|
|
|
 |
|
1.2. Auditing & Attestation |
|
|
|
|
|
|
|
|
|
|
|
Auditing & Attestation 2
Auditing & Attestation 2
1. Quality control standards ................................................................................................
3
2. Other engagements, reports, and accounting services.........................................................
8
3. Compilation and review of financial statements ................................................................
16
4. Reporting on comparative financial statements ................................................................
30
5. Review of interim financial information ...........................................................................
33
6. Letters for underwriters................................................................................................
46
7. Attest engagements.....................................................................................................
48
8. Appendix 1: Compilation engagement letter ....................................................................
62
9. Appendix 2: Review engagement letter...........................................................................
65
10. Appendix 3: Attestation reports .....................................................................................
66
11. Class questions ...........................................................................................................
69
A2-
2
Becker CPA Review Auditing & Attestation 2
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
A2-3
QUALITY CONTROL STANDARDS
I. APPLICABILITY
A CPA firm is required by the AICPA Code of Professional Conduct to adopt a system of quality
control for its auditing, attestation, and accounting and review services. This system should be
designed, implemented, and maintained "to ensure that services are competently delivered and
adequately supervised." Statements on Quality Control Standards (SQCS) are issued by the
Auditing Standards Board, and they are applicable to
Note: SQCS No. 7 was recently issued and will be eligible for testing on the CPA exam in July,
2009. A summary of the new standard will be posted online prior to that date.
both audit and nonaudit engagements.
??????
Be sure to visit the Becker website for possible updates to this area.
II. ELEMENTS
The five interrelated elements of quality control are:
A
cceptance and Continuance of Clients and Engagements
I
ndependence, Integrity, and Objectivity
C
ontinuous Monitoring
P
ersonnel Management
A
ssurance Regarding Engagement Performance
PASS KEY
The
AICPA is all about quality control standards.
A. ACCEPTANCE AND CONTINUANCE OF CLIENTS AND ENGAGEMENTS
1. Policies and procedures should be established for deciding whether to accept or
continue a client relationship and whether to perform a specific engagement.
2. These policies and procedures should provide the firm with reasonable assurance that
the likelihood of association with a client whose management lacks integrity is
minimized and that the firm:
a. Undertakes only those engagements that the firm can reasonably expect to
complete with professional competence.
b. Appropriately considers the risks associated with providing professional services
in the particular circumstances.
3. Examples include:
a. Reviewing the financial statements and credit rating of the proposed client.
b. Inquiring of third parties as to the reputation of the proposed client.
c. Evaluating the firm's ability to service the client properly.
d. Periodically reevaluating clients for continuance.
A
S
TATEMENTS ON QUALITY
C
ONTROL STANDARDS
Auditing & Attestation 2 Becker CPA Review
A2-
4 © 2009 DeVry/Becker Educational Development Corp. All rights reserved.
B. INDEPENDENCE, INTEGRITY, AND OBJECTIVITY
1. Policies and procedures should be established to provide the firm with reasonable
assurance that personnel maintain independence (in fact and in appearance) in all
required circumstances, perform all professional responsibilities with integrity, and
maintain objectivity in discharging professional responsibilities.
2. These qualities are defined and described as follows:
a.
interest in the client.
b.
trust must not be subordinated to personal gain and advantage.
c.
of conflicts of interest.
3. Examples include:
a. Maintaining records showing which personnel were previously employed by
clients or have relatives holding key positions with clients.
b. Notifying personnel as to the names of audit clients publicly held.
c. Confirming with staff that prohibited relationships do not exist.
d. Emphasizing independence of mental attitude in training and supervision.
4. The Sarbanes-Oxley Act of 2002 contains certain provisions that must be followed to
maintain auditor independence.
a. Audit firms may not perform the following nonaudit services contemporaneously
with the audit: bookkeeping, financial information systems
design/implementation, appraisal/valuation services, actuarial services, internal
audit outsourcing services, management/human resource functions, investment
services, legal services, and expert services unrelated to the audit.
(1) Other non-audit services (e.g., tax services) may be performed if they are
pre-approved by the audit committee and disclosed to investors in periodic
reports.
(2) Proposed tax services and related fees must be communicated to the audit
committee in writing. The potential effects of the services on the firm's
independence should also be discussed with the audit committee, and this
discussion must be documented.
b. Audit firms may not audit public companies whose CEO, CFO, etc., is also a
previous employee of the accounting firm who worked on the audit during the
preceding year.
c. The lead partner and the reviewing partner must rotate off the audit every five
years.
d. Audit firms may not enter into contingent fee arrangements (i.e., those in which
the amount of the fee is dependent upon the results of the services performed)
with audit clients.
e. Audit firms may not provide to audit clients any tax services related to certain
confidential or aggressive tax transactions.
f. Audit firms may not provide any tax services to corporate officers of audit clients,
or to family members of corporate officers.
Independence encompasses impartiality and freedom from any obligation to orIntegrity requires personnel to be honest and candid. Service and the publicObjectivity imposes the obligation to be impartial, intellectually honest, and free
I
Becker CPA Review Auditing & Attestation 2
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
A2-5
PASS KEY
Routine tax return preparation, tax planning, and employee personal tax services are not prohibited by the Sarbanes-Oxley
Act.
C. CONTINUOUS MONITORING
1. Policies and procedures should be established to provide the firm with reasonable
assurance that the policies and procedures established by the firm for each of the other
elements of quality control are suitably designed and are being effectively applied.
2. Monitoring involves an ongoing consideration and evaluation of the:
a. Relevance and adequacy of the firm's policies and procedures.
b. Appropriateness of the firm's guidance materials and any practice aids.
c. Effectiveness of professional development activities.
d. Compliance with the firm's policies and procedures.
3. Examples include:
a. Inspection of audit documentation and administration files for selected clients.
b. Peer review conducted under AICPA standards, which may substitute for some
or all of a firm's inspection procedures. (See item 4. below.)
c. A "wrap-up" or second partner "preissuance" review of the audit documentation
by a partner not otherwise involved in the audit. The Sarbanes-Oxley Act of
2002 requires such review for every public company audit report. The purpose
of this review is to focus on the fair presentation of the financial statements in
conformity with generally accepted accounting principles.
d. Performance of corrective actions and communication of weaknesses to firm
personnel.
