Term
| interim financial information (IFI) |
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Definition
| financial info for less than a full year or for the 12 months ending on a date other than fiscal year end |
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Term
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Definition
| IFI may be in statement form. It also may be in a condensed form that is asserted to conform w/an applicable financial reporting framework. |
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Term
| Before accepting an engagement to review IFI, the accountant should... |
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Definition
| make inquiries of his/her predecessor. |
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Term
| An accountant may review the IFI of an entity if... |
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Definition
1. the latest annual statements are audited.
2. the IFI is prepared using the same applicable F/R framework and
3. certain other criteria are met. |
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Term
| objective of a review of IFI |
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Definition
| to enable the accountant to provide negative assurance |
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Term
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Definition
| the accountant states whether s/he is aware of any material modifications needed for the IFI to conform w/the applicable F/R framework |
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Term
| A review primarily involves... |
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Definition
| performing analytical and inquiry procedures. |
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Term
| A review does not involve... |
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Definition
1. testing accounting records and the effectiveness of controls,
2. obtaining corroborating evidence,
3. applying certain other auditing procedures, or
4. becoming aware of all significant matters identified in an audit. |
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Term
| A review is not intended to... |
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Definition
1. result in expression of opinion,
2. provide assurance about IC, or
3. identify significant deficiencies and material weaknesses in IC (but these should be communicated if identified). |
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Term
| understanding with the client... |
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Definition
| should be established regarding the services to be performed |
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Term
| How should the understanding should be documented? |
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Definition
| In a written communication w/the client (engagement letter). |
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Term
| The understanding w/the client, as documented in an engagement letter, includes... |
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Definition
| objectives and limitations of the engagement and the responsibilities of management and the accountant, as well as the expected form of communication (oral or written). |
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Term
| Before accepting the engagement... |
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Definition
| the accountant should assess management's ability to acknowledge responsibility for the sufficiency of controls over preparation of IFI. |
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Term
| If management lacks the ability to acknowledge responsibility for sufficiency of controls, the accountant should... |
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Definition
| refuse to accept the engagement. |
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Term
| management's responsibilities w/respect to IFI include... |
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Definition
1. the IFI,
2. the effectiveness of IC,
3. compliance w/laws and regulations,
4. making info available,
5. providing a representation letter at the engagement, and
6. adjusting the IFI for material misstatements. |
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Term
| accountants responsibility w/respect for IFI |
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Definition
| to comply w/AICPA standards. |
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Term
| The accountant's knowledge of the entity's business and IC should be sufficient to... |
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Definition
1. identify types of misstatements,
2. consider the likelihood of their occurrence, and
3. select inquiries and analytical procedures.
This knowledge must relate to preparation of annual information as well as IFI. |
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Term
| procedures to update the accountant's knowledge of the business and IC include the following... |
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Definition
1. Reading documentation of the prior audit and of prior reviews, w/specific consideration of:
a. corrected and uncorrected misstatements.
b. identified fraud risks.
c. significant matters of continuing interest.
2. Reading the recent annual info and prior IFI.
3. Considering current audit results.
4. Inquiring of management about changes in the business or in IC.
5. In an initial review, inquiring of the predecessor accountant and reading their documentation if permitted.
6. Obtaining knowledge of the relevant aspects of the IC components relating to annual information and IFI. |
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Term
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Definition
| should be applied to identify unusual relationships and items. |
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Term
| Are management responses generally corroborated? (analytical procedures) |
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Definition
| In an audit, yes. In a review, no. |
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Term
| inquiries and other procedures performed in IFI review |
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Definition
1. Reading the minutes and inquiring about the results of meetings for which minutes are unavailable.
2. Obtaining reports of accountants who have reviewed IFI of components of the entity or its investees.
3. Inquiring of management about financial and accounting matters.
4. Reconciling the IFI and the accounting records.
5. Reading the IFI to consider, based on info coming to the accountant's attention, whether it conforms w/the applicable F/R framework.
6. Reading other info in documents containing the IFI. |
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Term
| inquiring of management about financial and accounting matters |
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Definition
Such matters include...
