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AUDIT > A2 > Flashcards

A2 Flashcards

1
Q

Special considerations apply to following four areas

A
  1. Audits of FS prepared in accordance with special purpose frameworks
  2. Audits of single financial statements and specific elements, accounts, or items of a FS
  3. Reporting on compliance with aspects of contractual agreements or regulatory requirements
  4. Engagements to report on summary FS
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2
Q

What are special purpose frameworks?

A

is a financial reporting framework other than GAAP that is one of the following bases of accounting:

  • Cash basis
  • Tax basis
  • Regulatory Basis
  • Contractual basis
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3
Q

What is referred to as OCBOA?

A

Other Comphrensive bases of accounting - include cash, tax, regulatory

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4
Q

What are the additional requirements for the auditor when they are auditing FS prepared in accordance with a special purpose framework?

A
  1. Obtain an understanding of:
    - Purpose, intended users, and steps taken by management to determine that the applicable fin reporting framework is acceptable in circumstances
  2. Obtain an 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 the preparation of the FS
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5
Q

What is different the standard auditor’s report and a report on special purpose FS?

A
  • Describe the purpose of the FS
  • Non-GAAP titles
  • Management responsibility para - include the responsibility of management in determining the applicable fin reporting framework
  • Emphasis of Matter Para- should be included except when prepared in accordance with regulatory basis and are intended for general use. - should include (1) FS are prepared in accordance with the applicable special purpose framework (2) Refers to the note that describes framework (3)States the framework differs from GAAP
  • Other Matter Para- restricts the use of fin statements
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6
Q

What happens if the the FS are prepared in accordance with a regulatory basis and intended for general use?

A

The auditor should express an opin about whether the FS are:

(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

What should a special framework report include?

A
  • A title
  • An addressee
  • An introductory para that identifies the special purpose FS audited
  • A description of the responsibility of management
  • A reference to management’s repsonsibility for determining that the applicable fin reporting framework is acceptable in circumstances
  • A description of the purpose for which the FS are prepared
  • A description of the auditor’s responsibility
  • An opinion para that contains an opinion on the special purpose FS and reference to the special purpose framework used to prepare the FS
  • If Applicable, an opin on whether the special purpose FS are presented fairly in all material respects, in accordance with GAAP when the special purpose FS are prepared in accordance with regulatory basis
  • An EOM that indicates that the FS are prepared in accordance with a special purpose framework, when req
  • An OM para that restricts the use of he auditor’s report when req
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8
Q

When can an audit of a single FS or of specific elements, accounts, or items of the FS?

A

May be performed as a sep engagement or in conjunction with an audit of an entity’s complete set of FS

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9
Q

What are examples of specific elements, accounts or items of a FS, which would include the related notes:

A

(1) Accounts receivable, allowance for doubtful accounts receivable, inventory, or the recorded value of intangible assets
(2) A schedule of disbursements regarding a lease property
(3) Schedule of profit participation or employee bonuses

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10
Q

When auditing a single FS or a specific element of the FS the auditor should obtain an understanding of:

A
  • the purpose
  • the intended users
  • the steps taken by management to determine that the applicable fin reporting framework is acceptable in the circumstances
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11
Q

When auditing a complete set of FS and a single FS or a specific element of a FS, the auditor should:

A

(1) Issue a separate auditor’s report and express a separate opinion for each engagement
(2) Indicate in the report on a specific element the date of the auditor’s report on the complete set of FS and the nature of the opinion expressed

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12
Q

If the auditor’s modified opin on the complete set of FS is relevant to the audit of a specific element of the FS, the auditor should:

A

(1) Express an adverse opinion on the specific element when the modified opin on the complete set of FS is due to a material misstatements
(2) Express a disclaimer of opin on the specific element when the modified opin on the complete set of FS is due to a scope limitation

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13
Q

What must happen when an auditor is asked to issue a report on a client’s compliance with contractual agreements or regulatory requirements in connections with a FS audit?

