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Flashcards in AUD 8 - Other Services & Reports Deck (27):
1

What kind of Engagements requires the auditor to be Independent? (Attestation Engagements)

(ERAS)

  1. Exam (Audit)
  2. Reviews
  3. Agreed-upon Procedures
  4. Special Reports (purpose)
    1. Report on FS prepared in conformity with a special purpose framework (OCBOA)

    2. Reporing on Specified Elements, Accounts, or Items on the FS.

    3. Completing Prescribed Report Forms of a Govt agency on behalf of the client. (Rarely Tested)

    4. Reporting on the client's Compliance with Contracts or Gov't requirements

2

What are 4 Special Reports?

An accountant may be asked to prepare a special report in certain engagements, including:

  1. Report on FS prepared in conformity with a special purpose framework (OCBOA) such as. (NOTE: Emphasis-of-Matter PG must be added)
    • Cash Basis
    • Tax Basis
    • Contractual/Regulatory Basis
  2. Reporing on Specified Elements, Accounts, or Items (SI) on the FS. 
    • Accountant may accept an engagement to examine/compile specified elements, accounts or items on the FS as long as the client imposes NO restriction the the scope of the auditor's procedures.
  3. Completing Prescribed Report Forms of a Govt agency on behalf of the client. (Rarely Tested)
  4. Reporting on the client's Compliance with Contracts or Gov't requirements. 
    • ​​Usual procedure is "Agreed-upon Procedures"

3

Supplementary Information (3)

 

What are the three types?

Supplementary Information - are "Other Information" in the documents containing Financial Statements. Examples may include a letter to the shareholders, bond covenant disclosures, or consolidating information. There are three situations where SI would be included in documents containing FS:

  1. Volunatry by client (SI)
  2. Required by FASB/GASB (RSI)
  3. Submitted by Auditor

 

NOTE:  In all cases of supplementary being inadequate or inaccurate, add explanatory paragraph after the opinion & the opinion remains unqualified. 

4

Supplementary Information

Volunatary by Client (SI)

 

 

(Situation,Effect on Fieldwork,Effect on Report)

When SI is provided voluntarily by the client:

  • Auditor may be engaged to report on the SI, requiring it be subjected to audit procedures.
    • Examples of SI: letter to shareholders, bond covenant disclosures, consolidating information.
  • Certain requirments must be met even if the auditor is not engaged to report on SI such as:
    • The auditor needs to READ the information to determine that it is consistent with FS & obtain written representations from mgmt. 

 

NOTE:  If SI is NOT consistent, an explanatory paragraph should be added to identify the inconsistency, but the opinion will NOT be affected. 

5

Supplementary Information

Required Supplementary Information (RSI)

 

 

(Situation,Effect on Fieldwork,Effect on Report)

Supplementary Information that is required by the the AFRF (FASB or GASB). With regard to RSI, auditor must apply limited review procedures which includes:

  • Inquire of mgmt about methods of preparing information
  • Compare information for Consistency
  • Obtain Written Representation Letter from mgmt

 

EX of RSI:  MD&A , Budget Comparisons, Schedules.

 

NOTE:  If RSI is incomplete or incorrect, an explanatory paragraph will be added to the auditor's report to identify the deficiencie, but the opinion on the FS will NOT be affected. 

6

Supplementary Information

Submitted by Auditor

 

 

(Situation,Effect on Fieldwork,Effect on Report)

Supplementary Information that is submitted by the auditor to expand on the audit report to disclaim on information. 

Effect on Fieldwork: Audit unless disclaiming information.

Effect on Report: Report in all cases.

7

Supplementary Information Situations (3)

 

 

(SI,RSI,Auditor Submitted)

1.) SI - "Voluntary" information by the Client

  • Effect on Fieldwork:
    • READ for consistency
  • Effect on Report:
    • Report on Exceptions (problems) only.
      • ADD Explanatory Paragraph IF there are Exceptions only. 

