Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

CPA AUDIT > AUD CH 7 - Compilations & Reviews > Flashcards

AUD CH 7 - Compilations & Reviews Flashcards

1
Q

SSARS & Who it applies to

A

Statements of Standards for Accounting & Review Services

  • applies to the work of accounts in connections with the F/S of NONISSUER clients (including individuals)
  • covers Compilation Services & Review services
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Assurance Engagement (definition)

A
  • engagement in which an accountant issues a report
  • designed to enhance the degree of confidence of third parties & management
  • evaluation/measurement of F/S (subject matter) against an AFRF (criteria)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Attest Engagement (definition)

A
  • an engagement that requires independence as defined by the AICPA professional standards
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What type of service is a Compilation

A

Attest service (not an assurance service)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Compilation

A

service with the purpose to assist management in presenting financial information in the form of F/S (assembling F/S)

  • no assurance / no opinion
  • include engagement letter (written understanding with management regarding services to be performed)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Review

A

service with the purpose to obtain limited assurance (negative assurance) that there are no material modifications that should be made to the F/S in order for he statements to conform with the AFRF (GAAP)

  • accountant should accumulate review evidence to obtain a limited level of assurance
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Review Evidence (defined by SSARS)

A

information used by the accountant to provide reasonable basis for obtaining a limited level of assurance

* analytical procedures & inquiries will usually provide the evidence, but accountant should use professional judgement in making that determination

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Non-Issuers

A

All entities except those:

  • defined in Section 3 of the Securities Exchange Act 1934 (securities registered under Section 12)

OR

  • required to file reports under section 15(d)

OR

  • that files or has filed a registration statement that has not yet become effective under Securities Act of 1933 & that has NOT withdraw
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Materiality (concept)

A
  • generally discussed in a financial reporting framework
  • takes into account 3 concepts:
    1. Misstatements are material if they could reasonably be expected to influence the economic decision of users taken on the basis of the F/S
    2. Judgements about materiality are based on surrounding circumstances & the size and/or nature of a misstatement
    3. Judgements about matters that are material to users are based on needs of users as a GROUP (not specific individual users)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Management is Responsible for (defined by SSARS)

A
  • Prep & Fair Presentation of F/S
  • DIM of I/C related to P&FP of F/S
  • Preventing & Detecting Fraud
  • Org. complies with laws & regulations
  • Making all information available to the accountant (no client-imposed scope limit)
  • Management Representation Letter (@ end of review engagement)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What may SSARS not be applied to

A

Work in connection with Issuers (reporting to the SEC)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Under SSARS, what type of work are accountants exempt from?

(not subject to its standards)

A
  • Prep of working trial balances for the client’s use
  • Prep of monthly J/E’s
  • Photocopying/reproducing client F/S as a convenience to the client (W/O modification)
  • Consultation/Processing of Fin. Data for clients of other CPA firms
  • Prep of statements for internal use by client which will NOT be used in any way to raise investor capital or obtain/review loans from outsiders
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What must a client do/have to perform a compilation?

A
  • Knowledge of the accounting principles & practices of the client’s industry (have or obtain during)
  • Understanding of the clients business transactions & accounting records
  • Read the F/S & notes to ensure the are Free of material error & appropriate in form
  • if info is incorrect & client will not revise, CPA should withdraw

*** NO ICORRIA (audit procedures)… NOT AN AUDIT ***

*** NO INDEPENDECE REQUIRED to issued a compilation report ***

* no assurance / no opinion *

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

When should the accountant withdraw from a compilation?

A

if the F/S and notes is incorrect & client will not revise

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

When is independence required if performing an audit, review, or compilation?

A

Audit & Review

*** compilation does not require independence

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

How is accountant independence treated when performing a compilation & issuing the report?

A
  • Not Required (although user is likely to assume unless told otherwise)
  • If lack independence, must indicate (title omits “independent” & add sentence at the end of report)
  • Optional to include the reasons for lack of independence. If choose to state reasons, all reasons must be included (explanations can be brief or expansive at the accountant’s discretion)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

How does an inadequate (or omitted) disclosure affect the compilation report?

A
  1. if statements are intended for direct relationship, must be mentioned in the compilation report if omitting disclosures (GAAP Departure)
    - add 4th paragraph (explanatory) with:
    - explanation, GAAP, “if included, they might influence user’s conclusions about the company’s A, L, Eq, R, & Expenses
    - “F/S are not designed for those who are not informed about such matters”

OR

  1. If omissions were intended to mislead the user, may not report on the statements

OR

  1. Comparative F/S may not be presented in which 1 year has adequate disclosure & the other does not (not comparable)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

When is a compilation report not required to be issued for a compilation service?

