Chapter 2 Section 2: Preparation, Compilation, and Review of Financial Statements Flashcards
Is assurance provided in:
Preparation
Compilation
Review
No
No
Limited
Are the following attest services:
Preparation
Compilation
Review
No
Yes
Yes
Is independence required for:
Preparation
Compilation
Review
No
No, but say if you aren’t
Yes
If you perform more than one service, which report do you issue?
The report appropriate for the highest level of service rendered
What standards are used for the preparation, compilation, or review of private (nonissuer) companies?
Statements on Standards for Accounting and Review Services
SSARS
What standards are used for reviews of interim financials of nonissuers whose annuals financials are auditede?
Statements on Auditing Standards
SAS
Who are the three parties involved in preparation, compilation, and review engagements?
Management, accountant, and intended user
How important are engagement letters?
They are required
Is obtaining sufficient appropriate evidence required?
Only for reviews
What is required on each page of the report if you prepare it?
A disclaimer or indication that no assurance is provided
Do you need to restrict the use of statements you prepare?
No, just make sure it’s known that no assurance is provided
What do you do if the financials are inaccurate or incomplete?
Disclose it in the notes
Are you allowed to prepare financials with no notes?
Yes, but the omission must be disclosed in the financials and it can’t be misleading
What type of issuers are compilations done for?
Nonissuers
In a compilation, what must the accountant understand about the client’s business?
STAFF
Staff qualifications Transaction types and frequency Accounting basis used to prepare the financials Form of the accounting records Financial statements' form and content
What do you do if, during a compilation, the client refuses to give you answers you need?
Withdraw
What documentation to show you complied with SSARS should be gathered in a compilation?
Engagement letter Significant findings or issues Oral or written communications with management Copy of financials Copy of accountant's report
What phrases are required in a standard compilation report?
MR SAG CES NA(G) ACE
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
What is noticeably not included in a compilation report?
No separate paragraphs and no headings and no assurance
What if you do a comp for financials in accordance with OCBOA?
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
Can you report on a comp that has no disclosures?
Yes, but the omission must be disclosed and it can’t be misleading
What do you do if the comp has departures from the framework?
Disclose or withdraw
What are the performance requirements for a review?
U LIAR CPA
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
What does the accountant not need to do in a review?
Test internal control
Perform audit tests
Assess fraud risks
Communication with predecessor accountant
Who are inquiries addressed to in a review?
Only internal people. No verification outside the company
What analytical procedures are needed for a review?
Ratios and comparisons. Look for predictable patterns - we want them
What other review procedures should be done?
Read the financials for conformity with the framework
Obtain reports of other accountants engaged to audit components of the entity
What happens if management doesn’t give you a client rep letter?
It’s an incomplete review
What does the client rep letter need to say?
14 things
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
What do you do if there is an incomplete review?
Can’t issue a report
What documentation should be obtained during a review?
What is not required?
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
What is additionally required if doing a review for special purose framework?
Mgmt’s responsibility for appropriateness
Emphasis of matter paragraph saying what it is
If regulatory or contractual, a description of the purpose
What phrases need to be included in a review report?
RAM SAD MR DIM AR SAL AC NAM
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
What do you do if you find material departures from framework in a review?
Disclose it or withdraw. You can’t issue an adverse or except for opinion because it’s not an audit
What do you do if you find noncompliance or fraud in a review?
If material, tell management. If they don’t fix it, withdraw
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?
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
What is required when you compile or review financials with supplementary info?
Indicate the degree of responsibility you’re taking for the supp info in an other matter paragraph or separate report
Are you allowed to change the engagement?
Only if justified (change in requirements or misunderstanding or original engagement)
What do you do if the client creates a limited scope or wants to change the engagement for unacceptable reasons?
Consider withdrawing
