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Becker AUD > A2 > Flashcards

A2 Flashcards

1
Q

Special Purpose Frameworks

A
  1. cash basis
  2. tax basis
  3. regulatory basis
  4. contractual basis
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2
Q

Addition to SAS 127 for Special Purpose Frameworks

A

*any basis that uses a definite set of logical, reasonable criteria that is applied to all material items appearing in the financial statements

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3
Q

OCBOA

A

Other Comprehensive Bases Of Accounting

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4
Q

Additional Requirements for the Auditor for OCBOAs

A
  1. obtain an understanding of:
    * *the purpose
    * *the intended users
    * *the steps taken by management to determine that the applicable financial reporting framework is acceptable
  2. obtain the agreement of management that it acknowledges and understands its responsibility
  3. obtain an understanding of any significant interpretations of the contract that management made in preparing the statements
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5
Q

Auditor’s Report Requirements on Special Purpose Financial Statements

A
  1. describe the purpose of the financial statements (not for cash or tax)
  2. use non-GAAP titles
  3. management responsibility (determining applicable framework)
  4. emphasis-of-matter (except for regulatory intended for general use)
    * *describes the framework used and that it is non-GAAP
  5. other-matter paragraph (except for regulatory intended for general use)
    * *restrict use of: contractual and regulatory
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6
Q

Regulatory Basis Financial Statements Intended for General Use

A

express opinion on:

  1. fairly presented in all material respects, in accordance with GAAP
  2. prepared in accordance with the special purpose framework
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7
Q

Auditor’s Report Prescribed by Law or Regulation

A

*if it is unacceptable, the auditor should reword it or attach a separate report

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8
Q

Opinion Paragraph for Special Purpose Financial Statements

A

*fair on “that” basis

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9
Q

Describing the other basis of accounting

A

*must do so in a Basis of Accounting paragraph after the opinion where the other method is specifically mentioned

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10
Q

Special Types of Reports for Regulatory intended for General Use

A

*can have two different opinions (one for each framework)

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11
Q

Ways to Audit Single Financial Statements and/or Specific Elements

A
  1. separate engagement

2. while doing the audit

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12
Q

Specific Elements, Accounts, or Items of a Financial Statement Listed

A
  1. accounts receivable, allowance for doubtful accounts, inventory, recorded value of intangibles
  2. schedule of disbursements regarding a lease property
  3. schedule of profit participation or employee bonuses
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13
Q

Acceptability of the Financial Reporting Framework

A
  1. purpose for individual item
  2. intended users
  3. steps taken by management to determine that the applicable financial reporting framework is acceptable in the circumstances
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14
Q

Audit Procedures for Single Financial Statement or Item

A

*can perform additional procedures and rely on the audit if one was conducted

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15
Q

Materiality for Single Financial Statement or Item

A

*materiality is for the given circumstance

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16
Q

Important Steps for Auditors when Reporting on Complete Set of Financials and a Specific Element

A
  1. issue a separate opinion for each item

2. indicate in the separate report the nature of the opinion expressed on the whole statements

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17
Q

Modified Opinion on Complete Set of Financials and Effect on Specific Report

A
  1. express adverse (GAAP)
  2. express disclaimer (GAAS)
    * ability to express piecemeal opinion
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18
Q

Piecemeal Opinion with Modified Opinion on Complete Set of Financials and Effect on Specific Report

A

only if:

  1. not published or accompany report on complete set
  2. not constitute a major portion of the complete financials
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19
Q

What to do if the set of financial statements contain an emphasis-of-matter paragraph and you are expressing an opinion on one statement or item

A

*add a similar emphasis-of-matter to the report on the single statement or element

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20
Q

Reporting on an Incomplete Presentation that is Otherwise in Accordance with GAAP for Specific Statement or Element

A
  1. include an emphasis-of-matter paragraph that identifies:
    * *purpose for which the presentation is prepared
    * *indicates that presentation is not intended to be a complete presentation
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21
Q

Compliance with Contractual or Regulatory Requirements Related to Audited Financial Statements

A
  • auditor MUST have audited the client’s financials
  • can only give negative assurance
  • cannot give negative assurance with adverse or disclaimer
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22
Q

Report on Compliance

A

Option 1. Separate report
**negative assurance
**description of instances of noncompliance
**RESTRICTS USE
Option 2. Report Included in Auditor’s Report
**other-matter paragraph
**negative assurance
**description of instances of noncompliance
**RESTRICTS USE

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23
Q

Engagements to Report on Summary Financial Statements

A
  • auditor MUST have audited the client’s financials
  • evaluate whether the statements adequately disclose their summarized nature
  • if not accompanied by the financials statements, must describe where and if the audited statements are available
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24
Q

Form of Opinion for Engagements to Report on Summary Financial Statements

A
  • no qualified

* unmodified or adverse ONLY

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25
Q

What happens if the audited financials statements had an adverse or disclaimer and you are auditing the summary financial statements?

