What is the Auditor responsible for in regards to Supplementary Information that is provided voluntarily by the client ?
(auditor is not "engaged to report")
Only read the information to determine that is consistent with the F/S
Obtain written representations from management
Communicate with Governance regarding the auditor's responsibility with respect to other information & any procedures relating to other information
(this is a reactionary basis for inconsistency)
***NOT "engaged to report"
If voluntary Supp. Info is not consistent, how should the auditor respond?
If it is not consistent: ADD explanatory paragraph to ID the inconsistency (OPINION IS NOT AFFECTED)
- may also withhold the use of the report or withdraw (rare)
**if consistent, no reference in report (reactionary basis)
What are the conditions for accepting an engagement to report on whether supplementary information is fairly stated, in all material respects, in relation to F/S as a whole?
1. The SI & F/S are derived from the same records
2. Same Period
3. F/S were audited & a report was issued that was neither adverse nor contained a disclaimer of opinion
4. Either the SI will accompany the F/S or they will be readily available
When engaged to report on whether supplementary information is fairly stated, what should an auditor do?
1. Make sure all 4 conditions are met
2. Perform normal audit procedures
3. Perform additional procedures including:
- Inquiry of management (SI Purpose, preparations, & significant assumptions)
- Evaluate whether form and content comply with criteria & consistent application of criteria. Compare & reconcile the SI to underlying Accounting records
- Obtain written representations from management (responsibility of SI, belief of fair pres, consistency, significant assumptions, & availability of audited F/S (if not included with SI)
Which procedures should the auditor apply to RSI?
Limited review procedures to evaluate adequacy & accuracy of information
- Inquiry of management about methods of preparing the information
- Compare information for consistency
- Obtain written representations from management (responsibility)
*** NOT AN AUDIT (No opinion)
When is RSI not referenced in the auditor's report?
When required information is provided & free of obvious deficiencies
*** must mark pages as "unaudited"
Why would an explanatory paragraph be added to an auditor's report in regards to RSI?
when the information is incomplete or incorrect
- RSI is omitted, not in compliance with AFRF, auditor is unable to complete required procedures, substantial doubt about conformity of RSI
*** Explanatory Paragraph will ID the deficiencies, but OPINION WILL NOT BE AFFECTED
What should an Auditor do when unable to complete required procedures in regards to RSI?
add an explanatory paragraph to auditor's report
**** OPINION IS NOT AFFECTED
What is the requirement when an auditor is asked to report on selected financial data?
- must be accompanied by audited F/S
- information is derived entirely from those statements
How is an auditor submitted document treated by the auditor?
- Auditor must report on ALL the information included in the document
- Audit report is expanded to cover the information
- Auditor has choice of expressing an opinion on the SI or disclaiming one
** Audit (full audit procedures) unless disclaiming on info
When would an auditor express an opinion on supplementary information?
When the SI is an Auditor Submitted Document (or could choose to disclaim opinion)
- express opinion on whether the information is fairly stated in all material respects in relation to the basic F/S taken as a whole
What will never affect an auditor's opinion on the basic F/S?
the accuracy or inaccuracy of supplementary
What precludes expressing an opinion on supplementary information?
an adverse or disclaimer of opinion on the basic F/S
Which engagements prepare a special report?
- Reporting on F/S in accordance with special purpose framework, aka OCBOA
- Reporting on specified elements, accounts, or items on a F/S
- Completing prescribed report forms of govt agency
- Reporting on client compliance with contract or government requirements
What is required for basis to be considered “a special purpose framework”?
there must be a definite set of criteria that would enable the auditor to determine conformity with the approach
** "based on GAAP" is not a special report (actually a GAAP-Departure, therefore... qualified or adverse opinion)
An audit report of F/S in accordance OCBOA
- GAAS accordance
- Same Report with few modifications (Intro, Management, Auditor, Opinion)
*** ADD sentence to Management's Responsibilities: " that the X basis of accounting is an acceptable basis for prep"
*** ADD Explanatory Paragraph: "Refer to NOTE X which describes the basis of accounts"
--- Indicate that it is different from GAAP USA
*** F/S must be identified by NON-GAAP titles (if client fails to, it is considered an inadequate disclosure which requires qualified opinion)
A compilation or review in accordance with OCBOA
- Apply SSARS
- Failure to title the F/S (non-GAAP names) will require the ACCOUNTANT to modify the report in order to ID the basis used
What is the condition for accepting an engagement to examine or compile specified elements, accounts, or items of a F/S?
No client-imposed scope limitation
* can be a separate engagement or in conjunction with an audit of F/S (depends on opinion of FS)
What is the condition to express an opinion on the specified elements, accounts, or items in conjunction with an audit of the F/S?
