AUD-6 Appendix: Reports per PCAOB AS [applicable only for Q1 & Q2 2018; w.e.f. Q3 2018, new format PCAOB reports are tested]

Transcription

1 : Reports per PCAOB AS [applicable only for Q1 & Q2 2018; w.e.f. Q3 2018, new format PCAOB reports are tested] A-6.1) Audit Reports I) Unqualified Opinion [PCAOB AS 3101: Reports on Audited F/S] II) Unqualified Opinion with Explanatory and/or Emphasis paragraph III) GAAP Issue - Qualified Opinion vs. Adverse Opinion [PCAOB AS 3101: Reports on Audited F/S] IV) GAAS Issue - Qualified Opinion vs. Disclaimer Opinion A-6.2) Audit of Comparative F/S I) Prior period audited by the same auditor II) Changing (updating) prior opinion III) Prior period audited by other auditor IV) Prior period not audited [PCAOB AS 3320: Association with F/S] [PCAOB AS 3101: Reports on Audited F/S] A-6.3) Supplementary Information I) Other Info in Documents with Audited F/S [PCAOB AS 2710: Other Info with Audited F/S] II) Required Supplementary Info [PCAOB AS 2705: Reqd. Supplementary Info] III) Supplementary Info in relation to F/S [PCAOB AS 2701: Audit of Supplementary Info] IV) Selected Quarterly Data [PCAOB AS 4105: Review of Interim F/S] A-6.4) Audit of Group F/S [PCAOB AS 1205: Part Audit by Other Auditors] A-6.5) Audit of Single F/S & Specific F/S Elements/Accounts/Items [PCAOB AS 3305: Special Reports] [PCAOB AS 3101: Reports on Audited F/S] A-6.6) Audit of Special Purpose F/S [PCAOB AS 3305: Special Reports] A-6.8) Other Engagements & Reports based on PCAOB AS I) Review of Interim (Quarterly) F/S [PCAOB AS 4105: Review Interim F/S] II) Condensed F/S & Selected Financial Data [PCAOB AS 3315: Condensed F/S, Selected Data] III) Report on Compliance of Audited F/S [PCAOB AS 3305: Special Reports] IV) Comfort Letter for Underwriters [PCAOB AS 6101: Letters for underwriters] V) Application of Accounting Principles [PCAOB AS 6105: Application of GAAP] 1

2 Miles CPA Review A-6.1) Audit Reports per PCAOB AS I) Unqualified Opinion (Standard Audit Report) Audits of issuers must be subject to the requirements of PCAOB AS. Few differences vis-à-vis nonissuer audit reports: Title: Less detailed discussions of management and auditor responsibilities Also, audit report on F/S is 3 paragraphs (intro, scope and opinion para) besides any additional paragraphs Must not refer to US GAAS, instead refer to the standards of the Public Company Accounting Oversight Board (United States) Subject to the requirements of PCAOB AS, the auditor will have to also perform an audit of I/C over financial reporting (ICFR) that is Integrated with an audit of F/S (to ensure compliance with Rule 404 of SOX; provisions detailed out in PCAOB AS 2201) May be issued as a separate report or a combined report If a separate report is issued, a paragraph following the opinion paragraph is added which refers to the auditor s report on ICFR Exemptions to the integrated audit requirements for issuers: Dodd-Frank Act, Exempted issuers classified as non-accelerated filers by the SEC from complying with the Audit of ICFR (integrated audit) requirement per SOX - Non-accelerated filer = Companies with public float of less than $75 MM JOBS Act, Exempted issuers defined as Emerging Growth Companies (EGC) from complying with the Audit of ICFR (integrated audit) requirement per SOX - EGC = Companies allowed to go public via IPO (effective after Dec 8, 2011) with relaxed compliance requirements for the first 5 years *as if an IPO on-ramp + Note: If the auditor conducts an audit of F/S per PCAOB AS, but the audit is not within the jurisdiction of the PCAOB, the auditor is required to also conduct the audit per GAAS Auditor s report would refer to both PCAOB AS and GAAS Examples of entities whose audits are not within the jurisdiction of the PCAOB include clearing agencies and futures commission merchants registered with the Commodity Futures Trading Commission (CFTC), as well as certain other entities registered with the CFTC that are not also SEC-registered brokers and dealers 2

