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Auditing and Assurance Principles

CHAPTER FOURTEEN
SPECIAL CONSIDERATIONS AND AUDITS OF
SUMMARY FINANCIAL STATEMENTS

Learning Objectives

After studying this chapter, you should be able to:

 Identify the different engagements where auditors issue reports on special


considerations and summary financial statements.
 Determine the requirements of PSAs in issuing reports for special purpose.
 Describe the contents of special purpose audit reports.

Introduction

Special considerations include the following:

1. Audits of financial statements prepared in accordance with special purpose frameworks


2. Audits of single financial statements and specific elements, accounts or items of a
financial statement.

In addition to these engagements, this Chapter also discusses reporting on summary


financial statements.

Overall considerations

The auditor should review and assess the conclusions drawn from the audit evidence
obtained during the special-purpose audit engagement as the basis for an expression of
opinion. The report should contain clear written expression of opinion.

Before undertaking a special purpose audit engagement, the auditor should ensure there
is agreement with client as to the exact nature of the engagement and the form and content of
the report to be issued.

Before undertaking a special purpose audit engagement, the auditor should ensure there is
agreement with client as to

1. The exact nature of the engagement and


2. The form and content of the report to be issued
3.

Audits of Financial Statements Prepared


In Accordance with Special Purpose Framework

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The objective of the auditor, when applying PSAs in an audit of financial statements
prepared in accordance with special purpose framework, is to address appropriately the special
considerations that are relevant to:

a. The acceptance of the engagement;


b. The planning and performance of that engagement and
c. Forming an opinion and reporting on the financial statements.

Special purpose financial statements are financial statements prepared in accordance


with a special purpose framework. A special purpose framework is a financial reporting
framework designed to meet the financial information needs of specific users. The financial
reporting framework may be a fair presentation framework or a compliance framework.

Examples of social purpose frameworks are:

 A tax basis of accounting for a set of financial statements that accompany an entity's
tax return;
 The cash receipts and disbursements basis of accounting for cash flow information that
an entity's may be request to prepare for creditors;
 The financial reporting provisions established by a regulator to meet the requirements
of that regulator; or
 The financial reporting provisions of a contract, such as a bond indenture, a loan
agreement, or a project grant.

Acceptance of the Engagement

PSA 210 (redrafted) requires the auditor to determine the acceptability of the financial reporting
framework applied in the preparation of the financial statement. In an audit of special purpose
financial statements, the auditor shall obtain an understanding of:

A. The purpose for which the financial statements are prepared;


B. The intended users; and
C. The steps taken by management to determine that the applicable financial reporting
framework is acceptable in the circumstance

In the case of special purpose financial statements, the financial information needs of the
intended users are a key factor in determining the acceptability of the financial reporting
framework applied in the preparation of the financial statements

Planning Considerations

In planning and performing an audit of special purpose financial statements, the auditor
shall determine whether application of the PSAs requires special considerations in the
circumstance of the engagement.

Application of some of the requirements of the PSAs in an audit of special purpose


financial statements may require special consideration

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by the auditor. For example, in PSA 320 (Revised and Redrafted), judgments about matters that
are materials to users of the financial statements are based on a consideration of the common
financial information needs of users as a group. In the case of an audit of special purpose
financial statement, however, those judgments are based on a consideration of the financial
information needs of the intended users.

The auditor to obtain an understanding of the entity’s selection and application of


accounting policies. In the case of financial statements prepared in accordance with the
provisions of a contract, the auditor shall obtain an understanding of any significant
interpretations of the contract that management made in the preparation of those financial
statements. An interpretation is significant when adoption of another reasonable interpretation
would have produced a material difference in the information presented in the financial
statements.

Reporting Considerations

When forming an opinion and reporting on special purpose financial statements, the
auditor shall apply the requirements in PSA 700 (Redrafted). PSA (Redrafted) requires the
auditor to evaluate whether the financial statements adequately refer to or describe the
applicable financial reporting framework.

In the case of financial statements prepared in accordance with the provisions of a


contract, the auditor shall evaluate whether the financial statements adequately describe any
significant interpretations of the contract on which the financial statements are based.

The following are required for reports on special purpose financial statements:

a. The auditor’s report shall also describe the purpose for which the financial statements
are prepared and, if necessary, the intended users, or refer to a note in the special
purpose financial statements that contains that information; and

b. If management has a choice of financial reporting frameworks in the preparation of such


financial statements, the explanation of the management’s responsibility for the financial
statements shall also make reference to its responsibility for determining that the
applicable financial reporting framework is acceptable in circumstances.

c. The report shall include and emphasis of matter paragraph alerting of the auditor’s report
that the financial statements are prepared in accordance with special purpose framework
and that as a result, the financial statements may not be suitable for another purpose.
The auditor shall include this paragraph under an appropriate heading.

The special purpose financial statements may be used for purposes other than those for
which they are intended. For example, a regulator may require certain entities to place
special purpose financial statements on public record. To avoid

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misunderstandings, the auditor alerts users of the auditor’s report that the financial
statements are prepared in accordance with special purpose framework and, therefore,
may not be suitable for another purpose.

d. In addition to the alert required by letter c, the auditor may consider it appropriate to
indicate that the auditor's report is intended solely for the specific users. Depending on
the law or regulation of the particular jurisdiction, this may be achieved by restricting the
distribution or use of the auditor’s report. In these circumstances the paragraph referred
to letter c may be expanded to include these other matters, and the heading modified
accordingly.

Exhibits 14-1 and 14-2 shows sample audit reports for statements prepared on other
comprehensive accounting.

Exhibit 14-1 Sample Audit Report- Financial Statements Prepared in Accordance with the
Provisions of a Contract

INDEPENDENT AUDITOR’S REPORT

[Appropriate Addressee]

We have audited the accompanying financial statements of ABC company, which comprise the balance
sheet as at December 31, 2012, and the income statement, statement of changes in equity and cash flow
statement for the year then ended, and a summary of significant accounting policies and other explanatory
information. The financial statements have been prepared by management of ABC Company based on the
financial reporting provisions of Section Z of the contract date January 1, 2012 between ABC Company
and DEF Company (the contract)

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation of financial statements in accordance with the financial
reporting provisions of Section Z of the contract; this includes the design, implementation, and
maintenance of internal control relevant to the preparation of financial statement, whether due to fraud or
error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with Philippine Standards on Auditing. Those standards require that
we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

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In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation
of the financial statements in order to design audit procedures that are appropriate in circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit
also includes evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by management, as well as evaluating the overall presentation of the financial
statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.

Opinion

In our opinion, the financial statements of ABC Company for the year ended December 31,2012 are
prepared, in all material respects in accordance with the financial reporting provisions of Section Z of the
contract.

