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chapter 2 Flashcards

0
Q

Special purpose framework audit:

Other matter paragraph – ONLY FOR CONTRACTUAL/REGULATORY

A

restrict use if the report to those within the entity, parties in contract, or regulatory agencies. Negative assurance

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1
Q

Special purpose framework audit:

Auditor should-

A

Obtain know-

1) Purpose, intended users, steps taken by mgmt
2) obtain agreement by mgmt acknowledging their responsibility
3) obtain understanding of significant interpretations

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2
Q

Special purpose framework audit:

Emphasis of matter paragraph

A

1) indicates that FS is = applicable special purpose framework
2) refers to the note in FS that describes framework
3) States that the special purpose framework is a basis of accounting other than GAAP

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3
Q

Piecemeal opinion - on specific element, only appropriate (unmodified) if:

A

1) opinion not published with and does not accompany auditors report
2) specific element does not constitute major portion of the entity’s complete set of FS

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4
Q

Special purpose FS report should include:

A

1) title
2) an addresse
3) introductory paragraph that identifies the FS audited
4) description of mgmt responsibility - FS
5) description of mgmt responsibility - determine framework
6) description of purpose for preparation of FS in framework
7) description of auditors responsibility
8) opinion paragraph on special purpose
9) emphasis of matter
10) other paragraph that restricts use

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6
Q

Report on Summary FS - procedures

A

1) see that the summary FS adequately disclose their nature and identify the audited FS
2) see that the applied criteria are disclosed
3) see if summary FS can be agreed to or recalculated from the audited FS
4) see if the summary FS are prepared in accordance with the applied criteria
5) see if the summary FS contain the necessary info

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6
Q

Report on selected financial data:

A

Should be limited to data derived from audited FS

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7
Q

Engagement to report on summary FS - engagement acceptance

A

1) see if criteria applied by mgmt in preparation of summary FS are acceptable
2) obtain an agreement of mgmt that it acknowledges it’s responsiblities
3) obtain an agreement with mgmt in writing about the expected form and content of the report

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8
Q

When auditors modified opinion on complete set of FS is relevant to specific element:

A

Express an adverse opinion on the specific element when there is a material misstatement; disclaim opinion on specific element when the modified opinion on the FS is the result of a scope limitation

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9
Q

If auditing a complete set of FS and a single FS, or a specific element:

A

Issue a separate auditors report and express an opinion for each engagement. Reports can be together if differentiated and audit report of FS is unmodified

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10
Q

Compilation requirements:

A

1) knowledge of industry accounting principles and practices
2) understanding of clients business
3) reading the FS

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11
Q

Compilation requirements - understanding the clients business:

A 
Staff qualifications 
Transaction types and frequency
Accounting basis used to prepare FS
Form of the accounting records
FS form and content
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12
Q

Compilation - documentation requirement

A

1) engagement letter
2) significant findings or issues
3) oral or written communications with mgmt regarding fraud

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13
Q

5 elements of compilation and review engagements

A

1) a 3 party relationship involving mgmt, an accountant, and intended users
2) an applicable financial framework
3) FS or financial info
4) sufficient appropriate evidence
* **review only
5) a written report

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14
Q

Compilation - independence required?

A

No. But lack of independence must be disclosed in the last paragraph of the compilation report

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15
Q

Reporting on compilation

A

CAR

MR

ARSOM

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16
Q

Reporting on compilation - additional requirements

A

1) each page s/b marked ‘see accountants compilation’
2) SSARS does not require that the compilation report be printed on the accountants letterhead
3) at accountants discretion, explanatory paragraph can be made to emphasis matters

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17
Q

Review requirements

A

U LIAR CPA

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18
Q

SSARS require an accountant to report when:

A

An accountant ‘submits’ FS. Submission is presenting FS to a client that the accountant has prepared either manually or use of computer software

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19
Q

The following audit procedures generally are not performed in a review :

