Audit 2

Front 1

Name the elements of a CPA firm's system of quality control for its auditing, attest, and review services.

Back 1

Independence, Integrity, Objectivity.

Personnel management

Acceptance and continuance of clients and engagements

Engagement performance

Monitoring

Front 2

When may an auditor issue a special report on a client's compliance with contractual agreements or regulatory requirements, and what type of report may be issued?

Back 2

The auditor:

* Must have audited the client's financial statements and expressed an unqualified or qualified opinion (no adverse or disclaimer); AND
* May only give negative assurance on the compliance

Front 3

What are some of the limitations surrounding an auditor's report on a specified element, account, or item of a financial statement?

Back 3

* If the item is based on net income or stockholders' equity, the auditor may only report on it if he/she has audited the complete set of financial statements.

* If an adverse opinion or disclaimer of opinion was issued, the auditor may not report on items that constitute a major portion of the financial statements.

Front 4

Name five areas for which special reports are used.

Back 4

1. Financial statements prepared in conformity with a comprehensive basis other than GAAP

2. Specific elements, accounts, or items of a financial statement.

3. Compliance with aspects of contractual agreements or regulatory requirements related to audited financial statements

4. Financial presentations to comply with contractual agreements or regulatory provisions

5. Financial information presented in prescribed forms or schedules that require a prescribed form of auditor's report.

Front 5

Give examples of comprehensive bases of accounting other than GAAP.

Back 5

* A basis of accounting the entity uses to file its income tax return

* A basis of accounting used to comply with the requirements of a regulatory agency having jurisdiction over the reporting entity.

* The cash receipts and disbursements system, and modifications of the cash basis having substantial support.

* A definite set of criteria having substantial support that is applied to all material items, such as price-level adjusted financial statements

Front 6

What are the performance requirements applicable to a review engagement for a nonpublic entity's financial statements?

Back 6

The auditor should:
* Make inquiries and perform analytical procedures designed to detect relationships and individual items that appear to be unusual.

* Obtain knowledge of accounting principles and practices common to the client's industry

* Obtain an understanding of the client's busines

* Obtain a representation letter from management

Front 7

What should be included in an accountant's report on a review of a nonpublic entity's financial statements?

Back 7

* A review has been performed in accordance with standards (SSARS) established by AICPA

* Financial statement information is the representation of management

* A review consists primarily of inquiries and analytical procedures applied to financial data

* A review is substantially less in scope than an audit and an opinion on the financial statements is NOT expressed

* The accountant is not aware of any material modifications that should be made to the financial statements

Front 8

If an accountant has reviewed the prior period statements but not compiled the current period statements, what are his or her reporting options?

Back 8

The accountant has provided a lower level of service: review to compilation. Reporting options include:

* Issue a compilation report on the current period statements with a paragraph added to describe the responsibility assumed for the prior period statements; OR

* Reissue the review report on the prior period

The reissued report may be combined with or presented separately from the compilation report on the current period

Either the added paragraph or the reissued report should include the original date and state that no review procedures have been performed since that date.

Front 9

Compilation and review standards require that an accountant establish an understanding with the client as to the services to be performed. What should be included in this understanding?

Back 9

The understanding should include:

* A description of the specific compilation or review services to be performed

* A description of the report expected to be rendered

* An explanation of the limitations of the service, including a statement that:
* The engagement cannot be relied upon to disclose errors, fraud, or illegal acts; AND
* The entity will be informed of any information indicating that fraud or an illegal act may have occurred.

* A description of other accounting services, if any, to be performed

Front 10

How does the expected use of compiled financial statements affect reporting requirements?

Back 10

* When financial statements are expected to be used by third parties, a compilation report is required.

* When financial statements are not expected to be used by third parties, a written communication (either a compilation report or an engagement letter) is required

Front 11

What statements should be included in an accountant's report in a compilation engagement?

Back 11

* A compilation has been performed in accordance with SSARS issued by the AICPA

* A compilation is limited to presenting, in the form of financial statements, information that is the representation of management

* Financial statements have not been audited or reviewed, and the accountant expresses no opinion or any other form of assurance on them

Front 12

What are the reporting requirements with respect to compiled financial statements when:
- Substantially all disclosures are omitted?
- Only limited disclosures are included?
- The auditor lacks independence?

Back 12

Statements that omit substantially all disclosures:
* Report must clearly indicate omission
* Omission not intended to mislead expected users
* Compilation report should be modified by a third paragraph disclosing such omissions

Statements that include only limited disclosure:
* 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 lack of independence. Reasons should NOT be disclosed.