Aud Notes Chapter 2

Transcript

AUD - Notes Chapter 2 Other Engagements, Reports and Accounting Services Special Purpose Frameworks  Financial statement audits are normally done with the financial reporting reporting framework being GAAP or IFRS.  Howeer!! special purpose  Howeer purpose framework can also be used. "hat are are e#amples of special purpose frameworks$ 1. Cash basis basis = basis of accountin accounting g that the entity entity uses to record record cash receip receipts ts and disburseme disbursements nts 2. Ta Ta basis = basis basis of accoun accounting ting that that the entity entity uses to file file its income income ta return return !. "egulatory "egulatory basis basis = basis of accountin accounting g used to comply comply with the re#uirem re#uirements ents of a regulatory regulatory agency agency ha$ing ha$ing  %urisdiction o$er the reporting entity o Certain regulators re#uire that the f&s be prepared in accordance with wit h '((P) but but it does not comply with (** the re#uirements of '((P +. Contractual Contractual basis basis = basis of accounti accounting ng that the the entity uses uses to comply with with an agreement agreement between between the the entity and and one or more third parties other than the auditor  %he cash! ta#! and regulatory bases of accounting are commonly referred to as what$ − ,ther comprehensi$e bases of accounting -,C,(/ "hen applying auditing standards to do an audit of f&s prepared in accordance with a special purpose  framework! the auditor should do what$ 1. ,bta ,btain in an an unde unders rsta tand ndin ing g of0 of0 o The purpose for which the f&s are prepared The intended users o The steps taken by management to determine if the framework is acceptable in the circumstances o 2. ,btain the the agreement agreement of manageme management nt that it acknowledge acknowledgess and understand understandss their responsib responsibility ility !. ,btain an understan understanding ding of any significan significantt interpretatio interpretations ns of the contract contract that manageme management nt made in the  preparation of the f&s "hat type of assurance is gien on special purpose framework reports$ Positi$e − "hat is positie assurance$ − The auditor can state an opinion that the f&s are presented fairly o There is nothing that came to our attention with... R "hat are the elements of a special purpose framework auditor's report$ report$ ()escribe each component* A 1. Title Title 34ndep 34ndepende endent nt (uditor5 (uditor5ss "eport6 "eport6 and address address 2. 4ntr 4ntrod oduc ucti tion on par parag agra raph ph o 4dentify the special purpose f&s being audited along with the entity name and dates of each f&s 7se non8'((P titles -stmt of assets 9 liabilities :cash basis) stmt of re$ 9 ep:income ta basis/ !. ;anageme ;anagement5s nt5s "esponsibil "esponsibility ity paragr paragraph aph they5re they5re responsi responsible0 ble0 For the preparation and fair presentation of the special purpose f&s o o To determine that the framework is acceptable in the circumstances o The design) implementation) and maintenance of internal controls rele$ant to the f&s +. . asis for for ;odificat ;odification ion paragr paragraph aph State State why why a modified modified opinio opinion n was issued issued ?. (udi (udito tor5 r5ss ,pi ,pini nion on Contains an opinion on if the special purpose f&s are presented fairly or0 o Contains an opinion on whether the special purpose f&s are presented fairly (@< if '((P is presented fairly o -only for regulatory basis for general use/ A. Bmphasis8of Bmphasis8of8;att 8;atter er paragra paragraph ph can also also be called called 3asis 3asis of (ccou (ccounting6 nting6 4ndicate that the f&s are prepared in accordance with the special purpose framework  o o "efer to the notes of the f&s that describe the framework  State that the special purpose framework is a basis of accounting other than '((P o . 4f the auditor is not independent) a statement that they will disclose that in the auditor5s report ?. 4f the f&s are not epected to be used by a third party then restrict the use  "hat kinds of performance re5uirements are applicable to a compilation$()escribe* − 1. 