a. unusual or complex situations,
b. significant recent transactions,
c. status of uncorrected misstatements,
d. knowledge of fraud,
e. deficiencies in control,
f. significant entries and other adjustments,
g. questions arising from application of review procedures,
h. events subsequent to the date of the IFI,
i. communications from regulators, and
j. preparation of the IFI in conformity w/applicable F/R framework. |
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Term
| Are LCA inquiries and going-concern issues addressed? |
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Definition
| Inquiries about litigation, claims, and assessments and going-concern issues ordinarily are not made unless the accountant becomes aware of reasons for such inquiries. |
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Term
| When does the accountant extend procedures for reviewing IFI? |
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Definition
| If s/he believes that the IFI does not conform w/applicable F/R framework. |
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Term
| Can the same accountant that performs the F/S audit also review IFI? |
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Definition
| Usually this is the case, and the accountant may be able to coordinate them. |
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Term
| If the accountant becomes aware of likely misstatements... |
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Definition
| s/he should accumulate them for further evaluation. |
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Term
| How are misstatements evaluated? |
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Definition
| Misstatements, including inadequate disclosure, are evaluated individually and in the aggregate to determine whether the IFI should be materially modified. |
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Term
| scope restriction may arise from... |
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Definition
1. significant deficiencies or material weaknesses in IC,
2. inability to perform necessary procedures, or
3. the client's failure to provide written representations. |
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Term
| Result as a scope restriction... |
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Definition
| an incomplete review, and not report is issued. |
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Term
| possible communications to management and those charged w/governance include... |
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Definition
1. inability to complete review,
2. need for material modification of IFI,
3. accountant's awareness of fraud or illegal acts,
4. IC-related matters, and
5. certain other matters. |
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Term
| discussion of the quality of the entity's accounting principles, as applied to its interim reports (IFI), is ordinarily limited to... |
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Definition
| the effects of significant events, transactions, and changes in estimates considered in performing the review. |
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Term
| Does an accountant ordinarily need to report in writing on a review of IFI? When should the report accompany the IFI? |
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Definition
| No, but the report should accompany the IFI if the entity refers to the accountant's association. |
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Term
| Why would the accountant write a report on the IFI? |
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Definition
| The accountant also may decide to issue a written report to prevent a user of the IFI from assuming a higher level of assurance than that provided by a review. |
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Term
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Definition
| Each page of the IFI must be clearly marked as unaudited. |
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Term
| When is the review report modified? |
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Definition
| For material departure from the applicable F/R framework, including inadequate disclosure. The modification describes the departure and, if practicable, states its effects or provides the necessary information. |
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Term
| Securities Act of 1933 & audit |
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Definition
| Independent accountants audit F/S and schedules contained in registration statements filed w/SEC under the '33 Act. |
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Term
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Definition
| In conjunction w/the audit, the independent accountant can issue a comfort letter for underwriters and certain other requesting parties. |
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Term
| Are comfort letters required by law? |
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Definition
| No, but underwriting agreements often request them. |
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Term
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Definition
| covered by an audit report of independent accountants; underwriters may wish to perform a reasonable investigation of financial and accounting data as a defense under the act. |
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Term
| When a party w/a due diligence defense requests a comfort letter but does not furnish a representation letter... |
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Definition
| the accountant may not provide negative assurance but may describe procedure performed. |
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Term
| Who determines what evidence is sufficient in an investigation regarding the due diligence defense under the '33 Act? |
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Definition
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Term
| assistance provided in a comfort letter |
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Definition
| Limited. Accountants can comment only on matters to which their expertise is relevant, and the procedures permit the expression of, at most, negative assurance. |
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Term
| format and content of comfort letters |
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Definition
Dating- letter is ordinarily is dated on or shortly before the effective date of the registration statement.
Addressee- The letter should not be addressed or given to any other than the client and the named underwriters, broker-dealer, intermediary, or buyer or seller.
Independence- Accountants customarily make a statement concerning their independence in the letter.
Compliance w/SEC requirements.
Accountants' reports- Underwriters may request the accountants to repeat in the comfort letter their opinion on the audited F/S included in the registration statement. B/c of the significance of the date of the auditor's report, the accountants should not repeat their opinion or give negative assurance about the report. |
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Term
| What does a comfort letter do? |
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Definition
| A typical comfort letter expresses an opinion on whether audited F/S and schedules included in the registration statement comply as to form in all material respects w/applicable accounting requirements of the act and the elated rules and regulations adopted by the SEC. |
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Term
| comments on unaudited condensed interim F/S |
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Definition
| Comments in the comfort letter about unaudited condensed interim F/S appearing in the registration statement should always be in the form of negative assurance. |
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Term
| comments on knowledge of IC |
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Definition
The accountants should have knowledge of the client's IC if they comment on:
1. Unaudited condensed info,
2. Capsule info,
3. Financial forecasts,
4. Changes in capital stock,
5. Increases in noncurrent debt, and
6. Decreases in selected items.
They do not comment on IC. |
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Term
| comments on capsule fin. info |
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Definition
| W/regards to capsule information, the accountant may give negative assurance regarding conformity w/GAAP and consistency w/the audited F/S if the capsule info is in accordance w/the disclosure requirements of GAAP relating to interim F/R and if the accountants have performed a review of the underlying F/S in accordance w/AU 722. |
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Term
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Definition
| unaudited summarized interim info for subsequent periods used to supplement the audited F/S or unaudited condensed interim fin. info. in a registration statement. |
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Term
| comments on pro forma fin. info |
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Definition
| The accountants should not comment on this information unless they have acquired the appropriate level of knowledge of the accounting F/R practice of the entity. (AT 401). |
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Term
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Definition
| To apply agreed-upon procedures to a forecast and comment on it in a comfort letter, the accountants must perform compilation procedures for a forecast and should attach the report to the comfort letter. Negative assurance on the results of the procedures may not be provided. |
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Term
| comments on management's discussion and analysis (MD&A) |
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Definition
| Comments that attestations are in accordance w/AT 701 may be made. No comments on the compliance of the MD&A w/forms required by SEC rules should be made. Furthermore, no comments should be made on nonfinancial data in the MD&A. |
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Term
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Definition
| Comments on these matters ordinarily concern whether a change has occurred in capital stock, noncurrent debt has increased, or other specified F/S items have increased/decreases during the change period. Accountants are usually requests to read minutes and make inquiries. |
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Term
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Definition
| the period subsequent to the latest F/S included in the registration statement |
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Term
| The underwriting agreement... |
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Definition
| may call for a comfort letter commenting on tables, statistics, and other financial information in the registration statement. |
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Term
| In the underwriting agreement, the accountant should comment only w/respect to information... |
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Definition
1. Expressed in monetary units (or % based on amounts of monetary units) and obtained from records subject to the IC of the entity's accounting system.
