Preparation, Compilation, Review, and Attestation

Question 1

What type of Statements on Standards for Accounting and Review Services (SSARSs) engagement does not require Independence?

Answer 1

A Compilation Engagement

THE CAVEAT IS THAT THE CPA SHOULD DISCLOSE THE LACK OF INDEPENDENCE

Question 2

What statement should be included when a CPA compiles financial statements of a nonissuer in accordance with SSARSs?

Answer 2

A statement that the CPA does not express an opinion on the financial statements

Why? - Because the CPA did not audit or review the statements; and

• was not required to verify the completeness or accuracy of management’s information

Question 3

What statement should be included when a CPA reviews financial statements of a nonissuer in accordance with SSARSs?

Answer 3

A statement that the accountant is not aware of material modifications that should be made to the financial statements for them to be in conformity with GAAP

Question 4

What is a CPA firm providing SSARSs services required to have?

Answer 4

An effective quality control system

E.g. This includes a monitoring process designed to provide the firm with reasonable assurance

Question 5

What type of assurance does a review engagement provide?

Answer 5

LIMITED ASSURANCE

Thus, it ordinarily does not involve activities such as obtaining an understanding of the entity’s internal control

Question 6

What type of report does an examination involve?

Answer 6

An examination results in issuance of a report stating the practitioner’s opinion on whether;

(1) the presentation conforms with AICPA guidelines and;
(2) the assumptions provide a reasonable basis for the forecast

NOTE: If significant assumptions are not disclosed in the presentation (to include summary of assumptions) then the CPA issues an ADVERSE Opinion

Question 7

What statement should be accompanied in a report on a review of Financial statements of a nonissuer the CPA completed?

Answer 7

A statement that:

“All information included in the financial statements is the representation of the management of the entity.”

E.g. This would be included in the second paragraph of the report

Question 8

What should the CPA do when the client requests they change the engagement from an audit to a review;

• because the client refuses the CPA communication with client’s legal counsel?

Answer 8

The CPA should not accept a review engagement

Question 9

What types of engagements do Statements on Standards for Accounting and Review Services (SSARSs) apply to?

Answer 9

SSARSs apply ONLY to engagements involving nonissuers (e.g. nonpublic entities)

Question 10

What type of SSARSs engagement should a CPA make inquiries about material subsequent events?

Answer 10

The CPA should make these types of inquiries in Review engagements

Question 11

For what types of services may a CPA accept a compliance attest engagement to perform?

Answer 11

(1) Application of Agreed Upon Procedures
(2) An Examination

The CAVEAT for the agreed upon procedures is that the;

• specified users MUST participate in establishing the procedures to be applied and take responsibility for the adequacy of such procedures

Question 12

What should NOT be included in a presentation of pro forma financial statements?

Answer 12

All DIRECT and INDIRECT effects attributed to the related transaction

They should include material direct effects

Question 13

What type of report does NOT require a report under Statements on Standards for Accounting and Review Services (SSARSs)?

Answer 13

Preparations do NOT require a report

REMEMBER: A preparation is a service to prepare financial statements without attaching a report or determining whether the accountant is independent

AGAIN: Preparation engagement = NO Report

Question 14

What should a CPA do when they are completing a review engagement and discover a lack of adequate disclosure that is material to the financial statements?

Answer 14

He should disclose this departure from generally accepted accounting principles in a separate paragraph of the report

Question 15

What type opinion is expressed in a review engagement?

Answer 15

NO OPINION is expressed in a Review

Remember: A review provides Limited Assurance

Question 16

What is the contingency for a CPA if they compile the financial statements of a nonissuer intended for third-party use that omits all of the disclosures required by U.S. GAAP?

Answer 16

He must clearly indicate this in his report; and

clearly report that the omission is NOT undertaken with the intention of misleading the financial statement users

Question 17

What should a CPA make the client aware of WHEN;

• they accept an engagement to compile a financial projection?

Answer 17

They would make the client aware that the;

• Engagement does not include an evaluation of the support for the assumptions underlying the projection

Why? - Because a compilation provides limited in scope and does not enable the practitioner to express an opinion;

• thus it should state that evaluation was completed on the underlying financial projection

Question 18

What if nonissuer (e.g. Nonpublic Company) requests that a CPA change an audit engagement to a review engagement and the CPA agrees to the change?

HOW should the accountant’s review report be modified?

Answer 18

The CPA should;

• Issue the review report without mentioning the change in engagement

Why? -Because the subsequent report should not refer to the original engagement Hence the change in engagement is not mentioned

NOTE: the auditor should consider the reason for the request

Question 19

Under what condition can a CPA accept an engagement to apply agreed-upon procedures to prospective financial statements?

Answer 19

When the use of the report is restricted to specified users

E.g. The report should be in the form of procedures performed and the findings based on those procedures

Question 20

What type of Preparation engagement is NOT allowed?

E.g. What type of Financial Statement can a CPA NOT make?

Answer 20

presenting statements other than for an annual period comparatively with statements for an annual period

• This is usually is inappropriate

Question 21

Which engagements of the SSARs engagements require an Engagement (e.g. agreement) Letter?

Answer 21

ALL 3 - The Preparation, Compilation and Review Engagement all require the written agreement (e.g. Engagement Letter) which;

• describes the terms of the engagement

CAVEAT - Neither the Preparation nor Compilation engagement require a Management Rep Letter

Why? - Because the CPA is NOT gathering evidence to express an opinion