A

The auditor must have audited the client’s FS and may only issue a negative assurance

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14
Q

What is negative assurance

A

“We are not lawyers”

-In the form of a statement that nothing came to the auditor’s attention that caused the auditor to believe that the entity failed to comply with the specified aspects of the contractual agreement or regulatory requirement

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15
Q

What happens when the auditor identifies one or more instances of non compliance?

A

The report on compliance should describe the non compliance.

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16
Q

What are the options with the report on compliance?

A

It should be in writing and may either be a separate report or provided in one or more paragraphs in the auditor’s report on the FS

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17
Q

What happens when the auditor includes the Report on Compliance with the auditor’s report?

A

The report on compliance is included in the auditor’s report in an OM para

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18
Q

What are the engagement acceptance requirements to report on summary of FS?

A

The auditor should not accept this engagement unless the auditor has also been engaged to audit the FS from which the summary FS are derived

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19
Q

What are the main procedures of reporting on the summary of FS?

A
  • Evaluate whether the summary FS adequately disclose their summarized nature and identify the audited FS
  • When the summary FS are not accompanied by the audited FS, evaluate:
    - Whether the Summary FS describe where the audited fS are available
    - Whether the audited FS are readily available to the intended users of the summary FS
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20
Q

What types of opinions can the auditor issue on a summary FS?

A

The auditor may issue an unmodified opinion or an adverse opinion on the summary of FS. A qualified opinion is not appropriate due to the summarized nature of these FS

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21
Q

When should the auditor withdraw from the engagement to report on the summary FS?

A

When the auditor’s report on the FS contains an adverse opinion or disclaimer of opinion

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22
Q

If the auditor has disclaimed an opin on the FS taken as a whole, the auditor may express an opinion on an entity’s accts rec balance only if….

A

if the special report on accts rec is presented separately from the disclaimer of opinion on the FS and the accts rec does not constitute a major portion of the entity’s complete set of FS

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23
Q

An auditor should not sign a preprinted report form that includes statements that are inconsistent with the auditor’s responsibility- what should he do instead?

A

Instead, the form should be revised or a separate, more accurate report should be attached

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24
Q

What is piecemeal opinions?

A

Opinions on part of the FS, when those parts constitute a major portion of the FS

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25
Q

When are piecemeal opinions inappropriate?

A

Piecemeal opinions are not appropriate if the auditor has disclaimed an opinion or issued an adverse opinion, because they may overshadow the auditor’s opinion on the FS taken as a whole. An opinion on specified elements that does not constitute a piecemeal opinion may be expressed, but should not accompany the disclaimer of opinion or the adverse opinion.

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26
Q

What does FS prepared in accordance with a comprehensive basis of accounting other than GAAP that are not sutably titled require?

A

Require a qualified opinion with a basis for modification parar

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27
Q

A report using the special purpose framework required by a regulatory agency would be issued and include…

A

An opinion para that contains an opinion on the special framework FS and a reference to the special purpose framework used to prepare the FS

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28
Q

What should a title of the OCBOA report be?

A

“Independent Auditor’s Report”

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29
Q

What is Compilation?

A

“No Assurance”

The objective is to present in the form of FS info that is the representation of management without undertaking to express any assurance on the FS

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30
Q

What is a Review?

A

“Limited Assurance”

Is to express limited assurance that there are no material modifications that should be made to the FS in order for the statements to be in conformity with applicable fin reporting framework

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31
Q

What happens when an accountant performs more than one service (for example, a compilation and an audit)

A

The accountant generally should issue the report that is appropriate for the highest level of service rendered

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32
Q

What are the professional standards for compliance and reviews?

A

-Statements on Standards for Accounting and Review Services (SSARS)
The Accounting and Review Services Committee of the AICPA is the authoritative body designated to issue pronouncements in connection with the unaudited FS of nonissuers

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33
Q

What other engagements does SSARS apply to?

A

Also apply to engagements in which the accountant is engaged to compile or issue a compilation report on specified elements, accounts, or items of a nonissuer’s FS, or on pro forma fin info of a nonissuer

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34
Q

SSARS does not apply to…

A

Other Accounting Services- SSARS do not apply to other accounting services provided by accountants, such as preparing one or a few adj or correcting entries, consulting on fin matters, preparing tax returns, rendering manual or automated bookkeeping or data processing services, and processing fin data for clients of other accounting firms

-Not applicable to reviews of interim fin info when Statements on Auditing Standards apply (Public companies/issuer)

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35
Q

Who are the three-party relationship?

