A6

Question 1

Name the 5 elements of SSARS engagements (preparation, compilation, and review engagements).

STATEMENTS ON STANDARDS FOR ACCOUNTING & REVIEW SERVICES

Answer 1

1. A 3 party relationship between management (the responsible party), an accountant in the practice of public accounting, and the intended users
2. Establishment of an understanding with the client; there must be a written agreement w/management regarding the terms of the engagement
3. Other sets of compliance or review standards (compilation, review)
4. Other frameworks (special purpose framework, framework generally accepted in another country)
5. FS or financial information

Question 2

Financial statements prepared in accordance w/ a special purpose framework are not considered appropriate in form unless the FS include which 2 elements?

Answer 2

1. A description of the special purpose framework, including a summary of significant accounting policies & a description of the material differences from GAAP
2. Disclosures similar to those required by GAAP if the financial statements contain items that are similar to those included in financial statements prepared in accordance with GAAP

Question 3

If the accountant is issuing an accountant’s compilation or review report on FS and the FS are intended for use only outside the US, the accountant should use either of which 2 reports?

Answer 3

1. Report in accordance w/SSARS that includes a stmt that refers to the note of the FS that describes the basis of presentation, including identification of the country of origin of the accounting principles.
2. Report in accordance w/another set of compilation or review standards

Question 4

Identify the primary procedures an accountant should perform if a subsequently discovered fact becomes known after the date of the review report but before the report release date.

Answer 4

*Discuss the matter w/management and, when appropriate, those charged w/governance;

*Determine whether the FS need revision and, if so, inquire how management intends to address the matter in the FS

Question 5

What action should an accountant take if an entity will not provide additional information or revised financial information when the accountant believes that the FS

Answer 5

*Withdraw from the engagement

*Consult legal counsel if fraud or noncompliance w/laws & regulations involve an owner of the business

Question 6

Identify the requirements that are necessary when engaged to perform a preparation engagement.

Answer 6

*Establish an understanding w/ the client & document it in an engagement letter

*Possess knowledge of and understanding of the entity’s financial reporting framework.

*Prepare the FS

*Include a stmt on ea page of the FS that “no assurance is provided” or issue a disclaimer.
If unable to include this stmt, the accountant should issue a disclaimer, perform a compilation engagement, or withdraw from the engagement & inform management of the reason

*Document any significant findings or issues

Question 7

According to Statements on Standards for Accounting & Review Services, who must sign the engagement letter?

Answer 7

The accountant or accountant’s firm

AND

Management or those charged w/ governance

Question 8

Identify the 3 possible actions an accountant should consider if they are unable to include a stmt indicating that “no assurance is provided’ on ea page of the FS

Answer 8

*Issue a disclaimer that makes clear that no assurance is provided on the FS

*Perform a compilation engagement
or
*Withdraw from the engagement and inform management of the reasons for withdrawing

Question 9

Identify the 2 circumstances whereby an accountant may prepare stmts that omit substantially all disclosures required by the applicable financial reporting framework

Answer 9

*The accountant discloses such omission either in the FS or in an accompanying disclaimer

*In the accountant’s professional judgment, such FS would not be misleading to users of the FS

Question 10

What are the documentation requirements for preparation engagements performed in accordance w/SSARS?

Answer 10

Documentation should include:

*An engagement letter
*A copy of the FS prepared by the accountant
*Any significant findings or issues

Documentation may include:

*Oral or written communications w/ management regarding fraud or noncompliance w/laws & regulations that came to the accountant’s attention.

Question 11

Attest - report
Non-attest - no report
Assurance - opinion (reasonable)/conclusion (limited)
No assurance - no opinion/conclusion

Answer 11

A preparation engagement is considered a non-attest engagement

Question 12

Identify the requirements that are necessary when engaged to perform a compilation.

Answer 12

In a compilation an account has to:

*Get an engagement letter

*Have the knowledge of accounting principles & practices of the client’s industry

*General understanding of client’s business

*Read the compiled FS to determine if they are appropriate in form & free from obvious material errors

*Evaluate management’s consideration of noncompliance w/laws & regulations, going concern uncertainty & subsequent events

*If info is incorrect, incomplete, or unsatisfactory, obtain additional or revised info from the client

*Give a compilation report

*Document any significant findings or issues

*Document communications w/ management regarding fraud or noncompliance w/ laws & regulations

Question 13

What should be included in an accountant’s report on a compilation engagement?

