#4 Terms of engagement

Question 1

Compilation services

Answer 1

*Compilations do not provide any level of assurance; no opinion are issued.
*CPA discovers materially misstated F/S, must notify management and requestion correction.
*If management refused to correct F/S, CPA should modify report to inform users.
*Withdraw from engagement and cancel further work on F/S if modifying the report is not adequate to communicate the deficiencies.

Question 2

New engagement after fiscal year close?

Answer 2

*Accept
>There are remedial procedures that can be performed for any scope limitations created by engagement timing
*Reject
>There are no remedial procedures for scope limitations caused by engagement timing
>Client has imposed scope limitations
>Audit would most likely result in a disclaimer of opinion

Question 3

Responsibilities of management and auditor

Answer 3

Management:
*Prepare financial statements
*comply with laws and regulations
*establish and monitor internal controls
*Provide auditor with relevant information

Auditor:
*Provide reasonable assurance
*Adhere to auditing standards
*Understanding regulatory environment
*Access internal controls