Auditing and Attestation Paper 18

(c) The requirement is to identify the report that is least likely to be a restricted-use report. Answer (c) is correct because reports on most financial reporting frameworks other than GAAP are not restricted. Answers (a) and (b) are incorrect because reports on significant deficiencies and reports to audit committees are restricted under the professional standards. Answer (d) is incorrect because a report on compliance is restricted.

(d) The requirement is to determine auditor reporting responsibility when prior period financial statements which received a qualified opinion due to a lack of adequate disclosure have been restated to eliminate the lack of disclosure. Answer (d) is correct because an auditor should express an unmodified opinion on the restated financial statements of the prior year (with an emphasis-of-matter paragraph describing the circumstance). Answer (a) is incorrect because the auditor’s original report is not reissued. Answer (b) is incorrect because the qualified opinion is eliminated. Answer (c) is incorrect because reference to the type of opinion expressed is included in the reissued report’s emphasis-of-matter paragraph.

(a) The requirement is to identify audit reporting requirements when reporting on financial statements of a US entity prepared in accordance with another country’s accounting principles. Answer (a) is correct because AU-C 910 states that the auditor should understand the accounting principles generally accepted in the other country. Answer (b) is incorrect because the auditor does not have to obtain certification outside of the United States. Answer (c) is incorrect because the auditor does not have to disclaim an opinion. Answer (d) is incorrect because the auditor does not have to receive a waiver from the auditor’s state board of accountancy.

(b) The requirement is to determine the proper placement of a basis for modification paragraph disclosing the substantive reasons for expressing an adverse opinion. AU-C 705 requires that such paragraphs precede the opinion paragraph.

(b) The requirement is to determine the proper placement of a basis for modification paragraph disclosing the substantive reasons for expressing an adverse opinion. AU-C 705 requires that such paragraphs precede the opinion paragraph.

(d) The requirement is to determine the information that should be included in an audit report on financial statements prepared on the income tax basis of accounting. AU-C 800 presents the form of the report to be issued. Answer (d) is correct because AU-C 800 requires that the report indicate that the income tax basis of accounting is a financial reporting framework other than GAAP.

(d) The requirement is to identify the appropriate type of audit report to be issued for a nonprofit entity’s financial statements prepared following an accounting basis prescribed by a regulatory agency solely for filing with that agency. Answer (d) is correct because an unmodified opinion is appropriate given that the financial statements are fairly presented; the report will include a paragraph indicating that a basis other than GAAP is being followed. Answer (a) is incorrect because an unmodified report may be issued if there are no departures from the prescribed basis. The report would not be qualified because the financial statements were prepared using an accounting basis prescribed by a regulatory agency. Answer (b) is incorrect because an adverse opinion is not appropriate when the information is properly presented. Answer (c) is incorrect because a disclaimer of opinion need not be issued.

(c) The requirement is to identify the disclosure included in a separate emphasis-of-matter paragraph of an auditor’s report on financial statements prepared in conformity with the cash basis of accounting. Answer (c) is correct because the emphasis- of-matter paragraph refers to the note to the financial statements that describes the basis of accounting. AU-C 800 presents complete details on such reports. Answer (a) is incorrect because the report need not justify the reasons for following a basis other than generally accepted accounting principles. Answer (b) is incorrect because the emphasis-of-matter paragraph contains no statement on fair presentation, and because the opinion paragraph states whether the presentation is in conformity with the basis described in the appropriate financial statement note. Answer (d) is incorrect because no explanation of how the results of operations differ from financial statements prepared in conformity with generally accepted accounting principles is necessary.

(b) The requirement is to identify a situation in which an auditor’s report would refer to a basis of accounting other than GAAP AU-C 800 defines reports on compliance with aspects of regulatory requirements related to audited financial statements as special-purpose financial reporting frameworks and requires such identification.

(a) The requirement is to determine the type of report to issue when a client who uses a special-purpose financial reporting framework has not appropriately titled its financial statements. Answer (a) is correct because any such exceptions or reservation should be described in an emphasis-of-matter paragraph and possibly a qualified (or adverse) opinion should be issued. Answer (b) is incorrect because no such application to the state insurance commission is necessary. Answer (c) is incorrect because a disclaimer of opinion is not appropriate when known misstatements exist. Answer (d) is incorrect because, as indicated, more than describing the terminology is necessary.