Wiley Practitioner's Guide to GAAS 2020

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Joanne M. Flood. Wiley Practitioner's Guide to GAAS 2020

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CONTENTS

List of Tables

Guide

Pages

PREFACE—ORGANIZATION AND KEY CHANGES

RESOURCES

ON THE HORIZON. Exposure Drafts and Projects

New Auditing Standards Not Yet Effective. Effective Dates

Enhanced Communication in Auditors’ Reports—SASs 134 and 135

ERISA Audit Reports

Other Information Included in Annual Reports

ATTESTATION STANDARDS

Accounting and Review Standards

PUBLICATION CURRENCY

ABOUT THE AUTHOR

1 AU-C 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Generally Accepted Auditing Standards

SCOPE

DEFINITIONS OF TERMS

OBJECTIVES OF AU-C SECTION 200

REQUIREMENTS. Management’s Responsibilities

Auditor’s Objectives

Ethical Requirements

Professional Judgment and Skepticism. Professional Judgment

Professional Skepticism

Sufficient Appropriate Audit Evidence and Audit Risk

COMPLYING WITH GAAS

Gaas and the Gaas Hierarchy

Interpretive Publications

Other Auditing Publications

Notes

2 AU-C 210 Terms of Engagement

SCOPE

DEFINITIONS OF TERMS

OBJECTIVES OF AU-C SECTION 210

FUNDAMENTAL REQUIREMENTS. Engagement Acceptance. Preconditions

Limitation of Scope

Agreement on Terms

Initial Audits, Including Reaudits

Recurring Audits

Change in Terms

Report Layout Required by Law or Regulation

AU-C 210 ILLUSTRATION. Illustration 1. Example of an Audit Engagement Letter (from AU-C 210.A42)

Notes

3 AU-C 220 Quality Control for an Engagement Conducted in Accordance with Generally Accepted Auditing Standards

SCOPE

DEFINITIONS OF TERMS

OBJECTIVE OF AU-C SECTION 220

REQUIREMENTS. Quality Control Standards

System of Quality Control

Elements of Quality Control

Independence

Acceptance and Continuance of Client Relationships

Assignment of Engagement Teams

Direction, Supervision, and Performance

Engagement Performance. Reviewing Work

Consultation

Engagement Quality Control Review

Difference of Opinion

Monitoring

Documentation

4 AU-C 230 Audit Documentation

SCOPE

DEFINITIONS OF TERMS

OBJECTIVE OF AU-C SECTION 230

REQUIREMENTS. Requirement for Audit Documentation

Form, Content, and Extent of Audit Documentation

The Audience

Sufficiency of Audit Documentation

Documentation of Significant Findings

Departures from a Relevant Requirement

Factors to Consider in Determining the Nature and Extent of Audit Documentation

Documentation of Report Release Date and Revisions

Ownership and Confidentiality

Standardization of Audit Documentation

Preparation of Audit Documentation

Related Accounts

Client Preparation of Audit Documentation

Quality of Audit Documentation

Oral Explanations

Audit Documentation Deficiencies

Documentation Requirements in Other Sections

INTERPRETATIONS. Providing Access to or Copies of Audit Documentation to a Regulator

AU-C 230 ILLUSTRATIONS

Illustration 1. Auditor’s Written Communication to Client When the Auditor May Wish and in Some Cases May be Required to Provide Access (Adapted from AU-C 9230.02 and Footnote 4)

Illustration 2. Auditor’s Letter to Regulator (from AU-C 9230.06)

Illustration 3. Written Communication to the Client When Regulator May Request Access to Audit Documentation When Not Required by Law or Regulation (from AU-C 9230.13)

Illustration 4. Audit Documentation Requirements in Other AU-C Sections (from AU-C 230.A30)

Note

5 AU-C 240 Consideration of Fraud in a Financial Statement Audit

SCOPE

DEFINITIONS OF TERMS

OBJECTIVES OF AU-C SECTION 240

REQUIREMENTS. Description and Characteristics of Fraud

The Typical Fraudster

Responsibilities of the Auditor

Professional Skepticism

Engagement Team Discussion about Fraud (Brainstorming)

Obtaining Information Needed to Identify Fraud Risks

Inquiries of Management

Inquiries of Internal Auditors

Inquiries of Others within the Organization

Inquiries of Those Charged with Governance

Considering the Results of Analytical Procedures

Considering Fraud Risk Factors

Considering Other Information

Identifying Fraud Risks

Attributes

Presumption about Improper Revenue Recognition as a Fraud Risk

Consideration of the Risk of Management Override of Controls

Assessing Identified Risks

Responding to the Results of the Assessment

Overall Response to Risk

Adjusting the Nature, Timing, and Extent of Audit Procedures to Address Risk

Examples of Responses to Identified Risks of Misstatements from Fraudulent Financial Reporting

Examples of Responses to Identified Risks of Misstatements Arising from Misappropriation of Assets

Addressing the Risk of Management Override

Evaluating Audit Evidence

Evaluating Analytical Procedures

Evaluating Fraud Risk at or Near the Completion of Fieldwork

Communication about Possible Fraud to Management and Those Charged with Governance

Situation 1

Situation 2

Situation 3

Documentation

Antifraud Programs and Controls

Culture of Honesty and Ethics

Evaluating Antifraud Programs and Controls

Develop an Appropriate Oversight Process

AU-C 240 ILLUSTRATIONS. Illustration 1. Risk Factors—Fraudulent Financial Reporting

Opportunities

Attitudes/Rationalizations

Illustration 2. Risk Factors—Misappropriation of Assets

Incentives/Pressures

Opportunities

Attitudes/Rationalizations

Illustration 3. Worksheet to Identify Fraudulent Entries or Adjustments (Adapted from Au-C 240.49)

Illustration 4. List of Circumstances That May Indicate the Possibility of Fraud (from Au-C 240 Appendix C)

Illustration 5. Example Program for Management Override of Internal Control

Notes

6 AU-C 250 Consideration of Laws and Regulations in an Audit of Financial Statements

SCOPE

DEFINITION OF TERM

OBJECTIVES OF AU-C SECTION 250

REQUIREMENTS. Management’s Responsibilities

Auditor’s Responsibilities

Categories of Laws and Regulations

Audit Procedures

Response to Identified or Suspected Noncompliance with Laws and Regulations

Evaluation of Detected or Suspected Noncompliance with Laws and Regulations

Reporting Identified or Suspected Noncompliance. Internal Communications

Effect on the Audit Report

External Communications

Documentation

7 AU-C 260 The Auditor’s Communication with Those Charged with Governance

SCOPE

DEFINITIONS OF TERMS

OBJECTIVES OF AU-C SECTION 260

REQUIREMENTS. Those Charged with Governance

Matters to Be Communicated

Overview of the Planned Scope and Timing of the Audit

Significant Findings

Communication Process

Form of Communication and Documentation

Timing of Communication

Evaluating the Communication Process

Qualitative Aspects of Accounting Practices

Accounting Policies

Accounting Estimates

Financial Statement Disclosures

Related Matters

Other AU-C Sections

8 AU-C 265 Communicating Internal Control Related Matters Identified in an Audit

SCOPE

DEFINITIONS OF TERMS

OBJECTIVE OF AU-C SECTION 265

REQUIREMENTS. Determining Whether Deficiencies in Internal Control Have Been Identified

Determination of Deficiency Severity

Indicators of Material Weakness

Communication of Internal Control Related Matters

Timing

Content

MANAGEMENT RESPONSE

INTERPRETATIONS. Communication of Significant Deficiencies and Material Weaknesses Prior to the Completion of the Compliance Audit for Participants in Office of Management and Budget Single-Audit Pilot Project

Communication of Significant Deficiencies and Material Weaknesses Prior to the Completion of the Compliance Audit for Auditors Who Are Not Participants in Office of Management and Budget Pilot Project

Appropriateness of Identifying No Significant Deficiencies or No Material Weaknesses in an Interim Communication

AU-C 265 ILLUSTRATIONS. Illustration 1. Examples of Circumstances That May Be Control Deficiencies, Significant Deficiencies, or Material Weaknesses

Failures in the Operation of Internal Control

Illustration 2. Auditor’s Communication Regarding Significant Deficiencies and Material Weaknesses (Au-C 265.A38)

Illustration 3. Auditor’s Communication Indicating That No Material Weaknesses Were Identified (AU-C 265.A39)

9 AU-C 300 Planning an Audit

SCOPE

OBJECTIVE OF AU-C SECTION 300

REQUIREMENTS. Preliminary Engagement Activities

The Overall Audit Strategy

Communications with Those Charged with Governance and Management

The Audit Plan

Determining the Extent of Involvement of Professionals Possessing Specialized Skills

Additional Considerations in Initial Audit Engagements

Documentation

Matters to Consider in Developing an Audit Strategy. AU-C 300.A25 Appendix—Considerations in Establishing the Overall Audit

Characteristics of the Engagement

Reporting Objectives, Timing of the Audit, and Nature of Communications

Significant Factors, Preliminary Engagement Activities, and Knowledge Gained on Other Engagements

Nature, Timing, and Extent of Resources

10 AU-C 315 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement

SCOPE

TECHNICAL ALERT

Failure to Gain an Understanding of Internal Control

Improperly Assessing Control Risk

Insufficient Risk Assessment

Failure to Link Procedures Performed to the Risk Assessment

DEFINITIONS OF TERMS

OBJECTIVE OF AU-C SECTION 315

OVERVIEW

REQUIREMENTS. Step 1. Perform Risk Assessment Procedures

Updating Information from Prior Periods

Discussion by the Audit Team

Understanding the Entity and Its Environment

Understanding the Entity’s Internal Control

Distinguishing between Evaluation of Design and Tests of Controls

The Five Components of Internal Control

The Five Components of Internal Control – 1. Control Environment

The Five Components of Internal Control – 2. The Entity’s Risk Assessment Process

The Five Components of Internal Control – 3. The Entity’s Information System

The Five Components of Internal Control – 4. Control Activities

The Five Components of Internal Control – 5. Monitoring

Step 2. Identification of Significant Risks

Risks for Which Substantive Procedures Alone Do Not Provide Sufficient Appropriate Audit Evidence

Step 3. Assessing the Risk of Material Misstatement

How to Consider Internal Control When Assessing Risks

Revision of Risk Assessment

Documentation

Examples of Matters to Consider When Obtaining an Understanding of the Entity and Its Environment