2. !. +. H8"7P K nowledge of industry accounting principles and practices o 4f an accountant had no pre$ious eperience) they5re responsible for gaining the re#uired le$el of knowledge. -they can still accept the engagement/ This is the same for a re$iew engagement Understanding the client5s business and the accounting principles used by the client including0 o Staff #ualifications o Transaction types and fre#uency o Accounting basis used to prepare f&s o Form of the accounting records o Financial statements5 form and content R eading the F&S efore issuing a report) accountants should read the compiled f&s and consider whether they are o appropriate in form and free from ob$ious errors Pro$ide documentation for the engagement The engagement letter  o (ny significant findings or issues o o ,ral or written communications with management regarding fraud or illegal acts that came to the accountant5s attention "hat should an accountant do when they discoer info in the f&s that is incorrect! incomplete! or unsatisfactory$ − − ,btain additional or re$ised information from the client 4f the client refuses to pro$ide information) withdraw from the compilation engagement 6 AUD - Notes Chapter 2 R A "hat should be included in the accountant's compilation report which accompanies the compiled f&s$ 1. Title (ccountant5s Compilation "eport -note independent is not used because it is not re#uired/ 2. (ddressee !. 4ntroductory paragraph 4dentify the entity o State that the f&s ha$e been complied o 4dentify the f&s o o Specify the date or period co$ered by the f&s o State that the accountant has not re$iewed or audited the f& s and epresses no opinion&assurance about whether the f&s are in accordance with financial reporting framework -disclaim an opinion/ +. ;anagement5s responsibility state that responsible for0 o Preparation and fair presentation of the f&s in accordance with the applicable financial reporting framework  o . 4f an accountant is not independent) it is okay because no assurance is gi$en. Iowe$er) they should disclose their lack of independence in the report. -4f they are independent) it is implicitly stated/ ?. Signature of accountant -a manual signature is @,T re#uired/ A. . has appropriately disclosed related parties and transactions ?. has disclosed information concerning subse#uent e$ents A. belie$es the effect of uncorrected misstatements are immaterial both indi$idually and in aggregate to the f&s . has accounted for and disclosed all possible litigation and claims 1D. has made a$ailable to the auditor all financial records and related data 11. belie$es all transactions ha$e been recorded and reflected in the f&s -completeness/ 12. has disclosed all known instances of noncompliance or suspected noncompliance with laws and regulations 1!. Ias disclosed any additional representations related to matters specific to the entity5s business and industry "hat are some other traits about management's representation letter$ − − − (n accountant is re#uired to obtain a letter from management for all f&s and periods co$ered by the re$iew period o B$en if current management was not present during all the periods The letter can be from the owner) manager) or CB,) and) if appropriate) the CF, ;anagement5s representation letter is re#uired in a re$iew) but not done in a compilation "hen would an auditor withdraw from a reiew$ − − − − There is a material departure from the framework and management doesn5t re$ise it There is a material departure from the framework and additional disclosures are not ade#uate (lways withdraw when there is fraudulent) misleading) or false f&s hen management fails to pro$ide a signed representation letter -causes an incomplete re$iew/ "hen there is a going concern issue or inconsistencies in the application of accounting principles in a reiew! what is re5uired$ − − (s long as the f&s include ade#uate disclosure there is no modification necessary 4f there is a lack of disclosures and management refuses to fi it) then the accountant should disclose this departure from '((P in a separate paragraph of the report and modify the report "hat type of documentation should be shown for a reiew engagement$ − − − − − − − The engagement letter  (ny significant findings or issues The in#uiries the accountant has made and management5s response (nalytical procedures performed 7nusual matters and their description Communications -oral or written/ to management regarding fraud and illegal actions ;anagement representation letter  R A "hat should be included in the accountant's reiew report$ 1. Title 4ndependent (ccountant5s "e$iew "eport6 2. (ddressee !. 