Agreed Upon Procedures and Prospective Financials-A4 Flashcards
What is Agreed Upon Procedure (AUP)?
SSAE’s
- Performs specific procedures on underlying subject matter or subject information (such as an assertion) and reports the findings.
What are the rules for Agreed Upon Procedures?
Conditions “I AM SURE”
SSAE’s
Independence (although no assurance is provided), this is the exception!
Agreement of the parties.
Measurability and consistency. (same findings consistently).
Sufficiency of the procedures. (Client takes responsibilyt for this).
Use of the report can be general or restricted to specified parties.
Responsibility for the Subject Matter or name the third party who is responsible for it.
Engagements to perform AUP on Prospective Financial Statements (forward looking statements). Must have included a summary of assumptions. (FYI AUP’s can be done on other types of FS. Just be aware IF prospectives must have a summary list of assumptions included)
What goes in the AUP report?
SSAE’s
- Title that includes the word “Independent”, signature of practitioner firm, city and state, and date of the report.
- I.D. the engaging party, subject matter, the nature and intended purpose, and responsible party.
- State subject matter is the responsibility of the responsible party.
- Engaging party acknowledges that the procedures performed were appropriate to meet the intended purpose.
- Warning: The report may not be suitable for any other purpose AND the users are responsible for determining whether the procedures performed were appropriate for their specific purpose.
- A statement that the engaging party agrees to AND acknowledge as appropriate for the intended purpose.
- Statement that the engagement was conducted in accordance with attestation standards established by the AICPA.
- Description of the procedures being performed, related findings, any materiality thresholds.
- A Statement that the practitioner was not engaged to and did not conduct an examination or a review.
- Does not express an opinion or conclusion, no assurance.
- Statement that the practitioner is REQUIRED to be independent (exception to must provide assurance too).
- We would list our reservations concerning certain procedures or findings, if applicable.
- If Prospective financials there maybe additional items.
- If Specialist used, add a description of the nature of the assistance provided.
What is General Use for Projections financial statements?
- Means that the statements issued will be used by parties not negotiating directly with the responsible party.
- Only Projection that is appropriate for general use - Forecast .
What is limited use for Projection Financial Statements?
- Means that the financial statements will only be used by the responsible parties.
- Both types of Projections (Prospectives and Forecast) are appropriate for limited use.
EXAMPLES OF LIMITED USE ARE:
- Report to the audit committee that is not sent to the stockholders.
- A mortgage application for the purpose of expanding the entity’s facilities.
- A comprehensive document to be used in negotiating a new labor contract.
What is a Projection - Forecast?
1 of 2 report of projections (Forecast Reports)
- Based on what mgmt knows, it is expected financial results.
- Expected conditions
- Expected course of action
- The ONLY type appropriate for general use - forecast.
- Both types of projections (prospectives and forecast) are appropriate for limited use.
What is a Projection - Prospective?
2 of 2 report of projections (Prosective Reports)
- They are hypothetical assumptions a guess.
- Financial position is based on a “what if” scenario.
- Are not appropriate for general use, and therefore should not be included in an offering statement of the entity’s initial public offering of common stock.
- Both types of projections (prospectives and forecast) are appropriate for limited use.
- Cannot perform a review because reviews cannot deal with hypotheticals.
How to do a Preparation on Prospective Reports?
1 of 4 Engagement types for prospective rep. (Reviews-NO) - Preparation
- Similar to historical financial statement preparation engagements.
- Only suitable for Forecast.
SSARS
How to do a Compilation on Prospective Reports?
2 of 4 Engagement types for prospective rep. (Reviews X) - Compilations
SSARS
INCLUDE IN THE REPORT
- Include the entity I.D., prospective financial info., and date or period covered.
- No assurance, no opionion, no conclusion.
- Disclaims any assurance on the projected financial statements.
- States that the compilation was performed in accordance with Statements on Standards for Accounting and Review Services.
- A caveat that prospective results may not be achieved.
- We have NO responsibility to update the report.
- Practitioner’s signature, date, city, and state.
- FYI same report for both types just clean up the wording one for the other depending on if the compilation is a Forecast or Projection.
PROCEDURES TO FOLLOW:
* Read the prospective financials, and accounting policies for conformity with AICPA.
* Be aware of obvious, inappropriate assumptions in the statements.
* Disclose lack of independence.
* Permitted to disclose the reasons for lack of independence but not required to.
How to do an Examination on Prospective Reports?
3 of 4 Engagement types for prospective Repor (Reviews X) - Examinations
SSAE’s
INCLUDED IN THE REPORT
* Title must include “Indepent”, include signature of practitioner’s firm, city and state, date of report.
* I.D. of the prospective financial statements.
* Guidelines for the presentation of prospectives was established by AICPA.
* I.D. the responsible party and that the statements are the responsibility of that party.
* Practitioner’s responsibility is to express an opinion, based on our examination.
* Examination was conducted in accordance with SSAE’s (unlike compilations and preparations follow SSAR’s).
* Standards require that the practitioner plan and perform the examination to obtain reasonable assurance.
* Practitioner believes that the examination provides a reasonable basis for our opinion.
* Description of the nature of the examination.
* An “opinion” that the prospectives are presented in conformity with AICPA, the underlyeing assumptions provides for a reasonable basis, given the hypothetical assumptions.
* Prospective results may not be achieved.
* Practitioner has NO responsibilty to update the report due to subsequent events.
* PROJECTIONS ONLY: I.D. the hypothetical assumptions, its purpose, and a “restricted use” reports.
PROCEDURES TO FOLLOW
* Express a opinion on whether statements are presented fairly per AICPA
* Underlyeing assumptions provide a reasonable basis for the prospective financials.
* Wherever there is assurance provided (opionion given) Independence AND evidence is REQUIRED.
How to do an Examination Modified Report for prospective financials?
- AICPA presentation guidelines not followed Qualified or Adverse
- Significant assumptions are NOT disclosed (adverse)
- Basis not reasonable (adverse)
- Scope limitation (disclaimer)
How to do a AUP on Prospective financial statements?
Does the engagement meet the I AM SURE conditions (than yes you can do)
- Partial presentations are not appropriate for general use so restrict report.
What are Pro Forma Financial Statements?
- They are used to demonstrate the effects of a future or hypothetical event by showing how it might have affected the historical financial statements if it had occurred during the period coverered by those financials.
- Based on managers assumptions including all material affects of the transaction or events.
- Financials must be labeled as such - Pro Forma Financials to avoid confusion with historical financial statements.
- May be examined or reviewed.
- Practitioner must have an understanding of the underlying assumptions, events, and pro forma adjustments before accepting the engagement.
- Practitioner’s report should make reference to the historical financial statements of which the financial information was derived AND state whether the information was audited or reviewed.
- Practitioner must check the math.
Which engagements requires independence?
- All engagements that provides assurance, a opinion, or a conclusion except for AUP’s.
- Audits
- Examinations
- Reviews
- AUP’s
excludes compilations (disclose the lack of independence in the report, reasons optional) and preparations
Which engagements should have a restricted report?
- A comfort letter. (Issue a letter to requesting parties)
- An auditor’s report on compliance with aspects of regulatory requirements in connection with audited financial statements.
- A report on financial projection.
