Accounting and Review Services Flashcards
What level of assurance is provided for reviews and for audits?
Reviews have limited (negative) assurance
Audits provide reasonable assurance
Accountants never provide absolute assurance
Audit > Review > Compilations (in order of assurance level)
REVIEW: What activities are included in a review? What procedures are usually performed by the accountant in a review engagement?
A review is less scope than an audit and includes inquiry and analytical procedures (such as analysis of inventory turnover).
Reading of FS, writing an engagement letter to establish an understanding of services to be performed, and issuing a report stating that the review was performed in accordance with standards established by AICPA are required.
When is internal control considered?
For audits of public companies
REVIEW: What does SSARS require?
An accountant is required to obtain written representations from mgmt for the FS for all periods covered by the accountant’s review report (AR 100). The standards do not require an assessment of control risk, confirmation of account balances, or performance of a physical inventory observation.
COMPILATION
An auditor who is not independent may issue a compilation.
The information is the representation of mgmt, not the accountant.
A compilation report is dated as of the completion of the compilation.
A compilation report should not ordinarily describe any procedures performed.
REVIEW:What is the first step in reviewing the FS of a nonpublic entity?
An accountant first needs to obtain a general understanding of the organization so as to determine which procedures are possible and appropriate for the review.
Next steps would include comparing FS, inquiries, and analytical procedures.
REVIEW: What happens when the mgmt of client informs auditor that the FS is for mgmt use only?
The restriction may either be documented in an engagement letter or through issuance of a compilation report. The restriction must be indicated on each page of the FS such as “Restricted for management’s use only.”
An accountant may rely on mgmt’s representation without further inquiry, unless info contradicting mgmt’s rep comes to the accountant’s attention.
COMPILATION: What must the accountant do if not independent?
The accountant may accept the engagement but MUST disclose the lack of independence and MAY disclose the reason for it.
REVIEW: What examples of inquiries does it include?
A review includes inquiries on significant journal entries and other adj, on subsequent events, and on unusual or complex situations affecting FS. It does not ordinarily include communications with related parties.
COMPILATION: What should the accountant’s standard report state after compilation of FS of nonpublic?
A compilation is limited to presenting in the form of FS info that is the representation of mgmt.
Note compilation has no assurance and does not refer to an audit.
REVIEW: What is accountant’s responsibility when evaluating mgmt’s responses to inquiries in a review?
The accountant is not ordinarily required to corroborate mgmt’s responses with other info. However, the accountant should consider the reasonableness and consistency of mgmt’s responses.
COMPILATION: What statement is included on compilation on financial forecast?
The attestation standards require a caveat on the fact that there will be differences between the forecasted and actual results.
The report must also indicate that 1 - the prospective FS are presented by the responsible party (usu mgmt), 2 - the practitioner compiled the info in accordance with AICPA standards, 3- compilation is limited in scope and practitioner does not provide an opinion or any form of assurance, 4- practitioner has no responsibility to update the report, 5 - firm signature and date of the compilation report.
Note not to be confused with a projection which includes hypothetical assumptions whereas forecast has reasonable assumptions.
When does SSARS apply?
SSARS applies when FS are compiled regardless of the use of computers, but does not apply when reproducing client prepared FS (making copies).
REVIEW: Nonpublic company, what must the representation letter acknowledge for mgmt’s responsibility?
Mgmt must acknowledge responsibility for the FS conforming with GAAP, responsibility to prevent and detect fraud, and any info it has on actual or suspected fraud that is material.
REVIEW: Review on BS, not other statements. Scope has not been restricted, but client has failed to provide representation letter. What is issued?
No report issued. Reviews cannot involve scope limitations.
AT1–.53 prohibits issuance of a review report in this circumstance.
What does the term “SHOULD” indicate on a accountant’s responsibility to perform a procedure?
Refers to a presumptively mandatory requirement.
It does not mean optional or advisory.
Must or is required means unconditionally required.
What does the term disclaimer of opinion related to? REV/AUD/COMP
Related to audits, not reviews
REVIEW: When is a withdrawal appropriate?
AR90 - when departures from GAAP exist which mgmt is unwilling to correct and accountant does not believe the modification of the std review report is adequate to communicate deficiencies.
AUDIT: What are examples of activities does it include?
Substantive procedure - Physical inspection of inventory
Vouching of inventory purchase transactions
Evaluation of internal control over inventory