A
  • Management
  • Accountant in the Practice of Public Accounting
  • Intended Users
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36
Q

What are management’s responsibility with Compilation and Reviews?

A
  • Identification of an applicable fin reporting framework
  • The preparation and fair presentation
  • The design, implementation and maintenance of internal control
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37
Q

What are the compilation and review engagements include the following five elements?

A
  • Three-Party Relationship
  • Financial Reporting Framework
  • Financial Statements or Financial Info
  • Sufficient Appropriate Evidence
  • Written Communication or Report
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38
Q

What are the compilation requirements?

A
  • Knowledge of industry accounting principles and practices
  • Understanding of Client’s Business
    - S: Staff Qualifications
    - T: Transaction types and frequency
    - A: Accounting basis used to prepare the FS
    - F: Form of the accounting records
    - F: Financial statements form and content
  • Reading the Financial Statements - Never associated with false, fraudulent or misleading FS
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39
Q

When should the accountant withdraw from the compilation engagement?

A

If the accountant discovers information is incorrect, incomplete, or unsatisfactory they should obtain additional or revised info from the client. If the client refuses to provide such info, the accountants should withdraw from the compilation engagement

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40
Q

What would be included in the documentation in a compilation engagement?

A
  • The engagement letter
  • Any significant findings or issues
  • Oral or written communications with management regarding fraud or illegal acts that came to the accountants attention
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41
Q

Compilation Reports include

A

“CAR MR ARSOM”
Title
Addressee
Introductory Para
C - Compiled (state that FS have been compiled)
A/R - Audited or Reviewd (state the acct has not done either)
M/R- Management Responsibility Para
A/R - Accountant’s Responsibility Para
S - SSARS -State it is accts respon. is to conduct the compilation accordance with SSARS issued by the AICPA
O/M State that the objective of a compilation is to assist management

    Signature of Accountant
    Date of the Accountant's Report- Date of the completion of the compilation
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42
Q

What is an exception to the reporting requirements on compilation and review

A

An accountant who submits unaudited FS to the client that are not expected to be sued by a third party may use an engagement letter rather than a compilation report

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43
Q

What should be done when the FS are not expected to used by third parties?

A

When an engagement letter (and not a report) is issued, the accountant should include a reference on each page of the FS restricting their use

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44
Q

What are the Review Requirements?

A

U LIAR CPA

U-Understanding with client should be established
L -Learn and/or obtain sufficient knowledge of the entity’s business
I - Inquiries should be addressed to appropriate individuals
A -Analytical procedures should be performed
R -Review - other procedures should be performed
C-Client representation letter should be obtained from management
P-Professional judgement should be used to evaluate results
A-Accountant (CPA) should communicate results

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45
Q

What is not required during a review to learn and/or obtain sufficient knowledge of the entity’s business

A
  1. Test internal controls
  2. Perform audit tests
  3. Assess Fraud Risk
  4. Communicate with the predecessor accountant - judgement
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46
Q

How should the analytical procedure in a review be designed?

A

To detect relationships and individual items that appear to be unusual and may indicate material mistatement

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47
Q

What are included in the management’s representation in the client letter of a review?

A
  1. MR for the preparation and fair presentation of the FS and their belief that they are fairly stated
  2. Management’s acknoledgment of its responsibility for designing, implementing, and maintaining internal control relevant to the preparation and fair presentation of the FS
  3. Management’s full and truthful responses to all inquires
  4. Representations about the completeness of info
  5. Info concerning subsequent events
  6. Acknowledgement of MR to prevent/detect fraud
  7. Knowledge of any material fraud or suspected fraud
  8. Additional representations related to matters specific to the entity’s business and industry
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48
Q

What should happen if the review is incomplete?

