report the engagement's findings to the continuing CPA. Generally, the report would be addressed to the requesting party (e.g., management, the board of directors, etc.).

Choice "a" is incorrect. There is no disclaimer in the report; however, the CPA does state that the preparers of the financial statements are responsible for proper accounting treatment.

Choice "b" is incorrect. Use of the report is restricted to specified parties.

5

The financial statements of KCP America, a U.S. entity, are prepared for inclusion in the consolidated financial statements of its non-U.S. parent. These financial statements are prepared in conformity with a financial reporting framework generally accepted in the parent's country and are for use only in that country. How may KCP America's auditor report on these financial statements?

I.

A U.S.-style report (unmodified).

II.

A U.S.-style report modified to report on the financial reporting framework of the parent's country.

III.

The report form of the parent's country.

I
II
III
a.

No

Yes

Yes

b.

Yes

No

No

c.

Yes

No

Yes

d.

No

Yes

No

 

Choice "a" is correct. No - Yes - Yes. When financial statements are prepared in accordance with a financial reporting framework generally accepted in the parent's country and are for use only in that country, the auditor may report using either a U.S.-style report modified to report on the financial reporting framework of the parent's country or the report form of the parent's country.

Choices "b", "d", and "c" are incorrect, per the above explanation.

6

Which of the following reporting options is least likely with regard to supplementary information that is required by GAAP?

a.

The auditor's report on the financial statements includes both an opinion on the supplementary information and a statement restricting the use of the report.

b.

A disclaimer of opinion is issued on supplementary information.

c.

The auditor's report on the financial statements includes an opinion regarding whether the supplementary information is fairly stated in all material respects in relation to the financial statements taken as a whole.

d.

The auditor's report on the financial statements includes an other-matter paragraph stating that the auditor has applied the required procedures.

Choice "a" is correct. There is no requirement that the auditor's report on supplementary information required by GAAP be restricted.

Choice "d" is incorrect. An auditor is not required to audit required supplementary information, but the audit report should include an other-matter paragraph related to the supplementary information. When appropriate, this other-matter paragraph should state that the required supplementary information is included and the auditor has applied the required procedures.

Choice "b" is incorrect. An auditor is not required to reference other information in the financial statement audit report, but may choose to add an other-matter paragraph disclaiming an opinion on the other information.

Choice "c" is incorrect. When the auditor chooses to apply auditing procedures to the supplementary information, he or she may express an opinion regarding whether the supplementary information is fairly stated in all material respects in relation to the financial statements taken as a whole.

7

When financial statements include supplementary information which is outside the basic financial statements, but required by GAAP, the auditor may choose any of the following options,except:

a.

Report on whether the information is fairly stated in relation to the financial statements taken as a whole, if appropriate procedures have been applied.

b.

Disclaim an opinion on the information.

c.

Express negative assurance on the information, if review procedures have been appropriately performed.

d.

Express an opinion on the information, if he or she has been engaged to examine such information.

Choice "c" is correct. The auditor would not perform a review or express negative assurance on supplementary information required by GAAP.

Choice "d" is incorrect. The auditor may express an opinion on the information, if he or she has been engaged to examine it.

Choice "a" is incorrect. The auditor may report on whether the information is fairly stated in relation to the financial statements taken as a whole, if appropriate auditing procedures have been applied.

Choice "b" is incorrect. The auditor may disclaim an opinion on the information.

8

If information accompanying the basic financial statements has been subjected to auditing procedures, the auditor may include in the auditor's report on the financial statements an opinion that the accompanying information is fairly stated in:

a.

Accordance with attestation standards expressing a conclusion about management's assertions.

b.

All material respects in relation to the financial statements as a whole.

c.

Conformity with generally accepted accounting principles.

d.

Accordance with generally accepted auditing standards.

Choice "b" is correct. When information accompanying the basic financial statements has been subjected to auditing procedures, the auditor may include in the auditor's report an opinion that the information is fairly stated in all material respects in relation to the financial statements as a whole. This statement would appear in an other-matter or explanatory paragraph for a nonissuer or issuer, respectively, following the opinion paragraph. The information may be included in a separate report instead of the opinion report.

Choice "d" is incorrect. An opinion on supplementary information that is presented in the auditor's report on the financial statements does not state that information is fairly presented in accordance with GAAS. Instead, the opinion states that "the information is fairly stated in all material respects in relation to the financial statements as a whole."