A

1) tests of the accounting records
2) tests of mgmts assertions regarding continued existence
3) inquires of the entity’s attorney concerning contingent liabilities

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20
Q

Compilation report not required if:

A

The compiled FS are not expected to be used by a third party

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21
Q

Reporting on comparative FS -

All periods compiled or reviewed

A

Continuing accountant should update the report on the prior period and issue it as part of the current report

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22
Q

Reporting on comparative FS -

Current period reviewed and prior period compiled

A

Higher level of service in current period, the report in the prior period should be updated and issued as the last paragraph of the current periods report

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23
Q

Reporting on comparative FS -

Current period compiled and prior period reviewed

A

Options:

1) issue a compilation report and add a paragraph to the report on the current period statements
2) reissue the prior period review report
A) can be combined with CP compilation
OR
B) presented separately from the current period compilation

24
Q

Comparative FS - compiled FS that omit substantially all disclosures

A

Do not issue a report on comparative FS when statements for one or more but not all periods presented omit all disclosures required by GAAP

25
Q

Other accountants involved-

Predecessor accountants compilation or review report reissued unchanged

A

They should:
1) decide if their report is still appropriate
2) perform following procedures:
A) read FS and current period report
B) compare the prior period stmts with those issued previously and currently
C) obtain letter from successor accounts stating that they are not aware of any relevant info that might have a material effect on the prior P

26
Q

Comparative FS - predecessor report not reissued: expanded report

A

Add additional paragraph mentioning the following:

1) a statement that the prior periods were compiled or reviewed by other accountants
2) the date of their report
3) a description of the standard form of disclaimer or limited assurance given in the prior report
4) a description of any modifications contained in the report

27
Q

Comparative FS - current period unaudited and prior period audited

A

Accountant should issue the current period compilation or review report and add additional paragraph stating :

1) prior period stmts were audited
2) the date of the previous reports
3) the opinions expressed and, the reasons for the modification
4) that no auditing procedures have been performed since the previous date

28
Q

Comparative FS - predecessors report not reissued

A

1) make reference to the report of the predecessor accountants in current period
OR
2) perform that level of service themselves

29
Q

Comparative FS - current period audited and prior period unaudited

A

Include an other matter paragraph that states:

1) the service performed in the period prior
2) the date of the prior period report
3) a description of any material modifications described in the report
4) a stmt that the service was less in scope than an audit and did not provide the basis for an opinion

30
Q

Revision of interim FS - non-issuers

A

May do if:

1) the latest FS have been audited
2) the auditor has either been engaged to audit the entity’s CY FS, or audited the entity’s latest annual FS
3) the same financial reporting framework is used for the Interim FS as for annual FS
4) the interim Financial info is condensed info

31
Q

Objective of a review engagement

A

To determine whether material modifications are necessary for the information to be in conformity with the applicAble financial framework

32
Q

Review of issuers interim financial info

A

Report should include a stmt that the review was conducted in accordance with the standards of the PCAOB

33
Q

Comfort letter

A

A letter from the CPA to the named underwriter and other requesting parties just before the registration of the clients securities. Not required by or filed with SEC

34
Q

Must do when comfort letter is to be issued:

A

Perform a review of interim financial info

35
Q

To obtain a comfort letter:

A

The requesting party must provide the auditor with an attorney’s opinion or rep letter

36
Q

Comfort letter - restricted use

A

A comfort letter must include a stmt that the letter is solely for the info of the addressees and to assist the underwriters in conducting and documenting their investigation of the company affairs

37
Q

When the auditor should not comment or provide assurance

A

1) market risk sensitive instruments

2) qualitative disclosures

38
Q

Trust services

A

Assurance and advisory services used to address the risks and probs related to IT. Five essential principles:
Security, availability, processing integrity, online privacy and confidentiality

39
Q

WebTrust engagements

A

Provide assurance related e-commerce.

