Other Engagements, Reports, and Accounting Services Flashcards
(44 cards)
1
Q
What four (4) areas do auditors address in special consideration engagements?
A
- Audits of F/S prepared in accordance with a special purpose framework
- Audits of single F/S and specific elements, accounts, or items of a F/S
- Reporting on compliance (contractual or regulatory) related to audited F/S
- Engagements to report on summary F/S
2
Q
Give examples of special purpose frameworks.
A
- Cash
- Taxes
- Contractual
- Regulatory
- Any other basis of accounting that uses a definite set of logical, reasonable criteria that is applied to all material items appearing in the F/S
3
Q
Which of the following elements should be included in the auditor’s report when F/S are prepared on the cash or tax basis?
- Description of purpose for which the special purpose F/S are prepared
- Emphasis-of-matter paragraph alerting readers about the preparation in accordance with special purpose framework
- Other-matter paragraph restricting the use of the auditor’s report
A
Emphasis-of-matter paragraph alerting readers about the preparation in accordance with special purpose framework
4
Q
Which of the following elements should be included in the auditor’s report when financial statements are prepared on the regulatory basis (not for general use) and contractual basis?
- Description of purpose for which the special purpose F/S are prepared
- Emphasis-of-matter paragraph alerting readers about the preparation in accordance with special purpose framework
- Other-matter paragraph restricting the use of the auditor’s report
A
An auditor’s report for financial statements prepared on the regulatory basis (not for general use) or contractual basis should include:
- Description of purpose for which the special purpose F/S are prepared
- Emphasis-of-matter paragraph alerting readers about the preparation in accordance with special purpose framework
- Other-matter paragraph restricting the use of the auditor’s report
5
Q
Which of the following elements should be included in the auditor’s report when financial statements are prepared on the regulatory basis (for general use)?
- Description of purpose for which special purpose financial statements are prepared
- Emphasis-of-matter paragraph alerting readers about the preparation in accordance with special purpose framework
- Other-matter-paragraph restricting the use of the auditor’s report
A
An auditor’s report for F/S prepared on the regulatory basis for general use should include the description of purpose for which special purpose F/S are prepared.
6
Q
What should included in an emphasis-of-matter paragraph included in a special purpose framework (other than regulatory basis financial statements intended for general use)?
A
- F/S are being prepared in accordance with special purpose framework
- refers to the note to the F/S that describes that framework
- state that special purpose framework is a basis of accounting other than GAAP
7
Q
What type of information should an auditor gather prior to auditing a single F/S or a specific element of a F/S?
A
The auditor should obtain an understanding of the:
- purpose for the preparing the single F/S or specific element of a F/S
- intended users; and
- steps taken by management to ensure that the applicable financial reporting framework is acceptable under the circumstances
8
Q
What are some the limitations surrounding an auditor’s report on a single financial statement, or a specified element, account, or item of a financial statement?
A
- item is stockholder’s equity = perform procedures necessary to express an opinion about financial position
- item is based on net income = perform procedures necessary to express an opinion about financial position and results of operations
- adverse or disclaimer opinion = auditor may not report on items that constitute a major portion of the financial statements. (the auditor may repot on nonmajor items, but such reports should not accompany the report on the financial statements)
9
Q
Under US Auditing Standards (GAAS), when may an auditor issue a special report on a client’s compliance with contractual agreements or regulatory requirements?
A
Under GAAS, the auditor:
- must have audited the client’s financial statements and expressed an unmodified or qualified opinion (no adverse opinion or disclaimer)
- may only give negative assurance on the compliance
10
Q
What type of opinion can an auditor issue on summary financial statements and when is that opinion appropiate.
A
- The auditor may issue either an unmodified opinion or an adverse opinion on the summary F/S, but cannot issue a qualified opinion due to the summarized nature of the financials.
- An unmodified opinion is appropiate when the auditor concludes that the summary F/S are consistent, in all material respects, with the audited F/S.
- An adverse opinion is appropiate when the summary F/S are not consistent, in all material respects, with the audited F/S, and management does not make the necessary changes.
11
Q
Name five (5) elements of preparation, compilation, and review engagements.
A
- Three (3) party relationship (management, the accountant and the intended issuers)
- Financial reporting framework
- Financial statements or financial information
- Sufficient, appropiate evidence (review only)
- Written communication or report
12
Q
Preparation, compilation and review standards require that the accountant establish an understanding with the client as to the services to be performed. What should be included in this understanding?
