Professional Documents
Culture Documents
NONAUDIT ENGAGEMENTS:
PROCEDURES AND REPORTS
Questions
1.
Examples of using what has held true in the past will hold true in the future:
(a) evaluating the collectibility of accounts receivable based on past collection
history,
(b) evaluating inventory obsolescence on the basis of past usage patterns,
(c) assessing the economic usefulness and useful lives of fixed assets based
upon experience with similar assets,
(d) relying on a control risk assessment for a period between the time of the
original assessment at interim and the fiscal year-end, and
(e) expecting to encounter classification and evaluation errors when
management has been known to have acted without sufficient decision
planning in the past.
2.
Financial statements are unaudited if the CPA has not applied any auditing
procedures or has not applied procedures which produced sufficient evidence
upon which to base an opinion on the financial statements as a whole.
With respect to unaudited statements, in addition to a disclaimer of opinion
(public companies), the following guides should be followed:
1.
2.
3.
3.
If the CPA should learn that the statements are not in conformity with
financial reporting standards (including adequate disclosures), he should
explain the departures in the disclaimer.
If prior years unaudited statements are present, the disclaimer should cover
them as well as the current year statement.
Each page of the statements should be clearly labeled as unaudited.
30-2
Net income
Primary and fully diluted earnings per share
Summary of significant changes in financial position
Summary of significant assumptions
Summary of significant accounting policies
5.
Audit Report
on Historical Statements
a. Identification of statements
audited.
c.
d.
Compilation Report
on Historical Statements
a. Identification of statements
compiled.
b.
c.
d.
Both review service and compilation service engagements are less than an audit.
A comparison of the three amounts to a hierarchy of assurance:
1.
Audit engagement
30-3
process.
2.
Review engagement
3.
Compilation engagement
7.
8.
a.
b.
Review: More than a compilation, but less than an audit, a review consists
mainly of performing inquiry and analytical procedures. Such procedures
provide the CPA a basis for expressing limited assurance concerning
conformance with PFRS.
c.
30-4
9.
A CPA who lacks independence may compile financial statements; but may not
perform an audit, review, or any other form of attestation service.
c
c
b
b
5.
6.
7.
8.
a
b
a
c
9.
10.
11.
12.
a
d
a
b
13.
14.
15.
16.
b
b
a
b
17.
18.
19.
20.
c
d
a
b
Comprehensive Cases
1. a.
b.
30-5
2.
Assumption
b. Retire outstanding
debentures.
c. Labor contract
30-6
3. Nicky has no accounting staff and has little expertise in preparing financial
statements himself. However, he needs them occasionally, apparently for credit
purposes.
Three kinds of compiled financial statements are available:
1.
2.
3.
30-7
a.
b.
c.
A review service is less than an audit, hence the report can be less than
positive assurance. Clients get what they paid (less) for.
5.
To the Board of Directors of Francisco Company
I have reviewed the accompanying statement of financial position of Francisco Company
as of December 31, 2014, and the related statements of income, retained earnings, and
changes in financial position for the year then ended, in accordance with standards
established by the Auditing Standards and Practices Council. All information included in
these financial statements is the representation of the management of Francisco
Company.
A review consists principally of inquiries of company personnel and analytical procedures
applied to financial data. It is substantially less in scope than an examination in
accordance with auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole. Accordingly, I do not
express such an opinion.
Based on my review, I am not aware of any material modifications that should be made
to the 2014 financial statements in order for them to be in conformity with financial
reporting standards.
The accompanying 2013 financial statements of Francisco Company were compiled by
other accountants whose report dated January 11, 2014, stated that they did not express
any opinion or any other form of assurance of those statements.
Jo Cee, CPA
January 15, 2015
Note:
30-8
7.
Service
Compilation
Agreed upon
procedures
Review
Report
Compilation
Review
Examination
(attestation)
Opinion
Review
Procedures
Read and inquire
As agreed and applied to
specified elements
Read, inquire, and apply
analytical procedures
Evaluate preparation
Examine and evaluate
underlying assumptions
Determine whether
presentation is in
conformity with PSA
guidelines.
a.
Nature of
Engagement
Type of
Report
Principal
Procedures
a.
Audit
Opinion; positive
b.
Comprehensive
basis other than
PFRS
Opinion; positive
Same as (a)
c.
Review;
nonpublic entity
Review; limited
Inquiry; analytical
procedures
d.
Compilation;
nonpublic entity
Compilation; none
Understand industry
accounting practices;
read the financial
statements
e.
Agreed-upon
procedures
Review; limited
As specified by
engagement letter
f.
Letter for
underwriter
Review; limited
Inquiry-as specified by
agreement; read the
financial statements
30-9
g.
Examination of
prospective
financial
statementsprojection
Opinion; positive
Examine evidence
supporting assumptions;
determine whether
assumptions provide a
reasonable basis for the
projection; evaluate
preparation and
presentation of
projected financial
statements.
h.
Review of
interim financial
information
Review; limited
Inquiry; analytical
procedures
b.
a.
b.
c.
d.
e.
f.
g.
h.
General.
Restricted to management, the board of directors, and the regulatory
commission.
General.
General (but a fourth paragraph must be added which states that the
CPA is not independent.)
Restricted to the parties named in the agreement.
Restricted to the underwriters, Candy and Lolli.
Restricted to management, the board of directors, and the prospective
lender.
General.