A6 - Accounting and Review Service Engagements, Interim Reviews, and Ethics and Professional Responsibilities

Question 1

What is the Accounting and Review Services Committee?

Answer 1

Like FASB but for private companies.

Question 2

In which situations does SSARS not apply?

Answer 2

1. FS prep for inclusion in personal financial plans.
2. Solely to submit to tax auth.
3. In conjuntion with litigation services.
4. In conjuntion with business valuation services.

Question 3

When would an auditor file a compilation report that omits substantially all disclosures?

Answer 3

When:

1. The report has a paragraph that discloses such omissions.
2. The accountant says that such disclosure would not make the FS misleading to users.

Question 4

What are the most significant items of a review engagement?

Answer 4

1. The accountant must be independent.
2. You’re not required to assess the risk of fraud.
3. There is no opinion on the report.
4. Must have a mgmt rep letter.
5. No internal control crap!

Question 5

What are the steps of a review engagement?

Answer 5

1. Obtain knowledge of accounting practices of the client’s industry.
2. Obtain knowledge of the client.
3. Make inquiries to management.
4. Perform analytical procedures.
5. Obtain rep letter.

Question 6

What is ratio analysis used for?

Answer 6

To examine BS accounts.

Question 7

What is trend analysis used for?

Answer 7

To examine P&L accounts.

Question 8

What’s the difference of an EOM and an OM paragraph?

Answer 8

• EOM is to highlight something that IS presented in the FS.
• OM is to highlight something that IS NOT presented in the FS.

Question 9

What happens when PY has been audited, but CY is only reviewed?

Answer 9

The report of the review report should say:

1. That PY was audited.
2. Date of PY report.
3. Opinion expressed, and reasons for modification.
4. No auditing procedures have been performed since #2.

Question 10

When can a CPA issue a review report on one FS only?

Answer 10

When the scope of the inquiry and analytical procedures is not restricted.

Question 11

What is the main objective of an review of interim FS?

Answer 11

To provide the CPA with a basis for reporting whether material modifications should be made to conform to GAAP.

Question 12

What should a prospectus state in a report presented in a registration statement?

Answer 12

A prospectus should clarify that the accountant’s review report is not part of the registration statement within the meaning of the securities act of 1933.

Question 13

What are the AICPA Code of Professional Conduct’s general standards include?

Answer 13

1. Professional competence.
2. Due professional care.
3. Planning and supervision.
4. Sufficient relevant data.

Question 14

How often does the lead audit and the reviewing partner need to rotate off the audit?

Answer 14

Every 5 years. Other partners rotate every 7 yrs.

Question 15

How long do you need to keep audit workpapers on file?

Answer 15

7 years.

Question 16

What’s the cooling off period?

Answer 16

1 year.

Question 17

How many audits of public companies per year does a CPA firm perform before it gets an inspection from the PCAOB?

Answer 17

>100 = annual inspection.
>50 = inspection every 3 yrs.

Question 18

What service does not need pre-approval of the audit committee?

Answer 18

Non-audit services that are not >5% of total revenues.

Question 19

What does SOX require on an annual report of an issuer?

Answer 19

An internal control report that:

1. States the responsibility of management for establishing and mantaining an adequate internal control structure.
2. Contains an assessment of the effectiveness of the internal controls.

Question 20

How many people are in the PCAOB?

Answer 20

5 = 2 CPAs and 3 non-CPAs.

Question 21

What is improper influence?

Answer 21

When management intentionally fraudulently influence, coerce, manipulate, or mislead the independent auditor of the FS for the purpose of rendering the FS materially misleading.

Question 22

What are the ethical principles that guide auditors under GAGAS?

Answer 22

1. Serving the public interest.
2. Integrity.
3. Objectivity.
4. Proper use of govmt info.
5. Resources and positions.
6. Professional behavior.

Question 23

What are the keywords of the ethical principles?

Answer 23

1. Serving the public interest.
2. Integrity = objective, non-partisan.
3. Objectivity.
4. Proper use of govmt info.
5. Resources and positions.
6. Professional behavior = honest effort.

Question 24

What are the threats to independence?

Answer 24

1. Self interest threat.
2. Self review threat.
3. Bias threat.
4. Familiarity threat.
5. Undue influence threat.
6. Management participation threat.
7. Structural threat.

Question 25

What is self interest threat?

Answer 25

The threat that a financial or other interest will inappropriately influence an auditor’s judgement or behavior.

Question 26

What is self review threat?

Answer 26

The threat that an auditor that has provided non-audit services will not appropriately evaluate the results of previous judgements made when forming a judgement for an audit.

Question 27

What is management participation thread?

Answer 27

The threat that results from an auditor’s taking on the role of management while auditing it.