Auditing and Attestation- Certified Public Accountant (CPA) Practice Exam -

What assurance does a report on compliance provide in connection with audited financial statements?

1. Positive assurance on compliance.

2. Negative assurance on compliance.

3. No assurance on compliance.

4. Comprehensive assurance on compliance.

The correct answer is: Negative assurance on compliance.

A report on compliance, particularly in connection with audited financial statements, typically provides negative assurance. This means that the auditor does not express an opinion on compliance but instead states that nothing has come to their attention that indicates non-compliance. The basis for this type of assurance arises from the nature of the audit work performed, which confirms that the financial statements appear to be fairly presented in accordance with the applicable financial reporting framework. Negative assurance is appropriate since the auditor is not specifically engaged to test compliance but rather to ascertain whether the financial statements are free from material misstatement. While the audit may include some procedures related to legal and regulatory compliance, these procedures are not exhaustive. Thus, the auditor can only provide a level of assurance that doesn’t imply a positive confirmation of compliance with all applicable laws and regulations. The other choices reflect varying levels of assurance that are not representative of the nature of compliance reporting in the context of audited financial statements. Positive assurance would imply a higher level of verification and certainty, which does not match the auditor’s responsibilities regarding compliance. Comprehensive assurance suggests thorough testing and assurance, which goes beyond what is performed in a typical audit with respect to compliance. Finally, stating that there is no assurance would contradict the nature of the negative assurance provided.