811

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  1. Financial Statements

    811.1 The appendix to Chapter 4
    presents illustrations of CIRA financial statements. In many small CIRA
    audit engagements, the auditor drafts or assists with drafting the
    financial statements. Management must understand that the auditor's
    involvement in financial statement preparation does not change the fact
    that management is responsible for the financial statements.
    • Management is expected to acknowledge its responsibility in the
    • management representation letter. Furthermore, for the auditor to remain
    • independent, management must agree to accept this responsibility, and
    • the auditor should be satisfied that management has the ability to do
    • so. The auditor's understanding with the client regarding preparation of
    • the financial statements should be documented as discussed in section 812.
    • The auditor should discuss the representation letter with management
    • personnel so they understand the meaning and significance of
    • acknowledging responsibility for the financial statements.
  2. 811.2 Management must also
    understand that the auditor's involvement in financial statement
    preparation may represent a significant deficiency or material weakness
    in internal control that must be communicated, in writing, to management
    and those charged with governance.
    • Under SAS No. 115, Communicating Internal Control Related Matters Identified in an Audit,
    • if the auditor drafts the financial statements because the client lacks
    • sufficient expertise to do so and lacks the skills and competencies
    • necessary to prevent, detect, and correct a material misstatement, this
    • represents a control deficiency that is most likely a significant
    • deficiency or material weakness. SAS No. 115, including issues related
    • to the auditor's involvement in financial statement preparation, is
    • discussed in detail beginning in paragraph 812.1.
  3. Notes to the Financial Statements

    811.3 The notes to the financial
    statements are an integral part of the financial statements. Normally,
    the information is tested when the related financial statement area is
    tested.
    • 811.4 It can be a problem
    • determining that all of the disclosures required by GAAP are made. The
    • authors recommend the use of a disclosure checklist and have included
    • one specifically tailored to CIRA financial statements at HOA-CX-13.
    • The checklist is not a GAAP application or presentation checklist, but
    • it does include some general guidance on financial statement
    • classification and format that may be useful when preparing or reviewing
    • the financial statements.
  4. Dating the Auditor's Report

    811.5 SAS No. 103, which amends SAS No. 1, Codification of Auditing Standards and Procedures (AU 530,Dating of the Independent Auditor's Report),
    requires that the date of the auditor's report should be no earlier
    than the date sufficient appropriate audit evidence has been obtained to
    support the opinion on the financial statements. Among other items, sufficient appropriate audit evidence includes evidence that:
    a. The audit work has been reviewed.

    b. The financial statements, including disclosures, have been prepared.

    c. Management has taken responsibility for the financial statements.
  5. 811.6 Auditors need to coordinate the following dates:
    • Audit report date.

    • Management representation letter date. (See paragraph 806.16.)

    • Subsequent events evaluation note disclosure date. (See paragraph 803.3.)
  6. 811.7 An AICPA Technical Practice Aid, “Auditor Responsibilities for Subsequent Events” (TIS 8700.02), suggests discussing the dating requirements with management in advance of starting the audit.
    • In addition, it notes that auditors may want to include in the
    • engagement letter a provision that management will not date the
    • subsequent event note earlier than the date of their management
    • representation letter and the date of the auditor's report. This
    • process will generally result in the date management discloses as the
    • date through which they have evaluated subsequent events being the same
    • date as the auditor's report.
  7. Auditor's Reports

    811.8 Appendix 8A provides a variety of sample auditors' reports for CIRAs. Appendixes 8A-1-8A-16
    cover reports on CIRA financial statements only, as well as
    supplementary information accompanying the basic financial statements
    and CIRA required supplementary information.

    811.9 This section discusses the following aspects of audit reports that often arise in CIRA engagements:
    • • Note disclosure on funding future repairs and replacements.
    • • Reporting on comparative financial statements.
    • • Reporting on supplementary information accompanying the basic financial statements.
    • • Reporting on comparisons of budgeted and actual information.
    • • Required supplementary information presented in a note to the financial statements.
    • • Reporting on information required by HUD
    • .• Auditor's responsibility for other information in electronic sites containing audited financial statements.
  8. Note Disclosure on Funding Future Major Repairs and Replacements

