A2: Other Reports Flashcards
Elements of Quality Control?
H – Human Resources E – Engagement/client acceptance L – Leadership responsibilities P – Performance of the engagement M – Monitoring E – Ethical requirements
Peer Review requirement?
Every 3 years, AICPA-member firm reviewed by another firm
Internal engagement review?
Required under SOX for issuer audits. Review of audit documentation by partner not associated with audit
Sarbanes-Oxley independence requirements?
- auditor may not do most non-audit services for audit client
- can do tax services for corporate client, get approval in writing
- one-year cool-off period: auditor moving to client officer position
- lead and reviewing partner rotate every 5 years
Considerations in determining quality control system?
- firm size
- organizational structure
- cost-benefit considerations
Quality Control vs. Audit Standards/GAAS
- GAAS concerns conduct of audit engagement, quality control relates to all firm professional activities
- failed quality control ≠ failed GAAS
Audit of F/S prepared under Special Purpose Frameworks (tax/cash/regulatory/contractual)
- obtain understanding of purpose of F/S, intended users, determination that framework is acceptable
- management responsibility for all relevant disclosures
- F/S should not use GAAP titles
Other Comprehensive Bases of Accounting
Cash, Tax, Regulatory
Report on Special Purpose Framework F/S
- intro: description of framework
- M/R: prep and fair presentation of F/S, determination that framework is acceptable
- regulatory/contractual: describe purpose of F/S
- opinion on special framework basis
- other than regulatory basis for general use: emphasis paragraph referring to framework, noting difference from GAAP
- contractual/regulatory: other matter paragraph restricting use
- regulatory basis for general use: (typically adverse) opinion on GAAP, and opinion on special framework
Prescribed report form under law/regulation
If prescribed form unacceptable, reword or attach appropriately worded separate report
Audit of Single Statement/Element/Account
Either as: separate engagement or with audit of complete set of F/S
- obtain understanding of purpose, users, determination that framework is acceptable
- perform procedures on related items as needed
Report on Complete F/S and Single Statement/Element
- separate reports and separate opinion for each engagement
- report on statement/element includes date of report on full F/S and nature that opinion, includes any relevant emphasis or other matter paragraph from full F/S opinion
Modified Opinion on Complete F/S
- modification relevant to single element: Adverse opinion when due to material misstatement, Disclaimer of opinion when due to scope limitation
- if adverse/disclaimer on full F/S: unmodified opinion only if not published w/ or accompany report on complete F/S, and element not major portion of full F/S and not based on equity or net income
Report on Incomplete Presentation otherwise in accordance with GAAP
Include emphasis paragraph, state purpose for presentation and note presentation not intended to be complete presentation
Compliance with Contractual/Regulatory Requirements
- must have audited F/S (no adverse opinion or disclaimer of opinion)
- only negative assurance on compliance (no identified noncompliance), any identified noncompliance must be disclosed in report
Report on Contractual/Regulatory Compliance
-either separate report or other matter paragraph in audit report (negative assurance, report restricted – full audit report restricted if in audit report)
Report on Summary Financial Statements
- must audit complete F/S
- if summaries not accompanied by complete F/S, should describe where available and be readily available
- may only issue unmodified or adverse opinion
- if adverse/disclaimer on F/S, withdraw
Professional Standards for Compilations and Reviews
- Statements on Standards for Accounting and Review Services (SSARS)
- applies to the preparation/creation of unaudited F/S on nonissuers
Compilation Engagement
- no need to be independent (disclose if not)
- understanding with client (engagement letter presumptively required)
- knowledge of industry accounting principles/practices
- understanding of client’s business
- read financial statements
- no audit work
- if discovery info wrong and client refuses additional/revised info, withdraw
Report on Compilation
C – f/s have been Compiled
A – not been Audited or
R – Reviewed
M – Management’s
R – Responsibility for preparation and fair presentation of f/s and d/i/m of internal controls
A – Accountant’s
R – Responsibility
S – in accordance with SSARS issued by AICPA
O – Objective of compilation is to assist
M – Management in presenting financial info
Compilation where statements omit all disclosures