 

2.) RSI - Required by AFRF (FASB or GASB)

  • Effect on Fieldwork: 
    • Limited Reviews Procedures on information
      • Inquiries
      • Comparison for Consistency
      • Obtain Representation Letter
  • Effect on Report
    • Report on Exceptions (problems) only
      • ADD Explanatory Paragraph IF there are Exceptions only. 

 

3.) SI Submitted by Auditor

  • Effect on Fieldwork:
    • Audit ALL SI or
    • Disclaim info if there is a scope limit
  • Effect on Report:
    • Report in ALL cases.

8

What are Prospective Financial Statements?

What are the two types?

Prospective FS ARE Attestation Engagements that an accountant may be engaged to apply procedures to financial information prepared in relation to a future period, prospective FS, which may be in the form of:

  1. Forecast - This presents what mgmt expects to occur or "believes" in the future based on expected conditions & expected courses of action
    • for General Use or Limited Use
  2. Projection - This presents what management believes will occur given certain hypothetical assumptions based on the "what if" scenario.
    • for Limited Use

9

What are the three different types of engagements that may be undertaken in connection with Prospective FS?

 

(ACE)

Forecasts (General/Limted Use) - Expectation

Projection (Limited Use) - Hypothetical Assumptions

 

There are three different types of engagements that an accountant may undertake in connection with Prospective FS:

  1. Examinations - Giving an Opinion on:
    • Conformity to AICPA presentation guidelines
    • Reasonable assumptions
  2. Compliation - Assist in prep of FS
    • "NO Opinion/Assurance" disclamer included
  3. Agreed-upon Procedures - Giving a report on tests applied by the CPA that are the results of an agreeement between the CPA, the client, & the third party with whom the client is negotiating with. 
    • ​​For limited use ONLY
    • NO assurance, just findings & procedures

 

Reports MUST always state (in ALL three reports):

  1. "Results may NOT be achieved"
  2. "NO responsibility to update"

 

NOTE:  Review of Prospective Financial Statements is NOT allowed. (Can't do a review on projected assertions)

10

Prospective FS - Compilation

Forecasts (General/Limted Use) - Expectation

Projection (Limited Use) - Hypothetical Assumptions

 

Compliation - Assist in prep of FS, report must include:

  • A limitation on the scope indicating that the accountant has not evaluated the assumptions. 
  • Express NO Opinion/Assurance on the Prospective FS
  • A warning (caveat) that the prospective results may NOT be achieved.
  • A statement that the accountant has NO reponsibility to update.
  • For Projections, a separate paragraph indicating the limitations on the usefulness of the reports.
  • If LACKS independence, a paragraph to that effect must be added.
  • There will be a difference between forcasted vs. actual results. 

 

NOTE:  Review of Prospective FS is NOT allowed. (Can't do a review on projected assertions)

11

Prospective FS - Examinations (Audit)

Forecasts (General/Limted Use) - Expectation

Projection (Limited Use) - Hypothetical Assumptions

 

Examinations must include the following: (Opinion)

  • An Opinion as to whether the FS are in conformity with AICPA presentation guidelines.
  • A warning (caveat) that the prospective results may NOT be achieved.
  • A statement that the accountant has NO reponsibility to update.
  • For Projections, a separate paragraph indicating the limitations on the usefulness of the reports,.

 

NOTE:  Review of Prospective FS is NOT allowed. (Can't do a review on projected assertions)

12

Prospective FS - Agreed-upon Procedures

Forecasts (General/Limted Use) - Expectation

Projection (Limited Use) - Hypothetical Assumptions

 

Agreed-upon Procedures - Giving a report on tests that are the result of an agreement between the CPA, the client, & a third party whom the client is negotiationg. Report includes:

  • The Findings based on the procedures.
  • A statement that the procedures applied may not be sufficient.
  • A warning (caveat) that the prospective Results may NOT be achieved.
  • A statement that the accountant has NO reponsibility to update.
  • A separate paragraph indicating the limitations on the usefulness of the reports.
  • A summary of significant assumptions is required.