    811.10 To keep the financial statements from being misleading, the FASB ASC 972-235-50-2 (formerly AICPA guide, Paragraph 4.27), requires CIRAs to disclose the following information concerning their funding for future major repairs and replacements:
    • • Requirements, if any, in statutes or association documents
    • (or mortgage on governmental bodies funding requirements, such as the
    • FHA), to accumulate funds for future major repairs and replacements and
    • the CIRA's compliance or lack of compliance with them

    • A description of the CIRA's funding policy, if any (including a policy
    • to fund future major repairs and replacements by special assessments or
    • borrowings when needs occur), and compliance with that policy

    • A statement that funds, if any, are being accumulated based on
    • estimated future (or current) costs and that actual expenditures may
    • vary from those estimates and the variations may be material

    • Amounts assessed for major repairs and replacements in the current period, if any

    • A statement indicating whether a study was conducted to estimate the
    • remaining useful lives of common property components and the costs of
    • future major repairs and replacements.

    The AICPA guide, Paragraphs 4.31-4.32, include additional disclosures concerning funding plan goals and reserve studies that a CIRA may choose to disclose.
  9. Comparative Financial Statements

    811.11 If CIRAs present their
    financial statements using fund accounting, prior-period financial
    statements usually are presented in a single column and show only
    total-all-funds information. If auditors are to express an unqualified
    opinion on the prior-period financial statements, the prior-year
    statements should include all of the detail required by GAAP
    • (See the discussion of comparative financial statements in section 400.)
    • Thus, generally auditors will need to consider whether the statements
    • include all of the disclosures required by GAAP, especially information
    • about funds that have been designated for future major repairs and
    • replacements and any assessments that were used for purposes other than
    • those for which they were designated. Often any necessary disclosures
    • may be easily made in the notes to the financial statements. (The
    • authors believe that approach, whenever possible, provides the most
    • meaningful information to the users of CIRA financial statements.) If
    • the prior-period financial statements include all of the disclosures
    • required by GAAP, the auditors should report on the comparative
    • financial statements in conformity with SAS No. 58 at AU 508.08 as illustrated in Appendix 8A-2.
  10. 811.12 If prior-period financial statements lack the sufficient detail required by GAAP, SAS No. 58, at AU 508.65, footnote 24, describes the auditors' reporting responsibility as follows:
    • A continuing auditor need not report on the prior-period financial
    • statements if only summarized comparative information of the prior
    • period(s) is presented. For example, entities such as state and local
    • governmental units frequently present total-all-funds information for
    • the prior period(s) rather than information by individual funds because
    • of space limitations or to avoid cumbersome or confusing formats. Also,
    • not-for-profit organizations frequently present certain information for
    • the prior period(s) in total rather than by net asset class. In some
    • circumstances, the client may request the auditor to express an opinion
    • on the prior period(s) as well as the current period. In those
    • circumstances, the auditor should consider whether the information
    • included for the prior period(s) contains sufficient detail to
    • constitute a fair presentation in conformity with generally accepted
    • accounting principles. In most cases, this will necessitate including
    • additional columns or separate detail by fund or net asset class, or the
    • auditor would need to modify his or her report.
  11. Thus, auditors need not report on summarized comparative information. In
    that case, the auditors' report is the same as their report on the
    financial statements of a single period even though the prior-period
    financial statements were previously audited and reported on. To
    indicate that fact, some auditors add a sentence at the end of the
    introductory paragraph or a paragraph at the end of their report such as
    the following:
    We have previously audited and reported on the financial statements presented by fund for the preceding year.

    or

    • Information
    • for the year ended December 31, 20X1, is presented for comparative
    • purposes only and was extracted from the financial statements presented
    • by fund for that year, on which we expressed an unqualified opinion in
    • our report dated March 8, 20X2.
  12. 811.13 If the auditors do not
    report on the summarized prior-year information, the authors also
    recommend that column headings be labeled so as not to imply that the
    auditors' report covers that information. For example, the following
    headings may be used when the auditors' report only extends to the
    financial statements of the current year:
    20X2 20X1OperatingFundReplacementFundTotal Total (ForComparativePurposes Only)
  13. Supplementary Information

    811.14 Some CIRAs choose to present information supplementing the financial statements, such as the following
    • • Schedules of revenues and expenses.
    • • Analysis of activity on the repair and replacement fund.
    • • For CIRAs involved with HUD reporting, the financial schedule required by HUD (see paragraph 811.44).

