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18.

Having carried out, on each sample item, those audit procedures that are appropriate to the
particular audit objective, the auditor should analyze any errors detected in the sample and project the
errors found in the sample to the population.

19. The auditor would also consider the qualitative aspects of the errors, these includes the nature and
cause of the error and the possible effect of the error on other phases of the audit.

20. There is an inverse relationship between the sample size and tolerable rate.

21. Non statistical sampling can also use statistical formulas and techniques aside from the auditor’s
judgement.

22. Sampling for attributes is generally used in substantive testing. It is designed to detect
misstatements in account balances.

23. Haphazard selection may be an alternative to random selection provided that the auditor attempts
to draw a representative sample from the entire population with no intention to either include or
exclude specific units.

24. One disadvantage of statistical sampling that cost may exceed the benefits derived.

25. The auditor will require a larger sample size if he expects an error in the population.

26. Zero sample size will be required if the population to be tested is expected to be error-free.

E11-2 Multiple Choice.

1. This refers to applying audit procedures to less than 100% of items within an account balance or
class of transactions such that all sampling units have a chnace of selection:
A. Audit evidence.
B. Audit sampling.
C. Selective testing.
D. Risk assessment procedures.
2. Which of the following involves audit sampling?
A. Risk assessment procedures.
B. Analytical Procedures
C. Testing controls that leave no audit trail.
D. None of these.
3. In certain situations, 100% testing is considered by the auditor. Which of the following situations
will most likely lead the auditor to use 100% testing?
A. When the population constitutes a small number of large value items.
B. When the repetitive nature of a calculation or other process performed by a computer
information system makes a 100% examination cost effective.
C. When both inherent and control risks are HIGH and other means do not provide sufficient
appropriate audit evidence.
D. All of these situations will most likely lead the auditor to use 100% testing.
4. Selecting specific items include selecting the following except:
A. Low value or non key items.
B. All items over a certain amount.
C. Items to obtain information.
D. Items to test control activities.
5. Which of the following explanations best describe the distinguisihing feature of statistical
sampling?
A. It provides for measuring mathematically the degree of uncertainty that results from
examining only a part of the data.
B. It allows the auditor to have the same degree of confidence as with judgement sampling but
with substantially less work.
C. It allows the auditor to substitute sampling techniques for audit judgement.
D. It provides for measuring the actual misstatements in financial statements in terms of
reliability and precision.
6. Statistical sampling do not allow:
A. More efficient samples.
B. Measurement of sample reliability.
C. Replacement of the auditor’s professional judgement.
D. Measurement of sample risk.
7. There are many kinds of statistical estimates that an auditor may find useful, but basically every
accounting estimate is either of a quantity or of an error rate. The statistical terms that roughly
corespond to “quantities” and “error rate”, respectively are
A. Attributes and variables.
B. Variables and attributes.
C. Constants and attributes.
D. Constants and variables.
8. The sampling method that is most useful when testing for compliance is:
A. Judgement sampling.
B. Unrestricted random sampling with replacement.
C. Attribute sampling.
D. Stratified random sampling.
9. The entire set of data about which the auditor wishes to draw conclusions is called
A. Population
B. Sample
C. Sampling frame
D. Sampling unit
10. A sample in which the characteristics in the sample are the same as those of the population is
A. A random sample.
B. An attributes sample.
C. A variable sample.
D. A representative sample.
11. In sampling for tests of control, “error” refers to:
A. Deviations.
B. Misstatements.
C. Deviations and misstatement
D. Neither deviations nor misstatements.
12. An error that arises from an isolated event that has not reccured other than on specifically
identifiable occasions and is therefore not representative of errors in the population is called:
A. Sampling error.
B. Non sampling error.
C. Anomalous error.
D. Projected error.
13. Which of the following comments bst isllustrates the concept of sampling risk?
A. A randomly chosen sample may not be representative of the population as the whole on the
characteristic of imterest.
B. An auditor may select audit procedures that are not apppropriate to achieve the specific object.
C. An auditor may fail to recognize errors in the documents examined for the chosen sample.
D. The documents related to the chosen sample may not be availabe for inspection.
14. One of the ways to reduce sampling risk is to
A. Increase the sample size.
B. Carefullly design the audit procedures to be used.
C. Provide proper supervision and instruction of the audit team.
D. Use variable sampling rather than attribute sampling.
15. One of the causes of non-sampling error is
A. The use of inappropriate or ineffective audit procedures.
B. Failure to draw a random sample.
C. Failure to draw a representative sample .