A
  • if the F/S are not expected to be used by a third party

Or

  • ASSISTING a client in presenting one or more specified elements, accounts or items, OR Pro Forma, (unless “engaged to report”, replace “F/S” in report)

** signed engagement letter required

** each page to include: “restricted for managements use only”

— required NOT to issue when

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Compilation documentation

A
  • should include significant findings or issues
  • sufficient detail to provide a clear understanding of the work performed
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Attestation Standards governed by SSARS provisions specifically exclude

A

Expert Witness testimony

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Which statements are not required for a compilation report (as separate statements)?

A

Statement of Retained Earnings & Statement of OCI

  • reference is not required if not presented
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are the sections of a compilation report?

A

Title: [Independent]** Accountant’s Compilation Report

  1. Introductory
    - “compiled”, “not audited or reviewed”, “no opinion / no assurance”, GAAP
  2. Management’s Responsibility
    - P&FP of F/S, GAAP USA, DIM I/C rel. to P&FP of F/S
  3. Accountant’s Responsibilities
    - compilation in accordance with SSARS by AICPA, Compilation Objective,

Signature of Accountant/Firm

Date: Completion of the compilation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

CARD

A

Four Elements in the Compilation Report

C – Compiled: ID statements

A – AICPA Standards: SSARS indicates CPA (vs. Non-CPA) to enhance value

R – Responsibility of Management

D – Disclaim opinion or assurance – explicit, no audit, no review, no assurance, no opinion (clear understanding for users)

** Each page of the F/S should state “See Accountant’s Compilation Report”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Four Elements in the Compilation Report

A

CARD

C – Compiled: ID statements

A – AICPA Standards: SSARS indicates CPA (vs. Non-CPA) to enhance value

R – Responsibility of Management

D – Disclaim opinion or assurance – explicit, no audit, no review, no assurance, no opinion (clear understanding for users)

** Each page of the F/S should state “See Accountant’s Compilation Report”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

“See Accountant’s Compilation Report”

A

should be stated on each page of the compilation report

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

How is a GAAP departure (other than the omission of footnote disclosures) reported in a compilation report?

A

Sentence added at the end of the 3rd paragraph:

“we did become aware of a departure from GAAP that is explained in the following paragraph”

  • Add 4th Paragraph (explanatory): describe matter & if GAAP was followed, $$$

** includes inadequate disclosures for substantial doubt of going concern & inconsistencies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Why does a compilation not require independence?

A

no opinion or assurance is expressed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

SSARS requires services to be performed by

A

CPAs

(AICPA)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

OCBOA’s include

A
  • Cash basis (or modified)
  • Tax basis
  • “other basis of accounting”
  • Regulatory or contract basis of accounting (add limited use statement. “solely intended”)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

When financial statements have been prepared in accordance with an OCBOA,

A
  • titled something other than B/S, I/S (NON GAAP TITLES)
  • “in accordance with the cash basis of accounting”

***only first 2 paragraphs are changed (3rd has no change)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

report on unaudited F/S of a public company

A

comparable to the work of a compilation (non-issuer work)

  • report is a one sentence report: ID Statements, date, entity, & “not audited by us, no opinion”, (MUST NOT say they were compiled)
32
Q

“unaudited”

A

required to be marked on each page of the F/S, for compilations

33
Q

What type of engagement is a review service?

A

Both an Attest & Assurance engagement

34
Q

How is review evidence ordinarily accumulated?

A
  • Inquiries of mgmt & employees
  • Analytical procedures

** accountant should use professional judgement to make the determination

35
Q

An accountant performing a review will NOT:

A
  • Gain an understanding of I/C structure or assess CR
  • Perform tests that involve contacting persons outside the client entity (i.e. customer, attorney)
  • perform detailed tests on the financial records
  • obtain info about uncertainties dealing with contingent liabilities
  • assess fraud risk (**will inquire management about their knowledge of any)
  • examine source documents
  • Other procedures done in an audit
36
Q

What should be considered in determining the inquiries to be made & which analytical procedures to perform?

A
  • the level of risk of incorrectly issuing an unmodified review report
37
Q

How do compilation procedures relate to those of a review?

