Becker AUD 2.6 - Attest Engagements Flashcards Preview

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Flashcards in Becker AUD 2.6 - Attest Engagements Deck (35):

The purpose of Examining a client's prospective (projected F/S).

Express an opinion that the projected F/S are presented in conformity with AICPA

Express opinion on the underlying assumptions (by management) to provide a reasonable basis for prospective basis.

Note: CPA states that it performed procedures to evaluate management's assumptions.


True on false on each one

1) Accountant's report on examination on Projected FS does explain the difference between Historical and Projected F/S

2) Accountant's report on Examination the Projected F/S would not make any reference to CPA's auditor's report on historical F/S

3) Accountant's report on examining the projected F/S does express an opinion on client company's ability for continue concern.

1) False. Accountant's report on examining the Projected FS is not NOT designed to explain difference between Historical F/S and Projected FS

2) True. Accountant's examination report is its own report that does NOT make reference to CPA auditor's report on Historical F/S

3) False. Accountant's report on examining the projected FS would NOT express opinion on client company's ability as going concern.


The practitioner refers to Statements on Standards for Attest Engagements (est. by AICPA) for an attestation engagement involving with what type of matters?

Subject matter

an assertion of subject matter

Example: Refer to SSAE when express an opinion in an examination on management's assertion on its square footage offered for sale is at this amount footage.


What is included in a report on applying Agreed-upon procedures?

1) Practitioner is engaged by client to report findings
2) Not involve expressing an opinion
3) It does not provide any kind of assurance. It does not provide negative nor positive assurance
4) Refers to standards est. by AICPA
5) Responsibility for the subject matter: Client is responsible for the subject matter OR client is able to provide evidence that a 3rd party is responsible for subject matter.
6) CPA does not examine the subject matter, disclaimer of opinion.
6a) A statement that if practitioner had performed additional procedures, other matters might have come to his or her attention that would have been reported.
7) State that the restrictions of use of report because it is intended to be used by the specified parties
8) Make statements about reservations or restrictions concerning procedures or findings.
9) No opinion is expressed in agreed-upon procedure engagement.

FYI - opinion is reported in an Examination report or Auditor's report.


Compiling Projected/Prospective F/S:

The contents of the report on this consists:

1) Describes the limitations on the usefulness of such projections

2) Practitioner has complied the financial statements in accordance with ATTESTATION STANDARDS est. by AICPA

3) compilation is LIMITED in SCOPE and does NOT enable the practitioner to express an opinion or any form of assurance on the PROSPECTIVE FS or the assumptions. It does NOT disclaim assurance on historical FS.

4) Lists a caveat that the prospective FS results MAY NOT BE ACHIEVED

5) The practitioner has no responsibility to update the compilation report due to events/circumstances occuriing after the date of the Compilation Report on Projected FS


True or false.

An examination, not a compilation of a financial projection evaluates the hypothetical assumptions used to prepare the projection



True or false in each situation in regards to Practitioner is in an Agreed-upon procedures engagement in accordance with the Statements on Standards for Attestation Engagements (SSAE):

1) Practitioner issue reports based on specified procedures performed
2) During a Agreed-upon procedures engagement, the practitioner assess whether procedures meet the needs of parties
3) Practitioner express negative assurance on findings of work performed in an agreed-upon procedures
4) Practitioner report the differences between agreed-upon and audit procedures.

1) True

2) False. This because it is the responsibility of the parties on the sufficiency (adequacy) of the procedures

3) False. Because report includes a listing of procedures performed and related findings, but does not provide assurance on these items

4) The practitioner does not report on differences between agreed-upon and audit procedures.


What are the conditions in order for the accountant to do an Agreed-upon procedures effectively?