The Economy

The Client’s Industry

The Client’s Business: New Client

Visit to Administrative Office

Visit to Facility

The Client’s Business: Continuing Client

Discussions with Client Management

Using a Risk-Based, Top-Down Approach to Evaluate Internal Control

Lessons from SOX 404

A Top-Down Approach to Evaluating Controls

Effect of IT on Internal Control

IT General Controls

IT General Controls That Are Unlikely to Affect the Financial Statements

IT General Controls That May Affect the Financial Reporting Process

General Controls Directly Related to Financial Information

AU-C 315 ILLUSTRATIONS

Illustration 1. Risk Assessment Questionnaire

Illustration 2. Example Control Objectives

Note

11 AU-C 320 Materiality in Planning and Performing an Audit

SCOPE

DEFINITION OF TERM

OBJECTIVE OF AU-C SECTION 320

OVERVIEW

Materiality and Audit Risk

REQUIREMENTS. Determining Materiality and Performance Materiality

Making a Judgment about Materiality When Planning the Audit

Determining the Base

Nature of a Materiality Benchmark

Revision of Materiality

Documentation Requirements

12 AU-C 330 Performing Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained

SCOPE

DEFINITIONS OF TERMS

OBJECTIVE OF AU-C SECTION 330

OVERVIEW

REQUIREMENTS. Overall Responses

Designing Further Audit Procedures

Tests of Controls

Nature

Timing

Extent

Substantive Procedures

Timing of Substantive Procedures

Extent of Substantive Procedures

Evaluating the Sufficiency and Appropriateness of the Audit Evidence Obtained

Documentation

Testing at Interim Dates. Convenience-Timed Tests

Misstatements Detected at Interim Dates

Considering Control Risk When Testing at an Interim Date

Length of Remaining Period

Designing Audit Procedures

Tests of Internal Control Operating Effectiveness. Test Design Considerations

Risk-Based Approach to Designing Tests

Information Technology Application Controls

Shared Activities

Sample Sizes and Extent of Tests

Sample Sizes for Tests of Transactions

Statistical Sampling Principles

Sample Sizes for Tests of Other Controls

Types of Tests. Inquiry and Focus Groups

Tests of Transactions

Reconciliations

Observation

Evaluating Test Results

Examples of Evidential Matter That May Support the Specific Assertions Embodied in Financial Statements

13 AU-C 402 Audit Considerations Relating to an Entity Using a Service Organization

SCOPE

DEFINITIONS OF TERMS

OBJECTIVES OF AU-C SECTION 402

REQUIREMENTS

Types of Service Auditor’s Reports

Reports on Controls Placed in Operation (Type 1)

Report on Controls Placed in Operation and Tests of Operating Effectiveness (Type 2)

Considerations in Using a Service Auditor’s Report

AU-C 402 ILLUSTRATION—AUDIT PROGRAM FOR AN AUDITOR’S REVIEW OF A SERVICE AUDITOR’S REPORT

14 AU-C 450 Evaluation of Misstatements Identified during the Audit

SCOPE

DEFINITIONS OF TERMS

OBJECTIVE OF AU-C SECTION 450

The Nature and Causes of Misstatements

REQUIREMENTS. Accumulation of Misstatements

Considerations as the Audit Progresses

Communication and Correction of Misstatements to Management

Evaluating the Effect of Uncorrected Misstatements

The Qualitative Characteristics of Misstatements

Prior Period Misstatements

Misstatement Worksheet

Documentation Requirements

15 AU-C 500 Audit Evidence

SCOPE

DEFINITIONS OF TERMS

OBJECTIVE OF AU-C SECTION 500

REQUIREMENTS. General Guides to the Reliability of Evidence

Using a Management’s Specialist’s Information

Inconsistency or Doubts about Reliability of Evidence

General Guides to Sufficiency of Evidence

Audit Procedures for Obtaining Audit Evidence

INTERPRETATIONS. The Effect of an Inability to Obtain Evidential Matter Relating to Income Tax Accruals

Auditor of Participating Employer in a Governmental Cost-Sharing Multiple-Employer Pension Plan

Auditor of Participating Employer in a Governmental Agent Multiple-Employer Pension Plan

16 AU-C 501 Audit Evidence—Specific Considerations for Selected Items

SCOPE

OBJECTIVES OF AU-C SECTION 501

REQUIREMENTS—INVESTMENTS IN SECURITIES AND DERIVATIVE INSTRUMENTS

Required Risk Assessment in Planning

Assessing Inherent Risk for an Assertion about a Derivative Instrument or a Security

Control Risk Assessment

The Effect of a Service Organization on Audit Approaches and Procedures for Securities and Derivative Instruments

Designing Auditing Procedures

Importance of Identifying and Testing Controls

Designing Substantive Procedures Based on Risk Assessment

Completeness Assertion for Derivatives

Valuation. Valuation Based on an Investee’s Financial Results

Valuation Based on Fair Value

Sources of Fair Value Information

Fair Value Determined Using a Model

Impairment Losses

Unrealized Appreciation or Depreciation in Fair Value of a Derivative

Additional Considerations Related to Gathering Evidential Matter about Hedging Activities

Special Skill or Knowledge Might Be Needed to Plan or Perform Auditing Procedures Related to Derivatives or Securities1

AU-C 501 ILLUSTRATIONS—INVESTMENTS IN SECURITIES AND DERIVATIVE INSTRUMENTS. Illustration 1. Examples of Substantive Procedures for Existence or Occurrence Assertions2

Illustration 2. Examples of Substantive Procedures for Completeness Assertions3

Illustration 3. Examples of Substantive Procedures for Rights and Obligations Assertions4

Requirements—Inventory Existence And Condition

Timing and Extent of Inventory Observation

Periodic Inventory System

Inventory Held by a Third Party

Procedures

Steps in the Observation of Inventory. Preplanning for Inventory Observation

Planning the Physical Inventory

Taking the Physical Inventory. Audit Program for Inventory Observation

Outside Inventory-Taking Firm

Auditor’s Procedures

Restrictions on Auditor

Inventory Observation Checklist

AU-C 501 ILLUSTRATIONS—INVENTORY OBSERVATION

Illustration 1. Inventory Observation Checklist

Illustration 2. Confirmation of Inventories on Consignment

Illustration 3. Confirmation of Inventories in Public Warehouses

REQUIREMENTS—LITIGATION, CLAIMS, AND ASSESSMENTS INVOLVING THE ENTITY

Accounting Considerations

Audit Procedures Other Than Inquiry of Lawyers

Client without a Lawyer

Client Assertions

Auditor Discovery of Claims

Inquiry of Client’s Lawyer

Content of Inquiry to Lawyer

Client Changes Lawyer or Lawyer Resigns

Evaluation of Lawyer’s Response

Limitations with No Effect

Limitations with Effect

Refusal of Attorney to Respond

Effective Date of Lawyer’s Response

Unacceptable Attorney Response

Avoidance of Unacceptable Attorney Response

Lawyer on Board of Directors

Litigation Not Investigated by Lawyer

Delay Issuance of Financial Statements

Audit Scope Limitation

Litigation with Insurance Company

Reliance on House or Inside Counsel

Review of Interim Financial Information

Securities Act of 1933

AU-C 501 ILLUSTRATION—Litigation, Claims, and Assessments. Inquiry of a Client’s Lawyer Concerning Litigation, Claims, and Assessments: Standard Form Letter of Inquiry (from AU-C 501.A69)

REQUIREMENTS—SEGMENT REPORTING

Notes

17 AU-C 505 External Confirmations

SCOPE

DEFINITIONS OF TERMS

OBJECTIVE OF AU-C SECTION 505

REQUIREMENTS. Related Au-C Section Requirements

Results of Confirmation Procedures

Oral Responses

Electronic Confirmations

Management’s Refusal to Allow Confirmations

Designing the Confirmation Request

The Respondent

Timing of Confirmation Request

Confirming Prior to Year-End

Use of Negative Form of Confirmation Request

Steps in Confirmation of Accounts Receivable

Step 1. Obtain Aged Schedule of Accounts Receivable

Step 2. Select Accounts for Confirmation

Step 3. Prepare and Mail Confirmation Requests

Control of Confirmations

Step 4. Process Responses to Confirmation Requests

Nonresponse to Confirmation Requests

Telephone Call to Debtor

Other Auditing Procedures

Nondelivery of Confirmation Request

Confirmation Responses Not Expected

Step 5. Summarize Confirmation Results

Evaluating the Results

Confirmation Checklist

AU-C 505 ILLUSTRATIONS

Illustration 1. Accounts Receivable Confirmation Checklist

Illustration 2. Accounts Receivable: Positive Confirmation with Statement

Illustration 3. Accounts Receivable: Positive Confirmation without Statement

Illustration 4. Accounts Receivable: Negative Confirmation with Statement, Gummed Sticker, or Rubber Stamp

Illustration 5. Accounts Receivable: Subsequent Payments Confirmation

Illustration 6. Accounts Receivable: Confirmation of Selected Transactions, Open Invoice System

Illustration 7. Accounts Receivable: Description of Confirmation Worksheet

18 AU-C 510 Opening Balances—Initial Audit Engagements, Including Reaudit Engagements

SCOPE

DEFINITIONS OF TERMS

OBJECTIVE OF AU-C SECTION 510

REQUIREMENTS

Material Misstatement in Prior-Year Financial Statements

Audit Conclusions and Reporting

AU-C 510 ILLUSTRATIONS. Illustration 1. Report with Disclaimer of Opinion on Results of Operations and Cash Flows and Unmodified Opinion on Financial Position (from Au-C 510.A19)

Illustration 2. Entity Consent and Acknowledgment Letter (from Au-C 510.A20)

Illustration 3. Illustrative Successor Auditor Acknowledgment Letter (from Au-C 510.A21)

