Flashcards in Test #6 Deck (44):
How old do you have to be to be a CPA?
Does character matter?
You have to be of good moral character
What are the CPA education requirements?
- Baccalaureate degree
- Conferred by an accredited college/university
- Concentration in accounting (or the equivalent) (30 hours)
- 150 total semester hours
What are the CPA experience requirements?
- One year continuous experience in public accountancy immediately preceding the date of application
- Or one year continuous experience in accounting in industry, business, government, or college teaching
If you are a CPA and are selling insurance or financial products for commission, what is require to disclose in writing?
That you are receiving a commission
What is required to be eligible to sit for the CPA exam?
- Baccalaureate degree at an accredited college or university
- Concentration in accounting
- 20 semester hours in accounting above the elementary level
How long is your passing grade on any section of the CPA exam valid?
18 months from the actual date the candidate took that test section
What is considered a passing grade on the CPA exam?
Can you retake a failed test section in the same examination window?
What happens if you have a substantial hardship when trying to pass the CPA exam?
The Board may extend the term of conditional credit validity
What happens after you pass the CPA exam?
You may apply for a certificate as a CPA
What counts as a meaningful experience to be qualified for certification?
Any type of services or advice using accounting, attest, compilation, management advisory, financial advisory, tax or consulting skills, teaching accounting at college level - but not clerical work
How many hours are considered for the qualifying experience?
A minimum of 2,000
Does the qualifying experience need to be supervised?
Yes for public accounting, industry, or business.
No for government
Does qualifying experience count while enrolled in school to meet the education requirement?
Is independence required?
Audit - Yes
Review - Yes
Compilation - No
Is an engagement letter required?
Audit - Yes
Review - Yes
Compilation - Yes
What is the purpose of a compilation?
To assist management in presenting financial information without providing assurance
Types of assurance
Audit - positive
Review - limited
Compilation - none
A compilation does not contemplate:
Obtained understanding of internal control
Assessed fraud risk
Obtained sufficient appropriate evidence
Examined source documents
Is understanding of business and industry required?
Audit - Yes
Review - Yes
Compilation - No
Should the accountant obtain an understanding of the business and industry when performing a compilation?
Yes - it's not required, but it's smart
What is required in compilations?
Read financial statements
What if you become aware of incorrect, incomplete, or fraud?
Request management consider and communicate
If unresolved, modify the report "except for"
Withdraw from engagement
Documentation for compilation:
Any significant findings/issues
Communication re: fraud and/or illegal activities
Standard Compilation Report
3 paragraphs (scope, management, auditor)
Each page of financial statements says "see compilation report"
If other comprehensive basis of accounting, describe it and disclosures must be similar to GAAP
What if the accountant is not independent in a compilation?
Add a 4th paragraph that says you are not independent
What if the accountant discovers problems:
Fraud or non-compliance
Report to management
Modify the report "except for"
What is the purpose of a review?
Express LIMITED assurance that no material modifications should be made to the statements for conformity with APPLICABLE FINANCIAL REPORTING FRAMEWORK
What does a review not contemplate?
Obtain understanding of internal control
Assess fraud risk
Obtain sufficient appropriate audit evidence
What evidence is necessary in a review?
Whatever is necessary to provide reasonable basis for giving limited assurance
How is evidence usually gathered in a review?
Written representations of management (required and dated the same as review report)
Statements on Standards for Accounting and Review Services
Why does each page of the financial statements say, "See compilation report?"
Because we are not responsible for the accuracy - no assurance
When is a compilation necessary?
If you can reasonably assume that there is a chance it will be used by a third party
Where does the pressure come from for management to determine whether to have an audit, review, or compilation?
Outside sources - ex: bank loan
What are some analytical procedures you would use in a review?
Compare last year to this year
Compare budget to actual
Relationships among elements of financial information
Compare company to industry
Look at relevant non-financial information
What kind of inquiries would you use in a review?
Ask management about internal control
Prepared in conformity with GAAP
Unusual or complex situations
Significant transactions recorded near end of year
Uncorrected mistakes from previous year
Questions that have come up in review
Knowledge of fraud or suspected fraud
Significant journal entries
Communication from regulatory agencies
Actions taken at significant meetings
What if the information is incorrect, incomplete, GAAP departures, going concern, subsequent events, or fraud/non-compliance?
Do more work in order to resolve matters
Discuss with management
Perform additional procedures (because we are giving limited assurance)
Modify the report using "except for" language
Written representations of management
Required for a review
For all the financial statements, not just the balance sheet
Dated as of review report
Normally signed by CFO and CEO
Documentation for review
Support for limited assurance
Analytical procedures used
Management representation letter
Significant inquiries and responses
Significant unusual matters
Communication about fraud (if there is any)
Has 3 paragraphs (scope, management, auditor)
Mentions that we are following SSARS
May issue report on just one statement as long as scope was not limited
Assume using GAAP
May emphasize a matter
May be restricted
Fraud or non-compliance in a review
Need not report if inconsequential
Report to management one level higher than fraud
May be written or oral
What if it involves owner? Consider withdrawal