4ntroductory paragraph o 4dentify the entity o State that the f&s ha$e been re$iewed 9 AUD - Notes Chapter 2 4dentify the f&s Specify the date or period co$ered by the f&s o o State that a re$iew includes applying analytical procedures to management5s financial data and making in#uiries of company management State that a re$iew is substantially less in scope than an audit and no opinion is epressed o ;anagement5s responsibility state that responsible for0 o Preparation and fair presentation of the f&s in accordance with the applicable financial reporting framework  . ?. A. Summary++ If an auditor is 4-% independent! what type of serice can they proide$ − ,nly compilations o (ny type of direct ownership of a client) e$en if immaterial) will impair independence for a re$iew "eporting on . Financial "eporting Framework 4dentify the applicable financial reporting framework for the preparation of interim financial information o  "hat kinds of performance re5uirements are applicable to a reiew of interim f&s$()escribe* − − − 7 *4(" CP( 888 these are eactly the same as a re$iew for a nonissuer ecept some details are a little different Understanding with the client with what should be established o efore the engagement . Conclusion paragraph State that the accountant is not aware of any material modifications that should be made to the interim o financial information in order for them to be in conformity with applicable reporting framework  ?. Signature of accountant -a manual signature is @,T re#uired/ A. City and state where the auditor practices . . ?. AUD - Notes Chapter 2 (greed8upon procedures -ecept letters to underwriters and consulting ser$ices/ Financial forecasts and pro%ections -hypotheticals/ Pro forma f&s 4nternal control o$er financial reporting Compliance with laws) regulations) and contracts ;anagement discussion and analysis as re#uired by the SBC Computer systems and software -trust ser$ices/ o Bamining something other than historical financial statements o "eports can be issued for all these items "hat would SSA, not apply to$ − − − − − (udits Compilations and re$iews of f&s for nonissuers under SS("S -historical f&s/ (d$ocating for a client Pro$iding consulting and ad$isory ser$ices Preparing ta returns %rust serices are assurance and adisory serices! that follow SSA,! and are used to address the risk and opportunities related to information technology. "hat are the types of engagements related to I%$ (describe* − − ebTrust = Pro$ides assurance related to e8commerce The CP( will assesses a client5s web site for predetermined criteria that are designed to measure o transaction integrity) info protection) and disclosure of business practices SysTrust = Pro$ides assurance with respect to the reliability of any defined electronic system "hat are some differences and similarities between attestation standards and Generally Accepted Auditing Standards (GAAS*$ − − . ?. A. Title 34ndependent (ccountant5s "eport on (pplying (greed8upon Procedures6 4dentify the specified parties) the sub%ect matter) character of the engagement) and the responsible parties State they ha$e performed procedures that were agreed8upon by the audit committee and management State that the procedures were performed with attestation standards established by (4CP( State that the sufficiency of the procedures is the sole responsibility of those parties specified in the report 4nclude a paragraph to list procedures and findings State that they were not engaged to and did not conduct an eamination of the sub%ect matter  State that no opinion was epressed -disclaimer/ o  @o assurance is gi$en . "estrict the use of the report Financial Forecasts and Pro%ections  Financial forecasts and pro9ections are 1 types of prospectie f&s that attempt to reflect a company's e#pected  financial position and e#pected results of operations. "hat is the difference between the two$ − − Financial forecasts = the epected financial result of a future period o ased on epected conditions and epected courses of action Financial pro%ection = reflects the financial position and results of operations ased on a 3what if6 scenario and hypothetical assumptions o General use means that the f&s issued will be used by parties not negotiating directly with the responsible company (issuer*. >imited use means that the f&s will only be used by the responsible party alone or those negotiating directly with the responsible company (issuer*. "hat ty pe of use applies to financial forecast and  financial pro9ection$ − − Forecast = 'eneral and limited use Pro%ection = *imited use only "hat are the ways that a practitioner is associated with prospectie f&s$ 1. Compilation = independence not re#uired 2. Bamination = independence re#uired !. (greed8upon procedures = independence re#uired -talked about abo$e/ o ( re$iew is not allowed "hen performing a compilation related to a client6s prospectie f&s! the accountant should do what$ − − Bnsure that the client discloses all significant assumptions that are used for the prospecti$e f&s. ;ake in#uiries about the accounting principles used in the preparation of the prospecti$e financial statements. %he purpose of a compilation of prospectie