19 AU-C 520 Analytical Procedures

SCOPE

DEFINITION OF TERM

OBJECTIVES OF AU-C SECTION 520

OVERVIEW. How to Use Analytical Procedures. As Substantive Procedures

During the Overall Review

REQUIREMENTS. Analytical Procedures. Introduction

Analytical Procedures: General

Comparisons with Industry

Comparisons with National Economic Data

Ratio Analysis

Trend Analysis

Variance Analysis

Common-Size Financial Statements

Regression Analysis

Substantive Tests

Availability and Reliability of Data

Precision of the Expectation

Overall Review

Recommended Procedures

Results of Overall Conclusion Procedures

Documentation

Permanent File for Analytical Procedures

AU-C 520 ILLUSTRATIONS

Illustration 1

Illustration 2

Illustration 3

20 AU-C 530 Audit Sampling

SCOPE

DEFINITIONS OF TERMS

OBJECTIVE OF AU-C SECTION 530

OVERVIEW

REQUIREMENTS

Examined 100%

Sample Selection

Stratification

Unexamined Sample Items

Sample Size: Substantive Test

Sample Size: Test of Controls

Projection of Misstatements

Aggregation of Misstatements

Qualitative Aspects

Relating Balance Sheet and Income Statement Sampling

NONSAMPLING TECHNIQUES. Distinguishing Sampling from Other Audit Tests

Key-Item Tests

Flow-of-Transactions Tests

NONSTATISTICAL AUDIT SAMPLING TECHNIQUES1. Introduction

Methods of Sample Selection

Block Sampling

Haphazard Sampling

Random Number Sampling

Systematic Random Sampling

Tests of Controls

Attribute Sampling

Documentation of Sampling Procedures

Substantive Tests

Identify Individually Significant Items

Define the Population

Define the Period Covered by the Test

Define the Sampling Unit

Determine Sample Size

Select the Sample

Evaluate Sample Results

Consider Sampling Risk

Document Sampling Procedures

STATISTICAL AUDIT SAMPLING TECHNIQUES. Introduction

Calculating Sample Size

Discovery Sampling

Sample Sizes When Deviations or Misstatements Are Expected

Small Populations

Other Methods for Calculating Sample Size

Risk and Confidence in Substantive Tests of Details

Statistical Evaluation of a Sample in Substantive Tests of Details

Calculating Confidence Limits

Equal-Probability Sampling: Attributes Evaluation. Point Estimate

Confidence Limits

Dollar Value Evaluation

Equal-Probability Sampling: Variables Evaluation. Point Estimate

Confidence Limits

Point Estimate

Confidence Limits

Notes

21 AU-C 540 Auditing Accounting Estimates, Including Fair Value Accounting Estimates and Related Disclosures

SCOPE

DEFINITIONS OF TERMS

OBJECTIVE OF AU-C SECTION 540

OVERVIEW

REQUIREMENTS. Risk Assessment Procedures

Engaging a Specialist

Management’s Intent and Ability

Valuation Methods

Consistency of Methodology

Use of Collateral in Evaluating Fair Value

Auditor’s Responsibility

Identifying Circumstances That Require Material Accounting Estimates

Evaluating Reasonableness

Review and Test Management’s Process

Fair Value Considerations

The Nature of Fair Value Measurements

Develop an Expectation

Review Subsequent Events

Relation to Other Audit Procedures

Testing the Entity’s Estimates and Disclosures

Tests of Significant Assumptions

Testing the Valuation Model

Illustration—Examples of Accounting Estimates (from AU-C 540.A136)

Responding to the Assessed Risks of Material Misstatement

Developing Corroborating Independent Estimates

Reviewing Subsequent Events and Transactions

Disclosures

Voluntary Information Presented

Written Representations

Communication with Audit Committees

Only Required Information Presented

Documentation

Management’s Responsibilities

Developing Accounting Estimates

22 AU-C 550 Related Parties

SCOPE

DEFINITIONS OF TERMS

OBJECTIVES OF AU-C SECTION 550

OVERVIEW

REQUIREMENTS

Accounting Considerations

Audit Procedures

Basic Approach

Categories of Related-Party Transactions

Related-Party Transactions Recognized in the Accounting Records

No-Charge Transactions

Transactions That Create Economic Dependence

General Procedures

Procedures: Public Companies

Procedures for Identified Related Parties or Related-Party Transactions

Expanded Procedures

Equivalence Representations

Written Representations

AU-C 550 ILLUSTRATION—RELATED-PARTY CHECKLIST

Part 1: Existence and Identification

Part 2: Examination and Evaluation

23 AU-C 560 Subsequent Events and Subsequently Discovered Facts

SCOPE

DEFINITIONS OF TERMS

OBJECTIVES OF AU-C SECTION 560

OVERVIEW. Subsequently discovered events and facts

General

Types of Subsequent Events

Require adjustment

Require disclosure

REQUIREMENTS. Subsequent Events. Auditing Procedures

Written Representations

Inquiries of Legal Counsel

Review

Minutes

Unavailability of minutes

Financial statements

Accounting Considerations

Subsequently Discovered Facts Known to the Auditor before the Report Release Date. Auditor Procedures

Management Revises the Report

Dating the auditor’s report

Dual dating the auditor’s report

Management Does Not Revise Financial Statements

Subsequently Discovered Facts Known to the Auditor after the Report Release Date. Reissuing auditor’s report

Management Revises the Financial Statements

Management Does Not Revise Financial Statements

Auditor Procedures. Parties to Be Notified

Content of auditor disclosure to those in receipt of the financial statements

Reissuance of Predecessor Auditor’s Report. Predecessor’s Procedures

Dating of Reissued Report

AU-C 560 ILLUSTRATION—Subsequent Events Checklist

Instructions

24 AU-C 570 The Auditor’s Consideration of an Entity’s Ability to Continue as a Going Concern

SCOPE

DEFINITION OF TERM

OBJECTIVES OF AU-C SECTION 570

RESPONSIBILITY FOR THE EVALUATION OF THE ENTITY’S ABILITY TO CONTINUE AS A GOING CONCERN. Management’s Responsibility

Auditor’s Responsibility

REQUIREMENTS. Specific Audit Procedures

Indications of Going Concern Problems

Consideration of Management’s Evaluation and the Auditor’s Evaluation

Additional Procedures When Events or Conditions Are Identified

Plans to Dispose of Assets

Marketability of Assets

Restrictions on Disposal of Assets

Effects of Disposal

Plans to Borrow Money or Restructure Debt

Availability of Debt Financing

Availability and Sufficiency of Collateral

Restrictions on Additional Borrowing

Existing or Committed Arrangements

Plans to Reduce or Delay Expenditures

Plans to Increase Ownership Equity

Obtain Management Assumptions

Sources of Management Assumptions

Internal Consistency of Assumptions

Financial Support by Third Parties or the Entity’s Owner-Manager

Prospective Financial Information

Written Representations

Auditor Conclusion—Substantial Doubt Exists

Auditor Conclusion—Substantial Doubt Has Been Alleviated

Effects on the Auditor’s Report

Inadequate Disclosure

Prior Period Audit Report

Communication with Those Charged with Governance

Subsequent Period Audit Report

Eliminating a Going Concern Emphasis-of-Matter Paragraph from a Reissued Report

Significant Delay in the Issuance of Financial Statements

Documentation Requirements

AU-C 570 ILLUSTRATION—GOING CONCERN CHECKLIST

Instructions

25 AU-C 580 Written Representations

SCOPE

DEFINITION OF TERM

OBJECTIVES OF AU-C SECTION 580

REQUIREMENTS. Reliance on Management Representations

Obtaining Written Representations

Financial Statements

Completeness of Information

Fraud

Recognition, Measurement, and Disclosure

Subsequent Events

Tailoring the Representation Letter

Materiality Considerations

Addressing and Dating the Letter

Signing the Letter

Doubt about Reliability of Written Representation

Requested Representation Letter Not Provided

Representations Required by Other AU-C Sections

AUDITOR’S RELATIONSHIP WITH A SMALL OR NONPUBLIC CLIENT

Procedures during the Year

Procedures at End of Year

AU-C 580 ILLUSTRATIONS1

Illustration 1. Illustrative Representation Letter (from AU-C 580.A35)

Illustration 2. Illustrative Specific Written Representations (from AU-C 580.A36)

Illustration 3. Illustrative Updating Management Representation Letter (from AU-C 580.A37)

Note

26 AU-C 585 Consideration of Omitted Procedures after the Report Release Date

SCOPE

DEFINITION OF TERM

OVERVIEW. Professional Disagreements

No Substitute for Omitted Procedures

OBJECTIVES OF AU-C SECTION 585

REQUIREMENTS. Assessing the Effect of Omitted Procedures

Applying Omitted Procedures

Public Companies

Nonpublic Companies

Inability to Apply Omitted Procedures

DETERMINING IMPORTANCE OF OMITTED PROCEDURES

Review of Audit Documentation

Discussions with Audit Personnel

Review of Subsequent Period Audit Documentation

AU-C 585 ILLUSTRATION—APPLYING THE OMITTED PROCEDURE

27 AU-C 600 Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors)

SCOPE

INTRODUCTION

DEFINITIONS OF TERMS

OBJECTIVES OF AU-C SECTION 600

OVERVIEW

REQUIREMENTS. Identifying Components

Responsibilities

Engagement Acceptance and Continuance

Risk Assessment Standards

Involvement with Component Auditors

Materiality

Communication with Others

Documentation

INTERPRETATIONS

Interpretation No. 1, “Auditor of Participating Employer in a Governmental Pension Plan,” of AU-C Section 600, Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors)

AU-C 600 ILLUSTRATIONS

Appendix A. Understanding the Group, Its Components, and Their Environments—Examples of Matters about Which the Group Engagement Team Obtains an Understanding

Group-Wide Controls

Consolidation Process

Appendix B. Examples of Conditions or Events That May Indicate Risks of Material Misstatement of the Group Financial Statements

Appendix C. Required and Additional Matters Included in the Group Engagement Team’s Letter of Instruction

Exhibit A. Illustrations of Auditor’s Reports on Group Financial Statements. Illustration 1. A Report with a Qualified Opinion When the Group Engagement Team Is Not Able to Obtain Sufficient Appropriate Audit Evidence on Which to Base the Group Audit Opinion

Illustration 2. A Report in Which the Auditor of the Group Financial Statements Is Making Reference to the Audit of the Financial Statements of a Component Prepared Using the Same Financial Reporting Framework as That Used for the Group Financial Statements and Performed by a Component Auditor in Accordance with Generally Accepted Auditing Standards

Illustration 3. A Report in Which the Auditor of the Group Financial Statements Is Making Reference to the Audit of the Financial Statements of a Component Prepared Using a Different Financial Reporting Framework from That Used for the Group Financial Statements and Performed by a Component Auditor in Accordance with Generally Accepted Auditing Standards

Illustration 4. A Report in Which the Auditor of the Group Financial Statements Is Making Reference to the Audit of the Financial Statements of a Component Prepared Using the Same Financial Reporting Framework as That Used for the Group Financial Statements and Performed by a Component Auditor in Accordance with Auditing Standards Other Than GAAS

