(REDRAFTED) CONTENTS. Scope of This Proposed Revised Statement on Auditing Standards Effective Date... 5 Objective... 6

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1 PROPOSED REVISED STATEMENT ON AUDITING STANDARDS, Reporting on FINANCIAL STATEMENTS PREPARED IN ACCORDANCE withwith A FINANCIAL REPORTING FRAMEWORK GENERALLY ACCEPTED IN ANOTHER COUNTRY (REDRAFTED) Introduction CONTENTS Paragraph Scope of This Proposed Revised Statement on Auditing Standards Effective Date Objective Requirements Considerations When Accepting the Engagement Performance Application of Auditing Standards of Another Country Reporting More Than Limited Use in the United States Reporting Use Only Outside the United States Reporting Use in the United States Application and Other Explanatory Material Considerations When Accepting the Engagement A1 Performance... A2 A3 Application of Auditing Standards of Another Country... A3 A5A4-A6 Reporting More Than Limited Use in the United States... A6 A7 Reporting Use Only Outside the United States A7 A8 Reporting Use in the United States... A9 AppendixExhibit A: IllustrationIllustrations of U.S.-Style Independent Auditor s Report To ReportAuditors Reports on Financial Statements Prepared in Accordance With a Financial Reporting Framework Generally Accepted in Another Country That Are Intended for Reporting More Than Limited Use in the United States... A10 Appendix B: Illustration of U.S.-Style Independent Auditor s Report to Report on Financial Statements Prepared in Accordance With a Financial Reporting Framework Generally Accepted in Another Country That Are Intended for Use Only Outside the United States

2 Proposed Revised Statement on Auditing Standards, Reporting on Financial Statements Prepared in Accordance With a Financial Reporting Framework Generally Accepted in Another Country (Redrafted) Introduction Scope of This Proposed Revised Statement on Auditing Standards 1. This proposed revised Statement on Auditing Standards (SAS) addresses circumstances in which an auditor practicing in the United States is engaged to report on financial statements that have been prepared in accordance with a financial reporting framework generally accepted in another country not adopted by a body designated by the Council of the AICPA (councilcouncil) to establish generally accepted accounting principles (GAAP) (hereinafter referred to as a financial reporting framework generally accepted in another country). ) when such audited financial statements are intended for use outside the United States. This proposed revised SAS is not intended to preclude the use of such audited financial statements in the United States. 2. Pursuant to Rule 202, Compliance With Standards, and 203, Accounting Principles, of the Code of Professional Conduct (AICPA, Professional Standards, vol. 2, ET sec. 202 par..01 and ), and Rule 203, Accounting Principles (AICPA, Professional Standards, vol. 2, ET sec. 203 par..01],), the councilcouncil designates the bodies to establish generally accepted accounting principles (U.S. GAAP). The bodies designated by the council to establish professional standards with respect to financial accounting and reporting principles pursuant to Rules 202 and 203, are the Financial Accounting Standards Board (FASB), the Governmental Accounting Standards Board (GASB), the Federal Accounting Standards Advisory Board (FASAB), and the International Accounting Standards Board (IASB).. This proposed revised SAS does not apply to financial statements prepared in accordance with financial reporting frameworks established by the bodies designated by councilthe Council. Rather, proposedthe clarified SAS Forming an Opinion and Reporting on Financial Statements applies to engagements to report on such financial statements., including financial statements prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB). 3. This proposed revised SAS also applies tois applicable to engagements to report on financial statements prepared in accordance with a jurisdictional variation of International Financial Reporting Standards (IFRSs) when the entity s financial statements do not contain an explicit and unreserved statement in an appropriate note to the financial statements that its financial statements are in compliance with IFRSs as issued by the IASB. When the auditor reports on financial statements prepared in accordance with IFRSs as issued by the IASB, proposed SAS Forming an Opinion and Reporting on Financial Statements applies. 4. This proposed revised SAS does not apply to engagements to report on financial statements of a U.S. subsidiary of a foreign registrant parent company that are presented in athe parent company s filing with the U.S. Securities and Exchange Commission of the foreign parent company, wherewhen the subsidiary s financial statements have been prepared in accordance with a financial reporting framework used by the parent company. and audited in accordance with auditing standards generally accepted in the United States of America (GAAS). Effective Date Page 2 of 3