2. Derived directly from the accounting records by analysis or computation. |
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Term
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Definition
| The comfort letter should conclude w/a paragraph stating that the "letter is solely for the information of the addresses and to assist the underwriters" to avoid misunderstanding of the purpose and intended use of the comfort letter. |
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Term
| The responsibility for the F/R contains in documents filed under the federal securities statutes lies with... |
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Definition
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Term
| accountant's responsibility |
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Definition
| ordinarily similar to that for other types of reporting, but the statutes that responsibility in detail. |
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Term
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Definition
| imposes responsibility for false or misleading statements in an effective registration statement. |
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Term
| whistleblower stipulation |
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Definition
| SEC stipulation for fraud informers other than the auditor. |
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Term
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Definition
| a person who provides information to the SEC about a possible violation of securities laws. |
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Term
| To be considered for an award, a whistleblower must... |
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Definition
| voluntarily provide the SEC w/original info that leads to the SEC obtaining monetary sanctions in excess of $1 million. |
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Term
| When does the independent accountant have a responsibility as an expert? |
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Definition
| When his/her report is included in a registration statement. |
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Term
| The 1933 act states that no person shall be liable... |
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Definition
1. If s/he, after reasonable investigation, had reasonable grounds to believe that the statements in the registration statement were true and that there was no omission to state a material fact required to be stated or necessary to make the statements not misleading.
2. If the part of the registration statement for which s/he had responsibility did not fairly represent his/her statement as an expert or was not a fair copy of or extract from his/her report or valuation as an expert. |
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Term
| standard of reasonableness |
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Definition
| required of a prudent individual in the management of his/her own property. |
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Term
| The independent accountant whose report is included in a registration statement has a statutory responsibility that is determined in light of the... |
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Definition
| circumstances on the effective date of the registration statement. |
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Term
| Is a report based on a review of interim fin. info is... |
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Definition
| not deemed to be a report or part of the registration statement for this purpose. The SEC requires that the prospectus contain language to this effect. |
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Term
| Accounting principles applied... |
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Definition
| must have substantial authoritative support. |
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Term
| The SEC requires that registrants... |
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Definition
| obtain reviews of interim fin. info. by their independent auditors prior to filing quarterly reports in Form 10-Q or Form 10-QSB. |
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Term
| W./respect to the accountant in a registration statement... |
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Definition
| the accountant should be certain that his/her name is not being used in a way indicating his/her responsibility is greater than intended. |
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Term
| To sustain the burden of proof that s/he has made a reasonable investigation, an auditor should extend his/her subsequent events procedures... |
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Definition
| from the date of the report up to the effective date of the registration statement. |
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Term
| Following the date of the report, the ind. auditor may rely mostly on inquiries. W/that said, the auditor should... |
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Definition
The auditor should...
1. Apply the normal subsequent events procedures.
2. Read the prospectus and other pertinent portions of the registration statement.
3. Obtain written representations from responsible individuals about whether any events have occurred having a material effect on the audited F/S or that should be disclosed. |
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Term
| An auditor who has audited the F/S for prior periods but not for the the most recent period... |
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Definition
| included in the registration statement has a responsibility for material subsequent events affecting the prior period statements. |
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Term
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Definition
Type of information/Example: Other/CEO's letter included in the annual report.
Accountant's Procedures: Read for consistency w/F/S.
Reporting Responsibility: Add paragraph to audit report only if other info is not consistent w/F/S. |
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Term
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Definition
Type of information/Example: Required supplementary/Oil and gas reserve info
Accountant's Procedures: Apply limited procedures.
Reporting Responsibility: Add paragraph to audit report only if other info is omitted or departs from requirements. |
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Term
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Definition
Type of information/Example: Supplementary in relation to statements/Schedule of fixed assets.
Accountant's Procedures: Audit
Reporting Responsibility: Refer to and report on fair presentation in audit report. |
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Term
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Definition
Type of information/Example: Condensed or selected/summary of financial results
Accountant's Procedures: Determine whether states fairly relative to complete F/S.
Reporting Responsibility: In a separate report, refer to audit report and state conclusion about fairness relative to complete F/S. |
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Term
| other information (AU 550)) |
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Definition
| financial or nonfinancial info (other than the F/S and the auditor's report) that is included in a document containing audited statements and the auditor's report (excluding RSI). |
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Term
| auditor's responsibility for other information |
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Definition
to respond appropriately when the other info may undermine the credibility of the statements and the auditor's report.
Read to identify material inconsistencies.
