Preparation, Compilation, Review, and Attestation Flashcards
What type of Statements on Standards for Accounting and Review Services (SSARSs) engagement does not require Independence?
A Compilation Engagement
THE CAVEAT IS THAT THE CPA SHOULD DISCLOSE THE LACK OF INDEPENDENCE
What statement should be included when a CPA compiles financial statements of a nonissuer in accordance with SSARSs?
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
What statement should be included when a CPA reviews financial statements of a nonissuer in accordance with SSARSs?
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
What is a CPA firm providing SSARSs services required to have?
An effective quality control system
E.g. This includes a monitoring process designed to provide the firm with reasonable assurance
What type of assurance does a review engagement provide?
LIMITED ASSURANCE
Thus, it ordinarily does not involve activities such as obtaining an understanding of the entity’s internal control
What type of report does an examination involve?
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
What statement should be accompanied in a report on a review of Financial statements of a nonissuer the CPA completed?
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
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?
The CPA should not accept a review engagement
What types of engagements do Statements on Standards for Accounting and Review Services (SSARSs) apply to?
SSARSs apply ONLY to engagements involving nonissuers (e.g. nonpublic entities)
What type of SSARSs engagement should a CPA make inquiries about material subsequent events?
The CPA should make these types of inquiries in Review engagements
For what types of services may a CPA accept a compliance attest engagement to perform?
(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
What should NOT be included in a presentation of pro forma financial statements?
All DIRECT and INDIRECT effects attributed to the related transaction
They should include material direct effects
What type of report does NOT require a report under Statements on Standards for Accounting and Review Services (SSARSs)?
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
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?
He should disclose this departure from generally accepted accounting principles in a separate paragraph of the report
What type opinion is expressed in a review engagement?
NO OPINION is expressed in a Review
Remember: A review provides Limited Assurance
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?
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
What should a CPA make the client aware of WHEN;
- they accept an engagement to compile a financial projection?
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
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?
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
Under what condition can a CPA accept an engagement to apply agreed-upon procedures to prospective financial statements?
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
What type of Preparation engagement is NOT allowed?
E.g. What type of Financial Statement can a CPA NOT make?
presenting statements other than for an annual period comparatively with statements for an annual period
- This is usually is inappropriate
Which engagements of the SSARs engagements require an Engagement (e.g. agreement) Letter?
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