1) Practitioner must be independent from client and other specified parties

2) Parties and practitioner agreed on what procedures to be performed. The Specified parties define the criteria to be used by Practitioner in determining the findings and any materiality limits to be used for reporting purposes

3) Measurability and consistency in consistent measurements on subject matter and Procedures should lead to reasonable consistent findings AND evidential matter to support the report should be expected to exist

4) Specified Parties are responsible for Procedures sufficiency (adequacy) for their purposes

5) [RESTRICTED USE]: Use of agreed-upon procedures Report is RESTRICTED to Specified parties

6) Client is responsible for the subject matter or has reasonable basis to provide assertion


Client is able to provide evidence that a third party is responsible for subject mater

7) Engagements to perform Agreed-procedures on Prospective/Projected FS the projected FS must disclose a Summary of signification assumptions used to prepare the prospective/projected FS.


True or false.

The pro forma FS and historical FS are required to be used in an attestation engagement relate to Prospective/projected FS.


Pro forma FS and Historical FS are not required to be used in attestation engagements related to Prospective/projected FS.


Contents of Compilation report

State the 5 main things

1) Identify the prospective FS presented by responsible party

2) Statement: Practitioner compiled the prospective FS in accordance with ATTESTATION STANDARDS est. by AICPA

3) Statement: Compilation LIMITED IN SCOPE, Not enable practitioner to express an OPINION, practitioner NOT express assurance on prospective FS or the ASSUMPTIONS.

4) Caveat: prospective results may NOT be achieved

5) Statement: practitioner assumes NO responsibility to update the report due to any events/circumstances after the Report date.

6) Practitioner's firm's signature. Date of report


True or False

Compilation Report on prospective FS also includes these statements:

1) No evaluation of support for assumptions underlying the forecast.

2) Furthermore, there will usually be differences between forecasted and actual results, because events and circumstances frequently do not occur as expected, and those differences may be material.

1) True

2) True


True or False.

Compilation on Projected/prospective FS:

1) projected F/S is based on hypothetical assumptions.

2) Compiled projected F/S is not included in a document to go along with Audited historical F/S.

3) Compiled PROJECTED FS reports makes it clear that the practitioner/accountant provides no opinion on any form of assurance.

4) There is a General use on compiled projected F/S.

1) True.

2) False. Complied projected F/S is included in document to go along with Audited historical F/S.

3) True.

4) False. compilation on financial projected F/S are appropriate for limited use. Limited use = only responsible alone or by parties negotiating with the responsible party (issuing company) is allowed to use these compiled PROJCTED FS.


Does the accountant read the prospective F/S with the summaries of significant assumptions and accounting polices and consider whether they appear to be presented in conformity with AICPA presentations in doing a compilation of projected F/S?



What is the purpose of compiling the prospective F/S?

Proper assembling the financial data into a F/S form based on responsible party's assumptions (i.e. the company)


Is the practitioner required to gather SUPPORTING EVIDENCE for a compilation engagement on projected F/S

Not required.

But should be aware of obvious inappropriate assumptions used to construct the statements.


Independence is not required for a compilation engagement on projected F/S. But, if the accountant lacks independence, then how should this be reported in the compilation report on projected F/S?

Disclose that there is a lack of independence in the compilation report.

Not required to disclose reasons, but you have the option to do so. If do so, disclose all reasons for lacking independence.


1) What are the 3 engagement activities that deals with Prospective/Projected Financial statements (FS)?

Is a review engagement allowed on Prospective F/S?

1) Compilation report (no assurance / just assemble)

Examination engagement (if on Financial Forecasts - then it's general use and limited use. If projections, then limited use/restricted use)

Agreed-upon procedures: Disclaimer of opinion aka express no opinion.

2) Reviews are never used on Prospective F/S.


True or False on Agreed-upon procedures in accordance with SSAE:

1) There is a requirement that the practitioner/accountant reports on the criteria that the practitioner and responsible party has agreed upon on using..

2) Specified parties takes responsibility for the sufficiency of the agreed-upon procedures.

3) Prospective F/S should include a significant summary of accounting principles.

1) False. There is no requirement that the practitioner report on the criteria in the report on Agreed-upon procedures.

2) True. Specified parties NOT the practitioner takes responsibility for the sufficiency (adequacy) of the agreed-upon procedures.

