Auditor's opinion on the basis of a restricted examination : (no. 3) : face-amount certificate companies ;

              Statements on Auditing
Procedure
•
Issued by the Committee on Auditing Procedure, American Institute of Accountants, 13 East 41st Street, New York 17, N. Y.
Copyright 1942 by American Institute of Accountants
No. 13
December 1942
The Auditor's Opinion on the Basis of a Restricted Examination (No. 3)
Face-Amount Certificate Companies
FOREWORD
THE COMMITTEE has already dealt with two cases involving the auditor's opinion on the basis of a restricted examination. In one case1 the committee expressed the view that the examination pro-posed was not sufficiently extensive to warrant the expression of any opinion. In the second case2 the committee's view was that the omis-sion of a single though important audit procedure in respect of the major portion of the assets, was not, in the circumstances of the par-ticular case and in view of other collateral evidence available, suffi-cient to prevent the expression of a qualified opinion if the auditor had formed one and was prepared to take the responsibility for ex-pressing it.
A further case involving the auditor's opinion on the basis of a re-stricted examination has been referred to the committee. This case relates to the examination of the financial statements of a so-called "face-amount certificate company," and raises the question whether an independent certified public accountant would be justified in ex-pressing a qualified opinion on the basis of an examination which excluded consideration of the reserves (variously described) for liabil-ities to certificate holders of such companies. In view of the special-ized nature of this kind of company, it may be desirable first to out-line briefly the general functions of face-amount certificate companies and the nature of their reserves.
OPERATIONS OF FACE-AMOUNT CERTIFICATE COMPANIES
A face-amount certificate company is a specialized type of invest-ment company, which sells certificates, in the form of contracts, pro-viding for specified payments to the company in periodic instalments.
1 Statements on Auditing Procedure No. 2, issued in December, 1939.
2 Statements on Auditing Procedure No. 11, issued in September, 1942.
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