Exhibit B. Illustrative Component Auditor’s Confirmation Letter

Exhibit C. Sources of Information

28 AU-C 610 Using the Work of Internal Auditors

SCOPE

OBJECTIVES OF AU-C SECTION 610

DEFINITIONS OF TERMS

OVERVIEW

REQUIREMENTS. Uses of the Internal Audit Function

Practice pointer

Risk Assessment

Substantive Procedures

Determining Whether the Internal Audit Function Can Be Used to Obtain Evidence

Assessing Competence

Assessing Objectivity

Systematic and Disciplined Approach

Deciding to Use the Internal Audit Function

Communicating with Those Charged with Governance

Procedures When Using the Internal Audit Function

Coordination of Work

Determining Whether Internal Audit Can Be Used to Provide Direct Assistance

Determining the Nature and Extent of Work That Can Be Assigned to Internal Auditors Providing Direct Assistance

Communicating with Those Charged with Governance Regarding Internal Auditors Providing Direct Assistance

Managing the Internal Audit Function When It Is Providing Direct Assistance

Evaluating and Testing Effectiveness of Internal Auditors’ Work

Procedures for Evaluating the Work Performed by Internal Audit

Scope of work

Instructions to staff

Review of audit documentation

Testing

Documentation

AU-C 610 ILLUSTRATIONS. Illustration 1. Obtaining an Understanding of the Internal Audit Function

Illustration 2. Checklist for Using Work of Internal Auditors

29 AU-C 620 Using the Work of an Auditor’s Specialist

SCOPE

DEFINITIONS OF TERMS

OBJECTIVES OF AU-C SECTION 620

REQUIREMENTS

Qualifications of a Specialist

Agreement with the Specialist

Work of a Specialist

Relationship to Client

Evaluating Findings

Effect on Audit Report

Report Reference to Specialist

Examples of Use of a Specialist

Specialist Related to Client

Specialist Employed by Cpa Firm

Tests of Data Used by the Specialist

Need to Refer to Audit Guides

INTERPRETATIONS. The Use of Legal Interpretations as Audit Evidence to Support Management’s Assertion That a Transfer of Financial Assets Has Met the Isolation Criterion in Paragraphs 7–14 of Financial Accounting Standards Board Codification 860-10-40

Decision to Use a Legal Specialist

Assessing the Adequacy of the Legal Opinion

Restricted-Use Legal Opinions

AU-C 620 ILLUSTRATIONS

Illustration 1. Engagement Letter from Client to Specialist

Illustration 2. Statement of Specialist’s Independence

30 AU-C 700 Forming an Opinion and Reporting on Financial Statements

SCOPE

DEFINITIONS OF TERMS

OBJECTIVES OF AU-C SECTION 700

REQUIREMENTS: FORMING AN OPINION

REQUIREMENTS: AUDITOR’S STANDARD REPORT. Components of Auditor’s Standard Report

Addressee

REQUIREMENTS: REPORTS ON COMPARATIVE FINANCIAL STATEMENTS. General

Change of Opinion

Reissuance of Predecessor Auditor’s Report

Predecessor Auditor’s Report Not Reissued. General

Prior Period Financial Statements Restated

INTERPRETATIONS. Interpretation No. 1, “Reporting on Financial Statements Prepared on a Liquidation Basis of Accounting”

Interpretation No. 2, “Sustainability Financial Statements under Federal Financial Accounting Standards—Auditor Reporting”

Interpretation No. 3, “Reporting on Audits Conducted in Accordance with Auditing Standards Generally Accepted in the United States of America and International Standards on Auditing”

AU-C 700 ILLUSTRATIONS (SOURCE: AU-C 700.58)

Illustration 1. An Auditor’s Report on Consolidated Comparative Financial Statements Prepared in Accordance with Accounting Principles Generally Accepted in the United States of America

Illustration 2. An Auditor’s Report on a Single Year Prepared in Accordance with Accounting Principles Generally Accepted in the United States of America

Illustration 3. An Auditor’s Report on Consolidated Comparative Financial Statements Prepared in Accordance with Accounting Principles Generally Accepted in the United States of America When the Audit Has Been Conducted in Accordance with Both Auditing Standards Generally Accepted in the United States of America and International Standards on Auditing

Illustration 4. An Auditor’s Report on a Single Year Prepared in Accordance with Accounting Principles Generally Accepted in the United States of America When Comparative Summarized Financial Information Derived from Audited Financial Statements for the Prior Year Is Presented

Illustration 5. An Auditor’s Report on a Single Year Prepared in Accordance with Accounting Principles Generally Accepted in the United States of America When Comparative Summarized Financial Information Derived from Unaudited Financial Statements for the Prior Year Is Presented

31 AU-C 705 Modifications to the Opinion in the Independent Auditor’s Report

SCOPE

DEFINITIONS OF TERMS

OBJECTIVE OF AU-C SECTION 705

REQUIREMENTS. Types of Modified Opinions

Modified Opinion Format

Disclaimer of Opinion

Inability to Obtain Sufficient Appropriate Audit Evidence. General

Common Restrictions on Scope Based on Circumstances

Management-Imposed Limitations

Lack of Independence

Material Misstatement in the Financial Statements

Inadequate disclosure

Adverse Opinions

Departure from the Applicable Financial Reporting Framework

AU-C 705 ILLUSTRATIONS (SOURCE: AU-C 705.A32)

Illustration 1. An Auditor’s Report Containing a Qualified Opinion Due to a Material Misstatement of the Financial Statements

Illustration 2. An Auditor’s Report Containing a Qualified Opinion for Inadequate Disclosure

Illustration 3. An Auditor’s Report Containing an Adverse Opinion Due to a Material Misstatement of the Financial Statements

Illustration 4. An Auditor’s Report Containing a Qualified Opinion Due to the Auditor’s Inability to Obtain Sufficient Appropriate Audit Evidence

Illustration 5. An Auditor’s Report Containing a Disclaimer of Opinion Due to the Auditor’s Inability to Obtain Sufficient Appropriate Audit Evidence about a Single Element of the Financial Statements

Illustration 6. An Auditor’s Report Containing a Disclaimer of Opinion Due to the Auditor’s Inability to Obtain Sufficient Appropriate Audit Evidence about Multiple Elements of the Financial Statements

Illustration 7. An Auditor’s Report in Which the Auditor Is Expressing an Unmodified Opinion in the Prior Year and a Modified Opinion (Qualified Opinion) in the Current Year

Illustration 8. An Auditor’s Report in Which the Auditor Is Expressing an Unmodified Opinion in the Current Year and a Disclaimer of Opinion on the Prior-Year Statements of Income, Changes in Stockholders’ Equity, and Cash Flows

32 AU-C 706 Emphasis-of-Matter Paragraphs and Other-Matter Paragraphs in the Independent Auditor’s Report

SCOPE

DEFINITIONS OF TERMS

OBJECTIVE

REQUIREMENTS. Emphasis-of-Matter and Other-Matter Paragraphs

Emphasis-of-Matter Paragraph

Other Matters in the Auditor’s Report

Communication

AU-C 706 ILLUSTRATIONS

Illustration 1. An Auditor’s Report with an Emphasis-of-Matter Paragraph Because There is Uncertainty Relating to a Pending Unusually Important Litigation Matter

Illustration 2. An Auditor’s Report with an Other-Matter Paragraph That May Be Appropriate When an Auditor Issues an Updated Report on the Financial Statements of a Prior Period That Contains an Opinion Different from the Opinion Previously Expressed

Illustration 3. An Auditor’s Report with a Qualified Opinion Due to a Material Misstatement of the Financial Statements and an Emphasis-of-Matter Paragraph Because There Is Uncertainty Relating to a Pending Unusually Important Litigation Matter

33 AU-C 708 Consistency of Financial Statements

SCOPE

DEFINITION OF TERM

OBJECTIVES OF AU-C SECTION 708

REQUIREMENTS. Consistency Implication of Auditor’s Standard Report

Periods to Which Consistency Standard Relates

Changes Affecting Consistency

Change in Accounting Principle

Investee Accounted For by the Equity Method

Change in Reporting Entity

Change in Principle Inseparable from Change in Estimate

Changes in Presentation of Cash Flows

Correction of a Material Misstatement in Previously Issued Financial Statements

Changes Not Affecting Consistency

Change in Accounting Estimate

Changes in Classification or Reclassification

First-Year Audits

34 AU-C 720 Other Information in Documents Containing Audited Financial Statements

SCOPE

DEFINITIONS OF TERMS

OBJECTIVE OF AU-C SECTION 720

REQUIREMENTS

AU-C 720 ILLUSTRATION: OTHER-MATTER PARAGRAPH TO DISCLAIM AN OPINION ON OTHER INFORMATION (FROM AU-C 720.A13)

35 AU-C 725 Supplementary Information in Relation to the Financial Statements as a Whole

SCOPE

DEFINITION OF TERM

OBJECTIVES OF AU-C SECTION 725

REQUIREMENTS. Conditions

Management’s Responsibilities

Procedures

Report

Opinion on Supplementary Information

INTERPRETATION. Supplementary Information in Relation to the Financial Statements as a Whole: Auditing Interpretations of Section 725

AU-C 725 ILLUSTRATIONS

Illustration 1. An Other-Matter Paragraph When the Auditor Is Issuing an Unmodified Opinion on the Financial Statements and an Unmodified Opinion on the Supplementary Information

Illustration 2. An Other-Matter Paragraph When the Auditor Is Issuing a Qualified Opinion on the Financial Statements and a Qualified Opinion on the Supplementary Information

Illustration 3. An Other-Matter Paragraph When the Auditor Is Disclaiming an Opinion on the Financial Statements

Illustration 4. An Other-Matter Paragraph When the Auditor Is Issuing an Adverse Opinion on the Financial Statements

Illustration 5. A Separate Report When the Auditor Is Issuing an Unmodified Opinion on the Financial Statements and an Unmodified Opinion on the Supplementary Information

Illustration 6. A Separate Report When the Auditor Is Issuing a Qualified Opinion on the Financial Statements and a Qualified Opinion on the Supplementary Information

Illustration 7. A Separate Report When the Auditor Is Disclaiming an Opinion on the Financial Statements

Illustration 8. A Separate Report When the Auditor Is Issuing an Adverse Opinion on the Financial Statements

36 AU-C 730 Required Supplementary Information

SCOPE

DEFINITIONS OF TERMS

OBJECTIVES

REQUIREMENTS. Procedures

Coordination with Other Audit Areas

Reporting on Supplementary Information

AU-C 730 ILLUSTRATIONS

Illustration 1. The Required Supplementary Information Is Included, the Auditor Has Applied the Specified Procedures, and No Material Departures from Prescribed Guidelines Have Been Identified