D. The use of attributes sampling instead of variables sampling .
16. One of the ways to control non-sampling risk is through
A. Proper supervision and instruction of the clients employees.
B. Proper supervision and instruction of the audit team.
C. The use of attributes sampling rather than variables sampling.
D. Control which ensure the sample drawn is random and representative.
17. The likelihood of assesing control risk too high is that the sample selected to test controls
A. Does not support the auditors planned assessed level of control risk when the true
operating effectiveness of the control structure justifies such an assessments.
B. Contains misstatement that could be material to financial statements when aggregated with
misstatements in other account balace or transactions classes.
C. Contains propotionately fewer devations from prescribed imternal control structure policies
or procedures than exist in the balance or class as a whole.
D. Supports the auditors planned assessed level of control risk when the true operating
effectiveness of the control structure does not justify such an assessment.
18. The consequence of assesing control risk too low relates to the
A. Efficiency of the audit.
B. Effectiveness of the audit.
C. Preliminary estemates of materiality levels.
D. Allowable risk of tolerable error.
19. While performing a substantive test of details during an audit, the auditor determined that the
sample results supported the conc;usion that the recorded amount balance was materially
misstated. It was, in fact, not materially misstated. This situation illustrates the risk of
A. Incorect rejection.
B. Incorrect acceptance .
C. Assessing control risk too low.
D. Assesing control risk too high.
20. The concequence of incorrect acceptace relates to the
A. Efficiency of audit.
B. Effectiveness of the audit
C. Preliminary estimates of materiality levels.
D. Allowable risk of tolerable error.
21. A sample in which every possible combination of items in the population has an equal chance of
contituting the sample is a
A. Reppresentative sample.
B. Statistical sample.
C. Random sample.
D. Judgement sample.
22. The process which requires the calculations of an interval and then selects the items base on
the size of the interval is
A. Statistical sampling.
B. Random selection.
C. Systematic selection.
D. Computerize selection.
23. When performing a test of a control with respect to control over cash receipt, an auditor may
use a systematic sampling technique with a start at any ramdomly selected item. The biggest
disadvantage of this type of sampling is that the items in the population:
A. Must be systematically replaced in the population after sampling.
B. May systematically occur more than once in the sample.
C. Must be recorded in a systematic pattern before the sample can be drawn.
D. May occur in systematic pattern, thus destroying the sample randomness.
24. When the auditor goes througha population and selects items for the sample without regard to
their size, source, or other distinguishing characteristics, it is called:
A. Block (cluster) selection.
B. Random selection.
C. Systematic selection.
D. Haphazard selection.
25. When selecting a stratified sample, the sample size is
A. Determined for the unstratified population and then aportioned to each stratum.
B. Determine for each stratum and selected from that stratum.
C. Determined for each stratum and selected randomly form the entire unstratified
population.
D. Always larger than if unstratified sampling has been used.
26. Statistical sampling may be applied to test controls when a client’s control procedures
A. Depend primarily on segration of duties.
B. Are carefully reduced to writing and are included in client accountig manuals.
C. Leave an audit trail as evidence of compliance.
D. Enable the detection of fraud.
27. Which of the following best describes what the auditor means by the rate of occurrence in the
attribute sampling plan?
A. The number of errors that can be reasonably expected to be found in a population.
B. The frequency with which a certain characteristics occurs within a population.
C. The acceptable risk that the sample is not representative of the population.
D. The peso range within which the true population total can be expected to fall.
28. The deviation rate the auditor expects to find in population, before testing begins, is called the
A. Tolerable deviation rate.
B. Sample deviation rate.
C. Computed upper deviation rate.
D. Population deviation rate.
29. The deviation rate the auditor will permit in the population and still be willing to reduce the
assessed level of control risk is called the:
A. Tolerable deviation rate.
B. Estimated population rate.
C. Acceptable risk of over-reliance.
D. Sample deviation rate.
30. The tolerable rate of deviations for a compliance test is generally
A. Lower than the expected rate of errors in the related accounting records.
B. Higher than the expected rate of errors in the related aacounting records.
C. Identical to the expected rate of errors in the related accounting records.
D. Unrelated to the expected rate of errors in the related accounting records.
31. (AICPA) The diagram below depicts the auditor’s estimated maximum deviation rate compared
with the tolerable rate, and also depicts the true population deviation rate compared with the
tolerable rate.
True State of Population
Auditor’s Estimate Based on Sample Deviation Rate Exceeds Deviation rate Less
Results tolerable rate Tolerable rate
Maximum Deviation Rate Exceeds I III
Tolerable rate
Maximum Deviation is Less than II IV
Tolerable Rate