A

*the auditor should withdraw

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26
Q

When is the auditor’s report on the summary financial statements dated?

A

*after the date of the original audit report on the financial statements

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27
Q

Levels of Service for Reviews and Compilations

A

Compilation: no assurance
Review: limited assurance

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28
Q

Level of service when more than on service has been performed

A

*use the report that is appropriate for the highest level of service provided

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29
Q

Professional Standards used for Reviews and Compilations for Nonissuers

A

SSARS (Statements on Standards for Accounting and Review Services) - AICPA

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30
Q

SSARS Applicability

A
  • reviews, compilations, report on specified elements, pro forma financial information
  • does not apply for other accounting services, unless many adjusting or correcting entries are made
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31
Q

Elements of Compilation and Review Engagements

A
  1. Three-party relationship (management, auditor, intended users)
  2. Financial Reporting Framework
  3. Financial Statements or Financial Information
  4. Sufficient Appropriate Evidence (REVIEW ONLY)
  5. Written Communication or Report
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32
Q

Materiality for Compilations and Reviews

A

*use professional judgment

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33
Q

Two instances where an engagement letter is presumptively mandatory

A
  1. review

2. compilation

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34
Q

Compilation Requirements

A
  1. knowledge of industry accounting principles and practices
  2. understanding of client’s business
    * *S taff qualifications
    * *T ransaction types and frequencies
    * *A ccounting basis used
    * *F orm of the accounting records
    * *F inancial statements’ form and content
  3. reading the financial statements
  4. fraud and illegal acts, going concern, subsequent events
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35
Q

Is independence required for a compilation?

A

No, you are not issuing an opinion

**must disclose lack of independence

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36
Q

What should happen if the client refuses to furnish information needed when working on a compilation?

A
  • consider withdrawing

* you are NOT doing audit work

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37
Q

Documentation in a Compilation Engagement

A
  1. engagement letter
  2. significant findings
  3. oral or written communications with management regarding fraud or illegal acts
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38
Q

Form for Compilation Report

A 
C ompiled 
A udited (NOT) or
R eviewed (NOT)
M anagement's 
R esponsibility 
A ccountant's 
R esponsibility 
S SARS used by AICPA
O bjective of a compilation is to assist 
M anagement in presenting financial information
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39
Q

Compilation with Omission to All Disclosures

A
  1. report clearly indicates the omission by including a fourth paragraph
  2. omission is not intended to mislead any person who might be expected to use the financial statements
40
Q

Compiled financial statements that omit GAAP disclosures are acceptable if:

A
  1. statements are otherwise in conformity to GAAP
  2. reason was not to deceive users
  3. compilation warns the user (NOT RESTRICT)
41
Q

Compiled financial statements depart from applicable financial reporting framework

A

disclose or withdraw

42
Q

Compilation Engagement and Not Independent

A

disclose

43
Q

Compilations of Personal Financial Statements

A

*SSARS not required if not credit (not used for any outside purpose)

44
Q

Exception to Reporting Requirement for Compilations

A
  • may use an engagement letter instead (plain paper report)
  • use ENGAGEMENT LETTER and
  • RESTRICT USE on EVERY PAGE
45
Q

Review of Financial Statements Procedure

A

U nderstanding with the client should be established
L earn and/or obtain sufficient knowledge of the entity’s business
I nquiries should be addressed
A nalytical procedures
R eview – other procedures should be performed
C lient representation letter
P rofessional judgment used to evaluate results
A uditor communicates results

46
Q

Items not Required when Reviewing Financial Statements

A
  1. test internal control
  2. perform audit tests
  3. assess fraud risk
  4. communicate with the predecessor accountant (cant be done, judgment call)
47
Q

Key Component for Reviews that Must Be Received

A

Client Representation Letter

  • management’s responsibility for preparation and fair presentation
  • dated once the review is completed
48
Q

Professional Judgment to Evaluate Results of Review

A
  • a review that is incomplete will prevent the issuance of a review report
  • form and documentation including
  • *engagement letter
  • *significant findings
  • *etc.
49
Q

Review Report Outline

A 
Review = negative assurance 
A applied analytical procedures 
M anagement's financial data 
I nquiries of management 
S ubstantially less in scope than an 
A udit 
D oes not express such opinion 
M anagement's 
R esponsibility 
F inancial statements 
I nternal controls 
R esponsibility of accountant 
S SARS issued by
A ICPA
L imited 
A ssurance 
*engagement results paragraph
*each page marked see independent accountant's review report
50
Q

Is independence required for a review?