Basis of Accounting and Restriction on Distribution and Use

Without modifying our opinion, we draw attention to Note x to the financial statements, which describes
the basis of accounting. The financial statements are prepared to assist ABC Company to comply with
financial reporting provisions of the contract referred to above. As a result, the financial statements may
not be suitable for another purpose. Our report is intended solely for ABC Company and DEF Company
and should not be distributed to or used by parties other than ABC Company or DEF Company.

[Auditor’s signature]
[Date of the auditor’s report]
[Auditor’s address]

Exhibit 14-2 Sample Audit Report- Financial Statements Prepared on the Entity’s Income Tax
Basis

INDEPENDENT AUDITOR’S REPORT

[Appropriate Addressee]

We have audited the accompanying financial statements of ABC Partnership, which comprise the balance
sheet as at December 31, 2012 and the income statement for the year ended, and a summary of significant
accounting policies and other explanatory information. The financial statements have been prepared by
management using tax basis of accounting in Jurisdiction X.

Management’s Responsibility for the Financial Statements


Management is responsible for the preparation of these financial statements in accordance with the tax
basis of accounting in Jurisdiction X; this includes the design, implementation and maintenance of
internal control… [same wording as in Exhibit 14-1]

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Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with… [same wording as in Exhibit 14-1]

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.

Opinion

In our opinion, the financial statement of ABC Partnership for the year ended December 31, 2012 are
prepared, in all material respects, in accordance with [describe the applicable income tax law] of
Jurisdiction X.

Basis of Accounting and Restriction on Distribution

Without modifying our opinion, we draw attention to Note X to the financial statements, which describes
the basis of accounting. The financial statements are prepared to assist the partners of ABC Partnership in
preparing their individual income tax returns. As a result, the financial statements may not be suitable for
another purpose. Our report is intended solely for ABC Partnership and its partners and should not be
distributed to parties other than ABC Partnership or

[Auditor’s signature]
[Date of the auditor’s report]
[Auditor’s address]

Audits of Single Financial Statements


and Specific Elements, Accounts or
Items of a Financial Statement

For purposes of this section, an element of a financial statement or simply element


means an “element, account or item of a financial statement:” A single financial statement refers
to a component of a complete set of financial statement, such as the statement of financial
position.Such specific element of a financial statement includes the related notes. The related
notes ordinarily comprise a summary of significant accounting policies and other explanatory
information relevant to the financial statement or to element.

Acceptance of the Engagement


In the case of an adult of a single financial statement or of a specific element ofa
financial statement, acceptance and continuance procedures apply, irrespective of whether the
auditor is also engaged to audit the entity’s complete set of financial statements. If the auditor is
not also engaged to audit the entity’s complete set of financial statements, the auditor shall

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determine whether the auditor of a single financial statement or of a specific element of those
financial statements in accordance with PSAs is practicable.

Compliance with the requirements of PSAs relevant to the audit of a single financial
statement or of a specific element of a financial statement may not be practicable when the
auditor is not also engaged to audit the entity’s complete set of financial statements. In such
cases, the auditor often does not have the same understanding of the entity and its
environment, including its internal control, as an auditor who also audits the entity’s complete
set of financial statements. The auditor also does not have the audit evidence about the general
quality of the accounting records or other accounting information that would be acquired in an
audit of the entity’s complete set of financial statements. Accordingly, the auditor may need
further evidence to corroborate audit evidence acquired from the accounting records. In the
case of an audit of a specific element of a financial statement, certain PSAs require audit work
that may be disproportionate to the element being audited. For example although the
requirements of PSA 570 (Redrafted) are likely to be relevant in the circumstances of an audit of
a schedule of accounts receivable, complying with those requirements may not be practicable
because of the audit effort required. If the auditor concludes than an audit of a single financial
statement or of a specific element of a financial statement in accordance with PSAs may not be
practicable, the auditor may discuss with management whether another type of engagement
might be more practicable.

PSA 210 (Redrafted) requires the auditor to determine the acceptability of the financial
reporting framework applied in the preparation of the financial statements. In the case of an
audit of a single financial statement or of a specific element of a financial statement, this shall
include whether application of the financial reporting framework will result in a presentation that
provides adequate disclosures to enable the intended users to understand the information
conveyed in the financial statement or the element, and the effect of material transactions and
events on the information conveyed in the financial statement or the element.

A single financial statement or a specific element of a financial statement may be


prepared in accordance with applicable financial reporting framework that is based on a
financial reporting framework established by an authorized or recognized standards setting
organization for the preparation of a complete set of financial statements (e.g., Philippine
Financial Reporting Standards). If this is the case, determination of the acceptability of the
applicable framework may involve considering whether that framework includes all the
requirements of the framework on which it is based that are relevant to the presentation of a
single financial statement or of a specific element of a financial statement that provides
adequate disclosures.

PSA 210 (Redrafted) requires that the agreed terms of the audit engagement include the
expected form of any reports to be issued by

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the auditor. In the case of an audit of a single financial statement or of a specific element of a
financial statement, the auditor shall consider whether the expected form of opinion is
appropriate in the circumstances.

Planning Considerations

In planning and performing the audit of a single financial statement or of a specific


financial statement, the auditor shall adapt all PSAs relevant to the audit as necessary in the
circumstances of the engagement.

Reporting Considerations

When performing an opinion and reporting on a single financial statement or on a


specific element of a financial statement, the auditor shall apply the requirements in PSA 700
(Redrafted), adapted as necessary in the circumstances of the engagement.

The form of opinion to be expressed by the auditor depends on the applicable finacial
reporting framework and any applicable laws or regulations. In accordance with PSA 700
(Redrafted):
a. When expressing an unmodified opinion on a complete set of financial statements
prepared in accordance with a fair presentation framework, the auditor’s opinion,
unless otherwise required by law or regulation, uses the phrase “the financial
statements present fairly, in all material respects, in accordance with [the applicable
financial reporting framework];” and

b. When expressing an unmodified opinion on a complete set of financial statements


prepared in accordance with a compliance framework, the auditor’s opinion states
that the financial statements are prepared, in all material respects, in accordance
with [applicable financial framework].

Reporting on the Entity’s Complete Set of Financial Statements and on a Single Financial
Statement or on a Specific Element of those Financial Statements

If the auditor undertakes an engagement to report on a single financial statement or on a


specific element of a financial statement in conjunction with an engagement to audit the entity’s
complete set of financial statements, the auditor shall express a separate opinion for each
engagement.

An audited single financial statement or an audited specific element of a financial


statement may be published together with the entity's audited complete set of financial
statements. If the auditor concludes that the presentation of the single financial statement or of
the specific element of a financial statement does not differentiate it sufficiently form the
complete set of financial statements, the auditor shall ask management to rectify the situation.
The auditor shall also differentiate the opinion on the single financial statement or on the
specific element of a financial statement from the opinion on

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complete set of financial statements. The auditor shall not issue the auditor’s report containing
the opinion on the single financial statement or on the specific element of a financial statement
until satisfied with the differentiation.

Modified Opinion, Emphasis of Matter Paragraph or Other Matter Paragraph in the Auditor’s
Report on the Entity’s Complete Set of Financial Statements.

