A5/M4 Agreed-upon Procedures and Prospective Financial Statements Flashcards
What are the types of engagements in audit?
- Agreed-up procedures engagement (SSAE - No assurance): engage in performing specific procedures on subject matters/assertions and report the findings and description of any specified materiality threshold established for reporting exceptions
- Preparation engagement (SSARS - No assurance): engage in prepare FS
- Compilation engagement (SSARS - No assurance): engage in assembling of financial data
- Examination engagement (SSAE - Reasonable assurance): engage in evaluating FS and express opinion (unmodified; modified/qualified when not follow AICPA guidelines; adverse when not disclose several significant assumptions, or did not provide reasonable basis for assumptions; disclaimer when not able to perform necessary procedures)
- Review engagement (SSAE - Limited assurance): engage in reviewing FS and report the conclusion
what are the conditions for accepting and performing an agreed-upon procedures engagement?
I AM SURE I can perform these agreed-upon procedures
I - Independent of the practitioner
A - Agreement of the parties: both parties agree procedures to be performed and set criteria to be used in determination of findings
M - Measurability and consistency
S - Sufficiency of the procedures: responsibility’s of CLIENT
U - Use of the report can be general or restricted to specified parties
R - Responsibility for the subject matter: CLIENT is responsible for subject matter and also responsible for being able to provide evidence that if any 3rd party is responsible for subject matter
E - Engagements to perform AUP procedures on prospective FS: must include a summary of significant assumptions
what are the 2 types of prospective FS?
- Financial forecast: to the best of the responsible party (client)’s knowledge, this reflects the expected financial results of a future period
- Financial projection: based on hypothetical assumptions, this reflects the financial positions/results based on “what-if” scenario
Note: review engagement is NOT allowed for prospective FS
- only financial forecast is suitable for GENERAL use
- both financial forecast and projection are suitable for LIMITED use
what is pro forma FS and its audit procedures?
- Pro forma FS are NOT prospective FS but may be used to demonstrate the effect of a future/hypothetical events based on how it affected the HISTORICAL FS
- Pro forma FS is based on management’s assumptions. It may be examined or reviewed
- Practitioner should obtain written representation from management
- Practitioner should make reference to the FS from which historical financial data is derived and if they were audited or reviewed.
- Is not required to contain a restricted use paragraph