4. Peer Review
(1) Self-Regulation
Peer review occurs when one CPA firm reviews another CPA firm's compliance
with its quality control system. A CPA firm that is a member of the AICPA must
have a peer review every three years, in order to maintain membership in the
AICPA. The firm being reviewed can select the review firm or may ask the
AICPA or state society of CPAs to select a review team.
(2) Purpose
The purpose of peer review is to determine and report whether the CPA firm
being reviewed has developed adequate policies and procedures for the
elements of quality control and is following them in practice.
(3) Results
Upon completion of the peer review, a report is issued with conclusions and
recommendations. A firm that fails to take corrective actions (where necessary
to correct deficiencies) is subject to sanctions.
C
Auditing & Attestation 2 Becker CPA Review
A2-
6 © 2009 DeVry/Becker Educational Development Corp. All rights reserved.
D. PERSONNEL MANAGEMENT
1. This element encompasses criteria for hiring, assignment of the firm's personnel to
engagements, professional development, and advancement.
2. Personnel management policies and procedures should be established to provide the
firm with reasonable assurance that:
a. Those hired possess the appropriate characteristics to enable them to perform
competently.
b. Work is assigned to personnel having the degree of technical training and
proficiency required in the circumstances.
c. Personnel participate in continuing education and other professional
development activities.
d. Personnel selected for advancement have the qualifications necessary to fulfill
the responsibilities to be assumed.
3. Examples include:
a. Requiring timely identification of staffing requirements.
b. Planning for the total personnel needs of all the firm's professional engagements.
c. Requiring a background check on new personnel.
d. Requiring supervisors to prepare performance evaluations.
e. Requiring personnel to attend training.
f. Consideration of continuity and periodic rotation of personnel.
g. Consideration of opportunities for on-the-job training.
E. ASSURANCE REGARDING ENGAGEMENT PERFORMANCE
1. Policies and procedures should be established to provide the firm with reasonable
assurance that the work performed by engagement personnel meets applicable
professional standards, regulatory requirements, and the firm's own standards of
quality. Such policies and procedures should encompass all phases of the design and
execution of the engagement—planning, performing, supervising, reviewing,
documenting, communicating results, and consulting with individuals having
appropriate knowledge, competence, judgment, and authority.
2. Examples include:
a. Designating individuals with expertise in matters related to the SEC.
b. Referring questions to the appropriate group in the AICPA or state society.
c. Developing and using standard audit forms, checklists, and questionnaires.
d. Establishing procedures for reviewing engagement documentation and reports.
P
A
Becker CPA Review Auditing & Attestation 2
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
A2-7
III. OTHER CONSIDERATIONS
A. POLICIES
The nature and extent of a firm's quality control policies and procedures depend on:
1. The firm's size;
2. Its organizational structure;
3. The nature and complexity of its practice;
4. The degree of operating autonomy allowed its personnel and its individual offices; and
5. Cost-benefit considerations.
B. RELATIONSHIP BETWEEN AUDITING STANDARDS AND QUALITY CONTROL
STANDARDS
1. GAAS vs. Quality Control Standards
a. Generally accepted auditing standards and quality control standards are not
synonymous. GAAS relate to the conduct of each individual audit engagement,
whereas quality control standards relate to the conduct of all professional
activities of the firm's practice as a whole.
b. The quality control standards of a firm affect both the performance of each audit
and the performance of the audit practice as a whole.
2. Quality Control Deficiencies
While an effective system of quality control is conducive to complying with GAAS (or
other professional standards), deficiencies in or noncompliance with a firm's quality
control standards do not necessarily indicate a lack of compliance with GAAS (or other
professional standards) for any one specific engagement.
Auditing & Attestation 2 Becker CPA Review
A2-
8 © 2009 DeVry/Becker Educational Development Corp. All rights reserved.
S
PECIAL
R
EPORTS
OTHER ENGAGEMENTS, REPORTS, AND ACCOUNTING SERVICES
I. SPECIAL REPORTS
In addition to the audit reports previously covered, the CPA is often called upon to perform
other services. One such service is the issuance of special reports. Special reports require
the auditor to comply with generally accepted auditing standards and to obtain a reasonable
degree of assurance. Auditing standards have restricted special reports to the following five areas:
(i) OCBOA—Other comprehensive basis of accounting financial statements.
(ii) Specified elements, accounts, or items in a financial statement.
(iii) Compliance with contractual or regulatory requirements related to audited financial
statements.
(iv) Financial presentations to comply with contractual agreements or regulatory provisions.
(v) Financial information presented in prescribed forms or schedules that require a prescribed
form of auditor's report.
EXAMPLE
Helpful Co., a nonprofit entity, prepared its financial statements on an accounting basis prescribed by a regulatory
agency solely for filing with that agency. Green audited the financial statements in accordance with generally accepted
auditing standards and concluded that the financial statements were fairly presented on the prescribed basis. Green
should issue a special report.
A. SPECIAL REPORTS: Financial Statements Prepared in Conformity with an Other
Comprehensive Basis of Accounting
A financial statement is "the presentation of financial data, including accompanying notes,
derived from accounting records, to represent an entity's financial position or activity in
accordance with a comprehensive basis of accounting." Normally, this comprehensive basis
would be GAAP, but other comprehensive bases may be used.
1. OCBOA Financial Statements
Each of the following would be considered a comprehensive basis of accounting other
than GAAP:
a. A cash receipts and disbursements system.
b. A basis of accounting that the entity uses (or expects to use) to file its income tax
returns.
c. A basis of accounting used to comply with the requirements of a governmental
regulatory agency having jurisdiction over the reporting entity.
d. A definite set of criteria having substantial support that is applied to all material
items, such as price-level adjusted financial statements.
Special Reports
OCBOA
Specific
Compliance:
Audited FS
Compliance:
Financial
Presentation
Forms
OCBOA
Becker CPA Review Auditing & Attestation 2
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
A2-9
PASS KEY
The use of a non-GAAP method requires the auditor to modify the report to either a "qualified" or "adverse" opinion unless the
non-GAAP method is an "OCBOA," in which case an unqualified opinion (on the OCBOA basis) is appropriate.