f&s is what$ − To proper assemble the financial data based on the responsible party5s assumption. -no assurance is gi$en/ R "hat would be included in a compilation of financial forecast report$ − A e ha$e compiled the statements in accordance with the attestation standards established by (4CP( 17 − − − − AUD - Notes Chapter 2 4dentify the prospecti$e f&s presented o State a compilation does not include e$aluation of the support for the assumptions underlying the forecast o They don5t gather supporting e$idence State they do not epress an opinion or any form of assurance State there are usually differences between the forecasted and actual results limitations on the presentation5s usefulness -scope limitation/ o State they ha$e no responsibility to update the report for e$ents occurring after the repot R A "hat would be different in the report if it was a compilation of financial pro9ections$ − − − ( description of the purpose of the pro%ection 4nclude a reference to the hypothetical assumption ( paragraph restricting the use %he purpose of an e#amination of prospectie f&s is what$ 1. To epress an opinion about whether the statements are presented in conformity with (4CP( and 2. hether the underlying assumptions pro$ide a reasonable basis for the prospecti$e statements -positi$e assurance/ R A "hat would be included in an e#amination of financial forecast report$ − − − − − − − − e ha$e eamined the forecasted statements in accordance with the attestation standards established by (4CP( o 4dentify the prospecti$e f&s presented State that the prospecti$e statements are the responsibilit y of management State that the practitioner5s responsibility is to epress an opinion on the prospecti$e f&s based on the eamination State the eamination included such procedures as we considered necessary to e$aluate both the assumptions used by management and the preparation and presentation of the pro%ection State that the practitioner belie$es that the eamination pro$ides a reasonable basis for their opinion State the opinion State there are usually difference between the forecasted and the actual results o limitations on the presentation5s usefulness -scope limitation/ State the practitioner has no responsibility to update the report for e$ents that occur after the report R A "hat would be different in the report if it was an e#amination of financial pro9ections$ − − − ( description of the purpose of the pro%ection 4nclude a reference to the hypothetical assumption ( paragraph restricting the use "hat would cause a practitioner to modify their opinion for financial forecasts and pro9ections$ "hat kind of opinion would go with it$ − − − (4CP( guidelines are not followed o Lualified or (d$erse Significant assumptions are not disclosed or do not pro$ide a reasonable basis (d$erse o Scope limitations o . Bamination = (n engagement that pro$ides positi$e assurance -an opinion/ based on procedures such as search) $erification) in#uiry) and analysis Summary/"hat reports restrict use on who can use them$ − " SCCC(;PP o R eports on the (pplication of the re#uirements of an (pplicable Financial "eporting Fra mework -(1/ o S pecial purpose frameworks -regulatory basis ecept for general use or contractual basis only/ -(28pg / o Compliance with contractual agreement or regulatory re#uirements related to audited f&s -(28pg 1/ rd o Compilations -nonissuers/ if not intended for ! party -(28pg 2A/ o Comfort letters for underwriters -(28pg >/ o Agreed8upon procedure engagements -(28?A/ o M<9( -(28A/ o Prospecti$e f&s -pro%ection compilation and pro%ection eamination reports/ note not forecast compilations or forecast eaminations o Partial presentations -(28A/  Summary/Summari?e what negatie assurance and positie assurance is. − −  @egati$e&*imited = the auditor is not aware of material misstatements) but we did not do a full audit o e are not aware of ... Positi$e = the auditor can state an opinion that the f&s are presented fairly in conformity with '((P There is nothing that came to our attention with... o Summary/"hat are different e#amples of both positie and negatie assurance$ −  @egati$e&*imited o Compliance with contractual agreement or regulatory re#uirements related to audited f&s o "e$iew -nonissuers) interim nonissuers and interim issuers/ 19 AUD - Notes Chapter 2 o o − Comfort letter -mainly/ ( re$iew of managementJs assertion Positi$e (udits o Special purpose frameworks -cash) ta) regulatory) and contractual basis/ (udits of single f&s or specific elements) accounts) or ite ms o Bngagements to report on summary f&s o o Comfort letter -can be/ o Financial forecasts&pro%ections = eaminations o ebTrust&SysTrust  @o (ssurance