Chapter 2 Other Reports OCBOA A cash receipts and disbursement system A basis of accounting that the entity uses

uses (or expect to use) to file its income tax returns A basis of accounting used to comply with the requirements of a governemental regulatory agency A definite set of criteria having substantial support that is applied to all material items, such as price-level adjusted financial statement

Non GAAP method requires the auditor to use qualified or adverse opinion unless it is OCBOA Non GAAP statements need to be suitably titled Explanatory paragraph said that it is following comprehensive basis of accounting not GAAP For special account, different opinion should not be given if the auditor already expressed an adverse or disclaimer opinion For special report on compliance, the auditor must have audited the clients financial statement to do so and may only issue negative assurance on this compliance. Such assurance cannot be given if adverse or disclaimer is used For ISA, an opinion is given instead of limited assurance As a general rule, the CPAs report will be restricted when the financial statement are in compliance with a contract (as opposed to GAAP) For financial information presented in a prescribed forms or schedules, it may be necessary to reword the form or attach a separate report Compilation and Review The objective of compilation is to present in the form of financial statements information that is the representation of management without undertaking to express any assurance on the financial statement. It is an attest engagement The objective of a review is to express limited assurance that there are no material modifications that should be made to the financial statements in order for the statements to be in conformity with application framework.

SSARS do not apply to services such as preparing one or a few adjusting entries or correcting entries, consulting on financial matters, preparing tax return, rendering manual or automated bookkeeping or data processing services, and processing financial data for clients of other accounting firms SSARS does not apply to review of interim financial information when Statement on Auditing Standards apply Elements of Compilation and Review 1. Third party relationship a. Management responsible for identifying framework and policies, preparation and fair presentation of financial statement, and design and implementation of internal control 2. Financial Reporting Framework 3. Financial Statements or Financial Information 4. Sufficient appropriate evidence- review only a. Review evidence are usually obtained from inquiry and analytical 5. Written communication or report a. Compile a report or written communication b. Review a written report is required Compilation Engagement letter is mandatory The objective of the engagement Management responsibilities o Preparation of fair presentation of FS in accordance to GAAP o Designed and implementing internal control o Prevent and detect fraud o Compliance with laws and regulations o Make all information available to auditor Accountant repsonsibilities Limitate of engagement o Might be relied upon to disclose errors, fraud or illegal acts o Will inform any information indicating fraud Description of other services If compliment is not intended for third party, a engagement letter containing management representation and agreement that the FS not used by third party is enough. No need to do a compilation report A compilation does not contemplate performing inquiry, analystcal procedures, or other procedures peformed in a review. Additionally, a compilation does not comtemplate obtaining an understanding of the entity internal control; assessing fraud risks; test of accounting records by obtaining sufficient appropriate audit

evidence through inspection, observation, confirmation, the examination of source documents. No assurance or opinion. Compilation Requirements 1. Knowledge of industry accounting principle and practices 2. Understanding client business 3. Reading the financial statement- free from obvious material errors 4. Fraud and illegal acts, going concern, and subsequent events a. If become aware, should request the management to consider the effect Should document the work performed in compilation. Engagement letter, significant findings, and oral or written communication with management Report should include: Title Compilation Report, Independence compilation report Addressee Introductory paragraph o Identify the entity o State FS compiled o Identify FS o Period covered o No reviewed or audited Management responsibility paragraph o Responsible for preparation and presentation of GAAP o Designed and implementation of Internal control Accountant responsibility paragraph o In accordance with SSARS o Objective of compilation and assist management in presentation Signature of accountant Date of accountant report date the report is completed Each page of the statement should include See accountants compilation report IF requested by the client, the auditor can compile FS that omit substantially all disclosures regarding by the framework. As long as: Clearly indicate the omission in the report Omission not intended to mislead any person Financial statement are otherwise in conformity with GAAP Departure with applicable framework should be disclosed in another paragraph Auditor can compile the FS even he is no independence, but must disclosure the lack of independence in the last parapgrah of the report If only engagement letter is used, each page of the financial statement should restrict the use.

Review The accountant is not required to obtain an understanding of internal control or assess control risk. Evidence mainly comes from inquiry and analytical Review Procedures should be tailored Review Requirements Understanding with clients should be established Learn or obtain sufficient knowledge of the business Inquiry Analytical procedures Review other procedures to be performed Client representation letter Professional judgment Accountant communication result Engagement letter is mandatory. Client Representation Letter is also mandatory Accountant is not required to: Test internal control- understanding of internal control not required Perform audit tests Assess fraud risk- if become aware, consider effect and request management Communication with predecessor accountant- can but not required The accountant only need to inquiry with internal personnel not external Analytical procedures Compare the current statement with prior period; current ratio with prior Compare actual statement with budgets or forecast Compare financial and relevant nonfinancial information Compare ratio and indicators with those of other entities in industry Compare relationship among elements in FS Client representation letter should be obtained. The letter should be dated of the accountant report Update the management representation letter Significant amount of time passed between the procedures peformed and the issurance of the report Material subsequent event between completion of procedures and issurance of the report A former client request the accountant to reissue prior period report An updated letter should include any previous representation should be modified and subsequent events