F/S opinion is either unmodified or qualified (not adverse or disclaimed)
*** if adverse or disclaimed, then must present report separately
What are the conditions for the prescribed audit report to only refer to GAAS?
Report must include
- Intro (ID F/S audited)
- Management Responsibility (P&FP, acceptableness of AFRF)
** if accordance with regulatory or contractual basis, DESCRIBE purpose
- Auditor's responsibility (GAAS, law/reg, audit description)
- Emphasis oF matter (Only if RESTRICED USE)
- Other Matter (restricted use explained, if any)
What is included from an agreed upon procedure will include?
(client's compliance with contract or government requirements)
- Report the findings
- Indicated procedures applied my not be sufficient for purpose intended
- Restrict distribution
- Disclaimer: NO OPINION / NO ASSURANCE (scope limited by agreement)
What type of engagement is a prospective F/S?
What are the types of engagements that can be performed in connection with prospective F/S?
- Examination : Opinion (prep, assumptions, & pres in conformity with AT AICPA guidelines ( NO GAAP) … if not reasonable, partial presentation... limited use report)
- Compilation: assembling (no assurance)
- Agreed Upon Procedures: limited use ONLY (even if forecast)
*** REVIEW IS NOT ALLOWED
Which engagement is not allowed in connection with prospective F/S?
What is required for an examination, compilation, & agreed upon procedure engagement of projections?
- Caveat: results may not be achieved
- Statement indicating no responsibility to update reports for events occurring after the report date
*** Add an explanatory paragraph: INDICATES limitations on the usefulness of the presentation (AUP is limited use report)
What is particularly required for agreed upon procedures report in regards to prospective F/S?
- Summary of significant assumptions is required.
- Add a middle paragraph (hypothetical, may or may not occur)
What is the examination report of a financial forecast outline?
1. Intro: forecasted BS, mgmt responsibility, & auditor responsibility for opinion
2. Scope: accordance with AT by AICPA to eval assumptions & p&fp, "we believe"
3. Opinion: "conformity with AICPA" & reasonable assumptions, caveat, no responsibility to update
What is the compilation report of a financial forecast outline?
1. Intro: forecasted F/S, accordance with AT by AICPA
2. Explanation: compilation limitations, no evaluation of assumptions, not examined, no opinion/no assurance, caveat, no responsibility to update
Which engagement excluded from the attestation standards?
Compilations (except for prospective F/S, which happens to exclude reviews)
Attestation (AICPA Definition)
any engagement in which the accountant expresses a written conclusion about the reliability of a written assertion by another party (independence, engagement letter, & rep letter are required)
- ERA (Examination, Review, AUP)
Examination level of service is comparable to
Audits of historical F/S
Agreed Upon Procedures
- engagement whose end result is a report of the accountant's findings regarding the assertion
- Procedures depend on the agreement between the accountant, party making the written assertion, & specific user of the report
- Restricted Use ONLY
- Disclaim any responsibility for the sufficiency of the procedures
Attestation General Standards
1. Training & Proficiency
3. Due Professional Care
4. Adequate knowledge of the subject matter
5. Assertion must be based on reasonable criteria capable of estimation & measurement
Categories of standards established for performance of Attestation engagements
Attestation Fieldwork Standards
1. Planning and supervision
2. Sufficient evidential matter
3. Written Management Representation Letter
Attestation Reporting Standards
The Report Must:
1. ID written assertion & character of the engagement
2. Provide the accountant's conclusion (pre of assertion being in conformity with criteria)
3. state all the CPA's significant reservations about the engagement
4. Restricted use (if AUP)
What type of engagements are possible in regards to MD&A?
Examination (usually in conjunction with F/S audit)
Review (for annual period, interim period, or combination of both)
What is the condition for accepting an engagement to examine or review MD&A?
- if most recent period cover by the MD&A was audited by the CPA
- all other periods covered by the MD&A were audited (CPA or PA)
What does an engagement (review or examination) report address?
Review: negative assurance
--- both address:
1. if presentation contains all required elements
2. if the historical financial information was accurately derived from the F/S
3. If the underlying information, determinations, estimates, & assumptions provide a reasonable basis for the disclosures included in MD&A
When may an accountant accept an engagement to report on condensed F/S or selected data?
- They must have audited the F/S from which data is derived
- Report must refer to the audit, report date, & opinion expressed
- & state whether the condensed data is fairly state in all material respects in relation to complete F/S
When may an accountant accept an engagement to report on pro forma financial statements?
- They must have audited the F/S from which data is derived
- Report must refer to the audit, report date, & opinion expressed
- Provide reasonable assurance as to the assumptions & presentation of the pro forma data is reasonable (suggests review or higher)
- Obtain management rep letter
- Include auditor's report on the historical F/S (or reference) in the document containing the pro forma Financial information
What is the examination report outline of pro forma financial information?