2. Reports on OCBOA Financial Statements
The following items are the significant differences between the standard auditor's report
and a report on OCBOA financial statements:
a. Non-GAAP Titles (Introductory and Opinion Paragraphs)
Non-GAAP statements should be suitably titled. (If not, the auditor should add
an explanatory paragraph and qualify the opinion.)
Examples include:
(1) Balance sheet – cash basis
(2) Statement of assets and liabilities arising from cash transactions
(3) Statement of assets, liabilities, and stockholders' equity – income tax basis
(4) Statement of revenue collected and expenses paid
(5) Statement of revenue and expenses – income tax basis
(6) Statement of income – statutory basis
(7) Statement of operations – income tax basis
b. Scope Paragraph
Same as standard report.
c. Explanatory Paragraph
A paragraph stating:
(1) The basis of presentation, and referring to the footnote that describes it.
(2) That the basis of presentation is a non-GAAP basis.
d. OCBOA Opinion Paragraph
A paragraph that expresses (or disclaims) the auditor's opinion on whether the
financial statements are presented fairly, in all material respects, in conformity
with the described basis.
(1) An explanatory paragraph and modifying language should be used if the
financial statements are not presented fairly or if audit scope has been
limited.
Auditing & Attestation 2 Becker CPA Review
A2-
10 © 2009 DeVry/Becker Educational Development Corp. All rights reserved.
3. OCBOA Report—Financial Statements Prepared on the Cash Basis
Intro Scope Explanatory
Independent Auditor's Report
We have audited the accompanying
Company as of December 31, 20X1, and the
then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
statement of assets and liabilities arising from cash transactions of ABCrelated statement of revenue collected and expenses paid for the year
As described in Note 1, the Company's policy is to prepare its financial statements on the basis of cash
receipts and disbursements, which is a comprehensive basis of accounting other than generally accepted
accounting principles.
In our opinion, the financial statements referred to above present fairly, in all material respects,
liabilities arising from cash transactions
and expenses paid during the year then ended, on the basis of accounting described in Note 1.
the assets andof ABC Company as of December 31, 20X1, and the revenue collected
[Signature]
[Date]
Opinion
4. OCBOA Report: Prepared on a Basis to Comply with a Regulatory Agency
(Restricted Use)
For financial statements prepared in conformity with requirements established by a
governmental regulatory agency, a restrictive paragraph is included limiting the use of
the report to management and the directors of the reporting entity and the regulatory
agency. Such a restricted use paragraph is appropriate, even though law or regulation
may make the auditor's report a matter of public record.
EXAMPLE
"This report is intended solely for the information and use of the board of directors and management of ABC Company
and [name of regulatory agency] and is not intended to be and should not be used by anyone other than these specified
parties."
Becker CPA Review Auditing & Attestation 2
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
A2-11
S
A
PECIFIED ELEMENTS,CCOUNTS, OR ITEMS
B. SPECIAL REPORTS: Specified Elements, Accounts, or Items of a
Financial Statement
An auditor may be engaged to audit and express an opinion on specified
elements, accounts, or items in a financial statement. An audit of specified
elements, accounts, or items of a financial statement may be performed:
(i) As a special engagement, or
(ii) In conjunction with an audit of financial statements
Examples of specified elements, accounts, or items of a financial statement on
which an auditor may express an opinion include rentals, royalties, profit
sharing, and income tax provisions, among others.
1. Auditing Standards
When planning and performing an engagement on the expression of an opinion on
specified elements, accounts, or items of a financial statement, generally accepted
auditing standards should be followed with the possible exception of the first reporting
standard. The first reporting standard (stating whether the financial statements are
presented in conformity with GAAP) is applicable only when the specified elements,
accounts, or items of a financial statement are intended to be in conformity with GAAP.
2. An Audit May Be Required
The auditor expresses an opinion on each of the specified elements, accounts, or items
involved in the special engagement. Generally, if the element, account, or item is farreaching
or pervasive, such as net income, stockholders' equity, or any item based
thereon, the auditor must audit the complete set of financial statements.
3. Piecemeal Opinions
a. Piecemeal opinions are expressions of opinion as to certain identified line items
in the financial statements, when those items constitute a major portion of the
financial statements.
b. Piecemeal opinions should not be expressed when the auditor has expressed an
adverse opinion or has disclaimed an opinion on the overall financial statements,
as it would tend to overshadow or contradict the disclaimer or adverse opinion.
(1) However, an opinion on specified elements may be expressed if it does not
encompass so many items as to constitute a major portion of the financial
statements. Such an opinion should not accompany the disclaimer or
adverse opinion.
4. Possible Restricted Use Paragraph
If the specified element, account, or item is prepared to comply with a contract or
agreement rather than in accordance with GAAP or an other recognized
comprehensive basis of accounting, then use of the report must be restricted to only
involved parties.
Special Reports
OCBOA
Specific
Compliance:
Audited FS
Compliance:
Financial
Presentation
Forms
Auditing & Attestation 2 Becker CPA Review
A2-
12 © 2009 DeVry/Becker Educational Development Corp. All rights reserved.
5. Special Report—Report Relating to Accounts Receivable
Intro Scope
Independent Auditor's Report
We have
This
schedule based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
audited the accompanying schedule of accounts receivable of ABC Company as of December 31, 20X2.schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this
schedule of accounts receivable
evidence supporting the amounts and disclosures in the
assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall
In our opinion, the
is free of material misstatement. An audit includes examining, on a test basis,schedule of accounts receivable. An audit also includesschedule presentation. We believe that our audit provides a reasonable basis for our opinion.schedule of accounts receivable referred to above presents fairly, in all material respects, the
accounts receivable
accepted in the United States of America.
Signature
Date
of ABC Company as of December 31, 20X2, in conformity with accounting principles generally
Opinion
C. SPECIAL REPORT: Compliance with Aspects of Contractual Agreements or
Regulatory Requirements Related to Audited Financial Statements
Often an auditor is asked to issue a special report on a client's compliance with contractual
agreements or regulatory requirements.
1. Audit Requirement
a. The auditor must have audited the client's financial statements to do so and may
only issue negative assurance on this compliance. However, such assurance
should not be given if an adverse opinion or disclaimer of opinion was rendered
on the financial statements as a whole.