Choice "c" is incorrect. The auditor would not state that information accompanying the basic financial statements was fairly stated in accordance with GAAP. 

Choice "a" is incorrect. Attestation standards do not apply to this engagement.

9

An auditor concludes that there is a material inconsistency in the other information in an annual report to shareholders containing audited financial statements. The auditor believes that the financial statements do not require revision, but the client is unwilling to revise or eliminate the material inconsistency in the other information. Under these circumstances, what action would the auditor most likely take next?

a.

Consider the situation closed because the other information is not in the audited financial statements.

b.

Communicate this matter with those charged with governance.

c.

Disclaim an opinion on the financial statements after explaining the material inconsistency in a other-matter paragraph.

d.

Issue an "except for" qualified opinion after discussing the matter with the client's audit committee.

Choice "b" is correct. If the auditor discovers a material inconsistency in other information accompanying the audited financial statements, the financial statements do not require revision, and the client refuses to eliminate or revise the inconsistency, the auditor should communicate the matter with those charged with governance and then consider 1) revising the report to include an other-matter paragraph describing the material inconsistency, 2) withholding the use of the report, or 3) withdrawing from the engagement and consulting with legal counsel.

Choice "a" is incorrect. Even though the auditor has no responsibility to audit or otherwise corroborate other information accompanying the financial statements, the auditor has a responsibility to read the other information accompanying the financial statements for consistency and to identify any material misstatements of fact included therein.

Choice "d" is incorrect. A qualified opinion is generally not warranted because the financial statements are fairly stated.

Choice "c" is incorrect. A disclaimer of opinion is generally not warranted because there is no limitation on scope.

10

What is an auditor's responsibility for supplementary information which is outside the basic financial statements, but required by the FASB?

a.

The auditor has no responsibility for required supplementary information as long as it is outside the basic financial statements.

b.

The auditor should apply certain limited procedures to the required supplementary information, and add an other-matter paragraph to the financial statement audit report.

c.

The auditor's only responsibility for required supplementary information is to determine that such information has not been omitted.

d.

The auditor should apply tests of details of transactions and balances to the required supplementary information, and report any material misstatements in such information.

 

Choice "b" is correct. For additional supplementary information required by the FASB, the auditor should apply certain limited procedures to the information and add an other-matter paragraph to the financial statement audit report.

Choice "a" is incorrect. Required supplementary information is considered an essential part of financial reporting, and therefore certain limited procedures should be applied by the auditor.

Choice "c" is incorrect. For additional supplementary information required by the FASB, the auditor should apply certain limited procedures to the information and add an other-matter paragraph to the financial statement audit report.

Choice "d" is incorrect. Certain limited procedures should be applied to required supplementary information, but this information need not be audited.

11

When audited financial statements are presented in a client's document containing other information, the auditor should:

a.

Perform inquiry and analytical procedures to ascertain whether the other information is reasonable.

b.

Read the other information to determine that it is consistent with the audited financial statements.

c.

Add an other-matter paragraph to the auditor' s report without changing the opinion on the financial statements.

d.

Perform the appropriate substantive auditing procedures to corroborate the other information.

Choice "b" is correct. The auditor should read the "other information" in a client's document containing audited financial statements to determine that it is consistent with the audited financial statements.

Choice "a" is incorrect. Performing analytical procedures or any other procedure is not necessary.

Choice "c" is incorrect. An other-matter paragraph may be added, but is not required.

Choice "d" is incorrect. The auditor has no obligation to perform any procedure to corroborate "other information" contained in a document such as an annual report.

12

If management (of a governmental body) declines to present supplementary information required by the Governmental Accounting Standards Board (GASB), the auditor should issue a(an):

a.

Unmodified opinion.

b.

Adverse opinion.

c.

Qualified opinion with an emphasis-of-matter paragraph.

d.

Unmodified opinion with an other-matter paragraph.

 

Choice "d" is correct. If management (of a governmental body) declines to present information required by the GASB, the auditor should issue an unmodified opinion with an other-matter paragraph.

Choices "b", "c", and "a" are incorrect, per the above explanation.