3 Note: - PCAOB has adopted a new auditor reporting standard, AS 3101 (The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion) and related amendments to its auditing standards that will require the auditor to provide new information about the audit and make the auditor's report more informative and relevant to investors and other financial statement users. This standard has been approved by the SEC on Oct 23, 2017, and would be tested on the CPA exams only from Q Few notes about the new proposed standard: Retains the pass/fail opinion of the existing auditor's report but makes significant changes to the existing auditor's report, including the following: Communication of CAM (critical audit matters) - Matters communicated or required to be communicated to the audit committee and that: Relate to accounts or disclosures that are material to the financial statements; and Involved especially challenging, subjective, or complex auditor judgment Disclosure of auditor tenure - statement disclosing the year in which the auditor began serving consecutively as the company's auditor Other improvements to the auditor's report to clarify the auditor's role and responsibilities, and make the auditor's report easier to read. Includes: Opinion will appear in the first section of the auditor's report Section titles have been added to guide the reader Enhanced descriptions of the auditor s role and responsibilities, including a statement that the auditor is required to be independent - Proposed date (by PCAOB, yet to be approved by SEC): All provisions other than those related to critical audit matters will take effect for audits of fiscal years ending on or after December 15, 2017; and Provisions related to critical audit matters will take effect for audits of fiscal years ending on or after June 30, 2019, for large accelerated filers; and for fiscal years ending on or after December 15, 2020, for all other companies to which the requirements apply. - - CAM = Difficult parts of the audit which kept the auditor awake at night! 3

4 Miles CPA Review Issuers = Audit per PCAOB AS Illustration of Auditor's Standard report on F/S per PCAOB AS (Integrated audit with separate Audit Report on F/S and ICFR): The Board of Directors and Shareholders of XYZ Inc. Registered with PCAOB [Introductory paragraph] We have audited the accompanying balance sheet of XYZ Inc. as of December 31, 2011 and 2010, and the related statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 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. Less detail [Scope paragraph] We conducted our audit in accordance with standards of the Public Company Accounting Oversights Board (U.S.). 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. [Opinion paragraph] In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of XYZ Inc. as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America. [Reference to the ICFR Report] We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (U.S.), XYZ Inc. s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2012, expressed an unqualified opinion thereon. Integrated Audit = F/S + ICFR 4

5 II) Unqualified Opinion with Explanatory paragraph or Emphasis paragraph In certain circumstances, the auditor may be required to add an explanatory paragraph to the auditor s report without modifying the auditor s opinion GAAS & ISA use the terms emphasis-of-matter & other-matter paragraphs whereas PCAOB uses the term explanatory paragraph PCAOB allows emphasis paragraph for certain circumstances where it is optional (not required) for auditors to include such a paragraph GR = Immediately after the opinion para Explanatory paragraph - Include explanatory language (or an explanatory paragraph) in the auditor's report, while not affecting the auditor's opinion on F/S Circumstances include: {Traditional GAAS reporting standards = All Clean & Dirty Elements!} A Special purpose framework F/S - e.g., cash/tax/regulatory/contractual basis C D E S C A R Justified lack of Consistency (change in accounting principle, change in reporting entity not involving an event/transaction, correction of a material error in previously issued F/S) Going Concern doubt appropriately presented/disclosed on F/S Changing prior opinion - Subsequently discovered facts that lead to change in audit opinion Circumstances also include: {Like a SCAR on Audit Report!} Supplementary Info (certain cases) Material inconsistency in other information included alongside audited F/S Refer to required supplementary information that a designated accounting standards setter requires to accompany an entity s basic F/S Selected quarterly financial data required by SEC Regulation S-K is not appropriately presented, has been omitted, or has not been reviewed Comparative F/S (certain cases) F/S of the prior period were audited by a predecessor auditor and the predecessor s audit report is not reissued Additional circumstances Separate report issued on ICFR audit Auditor not engaged to audit ICFR (e.g., non-accelerated filers, issuers who are emerging growth companies) but management still required to report on entity s ICFR Auditor decides to refer to the report of other auditors as the basis, in part, for the auditor's own report Report on compliance is included in the auditor s report on the F/S Restrict use of audit report by an alert in the audit report; generally, included if special purpose F/S prepared in accordance with a contractual or regulatory basis of accounting 5