The auditor also must respond when s/he becomes aware of a material misstatement of fact in the other information. |
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Term
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Definition
| other info that is unrelated to matters in the audited statements and is incorrectly stated or presented. |
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Term
| When management refuses to correct a material misstatement of fact... |
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Definition
| the auditor should notify those charged w/governance. |
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Term
| If the other information is obtained prior to the report release date and needs revision... |
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Definition
| the auditor should request the client to revise it if it is materially inconsistent. |
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Term
| If revision to other information is not made when needed, the auditor should consider... |
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Definition
a. Modifying the report to include an explanatory paragraph,
b. Withholding use of the report, or
c. Withdrawing from the engagement. |
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Term
| Should the auditor refer to other info in audit report? |
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Definition
| No, but it can disclaim an opinion on it. |
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Term
| required supplementary information (RSI) (AU 558) |
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Definition
| info that the designed accounting standard setter has determined must accompany the basic F/S |
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Term
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Definition
a. Inquire.
b. Compare the RSI for consistency w/basic statements, management's responses to inquiries, and other audit evidence.
c. Obtain management's written representations relevant to its responsibilities for RSI and compliance w/guidelines. |
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Term
| inquiry (procedures for RSI) |
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Definition
The auditor should inquire about...
1. Whether the RSI is within the guidelines,
2. Whether methods of measurement or presentation have changed and the reasons for any change, and
3. Any significant assumptions or interpretations. |
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Term
|
Definition
a. The audit report should include an explanatory paragraph referring to the RSI and stating that certain limited procedures were applied. It is presented after the opinion paragraph.
b. Omission of or a deficiency in the RSI does not affect the opinion on the basic statements.
c. The auditor need not present the RSI if its omitted. |
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Term
| supplementary information (SI) (AU 551) |
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Definition
| presented outside the basic statements and is not necessary for the statements to be fairly presented in accordance w/applicable F/R framework |
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Term
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Definition
| summaries or statistical data extracted from F/S |
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Term
| An auditor who is engaged to report on whether SI is fairly presented in all material respects in relation to the statement as a whole must determine that certain conditions are satisfied: |
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Definition
1. The SI is derived from the underlying records used to prepare the statements and relates to the same period.
2. Auditor is the principal auditor of the related statements and did not express an adverse opinion or disclaim an opinion on them.
3. The SI will accompany the audited statements.
4. Management understand its responsibilities for preparing the SI, presenting it with the audit report and the audited statements, and providing written representations. |
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Term
| The following procedures to express an opinion on the SI are performed based on the materiality level used for the F/S audit: |
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Definition
1. Inquiring about the purpose of, and criteria for, the SI.
2. Determining conformity w/criteria.
3. Understanding methods of preparation.
4. Reconciling SI w/underlying records or F/S.
5. Inquiring about significant assumptions or interpretations.
6. Evaluating the appropriateness and completeness of the SI.
7. Obtaining management's written representations about responsibility for presentation, fairness, methods, assumptions, and interpretations. |
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Term
| Does the auditor need to perform subsequent events on the SI? |
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Definition
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Term
| When the SI and the audited statements are presented together... |
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Definition
| the auditor reports on the SI in an explanatory paragraph following the opinion paragraph or in a separate report. Otherwise, a separate report should be issued. |
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Term
| AU 552 (reporting on condensed F/S and selected financial data)- this pronouncement applies to the following: |
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Definition
1. Condensed annual or interim F/S derived from audited F/S of an issuer.
2. Selected financial data derived from audited F/S of an issuer or a nonissuer and presented in a document that includes audited F/S. |
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Term
|
Definition
| these F/S are considerably less detailed than complete F/S. They should be read w/the entity's most recent complete statements that include all GAAP disclosures. |
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Term
| Can an auditor report on condensed F/S? |
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Definition
| Yes, but, because they do not constitute a fair presentation, not in the same manner as on the complete statements. |
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Term
| The auditor's report should... |
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Definition
1. State the the auditor has audited and expressed an opinion on the complete statements.
2. Provide the report date on the complete statements.
3. Indicate the type of opinion expressed on the complete statements.
4. Express an opinion as to whether the condensed F/S info is fairly stated in all material respects in relation to the complete F/S. |
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Term
| If a client names the auditor in a client-prepared document and also states that condensed F/S have been derived from audited F/S... |
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Definition
| the auditor need not report on the condensed F/S if they are included in a document that contains audited F/S. |
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Term
| Condensed statements of an issuer may be presented... |
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Definition
| comparatively w/interim info as of a subsequent date accompanied by auditor's review report. |
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Term
| The auditor should report on the condensed F/S... |
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Definition
| in each period in a manner appropriate to the service provided. |
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Term
|
Definition
Under the ISAs, summarized F/S should include:
1. A clear indication of the nature of the info,
2. A title identifying the audited F/S,
3. The addressee, and
4. A statement that the summarized statements should be read w/the full statements and the audit report on them, and
5. The address of the auditor. |
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Term
| Can an auditor may report on selected data included in a client-prepared document containing audited F/S? |
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Definition
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Term
|
Definition
| not a required part of the basic statement, and management is responsible for determining the specific data to be presented. |
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Term
| The report on selected financial data should be limited to... |
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Definition
| data derived from audited F/S. |
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Term
| If the selected financial data include other information, the report should... |
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Definition
| specifically identify the data on which the auditor is reporting. |
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Term
| audit report & selected financial data |
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Definition
The report should...
