Becker AUD 2.4: Review (engagement) of Interim Financial Information Flashcards Preview

AUD CPA Review - (Becker, Roger, Wiley, NINJA) > Becker AUD 2.4: Review (engagement) of Interim Financial Information > Flashcards

Flashcards in Becker AUD 2.4: Review (engagement) of Interim Financial Information Deck (28):

in the planning stages of doing a review on an audit client,

Considering the results of audit procedures that have been previously done and how they correspond to current year's FS is a step to update accountant's knowledge of the client's business and internal controls.

True or false



What are the 8 phases in conducting the review?

Phase 1: Understand the client
Phase 2: Learn/obtain sufficient understanding of entity and its environment and internal control
Phase 3: Inquires with appropriate individuals inside the company (not outside like customers, legal counsel, and vendors and creditors/bankers)
Phase 4: Analytical procedures
Phase 5: Review (other review procedures) be performed
Phase 6: Get client rep letter from MGT
Phase 7: use professional judgement to analyze results
Phase 8: Auditor communicates the results of the review.


If quarterly data required by SEC Regulation S-K have been omitted, auditor's must include a statement saying what?

Saying that the company has not presented such quarterly Data (i.e. quarterly FS).


When will the auditor's report in a review engagement on FS say that the auditor has not reviewed such quarterly data FS (required by SEC Reg S-K)?

When the quarterly data is included for the Auditor to see, but the auditor has not review the data.


Are reviews of quarterly data post-pone-able to the next quarter for the auditor/accountant to review?


When the entity is required to file quarterly FS, then the current quarterly data must be reviewed right away by the auditor/accountant. Such review cannot be postponed to next quarter.


Is there a scope paragraph under SSARS?



Under SSARS, the reference to professional standards is included in the accountant's responsibility paragraph.

True or false?


The Accountant's responsibility paragraph does make reference to SSARS professional standards.

FYI - this is applied only to Nonissuer/private companies (non-public companies).


Does a review of an interim financial statement of a publicly held company provide an opinion (kind like how an audit opinion does)?

No. Review reports does not express an opinion on Publicly held company's interim FS.


What is the difference between doing a Review of a

Public company (PCAOB) and Nonissuer company (private company)?

Public company (PCAOB) - the review for these includes:
1) Use PCAOB standards to do a review of public company's FS and have an Review report stating in the Auditor's Responsibility paragraph that the auditor follows PCAOB standards
2) PCAOB's review requires evaluation of internal control
3) Requires communication with predecessor auditor

In reviewing Nonissuer (private company):
1) Auditor's Review Report in its Auditor's responsibilities paragraph that it follows SSARS standards
2) Not required to evaluate Internal control
3) Not required to contact predecessor auditor.


True or false.

Does a review of a PCAOB FS requires contacting client's attorney regarding litigation, claims, and assessments while the Review of a private/nonissuer company does not?


Both Reviews (one for PCOAB companies and one for private companies) do NOT require contacting client's attorney regarding litigation, claims, and assessments.

Note: however in certain circumstances it may be appropriate to inquire the client's attorney.


What does a CPA do to an annual report that has audited FS and a quarterly FS not audited, but reviewed by the CPA?

The interim (quarterly) FS is marked as unaudited.


True or false in these situations below:

For a review on Interim FS for a publicly held entity:
a) Perform cut of tests on certain accounts
b) Inspect open purchase file
c) Verify key balances
d) Read the minutes of Board of directors meetings

a) False - this is audit procedure. Not review.
b) False - this is audit procedure. Not review.
c) False this is audit procedure. Not review.

d) True - this is included in other procedures of a review.


Lists the 6 examples of Review (other procedures) used in Reviewing Interim FS.

1) Read minutes of meetings (stockholder's meetings, board director meetings, etc.)

2) Obtain reports from any COMPONENT AUDITORS engaged to revie the interim FS of subsidiaries, investees, etc.

3) Obtain evidence that interim FS agrees or RECONCILES with accounting records and inquire w/ MGT that the accounting records are reliable

4) Read the interim FS for conformity with applicable financial reporting framework

5) Read other info in documents containing interim FS for MATERIAL INCONSISTENCIES or MATERIAL MISSTATEMENTS OF FACT

6) Extend review procedures to resolve any outstanding questions regarding the interim FS conformity with applicable financial reporting framework.


The objective of review public entity's interim FS is to provide a reasonable basis for ______________________.

Expressing limited assurance that there are NO material modifications that should be made to the accompanying FS to be in conformity with GAAP.

or whether material modifications should be made to conform with GAAP.


Is there such thing as "Standards of Interim Reporting" esp. during a review engagement?

No. There is no such thing as Standards of Interim Reporting.


Accountant is doing a review report on reviewing interim FS. If this report is included in a registration statement, the prospectus should include a statement CLARIFYING THAT???

Accountant's review report is NOT a part of the registration statement within the meaning of Securities Act of 1933.

