AUD 17
The auditor should perform the following procedures
Inquire About - RSI is within the guidelines - measurement or presentation have changed - significant assumptions or interpretations Compare the RSI for consistency with - basic statements - Management's responses to inquiries Obtain management's written representations relevant to its responsibilities for RSI and compliance with guidelines.
MEEN, LLP, is finalizing its audit report of financial statements intended for use only outside the U.S. The report must include
- A U.S. form of the report or the report form of the other country
Management should understand its responsibilities for Supplementary Information
- Preparing - SI in accordance with applicable criteria - Providing written representations - Including the auditor's report on the SI with the SI and the audited statements
The tax basis is used to
- file income tax returns.
An auditor is reporting on cash-basis financial statements. These statements are best referred to in the opinion by which of the following descriptions?
- "Assets and liabilities arising from cash transactions" and "revenue collected and expenses paid."
If the financial statements and auditor's report are intended for use only outside the United States, the auditor should report using either
- A U.S. form of report reflecting that the statements reported on have been prepared in accordance with a reporting framework generally accepted in another country - The report form and content of the other country
Other-Matter Paragraph restricts the use of the report when the special purpose framework is
- A contractual basis of accounting - A regulatory basis of accounting - An other basis of accounting (if measurement or disclosure criteria are suitable only for limited users or available only to the specified parties).
Other information is financial or nonfinancial information that is included in a document containing audited statements and the auditor's report
- An example of such a document is an annual report to owners - Examples of other information are reports by management on operations, financial summaries, and quarterly data - Examples of items that are not other information are press releases and analysts' briefings
An auditor's report on financial statements prepared in accordance with the income tax basis of accounting should include all of the following except
- An opinion as to whether the basis of accounting used is appropriate under the circumstances
In connection with a proposal to obtain a new client, an accountant in public practice is asked to prepare a written report on the requirements of an applicable financial reporting framework to a specific transaction. The accountant's report should include a statement that
- Any difference in the facts, circumstances, or assumptions presented may change the report.
What is an auditor's responsibility for required supplementary information (RSI)?
- Apply limited procedures to the information and report its omission or the need for material modifications.
An auditor concludes prior to the release date of the report that a material inconsistency exists in the other information in an annual report to shareholders. The report contains audited financial statements. If the auditor concludes that the financial statements do not require revision, but management refuses to make the correction, the auditor should
- Communicate the matter to those charged with governance.
Analytical procedures should include the following:
- Comparing the IFI with comparable information for the preceding interim period, - Compare relationships among financial and nonfinancial - Comparing recorded amounts or ratios developed from recorded amounts - Comparing disaggregated revenue data
When planning a review of an audit client's interim financial statements, which of the following procedures should the auditor perform to obtain an understanding of the entity and its environment, including its internal control?
- Consider the results of audit procedures performed with respect to the current year's financial statements.
Blue, CPA, has been asked to report on the application of a financial reporting framework to a specific transaction by an entity that is audited by another CPA. Blue may accept this engagement but should
- Consult with the continuing accountant to obtain information relevant to the transaction
Emphasis-of-Matter Paragraph
- Identifies the special purpose framework - Refers to the note describing the framework - States that the framework is not GAAP
The auditor's understanding of the entity and its environment, including its internal control, should be sufficient to
- Identify types of misstatements - Consider the likelihood of their occurrence - Select inquiries and analytical procedures
A modification of the auditor's report on a review of interim financial information is necessitated by which of the following?
- Inadequate disclosure
Other Inquiries regarding IFI Required
- Inquiries about litigation, claims, and assessments - Going Concern
The objective of a review of interim financial information of an issuer is to provide an auditor with a basis for reporting whether
- Material modifications should be made to conform with generally accepted accounting principles
The report on summary financial statements should indicate that the
- Procedures performed included evaluating whether they are prepared in accordance with the applied criteria.
The auditor should add an other-matter paragraph to the auditor's report to refer to RSI if
- RSI is not omitted - prescribed guidelines are followed - required audit procedures are completed
Inquiries and Other Procedures regarding IFI Required Inquiries
- Reading Minutes - Obtaining Audit Reports - Questions about sketchy things - Reconciling the IFI and the accounting records - whether it is in accordance with the framework
Auditor's Report
- Refer to management's responsibility to determine that the reporting framework is acceptable - Describe the purpose of the statements (or refer to a note with that information) if the framework used is regulatory or contractual
When the auditor reports on supplementary information (SI), a separate report should be issued when the
- SI and the audited statements are presented separately
When audited financial statements are presented in a document containing other information, the auditor
- Should be aware of whether the other information contains a material misstatement of fact.
When an auditor reports on financial statements prepared on an entity's income tax basis, the auditor's report should
- State that the special purpose framework is a basis of accounting other than GAAP.
If management omits all required supplementary information (RSI) from the accompanying financial statements of a nonissuer, the auditor should
- Take no further action.
a review of IFI does not involve
- Testing accounting records and the effectiveness of controls - Obtaining corroborating evidence - Applying certain other auditing procedures - Becoming aware of all significant matters identified in an audit
The auditor should not accept an engagement to report on summary statements unless
- The auditor has been engaged to audit the financial statements from which the summary statements are derived.
The client's financial reporting includes supplementary financial information outside the basic financial statements but required by the Financial Accounting Standards Board (FASB). Which of the following statements is correct regarding the auditor's responsibility for this supplementary financial information?