13

Green, CPA, is requested to prepare a written report on the application of the requirements of an applicable financial reporting framework to a specific transaction by an entity that is audited by another CPA. Green may:

a.

Accept the engagement but should form an independent opinion without consulting with the continuing CPA.

b.

Accept the engagement but should consult with the continuing CPA to ascertain all the available facts relevant to forming a professional judgment.

c.

Not accept such an engagement because to do so would be considered unethical.

d.

Not accept such an engagement because Green would lack the necessary information on which to write such a report without conducting an audit.

Choice "b" is correct. A "reporting accountant" may accept the engagement, but should request permission from the entity's management to consult with the "continuing CPA" to ascertain the available facts relevant to forming a professional judgment. If the reporting CPA determines it is not necessary to consult with the continuing CPA, the reporting accountant should document the rationale for not consulting.

Choices "c" and "d" are incorrect. A reporting CPA may accept an engagement to provide a written report (or oral advice) on the application of the requirements of an applicable financial reporting framework to a specific transaction or on the type of report that may be rendered on a specific entity's financial statements. The reporting CPA should consult with the continuing CPA to obtain pertinent information or document the reasons why he or she did not consult.

Choice "a" is incorrect. The reporting accountant should consult with the continuing accountant to ascertain all the available, relevant facts.

Choice "b" is correct. A "reporting accountant" may accept the engagement, but should request permission from the entity's management to consult with the "continuing CPA" to ascertain the available facts relevant to forming a professional judgment. If the reporting CPA determines it is not necessary to consult with the continuing CPA, the reporting accountant should document the rationale for not consulting.

Choices "c" and "d" are incorrect. A reporting CPA may accept an engagement to provide a written report (or oral advice) on the application of the requirements of an applicable financial reporting framework to a specific transaction or on the type of report that may be rendered on a specific entity's financial statements. The reporting CPA should consult with the continuing CPA to obtain pertinent information or document the reasons why he or she did not consult.

Choice "a" is incorrect. The reporting accountant should consult with the continuing accountant to ascertain all the available, relevant facts.

14

In its annual report to shareholders, Lake Co. included a separate management report that contained additional information. Lake's auditor is expressing an unmodified opinion on Lake's financial statements but has not been engaged to examine and report on this additional information. What is the auditor's responsibility concerning such a report?

a.

The auditor should read the management report and consider whether it contains a material misstatement of fact.

b.

The auditor should add an other-matter paragraph to the report on the financial statements disclaiming an opinion on the additional information.

c.

The auditor has no obligation to read the management report or to verify the accuracy or appropriateness of its contents.

d.

The auditor should request Lake to place the management report in its annual report where it will not be misinterpreted to be the auditor's assertion.

 

Choice "a" is correct. The auditor should read other information accompanying the basic financial statements and consider whether it contains a material inconsistency or material misstatement of fact.

Choice "b" is incorrect. The auditor may add a disclaimer paragraph in this situation, but the auditor is not required to do so.

Choice "c" is incorrect. The auditor should read other information accompanying the basic financial statements and consider whether it contains a material inconsistency or material misstatement of fact.

Choice "d" is incorrect. Even if the management report were included in the annual report, the auditor still has the same responsibility regarding both the management report and the annual report: the auditor should read the information and consider whether it contains a material inconsistency or material misstatement of fact.

15

What is an auditor's responsibility for supplementary information, such as the disclosure of pension information, which is outside the basic financial statements but required by the GASB?

a.

The auditor should apply substantive tests of transactions to the supplementary information and verify its conformity with the GASB requirement.

b.

The auditor should apply certain limited procedures to the supplementary information and add an other-matter paragraph to the auditor's report.

c.

The auditor's only responsibility for the supplementary information is to determine that such information has not been omitted.

d.

The auditor has no responsibility for such supplementary information as long as it is outside the basic financial statements.

Choice "b" is correct. The auditor should perform limited procedures on required supplementary information accompanying the financial statements. In addition, the auditor's report on the financial statements should include an other-matter paragraph regarding the required supplementary information.

Choice "a" is incorrect. The auditor is not required to audit supplementary information.

Choice "c" is incorrect. The auditor is required to perform certain limited procedures with respect to supplementary information.

Choice "d" is incorrect. The auditor is responsible for performing certain limited procedures on supplementary information and for adding an other-matter paragraph to the audit report.

