A CPA is reporting on the financial statements of a non-public entity that are prepared in accordance with a special purpose framework (SPF) for regulatory purposes. The CPA determines that the financial statements are presented fairly, in all material respects, in accordance with the SPF. Which of the following is an essential element of the CPA's report?
- AA disclaimer of opinion regarding the fairness of presentation in accordance with GAAP.
- BAn Other-Matter paragraph describing the differences between the SPF and GAAP.
- CA statement that the financial statements are also presented fairly in accordance with Generally Accepted Accounting Principles (GAAP).
- DAn Emphasis-of-Matter paragraph alerting users that the financial statements are prepared in accordance with an SPF and that the framework is a basis of accounting other than GAAP.
Show answer & explanationAnswer & explanation
Correct answer: D. An Emphasis-of-Matter paragraph alerting users that the financial statements are prepared in accordance with an SPF and that the framework is a basis of accounting other than GAAP.
When reporting on financial statements prepared in accordance with a special purpose framework, the auditor must include an Emphasis-of-Matter paragraph. This paragraph alerts users to the fact that the financial statements are not prepared in accordance with GAAP and indicates the specific framework used.
Why the other options are wrong
- A. A disclaimer of opinion is issued when the auditor cannot obtain sufficient appropriate evidence, not for reporting on SPF financial statements.
- B. An Other-Matter paragraph is used for matters other than those presented or disclosed in the financial statements that are relevant to users' understanding, not for explaining SPF vs. GAAP differences in this context.
- C. The auditor cannot state that SPF financial statements are also presented fairly in accordance with GAAP, as they follow different principles.
SPF Report Alert
An auditor's report on financial statements prepared under a Special Purpose Framework (SPF) must include an Emphasis-of-Matter paragraph to inform users that the framework is not GAAP.
- Required for SPF reports
- Alerts users to non-GAAP basis
- Identifies the specific SPF used
Memory trick: Special Purpose Frameworks Need Extra Attention Marked Clearly.