A

Yes, there is limited assurance

51
Q

Reporting on Departures from the Applicable Financial Reporting Framework for Reviews and Compilations

A

Report modification: separate paragraph disclosing the departure
Report modification not adequate: consider withdrawal

52
Q

Reporting Fraud and Illegal Acts for Reviews and Compilations

A

appropriate level of management must be notified

53
Q

Subsequent Discovery of Facts for Reviews and Compilations

A

Accountant
1. advise client to issue revised statements
2. make necessary disclosures and revisions
3. provide notification that the statements and report should not be relied upon
Client refuses
1. accountant’s report must no longer be associated
2. notify any regulatory agencies
3. notify persons known to be relying or likely to rely on the financial statements

54
Q

Change in Engagement

A

*changes must be justified
Acceptable
1. change in client requirements
2. misunderstanding as to nature of services
Unacceptable
1. engagement would uncover fraud
2. attempting to create misleading or deceptive financial statements
Scope Limitations
1. client refuses to allow correspondence with legal counsel
2. client refuses to provide a signed representation letter

55
Q

Compilation/Review Report Not Permitted

A

Scope Limitations

  1. client refuses to allow correspondence with legal counsel
  2. client refuses to provide a signed representation letter
56
Q

Reporting on Comparative Financial Statements (Options of Presentation)

A
  1. current period reviewed and prior period compiled
    **report on the prior period should be updated and issued as the last paragraph of the current period’s report
  2. current period compiled and prior period reviewed
    **issue a compilation report and add a paragraph
    or
    **reissue the prior period review report (combined or presented separately
    **no review procedures were performed after the date of the review report
57
Q

Other Accountants Involved in Prior Periods (Comparative Financial Statements)

A

old accountant should perform the following procedures:

  1. read the statements and the report of the current period
  2. compare the prior period statements with those issued previously and currently
  3. obtain a letter from the successor accountants stating they are not aware of any material effects on the prior period statements
58
Q

Other Accountants Involved in Prior Periods (Predecessor’s Report Not Reissued)

A
  1. make reference to the report in the current report
    or
  2. perform that level of service themselves
59
Q

Reporting Comparative Financial Statements when One Period is Audited

A
  1. reissue the prior period
    or
  2. include an additional paragraph describing the responsibility assumed
    **downgrade: no audit services performed
    **upgrade: service was less in scope than an audit and did not provide a basis for an opinion
60
Q

Review of Interim Financial Information Procedures

A

U nderstanding with the client should be established
L earn and/or obtain sufficient knowledge of the entity’s business
I nquiries should be addressed
A nalytical procedures
R eview – other procedures should be performed
C lient representation letter
P rofessional judgment used to evaluate results
A uditor communicates results

61
Q

Engagement Letter for Interim Financial Information

A
  1. objectives and scope of the engagement
  2. management’s responsibilities (I/C and F/S)
  3. auditor’s responsibilities (SAS or PCAOB standards)
  4. limitations of the engagement (no opinion)
  5. financial reporting framework
62
Q

Inquiries for Interim Financial Information

A

*should be directed to members of management, though judgment can be used to inquire to lawyers and about going concern

63
Q

Analytical Procedures for Interim Financial Information

A
  • trends, ratios, budget vs. actual

* may want to benchmark and compare to industry standards

64
Q

Written Representation Letter from Management for Interim Financial Information

A
  • required

* F/S and adds I/C

65
Q

Scope Limitations on Interim Financial Information

A

*unable to perform necessary procedures or management does not provide appropriate representations = no report

66
Q

Interim Financial Statements use SSARS or PCAOB?

A

PCAOB

67
Q

Departures from the Applicable Financial Reporting Framework for Interim Financial Information

A

*add a basis for modification paragraph (before conclusion)

68
Q

Going Concern / Lack of Consistency

A
  • disclosure in F/S is okay and can be modified and disclosed by auditor (not required)
  • must be modified if it is not disclosed
69
Q

What should interim financial information include in it if it is to be paired with audited financial statements?

A

should be marked “unaudited” or else the opinion must be disclaimed

70
Q

What should interim financial information include in it if it is to be paired with a registration statement?

A

auditor should clarify that the report is not considered to be a report or part of the registration statement

71
Q

Another name for a letter to an underwriter

A

comfort letter

*a review is required when a comfort letter is to be issued

72
Q

Assurance given in a comfort letter

A

negative assurance

73
Q

Are comfort letters restricted use?

