Section Two - Assessing Risk, & Developing a Planned Response Flashcards
(2A) What are the 3 Standards (think governing bodies) for Compilation and Reviews engagements?
1.) Statements on Standards for Acct. and Review Services (SSARS). This is issued by Acct. and Review Services Committee. ONLY for NONISSUERS.
2.) AICPA Code of Professional Conduct.
3.) AICPA Statements on Quality Control Standards (SQCSs)
(2A) What is a Compilation engagement?
Assist mgmt. in presenting financial information in the form of financial statements. Key word is Assist.
Auditor Assist without undertaking to obtain or provide ANY ASSURANCE that there are no material modifications on the financial statements.
(2A) What are the Compilation Review Requirements?
1.) Independence must be evaluated, but may be disclaimed
2.) Engagement letter REQURIED
3.) Compilation Report REQUIRED
4.) NO ASSURANCE GIVEN, so does not require inquiry, analytics, or other procedures.
(2A) What is the Objective of a Review Engagement?
Obtain LIMITED ASSURANCE that there are no material modifications that should be made to the financial statements.
(2A) What is the difference between Reasonable and Limited Assurance?
Reasonable assurance is equivalent of an audit opinion over financial information. An audit opinion lets you know the financial statements have been prepared in the right way, that they are reasonably stated and are materially correct. Reasonable assurance work follows a similar methodology to an audit: gaining an understanding of the company and its culture, assessing and reviewing its controls, identifying risks, undertaking detailed testing – evaluating the evidence obtained and forming the assurance conclusion.
Limited assurance, on other hand, as the name suggests is not as comprehensive. It follows the same methods as reasonable assurance but because the level of assurance obtained is lower, the procedures the practitioner will perform will vary in nature and timing and will be less extensive. It establishes that the company meets the preconditions for assurance, that the right controls, processes and frameworks are in place, it increases confidence in the data but not to the same extent as reasonable assurance. To continue the financial statement audit analogy, certain components of limited assurance is comparable to when an auditor conducts a limited review or interim review.
(2A) What are Review Engagement Requirements?
1.) Engagement Letter REQUIRED
2.) Independence REQUIRED
3.) Primarily inquiry and analytic procedures
4.) Mgmt. Representation Letter REQUIRED
5.) Review Report REQUIRED
6.) Limited Assurance provided. NOT Reasonable Assurance.
(2A) When are Interim Financial Statements applicable?
1.) When the entity’s latest annual financial statements have been audited by the auditor or a predecessor auditor.
2.) Current Auditor engaged to audit current year financial statements
OR Current Auditor has Audited latest annual financial statements and expected to do Current Year as well.
OR Engagement of another auditor is not effective for period covered by the review
(2A) What are the Form and Content of Interim Financial Statements?
1.) Must be prepared with the same financial reporting framework as annual financial statements.
2.) Comprises either a complete or condensed set of financial statements (covering less than a year or 12 month period ending on date other than fiscal entity’s fiscal year-end)
3.) Auditor is NOT REQUIRED to issue a review report.
4.) SEC requires a review report if any fillings state that the interim financial info has been reviewed by an independent public acct.
(2A) What rules/standards must be followed when doing a Review for a Public Company?
1.) Follow standards of the PCAOB related to the reviews of interim financial information.
2.) Perform limited procedures related to management’s quarterly certification of internal control.
2A.) Aware of any material modifications that should be made to disclosures about changes in internal control over financial reporting in order to be accurate and comply with SOX.
(2A) What is the Objective of Pro Forma Financial Statement Compilations?
1.) Show the effects had a consummated or pending transaction or event occurred at an earlier date. (FOR EXAMPLE, Business Combination, Change in Capitalization)
2.) Label to distinguish it from historical financial information
3.) Disclose Source, Assumptions, and Uncertainties.
(2A) What is a Prescribed Form?
1.) Standard Pre Printed form designed or adopted by the body to which it is to be submitted. Examples include, Industry trade association’s, credit agencies, banks, governments, or regulatory bodies.
2.) Presumption that form is sufficient to meets needs of the body that designed it.
A.) May Identify as a special purpose framework.
B.) May substantially omit all disclosures, with report modification for such omission
C.) Restrict use of Report
(2A) What categories are considered in a written audit plan?
1.) Occurrence
2.) Completeness
3.) Accuracy
4.) Cutoff
5.) Classification
6.) Existence
7.) Rights and obligations
8.) Valuation and allocation
(2A) What are Substantive Procedures?
Substantive procedures are performed to detect material misstatements at the relevant assertion level, and include tests of details of classes of transactions, account balances, and disclosures and substantive analytical procedures. The auditor may perform substantive procedures at an interim date or at period-end.
When substantive procedures are performed at an interim date, the auditor should perform further substantive procedures or substantive procedures combined with tests of controls to cover the remaining period that provide a reasonable basis for extending the audit conclusions from the interim date to the period-end.
(2A) Planning
Planning is not a discrete phase of the audit, but rather an iterative process that begins with engagement acceptance and continues throughout the audit as the auditor performs audit procedures and accumulates sufficient appropriate audit evidence to support the audit opinion. The auditor may begin execution of planned procedures before completing the more detailed audit plan for the remainder of the audit procedures. Any changes to the original audit plan should be documented.
(2A) Audit Plan
An audit plan is a step-by-step plan of audit procedures to be carried out by the auditor in verifying financial statement items or in making tests of transactions. It should be designed to gather the evidence that underlies the auditor’s opinion and should achieve specific audit objectives. Although most significant/material transactions will be reviewed or analyzed, there is no requirement that all be tested.