As a result of testing controls, the auditor assesses control risk too high and thereby increases
testing. This is illustrated by situation:
A. I
B. II
C. III
D. IV
32. Refer to the table in Number 31. The risk assessing control risk too low is illustrated by situation:
A. I
B. II
C. III
D. IV
33. Which of the following combinations results in a decrease in sample size for attributes?
A. Decrease in allowable risk of assessing control risk too low
B. Decrease in tolerable deviation rate
C. Decrease in expected population deviation rate
D. Cannot be determined without additional information
34. Which of the follwing statements is correct concerning statistical sampling in test of controls?
A. The expected population deviation rate has little or no effect on determining sample size
except for very small populations.
B. As the population size doubles, the sample size also should double.
C. For a given tolerable rate, a larger sample size should be selected as the expected
population deviation rate decreases.
D. The population size has little or no effect on determining sample size except for a very small
population.
35. An auditor is testing internal control procedures that are evidenced on an entity’s vouchers by
matching random numbers with voucher numbers. If a random number matches the number of
a voided voucher, the voucher should ordinarily be replaced by another voucher in random
sample if the voucher
A. Constitutes deviation
B. Has been properly voided
C. Cannot be located
D. Represents an immaterial peso amount
36. The sample deviation rate equals
A. The number of deviation in the population divided by the sample size.
B. The number of items in the population multiplied by the number of deviations in the
sample.
C. The number of deviations in the sample divided by the sample size.
D. The number of deviations in the population divided by the sample size.
37. When assessing the tolerable rate, the auditor should consider that, while deviations from
control procedures increase the risk of materal misstatements, such deviations do not
necessarily result im errors. This explains why
A. A recorded disbursement that does not show evidence of required approval may
nevertheless be a transaction that is properly authorized and recorded.
B. Deviation would result in errors in the accounting records only if the deviations and the
errors occurred on different trasanctions.
C. Deviations from pertinent control procedures at a given rate ordinarily would be wxpected
to result in errors in a higher rate.
D. A recorded disbursement that is properly authorized may be nevertheless be a transaction
that contains a material error.
38. When using statistical sampling for tests of controls, an auditor’s evaluation would include a
statistical conclusion concerning whether:
A. Deviations in the population were within an acceptable range.
B. Monetary precision is in excess of a certain predetermined amount.
C. The population’s total monetary value is not in error by more than a fixed amount.
D. Population characterics occur atleast once in the population.
39. What is an auditor’s evaluation of a statistical sample for attributes when a test of 100
documents results in 4 deviations if tolerable rate os 5%, the expected population deviation rate
is 3%, an the allowance for sampling risk is 2%?
A. Accept the sample results as support for planned reliance on the control because the
tolerable rate less the allowance for sampling risk equals the expected population deviation
rate.
B. Modify planned reliance on the control because the sample deviation plus the allowance for
sampling risk exceeds the tolerable rate.
C. Modify planned reliance on the control because the tolerable rate plus the alloance for
sampling risk exceeds the expected population deviation rate.
D. Accept the sample results as support for planned reliance on the control because the
sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate.
40. The final step in the evaluation of audit resulrs in test of controls is the decision to:
A. Determine the error in each sample.
B. Determine sampling error and the total population error.
C. Project the point estimate.
D. Conclude whether the control tested is effective or not effective.
41. In applying variables sampling, an auditor attempts to:
A. Estimate qualitative characteristics of interest.
