Unit 6 Flashcards by Brad Hunt

Can you name the 5 elements of preparation, compilation, and review engagments

a 3 party relationship (management, accountant, and intended user)
Financial reporting framework
FS or Financial info
Sufficient, appropriate evidence
written communication or report

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According to statements on standards for accounting and review services (SARS), who signs the engagement letter

The accountant or accounting firm

and

MGMT or those charged with governance

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FS statements prepared under special frameworks are not considered appropriate in form unless they include what 2 things

a description of the special reporting framework, and summary of policies/material differences from GAAP
Disclosures similar to those required by GAAP if the FS contains items similar to those in GAAP FS

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What are the 4 performance steps which are required when performing a preparation engagement

obtain engagement letter
understand the entitys reporting framework
prepare the FS
include a statement saying “no assurance is provided or issue a disclaimer

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What is the requirement when doing a compiled FS when substanically all disclosures are omitted?

When substancially all disclosures are omitted, the accountant can only report if the omission is not intended to mislead users

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What is the requirement when doing a compiled FS when only limited disclosures are provided

State that “Selected information-substancially all disclosures required by GAPP, are not included”

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What is the requirement when doing a compiled FS when the accountant lacks independence

the last paragraph of the report should disclose the lack of independence

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What are the 6 steps to perform when doing a compilation report

obtain an engagement letter

possess knowledge of accounting principles in clients industry

understand the clients business

read the compiled FS is they are complete and free from material error

follow up with management when aware of fraud or noncompliance

Issue the coilation report

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What should be included in an accountants report on a compilation of a nonissuers FS

One paragraph that states:
mgmt is responsible for the FS
Identify the entity, FS, date
Compilation engagement followed SSARS
Did not audit or review the FS
Not required to verify C&amp;A
Do not express an opinion or provide assurance

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When doing a review engagement, what are the requirements?

U LIAR CPA

Understanding with the client established

Learn sufficient knowledge of entity business
Inquires should be addressed
Analytical procedures performed
Review, other procedures performed

Client rep letter obtained
Professional judgement used
Accountant communicates results

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What parts are included in the accountants report on a review of a nonissuers FS

Title
Intro paragraph: saying a review took place and there is less scope than an audit and no opinion given
MGMT Resp Paragraph
Accountant resp Para: followed SSARS, limited assurance
Conclusion: not aware of anything material

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What SSARS Engagements require independence and what SSARS Engagement does not?

Review, Compilation, Preparation

A review requires independence

A compilation doesn’t NEED Independence, but requires that independence be evaluated. And disclosed if lacking

A preparation does not require independence

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In a review or compilation, if you become aware that there may material departures from the applicable framework, what options do you have if management doesn’t care and doesn’t revise anything

modify the report and disclose the departure

Withdraw from the engagement

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Say you’re an accountant who reviewed a companies prior period FS but this time around is just doing a compilation report, what are your options as the accountant

Since you are providing a lower level of service now, you can issue a compilation report on the current period with a description of past responsibility assumed
OR
reissue (not updating) the prior review report to be combined or separately presented from the current compilation report

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What is a comfort letter and what kind of assurance does it provide?

Its a letter from the CPA to the underwriters which provides positive assurance regarding the CPA’s independence and whether the FS comply to SEC requirements

As well as negative assurance regarding unaudited FS in terms of being compliant with SEC requirements

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What should a comfort letter NOT include comments on

Market Risk sensitive instruments

Qualitative Disclosures

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What are the six principles of the AICPA Code of Conduct

REsponsibilities 
Public Interest 
Integrity
OBjectivity and Independence
Due Care
Scope and Nature of Services

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Whare are 4 instances where independence can be impaired

person who was employed by the client participates on the engagement team when the engagement covers any period which they were employed by the client

immediate family member is in a key position at the client

Partner or professional employee leaves the firm to be in a key position at the company, unless the partner or key person cant influence deciions at the firm

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Independence is impaired when a close family member is…

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Employed by a client in a key position (except if they provide only nonattest services to the client)

Aware that the close relative has a financial interest in the client that is either material relative to their net worth or enables them to have sig influence over the client

Under what circumstance is a departure from GAAP justified?

