Auditing and Attestation Paper 20

(a) The requirement is to determine the appropriate response relating to selected financial data that are included in a document containing audited financial statements. Answer (a) is correct because the selected data should be limited to data derived from the audited financial statements. Answer (b) is incorrect because distribution of the report need not be limited to senior management and the board of directors. Answer (c) is incorrect because the selected data need not follow a financial reporting framework other than GAAP. Answer (d) is incorrect because the report will ordinarily state that the selected data are fairly stated in all material respects in relation to the consolidated financial statements.

(a) The requirement is to determine a predecessor auditor’s responsibility when the financial statements he or she audited are being included in an SEC registration statement filing. Answer (a) is correct because AU-C 920 requires that the predecessor (1) read pertinent portions of the document, and (2) obtain a letter of representation from the successor auditor.

(b) The requirement is to identify the statement that is correct concerning letters for underwriters. Answer (b) is correct because letters for underwriters typically provide negative assurance on unaudited interim financial information. Answer (a) is incorrect because letters for underwriters are not required by the Securities Act of 1933. Answer (c) is incorrect because letters for underwriters are not included in registrations statements. Answer (d) is incorrect because auditors’ opinions on the prior year’s financial statement are not updated.

(a) The requirement is to determine who ordinarily signs a comfort letter. Answer (a) is correct because a comfort letter (also known as letter to an underwriter) is sent by the independent auditor to the underwriter.

(a) The requirement is to determine who ordinarily signs a comfort letter. Answer (a) is correct because a comfort letter (also known as letter to an underwriter) is sent by the independent auditor to the underwriter.

(d) The requirement is to identify to whom comfort letters are ordinarily addressed. Answer (d) is correct because comfort letters, also referred to as letters for underwriters, are ordinarily addressed to underwriters.

(a) The requirement is to determine the type of opinion or assurance provided by an accountant who issues a comfort letter containing comments on data that have not been audited. Answer (a) is correct because when procedures short of an audit are applied to information such as capsule information, a comfort letter will generally provide negative assurance. Answer (b) is incorrect because CPAs do not provide positive assurance on supplementary disclosures. Answer (c) is incorrect because no “limited opinion” is issued on pro forma or other information. Answer (d) is incorrect because no disclaimer will be included on the prospective financial statements.

(d) The requirement is to determine the appropriate reference to an independent accountant in a prospectus (relating to an SEC registration statement) that includes a statement about his/her involvement with an independent audit report. AU-C 920 indicates that the independent accountant is an expert in auditing and accounting.

(d) The requirement is to identify the information included in a typical comfort letter. Answer (d) is correct because in a comfort letter auditors provide an opinion as to whether the audited financial statements comply in form with the accounting requirements of the SEC. Answer (a) is incorrect because negative assurance concerning whether the entity’s internal control procedures operated as designed during the period is not provided. Answer (b) is incorrect because a comfort letter does not include an opinion on whether the entity complied with Government Auditing Standards and the Single Audit Act. Answer (c) is incorrect because negative, not positive, assurance is provided on unaudited summary financial information.

(b) The requirement is to identify the requirement relating to a CPA’s report when reporting on the application of accounting principles to a specific transaction. Answer (b) is correct because AU-C 915 requires that the report include a statement that responsibility for the proper accounting treatment rests with the preparers of the financial statements. Answer (a) is incorrect because the report states that the engagement was performed in accordance with applicable AICPA standards, not Statements on Standards for Accounting and Review Services. Answer (c) is incorrect as no such statement about opinionshopping is included. Answer (d) is incorrect because the information may be communicated to a prior or continuing auditor.