3 5. This proposed revised SAS is effective for audits of financial statements for periods beginningending on or after December 15, * Objective 6. The objective of the auditor, when engaged to report on financial statements prepared in accordance with a financial reporting framework generally accepted in another country when such audited financial statements are intended for use outside the United States, 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. Requirements Considerations When Accepting the Engagement (Ref: par. A1) 7. ProposedThe clarified SAS, Terms of EngagementsEngagement requires the auditor, as part of establishing whether the preconditions for an audit are present prior to accepting the engagement, to determine the acceptability of the financial reporting framework applied in the preparation of the financial statements. 1 In an audit of financial statements prepared in accordance with a financial reporting framework generally accepted in another country, the auditor should obtain an understanding of the following: a. a. thethe purpose for which the financial statements are prepared and whether the financial reporting framework applied in the preparation of the financial statements is a fair presentation framework; b. b. thethe intended users of the financial statements; and c. c. thethe steps taken by management to determine that the applicable financial reporting framework is acceptable in the circumstances. 8. When the auditor plans to issue a standard report of another country, and the financial statements will have general use in that country, the auditor should considerobtain an understanding about whether any additional legal responsibilities are involved. (Ref: par. A9A7) Performance (Ref: par. A2 A3) 9. The auditor should comply with U.S. generally accepted auditing standards (GAAS), except for requirements related to report form and content whenwhen auditing financial statements prepared in accordance with a financial reporting framework generally accepted in another country that are preparedintended for use only outside the United States (as described in paragraph 13), and * This date is provisional but will not be earlier than December 15, The requirements and guidance related to the acceptability of the financial reporting framework are expected to be included in proposed SAS, Terms of Engagements, when AU section 311, Planning and Supervision (AICPA, Professional Standards, vol. 1), is redrafted for clarity and convergence with International Standard on Auditing 210, Agreeing the Terms of Audit Engagements. Page 3 of 3

4 should 12), the auditor should comply with GAAS, except for requirements related to the form and content of the report. The auditor should determine whether the application of U.S. GAAS requires special consideration in the circumstances of the engagement. (Ref: par. A1 A2) 10. ProposedThe clarified SAS, Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatements (Redrafted) requires the auditor to obtain an understanding of the entity s selection and application of accounting policies. When reporting on financial statements prepared in accordance with a financial reporting framework generally accepted in another country, the auditor should obtain an understanding of such framework. (Ref: par. A1 A2) Application of Auditing Standards of Another Country 11. If the auditor is engaged to audit financial statements prepared in accordance with a financial reporting framework generally accepted in another country, and the agreed-upon terms of engagement require the auditor to apply either the auditing standards of that country or the International Standards on Auditing (ISAs), the auditor should obtain an understanding of and apply those relevant auditing standards, as well as U.S. GAAS, except for requirements related to reportthe form and content of the report in the situation described in paragraph (Ref: par. A3 A5) A4 A6) Reporting More Than Limited Use in the United States 1. If financial statements prepared in accordance with a financial reporting framework generally accepted in another country will have more than limited use in the United States, the auditor should report using the U.S. form of report, 2 modified as appropriate (qualified or adverse), 3 because of departures from U.S. GAAP. (Ref: par. A6 A7) Reporting Use Only Outside the United States 12. IfIf the auditor is reporting on financial statements prepared in accordance with a financial reporting framework generally accepted in another country that are preparedintended for use only outside the United States, the auditor should report using either (Ref: par. A7) a. a U.S. style. form of report that reflects that the financial statements being reported on have been prepared in accordance with the accounting principles ofa financial reporting framework generally accepted in another country, including i. the elements required by the proposed SAS Forming an Opinion and Reporting on Financial Statements. and ii. a statement that refers to the note to the financial statements that describes the basis of presentation of the financial statements on which the auditor is reporting, including identification of the nationality of the accounting principles;, or b. the standard report form and content of the other country, (or, if applicable, as set forth in the ISAs), provided that i. such a report would be issued by auditors in the other country in similar circumstances., 2 See proposed SAS, Forming an Opinion and Reporting on Financial Statements 3 See proposed SAS Modifications to the Opinion in the Independent Auditor s Report. Page 4 of 3