B. Determine various rates of occurrence for specified attributes.
C. Discover atleast one instance of critical deviation.
D. Predict a monetary population value within a range of precision.
42. Tolerate error is a measure of the maximum monetary error that may exist in an account
balance without causing the financial statements to be materialy misstate,and is directly related
to:
A. Reliability of evidence.
B. Audit risk .
C. Materiality.
D. Cost-benefit analysis.
43. The risk which the auditor is willing to take of acceptance a balace as correct when the true
error in the balance is equal to or greater than the tolerable misstatements is
A. The upper bound.
B. The acceptable risk of incorect acceptance.
C. The torelable risk.
D. The lower bound.
44. Which of the following sample planning factors would influence the sample size for a
substantive test of details for a specific account?
A. Expected amount of misstatements.
B. Measure of tolerable misstatements.
C. Both a and b.
D. None of these.
45. A number of factors influences the sample size for a substantive test of details of an account
balance. All other factors being equal, which of the following would lead to a larger sample size?
A. Greater reliance on internal controls.
B. Greater reliance on analytical procedures.
C. Smaller expected frequency of errors.
D. Smaller measure of tolerable misstatements.
46. How would increases in tolerable misstatements and assessed level of control risk affect the
sample size in a substantive test of details?
A. Increase,increase,respectively.
B. Increase,decrease,respectively.
C. Decrease,increase,respectively.
D. Decrease,decrease,respectively.
47. In statistical sampling methods used in substantive testing, when would an auditor most likely
stratify a population into meaningful groups?
A. If the population has highly variable recorded amounts.
B. If probability proportional to size sampling is used.
C. If the auditor’s estimated tolerable misstatement is extremely small.
D. If the standard deviation of recorded amounts is relatively small.
48. An auditor wishes to sample 200 sales receipt from a population of 5000 receipts issued during
last year. The receipts have preprinted serial numbers and are arranged in chronological (and
thus serial number) order. The auditor randomly chooses a receipt form the first 25 receipts and
then selects ever 25th receipt thereafter. The sampling procedure described here is called
A. Random number sampling
B. Systematic selection
C. Judgement interval sampling
D. Variables sampling
49. Should errors in the sample be projected to the population?
A. Yes, because projection of errors is required by generally accepted accounting standards.
B. No, because the sample misstatement is equal to the total misstatement.
C. Yes, because the misstatement in the sample is not necessarily the total misstatement.
D. No, because the sample misstatement is larger than the total misstatement.
50. The final step in the evaluation of the audit results im substantive tests is the decision to:
A. Accept the population as fairly stated or to require further action.
B. Determine sampling error and total population error.
C. Project the point estimate.
D. Determine the error in each sample.
51. When would difference estimation or ratio estimation sampling methods be inappropriate?
A. If the average difference between the audit value and book value of a population is large.
B. If the average difference between the audit value and book value of a population is small.
C. If differences between the book value and audit value of a population are numerous.
D. If differences between the book value and audit values of a population are rare.
52. The mean per unit estimation method calculates the estimated total audited value of a
population of accounts receivable as:
A. A summation of the total individual account values in the population.
B. The sample mean audited value multiplied by the number of the items in the population.
C. The estimated total audited of the population multiplied by the number of items in the
sample.
D. The summation of the sample multiplied by the number of discrete samples in the
population.
53. PPS sampling is most appropriate when the auditor
A. Anticipates understatement errors.
B. Anticipates overstatement errors.
C. Expects no errors.
D. Has assesed control risk is HIGH.