Engagement Letter
A
- description of the services
- objectives of the services
- management’s & accountant’s responsibilities
- identification of framework
-
explanation of limitations of service:
- the engagement cannot be relied upon to disclosure errors, fraud, or non compliance with laws and regulations
- the entity will be informed of any information indicating that fraud or noncompliance with laws and regulations have occurred
- description of other accounting services (if any)
- Preparation: agreement by management that each page of the F/S indicating “no assurance” or a disclaimer will be issued by the CPA
- Compilation or review: the report
13
Q
According to SSARS, who must sign the engagement letter?
A
the accountant or firm of accountants
and
management or those charged with governance
14
Q
Identify the performance requirements that are necessary when engaged to perform a preparation engagement.
A
- engagement letter
- understading of entity’s financial reporting framework
- prepare the F/S
- include statement in each page of the F/S of “no assurance” or issue a disclaimer
15
Q
Identify the performance requirements that are necessary when engaged in a compilation.
A
- engagement letter
- knowledge of accounting principles and practices of the client’s industry
- general understanding of client’s business
- read the compiled statements to determine if appropiate in form and free from obvious material errors
- follow up on management when aware of fraud or noncompliance with laws and regulations, going concern issues, or consequent events. The accountant should consider the impact of the follow-up on the F/S, evaluate management conclusions, and consider the effect on the compilation report.
- Issue compilation report
16
Q
What should be included in an accountant’s report on a compilation of a nonissuers F/S?
A
- management is responsible for the F/S
- Identify the entity, F/S, and date covered by F/S
- performed the compilation in accordance with SSARS
- did not audit or review the F/S
- not required to perform any procedures to verify the accuracy or completeness of the information
- do not express an opinion, a conclusion, nor provide any assurance on F/S
- signature
- city & state
- date of report
17
Q
What are the reporting requirements with respect to compiled F/S when:
- Substantially all disclosures are omitted?
- Only limited disclosures are included?
- The auditor lacks indepence?
A
- statements that omit substatially all disclosures:
- accountant can only report if the omission is not intended to mislead issuers
- report must clearly indicate the omission
- compilation should be modified including an additional paragraph disclosing omissions
- statements that disclose limited disclosures:
- notes should be labeled “Selected Information-Substantially All Disclosures Required by GAAP Are Not Included”
- statements when the accountant lacks independence:
- the last paragraph of the report should disclose the lack of independence. The accountant is permitted, but not required, to disclose the reasons for the independence impairment.
18
Q
What are the performance requirements applicable to a review engagement?
A
U-Understanding with client must be established
L-Learn and/or obtain sufficient knowledge of the entity’s business
I-Inquires should be addressed to the appropiate individuals
A-Analytical procedures should be performed
R-Review-other procedures should be performed
C-Client representation letter
P-Professional judgment
A-Accountant should communicate results
19
Q
What should be included in an accountant’s report on a review of a nonissuer’s F/S?
A
- Title: “Independent Accountant’s Review Report”
- Introductory Paragraph
- Management’s Responsibility
- Accountant’s Responsibility
- accordance with SARRS
- perform procedures to obtain limited assurance
- procedures provide reasonable basis
- Accountant’s Conclusion Paragraph
- The accountant is not aware of any ,,,,,
20
Q
Required items by the engagement:
A
Engagement Letter
- Preparation, Compilation, Review
Knowledege of accounting principles/client’s business
- Preparation, Compilation, Review
Read the F/S
- Preparation, Compilation, Review
Evaluate/document results
- Preparation, Compilation, Review
Create report
- Compilation, Review
Inquiries within organization
- Review
Analytical procedures
- Review
Client representation letter
- Review
21
Q
Which SSARS engagements require determination of independence? What are the effects of independence on reporting?
A
- Compilation: Independence not required but must be evaluated by the accountant since it is a attest service. Lack of independence must be disclosed in the compilation report.
- Review: Required
- Preparation: Not required
22
Q
If during the course of an engagement the client request a change in the engagement (audit to review), what are some acceptable reasons for the change?
