A6 M4 Review Engagements Flashcards
review engagement
-higher level of service than preparation or compilation because provides limited assurance
-acctnt not aware of any material modifications for statements to conform with applicable financial reporting framework
-inquiry and analytical procedures provide reasonable basis for conclusion
-not required to get understanding of IC or assess control risk
accountant’s objective of a review
-obtain limited assurance for basis of any material modifications be made to F/S to be in accordance with applicable financial reporting framework
-accountant must be independent
review procedures tailored
-tailored to specific engagement
-additional procedures may be considered, such as:
1) nature of materiality of F/S
2) likelihood of misstatement
3) knowledge from current and previous engmts
4) qualifications of entity’s accting personnel
5) extent to which an item affected by mgmt judgment
6) inadequacies in entity’s underlying financial data
review performance procedures
1) understanding with client should be established-just like compilation
2) learn knowledge of entity’s business
3) inquiries made to appropriate individuals
4) analytical procedures performed
5) review - other procedures performed
6) client representation letter obtained from mgmt
7) professional judgment used to evaluate results
8) acctnt communicate results
what is not required of the accountant in a review?
1) test internal control
2) perform audit tests
3) assess fraud risk-but if do come across it, determine effect of matter and discuss with mgmt
4) communicate with predecessor
designing review (analytical and mgmt inquiries) procedures
1) acctnt’s understanding of industry
2) acctnt’s knowledge of client
3) risk that accountant unknowingly fail to modify acctnt’s review report on F/S that are materially mistated
4) determine materiality for F/S as whole and apply in design procedures
is a review required to corroborate info with mgmt representations?
No
types of inquiries with mgmt
1) accting principles and practices used
2) procedures for recording, classifying, and summarizing transactions
3) whether F/S fairly presented in conformity with applicable financial reporting framework
4) changes in business activities or principles
5) material subsequent events
6) matters arisen during course of audit
7) status of uncorrected misstatements
8) material or suspected fraud
9) significant journal entries and adjustments
10) identifying related parties
11) actions authorized by BOD, stockholders etc.
types of analytical procedures performed
1) comparing current F/S with prior F/S or current ratios to prior period ratios
2) comparing actual F/S with budgets or forecasts
3) comparing financial and relevant nonfinancial info
4) comparing entity’s ratios and indicators with those of other entity’s in industry
5) comparing disaggregated revenue
Note: analytical procedures performed at F/S level or detail account level
other review procedures
1) read F/S for conformity of applicable financial reporting framework
2) obtain reports of other accountants engaged to audit or review significant components of reporting entity
3) obtain evidence of F/S agree/reconcile with accting records
4) info of related party transactions mgmt has not identified
5) adequacy of work performed by other acctnts
6) if going concern basis appropriate
7) aware of matter to cause F/S to be materially mistated
8) bring up matters with mgmt if info incorrect to cause F/S to be misstated
mgmt representations in client representation letter
1) preparation and fair presentation of F/S
2) IC
3) provided all relevant info and access to info to acctnt
4) responded truthfully to all inquiries
5) all transactions recorded
6) disclosed knowledge of any fraud
7) possible noncompliance
8) if uncorrected misstatements are immaterial
9) litigation
10) significant assumptions
11) related parties
12) all events subsequent to date of F/S
13) going concern assumption
14) additional representations
Note: if no representations, withdraw from engagement
when you have an incomplete review
-prevents issuance of a review report and also consider if prevent acctnt from issuing a compilation report
documentation requirements
1) engagement letter
2) significant matters, actions taken, basis of conclusions reached
3) matters of inquiry by acctnt
4) communications with mgmt in emphasis of matter or other matter paragraph
5) communications with mgmt and those charged with gov.
6) info inconsistent with acctnt findings and how addressed
7) communications with other acctnts
8) mgmt rep letter
9) copy of reviewed F/S and acctnt’s review report
review report elements
1) title
2) addressee
3) introductory paragraph
4) mgmt responsibility
5) acctnt responsibility
6) acctnt’s conclusion
7) signature of acctnt
8) city and state
9) date of acctnt report
Note: each page of statements state “see Independent Accountant’s review report”
elements of introductory paragraph
1) identify entity
2) state F/S been reviewed
3) identify F/S
4) specify date or period covered
5) state review includes analytical procedures to mgmt’s financial data and making inquiries of company mgmt
6) statement that review substantially less in scope than an audit, objective to express an opinion, acctnt does not express such an opinion