A

A compilation’s requirements of knowledge, read F/S, & understanding apply to a review engagement. Plus the following are the required:

  1. Inquire management or other client personnel
  2. Apply analytical procedures to the financial data (numbers conformity with predictable patters/expectations)
  3. Obtain knowledge to be sufficient to assist in the determination of nature, timing, & Extent of review procedures
  4. Engagement Letter (objectives of review, mgmt responsibilities, accountant’s responsibilities, & limitations)
  5. Management Rep. Letter for all F/S & periods covered (Signed by CEO & CFO, dated date of the review report) —- report CANNOT be issued without rep letter
38
Q

Why is an accountant required to be independent for a review engagement ?

A

because the accountant provides some assurance to readers of the report

* any direct or material indirect financial interest in the client is forbidden

* title is REQUIRED to include “Independent”

39
Q

FAMILIAR

A

8 Key Elements in the Review Report

F – Financial Statements being review (ID)

A – AICPA Standards (SSARS) – enhance values (vs. non-CPA reviews)

M – Management Representation: “management’s statements” is emphasize because LTD assurance is being provided

I – Inquiry & Analytical Procedures: to describe nature of the review

L – Less in scope than Audit: explicitly distinguishes difference (users may not know)

I – Incapable of opinion: explicitly state disclaim an opinion

A – Assurance Provided: negative (limited) assurance

R – Refer to US Principles: no material modification to conform with GAAP USA

40
Q

8 Key Elements in the Review Report

A

FAMILIAR

F – Financial Statements being review (ID)

A – AICPA Standards (SSARS) – enhance values (vs. non-CPA reviews)

M – Management Representation: “management’s statements” is emphasize because LTD assurance is being provided

I – Inquiry & Analytical Procedures: to describe nature of the review

L – Less in scope than Audit: explicitly distinguishes difference (users may not know)

I – Incapable of opinion: explicitly state disclaim an opinion

A – Assurance Provided: negative (limited) assurance

R – Refer to US Principles: no material modification to conform with GAAP USA

41
Q

Review Report Sections

A

Title: “Independent Accountant’s Review Report”

  1. Introductory: “reviewed” F/S, I & Ap, Less than audit, disclaim opinion
  2. Management Responsibilities: P&FP GAAP, DIM I/C rel. to P&FP
  3. Accountant’s Responsibilities: review in SSARS AICPA, Ltd Assurance, “we believe results of our procedures”
  4. Limited Assurance: “we are not aware of any material mods that should be made to F/S to conform with GAAP USA”

* Signature of Accountant/Firm

Date: no earlier than date when evidence is obtained

42
Q

“See Independent Accountants Review Report”

A

for all review engagements, each page of the client’s F/S should be marked

43
Q

“I can’t say I love you, but I can say that I’m NOT AWARE of the fact that Im not in love with you”

A

Negative Assurance (Review Report)

44
Q

What happens if the accountant should identify material mods that DO need to be made?

A
  1. Inform Client so changes can be made
  2. If Client does not make changes, add a explanatory paragraph (After) (5 total)
    - describe departure from AFRF
  3. Refer to the explanatory paragraph in LTD Assurance Paragraph
    - “Based on our review, with the exception of matter discussed in the following paragraph, we are not aware…” (first sentence in the limited assurance section)
45
Q

When performing a compilation or review service, who should the accountant deal with a going concern or material subsequent event?

A
  1. Request management to consider the effects of the issue or event
  2. Consider whether management’s conclusions are reasonable
  3. Determine whether the accounting & disclosures are adequate (if not, GAAP Departure).
  4. If conforms with GAAP —- OPTIONAL: explanatory paragraph to emphasize the matter (including related party transactions)
46
Q

When is an explanatory paragraph required for a review report? When is it optional?

A

*Explanatory is AFTER limited assurance paragraph*

Required: GAAP Departure

** “with the exception of” is added to the opinion paragraph

Optional: to emphasize a matter (properly accounted for & adequately disclosed)

  • change in accounting principle
  • material subsequent event
  • going concern doubt
  • related party transaction

** do not modify the limited assurance paragraph (no reference)

47
Q

What circumstances require an accountant to withdraw from the review engagement without issuing a report?

A
  • client imposed scope limitation (Inquiries or Analytical Procedures)
  • GAAP Departures that are so numerous or extreme to make a modification of the report inadequate to deal with them
  • Management refuses to provide a representation letter for the review
48
Q

Is a limited reporting engagement permitted for a review service?

A

Yes as long as there is no scope limitation of the inquiries & analytical procedures

49
Q

What are the similarities between the requirements for compilations, reviews, & audits (non-issuers)?