Answer 13

Accountant’s report in a compilation engagement should be in writing & include:

*Management is responsible for the FS

*Identify the entity, FS, and date covered by FS

*Performed the compilation engagement in accordance w/ SSARS

*Did not audit or review the FS

*Not required to perform any procedures to verify the accuracy or completeness of the info

*Do not express an opinion, a conclusion, nor provide any assurance on FS

*Signature of the accountant or accountant’s firm

*City & state where the accountant practices (this may be indicated in the letterhead)

*Date of the report

Question 14

What are the reporting requirements w/respect to compiled FS when substantially all disclosures are omitted?

Answer 14

Stmts that omit substantially all disclosures:

*Accountant can only report if the omission would not mislead users

*Report must clearly indicate the omission

*Compilation report should be modified by including an additional paragraph disclosing the omission

Question 15

What are the reporting requirements w/ respect to compiled FS when:

*Only limited disclosures are included?

*Auditor lacks independence?

Answer 15

Reports that include only limited disclosures:

*The omission of one or more notes, when substantially all other disclosures are presented, should be treated as any other departure from the applicable financial reporting framework.
A separate paragraph should be added to explain the departure, including the effects of the departure on the FS (if known)

Reports when the accountant lacks independence:

*The las paragraph of the report should disclose the lack of independence.
The Auditor is permitted, but not required, to disclose the reason (s) for the independence impairment

Question 16

What are the reporting requirements w/ respect to compiled FS when the accountant lacks independence?

Answer 16

*An accountant may compile FS & issue a report when not independent from the entity.

*Last paragraph of the accountant’s report should disclose the lack of independence

*Accountant is permitted, but not required, to disclose the reason (s) for the independence impairment in the report

Question 17

A COMPILATION provides the least amount of assurance bc it provides no assurance.

A REVIEW provides limited assurance, which is higher than no assurance.

An AUDIT provides reasonable assurance, which is higher than limited assurance & no assurance

Answer 17

ATTESTATION SERVICES include examinations (reasonable assurance), reviews (limited assurance) and agreed-upon procedures (no assurance).

Although attestation services do include agreed-upon procedures, which provide no assurance, attestation services also include examinations & reviews, which provide a higher level of assurance than a compilation.

Question 18

What are the performance requirements applicable to a review engagement?

U LIAR CPA

Answer 18

Performance Requirements applicable to a review are:

U - Understanding w/ client must be established

L - Learn and/or obtain sufficient knowledge of the entity’s business
I - Inquiries should be addressed to the appropriate individuals
A - Analytical procedures should be performed
R - Review - other procedures should be performed

C - Client representation letter should be obtained from management
P - Professional judgment should be used to evaluate results
A - Accountant should communicate results

Question 19

SSARS standards require an accountant to establish an understanding w/ the client as to the services to be performed for a review engagement.

What should be included in this understanding?

Answer 19

An engagement letter is presumptively mandatory & should include:

*Objectives of the engagement

*Management’s & accountant’s responsibilities

*Identification of the applicable financial reporting framework

*Limitations of the engagement, including a stmt that a review is substantially less in scope than an audit and that the accountant will NOT express an opinion on the FS

*Expected form & content of the accountant’s report and a stmt that there may be circumstances in which the report may differ from its expected form & content

Question 20

List the factors an accountant should consider when designing analytical procedures to be performed & inquiries of management in a review engagement.

Answer 20

*Accountant’s understanding of the industry

*Accountant’s knowledge of the client

*Risk that the accountant may unknowingly fail to modify the accountant’s review report on FS that are materially misstate

Question 21

Identify EX of analytical procedures that are performed on review engagements.

Answer 21

*Compare current w/ prior period FS, or current w/ prior period ratios.

*Compare actual FS w/ budgets or forecasts

*Compare financial & relevant nonfinancial info

*Compare the entity’s ratios & indicators w/ those of other entities in the industry

*Compare relationships among elements in the FS within the period & corresponding prior period relationships.

*Compare disaggregated revenue data

Question 22

What should be included in an accountant’s report on a review engagement?

Answer 22

• Title
• Intro Paragraph

*Management responsibility paragraph
*Accountant’s responsibility paragraph
*Accountant’s conclusion paragraph

• Sig of accountant, city & state ( may be included in the letterhead), and date of the accountant’s report

-Ea page of the stmts should be marked, “see Independent Accountant’s Review Report”

Question 23

In a review engagement an accountant should withdraw if:

*NOT independent
*Client rep letter NOT received
*DOUBT management’s integrity

Answer 23

A review should include a stmt that a review is substantially less in scope than an audit.

The standard review report issued in accordance w/ SSARS should state that the CPA is not aware of any material modifications that should be made to the FS.

Question 24

Ratio analysis is often used to examine relationships between BS accounts.