16

A U.S. entity prepares its financial statements in accordance with a financial reporting framework generally accepted in another country. These financial statements will be included in the consolidated financial statements of its non-U.S. parent. Before reporting on the financial statements of the U.S. entity, the auditor practicing in the U.S. should:

a.

Obtain written representations from management of the U.S. entity regarding the purpose and uses of the financial statements.

b.

Notify management of the U.S. entity that the auditor is required to disclaim an opinion on the financial statements.

c.

Receive a waiver to report on the U.S. entity from the appropriate accountancy authority in the other country.

d.

Communicate with the auditor of the non-U.S. parent regarding the level of assurance to be provided.

Choice "a" is correct. The report options for financial statements prepared for use in a foreign country depend upon the intended distribution. The auditor should therefore obtain written representations from management regarding the purpose and uses of the financial statements.

Choice "b" is incorrect. The auditor need not disclaim an opinion, but would either use a modified U.S. style report (distributed outside the U.S. only) or a standard U.S. report with an emphasis-of-matter paragraph that identifies the financial reporting framework (distributed within the U.S.)

Choice "c" is incorrect. The auditor is not required to receive a waiver from the other country.

Choice "d" is incorrect. The auditor is not required to communicate with the auditor of the non-U.S. parent.

17

An auditor determines that the entity is presenting certain supplementary financial disclosures of pension information that are required by the GASB. Under these circumstances, the auditor should:

a.

State that the audit is not being performed in accordance with generally accepted auditing standards.

b.

Document in the working papers that the required supplementary information is presented, but should not apply any procedures to the information.

c.

Compare the required supplementary information for consistency with the audited financial statements.

d.

Add an additional paragraph to the auditor's report that refers to the required supplementary information only if there are problems with the information.

Choice "c" is correct. The auditor should perform certain limited procedures on supplementary information accompanying the financial statements, including evaluating whether the information is consistent with the audited financial statements.

Choice "d" is incorrect. The auditor's report on the financial statements should include an other-matter paragraph discussing the supplementary information and disclaiming an opinion on the information.

Choice "a" is incorrect. An audit can and should be performed in accordance with generally accepted auditing standards even when required supplementary information is presented.

Choice "b" is incorrect. The auditor should perform certain limited procedures on supplementary information accompanying the financial statements.

18

An auditor reads the letter of transmittal accompanying a county's comprehensive annual financial report and identifies a material inconsistency with the financial statements. The auditor determines that the financial statements do not require revision. Which of the following actions should the auditor take?

a.

Request a client representation letter acknowledging the inconsistency.

b.

Include an other-matter paragraph in the auditor's report.

c.

Consider withdrawing from the engagement.

d.

Request that the client revise the letter of transmittal.

Choice "d" is correct. When information accompanies audited financial statements in a client-prepared document, the auditor is required to read the information. If such information is materially inconsistent with the financial statements and the financial statements do not require revision, the auditor should request that the information (in this case the letter of transmittal) be revised.

Choice "b" is incorrect. The auditor would only revise the report to include discussion of the material inconsistency if the client were unwilling to revise the transmittal letter appropriately.

Choice "c" is incorrect. The auditor would only consider withdrawing from the engagement if the client were unwilling to revise the transmittal letter appropriately.

Choice "a" is incorrect. The auditor would not request a client representation letter acknowledging the inconsistency, as correction (and not simply acknowledgment) of the error is desired.

19

What is an auditor's responsibility for supplementary information, such as disclosure of pension information, which is outside the basic financial statements but required by GAAP?

a.

The auditor should apply certain limited procedures to the supplementary information.

b.

The auditor should perform tests of transactions to the supplementary information to verify that it is reasonably comparable to the prior year's information.

c.

The auditor's only responsibility for supplementary information is to determine that such information has not been omitted.

d.

The auditor should engage a specialist, such as an actuary, to verify that management's assertions are reasonable.

Choice "a" is correct. The auditor should apply certain limited procedures to the supplementary information and, when necessary, add an other-matter paragraph regarding the supplemental information to the financial statement audit report.

Choice "d" is incorrect. The auditor is not required to engage a specialist, nor is the auditor required to verify that management's assertions are reasonable.