    • In addition, FASB ASC 972-235-50-3 (formerly the AICPA Guide, Paragraph 4.33) requires
    • CIRAs to disclose certain supplementary information about future major
    • repairs and replacements outside the basic financial statements.
    • (Required supplementary information is separately discussed beginning at
    • paragraph 811.28.)
  14. 811.15 In February 2010, the AICPA
    issued the following auditing standards that define the types of
    information accompanying the basic financial statements and provide
    guidance on the auditors' related responsibilities, including reporting
    responsibilities:
    • SAS No. 118, Other Information in Documents Containing Audited Financial Statements (AU 550)

    .• SAS No. 119, Supplementary Information in Relation to the Financial Statements as a Whole (AU 551)

    .• SAS No. 120, Required Supplementary Information (AU 558)

    • The SASs eliminate the previous distinction between information accompanying the basic financial statements included in an auditor-submitted document and accompanying information included in a client-prepared
    • document. Under the new standards, auditors' responsibilities for
    • supplementary information accompanying the basic financial statements
    • depend on the type of supplementary information, such as whether it is
    • required by a designated accounting standards setter, and whether the
    • auditors are engaged to report on the supplementary information.
  15. 811.16 The SASs are effective for audits of financial statements for periods beginning on or after
    December 15, 2010
  16. 811.17 In most circumstances,
    other than required supplementary information, auditors'
    responsibilities for supplementary information accompanying the CIRA's
    basic financial statements will be governed by SAS No. 119 (AU 551).
    • According to SAS No. 119, auditors have a responsibility to report on
    • supplementary information presented outside the basic financial
    • statements when they (a) have audited the financial statements 12
    • and (b) are engaged to report on whether the supplementary information
    • is fairly stated in relation to the financial statements as a whole
  17. (The auditors' responsibilities when they are not engaged to report on supplementary information are set forth in SAS No. 118, Other Information in Documents Containing Audited Financial Statements, and is discussed beginning at paragraph 811.41.)
    SAS No. 119 requires auditors to apply the following procedures to
    determine whether the supplementary information is fairly stated in
    relation to the basic financial statements as a whole: 13
    • a. Determine that the supplementary information was derived from
    • and relates directly to the underlying accounting and other records used
    • to prepare the financial statements.

    b. Determine that the supplementary information relates to the same period as the financial statements.

    • c.
    • Determine that the supplementary information will accompany the
    • audited financial statements or that the audited financial statements
    • will be made readily available by the CIRA. (Audited financial
    • statements are considered to be “readily available” if a third party
    • user can obtain the audited financial statements without any further
    • action by the entity, for example, because they are available on the
    • entity's website.) 14

    d. Inquire of management about the purpose of the supplementary information and the criteria used by management to prepare it.

    e. Determine that the form and content of the supplementary information complies with applicable criteria.

    • f.
    • Obtain an understanding of the methods used to prepare the
    • supplementary information and determine whether the preparation methods
    • are consistent with those used in prior years (or if preparation methods
    • have changed from those used in prior periods, the reason for those
    • changes).

    • g. Compare and reconcile the supplementary
    • information to the financial statements or the underlying accounting and
    • other records.

    • h. Inquire of management about any
    • significant assumptions or interpretations underlying the measurement or
    • presentation of the supplementary information.

    i. Evaluate the appropriateness and completeness of the supplementary information.
  18. 811.18 In addition, SAS No. 119
    requires auditors to obtain the following acknowledgements and written
    representations from management:
    a. Obtain the agreement of management that it acknowledges and understands its responsibility to—td dl { margin-top: 0px; margin-bottom: 0px; }

    • Prepare the supplementary information in accordance with applicable criteria

    .• Provide the auditors with certain written representations. (See item b. below.)

    • Include the auditor's report on the supplementary information in any
    • document that contains the supplementary information and that indicates
    • that the auditors have reported on it.

    • • Present the
    • supplementary information with the audited financial statements or make
    • the audited financial statements readily available to intended users of
    • the supplementary information if the supplementary information will not
    • be presented with the audited financial statements.

    b. Obtain written representations from management that—td dl { margin-top: 0px; margin-bottom: 0px; }

    • It is responsible for preparing the supplementary information in accordance with the applicable criteria.

