Question

In: Accounting

The standards for compilations and reviews of financial statements are called Generally Accepted Accounting Principles Services...

The standards for compilations and reviews of financial statements are called
1. Generally Accepted Accounting Principles Services
2. Generally Accepted Auditing Standards Services
3. Statement on Standards for Accounting and Review Services
4. Statement on Auditing for Review and Compilation Services

Which service can an accountant provide without being independent:
1. Audit
2. Compilation
3. Review

Select the amount of evidence (High, None, Limited): needed for each of the following:
1. Compilation ________________________
2. Audit _______________________________
3. Review ______________________________

In an attestation engagement, the CPA reports on the reliability of information or an assertion made by another party (example: Miss America contest). The attestation standards define 3 levels of engagements and related forms of conclusion. Determine which conclusion (Negative Assurance, Positive Conclusion, Degree of Assurance Varies with Specific Procedures Agreed to and Performed) relates to the correct engagement:

Reviews ___________________________________________________________
Agreed-upon Procedures ______________________________________________
Examinations ________________________________________________________

Describe in detail each of the following and give an example when one would be requested from a client:
1. Audit
2. Compilation
3. Review

Expert Solution

1. The standards for compilations and reviews of financial statements are called Statement on Standards for Accounting and Review Services(SSARS) .

2. An accountant can provide compilation service without being independent.

3. (a) For a compilation, CPA need not obtain any assurance because he is not required to verify the accuracy or completeness of the information provided or otherwise gather evidence for the purposes of expressing an audit opinion or a review conclusion.

(b) The audit is the highest level of assurance service that a CPA performs and is intended to provide a user comfort on the accuracy of the financial statements. The CPA performs procedures in order to obtain “reasonable assurance” (defined as a high but not absolute level of assurance) about whether the financial statements are free from material misstatement. Hence, high amount of evidence is needed.

(c) Review is intended to provide lenders and other outside parties with a basic level of assurance on the accuracy of financial statements. Therefore, amount of evidence needed is limited.

4. (a) Review : When attestation risk has been restricted only to a moderate level (a review), the conclusion should be expressed in the form of negative assurance.

(b) Agreed-upon Procedures : Degree of Assurance Varies with Specific Procedures Agreed to and Performed.

(c ) Examinations : Relates to Positive Conclusion.

5. Audit

The audit is the highest level of assurance service that a CPA performs and is intended to provide a user comfort on the accuracy of the financial statements.
The objective being to obtain reasonable assurance about whether the financial statements as a whole are free of material misstatement thereby enabling the CPA to express an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with an applicable financial reporting framework and to report on the financial statements in accordance with the auditor’s findings.
The CPA obtains reasonable (defined as high, but not absolute) assurance about whether the financial statements are free of material misstatement.
When performing an audit engagement, the CPA is required to determine whether his independence has been impaired. If his independence has been impaired, the CPA cannot perform the audit engagement.
CPA is required to obtain an understanding of your business’s internal control and assess fraud risk. The CPA is also required to corroborate the amounts and disclosures included in your financial statements by obtaining audit evidence through inquiry, physical inspection, observation, third-party confirmations, examination, analytical procedures and other procedures.

When required: An audit is typically appropriate and often required when seeking complex or high levels of financing and credit. Also appropriate when seeking outside investors, seeking to sell the business or considering a merger.

(b) Compilation:

It is intended for use by lenders and other outside parties who may appreciate the business’s association with a CPA without requiring a level of assurance on the accuracy of financial statements.
The objective being to apply accounting and financial reporting expertise to assist management in the presentation of financial statements.
CPA does not obtain or provide any assurance that there are no material modifications that should be made to the financial statements.
The CPA need not be independent, but if the CPA is not independent from ownership, management and other circumstances in their relationship to business, the CPA is required to indicate lack of independence in the CPA’s compilation report.

When required: Typically appropriate when initial or lower amounts of financing or credit are sought or there is significant collateral in place. Outside parties may appreciate the business’s association with a CPA, which is readily apparent in the formal compilation report.

(c) Review

Review is intended to provide lenders and other outside parties with a basic level of assurance on the accuracy of financial statements.
The objective being to obtain limited assurance as a basis for reporting whether the CPA is aware of any material modifications that should be made to the financial statements for them to be in accordance with the applicable financial reporting framework, primarily through the performance of inquiry and analytical procedures.
CPA obtains limited assurance that there are no material modifications that should be made to the financial statements.
CPA is required to determine whether he is truly independent. If he determines that he is not independent, the CPA cannot perform the review engagement.

When required: Typically appropriate as a business grows and is seeking larger and more complex levels of financing and credit. It is also useful when business owners themselves are seeking greater confidence in their financial statements to evaluate results and make key business decisions.

ekkarill92 answered 2 years ago

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