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Chapter 4

CHAPTER 4.docx

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Ryerson University
ACC 521
Kathryn Bewley

CHAPTER 4: REPORTS ON AUDITED FINANCIAL STATEMENTS The associated Framework Association: Used within the profession to indicate a public accountant’s involvement with an enterprise or with information used by that enterprise. Association can arise in THREE ways: 1) Through some action, the PA associates themselves with information issued by the enterprise 2) Without the PA’s knowledge or consent, the enterprise indicates that the PA was involved with information issued by them 3) A third party assumes the PA is involved with information issued by the enterprise. • A PA associates themselves with information when they either perform services or consent to use their name in connection with that information When associated with information the PA’s professional responsibilities include: 1) Applicable standards in the CICA handbook must be met 2) The PA complies with the appropriate rules of professional conduct 3) There is appropriate communication of the extent of their involvement with the information • PA should ensure the information they are associated with is accurate, accurately reproduced, not misleading. Association with Financial Statements Associated with Financial Statements: Any involvement of a PA with financial statement issued by a client. As a PA, you are associated with Financial statements when: 1) You have consented to the use of your name in connection with them 2) 2) you have prepared or performed other services with respects to them A PS is associated with financial statements when: 1) They are merely reproduced on their letterhead 2) They are produced by their computer as part of bookkeeping service 3) A document containing financial statements identifies them as the PA or auditor for the company • An obligation exist to inform users about the nature of the work performed, and conclusion the PA has made about the financial statements Level of Assurance Level of assurance: the amount of credibility provided by accountants and auditors Clear Opinion: The highest level of assurance with an opinion sentence that reads, “In our opinion, the accompanying financial statements present fairly, in all material respects” Positive Assurance: A high, but not absolute level of assurance; also referred to as reasonable assurance in the context of audit reporting. (Often referred to as reasonable or high assurance) Negative assurance (moderate assurance): Statements that, having carried out a professional engagement, nothing has come to the PA’s attention that would give reason to believe that matters under consideration do not need specified suitable criteria. o It would read “ Based on my review, nothing has come to my attention that causes me to believe that these financial statements are not, in all material respects, in accordance with GAAP” o Called negative because it uses the backdoor phrase “nothing came to my attention” • Auditing standards prohibit the use of negative assurance in reports on audited financial statements because it is considered too weak a conclusion for audit effort involved. o However it is permitted in reviews of unaudited financial statements, in letters to underwriters, and in review of interim financial information No assurance: the PA provides zero assurance credibility because there is no independent verification of data provided by the client: for example, compilation engagements • The most important aspect of the concept of assurance levels is that it reflects the separate levels of evidence which the PA has gathered to support the conclusion in the various types of assurance engage
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