6 Miles CPA Review Emphasis paragraph - Auditor may emphasize a matter regarding F/S in the auditor's report Uncertainty & Other Circumstances (optional) - Appropriately presented/disclosed in F/S but auditor still considers necessary to emphasize. E.g., Uncertainty related to outcome of unusually important litigation or regulatory action Unusually important subsequent events; e.g., major catastrophe having a significant effect on the entity s financial position Significant related party transactions That the entity is a component of a larger business enterprise SAS (for non-issuers) vs. PCAOB AS (for issuers) SAS UNMODIFIED OPINION with Emphasis-of-Matter Para - A: Special purpose framework F/S (Non-GAAP) - C: Justified lack of Consistency - D: Going Concern doubt - D: Uncertainty & Other Circumstances (optional) - E: Changing prior opinion Other-Matter Para - Supplementary Info (certain cases) - Comparative F/S (certain cases) - Additional circumstances - Restrict use of audit report (also for contractual/regulatory special purpose non-gaap F/S) - PCAOB AS Explanatory Para - A: Special purpose framework F/S (Non-GAAP) - C: Justified lack of Consistency - D: Going Concern doubt - E: Changing prior opinion UNQUALIFIED OPINION with Emphasis Para - D: Uncertainty & Other Circumstances (optional) - Supplementary Info (certain cases) - Comparative F/S (certain cases) - Additional circumstances - Restrict use of audit report (also for contractual/regulatory special purpose non-gaap F/S) 6

7 Information about Certain Audit Participants Form AP (Auditor Reporting of Certain Audit Participants) - Required to be filed with the PCOAB by registered public accounting firms for each issuer audit report issued by the firm Provides information about engagement partners and accounting firms that participated in the issuer audit Due by the 35th day after the date the audit report is first included in a document filed with the SEC (e.g., within 35 days of filing of Form 10K by the issuer) Due within 10 days of such filing if the audit report was first included in a registration statement filed with the SEC Optional inclusion - On the auditor's report, auditor may include below information (which is required to be reported on PCAOB Form AP) Engagement partner s full name; and/or Other accounting firms participating in the audit Statement that the auditor is responsible for the audits or audit procedures performed by the other public accounting firms and has supervised or performed procedures to assume responsibility for their work in accordance with PCAOB standards Other accounting firms individually contributing 5% or more of total audit hours - for each firm, need to disclose: - Firm's legal name, - City and state (or, if outside the US, city and country) of headquarters' office, and - % of total audit hours as a single number or within an appropriate range Other accounting firms individually contributing less than 5% of total audit hours - need to disclose: - Number of such other accounting firms, and - Aggregate % of total audit hours of such firms as a single number or within an appropriate range 7

