Your firm has been engaged to audit a private company that uses a tax basis of accounting to prepare the financial statements rather than using generally accepted accounting principles (GAAP). You remember learning about special purpose frameworks in one of your college courses. You decide to research the issue and access AU-C 800 through the AICPA website at www.aicpa.org.

Required

a. Can your firm accept the engagement if the client does not use GAAP in the preparation of financial statements? Cite where you found the answer in the standard (the paragraph number).

b. When a client uses a special purpose framework, will the format of an unmodified audit report be different than when a client uses GAAP? Research AU-C 800 and then copy and paste an example of an auditor’s report on a set of financial statements prepared in accordance with the tax basis of accounting. Discuss the similarities and differences of the report with the unmodified audit report from Illustration 15.1.