- okay if: statements otherwise in accordance w/ GAAP, omission not to deceive users, and report discloses the omission
- restricted use not required
Compilation where departures from GAAP
-either: disclose in report or withdrawn
Compilation of Personal Financial Statements
-SSARS not required if statements not used to obtain credit
No Compilation Report
-report not required if not expected to be used by third parties, use engagement letter, note restriction of use on each page of statements
Review Engagement
U – Understanding with client L – Learn about client’s business I – Inquiries A – Analytical Procedures R – Review – other procedures C – Client rep letter P – Professional judgment to evaluate results A – Accountant communicates results
Review Procedures
- no testing internal controls, no audit tests, no assessment of fraud risks
- may (not required to) communicate w/ prior accountant
- must make inquiries w/in client, analytical procedures, read F/S
Review – Client Rep Letter
- required, failure to receive results in incomplete review (can’t issue report)
- management responsibility for preparation of statements and d/i/m of internal controls, truthful responses to all inquiries, reps about completeness of info, subsequent events, responsibility to prevent/detect fraud, any known or suspected fraud
Report on Review
A – primarily Analytical procedures to M – Management’s financial data and I – Inquiries of management S – Substantially less in scope that A – Audit D – Does not express an opinion M – Management’s R – Responsibility F – fair presentation of Financial statements I – d/i/m of Internal control R – accountant’s Responsibility S – SSARS issued by A - AICPA L – Limited A – Assurance -opinion: not aware of any material modifications
Compilation/Review – Departures from GAAP
- disclose in report or withdraw
- no qualified or adverse opinion, not an audit
Compilation/Review – Fraud/Criminal Acts
- report any such knowledge to management
- immaterial matters need not be reported
Compilation/Review – Subsequent Discovery of Facts Existing at Date of Report
- advise client to revise/update info or notify that statements can’t be relied upon
- if client does not: disassociate report from statements, alert regulatory agencies, notify relying parties that report should not be relied upon
Compilation/Review – Supplemental Info
-report should indicate responsibility taken over supplemental info (none if no analysis, or limited assurance if inquiry/analytics performed on it in review)
Engagement Change – from Audit to Compilation or Review
- change must be justified
- produce report for new engagement, don’t refer to original engagement/prior procedures/or scope limitations imposed
- if not justified, consider withdrawing
Comparative F/S – Continuing Accountant
- service upgrade (compilation to review): prior compilation report updated and included as last paragraph in current review report
- service downgrade (review to compilation): issue compilation report with paragraph about prior review (w/ date of prior report and no add’l review procedures after that date) OR reissue prior review report combined w/ (stating no add’l procedures after date of review report) or separate from current compilation report
- f/s omitting substantially all required disclosures are not comparable to f/s w/ such disclosures
Comparative F/S – Different Accountants
- prior report reissued unchanged: old CPA reads new F/S and gets rep letter from new CPA on any info that might change prior F/S
- prior report not reissued: new CPA should refer to old CPA’s report in new report, or perform that level of service themselves
Comparative F/S – One Period Audited
- unaudited F/S clearly marked as such, and old report should be reissued OR add’l paragraph in new report noting prior report and describing responsibility for prior F/S
- if downgrade, note no auditing procedures since old report date
- if upgrade, note service was less in scope than audit and no opinion was issued (if in SEC filed document, report should not refer to unaudited F/S)
Professional Standards for Review of Interim F/S
- issuers: PCAOB
- nonissuers: SAS
Interim Review Engagement
U – Understanding with client L – Learn about entity I – Inquiries of management A – Analytical procedures R – Review – other procedures C – Client rep letter P – Professional judgment to evaluate results A – Auditor communicates results
Interim Review Procedures
- client engagement letter: objective & scope of engagement, M/R for F/S and internal control, A/R for review report (SAS or PCAOB), limits of engagement (less that audit, no opinion, no assurance over internal control)
- inquiries of management, not required of client’s lawyer
- analytical procedures: trends, ratios, budgets, may not to compare to industry standard
- other: read minutes, reports, etc.