    • It believes the supplementary information, including its form and
    • content, is fairly presented in accordance with the applicable criteria.

    • The methods of measurement or presentation used to prepare the
    • supplementary information are consistent with those used in prior years
    • (or if preparation methods have changed from those used in prior
    • periods, the reason for those changes).

    • • Provide
    • information about any significant assumptions or interpretations
    • underlying the measurement or presentation of the supplementary
    • information.

    • • When the supplementary information is
    • not presented with the audited financial statements, it will make the
    • audited financial statements readily available to the intended users of
    • the supplementary information no later than the issuance of the
    • supplementary information and the auditors' report.
  19. 811.19 The engagement letter at HOA-CL-1.1
    includes language if the auditors choose to obtain the acknowledgements
    in paragraph 811.15 (a) in writing. The representation letters in HOA-CL-3.1 and HOA-CL-3.2 include the representations in paragraph 811.15 (b).
    blank
  20. 811.20 Auditors' Reports
    An auditor's report on supplementary information may either be
    presented separately or included as an explanatory paragraph following
    the opinion paragraph of the auditor's report on the financial
    statements. The explanatory paragraph or separate report should include
    statements that—
    • a. The audit was conducted for the purpose of forming an opinion on the financial statements as a whole.
    • b.
    • The supplementary information is presented for purposes of additional
    • analysis and is not a required part of the financial statements.
    • c.
    • The supplementary information is the responsibility of management and
    • was derived from, and relates directly to, the underlying accounting and
    • other records used to prepare the financial statements.

    • d.
    • The supplementary information has been subjected to the auditing
    • procedures applied in the audit of the financial statements and certain
    • additional procedures, including comparing and reconciling such
    • information to the underlying accounting and other records used to
    • prepare the financial statements or the financial statements themselves
    • and other additional procedures, in accordance with GAAS.

    • e.
    • In the auditor's opinion, the supplementary information is fairly
    • stated, in all material respects, in relation to the financial
    • statements as a whole.

    • In addition, when reporting
    • separately on the supplementary information, the auditor's report should
    • include a reference to (a) the report on the financial statements, (b)
    • the date of that report, (c) the nature of the opinion expressed on the
    • financial statements, and (d) any report modifications.
  21. 811.21 As discussed in paragraph 811.17,
    auditors may express an opinion on supplementary information
    accompanying audited financial statements when (a) engaged to do so and
    (b) the supplementary information was derived from, and relates directly
    to, the underlying accounting and other records used to prepare the
    financial statements.
    • When supplementary information includes nonaccounting data and other
    • information that is not directly related to the basic financial
    • statements and, consequently, not susceptible to auditing procedures
    • applied in the audit of the basic financial statements, auditors are not
    • able to express an opinion on the presentation of the information in
    • relation to the financial statements as a whole. 15
    • In those circumstances, although SAS No. 119 does not require it, the
    • authors recommend that auditors disclaim an opinion on the information
    • so that the degree of responsibility the auditors are taking with
    • respect to the information will be clear. In addition, the authors
    • recommend that the information on which the auditors are disclaiming an
    • opinion be clearly designated as “unaudited” or include a reference to
    • the auditor's disclaimer of opinion.
  22. 811.23 Comparisons of Budgeted and Actual Information
    A CIRA's financial statements may include schedules that compare
    budget information with actual results for the period. Normally, budget
    comparisons are presented in one of two ways:
    • • Expired Periods.
    • The current year actual compared with the budget for the current year
    • (that is, the budget covers the same period as the historical financial
    • statements).

    • • Prospective Periods.
    • The current year actual compared with the budget for next year (for
    • example, the financial statements for the year ended December 31, 20X2,
    • include the CIRA's 20X3 budget).