8 Miles CPA Review III) GAAP Issue - Qualified Opinion vs. Adverse Opinion Illustration of Qualified Opinion due to departure from GAAP: The Board of Directors and Shareholders of XYZ Inc. [Introductory paragraph] We have audited the accompanying balance sheet of XYZ Inc. as of December 31, 20X2 and 20X1, and the related statements of income, retained earnings, and cash flows for the years then ended December 31, 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. [Scope paragraph] We conducted our audit in accordance with standards of the Public Company Accounting Oversights Board (U.S.). 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. [Separate paragraph(s) with substantive reasons for the qualified opinion & principal effects of the subject matter of the qualification on financial position, results of operations and cash flows, if practicable] The Company has excluded, from property and debt in the accompanying balance sheets, certain lease obligations that, in our opinion, should be capitalized in order to conform with accounting principles generally accepted in the United States of America. If these lease obligations were capitalized, property would be increased by $ and $, long-term debt by $ and $, and retained earnings by $ and $ as of December 31, 20X2 and 20X1, respectively. Additionally, net income would be increased (decreased) by $ and $ and earnings per share would be increased (decreased) by $ and $, respectively, for the years then ended. [Opinion paragraph] In our opinion, except for the effects of not capitalizing certain lease obligations as discussed in the preceding paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of XYZ Inc. as of December 31, 20X2 and 20X1, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. 8

9 Illustration of Adverse Opinion due to departure from GAAP: The Board of Directors and Shareholders of XYZ Inc. [Introductory paragraph] We have audited the accompanying balance sheet of XYZ Inc. as of December 31, 20X2 and 20X1, and the related statements of income, retained earnings, and cash flows for the years then ended December 31, 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. [Scope paragraph] We conducted our audit in accordance with standards of the Public Company Accounting Oversights Board (U.S.). 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. [Separate paragraph(s) with substantive reasons for the adverse opinion & principal effects of the subject matter of the adverse opinion on financial position, results of operations and cash flows, if practicable] As discussed in Note X to the financial statements, the Company carries its property, plant and equipment accounts at appraisal values, and provides depreciation on the basis of such values. Further, the Company does not provide for income taxes with respect to differences between financial income and taxable income arising because of the use, for income tax purposes, of the installment method of reporting gross profit from certain types of sales. Accounting principles generally accepted in the United States of America require that property, plant and equipment be stated at an amount not in excess of cost, reduced by depreciation based on such amount, and that deferred income taxes be provided. Because of the departures from accounting principles generally accepted in the United States of America identified above, as of December 31, 20X2 and 20X1, inventories have been increased $ and $ by inclusion in manufacturing overhead of depreciation in excess of that based on cost; property, plant and equipment, less accumulated depreciation, is carried at $ and $ in excess of an amount based on the cost to the Company; and deferred income taxes of $ and $ have not been recorded; resulting in an increase of $ and $ in retained earnings and in appraisal surplus of $ and $, respectively. For the years ended December 31, 20X2 and 20X1, cost of goods sold has been increased $ and $, respectively, because of the effects of the depreciation accounting referred to above and deferred income taxes of $ and $ have not been provided, resulting in an increase in net income of $ and $, respectively. [Opinion paragraph] In our opinion, because of the effects of the matters discussed in the preceding paragraphs, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States of America, the financial position of XYZ Inc. as of December 31, 20X2 and 20X1, or the results of its operations or its cash flows for the years then ended. 9

10 Miles CPA Review IV) GAAS Issue - Qualified Opinion vs. Disclaimer Illustration of Qualified Opinion due to a Scope Limitation: The Board of Directors and Shareholders of XYZ Inc. [Introductory paragraph] We have audited the accompanying balance sheet of XYZ Inc. as of December 31, 20X2 and 20X1, and the related statements of income, retained earnings, and cash flows for the years 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. [Scope paragraph] Except as discussed in the following paragraph, we conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audits provide a reasonable basis for our opinion. [Separate paragraph(s) explaining the situation] We were unable to obtain audited financial statements supporting the Company's investment in a foreign affiliate stated at $ and $ at December 31, 20X2 and 20X1, respectively, or its equity in earnings of that affiliate of $ and $, which is included in net income for the years then ended as described in Note X to the financial statements; nor were we able to satisfy ourselves as to the carrying value of the investment in the foreign affiliate or the equity in its earnings by other auditing procedures. [Opinion paragraph] In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had we been able to examine evidence regarding the foreign affiliate investment and earnings, the financial statements referred to in the first paragraph above present fairly, in all material respects, the financial position of XYZ Inc. as of December 31, 20X2 and 20X1, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. 10