If the opinion in the auditor’s report on an entity’s complete set of financial statements is
modified, or that report includes an Emphasis of Matter paragraph or Other Matter paragraph,
the auditor shall determine the effect that this may have on the auditor’s report on a single
financial statement or on a specific element of those financial statements. When deemed
appropriate, the auditor shall modify the opinion on the single financial statement or on the
specific element of a financial statement, or include an Emphasis of Matter paragraph or an
Other Matter paragraph in the auditor’s report, accordingly.

If the auditor concludes that it is necessary to express an adverse opinion or disclaim an


opinion on the entity’s complete set of financial statements as a whole, PSA 705 (Revised and
Redrafted) does not permit the auditor to include in the same auditor’s report an unmodified
opinion on a single financial statement that forms part of those financial statements or on a
specific element that forms part of those financial statements. This is because such an
unmodified opinion would contradict the adverse opinion or disclaimer of opinion on the entity’s
complete set of financial statements as a whole.

If the auditor concludes that it is necessary to express an adverse opinion or disclaim an


opinion on the entity’s complete set of financial statements as a whole but, in the context of a
separate audit of a specific element that is included in those financial statements, the auditor
nevertheless considers it appropriate to express an unmodified opinion on that element, the
auditor shall only do so if:

a. The auditor is not prohibited by law or regulation from doing so;

b. That opinion is expressed in an auditor’s report that is not published together with the
auditor’s report that is not published together with the auditor’s report containing the
adverse opinion or disclaimer of opinion; and

c. The specific element does not constitute a major portion of the entity’s complete set of
financial statements.

The auditor shall not express an unmodified opinion on a single financial statement of a
complete of financial statements if the auditor has expressed an adverse opinion or disclaimed
an opinion on the complete set of financial statements as a whole. This is the case even if the
auditor’s report on the single financial statement is not published together with the auditor’s
report containing the adverse opinion or disclaimer of opinion. This is because a single financial
statement is deemed to constitute a major portion of those financial statements.

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Exhibit 14-3 An auditor’s report on a single financial statement prepared in accordance with a
general purpose framework

INDEPENDENT AUDITOR’S REPORT

[Appropriate Addressee]

We have audited the accompanying balance sheet of ABC Company as at December 31, 2012 and a
summary of significant accounting policies and other explanatory information (together “the financial
statement”).

Management’s Responsibility for the Financial Statement

Management is responsible for the preparation and fair presentation of this financial statement in
accordance with those requirements of the Financial Reporting Framework in Jurisdiction X relevant to
preparing such a financial statement; this includes the design, implementation and maintenance of internal
control relevant to the preparation and fair presentation of the financial statement that is free from
material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial statement based on our audit. We conducted
our audit in accordance with Philippine Standards on Auditing. Those standards require that we comply
with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether
the financial statement is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statement. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statement, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation
and fair presentation of the financial statement in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates, if any, made by management, as well as evaluating the overall
presentation of the financial statement.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.

Opinion

In our opinion, the financial statement presents fairly, in all material respects, the financial position of
ABC Company as at December 31, 2012 in accordance with those requirements of the Financial
Reporting Framework in Jurisdiction X relevant to preparing such a financial statement.

[Auditor’s signature]
[Date of the auditor’s report]
[Auditor’s address]

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Exhibit 14-4 Auditor’s report on a statement of cash receipts and disbursements

INDEPENDENT AUDITOR’S REPORT

[Appropriate Addressee]

We have audited the accompanying statement of cash receipts and disbursements of ABC Company for
the year ended December 31, 2012 and a summary of significant accounting policies and other
explanatory information (together “the financial statement”). The financial statement has been prepared
by management using the cash receipts and disbursements basis of accounting described in Note X.

Management’s Responsibility for the Financial Statement

Management is responsible for the preparation and fair presentation of this financial statement in
accordance with the cash receipts and disbursements basis of accounting described in Note X; this
includes determining that the cash receipts and disbursements basis of accounting is an acceptable basis
for the preparation of the financial statement in the circumstances, and the design, implementation and
maintenance of internal control relevant to the preparation and fair presentation of the financial statement
that is free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial statement based on our audit. We conducted
our audited in accordance with Philippine Standards on Auditing. Those standards require that we comply
with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether
the financial statement is free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statement. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation
and fair presentation of the financial statement in order to design audit procedure that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates, if any, made by management, as well as evaluating the overall
presentation of the financial statement.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our audit opinion.

Opinion

In our opinion, the financial statement presents fairly, in all material respects, the cash receipts and
disbursements of ABC Company for the year ended December 31, 2012 in accordance with the cash
receipts and disbursements

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basis of accounting described in Note X.

Basis of Accounting

Without modifying our opinion, we draw attention to Note X to the financial statement, which describes
the basis of accounting. The financial statement is prepared to provide information to XYZ Creditor. As a
result, the statement may not be suitable for another purpose.

[Auditor’s signature]
[Date of the auditor’s report]
[Auditor’s address]

Reports on Summary Financial Statements

Summary financial statements refer to historical financial information that is derived from
financial statements but that contains less detail than the financial statements, while still
providing a structured representation consistent with that provided by the financial statements of
the entity’s economic resources or obligations at a point in time or the changes therein for a
period of time.

Throughout this section, the financial statements from which the summary financial
statements are derived shall be called audited financial statements, while the criteria applied by
management in the preparation of the summary financial statements are called applied criteria.

Acceptance of the Engagement

The auditor shall accept an engagement to report on summary financial statements only
when the auditor has been engaged to conduct an audit in accordance with PSAs of the
financial statements from which the summary financial statements are derived. Before accepting
an engagement to report on summary financial statements, the auditor shall:

a. Determine whether the applied criteria are acceptable;

b. Obtain the agreement of management that it acknowledges and understands its


responsibility:
 For the preparation of the summary financial statements in accordance with the
applied criteria;
 To make the audited financial statements available to the intended users of the
summary financial statements without undue difficulty (or, if law or regulation
provides that the audited financial statements need not be made available to the
intended users of the summary financial statements and establishes the criteria
for the preparation of the summary financial statements, to describe that law or
regulation in the summary financial statements); and

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To include the auditor’s report on the summary financial statements in any
document that contains the summary financial statements and that indicates that
the auditor has reported on them.
c. Agree with management the form of opinion to be expressed on the summary financial
statements.

If the auditor concludes that the applied criteria are unacceptable or is unable to obtain the
agreement of management on acknowledgement of responsibilities, the auditor shall not accept
the engagement to report on the summary financial statements, unless required by law or
regulation to do so. An engagement conducted in accordance with such law or regulation does
not comply with PSA 810. Accordingly, the auditor’s report on the summary financial statements
shall not indicate that the engagement was conducted in accordance with PSA 810. The auditor
shall include appropriate reference to this fact in the terms of the engagement. The auditor shall
also determine the effect that this may have on the engagements to audit the financial
statements from which the summary financial statements are derived.