 

NOTE: Review of Prospective FS is NOT allowed. (Can't do a review on projected assertions)

13

Attestation Engagements (SSAE-AT101)

(ERA)

The AICPA uses the term attestation to refer to any engagement in which the accountant expresses a written conclusion about the reliability of a written assertion or directly on the subject matter

 

There are three categories of attest engagements:

  1. Examinations (Audits) - An engagement whose end result is an expression of an opinion by the accountant about the written assertion of another party.
  2. Review - An engagement whose end result is an expression of a limited assurance (negative assurance) on the assertion.
  3. Agreed-upon Procedures - An engagement whose end result is a report of the accountant's findings regarding the assertion.
    • (Distribution ALWAYS limited)

 

NOTE:  ALL ATTESTATION engagements REQUIRE the accountant be INDEPENDENT of the party whose assertion is being evaluated.

14

Agreed-upon Procedures

 

What are the elements of the report?

An engagement who's end result is a report of the accountant's procedures & findings regarding the assertion. In all such engagements, the accountant will disclaim any responsibility for the sufficiency of the procedures & gives NO assurance. 

 

The procedures will depend on the agreement made among the:

  • Accountant
  • The party making the written assertion
  • The specific user of the report. 

 

There are three elements in the report which includes:

  • Findings
  • Disclaimer - Indicate that the procedures applied may not be sufficient for the purpose intended. 
  • Limited Use - Restrict distribution of the report to parties knowledgable about the agreed-upon procedures

15

Other Attestation Engagements (7)

Other Attestation Engagements Include:

  • Agreed Upon Procedures
  • Financial Forecast & Projections
  • Pro Forma Financial Information
  • Examination of Internal Control over Financial Reporting
  • Compliance Attestation
  • Management's Discussion & Analysis
  • Reporting on Controls at a Service Organization

16

Management Discussion & Analysis

(MD&A)

Disclosures required by the SEC to accompany the financial statements of public entities that a CPA may be engaged to review or examine. 

  • A review may be performed for annual period, an interim period, or a combination of both.
  • An examination would ordinarily be performed in conjunction with an audit of the FS. 

 

Both reports will generally address the following:

  • Does the MD&A include all of the required elements?
  • Was the historical financial information included in the MD&A accurately derived from the FS?
  • Does the underlying info, determinations, estimates, & assumptions provide a reasonable basis for the disclosure included in MD&A?

17

Pro Forma Financial Statements

("What if")

FS derived from historical FS that reflect what mgmt believes that information would have been if certain events or circumstances had or had not occured.

  • Accountant's may either review or examine.
  • The report must include:
    • Refer to the audit, providing the report date & type of opinion expressed.
    • Provide reasonable assurance that the assumptions are correct.

18

What are the three Gov't compliance audits?

There are three types of Gov't audits which include testing compliance with Laws & Regulations:

  1. GAAS Audits
  2. GAS Audits in accordance with GAGAS "Yellow Book"
  3. GAS audits of Non-Federal entities receiving Federal Financial Assistance (CFR). Previously referred to as the "Single Audit Act".

19

Govermental Audit (3)

1.) GAAS Audit

  1. Give an Opinion on Financial Statements
    • No Compliance Report is issued
    • No Internal Control report unless significant deficiencies are present or required

NOTE: Applies when a non-gov't entity has received Govt' Federal Assistance or does not adhere to GAS or CFR/SAA.

 

+2.) GAS Audit ("Yellow Book") or GAGAS

  1. Opinion on FS
  2. Give a report on Internal Control (written report)
  3. Give a report on Compliance w/ Laws & Regulations
    • "that have a direct & material effect on the FS"
    • Must include description of material intances of noncompliancce
    • GAAS
    • GAGAS (quality ctrl)
    • Noncompliance = Qualified or Adverse Opinion

 

+3.) Entities receiving Federal Financial Assistance (CFR) (formally SAA)

  1. Opinion on FS
  2. Report on Internal Control (written report)
  3. Report on Compliance w/ Laws & Regulations
    • GAAS
    • GAGAS (quality ctrl)
  4. Report on Scope of Audit Testing on Internal Cotrol
    • Compliance w/ Major Programs
    • Internal Control report on Major Programs
  5. Report on Schedule of Expenditures of Federal Awards (How it was spent)
    • Non-Major > Limited Assurance

20

Gov't Audit - GAAS Audit (1)

1.) GAAS Audit - Applies when non-governmental entity has received Gov't federal financial assistance OR a gov't entity that is not required by law to adhere to GAS or CFR/SSA. 

