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Peer
Review Guide > Common Engagement
Deficiencies > Minor
Peer Review Engagement Deficiencies - Minor
Definition
Accountant and Auditor Reports |
Financial Statements and Disclosures
Audit Procedures and Documentation |
SSARS Procedures and Documentation
Definition: Minor deficiencies include departures from professional standards that
1) are not normally material to a proper understanding of the financial
statements or accompanying auditor's or accountant's report or 2) do not
represent a critical audit or SSARS procedure. As a result, these
departures, by themselves, would not usually cause an engagement to be
substandard, however, as with evaluating any potential deficiency,
professional judgment is required.
This list is not all-inclusive, but it does contain the most
common minor deficiencies that have been observed in peer reviews.
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Accountant and Auditor Reports
(Minor Deficiencies):
- Supplemental information: Failure to report on supplemental information (a reasonable reader
of the report will likely presume the same level of reporting responsibility
as that of the basic financial statements).
- Report wording: Minor departures from standard report language, provided the report
is not otherwise misleading about the degree of responsibility taken.
- Report dating: Minor report dating departures.
- Financial statement periods: Failure to reference all time periods encompassed by the financial
statements, provided the reader could otherwise determine the time periods by
reading the report, disclosures and other information.
- References to financial statement: Inclusion of a reference about the omission of the
statement of cash flows for financial statements prepared on an OCBOA (a
statement of cash flows is not required for financial statements prepared
under an OCBOA).
- References to financial statements: Omission of a reference to a statement of changes in equity (if included with the financial statements).
- OCBOA disclosure: Failure to disclose an OCBOA for financial statements compiled without
disclosure where the basis of accounting is otherwise easily determinable from reading
the report.
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Financial Statement Recognition/Measurement,
Presentation and Disclosure
(Minor Deficiencies):
- Recognition/Measurement: Failure to accrue income taxes where the accrual and provision are
expected to be immaterial to the financial statements taken as a whole.
- Presentation: Minor departures from the financial statement formats recommended by
industry accounting guides.
- Presentation: Failure to reference the financial statements to the accountant's report
or the accompanying footnotes.
- Presentation: Use of financial statement titles that are not appropriate for the
basis of accounting used when the accountant's report, financial statements
or footnotes otherwise indicate the basis of accounting (for example, "balance
sheet," that is associated with GAAP, may not be appropriate for cash
basis financial statements).
- Presentation: Failure to include the title "Selected Information - Substantially
All Disclosures Required by Generally Accepted Accounting Principles Are
Omitted" as appropriate for the presentation of certain selected disclosures.
- Presentation: Treasury stock is recorded for corporations in states
where repurchased shares are deemed to be retired, e.g., a
California corporation.
- Disclosures: Omitted or inadequate disclosures related to minor account balances
or transactions (a few examples include: minor disclosure deficiencies related to
accounting policies, inventory, valuation allowances, long-term debt, related
party transactions, concentrations of credit risk, deferred income taxes
or employee benefit plans).
Note: Each FASB Statement of Financial Accounting Standard includes a provision that the requirements of the standard need not be applied to immaterial items. While this is true for any one item, judgment should be exercised when assessing whether the cumulative effect of
individually immaterial items could have a material effect on a reader's understanding of the financial statements taken as a
whole.
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Audit Procedures and Documentation:
(Minor Deficiencies)
- Planning: Failure to document assessment of control risk when the audit program
and substantive procedures support assessment at the maximum for all critical
assertions related to significant balances and classes of transactions.
- Planning: Outdated audit program, but no critical procedure stemming from recent
standards was omitted.
- Fieldwork: Minor documentation deficiencies related to substantive tests.
- Fieldwork: Failure to evaluate audit differences ("passed"
adjustments), but cumulative
effect is not likely to be material to the financial statements.
- Fieldwork: Failure to extrapolate results of sampling applications, but extrapolated
results would not have a material effect on cumulative audit differences.
- Fieldwork: Omitted minor audit procedures.
- Fieldwork: Minor dating discrepancies between attorney letters and end of fieldwork.
- Fieldwork: Failure to document communication with audit committee.
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SSARS Procedures and Documentation:
(Minor Deficiencies)
- Review: Minor documentation deficiencies related to review engagements.
- Review: Minor omitted procedures related to review engagements.
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Peer
Review Guide > Common Engagement
Deficiencies > Minor
Updated: April 17, 2005 |