Discussion Cases

Case 1- Ratio Estimation

AICPA Using statistical sampling to assist in verfying the year-end accounts payable balance, an external
auditor has accumulated the following data:

Number of Accounts Book balance Balance determined by


the Auditor
Population 4100 50000000 ?
Sample 200 250000 300000
Case 2 (Adapted)- Comprehensive Case on Projection of Errors

An external auditor sent out positive confirmation requests to 8600 customers. The population size is
24000 accounts, with a total recorded value of 1900000. Presented below are the summary results of
the examination of confirmation replies received from customers:

Total book value of sample items examined 799800

Total audited value of sample items examined 756800

Requirements:

1. Using ratio estimation, compute thye compute the following:


a. Estimated audited value
b. Projected misstatement
2. Using difference estimation, compute for the projected misstatement.
3. Using mean-per-unit estimation, determine the estimated population value. Assume an
allowance for sampling risk of 200000.
CHAPTER FOURTEEN
SPECIAL CONSIDERATIONS AND AUDITS OF SUMMARY FINANCIAL STATEMENTS

Learning Objectives
After studying this chapter, you should be able to:
 Identify the different engagements where auditors issue reports on special
considerations and summary financial statements.
 Determine the requirements of PSAs in issuing reports for special purpose.
 Describe the contents of special purpose audit reports.

Introduction

Special considerations include the following:

1. Audits of financial statements prepared in accordance with special purpose frameworks


2. Audits of single financial statements and specific elements, accounts or items of a fimacial
statement.

In addition to these engagements, this Chapter also discusses reporting on summary financial
statements.

Overall considerations

The auditor should review and assess the conclusions drawn from the audit evidence obtained during
the special-purpose audit engagement as the basis for an expression of opinion. The report should
contain clear written expression of opinion.

Before undertaking a special purpose audit engagement, the auditor should ensure there is agreement
with client as to the exact nature of the engagement and the form and content of the report to be
issued.

Before undertaking a special purpose audit engagement, the auditor should ensure there is agreement
with client as to

1. The exact nature of the engagement and


2. The form and content of the report to be issued

Audits of Financial Statements Prepared in Accordance with Special Purpose Framework

The objective of the auditor, when applying PSAs in an audit of financial statements prepared in
accordance with special purpose frramework, is to address appropriately the special considerations that
are relevant to:

a. The acceptance of the engagement;


b. The planning and performance of that engagement and
c. Forming an opinion and reporting on the financial statements.
Special purpose financial statements are financial statements prepared in accordance with a special
purpose framework. A special purpose framework is a financial reporting fraamework designed to meet
the financial information needs of specific users. The financial reporting framework may be a fair
presentation framework or a compliance framework.

Exaples of soecial purpose frameworks are:

 A tax basis of acconting for a set of financial statements that accopany an entitys tax return;
 The cash receipts and disbursements basis of accounting for cash flow information that an
entitys may be request to prepare for creditors;
 The financial reporting provinsions established by a regulator to meet the requirements of that
regulator; or
 The financial reporting provisions of a contract, such as a bond indenture, a loan agreement, or
a project grant.

Acceptance of the Engagement

PSA 210 (redrafted) requirs the auditor to determine the acceptability of the financial reporting
framework applied in the preparation of the financial statement. In an audit of special purpose financial
statements, the auditor shall obtain an understanding of:

A. The purpose for which the financial statements are prepared;


B. The intended users; and
C. The steps taken by management to determine that the applicable financial reporting framework
is acceptable in the circumstance

In the case of special purpose financial statements, the financial information needs of the inteended
users are a key factor in determining the acceptability of the financial reporting framework applied in
the preparation of the financial statements

Planning Considerations

In planning and performing an audit of special purpose financial statements, the auditor shall
determine whether application of the PSAs requires special considerations in the circumstance of the
engagement.