Answer 24

Modifications are made to the standard review report only when there is a departure from GAAP

Question 25

What is the effect of independence on a review engagement?

Answer 25

An accountant must be independent of the client to issue a review report on a client’s FS.

If the accountant determines that independence is impaired when performing the review engagement, the accountant should withdraw from the engagement.

Question 26

When should the auditor perform review procedures related to going concern?

Answer 26

The auditor should perform review procedures when the applicable financial reporting framework includes requirements for management to evaluate the entity’s ability to continue as a going concern

OR

If the accountant becomes aware of conditions that raise substantial doubt about the entity’s ability to continue as a going concern.

Question 27

If an accountant has reviewed the prior period stmts but compiled the current period stmts, what are the accountant’s reporting options?

Answer 27

The accountant has provided a lower level of service:

Review to compilation

Reporting options include:

• Issuing a compilation report on the current period stmts w/ a paragraph added to describe the responsibility assumed for the prior period stmts

or

• Reissuing (not updating) the review report on the prior period.

The reissued report may be combined w/ or presented separately from the compilation report on the current period.

Either the added paragraph (from the first option above) or the reissued report (in the second option) should include the original date & state that no review procedures have been performed since that date.

Question 28

When the current period statements are reviewed and the prior period has been audited, the accountant should issue a current period review report & add an other-matter paragraph.

What should be included in the other-matter paragraph?

Answer 28

The other-matter paragraph should indicate:

*that prior period stmts were audited;

*the date of the previous report (s);

*the opinions expressed, and, if other than unmodified, the reasons for the modification;

AND

*that no auditing procedures have been performed since the previous report date

Question 29

When the current period stmts are audited & the prior period has been reviewed, the auditor should include an other-matter paragraph in the auditor’s report.

What should be included in the other-matter paragraph?

Answer 29

The other-matter paragraph should indicate:

*the service (review) performed in the prior period;

*the date of the prior period report;

*a description of any material modifications described in the report,

AND

*a stmt that the service was less in scope than an audit and did not provide a basis for an opinion

Question 30

An example of a matter an accountant would want to emphasize is that the entity has significant transactions w/ related parties.

Answer 30

An accountant has no responsibility for controlling a client’s distribution of a restricted-use report.

Question 31

FS are allowed to be prepared using a comprehensive basis of accounting other than GAAP.

In order for the FS to be considered in appropriate form, the FS would need to include:

Answer 31

1. A description of the Other Comprehensive Basis of Accounting (OCBOA), including a summary of significant accounting policies & description of the primary differences from GAAP
2. Disclosures similar to those required by GAAP if the FS contain items similar to those included in FS prepared in accordance w/ GAAP

Question 32

In a review engagement under SSARS, when there is substantial doubt about the entity’s ability to continue as going concern and those DOUBTS are ALLEVIATED,

Answer 32

then the accountant may, but is not required to, include an emphasis-of-matter paragraph

Question 33

What procedures should be performed in a review on the interim financial info of a publicly held company?

U LIAR CPA

Answer 33

U - Understanding w/the client must be established

L - Learn and/or obtain an understanding of the entity & its environment, the applicable financial reporting framework, and the entity’s system of internal control
I - Inquiries should be addressed to the appropriate individuals
A - Analytical procedures should be performed
R - Review - other procedures should be performed

C - Client representation letter should be obtained from management
P - Professional judgment should be used to evaluate results
A - Auditor (CPA) should communicate results

Question 34

What actions should the auditor take in an interim review if management fails to appropriately respond to communications to management?

Answer 34

If management fails to appropriately respond, inform those charged w/governance.

If those charged w/governance fails to appropriately respond:

*Consider resigning
*Consider consulting w/ legal counsel

Question 35

What should be included in an auditor’s report on the review of interim financial stmts of a nonissuer?

Answer 35

Title (Independent Auditor’s Review Report)

Addressee

Results of Review of Interim Financial Info

Basis for Review Results

Responsibilities of Management for the Interim Financial Info

Signature of the Auditor, City and State where the Auditor’s Report is Issued, and Date of the Auditor’s Report

Note: Each page of the interim financial information should be clearly marked unaudited

Question 36

In an interim review engagement, an auditor may become aware of a departure from the applicable financial reporting framework.

If the FS are not revised, what options does the auditor have?

Answer 36

Modify the report conclusion. The auditor should modify the report by including a description of the departure and, if determinable, the effects of the departure. The report is modified in the results of review section & the conclusion of the auditor’s report.

OR

Withdraw from the engagement. If the accountant believes that modification of the review report is not sufficient to address the deficiencies, the auditor should withdraw from the engagement.