10.4 Other Reporting Considerations and Special Reports
5 min read•august 13, 2024
Auditors face unique challenges when reporting on and . These situations require careful consideration of the nature of the information, applicable requirements, and appropriate reporting formats.
From to , auditors must adapt their procedures and reporting to meet specific needs. Understanding these nuances is crucial for providing accurate, relevant information to financial statement users in various contexts.
Reporting Responsibilities for Supplementary Information
Nature and Scope of Supplementary Information
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- Supplementary information (SI) is information presented outside the basic financial statements, excluding required supplementary information, that is not considered necessary for the financial statements to be fairly presented in accordance with the
- SI can include additional details, explanations, or context related to the financial statements (schedules, charts, graphs)
- The scope of SI is determined by the applicable financial reporting framework and may vary depending on the entity and industry
Auditor's Responsibilities for Required and Non-Required SI
- The auditor's responsibilities for SI depend on whether the information is required by the applicable financial reporting framework
- When SI is required by the applicable financial reporting framework, the auditor should perform certain and report on whether the SI is fairly stated, in all material respects, in relation to the financial statements as a whole
- Limited procedures may include inquiries, analytical procedures, and other procedures as necessary
- When SI is not required by the applicable financial reporting framework, the auditor should disclaim an opinion on the information unless engaged to perform an audit on the SI
- The auditor's report on SI should include a statement that the audit was conducted for the purpose of forming an opinion on the financial statements as a whole, identify the SI being reported on, and state whether the SI is fairly stated, in all material respects, in relation to the financial statements as a whole
Types of Special Auditor Reports
Reports on Financial Statements Prepared in Accordance with Special Purpose Frameworks
- Special purpose frameworks are bases of accounting other than , such as cash basis, tax basis, regulatory basis, or contractual basis financial statements
- Reports on financial statements prepared in accordance with a comprehensive basis of accounting other than GAAP require specific considerations and modifications to the standard auditor's report
- Examples of special purpose frameworks include financial statements prepared for income tax purposes (tax basis) or financial statements prepared to comply with contractual agreements (contractual basis)
Reports on Specified Elements, Accounts, or Items of a Financial Statement
- Auditors may be engaged to report on specified elements, accounts, or items of a financial statement, such as a schedule of royalties or a statement of assets sold and liabilities transferred to a buying entity
- These engagements require the auditor to apply audit procedures to the specific element, account, or item and issue a separate report
- The auditor's report should include an opinion on whether the specified element, account, or item is presented fairly, in all material respects, in accordance with the applicable financial reporting framework
Reports on Compliance with Contractual Agreements or Regulatory Requirements
- Auditors may be engaged to report on an entity's compliance with aspects of contractual agreements or related to audited financial statements
- Examples include reports on compliance with debt covenants or reports on compliance with requirements governing the use of federal award funds ()
- The auditor's report should include an opinion on whether the entity complied, in all material respects, with the specified requirements based on the established criteria
Reports on Financial Information Presented in Prescribed Forms or Schedules
- Certain entities may be required to present financial information in prescribed forms or schedules that require a prescribed form of auditor's report
- Examples include reports on HUD-prescribed forms for housing entities or reports on DOE-prescribed forms for educational institutions
- The auditor should ensure that the prescribed form or schedule includes all necessary information and that the auditor's report complies with the prescribed format and content requirements
Reporting on Compliance with Agreements
Understanding the Applicable Requirements and Criteria
- The auditor should obtain an understanding of the applicable contractual agreements or regulatory requirements and the criteria and methods used to determine compliance
- This understanding is necessary to design appropriate audit procedures and evaluate the results
- The auditor should consider the terms of the agreements or regulations, the specific compliance requirements, and the established criteria for determining compliance
Performing Procedures to Obtain Sufficient Appropriate Evidence
- The auditor should perform procedures to obtain sufficient appropriate evidence to support an opinion on compliance
- Procedures may include over compliance, , or a combination of both
- Tests of controls assess the effectiveness of the entity's internal controls over compliance
- Substantive procedures include detailed testing of transactions and balances related to compliance
- The nature, timing, and extent of procedures depend on the auditor's professional judgment, the assessed risks of , and the established criteria
Reporting on Compliance and Addressing Noncompliance
- The auditor's report should include an opinion on whether the entity complied, in all material respects, with the specified requirements based on the established criteria
- If the auditor becomes aware of noncompliance that is material to the financial statements, the auditor should consider the need to modify the opinion on the financial statements
- Material noncompliance may indicate a significant deficiency or material weakness in internal control over compliance
- If the auditor is unable to obtain sufficient appropriate evidence to support an opinion on compliance, the auditor should disclaim an opinion or withdraw from the engagement
- The auditor's report should also include any additional communications required by the terms of the engagement or applicable regulations (findings, recommendations, or other matters)
Reporting Requirements for Special Purpose Frameworks
Emphasis-of-Matter Paragraph for Special Purpose Frameworks
- When reporting on financial statements prepared in accordance with a special purpose framework, the auditor's report should include an
- The emphasis-of-matter paragraph alerts users of the auditor's report that the financial statements are prepared in accordance with a special purpose framework and that the basis of accounting is a basis other than GAAP
- The paragraph should describe the purpose for which the financial statements are prepared or refer to a note in the special purpose financial statements that contains that information
- Examples of special purpose frameworks include cash basis, tax basis, regulatory basis, or contractual basis financial statements
Restricting the Use of the Auditor's Report
- If the special purpose financial statements contain items that are the same as, or similar to, those in financial statements prepared in accordance with GAAP, the auditor's report should include an
- The other-matter paragraph restricts the use of the auditor's report solely to those within the entity and the parties to the contract or agreement, or to those with whom the entity is communicating
- If the special purpose financial statements will be used by parties other than those within the entity and the parties to the contract or agreement, the auditor should consider including an other-matter paragraph that restricts the use of the report to the specified parties
- Restricting the use of the auditor's report helps to ensure that the special purpose financial statements are not used inappropriately by unintended users who may misunderstand the basis of accounting
Key Terms to Review (15)
Applicable financial reporting framework: An applicable financial reporting framework is a set of criteria or guidelines used to prepare and present financial statements, ensuring that they provide relevant and reliable information to users. This framework is crucial for compliance with legal and regulatory requirements and can vary based on the type of organization, industry, and jurisdiction. It establishes the standards for recognition, measurement, presentation, and disclosure of financial information.
