19.4 Flashcards
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.
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 may report on an examination of pro forma financial information (PFFI) if the related historical financial statements have been
Audited.
A practitioner may examine or review PFFI only if certain conditions are met. One condition is that the level of assurance provided be limited to that given on the historical statements. Accordingly, an examination that provides a basis for positive assurance is appropriate only if the historical statements have been audited.
In an examination or review attestation engagement, an engaging party may not be the responsible party. For example, this party may be a potential acquirer of another entity. If a responsible party who is not the engaging party refuses to provide a written assertion, the practitioner should
Disclose the refusal in the report.
In an examination or review attestation engagement, when an engaging party is not the responsible party, and the responsible party refuses to provide a written assertion, the practitioner need not withdraw from the engagement. But the practitioner should (1) disclose the refusal in the report and (2) restrict use of the report to the engaging party.
The practitioner’s report on an examination of pro forma financial information (PFFI)
May state an unmodified, qualified, or adverse opinion.
The report should include an opinion on whether (1) management’s assumptions provide a reasonable basis for the significant effects attributable to the transaction or event, (2) the pro forma adjustments give appropriate effect to the assumptions, and (3) the pro forma amounts reflect the proper application of those adjustments to the historical data. Scope limitations, uncertainties, reservations about the assumptions or the presentation (including inadequate disclosure), and other matters may lead to modification of the opinion or a disclaimer.
Which of the following statements about written representations in an attestation review engagement is correct?
A representation letter should be obtained from the responsible party.
In all cases, the responsible party should provide a written letter of representations addressed to the practitioner in an attestation review engagement.
In an attestation review engagement, the objectives of the practitioner are to
Obtain limited assurance about whether any material modifications should be made to the subject matter in order for it be in accordance with the criteria.
The objective of a review is to provide limited assurance about whether the subject matter requires material modifications.
Which of the following statements best serves as management’s assertion of consistency in an MD&A presentation?
Nonfinancial data have been accurately derived from related records.
Assertions are management representations in the MD&A presentation. They relate to (1) occurrence, (2) consistency with the financial statements, (3) completeness, and (4) presentation and disclosure. Assertions about consistency are whether (1) reported transactions, events, and explanations are consistent with the statements; (2) historical financial amounts are accurately derived from the statements and related records; and (3) nonfinancial data have been accurately derived from related records.
An attestation engagement addresses subject matter that is the responsibility of someone other than the practitioner. The subject matter of an attestation engagement is best defined as
What is measured or evaluated against criteria.
Subject matter is what is measured or evaluated against criteria. Subject matter may have many forms, for example, historical or prospective performance (e.g., performance measures) or physical characteristics (e.g., square footage of facilities).
A practitioner may accept an engagement to apply agreed-upon procedures to prospective financial statements provided that
Use of the report is restricted to the specified parties.
The following conditions should be met to accept an engagement: (1) The specified parties have participated in determining its nature and scope, and they take responsibility for the adequacy of the procedures; (2) report use is restricted to those parties; and (3) the statements include a summary of significant assumptions.
In an attestation review engagement, the practitioner concludes that misstatements are material and pervasive. The practitioner therefore should
Withdraw from an engagement.
When misstatements are material and pervasive, the practitioner should withdraw from the engagement.
A practitioner has been engaged to apply agreed-upon procedures in accordance with Statements on Standards for Attestation Engagements (SSAE) to prospective financial statements. Which of the following conditions must be met for the practitioner to perform the engagement?
The practitioner and specified parties agree upon the procedures to be performed by the practitioner.
The following conditions should be met to accept an engagement: (1) The specified parties agree to the procedures and take responsibility for their sufficiency, (2) an alert restricts report use to those parties, and (3) the statements include a summary of significant assumptions.
Prospective financial information presented in the format of historical financial statements that omit either gross profit or net income is deemed to be a
Partial presentation.
Under the minimum presentation guidelines, prospective financial statements may take the form of complete basic statements or be limited to certain minimum items (when the items would be presented for the period’s historical statements). A presentation is partial if it omits one or more of the following: (1) sales or gross revenues, (2) gross profit or cost of sales, (3) unusual or infrequently occurring items, (4) provision for income taxes, (5) discontinued operations, (6) income from continuing operations, (7) net income, (8) basic and diluted earnings per share, and (9) significant changes in financial position.
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?
SSAEs
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.
Preconditions for all attestation engagements include all of the following except
Be satisfied that the practitioner can be considered the responsible party.
The responsible party is responsible for the subject matter. The practitioner cannot be the responsible party.
