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Flashcards in CPAExcl 7-Other Reports Deck (79)
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1

Under what circumstances would a reporting accountant, who is engaged to provide a written report or provide oral advice on a specific transaction, not be expected to consult with the continuing accountant?

When (1) the reporting accountant is engaged to provide recurring accounting and reporting advice and does not believe that a second opinion is being requested, (2) has full access to management, and (3) believes that the relevant information has been obtained.

2

What is meant by the term reporting accountant?

An accountant, other than a continuing accountant, who prepares a written report or provides 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 issued on a specific entity's financial statements.

3

What is meant by the term advisory accountant?

A reporting accountant who is also engaged to provide accounting advice to a specific entity on a recurring basis is commonly referred to as an advisory accountant.

4

When is the AICPA pronouncement, "Reports on Application of Requirements of an Applicable Financial Reporting Framework" applicable?

When providing a written report or verbal advice on:

1. The application of accounting principles to specific transactions; or
2. The type of opinion that might be issued on specific financial statements.

5

Identify the five paragraphs normally associated with a reporting accountant's report when engaged to report on the application of the requirements of an applicable financial reporting framework to a specific transaction.

1. Identify the nature of the engagement and subject matter involved;
2. Describe the specific transaction(s) involved;
3. Describe the appropriate accounting principles involved;
4. Provide concluding comments and reference continuing accountant; and
5. Restrict the distribution of the report to the specified users.

6

What is meant by the term specific transaction?

A completed or proposed transaction or group of related transaction or a financial reporting issue involving facts and circumstances of a specific entity.

7

Identify the procedures an auditor should perform when engaged to report on the application of accounting principles to a specific transaction.

1. Obtain an understanding of the form and substance of the transaction involved;
2. Consult with the "continuing accountant" (which requires the client's permission); and
3. Review applicable accounting requirements and consult with others, as necessary.

8

What is meant by the term hypothetical transaction?

A transaction or financial reporting issue that does not involve facts or circumstances of a specific entity.

9

When should the auditor's report on an entity's financial statements prepared in accordance with a special purpose framework include a description of the "purpose for which the financial statements are prepared"?

Such a description would be required when the financial statements have been prepared on (1) the contractual basis; or (2) the regulatory basis (whether intended for general use or not).

10

Identify the 5 sections of the auditor's report normally associated with an entity's financial statements prepared in accordance with a special purpose framework.

1. Identify the nature of the engagement and financial statements involved;
2. Management's responsibility;
3. Auditor's responsibility;
4. Express the opinion (reference footnote that describes basis of presentation); and
5. "Basis of accounting" -- reference footnote describing basis of presentation.

11

Which special purpose frameworks require a paragraph in the auditor's report to restrict the distribution of the report to specified users?

The contractual basis and regulatory basis (not intended for general distribution) require such a restriction. The cash basis, tax basis, and regulatory basis intended for general use do not require such restricted distribution.

12

When deciding whether to accept an engagement to report on financial statements prepared in accordance with a special purpose framework, what 3 matters should the auditor consider?

1. The purpose for which the financial statements are prepared;
2. The intended users of the financial statements; and
3. The steps taken by management to determine that the framework is acceptable in the circumstances.

13

What is meant by the term special purpose framework?

A financial reporting framework other than GAAP that is one of the following bases of accounting:

1. Cash basis;
2. Tax basis;
3. Regulatory basis;
4. Contractual basis; or
5. Other basis that uses a "definite set of logical, reasonable criteria."

14

Which special purpose frameworks require an emphasis of matter paragraph (labeled "Basis of Accounting") in the auditor's report pointing out the special purpose framework to readers?

The cash basis, tax basis, contractual basis, and regulatory basis (only if restricted). Such a paragraph is not required if prepared on a regulatory basis intended for general use.

15

What is the impact on the auditor's report when reporting on an incomplete presentation that is otherwise presented in accordance with GAAP?

The auditor should include an emphasis-of-matter paragraph that (1) states the purpose for which the presentation is prepared (and refers to a note in the financial statements that describes the basis of presentation) and (2) indicates that the presentation is not intended to be a complete presentation.

16

What are the reporting requirements when the auditor has been engaged to audit a specific element of a financial statement in connection with an audit of the complete set of financial statements?