A
  • Engagement Letter
  • Understanding of the client’s business transactions & accounting records
  • Knowledge of the of the accounting principles & practices of the client’s industry
  • Read the F/S & notes to ensure free of material error & in appropriate form
  • May add explanatory paragraph to emphasize a matter (GC doubt, Mat. Subsequent Event, Change in Accounting Principle, lack of independence)
  • Communicate Fraud or Noncompliance (illegal acts) to the appropriate level of management & to ACCOUNTANT’S legal counsel
50
Q

What do reviews & audits require that a compilation service does not (non-issuers)?

A

Reviews & Audits:

  • Independence required (lack of independence must be indicated in the report, reasons for lack is optional)
  • Management representation letter
  • Inquiries of the company personnel & minutes of BoD
  • Analytical procedures to the financial data (unusual relationships & expectations)
51
Q

What do audits require that compilations & reviews do not (non-issuer)?

A

Audits require:

  • Communicate with predecessor accountant (access to PA’s audit docs)
  • Obtain & Document understanding of I/C
  • Assess RMM
  • Perform test involving inspection, observation, & confirmation
  • Perform tests to determine substantial doubt of going concern for upcoming year
  • Perform inquiries of the client’s attorney (letter of inquiry)
  • Analytical Procedures to the detailed financial records & corroborative evidence
52
Q

How should an accountant respond to client’s request to downgrade the engagement?

A

Consider if:

  1. If client’s request is reasonable
  2. Additional Effort & Additional Cost needed to complete the original engagement (might be hiding something if near end of the original engagement)

3A. Switch if reasonable, downgraded report will NOT reference original engagement or reasons for the downgrade (would only serve to confuse the reader)

3B. If not justifiable, consider withdrawing

53
Q

What service is usually performed for public (issuer) interim financial information?

A

Review of Interim Financial Information

54
Q

What is the difference between a review service for issuers & non-issuers?

A

Issuer: Interim of F/S & may be performed under SAS or at least SSARS

** if SAS, report is structured differently

Non Issuer: Annual of F/S & performed under SSARS

55
Q

What are the conditions required to perform a review of interim financial statements (10Q) under SAS?

A

SAS: public company audit standards

All conditions must be met (if not all met, SSARS accordance is required):

  1. Client’s latest 10K have been audited &
  2. Either:

A) accountant has been engaged to audit the CY F/S

OR

B) accountant Audited latest 10K & expects to be engaged to audit the CY 10K

&

  1. Both Interim & Annual F/S were prepared under the SAME AFRF
56
Q

What are the standards that a review of interim financial statements for public companies be performed under?

A

SAS (AU Audit Standards – PCAOB): must meet 3 conditions

OR

SSARS (if the 3 conditions are not met)

57
Q

What does an accountant’s review report of a public company under PCAOB jurisdiction contain?

A

Title: “Report of Independent Registered Public Accounting Firm” (not SSARS… “Independent Accountant’s Review Report)

  1. Intro: We have “reviewed”, ID F/S, Periods (i.e. 3 months), Mgmt responsibility
  2. Scope: accordance with PCAOB, I & Ap procedures, Less in scope than an audit, disclaim opinion (no reference to SSARS & AICPA)
  3. Limited Assurance: GAAP

**4. Explanatory (if any) - GAAP Departure, emphasis, division of responsibility, comparative interim fin. Info, consistency

* Signature of CPA in Charge

* MUST list the city & state (city & Country for non-US auditors) of the office where the accountant is based

* Date – completion of the review procedures

58
Q

Compilation of Pro Forma Financial Information (AR 120)

A

presenting historical (past) financial information as if proposed transactions or events had occurred at an earlier date (“What if”)

59
Q

Compilation Report of Specified Elements. Accounts, or Items

A
  • only required if “engaged to report”
  • modify report: replace “F/S” references with “specified elements, accounts, or items”
60
Q

Compilation Report of Pro Forma F/S

A
  • report only required if “engaged to report”
  • include historical F/S in the document that contains the pro forma financial statements

Modify report:

  • Replace “F/S” references with “pro forma financial information”
  • Intro: “dervided from the historical unaudited statements”
  • ADD Explanatory Paragraph: explains objective of pro forma fin info & its limitations, “not necessarily indicative”
61
Q

How is the standard report affected when reporting on comparative F/S with the same level of service performed for both periods (AR 200)?

A
  • no references to the F/S that were compiled or reviewed (I.e. if “compiled”, no reference to reviewed F/S)
62
Q

When will a standard report not be issued when reporting on comparative F/S?

A
  • Accountant was not associated with the prior period’s F/S

*** standard report for same level & diff level of service

*** if diff level of service, reference to previous engagement MUST always be in a separate paragraph (distinguishes the service in the CY) – AFTER paragraph

63
Q

How is a compilation report in comparative form affected when the prior period service was a review?

