M6.2 Flashcards
What is the hierarchy of engagements?
- Preparation
- Compilation
- Review engagement
- audit engagement
What is the objective of a preparation engagement
to prepare financials in accordance with financial framework, prepare using records, document, explanation which are provided by management
What is the classification of a preparation engagement?
non-attest
Is independence required for a preparation engagement?
No
What knowledge is required for a preparation engagement?
knowledge of the industry accounting principles and practices
What are the requirements for reporting for preparation engagements?
Include a statement on each page of FS that states “no assurance is provided”
Can you omit financial statements in a preparation engagement?
Yes- allowed to omit different FS if requested but you are required to disclose
What is the documentation requirements for a preparation engagement?
- engagement letter
- copy of financials prepared by accountant
- significant findings / issues
What are the applicable standards for a preparation engagement?
SSARS
What should be done if there are known departures from framework in a preparation engagement
If after discussions with management they decide that the FS contain known departures from the framework they should disclose information or withdraw
What disclosures should be included in a preparation arrangement
- omitted statements / reason
2. Known material departures
What is the objective of a compilation engagement?
Objective is to apply accounting and financial reporting expertise to assist management in the presentation of the financials
What level of assurance is provided for a compilation engagement
none
What is the applicable standards for a compilation engagement
SSARS
What is required knowledge for a compilation engagement
- Industry accounting principles / practices
- general understanding of business
- application of the applicable reporting framework
Are any procedures required for a compilation engagement
not required
Can disclosures be omitted for a compilation engagement
Inadequate disclosures required modification of standard compilation report
What should be done if there are material departures from the reporting framework for a compilation engagement
material departures from GAAP requires modification of standard compilation report
Is independence required for a compilation engagement
Not required but should be modified to state that the accountant is not independent
Is an engagement letter required for a compilation engagement
Yes - to establish understanding of services and document through written communication
is a representation letter required for a compilation engagement
no
Is an opinion given for a compilation engagement
no opinion
What are required procedures for a compilation engagement
- read financials before issuing
2. If fraud / illegal acts arise, consider impact on financials
What documentation is required for a compilation engagement
- engagement letter
- copy of financials
3 copy of accounting report - any significant findings (material misstatements, resolution of questions and concerns)
what disclosures are required for a compilation engagement
INclude that accounting does not provide an opinion
- include that the accountant is not independent
What is a review engagement?
A review engagement uses inquiry and analytical procedures ot provide limited assurance
What level of assurance is provided for a review engagement
limited
What is the applicable standard for a review engagement
SSARS
What knowledge is required for a review engagement
- industry accounting principles and practices
What are the inquiry procedures for a review engagement
- inquiry / analytical procedures required plus additional if info appears to be questionable
Can there be omitted disclosures for a review engagement
if there are inadequate disclosures - modification of standard review report
Is independence required for a review engagement
yes
Is an engagement letter required for a review engagement
yes
Is a representation letter required for a review engagement
yes
What is included in the standard report for a review engagement
- title
- Addressee
- Intro
- management rep letter
- accountant’s responsibility
- accountants conclusion
- signature
- city and state
- date
What is included in the intro for a review engagement
- financials were reviewed, review includes inquiry plus analytical procedures
- review issues are less in scope than an audit and the accountant does not provide an opinion
What’s the difference between a compilation and preparation
So in a preparation, the auditor is taking the accounting records, documents, and other information provided by management and physically preparing the financial statements. The auditor may also help mgmt with significant judgments concerning estimates and disclosures, etc. Mgmt is STILL responsible for these judgments. No assurance is provided and that should be clearly indicated on each page of the financials. Audit firm’s name is not required to be included in the financials.
In a compilation, no prep is done. The auditor is just reading the statements that are already prepared by client and the purpose is to determine whether they are appropriate in form and free from OBVIOUS material errors.