40
Q

SysTrust engagements

A

Provide assurance with respect to the reliability of any defined electronic system

41
Q

Attestation standards differ from GAAS

A

1) no reference is made to FS
2) no reference is made to GAAP
3) attestation standards provide levels of assurance below that provided by a GAAS audit

42
Q

Attestation Standards - general

A 
Training
Independence
Performance/due professional care
Professional, adequate knowledge 
Your belief that the subject matter is capable of evaluation
43
Q

Attestation Standards - fieldwork

A

Planing and supervision

Appropriate, sufficient evidence

44
Q

Attestation Standards - reporting

A

Subject matter or assertion being reported on
Significant reservations about the engagement
Express conclusions about subject matter
Restrict use of the report to specified parties

45
Q

Conditions for agreed-upon procedures

A

Independence of the practitioner

Agreement of the parties
Measurability and consistency

Sufficiency of the procedures
Use of the report is restricted
Responsibility for the subject matter
Engagements to perform agreed-upon procedures on prospective financials

46
Q

Attestation - restrict use of the report to specified parties when:

A

1) the criteria are appropriate for or available to only a limited number of parties
2) reporting on subject matter and written assertion has not been provided
3) reporting on an agreed-upon procedure engagement

47
Q

Financial Forecast

A

Best guess: available for general or limited use

48
Q

Agreed upon procedures- reporting requirements

A
  • title, with date and signature
  • ID of specified parties,subject matter
  • stmt that subject matter is by mgmt
  • stmt that procedures performed are agreed upon, descripton
  • Stmt that the sufficiency of the procedures is by mgmt
  • stmt that conducted in accordance wth attestation - AICPA
  • list of procedures performed
  • stmt that CPA was not engaged to conduct an examination
  • stmt on restriction on report use
  • reservations concerning procedures
49
Q

Financial projection

A

What would happen if; limited use only

50
Q

Examination of a financial forecast is a professional service that involves:

A

1) evaluating the preparation of the prospective FS
2) evaluating the support underlying the assumptions
3) evaluating the presentation of the prospective FS in conformity with AICPA guidelines
4) issuing an examination report

51
Q

Modifications to the opinion when:

A

1) AICPA presentation guidelines are not followed - QUALIFIED OR AD
2) significant assumptions are not disclosed - AD
3) basis not reasonable - one or more sig assumptions do not provide a reasonable basis for the FS - AD
4) scope limitation - DISCLAIMER

52
Q

Examination of prospective FS - report contains:

A

1) ID of the prospective FS presented
2) ID of the responsible party and stmt saying responsible party
3) stmt that CPA responsiblity is to express an opinion on the stmts
4) stmt that the exam was done by attestation standards; AICPA
5) stmt that the practicitoner believes that the exam provides reasonable basis for opinion
6) opinion that the underlying assumptions provide a reasonable basis for the forecast
7) caveat that the results may not be achieved
8) stmt that the practitioner assumes no responsibility to update report
9) for projection - include description; restrictive use

53
Q

Engagement change from review to compilation

A

must have reasonable justification for change; no reference made regarding original engagement

54
Q

Review Report Form

A

AM I SAD MR FIRSALA

55
Q

Compilation report of financial forecast:

A

1) ID of the prospective FS the responsible party
2) a stmt that the practicitoner has compiled in accordance with attestation standards
3) stmt that a compilation is limited in scope and does not enable the practictioner to express an opinion
4) a caveat that the prospective results may not be achieved
5) stmt that the practicitoner assumes no responsibility to update report
6) stmt that the compilation does not include evaluation of the support of the assumptions underlying the forecast

56
Q

CANNOT COMPILE PROSPECTIVE FINANCIAL STMTS

A

if the entity fails to disclose a summary of the significant assumptions

58
Q

Compilation report of financial projection (limited use):

A

changed slightly to include:

  • a description of the purpose of the projection at the end of the first paragraph
  • a reference to the hypothetical assumption
  • paragraph restricting the use of the report

AUDIT (7 decks)

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