5 ii. iii. the auditor understands and has obtained sufficient appropriate audit evidence to support the statements contained in such a report., and When the auditor plans to issue the standard report of another country, the auditor should complyhas complied with the reporting standards of that country and identifyidentifies the other country in the report. (Ref: par. A8 ) Reporting Use in the United States 13. If financial statements prepared in accordance with a financial reporting framework generally accepted in another country also are intended for use in the United States, the auditor should report using the U.S. form of report. 4 In addition, the auditor should include in the auditor s report an emphasis of matter paragraph that identifies the accounting framework used in the preparation of the financial statements and that indicates that such framework differs from U.S. GAAP. 5 (Ref: par. A9) *** Application and Other Explanatory Material Considerations When Accepting the Engagement A1. In obtaining an understanding of the purpose for which the financial statements are prepared and of the intended users, the auditor may consider whether the intended users are likely to be familiar with the applicable financial reporting framework. For example, if the financial statements are to be used in the United States in addition to the other country(ies) for which they are intended, the auditor may consider whether intended users within the United States deal directly with the entity and whether the financial statements are to be used in a manner that permits such users to discuss with the entity differences from accounting and reporting practices in the United States and their significance. Performance (Ref: par. 9 10) A2. The auditing procedures generally performed to apply U.S. GAAS may need to be modified when auditing financial statements prepared in accordance with a financial reporting framework generally accepted in another country. The accounting principles used to prepare such financial statements may differ from those prepared in accordance with U.S. GAAP, and such differences may affect the auditor s procedures. For example, the financial reporting framework generally accepted in another country may require that certain assets be revalued to adjust for the effects of inflation in which case, the auditor may find it necessary to perform procedures to test the revaluation adjustments. As another example, a particular country s accounting principles may not require or permit recognition of deferred taxes; consequently, procedures for testing deferred tax balances would not be applicable. 4 See the proposed Statement on Auditing Standards (SAS) Forming an Opinion and Reporting on Financial Statements. 5 See the proposed SAS Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor s Report. Page 5 of 3

6 A3. An understanding of the financial reporting framework generally accepted in another country may be obtained by reading the statutes or professional literature (, or codifications thereof) that, which establish or describe the financial reporting framework generally accepted in the other country. In addition Often, the application of accounting principles to a particular situation requires practical experience, and for this reason, the auditor may consult with persons having expertise, including practical experience, in applying the financial reporting framework of the other country. Application of Auditing Standards of Another Country (Ref: par. 11) A4. Applying either the auditing standards of another country, or the ISAs, may require the auditor to perform certain incremental procedures that are required by the auditing standards of the other country or the ISAs, that is, in addition to those procedures required by U.S. GAAS. A5. An understanding of the auditing standards of another country, or the ISAs, may be obtained by reading the statutes or professional literature, or codifications thereof, thatwhich establish or describe the auditingsuch standards generally accepted in the other country (or International Standards on Auditing).. A1. Statutes or professional literature describing auditing standards generally accepted in another country, or International Standards on Auditing, or codifications thereof, however, may not beinclude a complete description of the auditing practices in thatanother country, and the. The auditor may, therefore, also consult with persons having expertise in(, including practical experience in applying), the auditing standards of the other country or the ISAs. More Than Limited Use in the United States (Ref: par. 12) A2. When reporting on financial statements prepared in accordance with a financial reporting framework generally accepted in another country that will have both more than limited use in the United States and use outside the United States, the auditor may issue the following: A6. The U.S. form of report modified, as appropriate (qualified or adverse opinion) because of departures from U.S. GAAP, as described in paragraph 12relevant. a. The U.S. form of report modified as appropriate (qualified or adverse opinion) because of departures from U.S. GAAP, with an additional paragraph expressing an opinion relative to the financial reporting framework generally accepted in another country b. Two reports the U.S. form of report modified as appropriate (qualified or adverse opinion) because of departures from U.S. GAAP, as described in paragraph 12, for use in the United States, and one of the reports described in paragraph 13 for use outside the United States. A3. When use within the United States of the financial statements prepared in accordance with a financial reporting framework generally accepted in another country will be limited to parties that deal directly with the entity (such as banks, institutional investors, and other knowledgeable parties), an auditor may issue a standard report used in that country. Reporting Use Only Outside the United States (Ref: par. 1412) A7. The standard report used in another country, even when it appears similar to that used in the United States, may convey a different meaning and entail a different responsibility on the part of the auditor due to custom or culture. Issuing a standard report of another country may Page 6 of 3