A

Title will be “Accountant’s Compilation Report” OR “Accountant’s Report”

  • standard compilation report issued
  • 4th Paragraph added to ID prior period’s F/S, service, LTD assurance provided & “not performed any procedures since the date of the review report” (b/c review procedures > compilation procedures)

**** reference to previous engagement MUST always be in a separate paragraph (distinguishes the service in the CY)

64
Q

How is a review report in comparative form affected when the prior period service was a compilation?

A
  • standard review report issued
  • ADD 5th paragraph to ID prior period’s F/S, service, & objective (no reference to procedures “not performed” b/c…. compilation procedures < review procedures)

**** reference to previous engagement MUST always be in a separate paragraph (distinguishes the service in the CY)

65
Q

How is a CY standard compilation report (comparative) affected when a PY’s GAAP departure has been adjusted?

A

If Same Level of service, Add an explanatory paragraph

  • describes departure & the fact of restatement to conform with GAAP

If Diff level of service, make appropriate modifications (explanatory paragraph) and add above explanatory paragraph

66
Q

How is a CY standard review report (comparative) affected when a PY’s GAAP departure has been adjusted?

A

If Same level of service

  1. Add an explanatory paragraph **BEFORE** CY ltd assurance section (after the unmodified 3rd Paragraph)
    - describe PY’s departure & change of method to restate to conform with GAAP, & **provide limited assurance*** “is different from that expressed in our previous report”

(5th Section: CY limited assurance — unmodified paragraph)

If Different level of service,

  1. perform same as above
  2. add explanatory paragraph (6th section) as a previous engagement description
67
Q

If the not associated with previous period in comparative reporting, when should the successor accountant ID the PA’s name?

A

ONLY if the PA’s firm was acquired by (or merged with) that of the successor accountant

68
Q

Predecessor Accountant agrees to reissue report

(Comparative CY – Successor accountant not associated with PY)

A

Predecessor Auditor Must:

  • Read F/S
  • Obtain Rep Letter from SA & Client
  • if no adjustment to PY F/S, use original report date
  • if restate PY FS, dual date report
69
Q

Predecessor Accountant DOES NOT agree to reissue report

(Comparative CY – Successor accountant not associated with PY)

A
  1. Modify Intro Paragraph: add sentence indicating PY F/S were compiled (or reviewed) by another accountant

****If PA Compiled… indicate “were not audited or reviewed” & PA did not express opinion/assurance

****If PA Reviewed, indicated “based on [PA’s] their procedures, they are not aware of any…GAAP”

— Remained of report is unmodified

70
Q

CY: compile or review CY

PY: Audited (other accountant or current accountant)

What is the resulting report?

A
  • Issue standard report for the compilation or review

ADD explanatory paragraph, indicate PY’s:

  • F/S were audited by either the accountant or another accountant
  • Date of the report
  • opinion expressed
71
Q

Prescribed Form

A

any standard pre-printed form designed or adopted by the body to which it is submitted

*** “body” must not be primarily concerned with the sale or trading of securities (i.e. SEC)

72
Q

Prescribed form Departure vs. GAAP Departure

Effect on accountant’s report?

A

no difference. would be the same modifications (explanatory paragraphs)

73
Q

Prescribed form Standard Report vs. GAAP Standard Report

Difference in the accountant’s report?

A

Unmodified prescribed form report is very similar to the standard unmodified compilation report

Except for:

1) Intro: refer to the prescribed form, “accompanying prescribed form”
2) ADD Explanatory Paragraph: explicit indication “not intended to be pres. In accordance with GAAP in the USA”
3) Restricted Use Paragraph: “intended solely for, use of X, “not intended to be & should not be used by anyone other than these specified parties”

74
Q

(AR 400) SSARS

How is communication between Predecessor & Successor Accountants addressed by SSARS?

A

NOT required

  • BUT if SA chooses to in deciding whether to accept the engagement—- use RID-C

** at client’s permission

75
Q

What is the requirement regarding reporting Personal Financial Statements, per SSARS?

A

the F/S in personal financial plans NEED NOT be compiled, reviewed, or audited if:

  • the statements are to be used to assist the client in developing FINANCIAL GOALS & OBJECTIVES

&

  • WILL NOT be used to obtain credit
76
Q

What should the accountant’s report on Personal Financial Statements include?

A

Report should indicate that the F/S:

  • are for the financial plan
  • may be incomplete or contain GAAP departures & should NOT be used for other purposes (i.e. not used to obtain credit)
  • Have not been audited, reviewed, or compiled

CPA AUDIT (16 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions