CPA Exam — AUDForming Conclusions and ReportingMedium
A CPA is reporting on financial statements prepared in accordance with a special purpose framework. The auditor's report should include an emphasis-of-matter paragraph that:
- ARefers to the note to the financial statements that describes the framework.
- BIndicates that the auditor is not providing assurance on the appropriateness of the framework.
- CStates that the financial statements are not intended to be presented in accordance with GAAP.
- DExplains why the special purpose framework was chosen by management.
Show answer & explanationAnswer & explanation
Correct answer: A. Refers to the note to the financial statements that describes the framework.
When reporting on financial statements prepared under a special purpose framework, the auditor's report must include an emphasis-of-matter paragraph that refers to the note to the financial statements that describes the special purpose framework and indicates that the financial statements are prepared in accordance with that framework.
Why the other options are wrong
- B. The auditor provides assurance on whether the financial statements are presented fairly in accordance with the *specified* framework, not on the appropriateness of the framework itself.
- C. While true, the emphasis-of-matter paragraph specifically points to the note describing the framework, which inherently clarifies it's not GAAP.
- D. The auditor does not generally explain management's rationale for choosing a framework in the report; management typically does this in the notes if deemed necessary.
Special Purpose Framework Reporting
Reporting on financial statements prepared using a special purpose framework requires an emphasis-of-matter paragraph in the auditor's report to draw attention to the framework used.
- Framework must be appropriate for the purpose.
- Emphasis-of-matter paragraph is mandatory.
- Paragraph refers to the note describing the framework.
Memory trick: Special Reports require Specific References.