    The reporting responsibility for budgets differs depending on whether for an expired or prospective period.
  23. Required Supplementary Information on Future Major Repairs and Replacements

    811.28 FASB ASC 972-235-50-3 (formerly the AICPA guide, Paragraph 4.33),
    requires CIRAs to disclose the following supplementary information
    about future major repairs and replacements of its common property as
    supplementary information outside of the basic financial statements:
    • • Estimates of current or future costs of future major repairs and
    • replacements of all existing components, such as roofs, including the
    • following:td dl { margin-top: 0px; margin-bottom: 0px; }
    • •• Estimated amounts required
    • •• Methods used to determine the costs
    • •• The basis for the calculations, including assumptions, if any, about interest and inflation rates
    • •• Sources used
    • •• Dates of studies made for that purpose, if any
    • • A presentation of components to be repaired and replaced that includes the following:td dl { margin-top: 0px; margin-bottom: 0px; }

    • •• Estimates of the remaining useful lives of the components
    • •• Estimates of current or future replacement costs
    • •• Amount of funds accumulated for each component to the extent designated by the CIRA's board of directors
  24. 811.29 Auditors have the following
    alternatives when required supplementary information is presented with
    audited financial statements:
    • • Include an explanatory
    • paragraph in their report after the opinion paragraph that refers to the
    • information and disclaims an opinion on it in accordance with SAS No.
    • 120, Required Supplementary Information

    • .•
    • Report on whether the information is fairly stated, in all material
    • respects, in relation to the basic financial statements in accordance
    • with SAS No. 119, Supplementary Information in Relation to the Financial Statements Taken as a Whole.
  25. 811.30 Applying Limited Procedures
    Required supplementary information differs from voluntary
    presentations of information outside of the basic financial statements
    because a designated accounting standard setter 16 such as
    • the FASB considers the information an essential part of the financial
    • reporting of certain entities and because authoritative guidelines for
    • presentation of the information have been established. Thus, SAS No. 120
    • (AU 558) requires auditors to apply certain limited procedures to the required supplementary information.
  26. 811.31 The limited procedures are described in AU 558.05. In general, they require auditors to—
    • • Make inquiries of management about the method of preparing the
    • required supplementary information, including (a) whether the required
    • supplementary information conforms to prescribed guidelines, (b)
    • significant assumptions underlying the information, and (c) whether the
    • information has been prepared on a consistent basis.

    • Compare the required supplementary information for consistency with
    • management's responses to the preceding inquiries, the financial
    • statements, and other information obtained during the audit of the
    • financial statements.

