Accounting and Review Services Engagements

Question 1

An independent CPA is associated with the F/S of a public company, but has not audited them, what procedures should the CPA perform and what type of report should be issued?

Answer 1

Read F/S looking for obvious errors and other misstatements. each page should be marked “Unaudited”

A disclaimer is the only opinion allowed.

Question 2

Which clients may a CPA perform a review?

Answer 2

Privately held companies.

Public company interim F/S

Question 3

To avoid any misunderstandings with the service provided, what info should be presented on each page of the F/S after a review?

Answer 3

“See accountant’s review report”

Question 4

Are analytical procedures performed in a review engagement?

Answer 4

Reviews include analytical procedures and inquiries by the practitioner.

Question 5

How many paragraphs are included in a standard review report?

Answer 5

4

Question 6

What information is found in the first paragraph of a standard review report for a non issuer?

Answer 6

Name of the entity

statement that the F/S have been reviewed

ID the F/S

date or time period of the F/S

statement that a review includes applying analytical procedures and inquires of management

statement that a review is significantly less in scope than an audit and no opinion is expressed in connection with a review.

Question 7

What information is found in the second paragraph of a standard review report for a non issuer?

Answer 7

that management is responsible for the fair presentation of F/S in accordance with applicable framework

also responsible for designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the F/S that are free from material misstatement

Question 8

What information is found in the third paragraph of a standard review report for a non issuer?

Answer 8

the accountant’s responsibility is to conduct the review in accordance with SSARS issued by AICPA

Those standards require the accountant to perform the procedures to obtain limited assurance that there are no material modifications that should be made to the F/S

that the results of the procedures provide a reasonable basis for his report

Question 9

What information is found in the fourth paragraph of a standard review report for a non issuer?

Answer 9

that based on the review, the accountant is not aware of any material modifications that should be made to the F/S in order for them to be in conformity with the applicable financial reporting framework

Question 10

If a company refuses to make a change that is material in order for the F/S to be in conformity with GAAP how is the review report affected?

Answer 10

4th para - “Based on our review, with the exception of the matter described in the following paragraph…”

5th para added to the report to ID the material misstatement that was discovered and refers to a footnote that more fully describes the matter

Even if the effects of the gap departure can’t be determined, the disclosure must appear in the report in a seperate paragraph.

Question 11

What is a compilation?

Answer 11

The objective of a compilation is to assist management in presenting financial information in the form of F/S.

Question 12

Under what general overriding constraint may a compilation engagement be performed?

Answer 12

compilations can only be done for privately held entities

Question 13

In performing either a compilation or a review for a privately held entity, what standards should be followed?

Answer 13

SSARS

Question 14

What assurance does a CPA provide in a review engagement?

Answer 14

Limited assurance

Question 15

Describe the analytical procedures performed as part of a review engagement?

Answer 15

comparison of financial expectations developed by the accountant to recorded amounts or ratios

can be performed at the F/S level or detailed account level.

Question 16

Under what condition can the CPA not issue a compilation report?

Answer 16

when the compiled F/S are not expected to be used by a third party. The accountant should reference each page with “Restricted for Management use only”

Question 17

How does restriction of the report for internal use influence the work done by the auditor?

Answer 17

the work remains unchanged, the accountant does not have to issue a compilation report.

Question 18

How is the use of compiled F/S usually restricted?

Answer 18

statement that the report is intended for information and use by specific parties

ID of the specific parties

the report is not intended to be and should not be used by anyone other than the specific parities

Question 19

What info is included on each paged of compiled F/S?

Answer 19

“See independent accountants compilation report”

Question 20

What are some examples of inquiries made during a review?

Answer 20

F/S prepared in applicable framework

accounting principles and practices inc. recording, classifying and summarizing transactions and accumulating info for disclosure in the F/S

new methods of revenue recognition and/or changes in application of GAAP

unusual or complex situations that may have an effect on the F/S

significant transactions occurring or recognized near the end of the current reporting period

changes in the operating environment, key personnel, info systems, or internal control

changes in prior period outstanding litigation or contingencies

impairment of assets

questions arisen during the course of review work

knowledge of fraud or suspected fraud

significant J/E’s and other adjustments

communication from regulatory agencies

meetings of stockholders, BOD, committees or other comparable meetings

Question 21

Why is a CPA unable to render reasonable assurance upon completion of a review engagement?

Answer 21

the scope of testing and understanding of the entity’s internal control is not sufficient to provide appropriate evidence to give such an level of assurance.

Question 22

What are some items that should be established with a client regarding the work to be performed in a review?

Answer 22

objective and limitations of the review

managements responsibilities

the CPA’s responsibilities

Management acknowledgement that a review consists primarily of inquiries of management and certain analytical procedures

Question 23

What are the two general procedures performed in a review engagement?

Answer 23

analytical procedures

inquiries of the company managment

Question 24

Where dose the CPA get the info to anticipate results for analytical procedures?

Answer 24

Prior year F/S

forecasted or budgeted figures

company competitor financials

other relationships based on financial, non-financial or a combination of both info.

Question 25

A CPA concurs with the justification to change from FIFO to LIFO how does this change the standard review report?

Answer 25

if proper disclosure is inclusive then no modification is necessary

disclosure by separate paragraph could be made as well

Question 26

What level of assurance is given by a CPA in a compilation of the client’s F/S?

Answer 26

no assurance

Question 27

What actions should an accountant take when compiling a clients F/S?

Answer 27

establish understanding about the limitations of services

possess knowledge about accounting principles and practices of the clients industry

gain knowledge of the client, nature of business and transactions, accounting principles and practices, accounting records, content of F/S

read the compiled statements for omissions or errors in arithmetic or GAAP

make inquiries as necessary

Question 28

How many paragraphs are found in a standard compilation report?

Answer 28

3

Question 29

What info is provided in the first paragraph of a standard compilation report?

Answer 29

ID of entity

F/S have been compiled

ID of the compiled F/S

date or period covered by F/S

F/S have not been audited or reviewed and do not express an opinion

Question 30

What info is provided in the second paragraph of a standard compilation report?

Answer 30

that management is responsible for the fair presentation of F/S in accordance with applicable framework

also responsible for designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the F/S

Question 31

What info is provided in the third paragraph of a standard compilation report?

Answer 31

conducted in accordance with SAARS issued by AICPA

state the objective of a compilation is to assist management in presenting financial information in the form of F/S without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the F/S

Question 32

What engagements can an accountant who is not independent perform?

Answer 32

compilation

Question 33

Is it allowed to omit all footnote disclosures from a compilation?

Answer 33

yes.

must include a statement that management has elected to omit the disclosures

if the omitted disclosures were included they might influence the user’s conclusions

F/S are not designed for those who are not informed about such matters

Question 34

What info should be included in a pro forma F/S report?

Answer 34

title includes the word “independent”

ID the pro forma F/S

ID of the historical F/S that served as the basis for the pro format info and they were audited with reference to any opinion other than unqualified

ID responsible party for the pro forma F/S

examination was conducted in accordance with attestation standards of the AICPA

responsibilities of the practitioner

objectives and limitations of pro forma financial information

opinion

manual or printed signature of firm

date of the examination report