| FYI:
In Evaluating Consistency, the auditor should evaluate whether the comparability between periods has been affected by either a material change in accounting principle or a material restatement of financial statements. | When the Auditor's Opinion Covers Two (or More) Periods—The auditor should evaluate the consistency between such periods, as well as the consistency of the earliest period covered by the auditor's opinion with the prior period. |
| FYI:
Change in Accounting Principle
The auditor should evaluate a change in accounting principles about four matters: | 1 Whether the adopted principle is in accordance with the applicable financial reporting framework;
2. Whether the method of accounting for the effect of the change is in accordance with the applicable financial reporting framework;
3. Whether the disclosures about the change are adequate;
4. Whether the entity has justified that the alternative adopted is preferable. (The issuance of an accounting pronouncement that requires or expresses a preference for an accounting principle is considered sufficient justification for a change in principle.)
**When these four criteria ARE MET - include an Emphasis-of-matter paragraph to describe the change and reference the applicable disclosure**
**When the criteria IS NOT MET - evaluate whether the change results in a material misstatement and consider whether the opinion should be modified.** |
| FYI:
Correction of a Material Misstatement in Previously Issued Financial Statements
When the financial statements are restated to correct a prior material misstatement—The auditor should include an emphasis-of-matter paragraph in the auditor's report. (That paragraph need not be included in subsequent periods.) | 1. If the financial statement disclosures relating to the restatement are not adequate—The auditor should evaluate the inadequacy of disclosure and consider whether the auditor's report should be modified.
2. A change from an accounting principle that is not in accordance with the applicable financial reporting framework to one that is in accordance is a correction of a misstatement. |
| FYI:
Under PCAOB standards - the treatment for changes in accounting principles and restatements are the same under AICPA clarified standards, except for wording... | Emphasis-of-Matter = Explanatory Paragraph under PCAOB standards |
| FYI:
Other Information in the Annual Report -
When the audited financial statements are presented in an entity's annual report containing other information, the auditor's report should include an “Other Information” section containing a disclaimer of opinion to be clear that the auditor provides no assurance on the other information. | TRUE |
| FYI:
Reporting on Supplementary Information in Relation to Audited Financial Statements | 1. Form of Report—The auditor may issue a separate report on the supplementary information (in addition to the report on the audited financial statements) or combine the report on the supplementary information with the report on the financial statements. (If the latter, then add a separate section labeled “Supplementary Information” regarding the supplementary information.)
2. If the auditor expressed an adverse opinion or a disclaimer of opinion on the financial statements, the auditor is prohibited from reporting on the supplementary information. |
| FYI:
Required Supplementary Information | 1. The auditor should include a separate section in the auditor's report “Required Supplementary Information” commenting appropriately on the required supplementary information.
**The supplementary information cannot affect the auditor's opinion on the financial statements, since it is outside of those financial statements.** |
| FYI:
Required Supplementary Information | Because a designated accounting standard setter has established authoritative guidelines for the presentation of required supplementary information, the auditor IS NOT required to obtain sufficient appropriate audit evidence as a basis for reporting whether that required supplementary information is fairly stated.
**The auditor does not collect evidence to support an opinion as to whether the RSI is fairly stated. The auditor is required to perform limited procedures on the RSI and to report on whether those limited procedures revealed any discrepancies with the FS.** |
| FYI:
Required Supplementary Information -
The client's financial reporting includes supplementary financial information outside the basic financial statements but required by the Financial Accounting Standards Board (FASB).
What is the auditor's responsibility for this supplementary financial information? | The auditor should make certain specific inquiries of management about the required supplementary information, including (1) whether it is measured and presented in accordance with prescribed guidelines; (2) whether the methods of measurement or presentation have been changed relative to the prior period; and (3) whether any significant assumptions affect the measurement or presentation of it. |
| Which special purpose frameworks require a description of purpose for which such financial statements are prepared? | Only regulatory basis (whether intended for general use or not) and contractual basis. (Cash basis and tax basis do not!) |
| Which special purpose frameworks require an emphasis-of-matter paragraph alerting readers to the special purpose framework? | Cash basis, tax basis, regulatory basis (if restricted), and contractual basis do. (Only regulatory basis intended for general use does not require such an alert!) |
| Which special purpose frameworks require an other-matter paragraph to restrict the distribution of the auditor's report to specified users? | Only regulatory basis (if restricted) and contractual basis do. (Cash basis, tax basis, and regulatory basis intended for general use do not require such a restriction!) |
| True or False
When reporting on financial statements prepared in accordance with a special purpose framework, the “Opinion” section should reference the note to the financial statements that describes the basis used. | True |
| FYI - Audits of Single F/S and Specific Elements, Accounts, or Items
(a) If the Specific Element is Based on Stockholders' Equity—The auditor should obtain sufficient appropriate evidence to enable the auditor to express an opinion about financial position. (This effectively means that the auditor should have audited the whole balance sheet in order to report on an element based on stockholders' equity.)