Planning Considerations

The auditor shall perform the following procedures, and any other procedures that the
auditor may consider necessary, as the basis for the auditor’s opinion on the summary financial
statements:

a. Evaluate whether the summary financial statements adequately disclose their


summarized nature and identify the audited financial statements.

b. When summary financial statements are not accompanied by the audited financial
statements, evaluate whether they describe clearly:
 From whom or where the audited financial statements are available; or
 The law or regulation that specifies that the audited financial statements need not
be made available to the intended users of the summary financial statements and
establishes the criteria for the preparation of the summary financial statements.

c. Evaluate whether the summary financial statements adequately disclose the applied
criteria.

d. Compare the summary financial statements with the related information in the audited
financial statements to determine whether the summary financial statements agree with
or can be recalculated from the related information in the audited financial statements.

e. Evaluate whether the summary financial statements are prepared in accordance with the
applied criteria.

f. Evaluate, in view of the purpose of the summary financial statements, whether the
summary financial statements contain the information necessary, and are at an
appropriate level of aggregation, so as not to be misleading in the circumstances.

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g. Evaluate whether the audited financial statements are available to the intended users of
the summary financial statements without undue difficulty, unless law or regulation
provides that they need not be made available and establishes the criteria for the
preparation of the summary financial statements.

Reporting Considerations

When the auditor has concluded that an unmodified opinion on the summary financial
statements is appropriate, the auditor’s opinion shall, unless otherwise required by law or
regulation, use one of the following phrases:

a. The summary financial statements are consistent, in all material respects, with the
audited financial statements, in accordance with [the applied criteria]; or

b. The summary financial statements are a fair summary of the audited financial
statements, in accordance with [the applied criteria].

If law or regulation prescribes the wording of the opinion on summary financial statements in
terms that are different from those described above, the auditor shall:

a. Apply the procedure described in paragraph 8 and any further procedures necessary to
enable the auditor to express the prescribed opinion; and

b. Evaluate whether users of the summary financial statements might misunderstand the
auditor’s opinion on the summary financial statements and, if so, whether additional
explanation in the auditor’s report on the summary financial statements can mitigate
possible misunderstanding.

If, the auditor concludes that additional explanation in the auditor’s report on the summary
financial statements cannot mitigate possible misunderstanding, the auditor shall not accept the
engagement, unless required by law or regulation to do so. An engagement conducted in
accordance with such law or regulation does not comply with PSA 810. Accordingly, the
auditor’s report on the summary financial statements shall not indicate that the engagement was
conducted in accordance with PSA 810.

Other Reporting Considerations

The auditor’s report on the summary financial statements may be dated later than the
date of the auditor’s report on the audited financial statements. In such cases, the auditor’s
report on the summary financial statements shall state that the summary financial statements
and audited financial statements do not reflect the effects of events that occurred subsequent to
the date of the auditor’s report on the audited financial statements that may require adjustments
of, or disclosure in, the audited financial statements.

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The auditor may become aware of facts that existed at the date of the auditor’s report on
the audited financial statements, but of which the auditor previously was unaware. In such
cases, the auditor shall not issue the auditor’s report on the summary financial statements until
the auditor’s consideration of such facts in relation to the audited financial statements in
accordance with PSA 560 (Redrafted) has been completed.

Table 14-1
Basic Elements of a Report on Summary Financial Statements

1. Title clearly indicating that it is the report of an independent auditor;


2. Addressee;
3. An identification of the summary financial statements on which the auditor is reporting, including
the title of each statement included in the summary financial statements;
4. An identification of the audited financial statements from which the summarized financial
statements were derived;
5. A reference to the date of the audit report on the audited financial statements and the type of
opinion given in that report;
6. If the date of the auditor’s report on the summary financial statements is later than the date of the
auditor’s report on the audited financial statements, states that the summary financial statements
and the audited financial statements do not reflect the effects of events that occurred subsequent
to the date of the auditor’s report on the audited financial statements;
7. A statement indicating that the summary financial statements do not contain all the disclosures
required by the financial reporting framework applied in the preparation of the audited financial
statements, and that reading the summary financial statements is not a substitute for reading the
audited financial statements.
8. A description of management’s responsibility for the summary financial statements, explaining
that management is responsible for the preparation of the summary financial statements in
accordance with the applied criteria.
9. A statement that the auditor is responsible for expressing an opinion on the summary financial
statements based on the procedures required by PSA 810.
10. A paragraph clearly expressing an opinion.
11. The auditor’s signature.
12. The date of the auditor’s report.
13. The auditor’s address.

If the addressee of the summary financial statements is not the same as the addressee
of the auditor’s report on the audited financial statements, the auditor shall evaluate the
appropriateness of using a different addressee.

The auditor shall date the auditor’s report on the summary financial statements no earlier
than:

a. The date on which the auditor has obtained sufficient

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appropriate evidence on which to base the opinion, including evidence that the summary
financial statements have been prepared and those with the recognized authority have
asserted that they have taken responsibility for them; and

b. The date of the auditor’s report on the audited financial statements.

Modifications to the Opinion, Emphasis of Matter Paragraph or Other Matter Paragraph in


the Auditor’s Report on the Audited Financial Statements

When the auditor’s report on the audited financial statements contains a qualified
opinion, an Emphasis of Matter paragraph, or an Other Matter paragraph, but the auditor is
satisfied that the summary financial statements are consistent, in all material respects, with or
are a fair summary of the audited financial statements, in accordance with the applied criteria,
the auditor’s report on the summary financial statements shall, in addition to the elements in
Table 14-1:

a. State that the auditor’s report on the audited financial statements contains a qualified
opinion, an Emphasis of Matter paragraph, or an Other Matter paragraph; and

b. Describe:
 The basis for the qualified opinion on the audited financial statements, and that
qualified opinion; or the Emphasis of Matter or the Other Matter paragraph in the
auditor’s report on the audited financial statements; and
 The effect thereof on the summary financial statements, if any.

When the auditor’s report on the audited financial statements contains an adverse
opinion or a disclaimer of opinion, the auditor’s report on the summary financial statements
shall, in accordance to the elements in Table 14-1:

a. State that the auditor’s report on the audited financial statements contains an adverse
opinion or disclaimer of opinion;

b. Describe the basis for that adverse opinion or disclaimer of opinion; and

c. State that, as a result of the adverse opinion or disclaimer of opinion, it is inappropriate


to express an opinion on the summary financial statements.

Modified Opinion on the Summary Financial Statements

If the summary financial statements are not consistent, in all material respects, with or
are not a fair summary of the audited financial statements, in accordance with the applied
criteria, and management does not agree to make the necessary changes, the auditor shall
express an adverse opinion on the summary financial statements.