1. State that the auditor has audited and expressed an opinion on the complete F/S.
2. Indicate the type of opinion expressed on the complete F/S.
3. Express an opinion as to whether the info in the selected financial data is fairly stated in all material respects in relation to the complete F/S. |
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Term
| In introductory material included in a client-prepared document... |
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Definition
| an entity might name the auditor and state that the data are derived from the F/S that s/he audited. |
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Term
| Does the audit report require the auditor to report on the selected data? |
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Definition
| The F/S does not require the auditor to report on the selected data if they are in a document that contains audited F/S. |
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Term
|
Definition
| reporting on F/S prepared for use in other countries |
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Term
| Can an auditor practicing in the U.S report on foreign F/S? |
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Definition
| No. An independent auditor practicing in the U.S. may report on the F/S of a U.S. entity prepared in conformity w/accounting principles generally accepted in another country outside the U.S. |
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Term
| What must the auditor know for reporting on U.S. F/S w/other framework? |
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Definition
Auditor must understand the purpose and uses of the F/S and obtain written representations from management.
If F/S are for general use and the standard report of the foreign country will be used, legal responsibilities must be considered. |
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Term
| Does AU 534 apply when IFRS is used? |
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Definition
| No, but AU 508 applies b/c the IASB is an AICPA-designated standard setter. |
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Term
| How should audit procedures be performed under AU 534? |
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Definition
| In compliance w/general and field work standards of U.S. GAAS, w/modifications. |
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Term
| compliance w/auditing standards of another country |
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Definition
| The auditor may be requested to apply the auditing standards of the other country. In that case, comply w/general and field work standards of U.S. GAAS. |
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Term
| If the statements of a U.S. entity are for general use outside the U.S.... |
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Definition
the audit may be conducted in accordance w/IAS issued by the IASB.
In these circumstances, the auditor follows U.S. GAAS (general and field work standards) any any additional requirements of the IASs. |
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Term
| modified U.S.-style report should include the following... |
|
Definition
1. Title w/word "Independent."
2. Statement that the identified F/S were audited.
3. Reference to the note describing the basis of presentation, including identification of the nationality of the principles
4. A statement that the F/S are the responsibility of mgmt. and that the auditor's responsibility is to express an opinion based on the audit.
5. Statement that the audit was in accordance w/GAAS.
6. Statement that U.S. standards require the auditor to plan and perform the audit to obtain reasonable assurance about whether the F/S are free of material misstatement.
7. Statement that an audit includes
Examining, on a test basis, evidence supporting the amounts and disclosure in the F/S
Assessing the accounting principles used and significant estimates made by management.
Evaluating the overall F/S presentation.
8. A statement that the auditor believes that the audit provides a reasonable basis for the opinion.
9. Paragraph expressing an opinion on whether the F/S are presented fairly, in all material respects, in conformity w/basis of accounting described.
If the statements are not fairly presented, the substantive reasons should be disclosed in an additional explanatory paragraph. The opinion paragraph should include modifying language and refer to the explanatory paragraph.
10. If comparative statements are presented, an explanatory paragraph (following the opinion paragraph) that
a. describes any change in accounting principle having a material effect on comparability and
b. refers to the note that discusses the change and its effects
11. Signature of the auditor's firm.
12. Date that the audit has obtained sufficient appropriate evidence to support the opinion. |
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Term
| If the auditor reports on fair presentation in conformity w/accounting principles generally accepted in another country... |
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Definition
| the auditor should use a U.S.-style report, modified b/C of departures from accounting principles generally accepted in the U.S. |
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Term
| Auditor may express an opinion on... |
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Definition
| whether the F/S are presented in conformity w/accounting principles generally accepted in the other country. |
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Term
|
Definition
| reports on the application of accounting principles |
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Term
| Management and other may consult with accountants to... |
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Definition
| learn how to apply accounting principles to new transactions and financial products or to increase their knowledge about specific F/R issues. |
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Term
| The pronouncement (AU 625) should be applied by an accounting in public practice when preparing a written report on the ... |
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Definition
1. Application of accounting principles to specific transactions, whether completed or proposed, "involving facts and circumstances of a particular entity."
2. Type of opinion that may be expressed on a specific entity's F/S. |
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Term
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Definition
| accountant in public practice |
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Term
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Definition
| oral advice believed to be an important factor in the application of accounting principles to specific transactions made by a principal to the transaction. |
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Term
| AU 625 does not apply to... |
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Definition
1. a continuing accountant engaged to report on a specific entity's F/S,
2. assistance in litigation involving accounting matters or related expert testimony, or
3. professional advice provided to another public accountant.
4. position papers
5. lectures/presentations
6. letters for public record |
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Term
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Definition
| newsletters, articles, speeches, and tests |
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Term
| Should an accountant provide a written report on the application of accounting principles to a hypothetical transaction? |
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Definition
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Term
| In performing the engagement, the reporting accountant... |
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Definition
| should consider the circumstances in which the report or advice is requested, the purpose, and the intended use. |
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Term
| The reporting accountant should also... |
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Definition
1. Exercise due professional care.
2. Have adequate technical training and proficiency.
3. Plan the engagement adequately.
4. Supervise assistants.
5. Accumulate sufficient info. to provide a reasonable basis for the professional judgment rendered.
6. Consider the circumstances and purpose of the request for a written report or oral advice and its intended use.
7. Obtain an understanding of the form and substance of the transaction(s).
8. Review applicable GAAP.
9. Consult w/other professionals or experts, if appropriate.
10. Ascertain and consider the existence of creditable precedents or analogies.
11. Consult w/continuing accountant of the entity to determine all the available relevant facts, including disputes w/management.