    • • Obtain certain written
    • representations from management. (The required representations are
    • included in the management representation letters in HOA-CL-3.1 and HOA-CL-3.2.)
  27. 811.32 Exhibit 8-4 lists the required procedures contained in AU 558.05.
    The exhibit also compares those required procedures to procedures
    tailored to required supplementary information on future repairs and
    replacements in Paragraph 7.101 of the AICPA guide.
    • The guide states that auditors should consider its specific procedures
    • in carrying out the required procedures. In general, the procedures in
    • the AICPA guide are not onerous, and the authors believe auditors should
    • apply them whenever the required supplementary information is included
    • with audited financial statements. Auditors should tailor their
    • inquiries to the approach followed by the CIRA in developing the
    • required supplementary information. For example, if the required
    • supplementary information has been prepared by the CIRA's board of
    • directors, auditors should address their inquiries to the particular
    • members responsible for developing the information.
  28. 811.33 Because there are widely
    divergent practices by reserve preparers, auditors should be alert to
    (a) the lack of adequate reporting on reserves and (b) whether the
    procedures underlying the reserve study itself are sufficient to ensure
    accuracy and completeness. Auditors should question their CIRA clients
    as to whether they believe the CIRA has an adequate reserve study. Many CIRA clients
    • may respond that they believe their
    • reserve study is not adequate for any number of reasons, such as that
    • the study lacks all required components, it has incorrect pricing or
    • measurements, or the replacement dates used in the study do not match
    • the CIRA's maintenance program. Some boards do not devote any time to
    • reviewing the CIRA's reserve study, only having one prepared because it
    • is required by State law. At the other end of the spectrum, inquiry of
    • some reserve preparers may reveal that the CIRA board manipulated the
    • reserve study to ensure that the funding amount was acceptable by
    • the board. Auditors should be aware that inaccurate reserve studies may
    • have a direct financial impact on the association, since relying on
    • such faulty information can result in significant special assessments.
    • CIRA managers often know the physical complex better than anyone else
    • and can be an valuable source of information about the reliability of
    • the reserve study.
  29. 811.34 Although auditing standards
    require auditors to apply limited procedures to presentations of
    required supplementary information, the objective of the procedures
    differs significantly from the objective of procedures applied during an
    audit of financial statements.
    • Since the limited procedures do not
    • include examining evidence or testing to corroborate management's
    • responses to auditors' inquiries, auditors do not have a basis for
    • expressing an opinion on the required supplementary information itself.
    • Rather, the auditors' reporting alternatives would be to either report
    • on whether the information is fairly stated, in all material respects,
    • in relation to the basic financial statements taken as a whole if the
    • procedures are sufficient to allow the auditor to express such an
    • opinion or to disclaim an opinion on the supplementary information. (See
    • paragraph 811.29 for a discussion of the reporting options.)
  30. 811.35 Smaller CIRAs or those that
    do not employ a managing agent may request auditors to assist their
    board of directors in preparing the required supplementary information
    • In the authors' opinion, if the
    • auditors provide much more than assembly-type assistance with an audit
    • client's reserve study, they should consider whether they could be
    • providing a nonattest service, as defined by Ethics Interpretation
    • 101-3, by performing such work. See the discussions of “Replacement Fund
    • Studies” and “Nonattest Services” in section 103.
  31. 811.36 Auditors' Reports In most cases, auditors will disclaim an opinion on the required supplementary information in accordance with SAS No. 120, Required Supplementary Information. The AICPA guide at Paragraph 7.129
    states that auditors may subject the supplementary information to
    certain auditing procedures in conjunction with the audit of the
    financial statements, and SAS No. 119, Supplementary Information in Relation to the Financial Statements as a Whole,
    noted that auditors may be engaged to report on whether required
    supplementary information is fairly stated, in all material respects, in
    relation to the financial statements as a whole.
    • However, in the authors' opinion, the required supplementary information
    • on future major repairs and replacements is not ordinarily susceptible
    • to the auditing procedures applied in the audit of the basic financial
    • statements, and the limited procedures required by AU 558.05
    • and the AICPA guide would not be sufficient to enable the auditor to
    • express an opinion on the required supplementary information in relation
    • to the basic financial statements.
  32. 811.37 When some or all of the
    required supplementary information accompanies the CIRA's audited
    financial statements and the auditors apply the limited procedures in
    paragraph 811.31 to the information, SAS No. 120 at AU 558.07-.08
    requires auditors to add an explanatory paragraph following the opinion
    paragraph to their report on the financial statements that includes the
    following statements:
    • • That GAAP requires the information about future major repairs and
    • replacements to be presented to supplement the financial statements.
    • That such information, although not a part of the basic financial
    • statements, is required by the FASB, which considers it to be an
    • essential part of financial reporting for placing the basic financial
    • statements in an appropriate operational, economic, or historical
    • context.
    • • That the auditor has applied certain limited
    • procedures to the required supplementary information in accordance with
    • GAAS, which consisted of inquiries of management about the methods of
    • preparing the information and comparing the information for consistency
    • with management's responses to the auditor's inquiries, the basic
    • financial statements, and other knowledge the auditor obtained during
    • the audit of the basic financial statements.
    • • That the
    • auditor does not express an opinion or provide any assurance on the
    • information because the limited procedures do not provide sufficient
    • evidence to express an opinion or provide any assurance on the
    • information.
  33. 811.38 Appendix 8A-11 and 8A-12 illustrate auditor's reports that are appropriate in the preceding circumstances
    blank
  34. 811.39 The explanatory paragraph should be modified in the following circumstances:
    • The supplementary information that the FASB requires to be presented is omitted. (See the report example in Appendix 8A-13.) However, auditors need not present the required supplementary information if the CIRA omits it.


    • The auditors have concluded that the required supplementary
    • information departs materially from prescribed guidelines. (See the
    • report example in Appendix 8A-14.)

    • • The auditors are unable to complete the prescribed procedures. (See the report example in Appendix 8A-15.)
    • Although auditors are unable to complete the procedures, if they
    • conclude that the information has not been measured or presented in
    • conformity with the guidelines in the AICPA guide, the authors recommend
    • that the auditor suggest appropriate revision; if the CIRA refuses to
    • revise it, the authors recommend that the auditors describe the nature
    • of any material departures in their report. (Auditors also should
    • consider whether the circumstances should be communicated to those
    • charged with governance as required by SAS No. 114. See the discussion
    • beginning at paragraph 812.36.)