2. Negative Assurance
a. The negative assurance given by the auditor may be in a separate report or
included in an additional paragraph following the opinion paragraph in the audit
report. In either case, the following would be included in the report:
(1) A title using the word "independent."
(2) Negative assurance on compliance.
(3) Reference to the specific agreement.
(4) A statement that the assurance is being given in connection with an audit
(of financial statements), which was not directed to obtaining knowledge
about compliance matters.
(5) Discussion of any significant interpretations made by management relating
to the contractual agreement (or regulatory requirement).
(6) A restriction on the use of the report.
(7) Signature of the firm and date of the report.
Special Reports
OCBOA
Specific
Compliance:
Audited FS
Compliance:
Financial
Presentation
Forms
C
OMPLIANCE
R
ELATED TO
A
UDITED FS
Becker CPA Review Auditing & Attestation 2
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
A2-13
Special Reports
OCBOA
Specific
Compliance:
Audited FS
Compliance:
Financial
Presentation
Forms
b. When auditors issue the compliance report as a separate report, the report would
also include:
(1) A statement that the financial statements were audited according to GAAS,
the date of the report, and any departure from the standard report.
3. Special Report—Issued as Separate Report
Independent Auditor's Report
We have
balance sheet of ABC Company as of December 31, 20X2, and the related statements of income, retained earnings, and
cash flows for the year then ended, and have
audited, in accordance with auditing standards generally accepted in the United States of America, theissued our report thereon dated February 20, 20X3.
In connection with our audit,
the terms, covenants, provisions, or conditions of sections XX to XX inclusive, of the indenture dated December 29, 20X1,
with the Creditor Bank insofar as they relate to accounting matters. However,
obtaining knowledge of such noncompliance.
nothing came to our attention that caused us to believe that the Company failed to comply withour audit was not directed primarily toward
This report is
the Creditor Bank and is not intended to be and should not be used by anyone other than the specified parties.
Signature
Date
intended solely for the information and use of the boards of directors and managements of ABC Company and
D. SPECIAL REPORT: Special-Purpose Financial Presentations to Comply
with Contractual Agreements or Regulatory Provisions
1. In this particular engagement, an auditor may be requested to report on:
a. An incomplete financial presentation that is prepared in conformity
with GAAP or an other comprehensive basis of accounting.
b. A special-purpose financial presentation that is not in conformity
with GAAP or an other comprehensive basis of accounting.
2. Incomplete Financial Presentation
This form of presentation is prepared in conformity with GAAP (or an OCBOA) other
than the fact that it is not complete.
a. Restricted Use
Generally these types of reports are only for the use of the involved parties. An
exception occurs when the presentation and report are filed with a regulatory
agency and included in a document distributed to the general public.
b. Example:
excludes certain costs.
A schedule of gross profit as defined by a regulatory body that
3. Non-GAAP (Non-OCBOA) Financial Presentation
This form of presentation is not in conformity with GAAP (or an OCBOA).
S
PECIAL-PURPOSE FINANCIAL PRESENTATIONS
Auditing & Attestation 2 Becker CPA Review
A2-
14 © 2009 DeVry/Becker Educational Development Corp. All rights reserved.
a. Restricted Use
These types of reports are only for the use of the involved parties.
b. Examples:
financial statements in which inventory is presented at replacement cost, or an
acquisition agreement requiring property, plant, and equipment to be reported at
market value.
A loan agreement requiring the borrower to prepare consolidated
PASS KEY
As a general rule, the CPA's report will be restricted when the financial statements are in compliance with a contract (as
opposed to GAAP).
4. Example: Special Report—Incomplete Financial Statements That Otherwise
Would Be in Conformity with GAAP or an Other Comprehensive Basis of
Accounting
Intro Scope Middle
Independent Auditor's Report
We have audited
ABC Apartments, City, State (Historical Summaries), for each of the three years in the period ended December 31,
20XX. These Historical Summaries are the responsibility of the Apartments' management. Our responsibility is to
express an opinion on the Historical Summaries based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
the accompanying Historical Summaries of Gross Income and Direct Operating Expenses of
Historical Summaries
supporting the amounts and disclosures in the
accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the
are free of material misstatement. An audit includes examining, on a test basis, evidenceHistorical Summaries. An audit also includes assessing theHistorical Summaries. We believe that our audits provide a reasonable basis for our opinion.
The accompanying Historical Summaries were prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission (for inclusion in the registration statement on Form S-
11 of DEF Corporation) as described in Note X and are not intended to be a complete presentation of the
Apartments' revenues and expenses.
In our opinion, the
and direct operating expenses described in Note X
ended December 31, 20XX, in conformity with accounting principles generally accepted in the United States of
America.
Signature
Date
Historical Summaries referred to above present fairly, in all material respects, the gross incomeof ABC Apartments for each of the three years in the period
Opinion
Note that the above report does not include a restricted use paragraph because, as
indicated in the explanatory paragraph, the report will be included in a registration
statement.
Becker CPA Review Auditing & Attestation 2
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
A2-15
Special Reports
OCBOA
Specific
Compliance:
Audited FS
Compliance:
Financial
Presentation
Forms
P
RESCRIBED
F
ORMS
E. FINANCIAL INFORMATION PRESENTED IN PRESCRIBED FORMS OR
SCHEDULES
An auditor may attest to the fairness of financial information presented in prescribed forms
such as loan applications or regulatory filings. In these situations, the auditor must pay
special attention to the type and wording of the information requested on the
prescribed form.
1. Form Deficiencies
These forms often prescribe the wording of the auditor's report. It may be
necessary to reword the form or attach a separate report.
F. MODIFICATIONS TO SPECIAL REPORTS IN GENERAL
The auditor may make modifications to an unqualified special report by adding an
explanatory paragraph after the opinion paragraph, similar to the modified unqualified reports
discussed in Auditing and Attestation 1. Situations that might result in modification include
lack of consistency, going concern uncertainties, other auditors, change of prior opinion on
comparative financial statements, and emphasis of a matter.
Auditing & Attestation 2 Becker CPA Review
A2-
16 © 2009 DeVry/Becker Educational Development Corp. All rights reserved.
COMPILATION AND REVIEW OF FINANCIAL STATEMENTS
I. LEVELS OF SERVICE
CPAs can perform two levels of service with respect to unaudited financial statements of a
nonissuer.
