Chapter 2 Section 2: Preparation, Compilation, and Review of Financial Statements

Question 1

Is assurance provided in:
Preparation
Compilation
Review

Answer 1

No
No
Limited

Question 2

Are the following attest services:
Preparation
Compilation
Review

Answer 2

No
Yes
Yes

Question 3

Is independence required for:
Preparation
Compilation
Review

Answer 3

No
No, but say if you aren’t
Yes

Question 4

If you perform more than one service, which report do you issue?

Answer 4

The report appropriate for the highest level of service rendered

Question 5

What standards are used for the preparation, compilation, or review of private (nonissuer) companies?

Answer 5

Statements on Standards for Accounting and Review Services

SSARS

Question 6

What standards are used for reviews of interim financials of nonissuers whose annuals financials are auditede?

Answer 6

Statements on Auditing Standards

SAS

Question 7

Who are the three parties involved in preparation, compilation, and review engagements?

Answer 7

Management, accountant, and intended user

Question 8

How important are engagement letters?

Answer 8

They are required

Question 9

Is obtaining sufficient appropriate evidence required?

Answer 9

Only for reviews

Question 10

What is required on each page of the report if you prepare it?

Answer 10

A disclaimer or indication that no assurance is provided

Question 11

Do you need to restrict the use of statements you prepare?

Answer 11

No, just make sure it’s known that no assurance is provided

Question 12

What do you do if the financials are inaccurate or incomplete?

Answer 12

Disclose it in the notes

Question 13

Are you allowed to prepare financials with no notes?

Answer 13

Yes, but the omission must be disclosed in the financials and it can’t be misleading

Question 14

What type of issuers are compilations done for?

Answer 14

Nonissuers

Question 15

In a compilation, what must the accountant understand about the client’s business?

STAFF

Answer 15

Staff qualifications
Transaction types and frequency
Accounting basis used to prepare the financials
Form of the accounting records
Financial statements' form and content

Question 16

What do you do if, during a compilation, the client refuses to give you answers you need?

Answer 16

Withdraw

Question 17

What documentation to show you complied with SSARS should be gathered in a compilation?

Answer 17

Engagement letter
Significant findings or issues
Oral or written communications with management
Copy of financials
Copy of accountant's report

Question 18

What phrases are required in a standard compilation report?

MR SAG CES NA(G) ACE

Answer 18

Management is Responsible
for the Statements… in accordance with Accounting principals Generally accepted in the US
we’ve performed Compilation Engagements in accordance with Ssars
did Not Audit or review
do not verify the Accuracy or Completeness… do not Express an opinion

Question 19

What is noticeably not included in a compilation report?

Answer 19

No separate paragraphs and no headings and no assurance

Question 20

What if you do a comp for financials in accordance with OCBOA?

Answer 20

Add a paragraph that states that management is responsible for making sure it’s appropriate and that they are prepared in accordance with it and where the note describing it is

Question 21

Can you report on a comp that has no disclosures?

Answer 21

Yes, but the omission must be disclosed and it can’t be misleading

Question 22

What do you do if the comp has departures from the framework?

Answer 22

Disclose or withdraw

Question 23

What are the performance requirements for a review?

U LIAR CPA

Answer 23

Understanding with client
Learn or obtain sufficient knowledge of their business
Inquiries
Analytical procuedures
Review (perform other procedures)
Client representation letter
Professional judgment should be used
Accountant should communication results

Question 24

What does the accountant not need to do in a review?

Answer 24

Test internal control
Perform audit tests
Assess fraud risks
Communication with predecessor accountant

Question 25

Who are inquiries addressed to in a review?

Answer 25

Only internal people. No verification outside the company

Question 26

What analytical procedures are needed for a review?

Answer 26

Ratios and comparisons. Look for predictable patterns - we want them

Question 27

What other review procedures should be done?

Answer 27

Read the financials for conformity with the framework

Obtain reports of other accountants engaged to audit components of the entity

Question 28

What happens if management doesn’t give you a client rep letter?

Answer 28

It’s an incomplete review

Question 29

What does the client rep letter need to say?

14 things

Answer 29

Mgmt has fulfilled responsibility
Acknowledges responsibility for DIM
Provided accountant with info and access
Responded truthfully to inquiries
Transactions are recorded and reflected in financials
Knowledge of fraud is disclosed
Allegations of suspected fraud are disclosed
Noncompliance (and suspected) is disclosed
If effects of uncorrected mistakes are immaterial
Known actual or possible litigation is disclosed
Assumptions and estimates are reasonable
Related parties and transactions are disclosed
Subsequent events are dealt with
Relevant additional representations are disclosed

Question 30

What do you do if there is an incomplete review?

Answer 30

Can’t issue a report

Question 31

What documentation should be obtained during a review?

What is not required?

Answer 31

Engagement letter
Findings, actions taken, and basis of conclusions
Inquiry and response
Analytical procedures performed
Communications with management
Communications with other accountants
Management rep letter
Copy of reviewed financials and your report
Don’t need test of internal control or audit test work

Question 32

What is additionally required if doing a review for special purose framework?

Answer 32

Mgmt’s responsibility for appropriateness
Emphasis of matter paragraph saying what it is
If regulatory or contractual, a description of the purpose

Question 33

What phrases need to be included in a review report?

RAM SAD MR DIM AR SAL AC NAM

Answer 33

Reviewed… Applying analytical procedures and Making inquiries
Substantially less in scope than an Audit… Do not express an opinion
Management’s Responsibility
Design, Implementation, Maintenance
Accountant’s Responsibility
in accordance with Ssars… of the Aicpa… Limited assurance
Accountant’s Conclusion
Not Aware of any Material modification

Question 34

What do you do if you find material departures from framework in a review?

Answer 34

Disclose it or withdraw. You can’t issue an adverse or except for opinion because it’s not an audit

Question 35

What do you do if you find noncompliance or fraud in a review?

Answer 35

If material, tell management. If they don’t fix it, withdraw

Question 36

What do you do if you find facts that existed at the date of the comp or review report that you didn’t know were there?

What if they refuse?

Answer 36

Tell the client to issue revised financials
Tell them to make disclosures and revisions to imminent financials
If you don’t know what the impact will be, say they can’t be relied upon

Tell clients, reg agencies, and relying parties they can’t rely on it

Question 37

What is required when you compile or review financials with supplementary info?

Answer 37

Indicate the degree of responsibility you’re taking for the supp info in an other matter paragraph or separate report

Question 38

Are you allowed to change the engagement?

Answer 38

Only if justified (change in requirements or misunderstanding or original engagement)

Question 39

What do you do if the client creates a limited scope or wants to change the engagement for unacceptable reasons?

Answer 39

Consider withdrawing