M4-Agreed-Upon Procedures and Prospective Financial Statements Flashcards
The accountant’s compilation report on a client’s financial forecast should include a caveat that the prospective results may not be achieved. (true or false)
true
The accountant expresses no assurance in the compilation report on forecasted statements.
The accountant’s report on a review of pro forma financial information should include a reference to the financial statements from which the historical information is derived and a statement as to whether such financial statements were audited or reviewed. (true or false)
true
A compilation of prospective financial statements is not intended to provide assurance on the prospective financial statements or the assumptions underlying such statements. (true or false)
true
The report on compilation should include a statement that:
- the accountant assumes no responsibility to update the report for events subsequent to the report date
- describes the limitations on the presentation’s usefulness
- the compilation engagement was performed in accordance with Statements on Standards for Accounting and Review Services
“Partial presentations” are presentations of prospective financial information which would not ordinarily be appropriate for general use because they omit one or more of these essential elements:
(a) sales or gross revenue
(b) gross profit or cost of sales
(c) unusual or infrequently occurring items
(d) provision for income taxes
(e) discontinued operations or extraordinary items
(f) income from continuing operations
(g) net income
(h) earnings per share
(i) significant changes in financial position
A presentation of pro forma financial statements should include all significant direct effects related to the transaction. The presentation does not need to include INdirect effects related to the transaction. (true or false)
true
Financial projections are hypothetical, “what if” prospective financial statements. Because the user may need to ask the responsible party questions about the underlying assumptions, financial projections are “restricted use” reports, whose use is restricted to the responsible part and those third parties with whom the responsible party is negotiating directly. (true or false)
true
An agreed-upon procedures report should include a list of the specific procedures performed. (true or false)
true
In an examination of prospective financial statements, if the assumptions do not provide a reasonable basis for the prospective financial statements, then the practitioner should express and adverse opinion. (true or false)
true
In an agreed-upon procedures engagement, use of the report is restricted to the specified users. (true or false)
true
A financial forecast is appropriate for general use, but a financial projection is not. (true or false)
true
When a CPA examines projected financial statements, the standard report should include a statement that the examination “…included such procedures as we considered necessary to evaluate both the assumptions used by management and the preparation and presentation of the projection.” (true or false)
true
An accountant performing an engagement to compile prospective financial statements should make inquiries about the accounting principles used in the preparation of the prospective financial statements. (true or false)
true
When an accountant accepts a compilation engagement, he or she should indicate that it is limited in scope and would not include an opinion or assurance on the projected financial statements or the related assumptions. (true or false)
true
A statement referring to standards established by the AICPA should be included in a practitioner’s report on the application of agreed-upon procedures. (true or false)
true
Agreed-upon procedure engagements provide no assurance. Reviews provide limited (negative) assurance. (true or false)
true