The reporting accountant should:
1. Explain to the management of the entity the need for consultation with the continuing accountant.
2. Request permission, and
3. Request authorization for the continuing accountant to respond fully. |
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Term
| The addressee of the accountant's written report is the... |
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Definition
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Term
| A report of the application of accounting principles should... |
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Definition
1. Briefly describe the engagement and state that it was in accordance w/applicable AICPA standards.
2. Identify the specific entity; describe the transaction(s); state the facts, circumstances, and assumptions; and state the source of the info.
3. Describe the accounting principle(s) to be applied, including their country of origin, or the type of opinion to be expressed.
a. If appropriate, the report should describe the reason for the conclusions.
4. State that the responsibility for proper accounting is w/preparers of F/S, who should consult w/their continuing accountant.
5. State that any difference in the facts, circumstances, or assumptions may change the report.
6. Contain a separate restricted-use paragraph at end of report. |
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Term
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Definition
| engagements to apply agreed-upon procedures |
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Term
| agreed-upon procedures engagement (AT 201) |
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Definition
| is one in which a practitioner is engaged by a client to issue a report of findings based on specific procedures performed on subject matter |
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Term
| specified parties (AT 201) |
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Definition
| assume responsibility for the sufficiency of the procedures |
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Term
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Definition
| The report is in the form of procedures and findings, and neither an opinion nor negative assurance should be provided. |
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Term
| general, field work, and reporting standards (AT 201) |
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Definition
| These standards for attestation engagements apply. However, a written assertion is generally not required in an agreed-upon procedures engagement unless specifically required by another attest standard. |
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Term
| appropriate procedures for applying agreed-upon procedures (AT 201) |
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Definition
1. Inspection of specified documents for attributes.
2. Confirmation of specific information w/third parties.
3. Comparison of documents or schedules w/certain attributes.
4. Performance of mathematical computations or sampling. |
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Term
| inappropriate procedures for applying agreed-upon procedures (AT 201) |
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Definition
1. Mere reading of the work performed by others to describe their findings.
2. Evaluating the competency or objectivity of another party.
3. Obtaining an understanding about a particular subject.
4. General review, checking, or any other overly subjective procedure.
5. Interpreting documents outside the scope of the practitioner's expertise. |
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Term
| The practitioner may perform an engagement provided that... |
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Definition
1. S/he is independent.
2. A specified party is responsible for the subject matter.
3. The specified parties agree w/the practitioner about the procedures to be performed.
4. The specified parties are responsible for the sufficiency of the procedures.
5. Procedures are expected to result in reasonably consistent findings.
6. Criteria to be used in the determination of findings are agreed upon.
7. Reasonably consistent subject matter measurement can be expected.
8. Evidence providing a reasonable basis for findings can be collected.
9. An agreement exists on materiality limits for reporting when applicable.
10. Use of the report is restricted to specified parties. |
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Term
| To ensure that specified parties take responsibility for the sufficiency of the procedures, the practitioner should do one or more of the following: |
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Definition
a. Communicate directly with, and obtain affirmative acknowledgement from, the parties.
b. Distribute the engagement letter to the specified parties.
c. Distribute a draft of the anticipated report to the specified parties.
d. Consider written requirements of the specified parties.
e. Discuss procedures w/appropriate representatives of the specified parties.
f. Review contracts w/or correspondence from the specified parties. |
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Term
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Definition
| consist of financial forecasts and projections, including summaries of significant assumptions and accounting policies. |
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Term
| accountant's responsibility for PFS |
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Definition
An accountant must examine, compile, or apply agreed-upon procedures to PFSs if they are, or reasonably might be, expected to be used by another (third) party and if the practitioner:
1. Submits to the client or others PFS that s/he has assembled or assisted in assembling.
2. Reports on PFSs. |
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Term
| Must the accountant be independent to report on an examination or agreed-upon procedures for PFSs? To compile PFSs? |
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Definition
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Term
| Should the compilation report be modified if the compiler is not independent? |
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Definition
Yes; a separate paragraph disclosing the lack of independence must be included.
The accountant can also include this. |
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Term
| (overall) financial forecast |
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Definition
| consists of PFSs that present, to the best of the responsible party's knowledge and belief, an entity's expected financial position, results of operations, and cash flows. |
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Term
| On what is the financial forecast based? |
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Definition
| The responsible party's (management's or acquirer's) assumptions reflecting conditions it expects to exist and the course of action it expects to take. |
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Term
| How is the financial forecast expressed? |
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Definition
| It may be expressed in specific monetary amounts as a range or as a single point estimate of forecasted results. |
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Term
| How is the range for the financial forecast determined? |
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Definition
| The responsible party selects key assumptions to form an interval within which it reasonably expects, to the best of its knowledge and belief, the item or items subject to the assumptions to actually fall. |
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Term
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Definition
differs form a forecast. A projection is based on the responsible party's assumptions reflecting conditions it expects would exist and the course of action it expects would be taken, given one or more hypothetical assumptions.
A projection is sometimes prepared to present one or more hypothetical course of action for evaluation, as in response to a question such as, "What if...?"
A projection may be expressed as a point estimate or a range. |
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Term
| PFSs are for what type of use? |
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Definition
| General use- if they are for use by persons w/whom the responsible party is not negotiating directly. Only a forecast is appropriate for general use. All other presentation are for limited use. |
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Term
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Definition
| should portray expected results to the best of the responsibility party's knowledge and belief. |
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Term
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Definition
means use by the responsibility party and those w/whom that party is negotiating directly.