FYI - The prospectus should say that the review report is not a "report" or part of registration statement.

FYI - Also, accountant should read prospectus to ensure that his/her name is not used in anyway on the registration statement to show that the accountant did have more responsibilities than intended.


What is the difference between an Audit and a Review in expressing about "being conformity with GAAP?"

Audit report expresses about whether or not the FS "ARE IN" in conformity with GAAP or not.

Review report expresses about whether material modifications "SHOULD BE" done in order to be conform with GAAP. Review report does not use "ARE IN"


True or false

Objective of review is to determine wither or not condensed FS or pro forma FS should be in a registration statement.


Objective of review engagement does not involve determining whether or not that condensed FS or pro forma FS should be in registration statement.


True or false.

When the entity required by SEC to file a quarterly report or to include quarterly data in its annual report, the accountant is not required to review the quarterly data in accordance with PCAOB.


Per SEC, the accountant is required to do a REVIEW engagement on interim quarterly data in accordance with PCAOB standards.


True or false.

An accountant reviewing interim FS under PCAOB standards is least likely to review interim FS of a nonissuer (private company).


This because PCAOB standards review is only used on Public companies.

Statements on Auditing Standards is used only on REVIEWING private companies. (nonissuers).


True or false.

Accountant doing a review engagement of interim FS of public company is required to obtain corroborating evidence on the company's ability to be going concern.


Accountant doing review engagement is not required to do any corroboration on entity's ability for going concern. Even if such info is given to accountant's attention, it is not required.

Corroborating evidence on going concern is only an audit engagement. Not review nor compilation.


A CPA reviews a company's interim FS. The CPA reads audit documentation in prior year's audit.

True or false per each situation below:

Does Affect CPA's review:
a) Summary of both corrected and uncorrected misstatements
b) Identified risks of material misstatements due to fraud
c) Significant weakness in internal control
d) Scope limitations overcome via alternative procedures.

a) True
b) True
c) True
d) False - previous overcame scope limitations is not of concern to current year's review because it's irrelevant.


True or false.

When a CPA doing a review engagement on company becomes aware of significant change in the internal controls in the company, the CPA should make additional inquires, such as whether management has monitored the changes and considered they were operating as intended and employ more precise analytical procedures to determine misstatements on FS.


In a review engagement, it is required that the Accountant has knowledge of the entity's business and its internal controls.

Such knowledge help determine how many analytical procedures to be done along with how much inquires to be made.

A significant change in controls (internal controls) should require the accountant to inquire with management to know the effectiveness of such changes and perform more precise procedures to find misstatements on FS.


Name 4 types of Analytical procedures used in a Review of Interim FS.

1) Analyze TRENDS via Compare current interim FS vs immediately preceding interim period. Or, compare interim Fin. info. vs. comparable period from prior year.

2) Use RATIOS to Consider plausible relationships among Financial and relevant NON-financial info.

3) [Budgeted amounts vs Actual amounts]: Compare recorded amounts (or related ratios) to auditor' expectations. Note: these expectations are less precise than those developed during an audit.

4) Compare dis-aggregated revenue data (e.g. revenue b month and by product line) for the Current Interim period with that of comparable prior periods. You may want to "BENCHMARK" & compare to industry standard.


True or False.

In the review engagement phase "Professional judgement to evaluate results:"

Auditor accumulates misstatements identified during review and analyze the misstatements individually and in aggregate to determine whether material modification should NOT be made to the FIN info. for it to be in accordance with applicable financial reporting framework.


Analyze misstatements individually and in aggregate to determine whether Modifications SHOULD BE MADE to FS in order to be conform with the applicable reporting framework.


True or False.

In the review engagement phase "Professional judgement to evaluate results:"

If auditor no able to perform necessary review procedures


MGT does not provide appropriate representations, NO review report issued.


This because the a Review Report cannot be issued until certain procedures are done OR MGT provides appropriate representation.

FYI - when this happens, the auditor/accountant should communicate with the MGT on such known material departures from applicable financial reporting framework and those charged with Governance (Board of directors, etc.) to fix these departures.


What are the 5 steps involved in Auditor communicates results with company's management and later B.o.D. / audit committee?

1) Communicate to management on a problem such as
a) need to make material modifications to interim fin info in order to conform with applicable financial reporting framework (GAAP, IFRS, Special framework OCBOA)
b) Issuer company files 10-Q or 10-QSB to SEC BEFORE completing the review.
c) Nonissuer (private company) issued interim FS BEFORE completing the review.

2) If management refuses to cooperate, then independent auditor talks with Board of Directors or Audit committee.

3) If Board of directors / audit committee (charged with governance) refuses to cooperate, independent auditor withdraw from review engagement and get legal advice from legal counsel.


Required communication with those charged with Governance (Review phase: Accountant report):

True or false

Accountant/auditor is required in a interim FS review to communicate with Board of Directors/Audit committees on

1) Fraud and illegal acts
2) Significant deficiencies or material weaknesses in internal control.