Illustration 2. All Required Supplementary Information Is Omitted

Illustration 3. Some Required Supplementary Information Is Omitted, and Some Is Presented in Accordance with the Prescribed Guidelines

Illustration 4. Material Departures from Prescribed Guidelines Are Identified

Illustration 5. Specified Procedures Are Not Completed

Illustration 6. Unresolved Doubts about Whether the Required Supplementary Information Is in Accordance with Prescribed Guidelines

37 AU-C 800 Special Considerations—Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks

SCOPE

DEFINITIONS OF TERMS

OBJECTIVE OF AU-C SECTION 800

REQUIREMENTS. Precondition for an Audit

Conditions When Planning and Performing the Audit

Components of Auditor’s Standard Report

AU-C 800 ILLUSTRATIONS (SOURCE: AU-C 800.A36)

Illustration 1. An Auditor’s Report on a Complete Set of Financial Statements Prepared in Accordance with the Cash Basis of Accounting

Illustration 2. An Auditor’s Report on a Complete Set of Financial Statements Prepared in Accordance with the Tax Basis of Accounting

Illustration 3. An Auditor’s Report on a Complete Set of Financial Statements Prepared in Accordance with a Regulatory Basis of Accounting (the Financial Statements Together with the Auditor’s Report Are Not Intended for General Use)

Illustration 4. An Auditor’s Report on a Complete Set of Financial Statements Prepared in Accordance with a Regulatory Basis of Accounting (the Financial Statements Together with the Auditor’s Report Are Intended for General Use)

Illustration 5. An Auditor’s Report on a Complete Set of Financial Statements Prepared in Accordance with a Contractual Basis of Accounting

38 AU-C 805 Special Considerations—Audits of Single Financial Statements and Specific Elements, Accounts, or Items of a Financial Statement

SCOPE

DEFINITIONS OF TERMS

OBJECTIVE OF AU-C SECTION 805

REQUIREMENTS. Examples and Other Services

Application of GAAS

Financial Reporting Framework

Scope of Audit and Level of Materiality

The Auditor’s Report

INTERPRETATION. Special Considerations—Audits of Single Financial Statements and Specific Elements, Accounts, or Items of a Financial Statement: Auditing Interpretations of Section 805

AU-C 805 ILLUSTRATIONS OF AUDITOR’S REPORTS ON A SINGLE FINANCIAL STATEMENT AND A SPECIFIC ELEMENT OF A FINANCIAL STATEMENT (SOURCE: AU-C 805.A25)

Illustration 1. An Auditor’s Report on a Single Financial Statement Prepared in Accordance with a General Purpose Framework

Illustration 2. An Auditor’s Report on a Single Financial Statement Prepared in Accordance with a Special Purpose Framework

Illustration 3. An Auditor’s Report on a Specific Element, Account, or Item of a Financial Statement Prepared in Accordance with a General Purpose Framework

Illustration 4. An Auditor’s Report on a Specific Element, Account, or Item of a Financial Statement Prepared in Accordance with a Special Purpose Framework

Illustration 5. An Auditor’s Report on an Incomplete Presentation but One That Is Otherwise in Accordance with Generally Accepted Accounting Principles

39 AU-C 806 Reporting on Compliance with Aspects of Contractual Agreements or Regulatory Requirements in Connection with Audited Financial Statements

SCOPE

DEFINITIONS OF TERMS

OBJECTIVE OF AU-C SECTION 806

REQUIREMENTS. Request for Assurance

Separate Auditor’s Report

Assurance Given in Auditor’s Report on the Financial Statements

AU-C 806 ILLUSTRATIONS (SOURCE: AU-C 806.A8)

Illustration 1. A Report on Compliance with Aspects of Contractual Agreements Provided in a Separate Report When No Instances of Noncompliance Are Identified

Illustration 2. A Report on Compliance with Aspects of Contractual Agreements Provided in a Separate Report When Instances of Noncompliance Are Identified

Illustration 3. A Report on Compliance with Aspects of Contractual Agreements Provided in a Separate Report When Instances of Noncompliance Are Identified and a Waiver Has Been Obtained

Illustration 4. Report on Compliance with Aspects of Contractual Agreements Provided in a Separate Report When Instances of Noncompliance Are Identified, and the Auditor Has Disclaimed an Opinion on the Financial Statements

Illustration 5. A Report on Compliance with Aspects of Contractual Agreements Provided in a Separate Report When Instances of Noncompliance Are Identified

40 AU-C 810 Engagements to Report on Summary Financial Statements

SCOPE

DEFINITIONS OF TERMS

OBJECTIVES OF AU-C 810

REQUIREMENTS. Engagement Acceptance

Procedures

Written Representations

Form of Opinion

Form of Report

Dating Report

Restriction on Use or Alerting Readers to the Basis of Accounting

Unaudited Information Presented with Summary Financial Statements

Other Information in Documents Containing Summary Financial Statements

Auditor Association

AU-C 810 ILLUSTRATIONS (SOURCE: AU-C 810.A22)

Illustration 1. An Unmodified Opinion Is Expressed on the Summary Financial Statements (the Auditor’s Report on the Summary Financial Statements Is Dated Later Than the Date of the Auditor’s Report on the Financial Statements from Which the Summary Financial Statements Are Derived)

Illustration 2. An Unmodified Opinion Is Expressed on the Summary Financial Statements and a Qualified Opinion Is Expressed on the Audited Financial Statements

Illustration 3. An Adverse Opinion Is Expressed on the Audited Financial Statements (as a Result of the Adverse Opinion on the Audited Financial Statements, It Is Inappropriate to Express, and the Auditor Does Not Express, an Opinion on the Summary Financial Statements)

Illustration 4. An Adverse Opinion Is Expressed on the Summary Financial Statements Because They Are Not Consistent, in All Material Respects, with the Audited Financial Statements, in Accordance with the Applied Criteria

41 AU-C 905 Alert That Restricts the Use of the Auditor’s Written Communication

SCOPE

DEFINITION OF TERM

OBJECTIVE OF AU-C SECTION 905

REQUIREMENTS. Reports Required to Be Restricted

Limiting Report Distribution

Required Restricted-Use Report Language

Adding Other Specified Parties

Inclusion of a Separate Restricted-Use Communication and a Separate General-Use Communication in the Same Document

Combined Communication Covering Both Restricted-Use and General-Use Subject Matter or Presentations

AU-C 905 ILLUSTRATIONS. Illustration 1. List of Sections Relating to the Restricted Use of the Auditor’s Written Communication (Source: Au-C 905, Appendix A)

Illustration 2. Illustrative Auditor’s Written Communication

Illustration 3. Illustrative No Material Weakness Communication

Illustration 4. Report on Compliance with Aspects of Contractual Agreements Given in a Combined Report, and No Instances of Noncompliance Were Identified

42 AU-C 910 Financial Statements Prepared in Accordance with a Financial Reporting Framework Generally Accepted in Another Country

SCOPE

AU-C DEFINITIONS OF TERMS

OBJECTIVE OF AU-C 910

REQUIREMENTS. Terms of Engagement

Compliance with Foreign Auditing Standards

Reporting

AU-C 910 ILLUSTRATIONS (SOURCE: AU-C 910.A11)

Illustration 1. US Form of Independent Auditor’s Report to Report on Financial Statements Prepared in Accordance with a Financial Reporting Framework Generally Accepted in Another Country That Are Intended for Use Only Outside the United States

Illustration 2. Us Form of Independent Auditor’s Report to Report on Financial Statements Prepared in Accordance with a Financial Reporting Framework Generally Accepted in Another Country That Also Are Intended for Use in the United States

43 AU-C 915 Reports on Application of Requirements of an Applicable Financial Reporting Framework

SCOPE

DEFINITIONS OF TERMS

OBJECTIVE

REQUIREMENTS. Applicability to Proposals

Engagement Acceptance

Engagement Planning and Performance

Reporting Standards

Documentation

ILLUSTRATION: ILLUSTRATIVE WRITTEN REPORT TO THE REQUESTING PARTY (SOURCE: AU-C 915.A8)

Introduction

Description of Transaction

Appropriate Accounting Principles

Concluding Comments

Restricted Use

44 AU-C 920 Letters for Underwriters and Certain Other Requesting Parties

SCOPE

DEFINITIONS OF TERMS

OBJECTIVES OF AU-C SECTION 920

OVERVIEW

REQUIREMENTS: GENERAL. Engagement Acceptance

Representation Letter

Reports to Other Parties

Communications with Underwriter

Draft Comfort Letter

Auditor of the Group Financial Statements

Shelf Registration

Issuance of Letters or Reports under Other Standards

REQUIREMENTS: FORMAT AND CONTENTS OF COMFORT LETTERS. Dating of Comfort Letter

Addressee

Introductory Paragraph

Independence

Compliance as to Form with SEC Requirements

REQUIREMENTS: COMMENTING IN A COMFORT LETTER ON INFORMATION OTHER THAN AUDITED FINANCIAL STATEMENTS. General

Knowledge of Internal Control

Unaudited Interim Financial Information

Capsule Financial Information

Pro Forma Financial Information

Financial Forecasts

Subsequent Changes

Tables, Statistics, and Other Financial Information

REQUIREMENTS: OTHER MATTERS. Concluding Paragraph

Disclosure of Subsequently Discovered Matters

AU-C 920 ILLUSTRATIONS

Illustration 1-A. Typical Comfort Letter for a 1933 Act Offering

Illustration 1-B. Typical Comfort Letter for a Non-1933 Act Offering When the Required Representation Letter Has Been Obtained

Illustration 2. Letter When a Short-Form Registration Statement Is Filed Incorporating Previously Filed Form 8-K by Reference

Illustration 3. Letter Reaffirming Comments in Illustration 1-A as of a Later Date

Illustration 4-A. Comments on Pro Forma Financial Information: Negative Assurance on Pro Forma Financial Information as to Compliance with the Applicable Accounting Requirements of Rule 11-02 of Regulation S-X

Illustration 4-B. Comments on Pro Forma Financial Information: Negative Assurance on Pro Forma Financial Information as to Compliance with Pro Forma Bases as Described in the Pro Forma Financial Information

Illustration 5. Comments on a Financial Forecast

Illustration 6. Comments on Tables, Statistics, and Other Financial Information: Complete Description of Procedures and Findings

Illustration 7. Comments on Tables, Statistics, and Other Financial Information: Summarized Description of Procedures and Findings Regarding Tables, Statistics, and Other Financial Information