11 Illustration of Disclaimer of Opinion due to Scope Limitation: The Board of Directors and Shareholders of XYZ Inc. [Introductory paragraph] We were engaged to audit the accompanying balance sheets of XYZ Inc. as of December 31, 20X2 and 20X1, and the related statements of income, retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. [Separate paragraph(s) with substantive reasons for the disclaimer] The Company did not make a count of its physical inventory in 20X2 or 20X1, stated in the accompanying financial statements at $ as of December 31, 20X2, and at $ as of December 31, 20X1. Further, evidence supporting the cost of property and equipment acquired prior to December 31, 20X1, is no longer available. The Company's records do not permit the application of other auditing procedures to inventories or property and equipment. [Disclaimer] Since the Company did not take physical inventories and we were not able to apply other auditing procedures to satisfy ourselves as to inventory quantities and the cost of property and equipment, the scope of our work was not sufficient to enable us to express, and we do not express, an opinion on these financial statements. 11

12 Miles CPA Review A-6.2) Audit of Comparative F/S per PCAOB AS I) Prior period audited by the same auditor Comparative F/S (Same auditor) - Standard Unqualified Y1, Qualified Y2 The Board of Directors and Shareholders of XYZ Inc. [Introductory paragraph] We have audited the accompanying balance sheet of XYZ Inc. as of December 31, 20X2 and 20X1, and the related statements of income, retained earnings, and cash flows for the years 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. [Scope paragraph] We conducted our audit in accordance with standards of the Public Company Accounting Oversights Board (U.S.). 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. [Separate paragraph(s) with substantive reasons for the qualified opinion & principal effects of the subject matter of the qualification on financial position, results of operations and cash flows, if practicable] The Company has excluded, from property and debt in the accompanying 20X2 balance sheet, certain lease obligations that were entered into in 20X2 which, in our opinion, should be capitalized in order to conform with accounting principles generally accepted in the United States of America. If these lease obligations were capitalized, property would be increased by $, long-term debt by $, and retained earnings by $ as of December 31, 20X2, and net income and earnings per share would be increased (decreased) by $ and $, respectively, for the year then ended. [Opinion paragraph] In our opinion, except for the effects on the 20X2 financial statements of not capitalizing certain lease obligations as described in the preceding paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of XYZ Inc. as of December 31, 20X2 and 20X1, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. 12

13 Unable to observe prior year (Y1) beginning inventory Disclaim Y1 I/S, S/E & C/F, Unqualified Y2 Y0 Disclaim I/S + C/F + S/E, B/S = ok Y1 B/S + I/S + C/F + S/E = ok Y2 Inventory =? Inventory = ok Inventory = ok The Board of Directors and Shareholders of XYZ Inc. [Introductory paragraph] We have audited the accompanying balance sheet of XYZ Inc. as of December 31, 20X2 and 20X1, and the related statements of income, retained earnings, and cash flows for the years 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. [Scope paragraph] Except as discussed in the following paragraph, we conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audits provide a reasonable basis for our opinion. [Separate paragraph(s) with substantive reasons for the disclaimer] We did not observe the taking of the physical inventory as of December 31, 20X0, since that date was prior to our appointment as auditors for the Company, and we were unable to satisfy ourselves regarding inventory quantities by means of other auditing procedures. Inventory amounts as of December 31, 20X0, enter into the determination of net income and cash flows for the year ended December 31, 20X1. [Disclaimer] Because of the matter discussed in the preceding paragraph, the scope of our work was not sufficient to enable us to express, and we do not express, an opinion on the results of operations and cash flows for the year ended December 31, 20X1. [Opinion paragraph] In our opinion, the balance sheets of ABC Company as of December 31, 20X2 and 20X1, and the related statements of income, retained earnings, and cash flows for the year ended December 31, 20X2, present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X2 and 20X1, and the results of its operations and its cash flows for the year ended December 31, 20X2, in conformity with accounting principles generally accepted in the United States of America. 13