Choice "c" is incorrect. The auditor also needs to determine if the required information departs materially from GAAP guidelines. In addition, if the auditor does not disclaim an opinion, then he/she needs to determine whether the information is fairly stated in all material respects in relation to the financial statements taken as a whole.

Choice "b" is incorrect. The auditor is not required to apply audit procedures to the supplementary information, or to verify whether it is comparable to the prior year's information.

20

What is an auditor's responsibility for supplementary information required by the GASB that is placed outside the basic financial statements?

a.

Label the information as unaudited and expand the auditor's report to include a disclaimer on the information.

b.

Apply limited procedures to the information.

c.

Audit the required supplementary information in accordance with generally accepted governmental auditing standards.

d.

Add an other-matter paragraph to the auditor's report only if there is a problem with the supplementary information.

Choice "b" is correct. With respect to supplementary information required by the GASB that is placed outside the basic financial statements, the auditor should apply limited procedures to the information (to determine that it is consistent with the basic audited financial statements) and add an other-matter paragraph to the financial statement audit report.

Choice "a" is incorrect. If the information is labeled "unaudited," a disclaimer generally would not be necessary.

Choice "d" is incorrect. The other-matter paragraph is added whenever required supplementary information is presented.

Choice "c" is incorrect. The supplementary information required by the GASB is not required to be audited since it is placed outside of the basic financial statements; however, an opinion is permitted.

21

An annual shareholders' report includes audited financial statements and contains supplementary information required by GAAP. Is it permissible for the auditor to report on such information?

a.

Yes, provided the auditor performs sufficient audit procedures to determine whether the information is fairly stated, in all material respects, in relation to the financial statements.

b.

No, because the auditor has no responsibility to read the other information in a document containing audited financial statements.

c.

No, because such reporting may lead to the belief that the auditor is responsible for the information.

d.

Yes, provided the report provides negative assurance only.

Choice "a" is correct. If the auditor performs sufficient procedures, he or she may report on whether the information is fairly stated, in all material respects, in relation to the financial statements.

Choices "c" and "b" are incorrect. The auditor may report on such information. The auditor does have the responsibility to read the information.

Choice "d" is incorrect. The report provides positive assurance about whether the information is fairly stated, in all material respects, in relation to the financial statements.

22

In connection with a proposal to obtain a new audit client, a CPA in public practice is asked to prepare a report on the application of the requirements of an applicable financial reporting framework to a specific transaction. The CPA's report should include a statement that:

a.

The engagement was performed in accordance with Statements on Standards for Accounting and Review Services.

b.

Responsibility for the proper accounting treatment rests with the preparers of the financial statements.

c.

The evaluation of the application of the requirements of an applicable financial reporting framework to a specific transaction is hypothetical and may not be used for opinion-shopping.

d.

The guidance is provided for management's use only and may not be communicated to the prior or continuing auditor.

Choice "b" is correct. When reporting on the application of the requirements of an applicable financial reporting framework to a specific transaction, the CPA should include in his or her report a statement that the preparers of the financial statements, who should consult with their continuing accountants, bear the ultimate responsibility for proper accounting treatment.

Choice "a" is incorrect. The report should state that the engagement was performed in accordance with "AICPA Standards," not SSARS.

Choice "c" is incorrect. The report does not make reference to "opinion-shopping," nor does it state that the evaluation is hypothetical.

Choice "d" is incorrect. The report's use is restricted to "specified parties," which may include parties other than management (e.g., the board of directors). Also, the preparers of the financial statements and the reporting accountant should consult with the entity's continuing accountant.

23

An auditor is engaged to report on selected financial data that are included in a client-prepared document containing audited financial statements.  Under these circumstances, the report on the selected data should:

a.

State that the presentation is prepared in accordance with a special purpose framework.

b.

Be limited to data derived from the entity's audited financial statements.

c.

Indicate that the data are subject to prospective results that may not be achieved.

d.

Restrict the use of the report to those specified users within the entity.

Choice "b" is correct. When the audit engagement includes reporting on selected financial data, the report prepared by the auditor should be limited to the data that was obtained from the financial statements

Choice "a" is incorrect. The presentation of selected financial data is not prepared in accordance with a special purpose framework.

Choice "d" is incorrect. The report is not required to be restricted to specific individuals within the organization.

Choice "c" is incorrect. The presentation of selected financial data is not a form of prospective financial statement.