The auditor should (1) issue a separate report and express a separate opinion for each engagement; and (2) indicate in the report on a specific element of a financial statement the date and nature of the auditor's report on the complete set of financial statements. (These separate reports may be published in the same document, if sufficiently differentiated.)

17

What is required when the auditor is engaged to report on a specific element that is based on (or derived from) the entity's net income?

The auditor should obtain sufficient appropriate audit evidence to enable the auditor to express an opinion about both financial position and results of operations. (Effectively, this means that the auditor must audit the complete set of financial statements, too.)

18

If a modified opinion on the set of financial statements is material and pervasive to the specific element, what is the effect on the separate report on the specific element?

The auditor should either (1) express an adverse opinion on the specific element when the modification involves a misstatement; or (2) disclaim an opinion on the specific element when the modification involves a scope limitation.

19

When deciding whether to accept an engagement to report on financial statements prepared in accordance with a special purpose framework, what 3 matters should the auditor consider?

1. The purpose for which the single financial statement or specific element is prepared;
2. The intended users; and
3. The steps taken by management to determine that the financial reporting framework is acceptable and that disclosure is adequate.

20

How is the auditor's report on compliance affected when there are instances of noncompliance, but the entity has obtained a waiver for such noncompliance?

The auditor's report on compliance may include a statement that a waiver has been obtained, but all instances of noncompliance should be described in the report, including those for which a waiver has been obtained.

21

Identify the 3 requirements before the auditor can provide negative assurance about an entity's compliance with specified aspects of a contractual agreement or regulatory requirements in connection with a financial statement audit.

The auditor did not identify any instances of noncompliance;
The auditor expressed an unmodified or qualified opinion on the financial statements; and
The covenants or regulatory requirements involved were subject to audit procedures.

22

Is an auditor permitted to comment on an entity's compliance with specified aspects of a contractual agreement or regulatory requirements in connection with a financial statement audit, if the auditor expressed an adverse opinion or disclaimer of opinion on the financial statements?

If the auditor expressed an adverse opinion or disclaimer of opinion on the financial statements, the auditor is permitted to issue a report on compliance only when instances of noncompliance were identified.

23

Identify the 3 paragraphs normally associated with a report on compliance with specified aspects of a contractual agreement or regulatory requirements in connection with a financial statement audit (when no instances of noncompliance were identified).

1. Refer to the audit of the financial statements and identify the date of the auditor's report;
2. Provide negative assurance about relevant compliance; and
3. Restrict the distribution to appropriate specified parties, including management and those charged with governance.

24

Why is the user auditor obligated to obtain an understanding of the services provided to a user entity by a service organization, including its internal controls?

The services of the service organization may be relevant to the audit of a user entity when those services (and the controls over those services) affect the user entity's information system related to financial reporting and safeguarding of assets.

25

What is meant by the term user entity?

An entity that uses a service organization and whose financial statements are being audited.

26

According to AICPA professional standards, what are the user auditor's objectives when the user entity uses the services of a service organization?

The user auditor's objectives are (1) to obtain an understanding of the nature and significance of the services provided and their effect on the user entity's internal control relevant to the audit sufficient to assess the risks of material misstatement; and (2) to design and perform audit procedures that are responsive to those risks.

27

When might the user auditor's report appropriately refer to the service auditor's report?

The user auditor may refer to the service auditor in the user auditor's report containing a modified opinion, if that reference would be helpful to understanding the user auditor's modification. (There should be no reference to the service auditor in the user auditor's report containing an unmodified opinion.)

28

What is meant by the term complementary user entity controls?

Controls that management of the service organization assumes, in the design of its service, will be implemented by user entities, and which, if necessary to achieve the control objectives stated in management's description of the service organization's system, are identified as such in that description.

29

When the user auditor has relied on the report of a service auditor to support the user auditor's understanding of the services provided by a service organization, including internal controls, what matters should the user auditor evaluate regarding the service auditor's report?

The user auditor should (1) evaluate whether the report provides sufficient appropriate evidence for understanding the user entity's relevant internal controls; and (2) determine whether any complementary user entity controls identified by the service organization are relevant in assessing the risks of material misstatement.

30

What is meant by the term service organization?

An organization or segment of an organization that provides services to user entities that are relevant to those user entities' internal control over financial reporting.