Illustration 8. Comments on Tables, Statistics, and Other Financial Information: Descriptions of Procedures and Findings Regarding Tables, Statistics, and Other Financial Information—Attached Securities Offering (or Selected Pages) Identifies Items to Which Procedures Were Applied through the Use of Designated Symbols

Illustration 9. Alternate Wording When Auditor’s Report on Audit Financial Statements Contains an Emphasis-of-Matter Paragraph

Illustration 10. Alternate Wording When More Than One Auditor Is Involved

Illustration 11. Alternate Wording When the Sec Has Agreed to a Departure from Its Accounting Requirements

Illustration 12. Alternate Wording When Recent Earnings Data Are Presented in Capsule Form

Illustration 13. Alternate Wording When Auditors Are Aware of a Decrease in a Specified Financial Statement Item

Illustration 14. Alternate Wording of the Letter for Companies That Are Permitted to Present Interim Earnings Data for a 12-Month Period

Illustration 15. Alternate Wording When the Procedures That the Requesting Party Has Requested the Auditor to Perform on Interim Financial Information Are Less Than a Review in Accordance with Gaas Applicable to Reviews of Interim Financial Information

Illustration 16. Letter to a Requesting Party That Has Not Provided the Legal Opinion or the Representation Letter Required by Paragraph .11

Illustration 17. Intentionally Omitted

Illustration 18. Alternate Wording When Reference to Examination of Annual Management’s Discussion and Analysis and Review of Interim Management’s Discussion and Analysis Is Made

45 AU-C 925 Filings with the U.S. Securities and Exchange Commission under the Securities Act of 1933

SCOPE

DEFINITIONS OF TERMS

OBJECTIVE

REQUIREMENTS. Accountant’s Responsibility

Accountant’s Report: Review of Interim Financial Information

Subsequent Events Procedures

Predecessor Auditor

Current Auditor

Response to Subsequent Events and Subsequently Discovered Facts: Audited Financial Statements

Response to Subsequent Events and Subsequently Discovered Facts: Unaudited Financial Statements or Unaudited Interim Financial Information

ILLUSTRATION: ILLUSTRATIVE DISCLOSURES AND REPORTS (SOURCE: AU-C 925.A15)

Experts

Independent Auditors

46 AU-C 930 Interim Financial Information

SCOPE

DEFINITION OF TERM

OBJECTIVE OF AU-C SECTION 930

REQUIREMENTS. Determining Appropriateness of the Financial Reporting Framework

Establishing an Understanding with Client

Engagement letter

Knowledge of the Entity’s Business and Internal Control

Planning the Review

Initial Review of Interim Information

Required Review Procedures

Analytical Procedures

Inquiries and Other Procedures

Inquiries Concerning Litigation, Claims, and Assessments

Inquiries Concerning Going Concern Issues

Extension of Interim Review Procedures

Timing of Review Procedures and Coordination with the Audit

Evaluating the Results of Interim Review Procedures

Written Representations from Management

Completeness of Information

Required Communications

Reportable Conditions

Communications to Management

Lack of Appropriate Management Response

Oral Communication

Lack of Appropriate Response from Those Charged with Governance

Fraud or Illegal Acts

Significant Deficiencies or Material Weaknesses

Subsequent Discovery of Facts Existing at the Date of Report

Other Information

AUDITOR’S REPORT. Date of Report and Addressee

Form of Auditor’s Review Report

Reference to Report of Another Auditor

Modification of the Review Report

Client Representation about Auditor’s Review

INTERIM FINANCIAL INFORMATION ACCOMPANYING AUDITED FINANCIAL STATEMENTS. Presentation of Interim Financial Information

The Auditor’s Report

Documentation

AU-C 930 ILLUSTRATIONS. Illustrative Management Representation Letters for a Review of Interim Financial Information (AU-C 930.A60)

Illustration 1. Short-Form Representation Letter for a Review of Interim Financial Information

Illustration 2. Detailed Representation Letter for a Review of Interim Financial Information

ILLUSTRATIONS OF AUDITOR’S REVIEW REPORTS ON INTERIM FINANCIAL INFORMATION (SOURCE: AU-C 930.A57)

Illustration 1. A Review Report on Interim Financial Information

Illustration 2. A Review Report on Condensed Comparative Interim Financial Information

Illustration 3. A Review Report That Refers to a Component Auditor’s Review Report on the Interim Financial Information of a Significant Component of a Reporting Entity

Illustration 4. A Review Report on Comparative Interim Financial Information When the Prior Period Was Reviewed by Another Auditor

ILLUSTRATIONS OF EXAMPLE MODIFICATIONS TO THE AUDITOR’S REVIEW REPORT DUE TO DEPARTURES FROM THE APPLICABLE FINANCIAL REPORTING FRAMEWORK (SOURCE: AU-C 930.A58)

Illustration 1. Modification Due to a Departure from the Applicable Financial Reporting Framework

Illustration 2. Modification Due to Inadequate Disclosure

Emphasis-of-Matter Paragraphs in the Auditor’s Review Reports (AU-C 930.A58)

Illustration 1. Emphasis-of-Matter Paragraph When Substantial Doubt Is Disclosed in the Notes to the Financial Statements, a Going Concern Emphasis-of-Matter Paragraph Was Included in the Prior Year’s Audit Report, and Conditions or Events Giving Rise to the Emphasis-of-Matter Paragraph Have Been Identified and Substantial Doubt Exists

Illustration 2. Emphasis-of-Matter Paragraph When Substantial Doubt Is Not Disclosed in the Notes to the Financial Statements, a Going Concern Emphasis-of-Matter Paragraph Was Included in the Prior Year’s Audit Report, and Conditions or Events Giving Rise to the Emphasis-of-Matter Paragraph Have Been Identified and Substantial Doubt Exists

Illustration 3. Emphasis-of-Matter Paragraph When Management Is Required under the Applicable Financial Reporting Framework to Include a Statement in the Notes to the Interim Financial Information That Conditions or Events Have Been Identified and Substantial Doubt Exists; Such Statement Is Included in the Notes to the Interim Financial Information; and a Going Concern Emphasis-of-Matter Paragraph Was Not Included in the Prior Year’s Audit Report

47 AU-C 935 Compliance Audits

SCOPE

DEFINITIONS OF TERMS

OBJECTIVES OF AU-C SECTION 935

REQUIREMENTS. Application of AU-C Sections to a Compliance Audit

Sources of Information Regarding Compliance Requirements

Suggested Audit Procedures

Management’s Responsibilities

The Compliance Audit Process Flow

Material Noncompliance Risks

Reporting Requirements

Report on compliance only

Combined report on compliance and internal control over compliance

Separate report on internal control over compliance

Documentation

Reissuance of the Compliance Report

Dating a reissued report

AU-C 935 ILLUSTRATIONS. Illustration 1. AU-C Sections That Are Not Applicable to Compliance Audits

Illustration 2. Illustrative Combined Report on Compliance with Applicable Requirements and Internal Control over Compliance (Unmodified Opinion on Compliance; No Material Weaknesses or Significant Deficiencies in Internal Control over Compliance Identified) (Source: AU-C 935.A42)

48 AU-C 940 An Audit of Internal Control over Financial Reporting That Is Integrated with an Audit of Financial Statements

SCOPE

DEFINITIONS OF TERMS

OBJECTIVES OF AU-C 940

REQUIREMENTS

Required Conditions for Engagement Acceptance

Evidence Supporting Management’s Assessment

Integrating the Controls Examination with the Financial Statement Audit

Risk Assessment

Using the Work of Others

Planning the Engagement

Use a Top-Down Approach

Entity-Level Controls

Control Environment

Financial Reporting Process

Significant Accounts and Disclosures

Sources of Misstatement

Selection of Controls to Be Tested

Testing Controls

Importance of Types of Tests of Controls

Timing and Extent of Tests of Controls

Interim Testing

Considerations for Subsequent Years’ Testing

Evaluating Control Deficiencies

Indicators of Material Weaknesses

Forming an Opinion

Management Representations and Responsibilities

Communication of Deficiencies and Material Weaknesses

REPORTING REQUIREMENTS

Adverse Opinions

Report Modifications

Other Topics. Subsequent Events

Entities with Multiple Components

Use of Service Organizations

Automated Controls

AU-C 940 ILLUSTRATIONS

Illustrations 1–5: Illustrative Auditor’s Reports (AU-C 940.A154)

Illustration 1. Unmodified Opinion on ICFR (AU-C 940.A154)

Illustration 2. Adverse Opinion on ICFR (AU-C 940.A165)

Illustration 3. Disclaimer of Opinion on ICFR (AU-C 940.A165)

Illustration 4. Unmodified Opinion on ICFR Making Reference to a Component Auditor (AU-C 940.A165)

Illustration 5. Combined Report Expressing an Unmodified Opinion on ICFR and an Unmodified Opinion on the Financial Statements (AU-C 940.A165)

Illustration 6: Illustrative Written Communication of Significant Deficiencies and Material Weaknesses (AU-C 940.A156)

Illustration 7: Illustrative Management Report (AU-C 940.A157)

Notes

49 AU-C 945 Auditor Involvement with Exempt Offering Documents

SCOPE

DEFINITIONS OF TERMS

OBJECTIVES OF AU-C 945

REQUIREMENTS

50 AT-C Preface

AT-C Organization

Organization of Each Section

Structure of the Attestation Standards

AT-C PREFACE

Attestation Engagement Purpose and Premise

Responsibilities of the Responsible Party

Responsibilities of the Practitioner

Performance Requirements

Types of Engagements

An Examination

A Review

Agreed-Upon Procedures

51 AT-C 105 Concepts Common to All Attestation Engagements

SCOPE AND WRITTEN ASSERTION

OBJECTIVES

DEFINITIONS OF TERMS

REQUIREMENTS. Quality Control

Compliance with Relevant AT-C Sections

Report Format Dictated by Law or Regulation

Professional Requirements in the Attestation Standards

Preconditions for an Attestation Engagement

Change in Terms of Engagement

Using the Work of Another Practitioner

Assignment of the Engagement Team and the Practitioner’s Specialists

Documentation

Engagement Quality Control Review

Professional Skepticism and Professional Judgment

INTERPRETATIONS. Responding to Requests for Reports on Matters Relating to Solvency

Applicability of Attestation Standards to Litigation Services

Providing Access to or Copies of Engagement Documentation to a Regulator

Performing and Reporting on an Attestation Engagement Under Two Sets of Attestation Standards