Examples are use in a submission to a regulatory body or in negotiations for a bank loan. These third parties can communicate directly w/responsible party. |
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Term
| What type of PFS is limited use? |
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Definition
| financial projection, because the presentation of the projection is based on 1+ hypothetical assumptions. |
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Term
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Definition
| condition or course of action that is not necessarily expected to occur. |
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Term
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Definition
evaluates the preparation of the statements, the support underlying the assumptions, and the presentation of the statements for conformity w/AICPA guidelines.
It also involves of a report stating the practitioner's opinion on whether the PFSs conform w/AICPA guidelines and whether the assumptions provide a reasonable basis for 1. forecast.
2. projection given hypothetical assumptions. |
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Term
| If assumptions that appear to be significant at the time are not disclosed in the presentation, including the summary of assumptions... |
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Definition
the practitioner must express an adverse opinion.
Moreover, a practitioner should not examine a presentation that omits all such disclosures. |
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Term
| A compilation of PFSs, such as a financial forecast, involves... |
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Definition
1. assembling, to the extent necessary, the statements based on the responsible party's assumptions.
2. performing required compilation procedures, and
3. issuing a compilation report. |
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Term
| procedures for compiling PFSs include... |
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Definition
reading the statements and considering whether they meet AICPA presentation guidelines and determining that the statements are not obviously inappropriate.
Other procedures consists of inquiries, testing the mathematical accuracy of the computations, and obtaining written representations. However, these procedures are not required. |
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Term
| If the accountant inquired or performed procedures before and became aware of incorrect or unsatisfactory information... |
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Definition
| s/he should request revised info from the entity. If the entity refuses to provide revised info, the accountant should withdraw from the engagement. |
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Term
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Definition
states that a compilation is limited in scope and does not enable the practitioner to express an opinion or any other form of assurance on the PFSs or the assumptions.
1. It adds that a compilation does not include evaluation of the support for the assumptions underlying the PFSs.
2. A report on a projection also should include a separate paragraph that limits the use of the presentation. |
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Term
| agreed-upon procedures & PFSs |
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Definition
| A practitioner may accept an engagement to apply agreed-upon procedures. |
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Term
| The engagement may be accepted if the practitioner is independent and... |
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Definition
1. The specified parties agree to the procedures and take responsibility for their sufficiency.
2. Report use is limited to specified parties.
3. The statements include a summary of significant assumptions. |
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Term
| The engagement may be accepted if the practitioner is independent and... |
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Definition
1. The specified parties agree to the procedures and take responsibility for their sufficiency.
2. Report use is limited to specific parties.
3. The statements include a summary of significant assumptions. |
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Term
| The standard report concerning agreed-upon procedures should state that... |
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Definition
the practitioner did not perform an examination and that other matters might have come to his/her attention if additional procedures had been performed.
It should also disclaim an opinion on conformity w/AICPA presentation guidelines. |
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Term
| Does the standard report concerning agreed-upon procedures provide positive or limited assurance? |
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Definition
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Term
| Can there be a review of agreed-upon procedures? |
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Definition
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Term
| pro forma fin. info (PFFI) |
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Definition
| shows "what the significant effects on historical fin. info. would have been had a consummated or proposed transaction (or event) at an earlier date." |
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Term
| Examples of these transactions include... |
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Definition
a. A business combination.
b. Disposal of a segment.
c. Change in the form or status of an entity, and
d. Change in capitalization. |
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Term
| An accountant may examine or review PFFI if three conditions are met... |
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Definition
a. The document containing the PFFI includes or incorporates by reference the complete historical F/S for the most recent year available.
b. If the PFFI has been examined, the historical F/S on which it is based have been audited. If the PFFI has been reviewed, the historical F/S have been audited or reviewed.
c. The reporting accountant is appropriately knowledgeable about the accounting and F/R practices of each significant part of the combined entity. |
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Term
| Does a compilation of the historical F/S provide any assurance? |
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Definition
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Term
| Does a compilation of the historical F/S provide any basis for the accountant to examine or review the PFFI? |
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Definition
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Term
| Should the report on an examination should include an opinion? Why? |
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Definition
Yes.
This opinion addresses:
a. Management's assumptions provide a reasonable basis for the significant effects attributable to the transaction or event.
b. The pro forma adjustments give appropriate effect to the assumptions, and
c. The pro forma column reflects the proper application of those adjustments to the historical data. |
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Term
| matters that lead to modification of the opinion or a disclaimer |
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Definition
| scope limitations, reservations about the assumptions or the presentation, and other matters. |
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Term
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Definition
| An issuer that discloses a material non-GAAP financial measure (a pro forma releases) also must disclose the most directly comparable GAAP measure (SEC Regulation G). |
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Term
| specified requirements (AT 601) |
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Definition
| laws, regulations, rules, contracts, or grants |
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Term
| compliance w/specified requirements & practitioner responsibility (AT 601) |
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Definition
| A practitioner may be asked to provide assurance about the entity's compliance w/specified requirements. The engagement also may be directed toward the responsible party's written assertion about compliance. |
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Term
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Definition
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Term
| Can a practitioner be asked to also provide assurance about a company's internal control over compliance? (AT 601) |
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Definition
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Term
| AT 601 provides guidance for engagements related to... |
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Definition
| reporting on compliance w/requirements that are either financial or nonfinancial. |
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Term
| Does a compliance attestation does not provide a legal determination of an entity's compliance? |
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Definition
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Term
| Under AT 601, can a practitioner perform agreed-upon procedures? An examination? A review? |
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Definition
Agreed-upon procedures: Yes.
