A6 - Accounting and review service engagements, interim reviews, & ethics and professional responsibilities Flashcards
(12 cards)
Compilation Engagement
Not independent - No assurance (disclose lack of independence in final paragraph of accountant ‘s report)
Use expertise to assist mgmt with preparing FS, without providing assurance.
Level of Assurance: None – CPA does not provide any assurance or verification. (No opinion or conclusion)
Procedures Performed:
Collect and assemble financial data provided by management
Present in the form of financial statements
No inquiries, analysis, or testing required
No verification of data
CPA’s Conclusion:
Disclaimer statement:
“We have not audited or reviewed these financial statements and do not express an opinion or any form of assurance.”
Must disclose lack of independence if applicable.
Intended Use: Primarily internal use or limited external use. Used when financial statements are needed without assurance.
Not required to assess fraud risk or perform procedures to detect material misstatements due to fraud or noncompliance
Statements on Standards for Accounting & Review Services (SSARS)
Applicable to: Preparation, Compilation, & Review (negative assurance)(FS not audited) engagements.
*Attest-report
*Non-attest-no report (preparation engagement)
*Assurance-opinion(reasonable)/conclusion(limited)
*No assurance-no opinion/conclusion
“Must” or “Should” verbiage for accountants responsibility.
Analytical Procedures
Involve developing an expectation by comparing records to expectations.
Prospective Financial Engagements
Forecasts - (Expected) General or limited use
Projections - (Hypothetical) Limited users
Independence required
-Engagements: (not review)
—Examination - completeness, reasonableness of assumptions.
—Compilation - computation accuracy of statements, not reasonableness of assumptions.
—Agreed upon procedures - users agree on procedures, limited attestation procedures.
Interim Financial Reporting
-Make inquiries about actions taken at directors/stockholders meetings. Read minutes of meetings.
-Obtain evidence that interim financial info agrees with records.
FS are Mgmts responsibility.
Analytical procedures, inquiry.
Substantially less in scope than audit.
Review Engagements
-Inquiry & Analytical procedures - basis for limited assurance (Independent)
-No opinion expressed
“We are not aware of any material modifications”
-Negative assurance (limited assurance) - not aware of any material modifications that should be made to the FS.
-Substantially less in scope than an audit.
-Materiality must be determined & applied.
Modifications to the standard report results in a withdraw and no additional services regarding FS.
Review Reports
-Independent - Limited assurance. (Inquiry & Analytical procedures)
-Modifications are only made if there is a departure from GAAP
Level of Assurance: Limited (Moderate) – Negative assurance. CPA states that nothing came to their attention suggesting a material misstatement.
Procedures Performed:
Inquiries of management
Analytical procedures applied to financial data
No internal control testing or substantive testing
CPA’s Conclusion: Conclusion (not an opinion):
“We are not aware of any material modifications that should be made…”
Intended Use: External or internal use. Common for private companies needing moderate assurance for lenders or investors.
Interim Reviews
-Objective of a review is to provide a reasonable basis for expressing limited assuarnce of no material modifications of FS in conformity with GAAP.
-Interim review is not part of a registration statement
AICPA code of professional conduct
-Governs: Audits, Special reports, Compilations, Reviews, Services perforned on financial forecsasts/projections, & attestation engagements.
-Principles: Responsibilities, Public interest, Integrity, Objectivity & Independence, Due care, & Scope & Nature of services.
-Former employee of client - disassociated before engagement was awarded
Ethical & Independence Requirements Pt 1
-PCAOB was established by SOX
-SOX requires PCAOB to annually inspect audits more than 100 issuers
-SOX - Internal controls must be evaluated within 90 days prior to issuers report
-SOX - Issuer must disclose the existence of financial expert(s) or reasons why not in the financial report
-SOX - Audit committee members must be members of the board of directors
-SEC - Lead & Concurring partner rotate after 5 yrs, Other audit partners rotate after 7 yrs
Ethical & Independence Requirements Pt 2
-Government Accountability Office (GAO) - Ethical principles: Public interest,(collective well being) Integrity(attitude that is objective, fact-based, non-partisan, & nonideological) Proper use of gov info(not inappropriate for personal gain), Resources & Positions, & Professional Behavior(honest effort in performance of professional services).
-General Standards: Independence, Professional Judgement, Competence, & QC & Assurance
-GAGAS - Identify threats to independence, Evaluate significant of threats identified, & Apply safeguards
-DOL - Independence on ERISA
-SOX - Corporate & Criminal Fraud Accountability - 20 years imprisoned for altering documents
-SOX - Retaliation against informant (SEC) =- 10 years imprisoned.
Audit Engagement
Level of Assurance: Reasonable (High) – Positive assurance that the financial statements are free from material misstatement.
Procedures Performed:
Risk assessment of the entity and its environment
Evaluation and testing of internal controls
Substantive testing (e.g., vouching, confirmations)
Analytical procedures
Observation and inspection
Inquiries of management and staff
Audit sampling
CPA’s Conclusion: Opinion-based report:
“In our opinion, the financial statements present fairly…”
May be: Unmodified, Qualified, Adverse, or Disclaimer
Intended Use:
General use – external stakeholders like investors, lenders, or regulators. Required by law or contract in many cases.