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Restriction on Distribution or Use or Alerting Readers to the Basis of Accounting

When distribution or use of the auditor’s report on the audited financial statements is
restricted, or the auditor’s report on the audited financial statements alerts readers that the
audited financial statements are prepared in accordance with a special purpose framework, the
auditor shall include a similar restriction or alert in the auditor’s report on the summary financial
statements.

Comparatives

If the audited financial statements contain comparatives, but the summary financial
statements do not, the auditor shall determine whether such omission is reasonable in the
circumstances of the engagement. The auditor shall determine the effect of an unreasonable
omission on the auditor’s report on the summary financial statements.

If the summary financial statements contain comparatives that were reported on by


another auditor, the auditor’s report on the summary financial statements shall also contain the
matters that PSA 710 (Redrafted) requires the auditor to include in the auditor’s report on the
audited financial statements.

Unaudited Supplementary Information Presented with Summary Financial Statements

The auditor shall evaluate whether any unaudited supplementary information presented
with the summary financial statements is clearly differentiated from the summary financial
statements. If the auditor concludes that the entity’s presentation of the unaudited
supplementary information is not clearly differentiated from the summary financial statements,
the auditor shall ask management to change the presentation of the unaudited supplementary
information. If management refuses to do so, the auditor shall explain in the auditor’s report on
the summary financial statements that such information is not covered by that report.

Other Information in Documents Containing Summary Financial Statements

The auditor shall read other information included in a document containing the summary
financial statements and related auditor’s report to identify material inconsistencies, if any, with
the summary financial statements. If, on reading the other information, the auditor identifies a
material inconsistency, the auditor shall determine whether the summary financial statements or
the other information needs to be revised. If, on reading the other information, the auditor
becomes aware of an apparent material misstatement of fact, the auditor shall discuss the
matter with management.

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Auditor Association

If the auditor becomes aware that the entity plans to state that the auditor has reported
on summary financial statements in a document containing the summary financial statements,
but does not plan to include the related auditor’s report, the auditor shall request management
to include the auditor’s report in the document.

If management does not do so, the auditor shall determine and carry out other
appropriate actions designed to prevent management from inappropriately associating the
auditor with the summary financial statements in that document.

The auditor may be engaged to report on the financial statements of an entity, while not
engaged to report on the summary financial statements. If, in this case, the auditor becomes
aware that the entity plans to make a statement in a document that refers to the auditor and the
fact that summary financial statements are derived from the financial statements audited by the
auditor, the auditor shall be satisfied that:

a. The reference to the auditor is made in the context of the auditor’s report on the audited
financial statements; and
b. The statement does not give the impression that the auditor has reported on the
summary financial statements

If (a) or (b) are not met, the auditor shall request management to changer the statement
to meet them, or not to refer to the auditor in the document.

Alternatively, the entity may engage the auditor to report on the summary financial
statements and include the related auditor’s report in the document. If management does not
change the statement, delete the reference to the auditor, or include an auditor’s report on the
summary financial statements in the document containing the summary financial statements,
the auditor shall advise management that the auditor disagrees with the reference to the auditor,
and the auditor shall determine and carry out other appropriate actions designed to prevent
management from inappropriately referring to the auditor.

Exhibit 14-5 Standard Report on Summary Financial Statements

REPORT OF THE INDEPENDENT AUDITOR ON TH SUMMARY FINANCIAL


STATEMENTS

[Appropriate Addressee]

The accompanying summary financial statements, which comprise the summary balance sheet as at
December 31, 2012, the summary income statement, summary statement of changes in equity and
summary cash flow statement for the year then ended, and related notes, are derived from the audited
financial statements of ABC Company for the year ended December 31, 2012. We expressed an
unmodified audit opinion on those financial statements in our report dated February 15, 2012. Those
financial statements, and the summary financial statements, do not reflect the effects of events that
occurred subsequent to the date of our report on those financial statements.

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The summary financial statements do not contain all the disclosures required by [describe financial
reporting framework applied in the preparation of the audited financial statements of ABC Company].
Reading the summary financial statements, therefore, is not a substitute for reading the audited financial
statements of ABC Company.

Management’s Responsibility for the Summary Financial Statements

Management is responsible for the preparation of a summary of the audited financial statements in
accordance with [describe established criteria].

Auditor’s Responsibility

Our responsibility is to express an opinion on the summary financial statements based on our procedures,
which were conducted in accordance with Philippine Standard on Auditing (PSA) 810 (Revised and
Redrafted), “Engagements to Report on Summary Financial Statements.”

Opinion

In our opinion, the summary financial statements derived from the audited financial statements of ABC
Company for the year ended December 31, 20X1 are consistent, in all material respects, with those
financial statements, in accordance with [describe established criteria].

[Auditor’s signature]
[Date of the auditor’s report]
[Auditor’s address]

Summary of Learning Objectives

1. Identify the different engagements where auditors issue special purpose audit
reports. Auditors issue special purpose audit reports when performing the following
engagements: audits of financial statements prepared under special purpose framework;
reporting on single financial statements or elements of financial statements; and
reporting on summary financial statements.

2. Understand the requirements of PSAs in issuing special reports.PSAs requires


proper planning of special purpose engagements, the gathering of sufficient, appropriate
audit evidence, and the issuance of the appropriate report. PSA 800, 805 and 810
further require the auditor to conform with the reporting format prescribed in the
Standard.

3. Describe the contents of special-purpose audit reports. Special reports contain the
following elements:
a. Title;
b. Addressee;
c. Opening or introductory paragraph

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d. A scope paragraph (describing the nature of an audit)


e. Opinion paragraph containing an expression of opinion on the financial
information;
f. Date of the report;
g. Auditor’s address; and
h. Auditor’s signature.

Important Terms and Concepts

Applied criteria Report on compliance


Audit of components Report on summarized financial
Audited financial statements statements
Component Special-purpose audit engagements
Compliance Special-purpose frameworks
Comprehensive basis of accounting Single financial statements
Element of financial statements Summary financial statements

Acknowledgements and References


Auditing Standards and Other Auditing Literature

Auditing and Assurance Standards Council (AASC), PSA 200: General Principles Governing an Audit of
Financial Statements

AASC, PSA 800 (Revised and Redrafted): Special Considerations – Audits of Financial Statements
Prepared in Accordance with Special-purpose Frameworks

AASC, PSA 805 (Revised and Redrafted): Special Considerations – Audits of Single Financial
Statements and Specific Elements, Accounts or Items of a Financial Statement

AASC, PSA 810 (Revised and Redrafted): Engagements to Report on Summary Financial Statements

International Auditing and Assurance Standards Board, 2010 IAASB Handbook.

Books
Arens, Alvin A. and James K. Loebbecke. Auditing – An Integrated Approach, 6e
Cabrera, Elenita B. Principles of Auditing, 2001.
Riocchiute, David N. Auditing and Assurance Services 7e, 2003
Taylor, Donald H. and G. William Glezen, Auditing: An Assertions Approach, 7e, 1997
Whittington, O. Ray and Kurt Pany, Principles of Auditing 11e

Discussion Questions

1. Give examples of special considerations regarding audit engagements.


2. What are examples of other comprehensive bases of accounting?
3. Explain the nature of an engagement to report on components of the financial
statements.
4. Why is it that reporting on a component results in a more extensive examination of an
account compared to a report on the whole set of financial statements?