14 Miles CPA Review II) Changing (updating) prior opinion Changing opinion on Prior Year The Board of Directors and Shareholders of XYZ Inc. [Introductory paragraph] We have audited the accompanying balance sheet of XYZ Inc. as of December 31, 20X2 and 20X1, and the related statements of income, retained earnings, and cash flows for the years 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. [Scope paragraph] We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audits provide a reasonable basis for our opinion. [Separate paragraph(s) with substantive reasons for the different opinion] In our report dated March 1, 20X2, we expressed an opinion that the 20X1 financial statements did not fairly present financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America because of two departures from such principles: (1) the Company carried its property, plant, and equipment at appraisal values, and provided for depreciation on the basis of such values, and (2) the Company did not provide for deferred income taxes with respect to differences between income for financial reporting purposes and taxable income. As described in Note X, the Company has changed its method of accounting for these items and restated its 20X1 financial statements to conform with accounting principles generally accepted in the United States of America. Accordingly, our present opinion on the 20X1 financial statements, as presented herein, is different from that expressed in our previous report. [Opinion paragraph] In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of X Company as of December 31, 20X2 and 20X1, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. 14

15 III) Prior period audited by other auditor (predecessor) Report of predecessor auditor presented - Predecessor s audit report reissued and included along with current s audit report Report of predecessor auditor not presented - Current auditor expresses an opinion on current period F/S only and refers to the predecessor s prior period F/S audit report without naming the predecessor The Board of Directors and Shareholders of ABC Company [Introductory paragraph] We have audited the balance sheet of ABC Company as of December 31, 20X2, 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. The financial statements of ABC Company as of December 31, 20X1, were audited by other auditors whose report dated March 31, 20X2, expressed an unqualified opinion on those statements. [Scope paragraph] We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audits provide a reasonable basis for our opinion. [Opinion paragraph] In our opinion, the 20X2 financial statements referred to above present fairly, in all material respects, the financial position of ABC Company as of December 31, 20X2, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. IV) Prior period not audited Prior Period Unaudited F/S in comparison form with Audited F/S In documents filed with SEC - Unaudited F/S should be clearly marked as "unaudited" but should not be referred to in the auditor's report In any other document Unaudited F/S should be clearly marked as unaudited and either Report on the prior period should be reissued, or Report on the current period should include as a separate paragraph an appropriate description of the responsibility assumed for the prior period F/S 15

16 Miles CPA Review A-6.3) Supplementary Information per PCAOB AS Overview of additional audit procedures & reporting for supplementary info SUPPLEMENTARY INFO Effect on fieldwork Reporting if found ok Reporting if inconsistencies / misstatements / omissions (i) Other Info in documents containing Audited F/S Read for consistency N/A Include explanatory para - Report the inconsistency (ii) Required by FASB (or GASB) Limited procedures (esp. inquire, compare, obtain rep. letter) N/A Include explanatory para - Disclaim the Supplementary Info and report any misstatements/omission (or if auditor was unable to perform prescribed procedures, or has unresolved doubts) (iii) Supplementary Info in Relation to Audited F/S as a whole [Auditor asked to express opinion on Supplementary Info] Audit procedures (unless disclaiming on the info) Include in F/S audit report - Express opinion on Supplementary Info OR Present separate report - Separate report should identify the auditor s report on F/S (iv) Selected quarterly financial data required by Item 302(a) of Regulation S-K of the SEC Review procedures (unless the auditor is unable to review) Include explanatory para - Report if omission or if auditor was unable to review [Note: For any misstatements of quarterly data, these would ordinarily be reflected in the auditor s separate review report; so no effect on audit report] 16