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A departure from GAAP is justified only if compliance with GAAP would cause the FS to be misleading

When can a CPA disclose confidenetial client information

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if it is to comply with a subpoena or summons

as part of a quality review of the CPA’s professional practices authorized by the AICPA

In response to any inquiry made by the ethics division or the trial board of the AICPA

What types of engagements are contingent fees not allowed

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Audits of FS
Reviews of FS
Examinations of prospective FS
Preparing an original or amneded tax return/tax refund

Under what 2 instances are contingent fees allowed

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for compilations of FS expected to be used by third parties ONLY if there is statement saying the member is not independent

Fees are not considered contingent if they are fixed by courts or authorities relating to tax matters

Explain the 3 steps of the conceptual framework approach utilized by the AICPA Code of Conduct

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Each entity must:

Identify threats to compliance
evaulate the significance of the threat
apply safeguards to elimate threats or reduce them to acceptable level

Define and provide an example of an adverse interest threat

Threat that a member will not act with objectivity because the members interest are opposed to the client EX: member is commensing litgation against the client

Define and provide an example of Advocacy Threat

The threat that a member will promote a client to the point where their objectivity or independence is compromised EX: Member is endorsing the clients services

Define and provide an example of familiarty threat

due to a long or close client relationship, a member will become too accepting of the client and too sympathetic to their interests EX: Close friend is employed by the client

Define and provide an example of management particiapation threat

Threat that a member would take on a role of client management and assume management responsibility. EX: member experiences management participation if he or she serves as an officer or a director of an attest client

Define and provide an example of self review threat

The the member will not appropriately evaluate the results of s judgement, service performed where they are supervisor, the the member will use that service as a basis of judgement elsewhere EX: ,member does bookkeepng serivces while also being in public practice

Define and provide an example of self interest threat

member could beneift in some way by engaging with a client this is pretty straight forward

Define an example of undue influence threat

Threat that a member will be influenced by aggresive or influencing behavior to take a particular stnace on a matter by the client or a third party pretty self explanatory

What is an issuer and what group establishes standards for audit reports of issuers

An issuer is an entity subject to hte rules of the SEC and the PCAOB oversees/sets the rules for audit reports for them

What does title 1 of the SOX act require of registered firms to adhere to

Audit workpapers must be mainted for 7 years concurring or second partner review is required for each audit report Audit Report must describe the scope of testing of internal controls

Under SOX title 2 and SEC REg. SX what services need preapproval from the audit committee

All auditing services and permitted non-attest services (including tax services)

What are the audit partner rotation rules under SOX Title II and SEC reg SX

Both Title II and SX require the lead and concurring partner to rotate off the audit every 5 years REgulation SX furhter requires other partners to rotate off every seven years. Other partners are subject to a 2 year 'time out period'

The audit firm cannot have employed a clients CEO, CFO, Controller, CAO or other employee in a financial reporting oversight role during what timeframe

one year preceding the audit

According to the SEC, independence is impaired if the close family member has what type of role and/or stock ownership

if a close family relative has an accounting role or financial reporting role with an SEC client OR owns more than 5% of the client equity securities

What are the ehtical principals under GAGAS

``` Serving the public interest integrity objectivity proper use of govt informationm resources, and positions Professional behavior ```

What are the 2 general characteristics of independence under GAGAS

Independence of Mind and Indenpendence of appearance

What are the 4 steps of evaulating auditor independence under GAGAS

1. indentification of threats to independence 2. evaluation of the significant of threats 3. applicaiton of safeguards to eliminate threats 4. conclude is safeguards are adequate

What kind of assurance does a compilation report provide, do you need to be indpendent?

NONE meaning there are NO Opinions given at all, and you dont NEEEED to be indpendent, BUT if you ARE NOT then just DISCLOSE IT

In a compilaiton, if there is departure from GAAP not intended to decieve and is properly disclosed, is it ok?

YES baby

What kind of engagement does SSARS apply to

Compilation of a non issuer

What kind of an egagement is a preparation engagement

non attest

What is the difference between attestation vs. nonattest

``` attest = Report provided non-attest= no report ```

what is the difference between assurance and no assurance

assurance = opinion given | no assurance = no opiniion given

Unit 6 Flashcards

(46 cards)