Communicate Result 1. Title independence on the title 2. Addressee 3. Introductory paragraph a. Identify entity b. State the FS reviewed c. Identify FS d. Specify the period covered e. Applied analytical procedures to management data and made inquiry f. Substantial less in scope than audit, and does not express opinion 4. Management Responsibilities a. Fair presentation of FS b. Maintained internal control 5. Auditor Responsibilities a. Accordance with SSAR by AICPA b. Limited assurance 6. Engagement result a. Not aware of any material modification that should be made for FS to be conformity with the applicable framework 7. Signature of Accountant 8. Date date completed review 9. Each page of the statement should be marked as See Independent Accountant Review Report 10. Uncertainties and inconsistencies do not require medication of review report as long a the FS include adequate disclosure 11. Accountant must be independent Report Modification due to departure of GAAP Separate paragraph should be added to the end of the report Report Modification not Adequate due to departure of GAAP If disclosures is not adequate, then the accountant should withdraw Reporting on fraud Inconsequential matter- no need to communicate Documentation oral and written need to be documented Other options withdraw or consult legal counsel Confidentiality obligation of confidentially preclude disclosure outside entity except in certain limited If accountant become aware of subsequent events, he or she should first confirm or investigate the issue

Change in Engagement Before agreeing to the change, the auditor should consider: Reason for the request, if especially there is scope limitation Effort required to complete the engagement Estimated additional cost If change is justified, then can issue the report but cannot refer to the original engagement or use any procedure performed, or any scope limitation Reason for change Acceptable reason: change in client requirements, and misunderstanding the nature of the services Unacceptable reason: engagement would uncover fraud or errors, or the clients is attempting to mislead Refusal to sign a representation letter (scope limitation) cannot issue refuse to allow legal counsel inquiry (scope limitation) cannot issue Reporting on Comparative Financial Statement All period reviewed or compiled Update the prior report and issue it as part of the current report Current period reviewed and prior period compiled (service upgrade) The report on the prior period should be updated and issued as the last paragraph of the current periods report Current period compiled and prior period reviewed Issue a compilation report and add a paragraph to the report on the current period statement. The added paragraph should describe the responsibilities assumed for the prior period statement. This description should include the date of the original report and a statement that no review performed after that report. Reissue the prior period review report o Combined wth the current period compilation report o Or presented separately The accountant should not issue a report on comparative financial statement when statement for one or more but not all, of the periods presented omit substantially all of the disclosures required by GAAP Information affecting previous report The date of the orginal report Statement of the prior period changed, Reason for the change in original report

Predecessor reissue report Read the statement and report of the current period Compare the prior period statement with those issued previously and currently Obtain a letter from the successor accountant stating that they are no aware of any relevant information that might have a material effect on the prior period Whenever prior accountant asked to reissue their prior report, they should read the new financial statement, and obtain a representation letter from the new accountant Reporting when only one report is audited Current period unaudited and prior period audited Prior period statement were audited The date of the previous report The opinion expressed That no audit procedures have been performed after Current period audited and prior period unaudited Statement of the service performed in prior period Date of previous report Description of any material modification noted in that report Service is less scope than audit For public entities, a disclaimer or a description of a review For nonpublic entities, a description of the compilation or review Interim Financial Statement For nonissuer, the latest financial statement must be audit in order to do interim review Written report is not required but client might require Procedures Understanding with clients should be established (engag letter must) Learn or obtain sufficient knowledge of the business Inquiry Analytical procedures Review other procedures to be performed Client representation letter Professional judgment Accountant communication result

The objective of a review of interim financial information is to determine whether material modificiation are necessary for the information to be in conformity with the GAAP An understanding of internal control in Interim Review is needed. No understanding of internal control is need in just review Should make inquiry of predecessor also not required in just review Not required to do inquiry of clients lawyer Written representation letter from management should be obtained Each page of the interim financials statement should be marked as unaudited Identification of the country of origin of the accounting principle used Letter for Underwriter When a comfort letter is to be issued, the CPA is required to perform a review of interim financial information in accordance with auditing standards The underwriter must provide the CPA with attorney opinion or a representation Letter. The comfort letter is strictly for the underwriter Positive CPA independence Assuming financial statement audited Negative Unaudited financial statement Changes in selecting financial statement Auditor should not comment or provide assurance on market risk sensitive instruments or qualitative disclosures Attest Engagement Engage to issue or does issue an examination, a review, a compilation, or an agreed upon proceudres report on subject matter, or on an assertion about the subject matter, that is the responsibility of another party (management)

Operational audit are usually performed by internal auditor to evaluate the effectiveness and efficiency of various components or processes of a company Attestation standards are different from GAAS in 3 ways No reference is made to financial statement No reference is made to GAAP Attestation stands provide level assurance below GAAS Attestation is broader in scope than GAAS Examination a positive opinion, high level of assurance, generally based on variety of procedures, including search, verification, inquiry, and analysis. Agreed upon procedures no assurance , but procedures and findings are listed no written assertion is required