52 AT-C 205 Examination Engagements

OVERVIEW

OBJECTIVES

DEFINITIONS OF TERMS

REQUIREMENTS. Independence

Terms of Engagement

Written Assertion

Planning the Engagement

Risk Assessment Procedures

Materiality

Identifying Risks of Material Misstatement

Responding to Risk of Material Misstatement

Tests of Controls

Other Procedures

Analytical Procedures

Procedures Regarding Estimates

Sampling

Fraud, Laws, and Regulations

Responding to Fraud or Noncompliance

Evaluating the Reliability of the Entity’s Information

Using the Work of a Practitioner’s Specialist

Using Internal Auditors

Direct Assistance. Communicating with the Responsible Party

Responsibility of the Practitioner

Evaluate the Results of the Procedures

Considering Subsequent Events and Subsequently Discovered Facts

Written Representations

Representations from the Responsible Party

Assessment of the Written Representations

Requested Representations Not Provided or Not Reliable

Other Information

Forming an Opinion

The Report

Illustration: Practitioner’s Examination Report on Subject Matter; Unmodified Opinion

Restricted Use Paragraph

Modified Opinions

Communicating with the Responsible and Engaging Partners

Documentation

INTERPRETATIONS. Reporting on Attestation Engagements Performed in Accordance with Government Auditing Standards

Reporting on the Design of Internal Control

ILLUSTRATIONS (AT-C 205.A121) Illustration 1. Practitioner’s Examination Report on Subject Matter; Unmodified Opinion

Illustration 2. Practitioner’s Examination Report on an Assertion; Unmodified Opinion

Illustration 3. Practitioner’s Examination Report in Which the Practitioner Examines Management’s Assertion and Reports Directly on the Subject Matter; Unmodified Opinion

Illustration 4. Practitioner’s Examination Report on Subject Matter; Unmodified Opinion; Use of the Practitioner’s Report Is Restricted to Specified Parties

Illustration 5. Practitioner’s Examination Report on Subject Matter; Qualified Opinion

Illustration 6. Practitioner’s Examination Report; Practitioner Engaged to Report on Subject Matter; Disclaimer of Opinion Because of Scope Limitation

53 AT-C 210 Review Engagements

SCOPE

DEFINITIONS OF TERMS

OBJECTIVES OF SECTION 215

REQUIREMENTS. Terms of Engagement

Written Assertion

Planning the Engagement

Materiality

Procedures

Analytical Procedures

Inquiries

Fraud, Laws, and Regulations

Responding to Fraud or Noncompliance

Evaluating the Reliability of the Entity’s Information

Using the Work of a Practitioner’s Specialist or Internal Auditor

Evaluating the Results of Procedures

Considering Subsequent Events and Subsequently Discovered Facts

Written Representations

Representations from the Responsible Party

Assessment of the Written Representations

Requested Representations Not Provided or Not Reliable

Other Information

Description of the Criteria

Forming a Conclusion

The Report

Illustration: Practitioner’s Review Report on Subject Matter; Unmodified Opinion (AT-C 210.A94)

Restricted Use Paragraph

Modified Opinions

Responsible Party Refuses to Provide a Written Representation

Communicating with the Responsible and Engaging Partners

Documentation

ILLUSTRATIONS—ILLUSTRATIVE PRACTITIONER’S REVIEW REPORTS

Illustration 1. Practitioner’s Review Report on Subject Matter; Unmodified Conclusion

Illustration 2. Practitioner’s Review Report on an Assertion; Unmodified Conclusion; Use of the Report Is Restricted to Specified Parties

Illustration 3. Practitioner’s Review Report on Subject Matter; Qualified Conclusion

54 AT-C 215 Agreed-Upon Procedures Engagements

SCOPE

DEFINITION OF TERM

OBJECTIVES OF AT-C SECTION 215

REQUIREMENTS. Independence

Preconditions

Terms of Engagement

Sample Engagement Letter

Requesting a Written Assertion

Procedures

Involvement of a Practitioner’s External Specialist

Involvement of Internal Auditors or Other Practitioners

Written Representations

Requested Representations Not Provided or Not Reliable

The Practitioner’s Report

Restrictions on the Performance of Procedures

Adding Specified Parties

Communicating with the Responsible and Engaging Partners

Documentation

STATEMENT OF POSITION1. Third-Party Due Diligence Services Related to Asset-Backed Securitizations: SEC Release No. 34-72936 (Issue Date: February 2015; Revised April 2016)

ILLUSTRATIONS—ILLUSTRATIVE PRACTITIONER’S AGREED-UPON PROCEDURES REPORTS (AT-C 215.A48) Illustration 1. Practitioner’s Agreed-Upon Procedures Report Related to a Statement of Investment Performance Statistics

Illustration 2. Practitioner’s Agreed-Upon Procedures Report Related to Cash and Accounts Receivable

Illustration 3. Practitioner’s Agreed-Upon Procedures Report in Connection with Claims of Creditors

Note

55 AT-C 305 Prospective Financial Information

SCOPE

DEFINITIONS OF TERMS

OBJECTIVES—EXAMINATION ENGAGEMENTS

OBJECTIVES—AGREED-UPON PROCEDURES ENGAGEMENTS

REQUIREMENTS. Preconditions for an Examination Engagement

Acceptable Examination Engagements

Change in Circumstances after Acceptance of an Examination Engagement

Preconditions for an Agreed-Upon Procedures Engagement

Training and Proficiency

Requesting a Written Assertion

Planning

Procedures for Examination Engagements

Written Representations for Examination Engagements

REPORTS. Report on an Examination of a Financial Forecast

Report on an Examination of a Projection

Modified Opinions

Qualified Opinion

Adverse Opinion

Disclaimer of Opinion

Modification of an Examination Report

Emphasis of a Matter

Prospective Financial Information Contains a Range

Examination Is Part of Larger Engagement

Partial Presentations

Practitioner’s Report on Agreed-Upon Procedures

Note

56 AT-C 310 Reporting on Pro Forma Financial Information

SCOPE

DEFINITIONS OF TERMS

OBJECTIVES OF AN EXAMINATION ENGAGEMENT

OBJECTIVES OF A REVIEW ENGAGEMENT

REQUIREMENTS. Preconditions for Examination and Review Engagements

Procedures for Examinations and Review Engagements

Request for a Written Assertion

Request for a Written Representation

Form of Report on Pro Forma Financial Information

Practitioner’s Examination Report on Pro Forma Financial Information: Unmodified Opinion

Practitioner’s Review Report: Unmodified Conclusion

ILLUSTRATIONS. Illustration 1. Practitioner’s Examination Report on Pro Forma Financial Information at Year-End with a Review of Pro Forma Financial Information for a Subsequent Interim Date: Unmodified Opinion and Unmodified Conclusion

Illustration 2. Practitioner’s Examination Report: Qualified Opinion Because of a Scope Limitation

Illustration 3. Practitioner’s Examination Report: Qualified Opinion Because of Reservations about the Propriety of the Assumptions

Illustration 4. Practitioner’s Examination Report: Disclaimer of Opinion Because of a Scope Limitation

Note

57 AT-C 315 Compliance Attestation

SCOPE

DEFINITIONS OF TERMS

OBJECTIVES OF AN EXAMINATION ENGAGEMENT

OBJECTIVES OF AN AGREED-UPON PROCEDURES ENGAGEMENT

REQUIREMENTS—EXAMINATION ENGAGEMENTS. Preconditions for Examination Engagements

Written Assertion—Examination Engagements

Reasonable Assurance—Examination Engagement

Procedures—Examination Engagements

Written Representations—Examination Engagements

Forming an Opinion

Practitioner’s Examination Report

Illustration 1. Practitioner’s Examination Report on an Assertion about Compliance; Unmodified Opinion

Modified Opinions

REQUIREMENTS: AGREED-UPON PROCEDURES ENGAGEMENT. Preconditions for an Agreed-Upon Engagement

Understanding with Specified Parties

The Agreed-Upon Procedures Report

Illustration 2. Practitioner’s Agreed-Upon Procedures Report Related to Compliance

Illustration 3. Practitioner’s Agreed-Upon Procedures Report Related to Internal Control over Compliance

Note

58 AT-C 320 Reporting on an Examination of Controls at a Service Organization Relevant to User Entities’ Internal Control over Financial Reporting

SCOPE

DEFINITIONS OF TERMS

OBJECTIVES OF AT-C SECTION 320

REQUIREMENTS. Management and Those Charged with Governance

Preconditions

Request to Change the Scope of the Engagement

Requesting a Written Assertion

Assessing the Suitability of the Criteria

Materiality

Obtaining an Understanding of the Service Organization’s System and Assessing the Risk of Material Misstatement

Using the Work of the Internal Audit Function

Obtaining Evidence Regarding Management’s Description of the Service Organization’s System

Obtaining Evidence Regarding the Design of Controls

Obtaining Evidence Regarding the Operating Effectiveness of Controls

Evaluating the Reliability of Information Produced by the Service Organization

Nature and Causes of Deviations

Subsequent Events

Written Representations

The Service Auditor’s Type 2 Report

Other Matters in the Report

Modified Opinions

Other Communication Responsibilities

ILLUSTRATION: TYPE 1 SERVICE AUDITOR’S REPORT

59 AT-C 701 Management’s Discussion and Analysis

SCOPE

DEFINITION OF TERM

OBJECTIVES

REQUIREMENTS: EXAMINATION. Acceptance

Performance

Reporting

REQUIREMENTS: REVIEW. Acceptance

Performance

Reporting

ILLUSTRATIONS

Illustration 1. Standard Examination Report

Illustration 2. Standard Review Report on an Annual MD&A Presentation

Illustration 3. Standard Review Report on an Interim MD&A Presentation

Notes

60 AR-C 60 General Principles for Engagements Performed in Accordance with Statements on Standards for Accounting and Review Services

SCOPE

DEFINITIONS OF TERMS

TECHNICAL ALERT

OBJECTIVES AND LIMITATIONS OF SSARS ENGAGEMENTS

FUNDAMENTAL REQUIREMENTS. Professional Responsibilities

Quality Control in a SSARS Engagement

Preconditions for Acceptance and Continuance of Client Relationships and Engagements

61 AR-C 70 Preparation of Financial Statements

SCOPE

OBJECTIVES AND LIMITATIONS OF PREPARATION ENGAGEMENTS. Relevant Standards

Independence

DEFINITIONS OF TERMS

DETERMINING THE TYPE OF ENGAGEMENT

Illustration

REQUIREMENTS

Illustration—Steps in an Engagement to Prepare Financial Statements

Acceptance and Continuance of Client Relationships and Preparation Engagements

Engagement Terms

Practice Pointer

Preparing Financial Statements

Documentation Requirements

Illustration—An Engagement Letter for an Engagement to Prepare Financial Statements in Accordance with Accounting Principles Generally Accepted in the United States of America (AR-C 70.A22)