3) False. Prospective F/S should include a Summary of Significant Accounting Assumptions. Not summary of signification accounting policies.


During an engagement on compiling financial projections,

Financial projects are appropriate if the projects are included in what 3 types of documentations and to whom?

Financial projections are appropriate in a LIMITED USE format where financial projects are included in a:

a) Mortgage application to get a loan to expand company's business
b) Comprehensive document to be used in negotiating a new labor contract
c) Report to the audit committee that says this complied financial projections are not sent to stockholders?


True or false in these situations:

1) It is inappropriate to to use complied financial projections in offering to sell stock to shareholders.

2) Forecasts = general and limited use.
Projections = limited use.

1) True. Financial projections (even if complied) are always LIMITED USE. It's never general use to the general public.

2) True.
FYI - Financial forecasts = it is based on expected conditions and expected courses of action

Financial projections = based on hypothetical assumptions. It is a "what if" scenario expressed in a projected balance sheet (financial position) and results of operations (income statement)


What are the differences between GAAS standards and Attestation Standards?

1) Attestation standards are broader in scope than GAAS.

2) Attestation standards do not make reference to financial statements.

3) GAAS standards includes one on internal control standards. Attestation standards do not focus on internal control

4) Attestations standards applies to financial forecasts and projections while GAAS does not.

5) Attestation standards: Identify subject matter or assertion

6) Attestation standards: Disclose signification reservations like unresolved issues

7) Attestation standards: Express Conclusions about subject matter or assertion

8) RESTRICT USE to specified parties.

9) GAAS mentions sufficient/appropriate AUDIT evidence whereas Attestation just says "


What are the similarities between GAAS standards and Attestation Standards?

Both require:

Training and proficiency
Performance/Professional due care

Planning and supervision


What does GAAS mnemonic, TIP PIE GCDO stands for?

T = training and proficiency
I = independence
P = professional due care

P = planning/supervision
I = internal control
E = evaluate sufficient/appropriate audit evidence

G = GAAP conformity
C = consistency
D = disclosures
O = opinions (unmodified, qualified, adverse, disclaimer)


What does TIPPY-PASSER mnemonic stand for (attestation standards)?

T = Training and proficiency
I = independence
P = professional due care
P = proficiency in subject matter
Y = your belief subject matter can be evaluated to a criteria (objective, measurable, complete, relevant criteria)

P = Planning and supervision
A = appropriate, sufficient evidence for reasonable basis to express conclusion

S = subject matter or assertion s identified; identity engagement type.

S = significant reservations on unresolved problems in performing attestation service, concerns on assertion, concern on subject matter, conforming with criteria, or adequacy of disclosure

E = express conclusion on subject matter or assertion in relation to stated criteria

R = restricted Use on report to specified parties when:
a) make it limited to certain parties,
b) did not get report on subject matter or written rep letter,
c) or reporting on Agreed-upon procedures (restricted use in here)


True or false: on Examination engagement on Financial Forecasts/Financial projection.

1) Examination on Financial Forecasts involves expressing an opinion (unmodified, qualified, adverse, disclaimer)

2) If one or more significant assumptions do not provide a reasonable basis for financial forecasts F/S, then express a qualified opinion.

3) A qualified opinion is expressed when AICPA presentation guidelines is not followed but when the basis for F/S is not reasonable.

1) True. Examination on Financial Forecasts or Projection (F/S) does involve expressing an opinion (unmodified, qualified, disclaimer, adverse). This is SIMILAR to Auditing current period's F/S.

2) False. Express ADVERSE opinion when one or more SIGNIFICANT assumptions not provide a reasonable basis for financial forecasts F/S.

3) True.


Name two types of Trust Services (computer services attestation engagements)

1) WebTrust Engagements (CPA WebTrust): involves e-commerce websites in terms of Transaction integrity, Information protection, Disclosure business practices

2) SysTrust Engagements: reliability on defined electronic systems.


True or false.