Title: Pro Forma Financial Information (Independent Auditor's Report)
1. Intro: "examined the pro forma adjustments", note X, F/S, derived F/S audited by us, based on managements assumptions in note X, management responsibility, Auditor Responsibility
2. Scope: accordance with AT by AICPA, such procedures necessary, "we believe reasonable basis for our opinion"
3. Objective: pro forma objective, "not necessarily indicative of the results of ops"
4. Opinion: "management's assumptions provide reasonable basis for presenting the significant effects", adjustments give appropriate effect to those assumptions, reflects proper application
What is required when an accountant is auditing a US entity which requires F/S that are in conformity with accounting principles with another country?
- auditor must understanding the accounting principles in the other country
- allows for a modified US Style Report (modified with explanatory paragraph)
- Audit still conforms to GAAS
- must indicate conformity to principles of the other country
- Emphasis of Matter Paragraph required: highlight the foreign financial reporting framework
Capsule Information (SEC filing)
- Agreed Upon Procedures with Negative Assurance ( not aware of any modifications required to change the unaudited information)... refer to as "accountant" for this information
*** auditor may express opinion on whether the audited F/S conform to all SEC requirements ("auditor")
What is required when a predecessor auditor's F/S is being included in a SEC registration?
- read pertinent portions of the document
- obtain a letter of representation from the SUCCESSOR AUDITOR
When must GAS & the single audit act be considered?
For those entities receiving major federal financial hesitance ($500,000+)
When do GAAS only audits apply to governmental audits?
- A non-governmental entity has received Governmental Federal financial assistance
- A Governmental Entity that is NOT required by law to adhere to GAS or the Single Audit Act
What is required to be reported for a governmental audit in accordance ONLY with GAAS?
***Standard F/S Audit report normally issued (unless noncompliance is detected, which is treated as a GAAP Departure)
1. focus on violations of laws & regulations that have a direct & material effect on the amounts in the F/S
2. No Report on I/C UNLESS significant deficiencies are identified
- if ID'd, must report on scope of the auditors testing of I/C, Scope of tests of compliance (accomplishments/recommendations not required)
3. No report on compliance (if noncompliance detected, treat as a GAAP Departure)
What is required to be reported for a GAS audit in accordance with GAAS?
- Same as a GAAS governmental (1-3) plus:
**F/S Audit plus
4. Written I/C Report (opinion)
5. Report on compliance with Laws and regulations (opinion)
*** I/C deficiencies, material noncompliance with laws/reg, & falsifications of accounting records should be communicated to legislative & regulatory bodies & a federal inspector general IF auditee fails to communicate them
What should be communicated to legislative & regulatory bodies & a federal inspector general in regards to a GAS audit?
IF auditee fails to communicate, then Auditor must communicate:
- I/C deficiencies
- material noncompliance with laws/reg,
- falsifications of accounting records
According the the Yellow Book, what should be included in the scope of a governmental audit?
- Violations of laws & regulations that have a direct & material effect on the amounts in the F/S
- F/S audit
- Program Results Audit
- Compliance with laws & regulations Audit
- Economy & Efficiency Audit
GAGAS (Yellow Book) General Standards
Requirements beyond those of GAAS (for F/S audits)
- Qualifications of the staff
- Independence (mind + Appearance)
- Due Professional Care
- Quality Control
Self Interest Threat
when auditor has a financial or other interest in the entity that might affect the auditor's judgement
Self Review Threat
extent of non-attest services performed raise a question as to whether the auditor will be reviewing judgements and estimates that they participated in the development in
auditor is not objective about the client (may or may not conform)
result of duration & closeness of the client-auditor relationship... Client may anticipate audit procedures & effectively deceive the auditor
Undue Influence Threat
factors/parties separate from the client might create influence or pressure that may affect the auditor's judgements in regard to the client
Management Participation Threat
auditor takes on the role of management or performs management functions for the client
when the audit entity is connected to the government entity in such a way that may impair auditor's objectivity in the engagement or reporting of results
If a threat to independence results from the performance of non-attest services, what must the auditor determine?
1. if the non-attest service was prohibited
2A. if so, impaired independence & engagement cannot be performed)
2B. if not, consider magnitude of threats
If a threat to independence does not result from the performance of non-attest services, what must the auditor determine?
