Statement on Standards for Accounting and Review Services

Question 1

When an accountant compiling financial statements becomes aware of one or more material GAAP departures?

Answer 1

The accountant should request that the client MODIFY the financial statements. Upon FAILURE to do so, the accountant would determine if it is sufficient to modify the report. If NOT, the accountant will WITHDRAW from the engagement and will NOT provide any future services in relation to those financial statements.

Question 2

A compilation report is dated?

Answer 2

A compilation report is dated as of the date on which the accountant completes the compilation. A compilation report may be issued when the accountant is NOT INDEPENDENT provided the lack of independence is clearly indicated in the report. A report does not generally include a description of procedures performed.

Question 3

The preparation of financial statements is?

Answer 3

When the preparation of financial statements is the HIGHEST LEVEL of service an accountant will be performing, the preparation engagement is a NONATTEST engagement that is subject to the requirements of SSARS. This WILL BE the case if the financial statements are COMPILED, REVIEWED, or AUDITED, as long as that engagement is performed by ANOTHER accountant. When the accountant prepares financial statements in anticipation of compiling, auditing, or reviewing them, the engagement is a NONATTEST engagement that is not subject to the requirements of SSARS.

Question 4

Both compilations and reviews are considered?

Answer 4

Both compilations and reviews are considered ATTEST engagements, although a REVIEW is also an ASSURANCE engagement and a COMPILATION IS NOT. A PREPARATION engagement is NEITHER an ATTEST engagement NOR an ASSURANCE engagement.

Question 5

What are nonattest engagement?

Answer 5

A PREPARATION engagement is a nonattest engagement, whether it is the highest level of service performed by the accountant for the client, or if the financial statements will subsequently be compiled. A COMPILATION engagement is an ATTEST engagement, although it is a NON-ASSURANCE engagement.

1. ) An engagement to PREPARE financial statements.
2. ) The WORK of PREPARING unprepared client financial statements PRIOR to an engagement to perform a COMPILATION of the statements.

Question 6

An Engagement Letter will include?

Answer 6

The agreement between the accountant and a client, as DOCUMENTED in an ENGAGEMENT LETTER will include either MANAGEMENT’S AGREEMENT to indicate on EVERY PAGE that NO ASSURANCE is provided or to allow the accountant to attach a DISCLAIMER so indicating. When SUBSTANTIALLY ALL disclosures are OMITTED, the engagement letter WILL so indicate. It specifies the ACCOUNTANT’S RESPONSIBILITY to PERFORM the engagement in accordance with SSARS. An accountant is NOT REQUIRED to be INDEPENDENT to perform a PREPARATION engagement. A PREPARATION engagement will NOT be accompanied by a report.

Question 7

Can an accountant compile financial statements that omit all disclosures?

Answer 7

An accountant MAY compile financial statements that omit all disclosures as long as the omissions were NOT INTENDED to MISLEAD users and the accountant MODIFIES the compilation report by ADDING an EXPLANATORY paragraph that indicates the omission of disclosures, EXPRESSES that their inclusion MIGHT influence the decisions of users, and that the financial statements are NOT designed for those who are uninformed about the omitted disclosures.

Question 8

A downgrade from a review to a compilation is?

Answer 8

A downgrade from a REVIEW to a COMPILATION is APPROPRIATE when the auditor CANNOT complete the review or when the client has a LEGITIMATE reason for requesting the downgrade, such as a CHANGE in a LENDER’S REQUIREMENT. It would NOT be appropriate to downgrade the engagement due to a GAAP departure. He or she must first assess the REASONS for downgrading to make certain that it is not due to management’s desire to AVOID the discovery of a MATERIAL MISSTATEMENTS to the financial statements or to otherwise MISLEAD users. The accountant will also evaluate the ADDITIONAL COSTS and EFFORT necessary to complete the engagement to determine if a change in engagement will be cost effective.

Question 9

A standard compilation report states?

Answer 9

A standard compilation report states that the accountant or firm did NOT AUDIT or REVIEW the financial statements NOR was the accountant or firm REQUIRED to perform ANY PROCEDURES to VERIFY the ACCURACY or the COMPLETENESS of the information provided by management. A compilation provides NO ASSURANCE and an indication that the accountant is NOT AWARE of necessary material modifications is a form of LIMITED ASSURANCE. INQUIRES and ANALYTICAL procedures are performed in a REVIEW but not in a compilation. Although a compilation is substantially less in scope than an audit, a standard compilation report does NOT EXPLICITLY STATE so.

Question 10

Engagements where opinions or any other form of assurance is given?

Answer 10

In any engagement where an OPINION or any other form of ASSURANCE is given, the CPA MUST obtain a REPRESENTATION letter from the client.

Question 11

Planning a review of an audit client’s interim financial statements?

Answer 11

To obtain, or update, an understanding of the entity and its environment, the accountant will READ available documentation; READ the MOST RECENT ANNUAL and COMPARABLE INTERIM period financial statements; consider the results of any AUDIT PROCEDURES performed with respect to the CURRENT PERIOD’S financial statements; and make INQUIRES of management about CHANGES in the entity’s business activities; transactions with related parties; and significant CHANGES in INTERNAL CONTROLS. The information will be used to select the INQUIRES and ANALYTICAL PROCEDURES that will be performed to enable the auditor to determine if there are MATERIAL MODIFICATIONS to the financial statements required.

Question 12

In a preparation engagement?