A. COMPILATION
In a
information that is the representation of management without undertaking to express any
assurance on the financial statements. The CPA does not perform any audit or review
procedures and does not assume any attest responsibilities.
compilation engagement, the objective is to present in the form of financial statements
B. REVIEW
A CPA may express limited (negative) assurance on financial statements that have not been
audited. The objective of a
no material modifications that should be made to the financial statements in order for the
statements to be in conformity with generally accepted accounting principles. A review is
based on inquiry and analytical procedures performed by the CPA.
review engagement is to express limited assurance that there are
C. PERFORMANCE OF MORE THAN ONE SERVICE
When an accountant performs more than one service (for example, a compilation and an
audit), the accountant generally should issue the report that is appropriate for the highest
level of service rendered.
II. PROFESSIONAL STANDARDS
A. STATEMENTS ON STANDARDS FOR ACCOUNTING AND REVIEW SERVICES (SSARS)
The Accounting and Review Services Committee of the AICPA is the authoritative body
designated to issue pronouncements in connection with the unaudited financial statements of
nonissuers. The pronouncements issued are known as "Statements on Standards for
Accounting and Review Services," or "SSARS."
1. SSARS
a. An accountant should:
(1) Have sufficient knowledge to identify applicable SSARS.
(2) Exercise professional judgment in applying SSARS.
(3) Be able to justify departures from SSARS.
b. Specific language is used within SSARS to clarify the accountant's level of
responsibility. The terms "must"/"is required", "should", and
"may"/"might"/"could" are defined as described previously under auditing
standards.
2. Other Guidance
a. An accountant should also consider applicable interpretive publications (e.g.,
SSARS interpretations and appendices, AICPA Accounting and Audit Guides,
AICPA Statements of Position.) These are considered recommendations as
proposed to standards.
b. Other compilation and review publications (e.g., AICPA Compilation and Review
Alert, articles in professional journals) have no authoritative status but may be
helpful to the accountant.
SSARS
Becker CPA Review Auditing & Attestation 2
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
A2-17
B. SSARS APPLICABILITY
1. SSARS apply when an accountant "submits" unaudited financial statements of a
nonissuer.
a. Submission
"Submission" is defined as presenting financial statements to a client or third
party that the accountant has prepared, either manually or through the use of
computer software. "Preparation" implies that the accountant has created
financial statements that would not otherwise exist.
b. Nonissuer
A nonissuer is an entity (i) whose securities are not registered with the SEC; (ii)
who is not required to file reports with the SEC; and (iii) who has not filed a
registration statement (that is still pending) with the SEC.
2. SSARS also apply to engagements in which the accountant is engaged to compile or
issue a compilation report on specified elements, accounts, or items of a nonissuer's
financial statements, or on pro forma financial information of a nonissuer.
a. The issuance of a report is not required if an accountant prepares such
information, or assists in preparing it, unless they have been specifically engaged
to compile such information.
b. The accountant should, however, consider whether it might be prudent to issue a
compilation report to clarify that no assurance is being provided, even if a report
is not required.
C. FINANCIAL STATEMENT ASSOCIATION
Accountants should not consent to the use of their name in connection with unaudited
statements unless they have compiled or reviewed them or the financial statements are
accompanied by an indication that the accountant has not compiled or reviewed them, and
assumes no responsibility for them.
D. OTHER ACCOUNTING SERVICES (SSARS DO NOT APPLY)
SSARS do not apply to other accounting services provided by CPAs, such as preparing one
or a few adjusting or correcting entries, consulting on financial matters, preparing tax returns,
rendering manual or automated bookkeeping or data processing services, and processing
financial data for clients of other accounting firms.
1. Note that if the accountant prepares many adjusting or correcting entries, this could be
considered preparation of financial statements, and SSARS would apply. The auditor
must exercise judgment in making this determination.
III. ESTABLISHING AN UNDERSTANDING WITH THE CLIENT (ENGAGEMENT LETTER
RECOMMENDED)
A. REQUIREMENTS
Compilation and review standards require accountants to establish an understanding with the
client, preferably in writing, as to the services to be performed. However, if the engagement
is to compile financial statements not expected to be used by a third party, and if a
compilation report is not to be issued, then a written engagement letter is required (covered
later).
Auditing & Attestation 2 Becker CPA Review
A2-
18 © 2009 DeVry/Becker Educational Development Corp. All rights reserved.
B. MATTERS TO COMMUNICATE
An understanding with the client should include:
1. A description of the specific services to be performed.
2. A description of any report expected to be rendered.
3. An explanation of any limitations of the services, including a statement that:
a. The engagement cannot be relied upon to disclose errors, fraud, or illegal acts;
and
b. The entity will be informed of any information indicating that fraud or an illegal act
may have occurred.
4. A description of other accounting services, if any, to be performed.
Note:
of the accountant.
See Appendix 1 for illustrations of engagement letters that explain the responsibilities
IV. COMPILATION OF FINANCIAL STATEMENTS (NONISSUERS ONLY)
A compilation of financial statements is a service, the objective of which is to present in the form of
financial statements information that is the representation of management without undertaking to
express any assurance on the financial statements. A compilation engagement may involve
compiling and reporting on only one financial statement.
A. COMPILATION REQUIREMENTS
The performance requirements applicable to a compilation are:
1. Knowledge of Industry Accounting Principles and Practices
Accountants should possess adequate knowledge of the accounting principles and
practices of the client's industry to enable them to compile financial statements in an
appropriate form. This does not prevent accountants from accepting engagements in
an industry in which the accountants have no previous experience. However, the
accountants are responsible for gaining the required level of knowledge.
2. Understanding of Client's Business
An accountant performing a compilation is required to have a general understanding of
the client's business, including:
a. Staff qualifications.
b. Transaction types and frequency.
c. Accounting basis used to prepare the financial statements.
d. Form of the accounting records.
e. Financial statements' form and content.
3. Reading the Financial Statements
Before issuing a report, accountants should read the compiled financial statements and
consider whether they are appropriate in form and free from obvious material errors.
The term error refers to arithmetical and clerical mistakes, as well as to mistakes
related to GAAP.