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Auditing and Assurance Principles

5. What are the auditor’s considerations when reporting on compliance with contractual
agreements?
6. Define summarized financial statements.
7. What are the restrictions to the auditor when reporting on summary financial
statements?

Objective Questions

E14-1 True or False.

____ 1. A CPA has been engaged to audit financial statements that were prepared on a
cash basis. The CPA must ascertain that there is proper disclosure of the fact
that the cash basis has been used, the general nature of material items omitted,
and the net effect of such omissions.

____ 2. When requested to report in a prescribed format which differs from the
requirements of PSA 800, the prescribed format shall prevail over the
requirements of PSA 800.

____ 3. A comprehensive basis of accounting comprises a set of criteria used in


preparing financial statements which applies to selected material items and
which has substantial support.

____ 4. The special report on modified cash basis financial statements need not include
a statement that indicates the basis of accounting used.

____ 5. Audit of components results in a report on the financial statements taken as a


whole.

____ 6. In an audit of components, the auditor’s examination will ordinarily be less


extensive than if the same component were to be audited in connection with a
report on the entire financial statements.

____ 7. When an adverse opinion or disclaimer of opinion on the entire financial


statements has been expressed, the auditor should report on components of the
financial statements only if those components are so extensive as to constitute a
major portion of the financial statements.

____ 8. One of the major concerns in determining whether to accept an audit of


compliance is the professional competence of the auditor.

____ 9. Unless the auditor has expressed an audit opinion on the financial statements
from which the summarized financial statements were derived, the auditor should
not report on summarized financial statements.

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____ 10. Wordings such as “present fairly, in all material respects” is not used by the
auditor when expressing an opinion on summarized financial statements.

E14-2 Multiple Choice.

1. This PSA covers special considerations in audit engagements, except:


A. PSA 850
B. PSA 800
C. PSA 805
D. PSA 810

2. The objective of the auditor, when applying PSAs in an audit of financial statements
prepared in accordance with a special purpose framework, is to address appropriately
the special considerations that are relevant to:
A. The acceptance of the engagement
B. The planning and performance of that engagement
C. Forming an opinion and reporting on the financial statements
D. All of the answers

3. These are financial statements prepared in accordance with a special purpose


framework.
A. Modified financial statements
B. Particular-use financial statements
C. Special-purpose financial statements
D. Specialized reporting statements

4. A financial reporting framework designed to meet the financial information needs of


specific users.
A. Philippine Standards on Special Reports
B. Special purpose framework
C. Particular purpose framework
D. Customized financial reporting standards

5. Examples of special-purpose frameworks are:


I. A tax basis of accounting for a set of FS that accompany an entity’s tax return
II. The cash receipts and disbursements basis of accounting for cash flow
information that an entity may be requested to prepare for creditors
III. The financial reporting provisions established by a regular to meet the
requirements of that regulator
IV. The financial reporting provisions of a contract, such as a bond indenture, a loan
agreement, or a project grant
A. I, II and III C. II, III and IV
B. I, II and IV D. I, II, III and IV

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6. The auditor should determine the acceptability of the financial reporting framework
applied in the preparation of FS. In an audit of special-purpose Fs, the auditor shall
obtain an understanding of:
A. The purpose for which the financial statements are prepared
B. The intended users
C. The steps taken by management to determine that the applicable financial
reporting framework is acceptable in the circumstances
D. All of these

7. In determining the acceptability of the special-purpose financial reporting framework


applied, the key factor is:
A. Cost-benefit considerations in applying the framework.
B. Global acceptance of the special-purpose framework.
C. Ease in auditing the FS produced under the special-purpose framework.
D. The financial information needs of the intended users

8. The following are the considerations when planning and performing an audit of special-
purpose FS. Select the incorrect statement:
A. In planning and performing an audit of special purpose FS, the auditor shall
determine whether application of the PSAs requires special consideration in the
circumstances of the engagement.
B. In the case of FS prepared in accordance with the provisions of a contract, the
auditor shall obtain an understanding of any significant interpretations of the
contract that management made in the preparation of those FS.
C. An interpretation is insignificant when adoption of another reasonable
interpretation would have produced a material difference in the information
presented in the FS.
D. All of these statements are incorrect.

9. S1 When forming an opinion and reporting on special purpose FS, the auditor shall
apply the requirements in PSA 700 (Redrafted).
S2 In the case of FS prepared in accordance with the provisions of a contract, the
auditor shall evaluate whether the FS adequately describe any significant interpretations
of the contract on which the FS are based.
A. True, true C. False, true
B. True, false D. False, false
10. PSA 700 (Redrafted) deals with the form and content of the auditor’s report. In the case
of an auditor’s report on special-purpose FS, which of the following are additional
reporting requirements mentioned by PSA 800?
I. The auditor’s report shall also describe the purpose for which the FS are
prepared and, if necessary, the intended users, or refer to a note in the special
purpose FS that contains that information.
II. If management has a choice of financial reporting

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frameworks in the preparation of such FS, the explanation of management’s


responsibility for the FS shall also make reference to its responsibility for
determining that the applicable financial reporting framework is acceptable in the
circumstances.
III. The auditor’s report on special purpose FS shall include an Emphasis of Matter
paragraph alerting users of the auditor’s report that the FS are prepared in
accordance with a special purpose framework and that, as a result, the financial
statements may not be suitable for another purpose.
A. I and II only C. I and III only
B. II and III only D. I, II and III

11. PSA 800 (Redrafted) requires that the auditor’s report should include an alert on the
special-purpose for which the FS have been prepared. In addition to this alert, the
auditors may consider it appropriate to indicate that the auditor’s report is intended solely
for the specific users. Depending on the law or regulation of the particular jurisdiction,
how is this normally achieved?
A. By restricting the distribution or use of the auditor’s report.
B. By issuing a qualified opinion or adverse opinion on the financial statements.
C. By requiring the entity to add a paragraph in the notes to the financial statements
to indicate the restriction.
D. By modifying the title of the auditor’s report, such as “Restricted Report of
Independent Auditor”

12. A paragraph in the auditor’s report, placed after the opinion paragraph, reads as follows:

Without modifying our opinion, we draw attention to Note X to the financial statements,
which describe the basis of accounting. The financial statements are prepared to assist
ABC Company to comply with the financial reporting provisions of the contract referred
to above. As a result, the financial statements may not be suitable for another purpose.
Our report is intended solely for ABC Company and DEF Company and should not be
distributed to or used by parties other than ABC Company or DEF Company.

