An auditor is preparing a report on the financial statements of a nonissuer prepared in accordance with the cash basis of accounting (a special purpose framework). The report should include:

Answer options:

An adverse opinion stating the statements are not in accordance with GAAP.

An emphasis-of-matter paragraph alerting readers to the special purpose framework.

A qualified opinion.

A restriction on use to management only.

How to approach this question

AU-C 800 Special Purpose Frameworks. Requires EOM paragraph.

Full Answer

B.An emphasis-of-matter paragraph alerting readers to the special purpose framework.✓ Correct

When reporting on financial statements prepared under a special purpose framework (like Cash Basis), the auditor issues an unmodified opinion (if the statements follow that basis) but MUST add an Emphasis-of-Matter paragraph describing the basis of accounting and stating that it differs from GAAP.

Common mistakes

Thinking Cash Basis requires an Adverse GAAP opinion (it doesn't, it gets a 'Clean' Cash Basis opinion).

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Practice the full CPA AUD Practice Exam 5

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