A

Will prevent the issuance of a review report. In such a situation, the accountant should consider whether the circumstances also prevent issuing a compilation report

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49
Q

Documentation of a Review should include…

A
  • The engagement letter
  • Significant findings, actions taken, and the basis for conclusions reached
  • Matters about which the accountant has made inquiry and responses thereto
  • Analytical procedures performed
  • Unusual matter and their disposition
  • Communications
  • The management representation letter
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50
Q

The accountants report in a review engagement should include:

A

Title
Addresee
Introductory Para
- AMI - Include a statement that a review includes primarily applying analytical procedures to management’s financial data and making inquiries of company management
-SAD - Include a statement that a review is substantially less in scope that an audit, the objective of which is the expression of an opinion regarding the FS as a whole, and that, accordingly, the accountant does not express such an opinion
MR-Management’s Responsibility PAra
-FI - States-fair presentation of the FS in accordance with the applicable fin reporting framework and for designing implementing and maintaining internal control
R-Auditor’s Responsibility Paragraph
-SA-In accordance with SSARSs issued by AICPA
-LA-Perform procedures to obtain limited assurance
Engagement Results PAra
Signature of Accountant
Date of the Accountants Report

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51
Q

What should each page of the statements include under a review?

A

Should be marked “See independent accountant’s review report”

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52
Q

What happens if in a review or compilation engagement, if an accountant becomes aware that fraud or an illegal act may have occurred?

A

Such matters should be communicated to the appropriate level of management

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53
Q

Subsequent Discovery of Facts existing at the date of the compilation or review report–What are the accountant’s actions?

A
  1. Advising the client to issue revised FS
  2. Advising the client to make necessary disclosures and revision to any imminent FS
  3. If the effect on the FS cannot be determined on a timely basis, providing notification that the FS and report should not be relied upon
54
Q

Subsequent Discovery of Facts existing at the date of the compilation or review report–What happens if the client refuses to follow procedures?

A

Additional Steps to Prevent Further Reliance:

  • Notify the client that the accountant’s report must no longer be associated with the FS
  • Notify, if applicable, any regulatory agencies
  • Notify persons known to be relying or likely to rely on FS
55
Q

What are acceptable reasons for changes in engagement ?

A
  • Change in client requirements

- Misunderstanding as to the nature of the service to be rendered

56
Q

What are unacceptable reasons for change in engagement

A
  • The engagement would uncover errors or fraud

- Client is attempting to create misleading or deceptive FS

57
Q

When is an accountant required to comply with the provisions of Statements on Standards for Accounting and Review Service?

A

When submitting unaudited FS. Submission is defined as: presenting to a client or their parties FS the account has prepared. An accountant who reproduces client-prepared FS has not prepared those statements. Preparation of standard monthly J/E is a bookkeeping service that also does not involve preparation of FS

58
Q

An accountant may submit a written person financial plan containing unaudited personal FS to a client without complying with requirements of SSARS when both of the following conditions exists:

A
  1. The accountant establishes an understanding with the client that the FS will be used solely to assist the client in developing a financial plan and will not be used to otbain credit, and
  2. Nothing comes to the accountant’s attention during the engagement indicating that the FS will be used to obtain credit
59
Q

What type of analytical procedure is used to examine relationships between BS Accounts

A

Ratio Analysis,.

60
Q

An accountant may issue a compilation report for a client’s FS that omit all required GAAP disclosures when

A

provided the omission is not intended to mislead FS users and the omission is clearly indicated in the accountant;s report

61
Q

What audit procedures generally are not performed in a review engagement?

A
  • Test of accounting records
  • Test of management’s assertions regarding continued existence
  • Inquires of the entity’s attorney concerning contingent liabilities
62
Q

Obtaining a representation letter from the CEO is more likely in a review or compilation

A

Review

63
Q

The authoritative body designated to promulgate standards concerning an accountant’s association with unaudited FS of an entity is not required to file FS with an agency regulating the issuance of the entity’s securities is the:

A

Accounting and Review Services Committee

64
Q

What kind of assurance does a compilation provide and a review provide?

