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An auditor practicing in the United States may be engaged to report on financial statements that have been prepared in accordance with a financial reporting framework generally accepted in another country that has not been adopted by a body designated by the AICPA to establish generally accepted accounting principles, when such audited financial statements are intended for use outside the United States.

P A S S K E Y

Note that the AICPA has designated the I nternational Accounting Standards Soard (lASS) as a body that establishes generally accepted accounting principles. Therefore, these rules are not applicable to engagements to report on financial statements prepared in accordance with IFRS. Under AICPA standards, engagements to report on financial statements prepared in accordance with IFRS are conducted in accordance with the same rules that govern engagements to report on financial statements prepared in accordance with U .s. GAAP.

A. Engagement Acceptance

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:

1. the purpose for which the financial statements are prepared;

2 . whether the financial reporting framework is a fair presentation framework;

3. the intended users of the financial statements; and

4. the steps taken by management to determine whether the applicable financial reporting framework is acceptable in the circumstances.

The auditor should also obtain an understanding of the applicable legal responsibilities involved if the auditor plans to use the form and content of the auditor's report of another country.

B. Engagement Performance

When performing the audit, the auditor should comply with GAAS and should consider whether the application of GAAS requires special consideration in the circumstances of the engagement. If the terms of the engagement require the auditor to apply the auditing standards of the country or the I SAs, the auditor should obtain an understanding of and apply those standards, as well as GAAS, except for requirements related to the form and content of the auditor's report.

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c. Reporting-Distribution Outside the United States

For distribution only outside the U.S. (or with limited distribution to specific knowledgeable parties within the U.S.), the auditor may use either:

1. The report of the other country or the report set out in the I SAs, if applicable, provided that:

a. the report would be issued by auditors in the other country in similar circumstances;

b. the auditor has obtained sufficient appropriate audit evidence to support the statements in the report; and

c. the auditor has complied with the reporting standards of that country and identified the other country in the report.

2. A U.S. form of report that reflects that the financial statements being reported on have been prepared in accordance with a financial reporting framework generally accepted in another country, including:

a. all the elements required in a U . S . form report; and

b. a statement that refers to the note in the financial statements that describes the basis of presentation of the financial statements, including the country of origin.

D. Reporting-Distribution in the U nited States

If the financial statements are also intended for use in the United States, the auditor should report using a U .S. form report with an emphasis-of-matter paragraph that:

1. . identifies the financial reporting framework;

2 . refers to the note in the financial statements that describes the framework; and

3. indicates that the framework differs from accounting principles generally accepted in the United States of America.

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E. Sample Report-U.S. Form 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 [Appropriate Addressee]

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 by 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 from material misstatement.

An procedures and in

statements. The procedures selec::ted depend en 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 Gontrol. 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

I n 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].

[Auditor's signature]

[Auditor's city and state]

[Date of the auditor's report]

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F. Sample Report-U.S. Form Report on Financial Statements Prepared in Accordance With a Financial Reporting Framework Generally Accepted in Another Country that are Also Intended for Use in the United States

I N D E P E N D E N T A U D I T O R ' S R E P O R T

[Appropriate Addressee]

Management's Responsibility for the Financial Statements

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 from 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 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-o/-Matter

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 0/ country], which differs from accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.

[Auditor'S signoture]

[Auditor's city and state]

[Date of the auditor's report]

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A P P E N D I X

T h e P C A O B A u d i t o r ' s Re p o r t i n g M o d e l

I. AUDITOR'S STANDARD REPORT (for issuers)

The PCAOB has not adopted the non issuer auditor's reporting model introduced earlier in this lecture. The PCAOB plans to issue a separate auditor's reporting model for issuers in the near future. Until that model is issued, the auditor's report for issuers who are not required to have an integrated audit will use the old three-paragraph standard report that includes the following elements:

A. Title

"Independent" (auditor's report) must be included in the report title.

B. Addressee

The report is generally addressed to the company, its stockholders and/or its board of directors. It generally is not addressed to management.

C. Introductory Paragraph

The introductory paragraph contains the following:

1. A statement that the financial statements as identified in the report were audited . 2. A statement that the financial statements are the responsibility of management and that

the auditor's responsibility is to express an opinion . D. Scope Paragraph

The scope paragraph contains the following:

1. A statement that the audit was conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States).

2. A statement that the audit was planned and performed to obtain reasonable assurance that the financial statements are free from material misstatement.

3. Statements that the audit included examining evidence on a test basis; assessing the accounting principles used and significant estimates made by management; and evaluating the overal l presentation .

4. A statement that the audit provides a reasonable basis for an opinion.

E. Opinion Paragraph

The opinion paragraph of the report contains the following:

1. A statement referring to the financial statements specifically identified in the introductory paragraph.

2. An opinion as to the fair presentation of the financial statements.

3. A statement regarding conformity with United States generally accepted accounting principles.

F. Firm Name, City, and State

The firm's name, either printed or signed , must appear in the report. The city and state (or country) from which the report was issued should also be identified.

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G. Report Date

The date of the audit report must be included in the report.

1. The report should be dated on or after the date on which appropriate audit evidence, sufficient to support the opinion, has been obtained . Sufficient appropriate

audit evidence includes evidence that:

a. audit documentation has been reviewed;

b. financial statements have been prepared; and

c. management has taken responsibility for the financial statements.

2 . The report date shows the final date of the auditor's responsibility.

3. For comparative statements, the date appropriate for the most recent audit should be used.

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