Application of some of the requirements of the PSAs in an audit of special purpose financial statements
may require special concideration by the auditor. For example, in PSA 320 (Revised and Redrafted),
judgements about matters that are materials to users of the financial statements are based on a
consideration of the common financial information needs of users as a group. In the case of an audit of
special purpose financial statement, however, those judgements are based on a consideration of the
financial information needs of the intended users.

The auditor to obtain an understanding of the entity’s selection and application of accounting policies. In
the case of financial statements prepared in accordance with the provisions of a contract, the auditor
shall obtain an understanding of any significant interpretations of the contract that management made
in the preparation of those financial statements. An interpretation is significant when adoption of
another reasonable interpretation would have produced a material difference in the information
presented in the financial statements.

Reporting Considerations

When forming an opinion and reporting on special purpose financial statements, the auditor shall apply
the requirements in PSA 700 (Redrafted). PSA (Redrafted) requires the auditor to evaluate whether the
financial statements adequately refer to or describe the applicable financial reporting framework.

In the case of financial statements prepared in accordance with the provisions of a contract, the auditor
shall evaluate whether the financial statements adequately describe any significant interpretations of
the contract on which the financial statements are based.

The following are required for reports on special purpose financial statements:

a. The auditor’s report shall also describe the purpose for which the financial statements are
prepared and, if necessary, the intended users, or refer to a note in the special purpose financial
statements that contains that information; and
b. If management has a choice of financial reporting frameworks in the prepation of such financial
statements, the explanation of the management’s responsibility for the financial statements
shall also makae reference to its responsibility for determining that the applicable financial
reporting framework is acceptable in circumstances.
c. The report shall include and emphasis of matter paragraph alerting of the auditor’s report that
the financial statements are prepared in accordance with special purpose framework and that as
a result, the fianancial statements may not be suitable for another purpose. The auditor shall
include this paragraph under an appropriate heading.
The special purpose financial statements may be used for purposes other than those for which
they are intended. For example, a regulator may require certain entities to place special purpose
fiancial statements on public record. To avoid misunderstandings, the auditor alerts users of the
auditor’s report that the finacial statements are prepared in accordance with special purpose
framework and, therefore, may not be suitable for another purpose.
d. In addition to the alert required by letter c, the auidtor may consider it appropriate to indicate
that the auditor;s report is ineted solely for the specific users. Depending on the law or
regulation of the particular jurisdiction, this may be achieved by restricting the distribution or
use of the auditor’s report. In these circumstances the paragraph referred to letter c may be
expanded to include these other matters, and the heading modified accordingly.

Exhibits 14-1 and 14-2 shows sample audit reports for statements prepared on other
comprehensive accounting.
Exhibit 14-1 Sample Audit Report- Finacial Statements Prepared in Accordance with the
Provisions of a Contract
INDEPENDENT AUDITOR’S REPORT
(Appropriate Addressee)
We have audited the accompanying financial statements of ABC company, which comprise the
balance sheeta s at December 31, 2012, and the income statement, statement of changes in
equity and cash flow statement for the year tehen ended, and a summary of significant
accounting policies and other expalantory information. The financial stataementsn have been
prepared by management of ABC company based on the financial reporting provisions of
Section Z of the contract date January 1, 2012 between ABC Company and DEF Company (the
contract)
Management’s Reposibility for the Financial Statements
Management is reponsible for the preparation of financial statements in accordance with the
financial reporting provisions of Section Z of the contract; this includes the design,
implementation, and maintenance of internal control relevant to the preparation of financial
statement, whether due to fraude or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with Philippine Standards on Auditing. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the fianncial statements. The procedures selected depend on the auditor’s
judgement, including the assestment of the risks of materal misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation of the financial statements in
order to design audit procedures that are appropriate in circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the entity’s internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by management, as well as evaluating the overall presentation of
the fianncial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
Opinion
In our opinion, the fianncial statements of ABC Company for the year ended December 31,2012
are prepared, in all material respects in accordance with the financial reporting provisions of
Section Z of the contract.
Basis of Accounting and Restriction on Distribution and Use
Without modifying our opinion, we draw attention to Note x to the fianncial statements, which
describes the basis of accounting. The financial statements are prepared to assist ABC Company
to comply with financial reporting provisions of the contract referred to above. As a result, the
fianncial sattements may not be suitable for another purpose. Our report is intended solely for
ABc Company and DEF Company and should not be distributed to or used by parties other than
ABC Company or DEF Company.