A

Compilation - no assurance

Review - limited assurance

65
Q

Independence is not required for what type of engagement

A

Compilation

66
Q

The accountant’s report in a compilation engagement should include a statement that the objective of a compilation…

A

is to assist management in presenting fin info in the form of FS

67
Q

When evaluating the accounts receivable balance under a review engagement, the accountant would perform…

A

analytical procedures such as computing the current period’s days’ sales in receivable ratio

68
Q

What happens when a continuing accountant performs a higher level of service in the current period?

A

The report on the prior period should be updated and issued as the last paragraph of the current period’s report

69
Q

What happens when a continuing accountant performs a current period compilation and the prior period was reviewed - they can do one of the following?

A
  • Issue a compilation report and add a paragraph to the report on the current period statements
  • Reissue the prior period review report. which can be combined and presented separately
70
Q

Predecessor accountants are not required to reissue their report on prior periods but if they decide to the following procedures should be followed?

A
  • Read the statements and report of the current period
  • Compare the prior period statements with those issued previously and currently
  • Obtain a letter from the successor accountants stating that they are not aware of any relevant info that might have a material effect on the prior period statements
71
Q

What happens if the predecessor report is not reissued?

A

The successor accountant should…

  • make reference to the report of the predecessor accountants in the current report; or
  • perform that level of service themselves
72
Q

Review of Interim Statements - Procedures

A

U-Understanding with client should be established
L-Learn and/or obtain sufficient understanding of the entity, its environment, including internal control
I-Inquiries should be addressed to appropriate individuals
A-Analytical procedures should be performed
R-Review-Other procedures should be performed
C-Client Representation Letter should be obtained from management
P-Professional judgment should be used to evaluate results
A-Auditor (CPA) should communicate results

73
Q

What should the understanding should include:

A
  1. Objectives and scope of the engagement
  2. Management’s Responsibilities (FS & IC)
  3. Auditor’s Responsibilities (Review Report)
  4. Limitations of the Engagement - a review does not provide a basis for expressing an opinion
  5. Financial Reporting Framework - should identify the applicable fin reporting framework for the preparation of the interim fin info
74
Q

What is the purpose of learning and/or obtaining an understanding of the entity and its environment, including its IC?

A
  • Determine what types of material misstatements may occur
  • Evaluate the likelihood that such misstatements will occur
  • Select appropriate inquires and analytical procedures
75
Q

Required inquiries for Interim reporting

A
  • Whether the interim fin info has been prepared in conformity with the applicable fin reporting framework
  • Fraud, suspected fraud, or allegations of fraud
76
Q

Analytical Procedures Should be Performed during interim reporting

A
  • Comparisons over time of interim financial information:
    - Current interim Fin info vs. immediately preceding interim period
    - Current interim fin info vs. comparable period from prior year
  • Consideration of plausible relationships among both fin and relevant non financial info
  • Comparison of recorded amounts (or related ratios) to the auditor’s expectations
  • Comparison of dis aggregated revenue data (e.g revenue by month and by product line) for the current interim period with that of comparable prior periods
77
Q

Review–Other procedures for interim financial info

A
  • Read minutes
  • Obtain reports from any component auditors engagement to review the interim
  • Obtain evidence that the interim fin agrees or reconciles with the accounting records
  • Read the interim fin info
  • Read other info in documents
  • Extend review procedures to resolve any outstanding questions
78
Q

What should be included in the client written representation letter from management for interim fin info

A

The auditor should obtain written representations form management related to the fin info, the completeness of info, recognition, measurement, disclosure, and subsequent events

79
Q

Required Elements of a Review Report on Interim Financial information

A
  • Each page of the interim fin info should be clearly marked “unaudited,” and the auditor’s report thereon should included the following:
  • A title - includes word “independent”
  • An addressee
  • An introductory para
  • A section with the heading “Management’s Responsibility for the FS” - responsibility of the entity’s management, including responsibility for the design, implementation, and maintenance of internal control
  • A section titled “ Auditor’s responsibility -Applying analytical procedures and making inquiries –substantially less in scope - no such opinion is expressed
  • Whether the auditor is aware of any material modifications
80
Q

What happens if there are departures from the applicable financial reporting framework during review of interim fin info?

