Chapter 19 Flashcards
Types of Attestation Services
- Examinations
- Review
- Agreed-upon procedures
Review of financial Statements
- Nonpublic companies may not need an audit of annual financial information
- CPAs follow Statement on Standards for Accounting and Review Services (SSARS)
- Review (AR-C 90)
Attest service in which the accountants
Perform analytical procedures
Make inquiries of management and others
Obtain representation from management relating to financial statements
Report provides limited (negatives) assurance.
Review Procedures
1- Screen clients
2- Engagement Letters
3- Review Procedures
No knowledge of client's internal control required Analytical procedures Inquiries of management 4- Obtain representation letter in which management acknowledges Responsibility for financial statements conformity with GAAP Responsibility to prevent and detect fraud and to divulge knowledge of actual or suspected fraud. Responsibility to respond fully and truthfully to all inquiries.
Key words in a Review report for Nonpublic Companies= Introductory
We have REVIEWED……
“A review includes primarily applying analytical procedures to management’s financial data and making inquiries of company management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole.”
Key words Review report accountant responsibility
“Our responsibility is to conduct the review engagement in accordance with statement on Standards for accounting and review services.
Those standards require us to perform procedures to obtain LIMITED ASSURANCE….
Key word Review report- Accountant’s conclusion
We are not aware of any material modifications that should be made to…
Review Report Modifications
- Departure from GAAP
Modify third paragraph and describe departure in separate paragraph - No modifications required for:
- Lack of consistent application of GAAP
- Existence of major uncertainties including going-concern uncertainties
- Scope limitation- no review report.
Review of Public Companies
- Required to file quarterly financial information with SEC on 10-Q
- Auditor reviews not audits information
- Objective of review
- Provide accountants a basis for communicating whether they are aware of any material modifications to conform with GAAP.
- Steps in review
Engagement letter to document understanding
Understand the client’s business and internal control.
This required understanding of internal control for public company reviews is not required for nonpublic company reviews.Other review procedures- similar to nonpublic companies.
Accounting Services
- Reports provide no explicit assurance that the information constitutes a fair presentation
- Types of Compilations
- Compilation of Financial Statements for nonpublic companies
- Compilations of prospective financial information
- Compilation (AR-C 80)
- Service in which accountants assist in the preparation of financial statements without providing any assurance on them
- Must at least read compiled statements for appropriate format and obvious material misstatements
- Financial Statement Preparation (AR-C 70)
- Prepare financial statements, which remains management’s representations.
Compilation report-paragraph for public companies
- “we did not audit or review the financial statements nor were we required to perform any procedures to verify the accuracy or completeness of the information provided by management. Accordingly, we do not express an opinion, a conclusion, nor provide any form of assurance on these financial statements.
Preparation of Financial Statements
- Accountants may prepare financial statemetns, a lesser service than a compilation
- Each page of the financial statements should indicate that no CPA provides any assurance on them.
- No report is issued (unless each page does not have the above indication re no assurance)