  • Give an Opinion on FS.
  • No Compliance Report is issued. 
  • No Internal Control report unless significant deficiencies are present or required. 

21

Govt Audit - GAS or GAGAS (3)

2.) GAS Audit ("Yellow Book") or GAGAS - Applies to certain organizations that receive federal financial assistance depending upon the requirements of the program. 

  1. Opinion on FS
  2. Give a report on Internal Control (written report)
  3. Give a report on Compliance w/ Laws & Regulations
    • Those that have a direct & material effect on the FS
    • GAAS
    • GAGAS (Quality Ctrl)

 

NOTE:  Non-compliance = Qualified or Adverse Opinion

22

Govt Audit - CFR / SSA (5)

+3.) Entities receiving Federal Financial Assistance (CFR/SAA) - Applies to certain state & local gov'ts receiving federal financial assistance, who spend $750K annualy. Requires:

  • Opinion on FS
  • Report on Internal Control (written report)
  • Report on Compliance w/ Laws & Regulations
    • GAAS
    • GAGAS (quality ctrl)
  • Report on Scope of Audit Testing on Internal Cotrol
    • Compliance w/ Major Programs - Opinion
    • Internal Control report on Major Programs
  • Report on Schedule of Expenditures of Federal Awards (How it was spent)
    • Non-Major > Limited Assurance

23

Single Audit Act (SAA)

 

An entity must have a single audit in any year when?

Additional guidelines that are required to be incorporated into an audit of an entity receiving major federal financial assistance. 

 

An entity must have a single audit in any year when:

  • the entity spends $750,000 or more per fiscal year in federal awards, grants, or funds,
  • the entity spends funds from one or more than one federal program, and
  • if the entity only expends funds from one program, it “may” be eligible for a program audit versus a single audit.

24

Comfort Letters (Underwriter) (3)

  • Letter to underwriter / signed by auditor
  • Negative assurance on capsule information
  • Need Rep Letter

 

You answered correctly

Correct!  In comfort letters, the CPA may provide negative assurance relative to the information being in conformity with GAAP since the auditor is familiar with GAAP and is only indicating that they did not identify any discrepancies, not that there aren’t any.  The CPA would not provide assurance about the absence of significant deficiencies as they may have been overlooked during the engagement.  The CPA does not provide negative assurance on the results of procedures applied but does report as to compliance with requirements of the Securities Act of 1933, but only regarding form.

25

What are the 7 categories of threats to Independence?

  1. Self-interest - occurs when the auditor has financial interest in the entity.
  2. Self-review - occurs when the extent of nonattest services performed by the auditor for the client raise a question as to whether the auditor will be reviewing judgments & estimatest that they participated in the development of.
  3. Structural - occurs when the audit entity is connected to the entity in such a way that may impair the auditor's ability to remain objective.
  4. Bias - occurs when the auditor is not objective about the client.
  5. Familiarity - occurs as a result of the duration & closeness of the relationship between the auditor & the client.
  6. Undue influence - occrus when factors or parties separate form the client might create influence or pressure that may affect the auditor's judgments.
  7. Management Participation - occurs when the auditor takes on the role of the mgmt.

26

Subsequent Events (2)

  • Type 1 - Additional info about condition that existed at the B/S date - adjust & disclose (recognized).
    • Use original report date
  • Type 2 - Info about a condition that did NOT exist at the B/S date - disclose (not-recognized).
    • Dual date report

27

What is a Subrecipient?

A subrecipient is a nonfederal entity that expends federal awards received from a pass-through entity to carry out a federal program, but does not include an individual that is a beneficiary of such a program. A subrecipient may also be a recipient of other federal awards directly from a federal awarding agency.