4. Fraud and Illegal Acts, Going Concern, and Subsequent Events
If an accountant becomes aware that fraud or an illegal act may have occurred, that
there is a going concern uncertainty, or that a subsequent event has occurred, he or
she should request management to consider the effect on the financial statements,
evaluate management conclusions, and consider the effect of the matter on the
compilation report.
C
OMPILATION
Becker CPA Review Auditing & Attestation 2
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
A2-19
B. FINANCIAL STATEMENTS THAT MAY BE INACCURATE OR INCOMPLETE
Accountants are not required to, but may, make inquiries or perform other procedures to
verify, corroborate, or review the information supplied by the client. However, if they discover
the information is incorrect, incomplete, or unsatisfactory, they should obtain additional or
revised information from the client. If the client refuses to provide such information, the
accountants should withdraw from the compilation engagement.
C. REPORTING ON A COMPILATION
1. Overview
The report is the method by which the accountant communicates the extent of the
responsibility assumed for the financial statements. An accountant may not issue any
reports on unaudited financial statements of a nonpublic entity, or may not submit such
financial statements to the client or others, unless the accountant has complied with the
standards for a compilation.
The accountant's report in a compilation engagement should include:
a. A statement that a compilation has been performed in accordance with SSARS
issued by the
b. A statement that a compilation is
statements, information that is the representation of management;
c. A statement that the accountant has
d. A statement that the accountant has
e. A
on the financial statements.
f. A signature (manual, stamped, electronic, or typed) and a date (generally the
date of completion of the compilation).
AICPA;limited to presenting, in the form of financialnot audited the financial statements;not reviewed the financial statements; anddisclaimer of opinion and a statement that the accountant gives no assurance
PASS KEY
You're "A LARD" when all you do is compile the financial statements.
2. Additional Requirements
a. Each page of the statements should be marked "See Accountant's Compilation
Report."
b. SSARS does not require that the compilation report be printed on the
accountant's letterhead.
c. At the accountant's discretion, a separate paragraph of the report may be used
to emphasize any matter already disclosed in the financial statements, such as
going concern issues or subsequent events.
3. Sample Report—Standard Compilation Report
I have compiled
statements of income, retained earnings, and cash flows for the year then ended, in accordance with
Standards for Accounting and Review Services issued by the American Institute of Certified Public
Accountants.
the accompanying balance sheet of PDQ Company as of December 31, 20X1, and the relatedStatements on
A compilation is
of management. I have not audited or reviewed
express an opinion or any other form of assurance
P. Olinto, CPA
February 15, 20X2
limited to presenting in the form of financial statements information that is the representationthe accompanying financial statements and, accordingly, do noton them.
A
L
A
R
D
A
L
A
R
D
Auditing & Attestation 2 Becker CPA Review
A2-
20 © 2009 DeVry/Becker Educational Development Corp. All rights reserved.
4. Prescribed Forms That Call for a GAAP Departure
If an accountant is asked to compile financial statements included in a prescribed form
that calls for a departure from GAAP, an alternative form of standard report is used. An
additional paragraph is added stating that the financial statements are presented in
accordance with non-GAAP requirements, and that the financial statements are not
designed for those who are not informed about the resulting differences.
5. Reporting on Financial Statements That Omit Substantially All Disclosures
a. Compilation with Omission of All Disclosures
If requested by the client, an accountant may compile financial statements that
omit substantially all disclosures required by GAAP (but are otherwise in
conformity with GAAP). The accountant may compile these statements
provided:
(1) The accountant's report clearly indicates the omission by including a third
paragraph disclosing such omissions and indicating that the financial
statements are not designed for those who are uninformed about the
omitted disclosures; and
(2) To the accountant's knowledge, the omission is not intended to mislead
any person who might be expected to use such financial statements.
EXAMPLE
Jones Retailing, a nonpublic entity, has asked Winters, CPA, to compile financial statements that omit substantially all
disclosures required by generally accepted accounting principles (but are otherwise in conformity with GAAP). Winters
may compile such financial statements provided the omission is
statements and is properly disclosed in the accountant's report.
not undertaken to mislead the users of the financial
PASS KEY
Compiled financial statements that omit GAAP disclosures are acceptable if:
•
The financial statements are otherwise in conformity with GAAP.
•
Reason for omission was not to deceive user.
•
Compilation report warns user of missing disclosures.
b. Example: Compilation Report with Additional Paragraph When the
Financial Statements Omit Substantially All Disclosures
I have compiled the accompanying balance sheet of PDQ Company as of December 31, 20XX, and the related statements of
income, retained earnings, and cash flows for the year then ended, in accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements information that is the representation of management.
I have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or any
other form of assurance on them.
Management has elected to omit substantially all the disclosures (and the statement of cash flows) required
by generally accepted accounting principles. If the omitted disclosures were included in the financial
statements, they might influence the user's conclusions about the company's financial position, results of
operations, and cash flows. Accordingly, these financial statements are not designed for those who are not
informed about such matters.
P. Olinto, CPA
February 15, 200X
Becker CPA Review Auditing & Attestation 2
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
A2-21
c. Compilation with Limited Disclosure
If the accountant concludes that limited disclosure is acceptable and if the
financial statements include only limited notes, the notes should be labeled
"Selected Information—Substantially All Disclosures Required by GAAP Are Not
Included."
6. OCBOA Financial Statements
If an accountant is compiling financial statements prepared in accordance with a
comprehensive basis of accounting other than GAAP and the client makes no
disclosure to that effect, the accountant should disclose the basis of accounting in the
compilation report.
7. Departures from GAAP
Departures from GAAP should be disclosed in a separate paragraph of the report. If
the accountant believes that disclosure in the report would not be adequate to indicate
the deficiencies in the financial statements, he or she should withdraw from the
engagement and provide no further services.
8. Reporting When Not Independent—Disclosure Required
An accountant who is not independent with respect to an entity may compile financial
statements for such an entity and issue a report. The last paragraph of the report
should disclose this lack of independence but should not disclose the reasons.
9. Compilations of Personal Financial Statements
An accountant may submit to the client unaudited personal financial statements that
omit certain disclosures required by GAAP. The accountant will be exempt from
complying with the requirements of SSARS if:
a. The client agrees and the accountant states in the report that the personal
financial statements will not be used to obtain credit or for any other purposes
other than developing the financial plan, and
b. Nothing comes to the accountant's attention indicating that the financial
statements will be used to obtain credit.