(b) If the Specific Element is Based upon the Entity's Net Income or the Equivalent—The auditor should obtain sufficient appropriate evidence to enable the auditor to express an opinion about both financial position and results of operations. (This effectively means that the auditor should have audited the complete set of financial statements in order to report on an element based on net income.) | Basically, we can accept to audit a single f/s and specific element, account, or item IF it is considered a 'Top Line' item and not a material factor of Net Income or Overall Performance |
| FYI - Audits of Single F/S and Specific Elements, Accounts, or Items
If the modified opinion on the set of financial statements is relevant to the audit of the specific element (i.e., the modification is material and pervasive with respect to the specific element)—The auditor should (a) express an adverse opinion on the specific element when the modification applicable to the set of financial statements is a result of a material misstatement in the financial statements; or (b) disclaim an opinion on the specific element when the modification applicable to the set of financial statements is a result of a scope limitation. (Note: Otherwise that would be equivalent to expressing a piecemeal opinion , which is prohibited.) | If the modified opinion on the set of financial statements is relevant to the audit of the specific element and the auditor still considers it appropriate to express an unmodified opinion on that specific element—The auditor should only do that if (a) that opinion is expressed in a report that does not accompany the report containing the adverse opinion or disclaimer of opinion, and (b) the specific element does not constitute a major portion of the entity's complete set of financial statements or the specific element is not based on stockholders' equity or net income or equivalent.
A single statement constitutes a major portion of a complete set of financial statements, so the auditor should not express an unmodified opinion on the single financial statements when an adverse opinion or disclaimer of opinion is expressed on the complete set of financials. |
| FYI - Reporting on Compliance with Requirements in a F/S Audit
(a) The auditor should include a statement that nothing came to the auditor's attention to cause the auditor to believe that the entity failed to comply with the specified aspects of the contractual agreements or regulatory requirements only if: (1) the auditor did not identify any such noncompliance; (2) the auditor expressed an unmodified or qualified opinion on the financial statements involved; and (3) the covenants or regulatory requirements related to accounting matters that have been subjected to procedures applied in the audit.
(b) When Instances of Noncompliance have been Identified—The auditor's report on compliance should describe that noncompliance. Note: If the entity has obtained a waiver for such noncompliance, the auditor may include a statement that a waiver has been obtained; but, all instances of noncompliance must be described in the report, including those for which a waiver has been obtained. | (a) When the Auditor has Issued an Adverse Opinion or Disclaimed an Opinion—The auditor should issue a report on compliance only when instances of noncompliance were identified.
**The report on compliance should be in writing and should be presented either as a separate report or may be combined with the auditor's report on the financial statements.**
**Include a paragraph conveying an appropriate alert that restricts the distribution of the report on compliance issues to the specified users.**
**When commenting on compliance with contractual requirements in an audit report on an entity's financial statements, the commentary about compliance should be presented in an other-matter section.** |
| FYI -
Service Organizations—User Auditors | (1) A service auditor’s Type 1 report addresses design effectiveness, that is, controls placed in operation at the service organization.
(2) A service auditor’s Type 2 report addresses the operating effectiveness of internal controls at the service organization, which requires the service auditor to perform appropriate tests of controls. |
| FYI -
Service Organizations—Service Auditors
Define, Service Auditor: Practitioner who reports on controls at a service organization.
Define, User Auditor: An auditor who audits and reports on the financial statements of a user entity. (In other words, the auditor of an entity that has outsourced the processing of its transactions to the service organization for whom such processing may be more efficient; the user auditor must consider relevant internal controls of the service organization in auditing the financial statements of such a user entity.)
**Performance of test of control—If reporting on the operating effectiveness of internal control, the service auditor must perform appropriate tests of controls.**
**An opinion can be rendered on Type 1 and It would disclaim an opinion on the operating effectiveness of the entity's internal controls. (Type 2 reports)** | **System and Organization Control Reports (called SOC Reports)**
SOC 1 Report:
“To give the auditor of a user entity's financial statements information about controls at a service organization that may be relevant to a user entity's internal control over financial reporting. A Type 2 SOC 1 report includes a detailed description of tests of controls performed by the CPA and results of the tests.” [Such a report must be restricted to specified users.]
Note
The service auditor's report under AT-C 320 is an SOC 1 report.
SOC 2 Report:
“To give management of a service organization, user entities and others a report about controls at a service organization relevant to the security, availability or processing integrity of the service organization's system, or the confidentiality and privacy of the data processed by that system. A Type 2 SOC 2 report includes a detailed description of tests of controls performed by the CPA and results of the tests.” [Such a report must be restricted to specified users.]
SOC 3 Report:
“To give users and interested parties a report about controls at the service organization related to security, availability, processing integrity, confidentiality or privacy. SOC 3 reports are a short-form report (i.e., no description of tests of controls and results) and may be used in a service organization's marketing efforts.” [This is the only SOC report that is appropriate for “general use”; the others must be restricted to specified users.] |
