When a CPA Should Audit Just a Balance Sheet

What is the appropriate action for a CPA when asked to audit a balance sheet only without reviewing other financial statements?

• A. Accept the engagement because such engagements involve special considerations in U.S. GAAS.
• B. Not accept the engagement because it generates a piecemeal opinion.
• C. Accept the engagement but disclaim an opinion on the other financial statements.
• D. Not accept the engagement as it violates the profession's ethical standards.

Answer: (A)

Accepting the engagement to audit only the balance sheet is appropriate in this scenario because audits of individual financial statements, such as a balance sheet, are recognized practices under U.S. Generally Accepted Auditing Standards (GAAS). These standards allow for audits of specific components or elements of the financial statements as long as the auditor communicates the scope clearly, and the client understands that only the specific statement is being audited. In this case, the auditor would need to ensure that the engagement letter specifies that the audit is limited to the balance sheet, making it clear to all parties involved. While an audit of the balance sheet alone does have unique considerations, it can still provide useful information to the users of that financial statement. As long as the auditor adheres to the applicable standards and appropriately discloses the scope of the audit, the engagement can be accepted. There are implications related to piecemeal opinions and ethical standards concerning the acceptance of various engagements, but in cases where auditing standards allow for the review of individual financial statements, these concerns can be addressed when proper communication occurs with stakeholders.

When it comes to the often-daunting world of accounting, a question that frequently crops up is, “What’s the deal if a CPA is asked to audit just a balance sheet?” You know, it sounds like a narrow request, right? But hold on – there’s more to it than meets the eye!

First off, let’s talk about the basics. Auditors live and breathe by a set of rules called U.S. Generally Accepted Auditing Standards (GAAS). These standards are like the playbook for CPAs, guiding them through the thick and thin of auditing practices. Now, according to U.S. GAAS, it’s totally acceptable for an auditor to take on an engagement focusing exclusively on a single financial statement—like our good friend, the balance sheet! So if you’re ever in this situation, the right move is to accept that engagement.

Wait. Did I just hear a collective gasp? “But what about the implications of piecemeal opinions and ethical standards in the profession?” A valid concern, indeed! But here’s the thing: as long as the auditor is careful with how they communicate and outlines the scope of the audit clearly, all the parties involved should be on the same page. Here’s where the engagement letter struts its stuff! It needs to specify that the audit covers only the balance sheet — transparency is key.

So, the main takeaway? Don’t shy away from auditing only a balance sheet when asked. It’s completely within standards as long as the implications are clear to everyone involved. Those users of the balance sheet, like owners and investors, may find it incredibly useful, even in isolation. Isn’t that reassuring to know?

Of course, it’s important to keep in mind that while accepting such engagements is acceptable, it must align with both U.S. GAAS and the ethical standards of the profession. We wouldn’t want any fallout down the road, now would we? By communicating properly and defining the scope, a CPA can successfully navigate the unique considerations involved in this type of audit.

In conclusion, remember that auditing is as much about understanding the rules as it is about maintaining integrity in what you do. This balancing act might seem tricky at first, but with the right knowledge and communication, accepting an engagement to audit a balance sheet alone can be just another tool in your CPA toolkit. Plus, who doesn’t love a well-structured audit, right? Keep this in mind as you prepare for your upcoming Auditing and Attestation exam – every little bit of knowledge will count!