Class 4/22/2014 & 4/24/2014 Flashcards Preview

Auditing > Class 4/22/2014 & 4/24/2014 > Flashcards

Flashcards in Class 4/22/2014 & 4/24/2014 Deck (26):
1

Is Independence required in:
Audit?
Review?
Compilation?

Audit - Yes
Review - Yes
Compilation - No

2

Is an engagement letter required?
Audit?
Review?
Compilation?

Yes, yes, yes

3

What is a compilation?

Assist management in presenting financial information without providing assurance.

4

Types of assurance in:
Audit?
Review?
Compilation?

Audit - positive
Review - limited
Compilation - none

5

A compilation does NOT contemplate ___________.

-made inquiries
-analytical procedures
-obtained understanding of internal control
-assessed fraud risk
-obtained sufficient appropriate evidence
-examined source documents

6

Is an understanding of business and industry required?
Audit?
Review?
Compilation?

Audit? Yes
Review? Yes
Compilation? No

7

Should the accountant obtain an understanding of the client and industry when performing a compilation?

Yes...not required, but a good thing to do.

8

What is required in a compilation?

-Read the financial statements
-Engagement letter

9

What if the compilation preparer becomes aware of incorrect, incomplete or fraudulent work?

-Request management to consider and communicate
-If unresolved, modify report using "except for" language
-withdraw from the engagement

10

What documentation is required for compilations?

-Engagement letter
-Any significant findings/issues
-Communication regarding fraud or illegal acts

11

What are the parts to a Standard Compilation Report?

- 3 paragraphs (Scope, Management's Responsibility, Accountant's Responsibility)

- Each page of financial statements says, "See Accountant's Compilation Report"

- If OCBOA, describe and disclosures must be similar to GAAP

12

What if accountant is not independent?

Must disclose in the compilation report in a fourth paragraph.

13

What if accountant discovers problems like:
-GAAP departures?
-Going concern problems?
-Subsequent events?
-Fraud or non-compliance?

-GAAP departures?
-Going concern problems?
-Subsequent events?
-Fraud or non-compliance? (if it's the owner - withdraw)
Otherwise:
- report to management
- modify report - "except for"
- withdraw

14

What is a review?

Express limited assurance that no material modifications should made to the statements for conformity with applicable financial reporting framework.

15

What does a review NOT contemplate?

- obtain an understanding of internal control
- assess fraud risk
- obtain sufficient appropriate audit evidence

16

What evidence is necessary for a review?

whatever is necessary to provide reasonable basis for giving limited assurance.

17

How is evidence usually gathered in a review?

- Inquiry
- Analytical procedures
- Written representation of management (required & dated same as review report)

18

What does SSARS stand for?

Statements on Standards for Accounting & Review Services

19

What are some analytical procedures used in a review?

-Comparing last year to this year
-Compare actual to budgeted
-Relationships among elements of financial statements (GPM)
-Compare company to industry standards
-Relevant non-financial information (time cards - payroll expense)

20

What kind of inquiries would you make?

-internal controls
-whether f/s are prepared in conformity with GAAP
-unusual or complex situations
-accounting policies
-any significant transactions recorded at year end
-uncorrected mistakes from prior year
-knowledge of fraud
-communication from regulatory agencies (tax notices)
-actions taken at board meetings


21

What if the information is incorrect or incomplete during a review?
-GAAP departures?
-Going concern problems?
-Subsequent events?
-Fraud or non-compliance?

- Fraud or non-compliance? (if it's the owner - withdraw)
- report to management
- perform additional procedures (limited assurance)
- modify report - "except for"
- consider withdrawal

22

Written Representations of management is:
1)
2)
3)
4)

1) Required
2) for all financial statements (not just Balance Sheet)
3) dated as of Review Report
4) Normally signed by the CFO & CEO

23

Documentation for Review
1)
2)
3)
4)
5)
6)
7)

1) Support for limited assurance
2) Engagement letter
3) Analytical procedures used
4) Management Representation letter
5) Significant inquiries & responses
6) Significant unusual matters
7) Communication about fraud

24

The Review Report contains:

- 3 paragraphs (scope, management's responsibilities, accountant's responsibilities)

- follow SSARS

- may issue one statement (just income stmt, just balance sheet, etc) as long as scope was not limited

- assume GAAP, but can use OCBOA only if described and if we use GAAP disclosures

- may emphasize a matter ("except for" language)

- may be restricted

25

Fraud or noncompliance found in Review

- need not report if inconsequential
- report to management at one level higher than the fraud
- may be written or oral
- document communication
- involves owner - consider withdrawal

26

When does a CPA speak about a client?

- to comply with laws and regulation
- to a successor auditor
- subpoena
- get legal council