    • • The auditors are
    • unable to remove substantial doubts about whether the required
    • supplementary information conforms to prescribed guidelines. (See the
    • report example in Appendix 8A-16.)

    • Since required supplementary information is not part of the basic
    • financial statements and is not necessary for the financial statements
    • to be presented in conformity with generally accepted accounting
    • principles, none of the preceding circumstances preclude auditors from
    • expressing an unqualified opinion on the basic financial statements.
  35. Required Supplementary Information Presented in a Note to the Financial Statements

    811.40 CIRAs should disclose the
    required supplementary information about future major repairs and
    replacements outside of the basic financial statements. Nevertheless,
    some state statutes currently require some of that information to be
    presented in the notes to the financial statements
    • For example, certain state statutes
    • require changes in replacement fund balances allocated to each common
    • property component to be disclosed in the notes to the financial
    • statements. Thus, some CIRAs may present the preceding information in
    • the notes to the financial statements and the estimated remaining useful
    • lives and estimated replacement cost of each common property component
    • in a supplementary schedule outside of the basic financial statements.
    • SAS No. 120 does not address how to report when the required
    • supplementary information is presented in the notes to the financial
    • statements. In the authors' opinion, the authoritative literature does
    • not prohibit that practice. However, the authors believe that reporting
    • in accordance with SAS No. 120 would be cumbersome in those cases, since
    • the notes would include both unaudited required supplementary
    • information and audited disclosures, and some required supplementary
    • information would be in a schedule outside of the basic financial
    • statements. Thus, it would be difficult for the auditors' disclaimer to
    • clearly identify the required supplementary information by descriptive
    • title or page number of the document. Accordingly, whenever possible,
    • the authors believe it is preferable to present all of the required
    • supplementary information either in a note to the financial statements
    • or in a separate schedule outside of the basic financial statements.
  36. Other Information in Documents Containing Audited Financial Statements

    811.41 SAS No. 118, Other Information in Documents Containing Audited Financial Statements (AU 550),
    applies to additional information in documents containing audited
    financial statements and the auditors' report when auditors are not
    engaged to report on whether the information is fairly stated, in all
    material respects, in relation to the financial statements as a whole.
    • SAS No. 118 does not apply when the auditor is engaged to report on
    • whether the information accompanying the financial statements is fairly
    • stated, in all material respects, in relation to the financial
    • statements as a whole. (In that case, SAS No. 119 applies. See the
    • discussion beginning at paragraph 811.17.)
  37. 811.42 Because auditors are not
    engaged to report on the other information, they have no responsibility
    to determine whether the information is properly stated
    • but they should read the other
    • information and consider the manner in which it is presented to identify
    • material inconsistencies between the other information and the
    • financial statements or material misstatements of fact, if any.
    • Furthermore, the auditors are not required to report on the other
    • information.
  38. 811.43 The authors believe that
    SAS No. 118 will not apply in most circumstances that auditors encounter
    with their CIRA clients because their clients will rarely issue
    “documents containing audited financial statements” as that term is
    defined in SAS No. 118. (See paragraph 811.44.) PPC's Guide to Auditor's Reports discusses SAS No. 118 in detail, including auditors' responsibilities to communicate
    • to those charged with governance when the other information in
    • documents containing audited financial statements is materially
    • inconsistent with the audited financial statements or contains a
    • material misstatement of fact and management refuses to revise the other
    • information. [PPC's Guide to Auditor's Reports can be ordered at (800) 431-9025 or at ppc.thomsonreuters.com.]
  39. Other Information in Electronic Sites Containing Audited Financial Statements

    811.45 When a CIRA makes its
    audited financial statements (including the auditors' report) available
    on its Internet site, electronic bulletin boards, or similar venues,
    auditors may question their responsibility with respect to other
    information in those electronic sites.
    • The Application and Other Explanatory Material accompanying SAS No. 118, Other Information in Documents Containing Audited Financial Statements,
    • clarifies that, for purposes of GAAS, information contained on an
    • entity's website is not considered to be “other information” and,
    • accordingly, is not subject to the requirements of SAS No. 118. Thus,
    • auditors are not required to read information contained in the sites or
    • consider the consistency of the other information in the sites with the
    • original documents.

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