A

yes

74
Q

Type of Assurance for Comfort Level

A

POSITIVE: CPA’s independence AND compliance as to form with SEC act assuming statements are AUDITED
NEGATIVE: statements are NOT AUDITED

75
Q

Auditor should not comment or provide assurance on these items in a comfort letter

A
  1. market risk sensitive instruments

2. qualitative disclosures

76
Q

Attest vs. Audit

A

attest: auditing other than historical financial information

77
Q

Standards that Apply to Services a CPA Provides

A

Audit: SAS or PCAOB
Compilation or Review: SSARS
Attest Engagement: SSAE

78
Q

Major Types of Attest Engagements

A
  1. agreed-upon procedures
  2. financial forecasts and projections
  3. pro forma financial statements
  4. internal control over financial reporting
  5. compliance
    * *6. management’s discussion and analysis (HUGE SEC requirement)
79
Q

Eleven Attestation Standards

A

Five General
T raining and proficiency
I ndependence
P erformance/due professional care in planning and performance
P rofessional, adequate knowledge of subject matter
Y our belief that the subject matter is capable of evaluation (professional judgment)
Two Fieldwork
P lanning and supervision
A ppropriate, sufficient evidence to provide a reasonable basis
Four Reporting Standards
S ubject matter is identified
S ignificant reservations are disclosed
E xpress conclusions
R estrict use

80
Q

When to restrict the use of the report for attest engagements

A
  1. criteria are appropriate only to a limited number of parties
  2. reporting on subject matter and a written assertion HAS NOT been provided
  3. reporting on agreed-upon procedures
81
Q

Additional Reporting Requirements for Attestations

A
  1. report may be issued on the assertion itself or on the subject matter (presents fairly)
  2. if reporting on the assertion, it needs to be in writing and accompany the report (would not be restricted in this case)
82
Q

Scope Restrictions for Attestations

A

consider withdrawing

83
Q

Conclusion Types for Attestations

A

Examination: positive assurance
Review: negative assurance
Agreed-upon procedures: no assurance

84
Q

No Written Assertion in Attest Engagement

A
  1. client is the responsible party –> withdraw

2. client is not the responsible party –> use should be restricted

85
Q

Agreed-Upon Procedures Conditions

A 
I ndependence of the Practitioner 
A greement of the Parties 
M easurability and Consistency 
S ufficiency of the Procedures 
U se of the Report is Restricted 
R esponsibility for the Subject Matter 
E ngagements to Perform Agreed-upon Procedures on Prospective Financial Statements (SUMMARY OF SIGNIFICANT ASSUMPTIONS)
86
Q

Important item to include when working with prospective financial statements

A

SUMMARY OF SIGNIFICANT ASSUMPTIONS

87
Q

Some Important Reporting Elements for Attest Functions

A
  1. statement that the procedures were followed
  2. statement restricting the use
  3. include summary of assumptions for prospective financial information
88
Q

Financial Forecasts and Projections

A 
Financial Forecasts 
**expected conditions and expected courses of action
**general & limited use 
Financial Projections 
**hypothetical "what if" scenarios 
**limited use only
89
Q

Three Types of Engagements for Interacting with Prospective Financial Statements

A
  1. compilation = no assurance/just assembled ok
  2. examination = opinion
  3. agreed-upon procedures = disclaimer of opinion
    * REVIEWS ARE NOT ALLOWED
90
Q

Compilation of Prospective Financial Statements

A
  • purpose: proper assembling
  • no assurance
  • not required to gather supporting evidence
  • cannot issue if there is summary of significant assumptions
  • results may not be achieved
  • audit has no responsibility to update the report
  • no statement that prospective F/S are in conformity with AICPA guidelines
91
Q

Purpose of Examination of Prospective Financial Statements

A
  • express an opinion on
    1. conformity with AICPA guidelines (not in compilation)
    2. underlying assumptions provide a reasonable basis
92
Q

Examination of Prospective Financial Statements - Other Requirements

A
  • independence is required
  • evidence is required
  • state opinion and that they are presented in conformity with AICPA guidelines
93
Q

Modifications to the Opinion for Examination of Prospective Financial Statements

A
  • AICPA presentation guidelines are not followed (qualified or adverse)
  • significant assumptions are not disclosed (adverse)
  • basis not reasonable (adverse opinion)
  • scope limitation (disclaimer)
94
Q

Agreed-upon Procedures for Prospective Financial Statements

A
  • summary of significant assumptions
  • disclaimer on whether the statements are presented in conformity with AICPA guidelines
  • reasonable basis for assumptions
95
Q

Partial Presentations of Prospective Financial Statements

A

limited use

96
Q

Pro Forma Financial Statements Attest Requirements

A
  • may be examined or reviewed
  • *DO NOT NEED TO RE-EVALUTE I/C
  • *DETERMINE MATH/COMPUTATIONS ARE CORRECT
  • written representations from management
  • make reference to the financial statements derived and state whether they were reviewed or audited
97
Q

Management’s D&A - Attestation

A
  • may examine or review

* statement is required by SEC for issuers

Becker AUD (6 decks)

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