17 A-6.4) Audit of Group F/S (i.e., Part of the Audit Performed by Other Independent Auditors) Illustration of Auditor s Report indicating Division of Responsibility with Other Auditors: The Board of Directors and Shareholders of X Company [Introductory paragraph] We have audited the consolidated balance sheet of X Company and subsidiaries as of December 31, 20..., and the related consolidated statements of income and 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 audits. We did not audit the financial statements of B Company, a whollyowned subsidiary, which statements reflect total assets and revenues constituting 20 percent and 22 percent, respectively, of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for B Company, is based solely on the report of the other auditors. [Scope paragraph] We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 and the report of the other auditors provide a reasonable basis for our opinion. [Opinion paragraph] In our opinion, based on our audit and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of X Company as of [at] December 31, 20..., and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. 17

18 Miles CPA Review A-6.5) Audit of Single F/S and Specific F/S Elements/Accounts/Items Illustration of Auditor s Report on Single F/S (prepared in accordance with US GAAP): The Board of Directors and Shareholders of X Company [Introductory paragraph] We have audited the accompanying balance sheet of X Company as of December 31, 20XX. This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. [Scope paragraph] We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit of the balance sheet provides a reasonable basis for our opinion. [Opinion paragraph] In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of X Company as of December 31, 20XX, in conformity with accounting principles generally accepted in the United States of America. *Auditor s Signature+ *Auditor s City and State or Country+ *Date of the Auditor s Report+ 18

19 Illustration of Auditor s Report on F/S Element (prepared in accordance with US GAAP): To the shareholders and the board of directors of ABC Company [Introductory paragraph] We have audited the accompanying schedule of accounts receivable of ABC Company as of December 31, 20X2. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this schedule based on our audit. [Scope paragraph] We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the schedule of accounts receivable is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the schedule of accounts receivable. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall schedule presentation. We believe that our audit provides a reasonable basis for our opinion. [Opinion paragraph] In our opinion, the schedule of accounts receivable referred to above presents fairly, in all material respects, the accounts receivable of ABC Company as of December 31, 20X2, in conformity with accounting principles generally accepted in the United States of America. 19

20 Miles CPA Review A-6.6) Audit of Special Purpose F/S Illustration of Auditor s Report on Special purpose F/S prepared in accordance with regulatory basis (Not intended for General Use): [Appropriate Addressee] We have audited the accompanying statements of admitted assets, liabilities, and surplus statutory basis of XYZ Insurance Company as of December 31, 20X2 and 20X1, and the related statements of income and cash flows statutory basis and changes in surplus statutory basis for the years 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 audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audits provide a reasonable basis for our opinion. As described in Note X, these financial statements were prepared in conformity with the accounting practices prescribed or permitted by the Insurance Department of [State], which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the admitted assets, liabilities, and surplus of XYZ Insurance Company as of December 31, 20X2 and 20X1, and the results of its operations and its cash flows for the years then ended, on the basis of accounting described in Note X. This report is intended solely for the information and use of the board of directors and management of XYZ Insurance Company and [name of regulatory agency] and is not intended to be and should not be used by anyone other than these specified parties. 20

21 Illustration of Auditor s Report on Special purpose F/S prepared on entity s income tax basis: [Appropriate Addressee] We have audited the accompanying statements of assets, liabilities, and capital - income tax basis of ABC Partnership as of December 31, 20X2 and 20X1, and the related statements of revenue and expenses - income tax basis and of changes in partners' capital accounts - income tax basis for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audits provide a reasonable basis for our opinion. As described in Note X, these financial statements were prepared on the basis of accounting the Partnership uses for income tax purposes, which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities, and capital of ABC Partnership as of December 31, 20X2 and 20X1, and its revenue and expenses and changes in partners' capital accounts for the years then ended, on the basis of accounting described in Note X. Illustration of Auditor s Report on Special purpose F/S prepared on cash basis: [Appropriate Addressee] We have audited the accompanying statements of assets and liabilities arising from cash transactions of XYZ Company as of December 31, 20X2 and 20X1, and the related statements of revenue collected and expenses paid for the years 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 audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audits provide a reasonable basis for our opinion. As described in Note X, these financial statements were prepared on the basis of cash receipts and disbursements, which is a comprehensive basis of accounting other than generally accepted accounting principles. In our opinion, the financial statements referred to above present fairly, in all material respects, the assets and liabilities arising from cash transactions of XYZ Company as of December 31, 20X2 and 20X1, and its revenue collected and expenses paid during the years then ended, on the basis of accounting described in Note X. 21