A

-Auditor should modify the report
-Report is modified by adding a Basis of Modification para (preceding the Conclusion), and by modifying the conclusion to read:
“Based on our review, with the exception of the matter described in the preceding para, we are not aware of any material modifications”

81
Q

What happens if the there is concern with going concern or a lack of consistency during review of the interim fin info?

A

-Disclose in the FS is ok
otherwise
-Modify review report

82
Q

What does the auditor do if the interim fin info included in a note to the FS is not marked “unaudited”

A

The auditor would disclaim an opinion on the interim fin info

83
Q

A review of the interirm fin info of a publicly held company is conducted in accordance with

A

PCAOB

84
Q

What is the objective to review of interim financial info?

A

Is to provide the accountant, through inquiries and analytical procedures, with a basis for reporting whether material modifications should be made to such info to conform with GAAP

85
Q

If a report on a review of interim financial information is presented in a registration statement, the prospectus should include a statement that

A

the report is not a “report” or “part” of the registration statement. The account should also read the other portions of the registration statement to ensure that his or her name is not used in a way that indicates greater responsibility that s/he intends.

86
Q

The quarterly data required by SEC Regulation S-K have been omitted. What statement must be included in the auditor’s report?

A

The company has not presented the selected financial data

87
Q

What is a comfort letter?

A

A letter from the CPA to the named underwriter and/or certain other requesting parties (eg selling shareholder, sales agent, broker-dealer, financial intermediary, or buyer/seller) just before the registration of the client’s securities.

88
Q

When a comfort letter is to be isseued, the CPA is required to

A

Perform a review of interim financial information in accordance with auditing standards

89
Q

A comfort letter must include a statement that the letter is solely for

A

the information of the addressees and to assist the underwriters in conducting and documenting their investigation

90
Q

Letters for Underwriters: Positive assurance is provided with respect to:

A
  1. CPA’s independence
  2. Compliance as to form of the FS with the SEC act, assuming the FS are audited
    - If the FS are not audited, negative assurance on compliance as to form is given
91
Q

Letters for Underwriters: Negative Assurance is provided with respect to:

A
  1. Unaudited FS, unaudited condensed interim FS, and capsule financial information, assuming a review of such info has been performed
  2. Changes in selected FS
  3. Whether certain non-FS info included in the registration statement complies as to form in all material respects with regulations S-K
92
Q

Letter for Underwriters: When the auditor should not comment or provide assurance?

A
  • Market Risk sensitive instruments

- Qualitative disclosures

93
Q

Comfort letter ordinarily are signed by the client’s

A

Independent auditor

94
Q

Who are comfort letters ordinarily addressed to the client’s

A

Underwriter of securties

95
Q

What is an attest engagement?

A

Are defined as theose in which a practitioner (CPA) is engaged to issue or does issue an examination, a review, a compilation or an agreed upon procedures report on subject matter, or an assertion about the subject matter, that is the responsibility of another party (usually management)

96
Q

Attest Engagements may result in reports related to:

A
  • Compliance with laws and regulations
  • Compliance with contracts
  • Internal Control
  • Computer systems and Software
  • Information supplemental to FS
  • Prospective information
  • Performance, physical characteristics, historical events, analyses, etc
97
Q

What are trust services?

A

Are assurance and advisory services used to address the risks and opportunities related to information technology

  • WebTrust Engagements - provide assurance related to e-commerce
  • SysTrust Engagements - provide assurance with respect to the reliability of any defined electronic system
98
Q

Statements on Standards for Attestation Engagements (SSAE) established by the AICPA provide info addressing the major attestation services:

A
  1. Agreed-upon procedures
  2. Financial forecasts and projections
  3. Pro forma FS
  4. Internal Control over financial reporting
  5. Compliance
  6. Management’s discussion and analysis
99
Q

What are the standards that apply to Audit Engagements? Compilation and review engagements? and Attest Engagements?