D. EXCEPTION TO REPORTING REQUIREMENT
An accountant who submits unaudited financial statements to the client that are not expected
to be used by a third party may use an engagement letter rather than a compilation report.
1. Financial Statements Reasonably Expected to be Used by Third Parties
a. A compilation report is required.
b. Reporting requirements were discussed above, in item IV.C.
2. Financial Statements Not Expected to be Used by Third Parties
a. A written communication is required. It may consist either of a compilation report
or an engagement letter (preferably signed by management) discussing the
services to be performed and the limitations on use of the financial statements.
b. When an engagement letter (and not a report) is issued, the accountant should
include a reference on each page of the financial statements restricting their use.
Note:
statements ordinarily found in a compilation report.
See Appendix 1 for a sample engagement letter, which includes many of the
Auditing & Attestation 2 Becker CPA Review
A2-
22 © 2009 DeVry/Becker Educational Development Corp. All rights reserved.
R
EVIEW
(SSARS
)
V. REVIEW OF FINANCIAL STATEMENTS
A review is a higher level of service than a compilation because it results in an expression of
limited assurance. The review report states that the accountants are not aware of any
material modifications necessary for the statements to conform with GAAP. Inquiry and
analytical procedures provide the accountants with a reasonable basis for this conclusion. The
accountant is not required to obtain an understanding of internal control or assess control risk. A
review engagement may involve reporting on only one financial statement (provided the scope was
not limited).
A. REVIEW PROCEDURES SHOULD BE TAILORED
Review procedures should be tailored to the specific engagement. For example, if the
accountant becomes aware of significant changes in operations, additional procedures would
be considered. The following factors may affect the procedures performed:
1. The nature and materiality of financial statement items.
2. The likelihood of misstatement.
3. Knowledge from current and previous engagements.
4. Qualifications of the entity's accounting personnel.
5. The extent to which an item is affected by management's judgment.
6. Inadequacies in the entity's underlying financial data.
B. REVIEW REQUIREMENTS
The performance requirements applicable to a review are:
• U
nderstanding with client must be established
• L
earn and/or obtain sufficient knowledge of the entity's business
• I
nquiries should be addressed to appropriate individuals
• A
nalytical procedures should be performed
• R
eview—other procedures should be performed
• C
lient representation letter should be obtained from management
• P
rofessional judgment should be used to evaluate results
• A
ccountant (CPA) should communicate results
1. Understanding With the Client Must be Established
In order to reduce the likelihood of misunderstanding, the accountant should establish
an understanding with the client regarding the services to be performed. The
understanding should include:
a. Objectives of the Engagement
The objective of a review of financial information is to determine whether material
modifications are necessary for the information to be in conformity with GAAP.
Making inquiries and performing analytical procedures provide the support for
this type of reporting.
b. Management's Responsibilities
Management's responsibilities with respect to financial information are analogous
to its responsibilities for annual financial statements (covered in Auditing &
Attestation 3).
Note
: See Appendix 2 for a sample review engagement letter.
Understanding
Learn Client
Inquiries
Analytical
Review – Other
Client Rep.
Letter
Prof. Judgment
Acct. Report
U
L
I
A
R
P
C
A
Becker CPA Review Auditing & Attestation 2
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
A2-23
Understanding
Learn Client
Inquiries
Analytical
Review – Other
Client Rep.
Letter
Prof. Judgment
Acct. Report
Understanding
Learn Client
Inquiries
Analytical
Review – Other
Client Rep.
Letter
Prof. Judgment
Acct. Report
2. Learn and/or Obtain Sufficient Knowledge of the Entity's Business
a. Knowledge of Accounting Principles and Practices of the
Industry
As in a compilation, the accountant must be familiar with the
accounting principles common to the client's industry. Lack of
experience in an industry does not preclude acceptance of an
engagement, but the accountant is required to obtain appropriate
knowledge.
b. Understanding of Client's Business
The accountant should possess an understanding of the client's business. This
would ordinarily involve an understanding of the client's organization, its
operating characteristics, and the nature of its assets, liabilities, equity,
revenues, and expenses.
c. Not Required
The accountant is not required to:
(1) Test Internal Control
An understanding of internal control is not required in a review.
(2) Perform Audit Tests
No testing or audit procedures are required in a review.
(3) Assess Fraud Risk
No fraud risk assessment is required in a review, nor is the accountant
required to perform procedures designed to detect material misstatement
due to fraud or illegal acts.
(a) If, however, an accountant becomes aware that fraud or an illegal
act may have occurred, he or she should consider the effect of the
matter on the review report, and should request management to
consider the effect on the financial statements.
(4) Communicate with the Predecessor Accountant
The successor accountant may decide (but is not required) to
communicate with the predecessor regarding acceptance of the
engagement and matters of continuing accounting significance.
3. Inquiries Should be Addressed to Appropriate Individuals
The accountant's inquiries within the client's organization should be
directed to members of management with financial and accounting
responsibilities, to assure that adequate responses are obtained.
Inquiries should cover the following:
a. Accounting principles and practices used, and the method of
applying them;
b. Procedures for recording, classifying, and summarizing
transactions, and for accumulating information for disclosure in
footnotes;
c. Whether the financial statements have been prepared in conformity with GAAP;
d. Whether there have been changes in the entity's business activities or
accounting principles and practices;
Auditing & Attestation 2 Becker CPA Review
A2-
24 © 2009 DeVry/Becker Educational Development Corp. All rights reserved.
e. Matters as to which questions have arisen during the course of the review;
f. Material subsequent events;
g. Unusual or complex situations that may affect the financial statements;
h. Significant transactions near the end of the period;
i. The status of uncorrected misstatements from previous engagements;
j. Material fraud or suspected fraud;
k. Significant journal entries and adjustments;
l. Communications from regulatory agencies;
m. Actions authorized by the stockholders, board of directors, or other management
groups; and
n. Other items, such as the existence of related party transactions, that have been
discussed with management and would be considered for inclusion in the
representation letter.