[Auditor’s signature]
[Date of the auditor’s report]
[Auditor’s address]

Exhibit 14-2 Sample Audit Report- Financial Statements Prepared on the Entity’s Income Tax
Basis

INDEPENDENT AUDITOR’S REPORT


[Appropriate Addressee]

We have audited the accompanying fianncial statements of ABC Partnership, which comprise
the balance sheet as at December 31, 2012 and the income statement for the year ended, and a
summary of significant accounting policies and other expalanatory information. The financial
statements have been prepared by management using tax basis of accounting in Jurisdiction X.

Management’s Responsibility for the Financial Statements


Management is responsible for the preparation of these financial statements in accordance with
the tax basis of accounting in Jurisdiction X; this includes the design, implementation and
maintenance of internal control… [same wording as in Exhibit 14-1]

Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with… [same wording as in Exhibit 14-1]

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.

Opinion
In our opinion, the financial statement of ABC Partnership for the year ended December 31,
2012 are prepared, in all material respects, in accordance with [describe the applicable income
tax law] of Jurisdiction X.

Basis of Accounting and Restriction on Distribution


Without modifying our opinion, we draw attention to Note X to the financial statements, which
describes the basis of accounting. The financial statements are prepared and should not be
distributed to parties other than ABC Partnership or

[Auditor’s signature]
[Date of the auditor’s report]
[Auditor’s address]

Audits of Single Finacial Statements and Specific Elements, Accounts or Items of a Finacial
Statements
For purposes of this section, an element of a financial statement or simply element means an
“element, account or item of a financial statement:” A single financial statement refers to a
component of a complete set of financial statement, such as the statement of financial position.
Such specific element of a financial statement includes the related notes. The related notes
ordinarily comprise a summary of significant accounting policies and other explanatory
information relevant to the financial statement or to element.

Acceptance of the Engagement


In the case of an adult of a single financial statement or of a specific element of afinancial
statement, acceptance and continuance procedures apply, irrespective of whether the auditor is
also engaged to audit the entity’s complete set of financial statements. If the auditor is not also
engaged to audit the entity’s complete set of financial statements, the auditor shall determine
whether the auditor of a single financial statement or of a specific element of those financial
statements in accordance with PSAs is practible.

Compliance with the requirements of PSAs relevant to the audit of a single financial
statement or of a specific element of a financial statement may not be practible when the
auditor is not also engaged to audit thye entity’s complete set of financial statements. In such
cases, the auditor often does not have the same understanding of the entity and its
environment, including its internal control, as an auditor who also audits the entity’s complete
set of financial statements. The auditor also does not have the audit evidence about the general
quality of the accounting records or other accounting information that would be acquired in an
audit of the entity’s complete set of financial statements. Accordingly, the auditor may need
further evidence to corroborate audit evidence acquired from the accounting records. In the
case of an audit of a specific element of a financial statement, certain PSAs require audit work
that may be disaproportionate to the element being audited. For example although the
requirements of PSA 570 (Redrafted) are likely to be relevant in the circumstances of an audit of
a schedule of accounts receivable, complying with those requirements may not be practicable
because of the audit effort required. If the auditor concludes than an audit of a single financial
statement or of a sepcific element of a financial statement in accordance with PSAs may not be
practicable, the auditor may discuss with management whether another type of engagement
might be more practicable.
PSA 210 (Redrafted) requires the auditor to detrmine the acceptability of the financial reporting
framework applied in the preparation of the financial statements. In the case of an audit of a
sigle financial statement or of a specific elemnt of a financial statement, this shall include
whether application of the financial reporting framework will result in a presentation that
provides adequate disclosures to enable the intended users to understand the information
conveyed in the financial statement or the elemnt, and the effect of material transactions and
events on the information conveyed in the financial statement or the element.
A single fianncial statement or a specific element of a fianncial statement may be prepared in
accordance with applicable fianancial reporting framework that is based on a financial reporting
framework established by an authorized or recognized standards setting organization for the
prepation of a complete set of financial statements (e.g., Philippine Financial Reporting
Standards). If this is the case, determination of the acceptability of the applicable framework
may involve considering whether that framework includes all the requirements of the
framework on which it is based that are relevant to the presentation of a seingle financial
statement or of a specific element of a financial statement that provides adequate disclosures.
PSA 210 (Redrafted) requires that the agreed terms of the audit engagement include the
ecpected form of any reports to be issued by the auditor. In the case of an audit of a single
financial statement or of a specific element of a financial statement, the auditor shall consider
whether the expected form of opinion is appropriate in the circumstances.