Examination report related to Financial Projection does include a sentence that says, "accountants performed additional procedures, other matters might have come to their attention that would have been reported.

Exam. Report on Fin'l Projection does not have a sentence for "performed additional procedures, other matters might have come to their attention that would have been reported."

This "performed additional procedures...come to attention that would have been reported" is used in Agreed-upon procedures report.


What is the other way to describe compilation on FS?

Preparing income statement, balance sheet, cash flows, retained earnings for one year in the future based on client expectations and predictions.


True or False in each situation:

1) Attestation engagements does include Advocacy services and consulting services.

2) Attestation engagements may result in Reports related to compliance with Laws and Regulations.

3) Compilation reports on projections state that the compilation is limited in scope

4) Compilations does not make statements that the hypothetical assumptions used in the projection are reasonable in the circumstances.

5) Accountant Examining Pro Forma adjustments does evaluate the entity's internal control over financial reporting.

6) SSAEs apply to attest engagements on Management's discussion and analysis (MD&A)

7) Compilation report on financial forecast STATES that prospective statements are LIMITED in presenting, in the form of a forecast that is the ACCOUNTANT'S representation.

8) GAAS focuses on historical FS whereas Attest standards focuses on items beyond the historical FS.

9) WebTrust and SysTrust engagements falls under Statements on Standards for Attestation Engagements (SSAEs)


Attestation engagements does not include Advocacy services, consulting services, auditing, Compiling FS for private companies (nonissuers), tax return preparation, and operational audits that are usually done by Internal auditors.

2) True.

3) True. Limited in scope as in "limited to presenting in the form of a projection information that is the representation of the management.

4) True. Compilation reports on projections does not deal with hypothetical assumptions used in projections are reasonable. This because of the words "does not include evaluation of the support for the assumptions underlying the projection."

5) False. Examining/evaluating the proforma adjustments does not focus on evaluating the entity's internal controls.

6) True

7) False. It's the form of a forecast that is the Management's Rep.

8) True.

9) True.


Partial presentations are presentations of Prospective Financial Info which would not be appropriate for general use (it's only limited use) because they Omit one or more of these essential elements.

Name these elements (9 in total)

Omit one of these essential elements in Prospective Fin Info

a) Sales or Gross Revenue
b) Gross Profit or cost of sales (GP or COS)

c) Unusual or infrequency occurring items

d) Provisions for INCOME TAXES

e) Discontinued operations or extraordinary items

f) Income from continuing operations

g)Net income (NI)

h) Earnings per share (EPS)

i) Significant CHANGES in financial position`


When does compilation engagement follows under SSARS or SSAEs?

Compilation under SSARS: on just creating normal, regular, current period's F/S.

Compilations under SSAES: only on preparing Prospective (forecast/projection) F/S.


Can Attest engagements under SSAEs be part of a larger engagement (i.e. business acquisition study or a feasibility study)?



Examination on financial forecasts involves what 4 procedures?

1) Evaluate preparation of prospective FS
2) Evaluate supporting underlying assumptions
3) Evaluate presentation of prospective FS in conformity with AICPA guidelines and
4) Issue EXAMINATION report.: states an opinion on a conclusion (unmodified, qualified "except for," adverse, or disclaimer of opinion due to scope limitation)


Restricted use to specified parties occurs under what 3 types of situation?

1) Criteria used to evaluate subject matter are appropriate for only a LIMITED number of parties

2) Report DIRECTLY on subject matter and a WRITTEN ASSERTION has not been provided.

3) Reporting on Agreed-upon engagement.

Note: FYI - agreed upon procedures does not express any opinion including disclaimer of opinion on Fair presentation of F/S.


What are the 6 types of attestation services covered under SSAEs?

1) Agreed-upon procedures
2) Financial forecasts (general use and limited use); Financial projections (limited use)
3) Pro forma FS
4) Internal Control over financial reporting
5) Compliance with laws and regulations (only on specific engagements; Not deal with Government Auditing Standards)
6) Review Management and Discussion Analysis (MDA)