M6.2 Flashcards by Meghan Loose

What is the hierarchy of engagements?

Preparation
Compilation
Review engagement
audit engagement

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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

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What is the classification of a preparation engagement?

non-attest

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Is independence required for a preparation engagement?

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What knowledge is required for a preparation engagement?

knowledge of the industry accounting principles and practices

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What are the requirements for reporting for preparation engagements?

Include a statement on each page of FS that states “no assurance is provided”

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Can you omit financial statements in a preparation engagement?

Yes- allowed to omit different FS if requested but you are required to disclose

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What is the documentation requirements for a preparation engagement?

engagement letter
copy of financials prepared by accountant
significant findings / issues

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What are the applicable standards for a preparation engagement?

SSARS

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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

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What disclosures should be included in a preparation arrangement

omitted statements / reason

2. Known material departures

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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

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What level of assurance is provided for a compilation engagement

none

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What is the applicable standards for a compilation engagement

SSARS

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What is required knowledge for a compilation engagement

Industry accounting principles / practices
general understanding of business
application of the applicable reporting framework

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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

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

1. title 2. Addressee 3. Intro 4. management rep letter 5. accountant's responsibility 6. accountants conclusion 7. signature 8. city and state 9. 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.