Planning Considerations
In planning and performing the audit of a single financial statement or of a specific financial
statement, the auidtor shall adapt all PSAs relevant to the audit as necessary in the
circumstances of the engagement.

Reporting Considerations
When performing an opinion and reporting on a single financial statement or on a specific
element of a financial statement, the auditor shall apply the requirements in PSA 700
(Redrafted), adapted as necessary in the circumstances of the engagement.
The form of opinion to be expressed by the auditor depends on the applicable finacial reporting
framework and any applicable laws or regulations. In accordance with PSA 700 (Redrafted):
a. When expressing an unmodified opinion on a complete set of financial statements prepared
in accordance with a fair presentation framework, the auditor’s opinion, unless otherwise
required by law or ewgulation, uses the phrase “the financial statements present fairly, in all
material repsects, in accordance with [the applicable fianancial reporting framework]” and
b. When expressing an unmodified opinion on a complete set of fianancial statements
prepared in accordance with a compliance framework, the auditor’s opinion states that the
financial statements are prepared, in all material respects, in accordnace with [applicable
financial framework].

Reporting on the Entity’s Complete Set fo financial statements and o a single financial statement or on a
specific element of those Financial statements
If the auditor understakes an engagement to report on a single financial statement or on a specific
element of a financial statement in conjuction with an engagement to audit the entity’s complete set of
financial statements, the auditor shall express a separate opinion for each engagement.

An auditor undertakes an engagement to report on a single fianncial statement or an audited specific


element of a financial statement may be published together with the enity’s audited complete set of
financial statements. If the auditor concludes that the presentation of the single financial statement or
of the specific element of a financial statement does not differentiate it sufficiently form the complete
set of financial statements, the auditor shall ask management to rectify the situation. The auditor shall
also differentiate the opinion on the single financial statement or on the specific element of a financial
statement from the opinion on the
ACKNOWLEDGEMENT AND REFERENCE

Audting Standadards and Other Auditing Literature

Auditing and Assurance Standards Council (AASC), PSA 315: Understanding the Entity and Its
Environment and Assesing the Risk of Material Misstatement

AASC, PSA 320: Audit Materiality

AASC, PSA 330: The Auditor’s Procedures in Response to Assessed Risks

AASC, PSA 500 (Revised): Audit Evidence

AASC, PSA 530: Audit Sampling and other Means of Testing

International Auditing and Assurance Standards Board, 2008 IAASB Handbook

International Auditing and Assurance Standards Board, 2014 IAASB Handbook

Books

Cabrera, Elenita B. Principles of Audting 2001

Ricchiute, David N. Auditing and Assurance Services 7e, 2003

Santos, Petronilo S. Basic Auditing: Theory and Concepts, 2002

Taylor, Donald H. and G. William Glezen, Auditing: An assertion Approach, 7e, 1997

Whittington, O. Ray and Kurt Pany, Principles of Auditing 11e

Websites

Activity-based risk evaluation model (ABREMA)- by the Australian Educational Research Pty Ltd (AER)-
Official Website (www.abrema.net/abrema)