- required client rep letter: financial info, completeness of info, disclosures, subsequent events
- if no rep letter or unable to do needed procedures: no review report/withdraw
- if problems: go to management, then Board/ Audit Committee, withdraw if unresolved
Report on Review of Interim F/S
- F/S clearly marked unaudited
- M/R for F/S and DIM of internal control
- A/R: PCAOB (or SAS), Analytics and Inquiries, Substantially less in scope than Audit, No opinion expressed
- Conclusion: not aware of any material modifications
- if department from reporting framework: modify report or withdraw
- no modification if F/S discloses going concern or consistency issue, may include emphasis paragraph
Interim Info Not Marked Unaudited in Audited F/S
Disclaim opinion on interim financial info
Interim Info in Registration Statement
Review report not “part” of the registration statement
Comfort Letter on Unaudited Interim F/S
- letter to underwriters from CPA
- CPA must review interim F/S
- restrict use to underwriters
Comfort Letter Assurances
Positive assurance on: CPA independence, audited F/S form compliance with SEC Act
Negative assurance on: unaudited (but reviewed) F/S, changes in certain financial info since F/S included in registration statement (if recent audit or review)
No comment/assurance on: market risk sensitive instruments, qualitative disclosures
Attestation Engagements
Auditing/examining something other than historical F/S
Professional Standards for Attestations
Statements on Standards for Attestation Engagements (SSAE)
-provide levels of assurance less than GAAS audit
11 Attestation Standards – 5 general standards
T – Training and proficiency
I – Independence
P – due care in Planning and Performance
P – Professional knowledge of subject matter
Y – Your belief that subject matter is evaluable against suitable criteria
11 Attestation Standards -2 fieldwork standards
P – Planning and supervision
A – Appropriate sufficient evidence
11 Attestation Standards -4 reporting standards
S – identify Subject matter or assertion being reported on and character of engagement
S – disclose Significant reservations about engagement
E – Express conclusions
R – Restrict use of report if: criteria appropriate to limited parties, report on subject matter and no written assertion provided, or reporting on agreed upon procedures
Reporting on Assertion or Subject Matter
- may report on assertion or subject matter
- material misstatements or deviations from criteria, report modified and conclusion on subject matter (or withdraw)
- if report on assertion, if should accompany report or be clearly stated in report
- if scope restriction: qualified opinion (examination), disclaimer (examination) or withdraw (examination or review)
- restrict use if no written assertion obtained (constitutes scope limitation)
Examination
-positive opinion, high assurance, based on wide variety or procedures
Agreed Upon Procedures
I – Independence
A –Agreement of parties on procedures
M – Measurability and Consistency
S – Sufficiency of procedures responsibility of client (not accountant)
U – Use of report restricted
R – Responsibility for subject matter (client or third party)
E – Engagement on prospective financials (include summary of significant assumptions)
Report on Agreed Upon Procedures
- subject matter responsibility of specified parties
- procedures were agreed by parties
- sufficiency of procedures responsibility of client and not the accountant
- list of procedures and findings
- not an examination, disclaimer of opinion, additional procedures may have brought to light other matters
- restrictions on report
- assumptions in prospective financials
Forecasts and Projections
- forecast: expected outcome, general or limited use
- projection: hypothetical, what if situation; limited use only
Types of Prospective Financial Statement Engagements
-compilation, examination, agreed-upon procedures (no review)
Compilation of Prospective F/S
- proper assembly of info based on client’s assumptions
- no assurance
- client must disclose significant assumptions
Report on Compilation of Prospective F/S
- compiled in accordance w/ attestation standards
- limited scope, no evaluation of support for assumptions
- not an examination and no opinion/assurance on statements or assumptions
- results may not be achieved
- no responsibility to update for future events
- no statement info in conformity with AICPA guidelines
- restriction of use (if projection)
Examination of Prospective F/S
- opinion whether statement in accordance w/ AICPA guidelines and assumptions reasonable basis for statements
- must be independent
Report on Examination of Prospective F/S
- examined in accordance w/ attestation standards
- reasonable basis for opinion
- opinion re accordance w/ guideline and reasonableness of assumptions
- results may not be achieved
- no responsibility to update for future events
- restriction of use (if projection)
-modifications: presentation guidelines not followed (qualified or adverse), assumption not disclosed or not a reasonable basis (adverse), scope limitation (disclaimer)
Agreed-Upon Procedures on Prospective F/S
- P/F/S include summary of assumptions
- report disclaims opinion on conformity w/ AICPA guidelines or reasonableness of assumptions
Partial Presentation Prospective F/S
-exclude essential elements: not appropriate for general use
Pro Forma Financial Statements
- effect of hypothetical event on historical financial info
- examination or review (no evaluation of internal control, check accuracy of computations)
- written reps from management
- report refers to F/S info derived from and whether were audited or reviewed
Compliance Attestation
- report on compliance w/ laws/regulations/ contracts
- agreed-upon procedure or examination (not a review)
- agreed upon procedure: report notes done to assist parties in evaluating compliance
- examination: report notes examination doesn’t provide legal determination on compliance
Management’s Discussion and Analysis (MD&A)
- required by SEC for issuers
- examination or review
- CPA must understand SEC requirements for MD&A
