19.3 Flashcards
A practitioner is engaged to examine prospective financial statements (PFSs). If they include a projection that does not identify the hypothetical assumptions, the practitioner should
Not accept the engagement.
A practitioner should not examine (1) a presentation that discloses none of the significant assumptions or (2) a projection that does not identify the hypothetical assumptions or describe the limits on its use.
Which of the following activities would most likely be considered an attestation engagement?
Issuing a report about a firm’s compliance with laws and regulations.
A practitioner may be asked to provide assurance about the entity’s compliance with requirements of specified laws, regulations, rules, contracts, or grants. The engagement also may apply to the responsible party’s written assertion about compliance. But an examination to report on control over compliance is not performed under AT-C 315. AT-C 315 also does not provide for a review engagement. AT-C 315 describes the conditions under which a practitioner may accept a compliance engagement, the types of engagements, the responsibilities of the parties, and the reports that should be issued. AT-C 105, Concepts Common to All Attestation Engagements, provides the framework for application of this standard.
A practitioner is engaged to express an opinion on management’s assertion that the square footage of a warehouse offered for sale is 150,000 square feet. The practitioner should refer to which of the following sources for professional guidance?
Statements on Standards for Attestation Engagements.
SSAEs relate to services that practitioners provide beyond those on traditional historical financial statements. Thus, an engagement to express an opinion on management’s assertion that the square footage of a warehouse offered for sale is 150,000 square feet is a service beyond those on traditional historical financial statements.
In relation to the subject matter in an attestation engagement, suitable criteria are all of the following except
Subjective.
Suitable criteria for subject matter are (1) relevant, (2) objective (free from bias), (3) measurable (capable of reasonably consistent qualitative or quantitative measurement), and (4) complete (not omitting relevant matters that could reasonably be expected to affect decisions).
All of the following are correct statements regarding compliance attestation engagements except
A compliance attestation provides a legal determination of an entity’s compliance.
A compliance attestation engagement includes but is not limited to providing assurance about the entity’s (1) compliance with specified financial or nonfinancial requirements (laws, regulations, rules, contracts, or grants) and (2) effectiveness of internal control over compliance with specified requirements (only in an agreed-upon procedures engagement). A compliance attestation engagement does not provide a legal determination of an entity’s compliance.
A practitioner may accept an engagement to examine a financial projection if
The projection describes limits on its use.
A practitioner may accept an engagement to examine a financial projection if the responsible party agrees to (1) disclose the significant assumptions, (2) identify in the presentation which assumptions are hypothetical, and (3) describe the limits on the use of the projection.
A practitioner in an attestation review engagement intends to express a qualified conclusion in the report based on a misstatement that is material but not pervasive. The practitioner should use the language
Except for the effects.
If the subject matter is misstated and not corrected, the practitioner should determine whether an “except for the effects” qualification is appropriate. A qualified conclusion normally is expressed when the misstatement is material but not pervasive. In this case, the assurance should be directly on the subject matter, not on the assertion.
A practitioner examining pro forma financial information (PFFI) does not have an understanding of the constituent parts of an entity resulting from a business combination. The practitioner should take which of the following actions?
Communicate with a practitioner who audited the underlying historical information.
Before examining PFFI, a practitioner should have an appropriate level of knowledge of the accounting and financial reporting practices of the entity. This knowledge enables the practitioner to perform examination procedures on the PFFI. In the case of a business combination, the practitioner can obtain an understanding, for example, by communicating with other practitioners who audited (reviewed) the historical financial information on which the PFFI is based. Relevant matters include (1) accounting and reporting practices; (2) transactions within the constituent parts of the combined entity; (3) material contingencies; and (4) industry, legal, and regulatory factors related to the combined entity (and divestees or acquirees).
A practitioner’s report on a review of pro forma financial information should include a
Reference to the financial statements from which the historical financial information is derived.
A practitioner’s report on PFFI should include, among other things, (1) an identification of the pro forma information, (2) a reference to the financial statements from which the historical financial information is derived and a statement as to whether such financial statements were audited or reviewed, (3) a statement that the review was made in accordance with standards established by the AICPA, (4) a caveat that a review is substantially less in scope than an examination and that no opinion is expressed, (5) a separate paragraph explaining the objective of PFFI and its limitations, and (6) the practitioner’s conclusion providing limited assurance.
Which of the following presents what the effects on historical financial data might have been if a consummated transaction had occurred at an earlier date?
Pro forma financial information.
PFFI shows what the significant effects on historical financial information might have been had a consummated or proposed transaction (or event) occurred at an earlier date. Examples of these transactions include a business combination, disposal of a segment, a change in the form or status of an entity, and a change in capitalization.
A practitioner accepted an engagement to examine the entity’s compliance with a contractual agreement. The practitioner should perform the following:
I. Plan the engagement.
II. Perform procedures to provide reasonable assurance of detecting material noncompliance.
III. Consider subsequent events.
IV. Create a report containing limited assurance whether the entity is in compliance.
I, II, III.
The following summarizes the practitioner’s procedures in a compliance attestation examination engagement:
- Obtain an understanding of the specified compliance requirements.
- Obtain an understanding of the relevant portions of internal control over compliance to plan the engagement and to assess control risk.
- Obtain a written representation letter from the responsible party.
- Form an opinion.
In an attestation review engagement, the practitioner concludes that misstatements are material and pervasive. The practitioner therefore should
Withdraw from the engagement.
When misstatements are material and pervasive, the practitioner should withdraw from the engagement.
A practitioner may perform an agreed-upon procedures engagement on prospective financial statements provided that which of the following is met?
The prospective financial statements include a summary of significant assumptions.
A practitioner may accept an engagement to apply agreed-upon procedures to PFSs if the practitioner is independent and (1) the specified parties agree to the procedures and take responsibility for their sufficiency, (2) an alert restricts report use to specified parties, and (3) the statements include a summary of significant assumptions.
A review typically consists of inquiries and analytical procedures. An attestation review may not rely heavily on analytical procedures because the subject matter may be
Less quantitative.
Use of analytical procedures is less likely because the subject matter may be qualitative, not quantitative. The practitioner then should perform other procedures, in addition to inquiries that provide equivalent review evidence.
Accepting an engagement to examine an entity’s financial projection most likely would be appropriate if the projection were to be distributed to
A bank with which an entity is negotiating for a loan.
A projection is based on one or more hypothetical assumptions and, therefore, should be considered for limited use only. Limited use of PFSs means use by the responsible party and those with whom that party is negotiating directly. Examples of appropriate use include negotiations for a bank loan and submission to a regulatory body. A projection is inappropriate for distribution to those who will not be negotiating directly with the responsible party.
