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Flashcards in AUD CH 7 - Compilations & Reviews Deck (76)
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1

SSARS & Who it applies to

Statements of Standards for Accounting & Review Services

- applies to the work of accounts in connections with the F/S of NONISSUER clients (including individuals)

- covers Compilation Services & Review services

2

Assurance Engagement (definition)

- engagement in which an accountant issues a report

- designed to enhance the degree of confidence of third parties & management

- evaluation/measurement of F/S (subject matter) against an AFRF (criteria)

3

Attest Engagement (definition)

- an engagement that requires independence as defined by the AICPA professional standards

4

What type of service is a Compilation

Attest service (not an assurance service)

5

Compilation

service with the purpose to assist management in presenting financial information in the form of F/S (assembling F/S)

- no assurance / no opinion

- include engagement letter (written understanding with management regarding services to be performed)

6

Review

service with the purpose to obtain limited assurance (negative assurance) that there are no material modifications that should be made to the F/S in order for he statements to conform with the AFRF (GAAP)

- accountant should accumulate review evidence to obtain a limited level of assurance

7

Review Evidence (defined by SSARS)

information used by the accountant to provide reasonable basis for obtaining a limited level of assurance

* analytical procedures & inquiries will usually provide the evidence, but accountant should use professional judgement in making that determination

8

Non-Issuers

All entities except those:

- defined in Section 3 of the Securities Exchange Act 1934 (securities registered under Section 12)

OR

- required to file reports under section 15(d)

OR

- that files or has filed a registration statement that has not yet become effective under Securities Act of 1933 & that has NOT withdraw

9

Materiality (concept)

- generally discussed in a financial reporting framework

- takes into account 3 concepts:

1. Misstatements are material if they could reasonably be expected to influence the economic decision of users taken on the basis of the F/S

2. Judgements about materiality are based on surrounding circumstances & the size and/or nature of a misstatement

3. Judgements about matters that are material to users are based on needs of users as a GROUP (not specific individual users)

10

Management is Responsible for (defined by SSARS)

- Prep & Fair Presentation of F/S

- DIM of I/C related to P&FP of F/S

- Preventing & Detecting Fraud

- Org. complies with laws & regulations

- Making all information available to the accountant (no client-imposed scope limit)

- Management Representation Letter (@ end of review engagement)

11

What may SSARS not be applied to

Work in connection with Issuers (reporting to the SEC)

12

Under SSARS, what type of work are accountants exempt from?

(not subject to its standards)

- Prep of working trial balances for the client's use

- Prep of monthly J/E's

- Photocopying/reproducing client F/S as a convenience to the client (W/O modification)

- Consultation/Processing of Fin. Data for clients of other CPA firms

- Prep of statements for internal use by client which will NOT be used in any way to raise investor capital or obtain/review loans from outsiders

13

What must a client do/have to perform a compilation?

- Knowledge of the accounting principles & practices of the client's industry (have or obtain during)

- Understanding of the clients business transactions & accounting records

- Read the F/S & notes to ensure the are Free of material error & appropriate in form

- if info is incorrect & client will not revise, CPA should withdraw

*** NO ICORRIA (audit procedures)... NOT AN AUDIT ***

*** NO INDEPENDECE REQUIRED to issued a compilation report ***

* no assurance / no opinion *

14

When should the accountant withdraw from a compilation?

if the F/S and notes is incorrect & client will not revise

15

When is independence required if performing an audit, review, or compilation?

Audit & Review

*** compilation does not require independence

16

How is accountant independence treated when performing a compilation & issuing the report?

- Not Required (although user is likely to assume unless told otherwise)

- If lack independence, must indicate (title omits "independent" & add sentence at the end of report)

- Optional to include the reasons for lack of independence. If choose to state reasons, all reasons must be included (explanations can be brief or expansive at the accountant's discretion)

17

How does an inadequate (or omitted) disclosure affect the compilation report?

1. if statements are intended for direct relationship, must be mentioned in the compilation report if omitting disclosures (GAAP Departure)

- add 4th paragraph (explanatory) with:

- explanation, GAAP, "if included, they might influence user's conclusions about the company's A, L, Eq, R, & Expenses

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

OR

2. If omissions were intended to mislead the user, may not report on the statements

OR

3. Comparative F/S may not be presented in which 1 year has adequate disclosure & the other does not (not comparable)

18

When is a compilation report not required to be issued for a compilation service?

- if the F/S are not expected to be used by a third party

Or

- ASSISTING a client in presenting one or more specified elements, accounts or items, OR Pro Forma, (unless "engaged to report", replace "F/S" in report)

** signed engagement letter required

** each page to include: "restricted for managements use only"

--- required NOT to issue when

19

Compilation documentation

- should include significant findings or issues

- sufficient detail to provide a clear understanding of the work performed

20

Attestation Standards governed by SSARS provisions specifically exclude

Expert Witness testimony

21

Which statements are not required for a compilation report (as separate statements)?

Statement of Retained Earnings & Statement of OCI

- reference is not required if not presented

22

What are the sections of a compilation report?

Title: [Independent]** Accountant's Compilation Report

1. Introductory

- "compiled", "not audited or reviewed", "no opinion / no assurance", GAAP

2. Management's Responsibility

- P&FP of F/S, GAAP USA, DIM I/C rel. to P&FP of F/S

3. Accountant's Responsibilities

- compilation in accordance with SSARS by AICPA, Compilation Objective,

Signature of Accountant/Firm

Date: Completion of the compilation

23

CARD

Four Elements in the Compilation Report

C – Compiled: ID statements

A – AICPA Standards: SSARS indicates CPA (vs. Non-CPA) to enhance value

R – Responsibility of Management

D – Disclaim opinion or assurance – explicit, no audit, no review, no assurance, no opinion (clear understanding for users)

** Each page of the F/S should state "See Accountant's Compilation Report"

24

Four Elements in the Compilation Report

CARD

C – Compiled: ID statements

A – AICPA Standards: SSARS indicates CPA (vs. Non-CPA) to enhance value

R – Responsibility of Management

D – Disclaim opinion or assurance – explicit, no audit, no review, no assurance, no opinion (clear understanding for users)

** Each page of the F/S should state "See Accountant's Compilation Report"

25

“See Accountant's Compilation Report”

should be stated on each page of the compilation report

26

How is a GAAP departure (other than the omission of footnote disclosures) reported in a compilation report?

Sentence added at the end of the 3rd paragraph:

"we did become aware of a departure from GAAP that is explained in the following paragraph"

- Add 4th Paragraph (explanatory): describe matter & if GAAP was followed, $$$

** includes inadequate disclosures for substantial doubt of going concern & inconsistencies

27

Why does a compilation not require independence?

no opinion or assurance is expressed

28

SSARS requires services to be performed by

CPAs

(AICPA)

29

OCBOA's include

- Cash basis (or modified)

- Tax basis

- "other basis of accounting"

- Regulatory or contract basis of accounting (add limited use statement. "solely intended")

30

When financial statements have been prepared in accordance with an OCBOA,

- titled something other than B/S, I/S (NON GAAP TITLES)

- "in accordance with the cash basis of accounting"

***only first 2 paragraphs are changed (3rd has no change)