A

Audit Engagements : SAS (Standards on Auditing Standards); PCAOB standards for issuers

Compilation and Review engagements: SSARS (Statements on Standards for Accounting and Review Services)

Attest Engagements: SSAE (Statements on Standards for Attestation engagements

100
Q

Statements on Standards for Attestation Engagements Do Not Apply to:

A
  • Audits
  • Compilation and Reviews of the FS of nonissuers under SSARS
  • Return preparation (income tax, franchise, other)
  • Advocating for the client (litigation services)
  • Providing consulting/advisory services
  • Operational audits, which are normally performed by internal auditors to evaluate the effectiveness and efficiency of various components or processes of a company
101
Q

Attestation Standards

A

A framework for attest function beyond historical FS

-provide levels of assurance below that provided by a GAAS audit

102
Q

The eleven attestation standards include:

A

Five General Standards

 - T - Training and proficiency
 - I -  Independence
 - P - Performance/due professional care in planning and performance
 - P - Professional, adequate knowledge of subject matter
 - Y-Your belief that the subject matter is capable of evaluation against criteria that are suitable and available to users

Two Fieldwork Standards: (note that IC is omitted)

 - P - Planning and Supervision
 - A - Appropriate, sufficient evidence to provide a reasonable basis for the conclusion

Four Reporting Standards

 - S -Identify the subject matter of the assertion being reported on 
 - S- Disclose significant reservations about the engagement
 - Express conclusions about the subject matter
 - Restrict use of the report to specified parties
103
Q

Attest Engagement: When do you restrict the use of the report to specified parties when:

A
  • The criteria are appropriate for or available to only a limited number of parties
  • Reporting on subject matter and a written assertion has not been provided
  • Reporting on an agreed upon procedures engagement
104
Q

What are the two scope restrictions under attest engagements?

A
  • Examination : Positive Assurance

- Review : Negative Assurance

105
Q

The conclusions expressed by the practitioner of an attest engagement will fall into three groups:

A
  1. Examination - Positive opinion, high level of assurance
  2. Review: Negative Assurance
  3. Agreed-Upon Procedures: no assurance
106
Q

What is a written assertion?

A

Is generally obtained in examination and review engagements. If no written assertion is provided by management, the outcome depends upon whether the client is also the responsible party

107
Q

If the client is the responsible party, failure to provide a written assertions constitutes a

A

Scope Limitation. Withdraw

108
Q

If the client is not the responsible party, a report may be issued as long as…

A

Appropriate procedures are performed and sufficient evidence is obtained. However, the form of the report may vary, and its use should be restricted.

109
Q

What are agreed-upon procedures engagement?

A

is one in which the practitioner is engaged by a client to issue a report of findings based on specific agreed-upon procedures

110
Q

Agreed-upon procedures attestation engagements may be performed provided that the following conditions exist:

A

“I AM SURE”

I - Independence of the practitioner
A-Agreement of the Parties
M-Measurability and Consistency
S-Sufficiency of the Procedures
U - Use of the report is restricted to the specified parties
R-Responsibility for the Subject Matter
E-Engagements to perform agreed-upon procedures on prospective FS - must include a summer of significant assumptions

111
Q

Reporting - Required Elements - Agreed-Upon Procedures

A
  • A statement of procedures performed were those agreed to by the specified parties identified in the report, and a description of any agreed-upon materiality limits
  • A statement of restrictions on the use of the report bc it is intended to be used solely by the specified parties
  • Prospective financial information - assumptions
  • A list of the procedures performed (or referenced thereto) and the related findings
112
Q

What are financial forecasts and projections?

A

Are two types of prospective FS that attempt to reflect a company’s expected fin position and expected results of operations

113
Q

What is financial forecast?

A

General and Limited Use

-it is based on expected conditions and expected courses of action

114
Q

What is financial projection?

A

Limited Use only

-Based on a “what if” type of scenario

115
Q

A practitioner is associated with prospective FS primarily in one of three ways:

A
  1. Compilation Engagement - No assurance/just assembled ok
  2. Examination Engagement (the report is generally to be used by a third party) - Opinion
  3. Agreed-Upon procedures engagement (Disclaimer of opinion)
    * *Note that a review of prospective FS is not allowed
116
Q

What is the purpose of a compilation of prospective FS?