7 require the auditor to provide explicit or implicit assurance ofreport on statutory compliance or otherwise require understanding of local laws. When issuing the auditor s standard report of another country, the auditor is required by paragraph 8 to obtain an understanding of applicable legal responsibilities, in addition to the auditing standards and the accounting principles generally accepted in the other country, as indicated in paragraphrequired by paragraphs 7, 10, and paragraph 11. Accordingly, depending on the nature and extent of the auditor s knowledge and experience, the auditor may consult with persons having expertise in the audit reporting practices of the other country and associated legal responsibilities to obtain the understanding needed to issue that country s standard report. (Ref: par. 8) A8. An entity that prepares financial statements in accordance with U.S. GAAP also may prepare financial statements in accordance with a financial reporting framework generally accepted in another country (including financial statements prepared in accordance with a jurisdictional variation of IFRSIFRSs such that the entity s financial statements do not contain an explicit and unreserved statement of compliance with IFRSIFRSs as issued by the IASB) for use outside the United States. In such circumstances, the auditor may report on the financial statements that are in accordance with a financial reporting framework generally accepted in another country by followingreporting in accordance with the guidance in paragraph The auditor may include, in one or both of the reports, a statement that another report has been issued on the financial statements for the entity that have been prepared in accordance with a financial reporting framework generally accepted in another country. The auditor may also reference any note describing significant differences between the accounting principles used and U.S. GAAP. An example of such a statement is as follows.: A10. Appendix A We also have reported separately on the financial statements of XYZABC Company for the same period presented in accordance with [specify the financial reporting framework] generally accepted] in [name of country]. (The significant differences between the [specify the financial reporting framework] and accounting principles generally accepted in [name of country] and those generally accepted in the United States of America are summarized in Note X.) Illustration of U.S.-Style Independent Auditor s Report To ReportReporting Use in the United States (Ref: par. 13) A9. When reporting on financial statements prepared in accordance with a financial reporting framework generally accepted in another country that will be used in the United States and outside the United States, the auditor may issue two reports: one of the reports described in paragraph 12 for use outside the United States and the U.S. form of report with an emphasis of matter paragraph, as described in paragraph 13, for use in the United States. Page 7 of 3

8 A10. Exhibit A: Illustrations of Auditors Reports on Financial Statements Prepared in Accordance With a Financial Reporting Framework Generally Accepted in Another Country That Are Intended for More Than Limited Use in the United States Independent Auditor's Report ** We have audited the accompanying balance sheet of XYZ Company as of December 31, 20XX, and the related statements of income, retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. Illustration 1: U.S. Form of Independent Auditor s Report to Report on Financial Statements Prepared in Accordance With a Financial Reporting Framework Generally Accepted in Another Country That Are Intended for Use Only Outside the United States Illustration 2: U.S. Form of Independent Auditor s Report To Report on Financial Statements Prepared in Accordance With a Financial Reporting Framework Generally Accepted in Another Country That Also Are Intended for Use in the United States ** The illustrative reports will be conformed to those in proposed SAS Forming an Opinion and Reporting on Financial Statements when that proposed SAS is finalized. Page 8 of 3