A
Acceptable reasons:
- change in clients requirements
- misunderstanding as to the nature of the services being performed
- scope limitation (accountant determines is reasonable)
Unacceptable reasons:
- Current engagement would uncover errors or fraud
- Client is attempting to create misleading or deceptive financial statements
- Scope limitation (client refusing to provide a signed representation letter or not allowing correspondence with legal counsel)
23
Q
In a review or compilation engagement, an accountant may become aware of a material departure from the applicable financial reporting framework, If financial statements are not revised, what options does the accountant have?
A
Modify the report by adding an additional paragraph
or
Withdraw from the engagement if disclosure is not adequate
24
Q
If an accountant has reviewed the prior period statements but compiled the current period statements, what are his or her reporting options?
A
Provided a lower level of service the accountant:
- issuing a compilations report on the current period statements with a paragraph added to describe the responsibility assumed for the prior period statements; or
- reissuing (not updating) the review report on the prior period
- the reissue report may be presented separately from the compilation report or combined with it
- either the added paragraph or the reissued should include the original date and state and that no review procedures have been performed since that date.
25
If an accountant has audited prior yeart statements, but compiled or reviewed current period statements, what are her or his reporting options?
When the **level of service decreases** from an audit to a review or compilation, tha accountant should either *reissue the prior period report* **_or_** *include an additional paragraph in the current period report*.
Such additional paragraph should indicate:
1. prior statements were audited;
2. date of previous report(s);
3. opinion expressed, and if any modifications were made, the reasons for the modifications; and
4. no auditing procedures have been performedsince the previous report date.
26
What procedures should be performed in a review of the interim financial information of a publicly held company?
**U** - **Understanding** with client must be established (engagement)
**L** - **Learn** and/obtain sufficient knowledge of the entity's business, including internal controls
I - **Inquiries** should be addressed to the appropiate individuals (internal)
A - **Analytical procedures** should be performed
R - **Review** - Other procedures should be performed
C - **Client representation letter** from management
P - **Professional judgment** to evaluate results
A - **Auditor should comunicate results**
27
What should be included in an auditor's report on the review of interim financials statements of a nonissuer?
1. Title (includes word "independent")
2. Addressee
3. Introductory Paragraph (We have reviewed the ...)
4. Management's Responsibility Paragraph (F/S & Internal Control)
5. Auditor's Responsibility Paragraph (Our responsibility is to conduct our review,,,in accordance with GAAS,,)
* analytical procedures & inquiries
* substantially less in scope than an audit
* ,,,we do not express such an opinion
6. Conclusion (...we are not aware of any material modifications,,,)
28
What type of information should an auditor promptly communicate to management during a review of interim financial information and what action should the auditor take if management fails to appropiately respond?
The auditor should promptly communicate to management if:
1. **material modifications** need to be made to *interim financials* in accordance with the applicable framework
2. the issuer filed quarterly reports prior to review being completed (10-Q or 10-QSB)
3. nonissuer issued interim financials prior to review (when review is required)
When management does not appropiately respond:
* inform those responsible for governance, if they don't respond, consider legal counsel
29
What is a comfort letter and what types of assurance are provided in it?
A comfort letter is a letter from a CPA to underwriters. it provides:
1. positive assurance regarding the CPA's independence
2. F/S compliance with SEC requirements (form in all material respects)
3. negativer assurance regarding unaudited financials, capsule information, changes in certain items, and compliance of certain financial statement information with SEC requirements
4. provides a list of procedures and findings (no assurance) regarding pro forma financial information, forecasts, and other financials.
30
A comfort letter should not comment or provide assurance on what type of information?
* Market risk sensitive instruments
* Qualitative disclosures
31
Define an *attestation* engagement.
An attestation engagement is one in which a practitioner (CPA) is engaged to issue or does issue an examination, a review, or an agreed-upon procedures report on a subject matter, or on an assertion about the subject matter, that is the responsibility of another party.
32
List six (6) major attesttation services.
1. Agreed-upon procedures
2. Financial forecasts and projections
3. Pro forma F/S
4. Internal control over financial reporting
5. Compliance with statutory, regulatory, or contractual requirements
6. Management's Discussion and Analysis (MD&A)
33
What are the fice (5) general attestation standards?
## Footnote
**TIPPY**
1. Training
2. Independence
3. Performance (due professional care)
4. Professional knowledge of subject matter
5. Your belief that the assertion is capable of evaluation against criteria that are suitable and available to users.
34
What are the two (2) field work attestation standards?
