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

What should accompany the updated report when prior-period financial statements are restated in conformity with GAAP?

1. The original auditor's report on the prior period

2. No accompanying documents are needed

3. An emphasis-of-matter paragraph

4. A letter of representation from management

The correct answer is: The original auditor's report on the prior period

When prior-period financial statements are restated in conformity with Generally Accepted Accounting Principles (GAAP), the original auditor's report on the prior period is required to accompany the updated report. This is crucial because it provides the users of the financial statements with a context for the changes that were made. The original report reflects the auditors' findings based on the previously issued financial statements, which have now been restated to correct errors or to reflect updated standards. Including the original auditor's report ensures transparency and allows stakeholders to understand the nature of the restatement as well as the implications of the changes made. This approach helps in maintaining the integrity and credibility of the financial reporting process by providing a clear audit trail from the original statements to the revised ones. The other choices do not fulfill the requirement for providing context in the restatement process. While emphasis-of-matter paragraphs and letters of representation from management can provide additional information under certain circumstances, they do not replace the necessity of including the original auditor's report, which is integral to understanding the full history of the financial statements. Moreover, stating that no accompanying documents are needed overlooks the requirement set by GAAP for this kind of situation.