Question

Which of the generally accepted auditing standards of reporting would not normally apply to special reports such as cash basis statements?

a. First standard.
b. Second standard.
c. Third standard.
d. Fourth standard.

Answer 1

The third standard of the generally accepted auditing standards does not apply to special reports like cash basis statements because it requires the auditor to report on the conformity with GAAP, which is not relevant for financial statements prepared on a different basis such as cash basis.

Step-by-step explanation:

The third standard of reporting, which is part of the generally accepted auditing standards (GAAS), would not normally apply to special reports such as cash basis statements. The third standard requires that the auditor's report state whether the financial statements are presented in accordance with generally accepted accounting principles (GAAP). However, when an auditor is reporting on financial statements prepared on a cash basis, which is a comprehensive basis of accounting other than GAAP, this standard does not apply. Instead, the auditor’s report should indicate that the financial statements are presented on a basis of accounting other than GAAP and, if applicable, whether that basis of accounting is appropriately applied and adequately described.