1. Planning and supervision
2. Appropiate, sufficient evidence
35
What are the four reporting attestation standards?
1. Identify the _**S**ubject matter_ or the assertion being reported on and the character of the engagement.
2. _Disclose **S**ignificant reservations_ about the engagement.
3. _Express conclusions_ about the subject matter or the assertion in relation to the established criteria.
4. _Restrict use_ of the report to specified parties **when**:
* the criteria are appropiate for or available to only a limited number of parties
* reporting on subject matter and a written assertion has not been provided
* reporting on an agreed-upon procedures engagement
36
How are attestation standards different from GAAS?
1. Attestation standards are broader in scope than GAAS.
2. Attestation standards have different conceptual focus: No reference is made to GAAP or to F/S
3. Attestation standards provide a level of assurance below that the provided by a GAAS audit.
4. Attestation standards provide for services tailored to the needs of the user, who may directly participate in specifying either the nature and scope of the engagement or the criteria against which the assertions are measured.
37
What levels of assurance may be provided by attestation engagements?
* **Examination:** _A positive opinion, high level of assurance_, generally based on a variety of procedures, including search, verification, inquiry, and analysis.
* **Review:** _Moderate level of assurance_, generally based on inquiry and analytical procedures.
* **Agreed-Upon Procedures:** _No assurance_, but procedures and findings are listed.
38
Identify seven (7) conditions that must exist in order to perform an agreed-upon procedures attestation engagement.
## Footnote
**I AM SURE**
1. _**I**ndependence_ of the practicioner
2. _**A**greement_ of the parties
3. _**M**easurability_ and consistency of subject matter
4. _**S**ufficiency_ of the procedures
5. _**U**se_ of report restricted to specified parties
6. _**R**esponsibility_ of subject matter is with client
7. _**E**ngagements_ to perform agreed-upon procedures on prospective financial statements _must include a summary of significant assumptions_.
39
List some of the key elements in a report on an engagement to apply agreed-upon procedures.
1. **Title, signature & date**
2. **Identification** of specified parties, the subject matter, the character of the engagement, and the responsible party
3. A statement that the **subject matter is the responsibility of the responsible party**
4. A statement that the **procedures performed were those agreed to by the specified parties**
5. A statement that the **specified parties** (and not the accountant) **are responsible for the sufficiency of the procedures**
40
List some of the key elements in a report on an engagement to apply agreed-upon procedures.
1. A statement that the _engagement was conducted in accordance with AICPA_ attestation standards.
2. A _list of procedures performed_ and related findings.
3. A statement that the _practitioner did not conduct_ examination, a disclaimer of opinion, and a statement that if additional procedures had been performed, other mattersmight have been reported.
4. A _statement of restrictions_ on the use of the report
5. Where applicable, reservations or restrictions concerning procedures or findings.
41
What is the difference between a financial forecast and a financial projection?
**Financial Forecast:** reflects, to the best of the partie's knowledge, the _expected financial results_ of a future period _based on expected conditions and expected courses of action_.
**Financial Projection:** is based on hypothetical assumptions and reflects a "what if" scenario. A projection is appropiate for limited use only.
42
In what three ways might the CPA be associated with prospective F/S?
1. Compile prospective F/S
2. Apply agreed-upon procedures to prospective F/S
3. Examine prospective F/S
## Footnote
***A review of prospective F/S is not allowed.***
43
What should be included in the accountants report on compilation of prospective F/S?
1. Identification of prospective F/S
2. A statement that the practitionerhas compiled prospective F/S in accordance with AICPA attestation standards
3. A statement that a compilation is limited in scope and does not enable the practitioner to express an opinion or any other form of assurance on statements
4. A caveat that the prospective results may not be achieved
5. A statement that the practitioner assumes no responsibility to update the report for events and circumstancesoccuring after the date of the report
6. The signature of the practitioner's firm and the date of the report
44
What type of engagement can an accountant perform on pro forma F/S and what procedures are necessary for a pro forma F/S engagement?
* Obtain an understanding of the future or hypothetical event and evaluate the pro forma adjustments and assumptions pertaining to the adjustments
* Obtain written representations from management
* Make reference to the financial statements from which the historical information was derived, and indicate whether the F/S were audited or reviewed
