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Slide 19- 1 Additional Assurance Services: Historical Financial Information
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Additional Assurance Services: Historical Financial Information
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Other Engagements Involving Historical Financial Information
Special reports Audits of financial statements for use in
other countries Audits of personal financial statements Issuance of comfort letters Accounting and review services
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Special Reports
Reports on financial statements prepared in accordance with a comprehensive basis of accounting other than GAAP.» Report must describe the basis of accounting used and indicate that a basis
of accounting other than GAAP is used.» Titles of financial statements should not be “GAAP” titles
Reports on specified elements, accounts, or items of financial statements.» Examination only (i.e. expression of opinion; agreed-upon procedures or
review also available but not considered a special report)» Materiality is in relation to the information presented
Reports on compliance with aspects of contractual agreements or regulatory requirements related to audited financial statements.» Auditors must have performed audit of financial statements» Report should provide negative assurance as to compliance.
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Special Reports
Reports on financial presentations to comply with contractual or regulatory provisions (special-purpose presentations).» Report should indicate basis of accounting used» Report should include restriction to intended parties
Reports on audited financial information presented in prescribed forms or schedules that require a prescribed form of auditors’ report.» Auditors should not sign any statement that is not consistent with
applicable professional standards.» Such statements should be reworded or the mark the form “see
attached” and attach audited financial statements.
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Audit Report – Cash BasisIntroductory Paragraph
We have audited the accompanying statement of assets and liabilities arising from cash transactions of XYZ Company as of December 31, 20X1, and the related statement of revenue collected and expenses paid for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
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Audit Report – Cash BasisScope Paragraph
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
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Audit Report – Cash BasisBasis of Accounting and Opinion Paragraphs
As described in Note 1, these financial statements were prepared on the basis of cash receipts and disbursements, which is a comprehensive basis of accounting other than generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in all material respects, the assets and liabilities arising from cash transactions of XYZ Company as of December 31, 20X1, and the revenue collected and expenses paid during the year then ended, on the basis of accounting described in Note 1.
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Audits of Financial Statements For Use In Other Countries
Auditor should be familiar with accounting and auditing standards used in other country.
Should obtain client’s written representation concerning the intended use of the financial statements.
Should follow AICPA general and fieldwork standards as appropriate and may apply other country’s auditing standards and indicate so in report.
May issue a U.S. report modified to reflect accounting standards of other country or the report form of the other country.
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Audits of Personal Financial Statements
Assets and liabilities are shown at their estimated current values.
Statements are titled “Statement of Financial Condition” (balance sheet) and “Statement of Changes in Net Worth” (Income Statement).
Special problem of completeness in personal financial statements.» No internal controls» Incentives to conceal assets.
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Issuance of Comfort Letters
Also called “letters to underwriters” Generally requested by underwriters of
securities offerings to provide underwriter certain assurances concerning:» Compliance with accounting regulations of SEC.» Unaudited financial information included with
registration statement to SEC. » Non-financial information included with registration
statement. To issue comfort letter, CPA must have audited
related financial statements.
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Accounting and Review Services
Review services for interim information of public companies» Guided by standards set forth by SAS No. 100, “Interim
Financial Information.”» Requires understanding of client’s business and internal
control» Procedures generally consist of inquiries of appropriate client
personnel and analytical procedures applied to financial data. Representation letter from management should be obtained concerning the presentation and completeness of the data.
» Review report provides limited or negative assurance that there are no required material modifications to the financial statements.
– Since some level of assurance is provided, auditor independence is required for review services.
– Modifications to review report only required for GAAP departures.
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Accounting and Review Services
Review services for nonpublic companies» Guided by standards set forth by ARSC (called SSARS).» Often more cost effective than an audit.» Procedures similar to those performed in a review of
interim statements for a public company.» Unlike reviews of interim statements of public companies,
auditors need not obtain knowledge about client’s internal control.
» Review report provides limited or negative assurance that there are no required material modifications to the financial statements.
– Since some level of assurance is provided, auditor independence is required for review services.
– Modifications to review report only required for GAAP departures.
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Accounting and Review Services
Compilation Services» Guided by standards set forth by ARSC (called SSARS).
» Involves organizing client-provided data in the format of financial statements.
» Accountant should have knowledge of the accounting principles and practices used in the client’s industry and an understanding of the client’s business transactions and accounting records.
» Accountant must read financial statements for appropriate format and obvious material misstatements.
» Compilation provides no assurance and report should contain a disclaimer of opinion (report only required for intended third party use).
» Modification to report required for:– Departures from GAAP– Omission of substantially all disclosures– Information in prescribed forms– CPA not independent
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Review Report for Nonpublic Companies First Paragraph
We have reviewed the accompanying balance sheet of XYZ Company as of December 31, 20XX, and the related statements of income, retained earnings, and cash flows for the year then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of XYZ Company.
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Review Report for Nonpublic Companies Second Paragraph
A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
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Review Report for Nonpublic Companies Third Paragraph
Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles.
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Compilation ReportFirst Paragraph
We have compiled the accompanying balance sheet of XYZ Company as of December 31, 19XX, and the related statements of income, retained earnings, and cash flows for the year then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants.
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Compilation ReportSecond Paragraph
A compilation is limited to presenting in the form of financial statements information that is the representation of management. We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or any other form of assurance on them.