- The auditor should perform limited procedures.
An inconsistency is
- a conflict with the audited information. It may create doubt regarding the audit conclusions
When the SI and the audited statements are presented together, the auditor reports on the SI in
- a separate report - an other-matter paragraph following the opinion paragraph and any emphasis-of-matter paragraph
Management and others may consult with accountants to learn how to apply
- accounting policies in a financial reporting framework - new accounting policies in a framework to existing transactions.
An other basis consisting of a definite set of logical, reasonable criteria that is
- applied to all material items in the statements.
An auditor engaged to audit financial statements prepared in accordance with a reporting framework generally accepted in another country may be requested to
- apply the auditing standards of that country or International Standards on Auditing
An auditor ordinarily does not report on SI
- but may be engaged to do so
The auditor should evaluate whether any unaudited information presented with the summary statements is
- clearly differentiated from them.
The contractual basis is used to
- comply with an agreement between the entity and a third party.
The regulatory basis is used to
- comply with the requirements of a regulatory agency.
Before accepting the engagement, the reporting accountant should
- consider the circumstances in which the report or advice is requested, the purpose, and the intended use.
Deficiencies in, or omissions of, RSI
- do not affect the opinion on the basic financial statements. - the auditor need not present the information if management fails to do so
The auditor's report on regulatory-basis statements intended for general use does not include
- emphasis-of-matter and other-matter paragraphs
The objective of a review of IFI is to
- enable the auditor to state whether (s)he is aware of any material modifications needed for the IFI to be in accordance with the framework (also known as negative assurance).
Prior to acceptance, the auditor should request that management authorize the predecessor to fully respond to inquiries
- evaluate the responses - consider the implications if management refuses to authorize the predecessor to respond
Management is responsible for
- fair presentation of IFI in accordance with the framework - internal control that provides a reasonable basis for fair presentation - giving the auditor unrestricted access to relevant information and persons within the entity - including the report in any document containing IFI that indicates the IFI has been reviewed by the auditor - providing a representation letter - adjusting the IFI for material misstatements.
The auditor should read the other information to
- identify material inconsistencies with the audited statements.
The auditor should read other information included in a document containing the summary statements and the related auditor's report to
- identify material inconsistencies, if any, with the summary statements and the audited statements
Analytical procedures should be applied to
- identify unusual relationships and items
An auditor practicing in the U.S. may report on the financial statements of a U.S. entity prepared
- in accordance with a financial reporting framework generally accepted in another country for use outside the U.S.
RSI is (REQUIRED SUPPLEMENTARY INFORMATION)
- information that the designated accounting standards setter has determined must accompany the basic financial statements.
Interim financial information (IFI) covers a period of
- less than a full year or - the 12 months ending on a date other than fiscal year end.
The cash, tax, regulatory, and other bases of accounting are commonly referred to as
- other comprehensive bases of accounting (OCBOA).
a review of IFI primarily involves
- performing analytical and inquiry procedures
Supplementary information (SI) is
- presented outside the basic statements and is not necessary for the statements to be fairly presented in accordance with the applicable financial reporting framework.
A material inconsistency may be identified
- prior to the report release date that requires revision of the audited statements/other information.
The cash basis is used to
- record cash receipts and cash payments
Review Report on IFI
- review report should be in writing - report should accompany the IFI if the entity refers to the auditor's review in a report, document, or written communication - auditor modifies the review report for material departures from GAAP or other frameworks
other-matter paragraph to the auditor's report with RSI should include
- statement that identifies the RSI - statements required to place them in context - auditor has applied certain limited procedures to the RSI - auditor does not express an opinion
The auditor need not perform
- subsequent events procedures on the SI
The auditor need not refer to the other information in
- the auditor's report. But (s)he may disclaim an opinion on it in an other-matter paragraph.
If a material inconsistency is identified after the report release date, and revision is needed,
- the guidance for subsequent discovery of facts existing at the report date applies.
Possible matters communicated to management and those charged with governance include
- the inability to issue a report because the review cannot be completed - any material modifications of the IFI that should be made - the auditor's awareness of material fraud or noncompliance with laws and regulations - significant control deficiencies - certain other matters required to be communicated to those charged with governance.
An auditor may review the IFI of an entity if
- the latest annual statements have been audited by the auditor or a predecessor
When reporting on whether supplementary information is fairly stated in relation to the statements as a whole,
- the measurement of materiality is the same as that used in forming an opinion on the basic financial statements taken as a whole
When an unmodified opinion on the summary statements is appropriate
- the opinion should state that they are consistent, in all material respects, with the audited statements in accordance with the applied criteria.
The auditor's responsibility is to respond appropriately when OTHER INFORMATION IN DOCUMENTS CONTAINING AUDITED FINANCIAL STATEMENTS
- the other information may undermine the credibility of the statements and the auditor's report
The applicable financial reporting framework (framework) should be
- the same one used in the annual statements.
Report on Summary Statements
- title that includes the word "independent - Addressee - An introductory paragraph (ID's statements, Discloses info on statements ) - paragraph describing management's responsibility for the summary statements - section describing the auditor's responsibility
A misstatement of fact is other information that is
- unrelated to matters in the audited statements and is incorrectly stated or presented
REPORT ON SUMMARY FINANCIAL STATEMENTS Procedures
summary statements - adequately disclose their nature - identify the audited statements