ExpertHard1 markMultiple Choice
CPA · Question 40 · Area IV: Reporting
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:
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:
A.
An adverse opinion stating the statements are not in accordance with GAAP.
B.
An emphasis-of-matter paragraph alerting readers to the special purpose framework.
C.
A qualified opinion.
D.
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
An emphasis-of-matter paragraph alerting readers to the special purpose framework.
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).
Practice the full CPA AUD Practice Exam 5
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