Examination: Yes.
Review: No. |
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Term
| In an agreed-upon procedures engagement, the subject matter, consists of... |
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Definition
1. Compliance w/specified requirements.
2. The effectiveness of IC over compliance, or
3. Both. |
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Term
| Under AT 601, who decides the procedures to be performed by the practitioner and takes responsibilities for those procedures? |
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Definition
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Term
| Under AT 601, does the practitioner have any obligation to perform other procedures besides those agreed-upon? |
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Definition
| Not unless noncompliance comes to the practitioner's attention by other means and such info should be included in the report. |
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Term
| Under AT 601, how should the practitioner's report be written? |
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Definition
| In the form of procedures and findings. |
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Term
| Under AT 601, should the practitioner's report provide negative assurance about whether an entity is in compliance or whether the responsible party's assertion is fairly stated? |
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Definition
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Term
| Under AT 601, the report... |
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Definition
a. Has a title that includes the word "Independent."
b. Describes the nature and scope of the service.
c. Limits use to specified parties.
d. Is signed by the practitioner.
e. Is dated as of the completion of the agreed-upon procedures. |
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Term
| In an examination engagement, the subject matter (or an assertion about it) consists of... |
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Definition
| compliance w/specified requirements. |
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Term
| In an examination engagement, the practitioner... |
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Definition
1. Gathers evidence to support an opinion on whether an entity is in compliance, in all material respects, based on specified criteria.
2. The practitioner also may examine the effectiveness of the entity's IC over compliance. |
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Term
| For an agreed-upon procedures engagement, the responsible party should... |
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Definition
1. Accept responsibility for the entity's compliance w/specified requirements and the effectiveness of the entity's IC over compliance.
2. Evaluate such compliance or effectiveness. |
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Term
| For an examination of the entity's compliance w/specified requirements... |
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Definition
| sufficient evidence should exist or be capable of development to support management's evaluation. |
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Term
| To perform a compliance attestation engagement, the practitioner should... |
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Definition
| obtain from the responsible party a written assertion about compliance. |
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Term
| purpose of examination engagement for compliance |
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Definition
| to express an opinion on whether an entity is in compliance (or whether responsible party's assertion about compliance is fairly stated), in all material respects, based on the specified criteria. |
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Term
| To express an opinion on compliance... |
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Definition
| the practitioner must gather sufficient evidence to reduce attestation risk to an acceptably low level. |
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Term
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Definition
| similar to audit risk listed in SAS; must be reduced to an acceptably low level through the gathering of sufficient evidence. |
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Term
| What level of assurance does an examination engagement for compliance provide? |
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Definition
| Reasonable assurance of compliance. |
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Term
| The acceptable level of detection risk is based on... |
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Definition
| the extent to which the auditor wants to reduce attestation risk and the assessments of inherent risk and control risk. |
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Term
| What does the acceptable level of detection risk |
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Definition
| The nature, timing, and extent of the necessary compliance tests. |
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Term
| Does the consideration of materiality for a compliance attestation differ from that of an F/S audit? |
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Definition
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Term
| consideration of materiality for a compliance attestation |
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Definition
The following should be considered:
1. The nature of the compliance requirements, which may not be quantifiable.
2. The nature and frequency of noncompliance identified, w/appropriate consideration of sampling risk.
3. Qualitative considerations, including the needs and expectations of users. |
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Term
| performing an examination engagement for compliance |
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Definition
| The practitioner should use due care and professional skepticism to achieve reasonable assurance that material noncompliance will be detected. |
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Term
| practitioner's procedures and considerations in an examination engagement |
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Definition
1. Understand specified compliance requirements.
2. Plan the engagement.
3. Understand relevant portions of IC over compliance to plan engagement and assess control risk.
4. Perform procedures to provide reasonable assurance of detecting material noncompliance, including obtaining a written representation letter from the responsible party.
5. Consider subsequent events (AU 560).
6. Form an opinion. |
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Term
| If control risk is to be assessed at a low level... |
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Definition
| tests of controls must be performed. |
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Term
| components of practitioner's report on an examination engagement for compliance |
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Definition
| Introductory, Scope, and Opinion paragraphs. |
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Term
| practitioner's report on an examination engagement: report modifications include... |
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Definition
a. Material noncompliance.
b. Scope limitations.
c. Report based, in part, on the report of another practitioner. |
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Term
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Definition
When an examination discloses noncompliance w/specified requirements that the practitioner believes have a material effect on the entity's compliance, the report should be modified.
Depending on materiality, the opinion should be qualified (except for) or adverse.
An explanatory paragraph should be added to the report. |
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Term
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Definition
| Qualify or disclaim an opinion depending on materiality. |
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Term
| report based, in part, on the report of another practitioner |
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Definition
| The practitioner should either refer to the other practitioner or issue the standard report (AU 543). |
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