PASS KEY
The inquiries are of internal personnel, not of external people or entities. The examiners frequently have incorrect responses
stating, "make
inquiries of outside…"
4. Analytical Procedures Must be Performed
Analytical procedures involve developing an expectation (based on plausible
relationships) and comparing recorded amounts to that expectation. While expectations
are not as encompassing as those developed during an audit (and corroboration is not
required), analytical procedures in a review should still be designed to detect
relationships and individual items that appear to be unusual. These procedures consist
of:
a. Comparing the current statements with prior period statements, or current ratios
with prior period ratios;
b. Comparing actual statements with budgets or forecasts, if available;
c. Comparing financial and relevant nonfinancial information;
d. Comparing ratios and indicators with those of other entities in the industry; and
e. Comparing relationships among elements in the financial statements with
corresponding prior period relationships.
5. Review—Other Procedures
During a review, the accountant should also:
a. Read the financial statements for conformity with generally accepted accounting
principles (or an OCBOA).
b. Obtain reports of other accountants who have been engaged to audit or review
significant components of the reporting entity.
c. If appropriate, request management to consider the effects of any going concern
uncertainties or any subsequent events. The auditor should then consider
whether management's conclusions are reasonable and whether the client's
accounting and disclosures are adequate.
Understanding
Learn Client
Inquiries
Analytical
Review – Other
Client Rep.
Letter
Prof. Judgment
Acct. Report
Understanding
Learn Client
Inquiries
Analytical
Review – Other
Client Rep.
Letter
Prof. Judgment
Acct. Report
Becker CPA Review Auditing & Attestation 2
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
A2-25
Understanding
Learn Client
Inquiries
Analytical
Review – Other
Client Rep.
Letter
Prof. Judgment
Acct. Report
Understanding
Learn Client
Inquiries
Analytical
Review – Other
Client Rep.
Letter
Prof. Judgment
Acct. Report
6. Client Representation Letter from Management Must be Obtained
The accountant is required to obtain a representation letter from
management for all financial statements and periods covered by the
review report, even if current management was not present during all such
periods. The letter should be dated as of the date of the accountant's
report. Management's failure to provide a representation letter results in
an incomplete review (see below).
a. Contents of Letter
Management's representations should include:
(1) Management's responsibility for the financial statements and belief that
they are fairly stated.
(2) Management's full and truthful responses to all inquiries.
(3) Representations about the completeness of information.
(4) Information concerning subsequent events.
(5) Acknowledgement of management's responsibility to prevent/detect fraud.
(6) Knowledge of any material fraud or suspected fraud.
b. Updating the Management Representation Letter
(1) An accountant may request an updating representation letter whenever:
(a) A significant amount of time has passed between the procedures
performed and the issuance of the report.
(b) There has been a material subsequent event between completion of
the procedures and issuance of the report.
(c) A former client requests the accountant to reissue a prior period
report.
(2) An updating letter should state:
(a) Whether any previous representations should be modified, and
(b) Whether any subsequent events requiring adjustment to or
disclosure in the financial statements have occurred.
7. Professional Judgment to Evaluate Results
a. Incomplete Review
Accountants must be able to perform whatever procedures they
deem necessary, and if those procedures are not accomplished, the
review is incomplete. A review that is incomplete will prevent the
issuance of a review report.
In such a situation, the accountants should consider whether the
circumstances also prevent issuing a compilation report.
b. Form and Content of Documentation
(1) The form and content of documentation in a review should be designed to
meet the needs of the particular engagement.
(2) Written documentation from other types of engagements may be used to
support the review report.
Auditing & Attestation 2 Becker CPA Review
A2-
26 © 2009 DeVry/Becker Educational Development Corp. All rights reserved.
(3) Oral explanations may be used to supplement or clarify documentation, but
should not be the primary support for the report.
(4) Documentation should include:
(a) Significant findings, actions taken, and the basis for conclusions
reached;
(b) Matters about which the accountant has made inquiry;
(c) Analytical procedures performed, including expectations and how
they were developed, results of comparison to recorded amounts,
and procedures performed with respect to significant differences;
(d) Unusual matters and their disposition;
(e) Communications (oral or written) to management regarding fraud
and illegal acts; and
(f) The management representation letter.
PASS KEY
The examiners frequently have incorrect responses to questions that suggest that audit test work, including testing of internal
controls, is to be performed.
8. Accountant (CPA) Communicates Results
a. Reporting on a Review
The accountant's report in a review engagement should include:
(1) A statement that the review has been performed in accordance with
(SSARS) standards established by the
(2) A statement that all financial statement information is the representation of
AICPA;
management
(3) A statement that a review consists principally of
personnel;
(4) A statement that a review consists of
financial data;
(5) A statement that a review is
(6) A statement that no opinion is expressed: a
issued;
(7) A statement that the accountant is not aware of any material modifications
that should be made to the financial statements in order for them to be in
conformity with GAAP (other than those indicated in the report); and
(8) A signature (manual, stamped, electronic, or typed) and a date (generally
the date of completion of review procedures).
;inquiries of companyanalytical procedures applied to thesubstantially less in scope than an audit;disclaimer of opinion is
Understanding
Learn Client
Inquiries
Analytical
Review – Other
Client Rep.
Letter
Prof. Judgment
Acct. Report
A
M
I
A
S
A
D
Becker CPA Review Auditing & Attestation 2
© 2009 DeVry/Becker Educational Development Corp. All rights reserved.
A2-27
b. Miscellaneous
(1) Each page of the statements should be marked "See Accountant's Review
Report." The date of completion of the review should be used as the date
of the accountant's report.
(2) Uncertainties (such as those involving going concern issues) and
inconsistencies in the application of accounting principles do not require
modification of the review report as long as the financial statements include
adequate disclosure.
(3) At the accountant's discretion, a separate paragraph of the report may be
used to discuss uncertainties or inconsistencies, or to emphasize any
matter already disclosed in the financial statements, such as going concern
issues or subsequent events.
c. Sample Report—Standard Review Report
I have reviewed the
statements of income, retained earnings, and cash flows for the year then ended,
on Standards for Accounting and Review Services issued by the American Institute of Certified Public
Accountants.
XYZ Company.
accompanying balance sheet of XYZ Company as of December 31, 20X1, and the relatedin accordance with StatementsAll information included in these financial statements is the representation of the management of
A review consists principally of inquiries
data.
objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, I
of company personnel and analytical procedures applied to financialIt is substantially less in scope than an | | | | |
