ExpertHard1 markMultiple Choice
CPA · Question 36 · Area IV: Reporting
An auditor is preparing a report on the audit of a nonissuer's financial statements prepared in accordance with the Cash Basis of accounting (a special purpose framework). Which of the following is a required element of the auditor's report?
An auditor is preparing a report on the audit of a nonissuer's financial statements prepared in accordance with the Cash Basis of accounting (a special purpose framework). Which of the following is a required element of the auditor's report?
Answer options:
A.
An adverse opinion stating the statements are not in accordance with GAAP.
B.
An emphasis-of-matter paragraph alerting readers that the financial statements are prepared in accordance with a special purpose framework.
C.
A restriction on the use of the report to management and the board.
D.
A qualified opinion due to the omission of accruals.
How to approach this question
Special Purpose Frameworks (SPF) require an Emphasis of Matter paragraph to tell the user 'Hey, this isn't GAAP'.
Full Answer
B.An emphasis-of-matter paragraph alerting readers that the financial statements are prepared in accordance with a special purpose framework.✓ Correct
When reporting on SPF statements (Cash, Tax, Regulatory), the auditor must include an Emphasis-of-Matter paragraph referencing the note that describes the basis of accounting.
Common mistakes
Thinking SPF reports are always restricted use (Cash/Tax are not).
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