Compliance Reports: Compliance reports are documents that detail an organization's adherence to regulatory standards, laws, or internal policies. These reports are crucial for demonstrating accountability and transparency in operations, often used to assess whether an entity is meeting specific requirements set by governing bodies or stakeholders.
Emphasis-of-matter paragraph: An emphasis-of-matter paragraph is a specific section included in an auditor's report that highlights a matter of significance to the financial statements, but does not modify the auditor's opinion. This paragraph draws attention to information that is fundamental for users to understand the financial statements, such as uncertainties, going concern issues, or significant accounting policies.
GAAP: Generally Accepted Accounting Principles (GAAP) are a set of accounting standards, principles, and procedures used in the preparation of financial statements. GAAP ensures transparency, consistency, and comparability of financial reporting, which is vital for stakeholders to make informed decisions.
Limited procedures: Limited procedures refer to a specific set of audit steps that are less extensive than those performed in a full audit, primarily used for specific engagements where a complete audit is not required. These procedures typically include inquiries and analytical procedures rather than comprehensive testing of transactions or internal controls, making them suitable for special reports or agreed-upon procedures engagements.
Material noncompliance: Material noncompliance refers to a significant failure to adhere to laws, regulations, or contractual obligations that can impact the financial statements of an entity. This concept is critical for auditors as it may lead to adverse findings in the audit report, potentially affecting the credibility and reliability of financial information provided to stakeholders.
Opinion on SI: An opinion on SI, or 'special interest,' refers to the auditor's conclusion regarding the fairness and accuracy of financial statements that deviate from standard reporting frameworks, usually in specialized sectors. This opinion is critical for stakeholders who rely on these reports for making informed decisions, ensuring that even unique reporting contexts receive thorough scrutiny.
Other-matter paragraph: An other-matter paragraph is a section in an auditor's report that addresses issues other than the financial statements or the auditor's opinion on those statements. It provides additional context or information that may be relevant to users of the financial statements, such as highlighting a significant event that occurred after the balance sheet date or disclosing a matter that does not affect the financial position but is important for transparency.
Prescribed forms: Prescribed forms refer to standardized formats and templates mandated by regulatory bodies for reporting purposes. These forms ensure consistency, reliability, and compliance in the presentation of financial information and other relevant data, which is crucial for stakeholders who rely on accurate reports to make informed decisions.
Regulatory requirements: Regulatory requirements refer to the rules and standards established by governing bodies that organizations must adhere to in their operations, particularly in areas such as financial reporting and auditing. These requirements ensure transparency, accountability, and compliance with laws, helping maintain the integrity of financial statements and protect stakeholders' interests.
Single audit reports: Single audit reports are comprehensive evaluations conducted to assess the financial compliance and performance of entities receiving federal funds. They combine both the financial statement audit and the federal compliance audit into one report, ensuring that federal resources are utilized appropriately and efficiently. This reporting structure is crucial for enhancing transparency and accountability in the use of public funds.
Special purpose frameworks: Special purpose frameworks are accounting frameworks that are designed for specific reporting needs and purposes, rather than adhering to general accepted accounting principles (GAAP). These frameworks are often utilized by entities with unique financial reporting requirements, such as regulatory bodies, tax authorities, or specific industries, enabling them to present financial information in a way that meets their particular needs.
Substantive Procedures: Substantive procedures are the audit processes undertaken to detect material misstatements in financial statements, whether caused by error or fraud. These procedures include tests of details and analytical procedures that auditors perform to gather evidence about the amounts and disclosures in the financial statements, ultimately helping to assess the overall integrity of the financial reporting process.
Supplementary information: Supplementary information refers to additional data or details provided alongside the basic financial statements, offering context and enhancing understanding. This type of information helps stakeholders make more informed decisions by shedding light on aspects that may not be fully captured in the primary financial reports, such as accounting policies, contingencies, and significant events occurring after the reporting period.
Tests of controls: Tests of controls are procedures used by auditors to evaluate the effectiveness of an entity's internal control system in preventing or detecting material misstatements. These tests focus on assessing how well the controls function in practice, ensuring that they operate as intended. Effective tests of controls provide assurance that the risk of misstatement is managed, impacting the auditor's assessment and the overall audit strategy.