9 Illustration 1: U.S. Form of Independent Auditor s Report towe conducted our audit in accordance with auditing standards generally accepted in the United States of America (and in [name of country]). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in note X to the financial statements, the Company s policy is to prepare its financial statements in accordance with accounting principles generally accepted in [name of country], which [describe departure from U.S. GAAP]. U.S. generally accepted accounting principles, in our opinion, require that [describe appropriate accounting treatment] in such circumstances. [Describe effects of departure if they are not disclosed in the note]. In our opinion, because of the effects of the matters discussed in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with U.S. generally accepted accounting principles, the financial position of XYZ Company, Inc. as of [at] December 31, 20XX, or the results of its operations or its cash flows for the year then ended. 1 However, in our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of XYZ Company as of [at] December 31, 20XX, and the results of its operations and its cash flows for the year then ended in accordance with [specify the financial reporting framework] generally accepted in [name of country]. 1 If the departures from U.S. generally accepted accounting principles would result in the issuance of a qualified opinion rather than an adverse opinion, the fourth paragraph would be replaced with the following: In our opinion, except for the effects of the matters discussed in the preceding paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of XYZ Company, Inc. as of [at] December 31, 20XX, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. Page 9 of 3

10 A11. Appendix B Illustration of U.S.-Style Independent Auditor s Report To Report on Financial Statements Prepared in Accordance With a Financial Reporting Framework Generally Accepted in Another Country That Are Intended for Use Only Outside the United States INDEPENDENT AUDITOR S REPORT ** We have audited the accompanying financial statements of ABC Company, which comprise the balance sheet of XYZ Company as of December 31, 20XX20X1, and the related statements of income, retained earnings,changes in stockholders equity and cash flows for the year then ended, and the related notes to the financial statements, which, as described in Notenote X to the financial statements, have been prepared on the basis of [specify the financial reporting framework] generally accepted] in [name of country]. These financial statements Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with [specify the financial reporting framework generally accepted] in [name of country]; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are the responsibility of the Company s management. free from material misstatement, whether due to fraud 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 auditing standards generally accepted in the United States of America (and in [name of country]). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material 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 and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. ** The illustrative reports will be conformed to those in proposed SAS Forming an Opinion and Reporting on Financial Statements when that proposed SAS is finalized. Page 10 of 3

11 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 statements referred to above present fairly, in all material respects, the financial position of XYZABC Company as of [at] December 31, 20XX20X1, and the results of its operations and its cash flows for the year then ended in accordance with [specify the financial reporting framework] generally accepted] in [name of country]. Page 11 of 3

12 Illustration 2: U.S. Form of Independent Auditor s Report To Report on Financial Statements Prepared in Accordance With a Financial Reporting Framework Generally Accepted in Another Country That Also Are Intended for Use in the United States INDEPENDENT AUDITOR S REPORT We have audited the accompanying financial statements of ABC Company, which comprise the balance sheet as of December 31, 20X1, and the related statements of income, changes in stockholders equity and cash flows for the year then ended, and the related notes to the financial statements, which, as described in note X to the financial statements, have been prepared on the basis of [specify the financial reporting framework generally accepted] in [name of country]. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with [specify the financial reporting framework generally accepted] in [name of country]; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud 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 auditing standards generally accepted in the United States of America (and in [name of country]). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material 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 and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial 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 financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X1, and the results of its operations and its cash flows for the year then ended in accordance with [specify the financial reporting framework generally accepted] in [name of country]. Emphasis of Matter Page 12 of 3

13 As discussed in Note X to the financial statements, the Company prepares its financial statements in accordance with [specify the financial reporting framework generally accepted] in [name of country], which differ(s) from accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. Page 13 of 3