This paragraph:
A. Refers to the basis of accounting by mention of a note to the FS
B. Describes the purpose of the special-purpose FS
C. Restricts the distribution or use of the report
D. All of the answers

13. If the special-purpose FS is not suitably titled or the basis of accounting is not
adequately disclosed, the auditor should:
A. Withdraw from the engagement.
B. Issue an appropriately modified report.
C. Reword the title of the financial statements.

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D. Request for an additional representation in the management representation


letter.

14. This refers to an element, account, or item of a financial statement.


A. Element of financial statements
B. Component
C. Part of financial statements
D. Financial statement category

15. Which of the following are specific, elements, accounts, or items of a financial
statement?
(1) Accounts receivable, allowance for doubtful accounts receivable, inventory, the
liability for accrued benefits of a private pension plan, the recorded value of
identified intangible assets, or the liability for “incurred but not reported” claims in
an insurance portfolio, including related notes
(2) A schedule of externally managed assets and income of a private pension plan,
including related notes.
(3) A schedule of net tangible assets, including related notes.
(4) A schedule of disbursements in relation to a lease property, including explanatory
notes.
(5) A schedule of profit participation or employee bonuses, including explanatory
notes.
A. (1), (2), (3) C. (1), (3), (4), (5)
B. (1), (3), (4) D. (1), (2), (3), (4), (5)

16. The following statements relate to PSA 805. Select the incorrect statement:
A. An auditor may be engaged to audit the entity’s complete set of FS, as well as
the audit of a single financial statement or of a specific element of the FS.
B. If the auditor is not also engaged to audit the entity’s complete set of FS, the
auditor shall determine whether the audit of a single FS or of a specific element
of those FS in accordance with PSAs is practicable.
C. In the case of an audit of a single FS or of a specific element of FS, the auditor
shall consider whether application of the financial reporting framework will result
in a presentation that provides adequate disclosures to enable the intended
users to understand the information conveyed in the FS or the element, and the
effect of material transactions and events on the information conveyed in the FS
or the element.
D. All of these are correct statements

17. S1 When auditing a single FS or an element of FS, it is not necessary to examine


evidence pertaining accounts that are related to the single FS or element of FS being
audited.

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S2 The materiality determined for a single FS or an element of FS may be lower than the
materiality determined for the entity’s complete set of FS.
A. True, true C. False, true
B. True, false D. False, false

18. If the auditor undertakes an engagement to report on a single FS or on a specific


element of FS in conjunction with an engagement to audit the entity’s complete set of
FS, the auditor shall express:
A. An opinion on the single FS or on the specific element of the FS only.
B. An opinion on the complete set of FS only.
C. A single opinion covering both the single FS or specific element of FS and the
completed set of FS.
D. A separate opinion for each engagement.

19. When audited single FS or audited specific element of FS are presented together with
the audited complete set of FS, the following must be differentiated:
A. The single FS or specific element of FS must be differentiated from the complete
set of FS
B. The opinion for the single FS or specific element of FS must be differentiated
from the opinion on the complete set of FS
C. Both A and B
D. Neither A nor B

20. Jude, CPA, was asked by Isaac Company to audit the company’s Loans and
Receivables account, in conjunction with the audit of Isaac’s complete FS. Jude issued a
report with unqualified opinion and with emphasis of a matter paragraph on the complete
set of FS of Isaac Company. Accordingly, Jude shall:
A. Issue a qualified opinion on the Loans and Receivables account.
B. Issue a disclaimer of opinion on the Loans and Receivables account.
C. Consider the effect of the emphasis of a matter on the auditor’s report for Loans
and Receivables
D. Issue also an unqualified opinion with emphasis of a matter paragraph for Loans
and Receivables.

21. Jude, CPA, was asked by Isaac Company to audit the company’s Loans and
Receivables account, in conjunction with the audit of Isaac’s complete FS. Jude issued a
report with modified opinion on the complete set of FS of Isaac Company. Accordingly,
Jude shall:
A. Issue a qualified opinion on the Loans and Receivables account.
B. Issue a disclaimer of opinion on the Loans and Receivables account.
C. Consider the effect of the emphasis of a matter on the auditor’s report for Loans
and Receivables
D. Issue also an unqualified opinion with emphasis of a matter paragraph for Loans
and Receivables.

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22. If the auditor concludes that it is necessary to express an adverse opinion or disclaim an
opinion on the entity’s complete set of FS as a whole but, in the context of a separate
audit of a specific element that is included in those FS, the auditor nevertheless
considers it appropriate to express an unmodified opinion on that element, the auditor
shall only do so if:
A. The auditor is not prohibited by law or regulation from doing so
B. That opinion is expressed in an auditor’s report that is not published together with
the auditor’s report containing the adverse opinion or disclaimer of opinion
C. The specific element does not constitute a major portion of the entity’s complete
set of FS
D. All of these

23. S1 The auditor shall not express an unmodified opinion on a single FS of a complete set
of FS if the auditor has expressed an adverse opinion or disclaimed an opinion on the
complete set of FS as a whole.
S2 Expressing an unmodified opinion on a single FS which came from a complete set of
FS that was given adverse opinion or disclaimer of opinion, is allowed only if such
unmodified opinion is published separately from the auditor’s report containing the
adverse opinion or disclaimer of opinion.
S3 A single FS is always deemed to constitute a major portion of a complete set of FS.
A. True, true, false C. True, false, false
B. True, false, true D. False, false, true

24. The criteria applied by management in the preparation of the summary FS is known as:
A. Applied criteria
B. Summary criteria
C. Financial reporting framework
D. Summary reporting standards

25. These are FS audited by the auditor in accordance with PSAs, and from which the
summary FS are derived:
A. Source financial statements
B. Audited financial statements
C. Original financial statements
D. Uncut financial statements

26. Historical financial information that is derived from FS but that contains less detail than
the FS, while still providing a structured representation consistent with that provided by
the FS of the entity’s economic resources or obligations at a point in time or the changes
therein for a period of time, are known as:
A. Simplified financial statements
B. Compressed financial statements

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C. Summary financial statements


D. Abridged financial statements

27. Dorothy, CPA, is requested to report on summary FS of Lock Books, Inc. Dorothy has
not expressed an audit opinion on the FS from which the summary FS were derived.
Based solely on this information, should Dorothy accept the engagement?
A. Yes, because a report on summary FS is a separate engagement
B. No, because PSA 810 (Redrafted) mandates that the auditor should only accept
an engagement to report on summary FS only when the auditor has been
engaged to conduct an audit of the FS from which the summary FS are derived.
C. Yes, because an audit of summary FS is comparable to the audit of FS from
which such summary FS are derived.
D. None of the above choices can be selected because of lack of information.

28. Before accepting an engagement to audit summary FS, the auditor shall:
A. Determine whether the applied criteria are acceptable.
B. Obtain the agreement of management that it acknowledges and understands its
responsibilities regarding the summary FS.
C. Agree with management the form of opinion to be expressed on the summary
FS.
D. All of the choices.