Our Responsibilities

Management Responsibilities

Other Relevant Information

62 AR-C 80 Compilation Engagements

SCOPE

OBJECTIVES AND LIMITATIONS OF PREPARATION ENGAGEMENTS

Objective

DEFINITIONS OF TERMS

REQUIREMENTS

Independence

Reporting When the Accountant Is Not Independent

Acceptance and Continuance of Client Relationships

Establishing an Understanding

Compilation Performance Requirements

Inadequate Information

Revisions

Documentation in a Compilation Engagement

Reporting on the Financial Statements. Basic Report

Substantially All Required Disclosures Omitted

Compilation Report—Special Purpose Framework

Departures from the Applicable Financial Reporting Framework

Reporting When Compiled Financial Statements Are Not to Be Used by a Third Party

Emphasizing a Matter

Restricting the Compilation Report

An Entity’s Ability to Continue as a Going Concern

Subsequent Discovery of Facts Existing at the Report Date

Supplementary Information

Accountant Has Compiled Supplementary Information

Accountant Has Not Compiled Supplementary Information

Required Supplementary Information

The Required Supplementary Information Is Included and the Accountant Did Not Compile the Required Supplementary Information

Some Required Supplementary Information Is Omitted and the Accountant Did Not Perform a Compilation Engagement

All Required Supplementary Information is Omitted

Required Supplementary Information Departs Materially from Prescribed Guidelines

Change in Engagement from Audit or Review to Compilation

ILLUSTRATIONS. Checklist for a Compilation Engagement

Illustrative Engagement Letters

Illustration 1. An Engagement Letter for a Compilation Engagement with Respect to Financial Statements Prepared in Accordance with Accounting Principles Generally Accepted in the United States of America

Illustration 2. An Engagement Letter for a Compilation Engagement with Respect to Financial Statements Prepared in Accordance with Accounting Principles Generally Accepted in the United States of America, Except the Financial Statements Omit the Statement of Cash Flows and Substantially All Disclosures Required by US Gaap and in Which the Accountant’s Independence Is Impaired

Illustration 3. An Engagement Letter for a Compilation Engagement with Respect to Financial Statements Prepared in Accordance with the Tax Basis of Accounting

Illustration 1. An Accountant’s Compilation Report on Comparative Financial Statements Prepared in Accordance with Accounting Principles Generally Accepted in the United States of America

Illustration 2. An Accountant’s Compilation Report on Comparative Financial Statements Prepared in Accordance with the Aicpa’s Financial Reporting Framework for Small- and Medium-Sized Entities

Illustration 3. An Accountant’s Compilation Report on Comparative Financial Statements Prepared in Accordance with the Tax Basis of Accounting, and Management Has Elected to Omit Substantially All Disclosures Ordinarily Included in Financial Statements Prepared in Accordance with the Tax Basis of Accounting

Illustration 4. An Accountant’s Compilation Report on Comparative Financial Statements Prepared in Accordance with Accounting Principles Generally Accepted in the United States of America When the Accountant’s Independence Is Impaired, and the Accountant Determines to Not Disclose the Reasons for the Independence Impairment

Illustration 5. An Accountant’s Compilation Report on Comparative Financial Statements Prepared in Accordance with the Aicpa’s Financial Reporting Framework for Small- and Medium-Sized Entities When the Accountant’s Independence Has Been Impaired Due to the Accountant Having a Financial Interest in the Entity, and the Accountant Decides to Disclose the Reason for the Independence Impairment

Illustration 6. An Accountant’s Compilation Report on Comparative Financial Statements, and the Accountant Is Aware of Departures from Accounting Principles Generally Accepted in the United States of America

Note

63 AR-C 90 Review of Financial Statements

SCOPE

TECHNICAL ALERT

OBJECTIVES

DEFINITIONS OF TERMS

REQUIREMENTS

Illustration Checklist for a Review Engagement

Materiality

Independence

Acceptance and Continuance of Client Relationships

Establishing an Understanding with the Client

Change in Engagement from Audit to Review

Illustration—Checklist for Change in Engagement from Audit/Review to Review/Compilation

Communication with Management and Those Charged with Governance

Review Performance Requirements

Understanding the Industry

Knowledge of the Entity

Designing and Performing Review Procedures1

Analytical Procedures

Practice Pointer

Investigating Results

Inquiries of Management

Other Procedures

Written Representations

Reporting on the Financial Statements

Emphasizing a Matter

Special Purpose Framework

Known Departures from the Applicable Financial Reporting Framework

Restricting the Use of the Review Report

Interpretation—AR-C Section 9090

Going Concern Considerations

Subsequent Events

Subsequently Discovered Facts Existing at the Report Date

Become Known before the Report Release Date

Become Known after the Report Release Date

Referencing the Work of Other Accountants2

Supplementary Information

Other Matter

Other Matter

Required Supplementary Information That Accompanies Reviewed Financial Statements

The Required Supplementary Information Is Included

Some Required Supplementary Information Is Omitted and Some Is Presented in Accordance with the Prescribed Guidelines Regarding the Required Supplementary Information

Measurement or Presentation of the Required Supplementary Information Departs Materially from the Prescribed Guidelines

Accountant Has Unresolved Doubts about Compliance with Guidelines

All Required Supplementary Information Omitted

Documentation in a Review Engagement

ILLUSTRATIONS: REVIEW ENGAGEMENT

Illustration 1. Inquiries for a Review

Illustration 2. Suggested Analytical Procedures (AR-C 90.A156)

Illustration 3. An Engagement Letter for a Review Engagement with Respect to Financial Statements Prepared in Accordance with Accounting Principles Generally Accepted in the United States of America

Illustration 4. An Engagement Letter for a Review Engagement with Respect to Financial Statements Prepared in Accordance with the Tax Basis of Accounting

Illustration 5. Representation Letter (AU-C 90.A61)

Illustration 6. An Accountant’s Review Report on Comparative Financial Statements Prepared in Accordance with Accounting Principles Generally Accepted in the United States of America When a Review Has Been Performed for Both Periods

Illustration 7. An Accountant’s Review Report on Single-Year Financial Statements Prepared in Accordance with Accounting Principles Generally Accepted in the United States of America

Illustration 8. An Accountant’s Review Report on Single-Year Financial Statements Prepared in Accordance with the Tax Basis of Accounting

Illustration 9. An Accountant’s Review Report on Interim Financial Statements Prepared in Accordance with Accounting Principles Generally Accepted in the United States of America

Illustration 10. An Accountant’s Review Report on Comparative Financial Statements Disclosing a Departure from Accounting Principles Generally Accepted in the United States of America

Illustration 11. An Accountant’s Review Report on Comparative Consolidated Financial Statements in Which the Accountant Makes Reference to the Work of Other Accountants Who Were Engaged to Review the Financial Statements of a Significant Component

Notes

64 AR-C 100 Special Considerations—International Reporting Issues

SCOPE

TECHNICAL ALERT

Effective Date

OBJECTIVE

DEFINITIONS

REQUIREMENTS. Engagement Acceptance

Financial Statements Prepared under a Framework Accepted in Another Country

Accountant Uses SSARS and Another Set of Standards

REPORTING. Reporting—Intended for Use Only Outside the United States

Reporting—When Intended for Use in the United States

Reporting—When the Accountant’s Report for Compilations or Reviews Is Conducted in Accordance with Both SSARS and Another Set of Compilation or Review Standards

Illustration 1. Accountant’s Compilation Report on Financial Statements Prepared in Accordance with a Financial Reporting Framework Generally Accepted in Another Country Performed in Accordance with SSARS and Another Set of Compilation Standards and the Financial Statements Are Intended for Use Only Outside the United States

Illustration 2. Independent Accountant’s Review Report on Financial Statements Prepared in Accordance with a Financial Reporting Framework Generally Accepted in Another Country Performed in Accordance with SSARS and Another Set of Review Standards and the Financial Statements Are Intended for Use Only Outside the United States

Illustration 3. Accountant’s Compilation Report on Financial Statements Prepared in Accordance with a Financial Reporting Framework Generally Accepted in Another Country Performed in Accordance with SSARS and Another Set of Compilation Standards and the Financial Statements Are Also Intended for Use in the United States

Illustration 4: Independent Accountant’s Review Report on Financial Statements Prepared in Accordance with a Financial Reporting Framework Generally Accepted in Another Country Performed in Accordance with SSARS and Another Set of Review Standards and the Financial Statements Are Also Intended for Use in the United States

Illustration 5. Independent Accountant’s Review Report on Financial Statements Prepared in Accordance with SSARS and in Accordance with International Financial Reporting Standards as Issued by the International Accounting Standards Board Performed in Accordance with SSARS and International Standard on Review Engagements 2400 (Revised) Issued by the International Auditing and Assurance Standards Board and the Financial Statements Are Intended for Use Only Outside the United States

65 AR-C 120 Compilation of Pro Forma Financial Information

SCOPE

DEFINITION OF TERM

OBJECTIVES OF AR-C SECTION 120

REQUIREMENTS. General Guidance. Independence

Acceptance and Continuance of Client Relationships

Reporting Obligation

Understanding with the Entity

Performance Requirements

Report Requirements

Documentation

ILLUSTRATIONS. Illustration 1. Engagement Letter for a Compilation on Pro Forma Financial Information

Illustration 2. Compilation Report on Pro Forma Financial Information

APPENDIX A: DEFINITIONS OF TERMS—AU-C STANDARDS

Notes

APPENDIX B: DEFINITIONS OF TERMS—AT-C STANDARDS

APPENDIX C: DEFINTIONS FOR PREPARATION, COMPILATION, AND REVIEW—AR-C STANDARDS

APPENDIX D: CROSS-REFERENCES TO SASs, SSAEs, AND SSARSs

Note

APPENDIX E: LIST OF AICPA AUDIT AND ACCOUNTING GUIDES AND AICPA STATEMENTS OF POSITION—AUDITING AND ATTESTATION

STATEMENTS OF POSITION—AUDITING AND ATTESTATION

APPENDIX F: OTHER AUDITING PUBLICATIONS1. List of Current Aicpa Risk Alerts, Aicpa Technical Practice Aids, and Other Publications

Note

INDEX

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The following lists the main paragraphs in other AU-C sections that contain specific documentation requirements. See the related chapters in this book for additional information.

Judgments about the risk of material misstatements due to fraud may affect the audit in the following ways:

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