Accounting and Review Services Engagements Flashcards
An independent CPA is associated with the F/S of a public company, but has not audited them, what procedures should the CPA perform and what type of report should be issued?
Read F/S looking for obvious errors and other misstatements. each page should be marked “Unaudited”
A disclaimer is the only opinion allowed.
Which clients may a CPA perform a review?
Privately held companies.
Public company interim F/S
To avoid any misunderstandings with the service provided, what info should be presented on each page of the F/S after a review?
“See accountant’s review report”
Are analytical procedures performed in a review engagement?
Reviews include analytical procedures and inquiries by the practitioner.
How many paragraphs are included in a standard review report?
4
What information is found in the first paragraph of a standard review report for a non issuer?
Name of the entity
statement that the F/S have been reviewed
ID the F/S
date or time period of the F/S
statement that a review includes applying analytical procedures and inquires of management
statement that a review is significantly less in scope than an audit and no opinion is expressed in connection with a review.
What information is found in the second paragraph of a standard review report for a non issuer?
that management is responsible for the fair presentation of F/S in accordance with applicable framework
also responsible for designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the F/S that are free from material misstatement
What information is found in the third paragraph of a standard review report for a non issuer?
the accountant’s responsibility is to conduct the review in accordance with SSARS issued by AICPA
Those standards require the accountant to perform the procedures to obtain limited assurance that there are no material modifications that should be made to the F/S
that the results of the procedures provide a reasonable basis for his report
What information is found in the fourth paragraph of a standard review report for a non issuer?
that based on the review, the accountant is not aware of any material modifications that should be made to the F/S in order for them to be in conformity with the applicable financial reporting framework
If a company refuses to make a change that is material in order for the F/S to be in conformity with GAAP how is the review report affected?
4th para - “Based on our review, with the exception of the matter described in the following paragraph…”
5th para added to the report to ID the material misstatement that was discovered and refers to a footnote that more fully describes the matter
Even if the effects of the gap departure can’t be determined, the disclosure must appear in the report in a seperate paragraph.
What is a compilation?
The objective of a compilation is to assist management in presenting financial information in the form of F/S.
Under what general overriding constraint may a compilation engagement be performed?
compilations can only be done for privately held entities
In performing either a compilation or a review for a privately held entity, what standards should be followed?
SSARS
What assurance does a CPA provide in a review engagement?
Limited assurance
Describe the analytical procedures performed as part of a review engagement?
comparison of financial expectations developed by the accountant to recorded amounts or ratios
can be performed at the F/S level or detailed account level.
Under what condition can the CPA not issue a compilation report?
when the compiled F/S are not expected to be used by a third party. The accountant should reference each page with “Restricted for Management use only”
How does restriction of the report for internal use influence the work done by the auditor?
the work remains unchanged, the accountant does not have to issue a compilation report.
How is the use of compiled F/S usually restricted?
statement that the report is intended for information and use by specific parties
ID of the specific parties
the report is not intended to be and should not be used by anyone other than the specific parities
What info is included on each paged of compiled F/S?
“See independent accountants compilation report”
What are some examples of inquiries made during a review?
F/S prepared in applicable framework
accounting principles and practices inc. recording, classifying and summarizing transactions and accumulating info for disclosure in the F/S
new methods of revenue recognition and/or changes in application of GAAP
unusual or complex situations that may have an effect on the F/S
significant transactions occurring or recognized near the end of the current reporting period
changes in the operating environment, key personnel, info systems, or internal control
changes in prior period outstanding litigation or contingencies
impairment of assets
questions arisen during the course of review work
knowledge of fraud or suspected fraud
significant J/E’s and other adjustments
communication from regulatory agencies
meetings of stockholders, BOD, committees or other comparable meetings
Why is a CPA unable to render reasonable assurance upon completion of a review engagement?
the scope of testing and understanding of the entity’s internal control is not sufficient to provide appropriate evidence to give such an level of assurance.
What are some items that should be established with a client regarding the work to be performed in a review?
objective and limitations of the review
managements responsibilities
the CPA’s responsibilities
Management acknowledgement that a review consists primarily of inquiries of management and certain analytical procedures
What are the two general procedures performed in a review engagement?
analytical procedures
inquiries of the company managment
Where dose the CPA get the info to anticipate results for analytical procedures?
Prior year F/S
forecasted or budgeted figures
company competitor financials
other relationships based on financial, non-financial or a combination of both info.
A CPA concurs with the justification to change from FIFO to LIFO how does this change the standard review report?
if proper disclosure is inclusive then no modification is necessary
disclosure by separate paragraph could be made as well
What level of assurance is given by a CPA in a compilation of the client’s F/S?
no assurance
What actions should an accountant take when compiling a clients F/S?
establish understanding about the limitations of services
possess knowledge about accounting principles and practices of the clients industry
gain knowledge of the client, nature of business and transactions, accounting principles and practices, accounting records, content of F/S
read the compiled statements for omissions or errors in arithmetic or GAAP
make inquiries as necessary
How many paragraphs are found in a standard compilation report?
3
What info is provided in the first paragraph of a standard compilation report?
ID of entity
F/S have been compiled
ID of the compiled F/S
date or period covered by F/S
F/S have not been audited or reviewed and do not express an opinion
What info is provided in the second paragraph of a standard compilation report?
that management is responsible for the fair presentation of F/S in accordance with applicable framework
also responsible for designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the F/S
What info is provided in the third paragraph of a standard compilation report?
conducted in accordance with SAARS issued by AICPA
state the objective of a compilation is to assist management in presenting financial information in the form of F/S without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the F/S
What engagements can an accountant who is not independent perform?
compilation
Is it allowed to omit all footnote disclosures from a compilation?
yes.
must include a statement that management has elected to omit the disclosures
if the omitted disclosures were included they might influence the user’s conclusions
F/S are not designed for those who are not informed about such matters
What info should be included in a pro forma F/S report?
title includes the word “independent”
ID the pro forma F/S
ID of the historical F/S that served as the basis for the pro format info and they were audited with reference to any opinion other than unqualified
ID responsible party for the pro forma F/S
examination was conducted in accordance with attestation standards of the AICPA
responsibilities of the practitioner
objectives and limitations of pro forma financial information
opinion
manual or printed signature of firm
date of the examination report