Answer 12

In a PREPARATION engagement, the accountant ASSISTS management with SIGNIFICANT JUDGEMENTS USED to prepare the financial statements, the accountant should DISCUSS the JUDGEMENTS with management so that MANAGEMENT UNDERSTANDS their significance and ACCEPTS RESPONSIBILITY for them. NO REPORT or COVER PAGE is REQUIRED. When the accountant becomes aware of a KNOWN DEPARTURE from the applicable financial reporting framework, the accountant should REQUEST that the client provide corrected information. If the client REFUSES, the accountant should DISCLOSE the material misstatement in the financial statements. When financial statements are prepared in conformity with a financial reporting framework other than GAAP, the financial statements are REQUIRED to DISCLOSE the major differences from GAAP.

Question 13

Is a management representation letter is required for a review?

Answer 13

While obtaining a management representation letter is REQUIRED for a REVIEW, management is REQUIRED to acknowledge that it has MET its RESPONSIBILITY for the DESIGN, IMPLEMENTATION, and MAINTENANCE of INTERNAL CONTROL, it is NOT REQUIRED to address its evaluation of control effectiveness.

Question 14

The objective of a review is?

Answer 14

The objective of a REVIEW is to obtain LIMITED ASSURANCE that the financial statements are NOT in need of MATERIAL MODIFICATION so that the accountant can provide that LIMITED ASSURANCE. The accountant is REQUIRED to establish an UNDERSTANDING with the client DOCUMENTED in the form of an engagement letter SIGNED by BOTH the accountant and the client. A review report contains LIMITED assurance but DOES NOT contain an opinion.
The REVIEW report, which is not an ASSURANCE engagement, is REQUIRED to include a statement indicating that the accountant did NOT audit or review the financial statements. An indication that the accountant is NOT AWARE of the need for MATERIAL MODIFICATIONS is included in a standard review report, NOT a compilation report.

Question 15

Statements on Standards for Accounting and Review Services established?

Answer 15

SSARS establish the STANDARDS for the performance of REVIEWS, COMPILATIONS, and FINANCIAL STATEMENT PREPARATION engagements. Preparing a trial balance and preparing monthly journal entries are nonattest services that are NOT subject to the requirements of SSARS, UNLESS they are conducted as PART of a financial statement preparation engagement, and require NO compilation or review report.

Question 16

The compilation vs. the review

Answer 16

No ASSURANCE is provided in a COMPILATION but LIMITED ASSURANCE is provided in a REVIEW. A written REPRESENTATION LETTER is NOT required in a COMPILATION but is REQUIRED in a REVIEW.
The accountant does NOT have to understand controls in either a compilation or a review.

Question 17

Each page of the entity’s reviewed financial statements should?

Answer 17

EACH page of the entity’s reviewed financial statements should make reference to the accountant’s review report. AR §90.29 suggests the reference, “SEE INDEPENDENT ACCOUNTANT’S REVIEW REPORT.”

Question 18

When reissuing a compilation or review report, a predecessor will?

Answer 18

When REISSUING a COMPILATION or REVIEW report, a predecessor will CONSIDER if the report is still APPROPRIATE and will READ the CURRENT PERIOD’S financial statements and related report, COMPARE the PRIOR PERIOD’S financial statements with those PREVIOUSLY ISSUED and the CURRENT statements, and obtain a LETTER of ASSURANCE from the SUCCESSOR indicating whether or not the successor is aware of MATTERS that would AFFECT the financial statements.

Question 19

A standard compilation report states?

Answer 19

A standard compilation report states that “We did not audit or review the financial statements nor were we required to perform any procedures to verify the accuracy or the completeness of the information provided by management.” A compilation provides no assurance and an indication that the accountant is not aware of necessary material modifications is a form of limited assurance. Although a compilation is substantially less in scope than an audit, a standard compilation report does reference the scope of an audit nor GAAS. An audit is performed to obtain reasonable assurance in regard to the financial statements. An accountant does not obtain or provide any assurance in a compilation.

Question 20

Statements on Standards for?

Answer 20

Statements on Standards for Accounting and Review Services apply to the performance of COMPILATIONS or REVIEWS. Statements on Standards for Consulting Services would apply to ADVISING a client regarding the SELECTION of COMPUTER SOFTWARE and Statements on Standards for Tax Practice would apply to ADVOCATING a client’s position before the IRS.

Question 21

All SSARS Engagements are required to be performed in accordance with General principles for engagements performed in accordance with statements on standards for accounting and review services

Answer 21

5 General Principles Categories:

1. Financial statements
2. Ethical requirement
3. Professional judgment
4. Conduct of the Engagement In Accordance with SSARS
5. Engagement level quality control

Question 22

8 Elements of a Review Report (mneumonic) FAMILIAR

Answer 22

Elements of a Review Report
F – Financial statements being reviewed
A – IACPA standards (SSARS)
M – Management representation
I – Inquiry and analytical procedures
L– Less in scope than audit
I – Incapable of opinion
A – Assurance provided space (limited assurance)
R – Refer to US Principles

Question 23

4 Elements of a Compilation Report (CARD)

Answer 23

Elements of a Compilation Report (CARD)
C – Compiled
A – AICPA Standards (SSARS)
R – Responsibility of management
D – Disclaimer of opinion or assurance (explicit)

The mnemonic CARD reminds us that the compilation report is small enough to fit on a small card.

Question 24

When a CPA is associated with the financial statements of a public entity without auditing?

Answer 24

When a CPA is associated with the financial statements of a public entity without auditing or reviewing the information, the PCAOB requires a disclaimer of opinion to be issued.