29. In the context of PSA 810 (Redrafted), management should agree with the auditor and
acknowledgement its responsibilities:
A. For the preparation of the summary FS in accordance with the applied criteria
B. To make the audited FS available to the intended users of the summary FS
without undue difficulty
C. To include the auditor’s report on the summary FS in any document that contains
the summary FS and that indicates that the auditor has reported on them
D. All of the choices.

30. Which of the following procedures are least likely to be performed in relation to an
engagement to report on summary FS?
A. Evaluate whether the summary FS adequately disclose their summarized nature
and identify the audited FS
B. When summary FS are not accompanied by the audited FS, evaluate whether
they describe clearly from whom or where the audited FS are available
C. Evaluate whether the summary financial statements adequately disclose the
applied criteria
D. Compare the summary FS with the related information in the audited FS to
determine whether the audited FS agree with, or can be recalculated from, the
related information in the summary FS.

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31. Which of the following procedures are most likely to be performed in relation to an
engagement to report on summary FS?
A. Evaluate whether the summary FS are prepared in accordance with the applied
criteria.
B. Evaluate, in view of the purpose of the summary FS, whether the summary FS
contain the information necessary, and are at an appropriate level of
aggregation, so as not to be misleading in the circumstances
C. Evaluate whether the audited FS are available to the intended users of the
summary FS without undue difficulty, unless law or regulation provides that they
need not be made available and establishes the criteria for the preparation of the
summary FS.
D. All of the choices.

32. Which of the following phrases are acceptable forms of unmodified opinion on summary
FS?
I. The summary FS are consistent, in all material respects, with the audited FS, in
accordance with [the applied criteria]
II. The summary FS are a fair summary of the audited FS, in accordance with [the
applied criteria]
A. I only C. Both I and II
B. II only D. Neither I nor II

33. If law or regulation prescribes the wording of the opinion on summary FS in terms that
are different from those described in PSA 810 (Redrafted), the auditor shall:
A. Apply the procedures necessary to enable the auditor to express the prescribed
opinion; and
B. Evaluate whether users of the summary FS might misunderstand the auditor’s
opinion on the summary FS and, if so, whether additional explanation in the
auditor’s report on the summary FS can mitigate possible misunderstanding.
C. Both A and B
D. Neither A nor B

34. S1 The auditor’s report on summary FS may be dated later than the date of the auditor’s
report on audited FS.
S2 In case previously unidentified subsequent events occurred between the date of the
auditor’s report on audited FS and the date of the auditor’s report on the summary FS,
the report on the summary FS shall not be issued until the auditor’s consideration of
such subsequent events has been completed.
A. True, true C. False, true
B. True, false D. False, false

35. The introductory paragraph of an auditor’s report on summary FS shall:


A. Identify the summary FS on which the auditor is reporting, including the title of
each statement included in the summary FS.

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B. Identify the audited FS


C. Refers to the auditor’s report on the audited FS, the date of that report, and the
fact that an unmodified opinion is expressed on the audited FS
D. All of the choices

36. S1 If the date of the auditor’s report on the summary FS is later than the date of the
auditor’s report on the audited FS, the auditor’s report should state that the summary FS
and the audited FS do not reflect the effects of events that occurred subsequent to the
date of the auditor’s report on the audited FS.
S2 Summary FS do not contain all the disclosures required by the financial reporting
framework applied in the preparation of the audited FS.
S3 If done correctly, reading the summary FS is a substitute for reading the audited FS.
A. True, true, false C. False, true, false
B. False, true, true D. True, true, true

37. If the addressee of the summary FS is not the same as the addressee of the auditor’s
report on the audited FS, the auditor shall:
A. Withdraw from the engagement and issue a letter to management detailing the
reasons thereto.
B. Issue a disclaimer of opinion.
C. Mention the difference in an other matter paragraph after the opinion and
emphasis of a matter paragraphs.
D. Evaluate the appropriateness of using a different addressee.

38. The auditor shall date the auditor’s report on the summary financial statements no earlier
than:
I. The date on which the auditor has obtained sufficient appropriate evidence on
which to base the opinion, including evidence that the summary FS have been
prepared and those with the recognized authority have asserted that they have
taken responsibility for them.
II. The date of the auditor’s report on the audited FS.
A. I only C. Both I and II
B. II only D. Neither I nor II

39. When the auditor’s report on the audited FS contains a qualified opinion, an Emphasis of
Matter paragraph, or an Other Matter paragraph, but the auditor is satisfied that the
summary FS are consistent, in all material respects, with or are a fair summary of the
audited FS, in accordance with the applied criteria, the auditor’s report on the summary
FS shall:
A. State that the auditor’s report on the audited FS contains a qualified opinion, an
Emphasis of Matter paragraph, or an Other Matter paragraph

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Auditing and Assurance Principles

B. Describe the basis for the qualified opinion on the audited FS, and that qualified
opinion; or the Emphasis of Matter or the Other Matter paragraph in the auditor’s
report on the audited FS
C. Describe the effect thereof on the summary FS, if any, of the reasons for
qualified opinion, or emphasis of a matter, or other matter paragraph in the
auditor’s report on the audited FS.
D. All of the answers.

40. When the auditor’s report on the audited FS contains an adverse opinion or a disclaimer
of opinion, the auditor’s report on the summary FS shall:
A. State that the auditor’s report on the audited FS contains an adverse opinion or
disclaimer of opinion
B. Describe the basis for that adverse opinion or disclaimer of opinion
C. State that, as a result of the adverse opinion or disclaimer of opinion, it is
inappropriate to express an opinion on the summary FS
D. All of the answers

41. If the summary FS are not considered, in all material respects, with or are not a fair
summary of the audited FS, in accordance with the applied criteria, and management
does not agree to make the necessary changes, the auditor shall:
A. Express an unqualified opinion on the summary FS, with an emphasis of a matter
paragraph describing the lack of consistency.
B. Express a qualified opinion on the summary FS, with a basis for modification
paragraph describing the lack of consistency.
C. Express an adverse opinion on the summary FS.
D. Withdraw from the engagement since management refuses to make
amendments to the summary FS.

Discussion Case

Case 1 – Comprehensive Case on Special-Purpose Audits

Raymond & Co., CPAs, has just completed the audit of the financial statements of Trillo
Corporation for the year ended December 31, 2010. The financial statements are prepared
under the income tax (cash) basis, including notes that indicate that Trillo is involved in
continuing litigation. The case involves material amounts and is related to alleged infringement
of the patent of Honeybee, a competitor of Trillo. The amount of damages, if any, resulting from
this litigation could not be determined as of the time of completion of the engagement. The 2009
financial statements were not presented. Assume that the financial statements of Trillo
Corporation are suitably titled.

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Chapter Fourteen – Special Considerations and
Audits of Summary Financial Statements

Requirement: Based solely on the information presented, draft Raymond’s special audit report
for this engagement, following the requirements of PSA 800. Include any appropriate
explanatory disclosures.

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