Preparation, Compilation, Review and Attestation III Flashcards
What should a CPA do if the client requests that they perform normal accounts receivable audit confirmation procedures during the course of a Compilation engagement?
The CPA should……..PERFORM THEM!
Why? - Because; The confirmation procedures are a part of an accounting service and are NOT performed for the purpose of conducting an audit in accordance with GAAS
Key Take away - CPAs may perform other accounting services either in connection with a preparation, compilation, or review of unaudited financial statements
What statement/ language may an accountant consider including in his report on each page of the reviewed financial statements?
The CPA may consider including on each page of the reviewed financial a statement such as:
“See Independent Accountant’s Review Report”
NOTE: AR-C 90 does not use the word “must” in this context; this means that it is NOT a require item to be included on each page of the report
What are a few items that a Review report would not include?
(1) An inability to Assess RMM due to Fraud
(2) Discovery of Significant Deficiencies in the Design of Internal Control
What IS the CPA’s responsibility to detect fraud WHEN engaged to compile unaudited financial statements?
The CPA’s responsibility includes informing the client that the engagement cannot be relied upon to disclose fraud and noncompliance with laws and regulations
E.g. Such an engagement would usually include a statement such as;
- “Our engagement cannot be relied upon to identify or disclose any financial statement misstatements, including those caused by fraud or error…….”
What would be considered a Review procedure conducted by a CPA?
Performing a “reasonableness test”
What would NOT be included in an CPA’s report based on a Review engagement?
A statement that the review was in accordance with GAAS
REMEMBER : GAAS apply to audits, not reviews. A review is in accordance with SSARSs issued by the AICPA
What should be included in a CPA’s report if;
- He audited the Financial Statements in the previous year (with a qualified opinion issued); and
- reviewed the statements the following year
Caveat: The statements were NOT reissued
The report should include;
- Substantive reasons for the prior year’s qualified opinion
What type of engagements do Statements on Standards for Accounting and Review Services (SSARs) establish standards and procedures for?
Preparing an individual’s personal financial statement to be used to obtain a mortgage
NOTE: This falls under AR-C 70
What is the Rule regarding the printing of a CPA’s letterhead and the manual signature for a compilation report under SSARs?
The compilation report need not be printed on the CPA’s letterhead nor manually signed by them
However, the report must be signed by the accounting firm or the CPA as appropriate
Thus, the signature may be manual, printed, or digital
What type of opinion would a CPA issue for an examination of prospective financial statements if;
- concluded that the assumptions did not provide a reasonable basis for the prospective financial statements?
The CPA would issue an ADVERSE Opinion
Why? - Because the CPA has decided that significant assumptions were not disclosed (e.g. inadequate disclosure)
inadequate disclosure = must express an adverse opinion
What is an implicit statement made by a CPA in a Compilation report?
The accountant is independent with respect to the entity
E.g. The compilation report does not refer to independence unless the accountant determines that he is not independent
What are Financial Projections?
They are Prospective Financial Statements of one or more hypothetical assumptions;
- which are conditions or actions not necessarily expected to occur
What are Pro forma financial statements?
Pro forma statements are essentially historical statements
WHEN is a CPA required to comply with the provisions of Statements on Standards for Accounting and Review Services (SSARs)?
WHEN the CPA performs a preparation, compilation, or review in accordance with SSARSs
What type of opinion may a CPA’s report on an examination of pro forma financial information (PFFI) provide?
The CPA may provide a;
- unmodified, qualified, or adverse opinion
What would a CPA’s report on a standard report for a compilation of a projection include?
- The compilation of a projection is limited in scope
2. There will usually be differences between the forecasted and actual results;
What should a CPA do if during a compilation of financial statements of a nonpublic entity, the CPA decides that modification of the standard report is not adequate to indicate deficiencies in the financial statements as a whole?
Caveat is - the client is not willing to correct the deficiencies
The CPA should therefore;
- Withdraw from the engagement
NOTE: Because the CPA believes that modification of the report is not adequate to indicate the deficiencies
He should withdraw from the compilation engagement
What conditions constitute a “Prospective financial statements for general use”?
Prospective financial statements are for general use if;
- they are for use by persons with whom the responsible party is not negotiating directly
E.g. in an offering statement of the party’s securities
Hence, ONLY a Financial Forecast is appropriate for General Use
Under what conditions may a CPA change an audit to a SSARs (e.g. a Review) engagement based on a client’s request?
The CPA may grant this request if the audit is no longer needed by the client
E.g. The accountant (1) concludes that the change is reasonably justified and (2) complies with the standards applicable to a SSARs engagement
What should a CPA do if they believe that modification is not adequate to indicate the deficiencies in the financial statements as a whole during a review engagement?
If the CPA believes that modification is not adequate to indicate the deficiencies in the financial statements as a whole
- He should withdraw from the engagement and provide no further services with respect to the statements
NOTE: He may also consult with legal counsel
What type of report may a CPA issue if during a review engagement he is told that;
(1) He will be reporting on only the Balance Sheet of the client; and
(2) He will not be reporting on the client’s other statements (e.g. statements of income, retained earnings, and cash flows)
He may issue the review report if;
The scope of the inquiry and analytical procedures has not been restricted
E.g. The CPA may issue a report on one or more of the financial statements and not on the others as long as the CPA is NOT restricted in the procedures to be applied