The magnitude of the threats
(threat to independence examples)
- Strategic Planning
- Directing Employees
- Custody of Assets
- Reporting to Governance
- Accepting Responsibility for I/C
- Voting in the management committee or BoD
Prohibited Non-attest services
- Performing management responsibilities
- Performing certain accounting functions without obtaining management approval
- Providing internal audit assistance
- Accepting Responsibility for DIM of I/C or its monitoring
- Participation in IT services that will be audited, or operating/supervising the operation of such a system
- Providing valuation services that impact info in the F/S
- Performing specific additional services relating to: non-tax disbursements, benefit plan administration, investment advisory or management, corporate finance, executive or employee personnel, & business risk consulting
Examples of auditor imposed Safeguards against independence threats
- Consulting with other auditors, regulators, or other independent third parties
- Disclosing & discussing with governance
- Using an outside auditor to participate in the audit by performing or re-performing parts of the audit or reviewing the work performed
Examples of client imposed safeguards against independence threats
- Requiring the appointment of the auditor to be approved by parties who are not part of management
- Establishing procedures for selecting providers of non-audit services designed to enhance objectivity
- Oversight of the auditor's service by governance
If Safeguards are sufficient to reduce threats to an acceptable level...
- DOCUMENT the analysis
- & may perform the audit engagement
*** if not sufficient, may not perform engagement
What is required to prior to acceptance of an audit engagement under GAS & GAAS?
to prove that general standards have been satisfied by:
- auditor must provide the client with a QUALITY CONTROL REVIEW REPORT on the CPA firm's audit practice (establishes competence to perform an audit under GAS & GAAS)
What do the GAO reporting standards require?
1. Description o the scope of the auditors testing of ICFR and compliance with laws, regulations, & provisions of contracts or grants agreements
2. Results of those tests OR if sufficient work was performed, an opinion
3. Reference to the separate reports containing that information
What does the OMB govern?
Office of Management and Budget governs GAS audits performed under the Single Audit Act through its Circular A-133
What does the Single Audit Act require an auditor to report on?
2. Compliance with Laws & regulations (tests related to major fed financial assistance, materiality at level of each program)
3. Compliance with Program Requirements (general, specific--- major/nonmajor)
4. I/C (tests related to major fed financial assistance, materiality at level of each program)
5. Schedule of expenditures of federal awards
**** non-major: limited assurance.
Single Audit Act
requires certain STATE & LOCAL GOVERNMENTS receiving federal financial assistance to engage an auditor to perform a SINGLE coordinated audit of the applicable federal financial assistance program requirements
Report on Compliance under GAS
- scope of tests applied by the auditor to ID laws & regulations with a direct & material effect on the F/S
- Auditor's Findings
- Noncompliance that results in material misstatement (or any criminal prosecution) of the F/S must be identified
- Management's responsibility for compliance with laws & regulations
Why will the auditor obtain the assistance of management in a GAS audit?
to ID laws & regulations that have a direct & material effect on the F/S (also asserted to have ID'd all in the management rep letter)
Audit Documentation in a GAS audit must support
- All additional required reports & opinion on the F/S
What opinions must be issued for an audit that applies to the Single Audit Act?
Opinions on: (qualified or adverse if)
1. I/C (material weakness)
2. Compliance with laws & regulations (noncompliance)
3. Schedule of Federal Awards (misstatements in the schedule)
4. F/S (misstatements)
designed to determine the economy, efficiency, & effectiveness of the organization in achieving its goals
- also consider management controls & compliance with L&R related to achieving these goalsWa
What does a performance auditor's report include?
- Auditor's findings (includes fraud or abuse)
- ID of potential noncompliance (illegal acts)
- view of relevant officials on the auditor's findings
- scope of work on I/C
- any significant deficiencies in I/C
All reports issued in connection with audits under GAS & SAA are directed to
specific agencies BUT available for public inspection
For all audit and attestation engagements, auditors must report
1. All instances of fraud or noncompliance (illegal acts) UNLESS clearly inconsequential
2. Violations of provisions of contracts or grant agreements
3. Abuse that could have a material effect on the F/S or engagement subject matter
*** if less than material but more than inconsequential, should communicate those finding in writing to entity officials
Outline for Combined Report on Compliance & I/C over compliance
Title: Independent Audit Report
1. Compliance: ID compliance requirements, refer to document, ID govt programs, year ended date
2. Management's Responsibility: Compliance is responsibility of management (1 sentence)
3. Auditors Responsibility (3 paragraphs)
a. to express an opinion
b. GAAS audit USA, GAS Comptroller General US, reasonable assurance required on noncompliance, procedures, "we believe", "does not provide a legal determination"
c. Opinion**** Entity COMPLIED with X requirements to govt programs audited
3. I/C over Compliance: (4 Paragraphs
a. mgmt responsible for IC over compliance, planing/performing we considered IC over compliance to determine opinion, not for opinion on effectivness of IC, DISCLAIMER
b. IC deficiency definition, MW definition
c. limited purpose, not to ID all deficinces, "we did not ID any deficiencies that we consider to be MW"
d. Limited Use statement (solely intended for)