A

Is the proper assembling of the financial data based on the responsible party’s assumptions

  • there is no assurance
  • The practitioner is not required to gather supporting evidence
  • A practitioner may not issue a compilation report if the entity fails to disclose a summary of the significant assumptions that are used in the prospective FS
117
Q

What are the contents of practitioner’s compilation report with prospective FS

A
  • identification of the prospective FS presented by the responsible party
  • a statement that the practitioner has compiled the prospective FS in accordance with attestation standards established by the AICPA
  • A statement that a compilation is limited in scope and doe snot enable the practitioner to express an opinion or any other form of assurance on the prospective FS or the assumptions
  • A caveat that the prospective results may not be achieved
  • A statement that the practitioner assumes no responsibility to update the report fore events and circumstances occurring after the date of the report; and
  • The signature of the practitioner’s firm and the date of the report
118
Q

What is the purpose of an examination of prospective FS is to….

A

Express an opinion as to whether:

(1) the statements are presented in conformity with AICPA guidelines; and
(2) the underlying assumptions provide a reasonable basis for the prospective statements

119
Q

Content of Report Based on Examination:

A
  • A statement that the examination was conducted in accordance with attestation standards established by the AICPA
  • An opinion that the Prospective FS are presented in conformity with AICPA guidelines and that the underlying assumptions provide a reasonable basis for the forecast or the projection
  • For a projection, the report should also include a description of the projection’s purpose and a restrictive use paragraph
120
Q

Examination of Prospective FS - The following issues would require the practitioner to modify the opinion:

A
  1. AICPA presentation guidelines are not followed (qualified “except for” or adverse opinion)
  2. Significant assumptions are not disclosed (adverse opinion)
  3. Basis not reasonable: one or more of the significant assumptions do not provide a reasonable basis for the FS (adverse opinion)
  4. Scope limitation (disclaimer)
121
Q

Agreed-upon procedures applied to prospective FS - Requirements

A

Must include a summary of significant assumptions
-A disclaimer on whether the statements are presented in conformity with AICPA guidelines and on whether the underlying assumptions provide a reasonable basis for the statements

122
Q

What is a partial presentation?

A

A presentation of prospective financial info that excludes certain elements - generally not appropriate for general use.

123
Q

What are Pro Forma FS?

A

Are not prospective FS, but they may be used to demonstrate the effect of a future or hypothetical event by showing how it might have affected the historical FS if it had occurred during the period coverd by those FS

  • May be examined or reviewed
  • Should also obtain written representations from management
  • A practitioner’s report should make reference to the FS from which the historical fin info is derived, and state whether such FS were audited or reviewed
124
Q

When a CPA examines projected FS, the standard report should include a statement that the examination

A

“…included such procedures as we considered necessary to evaluate both the assumptions used by management and the preparation and presentation of the projection”

125
Q

What is a WebTrust Engagement?

A

is an attestation engagement designed to measure transaction integrity, information protection, and disclosure of business practices

126
Q

An examination of the financial forecast is a professional service that involves:

A
  1. Evaluating the preparation of the prospective FS
  2. Evaluating the support underlying the assumptions
  3. Evaluating the presentation of the prospective FS in conformity with AICPA guidelines, and
  4. Issuing an examination report
127
Q

What is a conceptual similarity b/n GAAS and the attestation standards?

A

the requirement that the CPA be independent in mental attitude is included in both sets of standards

128
Q

What are financial projections appropriate with?

A

Limited use. Limited use means that the FS will only be used by the responsible party alone or by parties negotiating directly with the responsible party (the issuing company)

129
Q

When performing an attestation engagement related to a client’s prospective FS, the accountant should

A

Ensure that the client discloses all significant assumptions that are used for the prospective FS

130
Q

What is an agreed-upon procedures engagement?

A

Is one which the practitioner is engaged to issue a report of findings based on specific procedures performed

131
Q

What is the upmost important factor in performing a FS Audit?

A

An auditor’s faith in the integrity of management

AUDIT (7 decks)

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