22 Miles CPA Review A-6.8) Other Engagements & Reports based on PCAOB AS I) Review of Interim (Quarterly) F/S Background: SEC requires US issuers to file annual audited F/S (included in Form 10K) as well as quarterly reviewed F/S (included in Form 10Q) Generally, the auditor of the annual F/S reviews the quarterly F/S Note that review of quarterly F/S is per PCAOB AS and is required for US issuers Audit of annual F/S + Review of interim F/S Illustration of Standard Review Report for a public company (as per PCAOB AS) To the shareholders and the board of directors of ABC Company We have reviewed the accompanying [describe the interim financial information or statements reviewed] of ABC Company and consolidated subsidiaries as of September 30, 20X1, and for the three-month and nine-month periods then ended. This (These) interim financial information (statements) is (are) the responsibility of the company's management. We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial information (statements) for it (them) to be in conformity with accounting principles generally accepted in the United States of America. 22

23 II) Report on Condensed F/S and Selected Financial Data Condensed F/S Background: Condensed F/S (either for an annual or an interim period) Derived from audited F/S of an issuer that is required to file, at least annually, complete audited F/S with a regulatory agency Presented in considerably less detail than complete F/S (and so should be read in conjunction with the entity's most recent complete F/S that include all the disclosures required by GAAP) Illustration of Auditor s Report on Condensed F/S (separate report): We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of X Company and subsidiaries as of December 31, 20X0, and the related consolidated statements of income, retained earnings, and cash flows for the year then ended (not presented herein); and in our report dated February 15, 20X1, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated financial statements is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived. 23

24 Miles CPA Review Selected Financial Data Background: Selected financial data may be included in a client-prepared document that contains audited F/S (or, with respect to a public entity, that incorporates such statements by reference to information filed with a regulatory agency). Selected financial data are not a required part of the basic financial statements, and the entity's management is responsible for determining the specific selected financial data to be presented Auditor s Report: If the auditor is engaged to report on the selected financial data, his report should be limited to data that are derived from audited F/S (which may include data that are calculated from amounts presented in the financial statements, such as working capital) If the selected financial data that management presents include both data derived from audited F/S and other information (such as number of employees or square footage of facilities), the auditor's report should specifically identify the data on which he is reporting. Illustration where auditor is engaged to report on selected financial data for a five-year period in a client-prepared document that includes audited F/S (additional paragraph included in the auditor's report): 24 To the shareholders and the board of directors of ABC Company [Introductory paragraph] We have audited the consolidated balance sheets of ABC Company and subsidiaries as of December 31, 19X5 and 19X4, and the related consolidated statements of income, retained earnings, and cash flows for each of the three years in the period ended December 31, 19X5. 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. [Scope paragraph] We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 audits provided a reasonable basis for our opinion. [Opinion paragraph] In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the ABC Company and subsidiaries as of December 31, 20X5 and 20X4, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20X5, in conformity with accounting principles generally accepted in the United States of America. [Additional paragraph to report on selected financial data] We have also previously audited, in accordance with the standards of the Public Company Accounting Oversight Board, the consolidated balance sheets as of December 31, 20X3, 20X2, and 20X1, and the related statements of income, retained earnings, and cash flows for the years ended December 31, 20X2, and 20X1 (none of which are presented herein); and we expressed unqualified opinions on those consolidated financial statements. In our opinion, the information set forth in the selected financial data for each of the five years in the period ended December 31, 20X5, appearing on page xx, is fairly stated, in all material respects, in relation to the consolidated financial statements from which it has been derived.