...What Is the Difference Between a Compilation, a Review and an Audit? Comparative Overview The level of service is determined by your needs as the client, and what your creditors and/or investors require. The higher the level of service required, the more time the CPA needs to complete the engagement and therefore the more costly the engagement. While privately held companies opt for compiled or reviewed statements, credit agreements with lenders often require audited statements. Compilation • Compiled financial statements represent the most basic level of service CPAs provide with respect to financial statements. • In a compilation engagement, the accountant assists management in presenting financial information in the form of financial statements without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements. • In a compilation, the CPA must comply with Statements on Standards for Accounting and Review Services (SSARSs), which require the accountant to have an understanding of the industry in which the client operates, obtain knowledge about the client, and read the financial statements and consider whether such financial statements appear appropriate in form and free from obvious material errors. • A compilation does not contemplate performing inquiry, analytical procedures, or other procedures ordinarily performed in a review; or obtaining an understanding...
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...Sample Statements and Charts Write-Up CS™ or Trial Balance CS™ version 2007.x.x TL17346 (04/24/07) Copyright Information © Text copyright 1998-2007 by Thomson Tax & Accounting. All rights reserved. © Video display images copyright 1998-2007 by Thomson Tax & Accounting. All rights reserved. Thomson Tax & Accounting hereby grants licensees of CS Professional Suite software the right to reprint this document solely for their internal use. Trademark Information The trademarks used herein are trademarks and registered trademarks used under license. All other brand and product names mentioned in this guide are trademarks or registered trademarks of their respective holders. Contents Sample Financial Statements .......................................................... 1 Write-Up Sample Client (CSWRI01) .................................................................................3 Balance Sheets ...............................................................................................................5 BalanceSheet-CurrentYear.fsr...................................................................................5 BalanceSheet-CurrentYear-PriorYear.fsr..................................................................7 BalanceSheet-CurrentYear-2Column.fsr...................................................................9 Income Statements .......................................................................................................11 IncomeStatement-CurrentYear...
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...An audit opinion on cash basis financial statements is an example of an opinion on financial statements that follow a special purpose financial reporting framework. True The balance sheet for an individual may be titled a "Statement of Financial Condition". True The auditors should take exception to assets presented at their estimated current values in personal financial statements. False Personal financial statements may be compiled or reviewed but they should not be audited. False A compilation of financial statements provides limited assurance regarding the fin. statements. False Compiled financial statements may omit note disclosures. True The auditors must issue a compilation report if they prepare a client's financial statements and submit them to a client who intends to use them for external purposes. True The auditors should not accept an engagement to issue a compilation report on financial information presented in a prescribed form. False Letters to underwriters should not contain negative assurances. False When a US-based organization prepares financial statements which are for use in another country, a U.S. report, modified to reflect the accounting principles of the other country, may be issued. True Assurance services improve the quality of information or its context for decision makers. True Attestation services are similar, but go beyond assurance services in scope of procedures and reporting. False Independence is required for the performance...
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...GUIDELINES FOR PREPARING PROJECTED FINANCIAL STATEMENTS Before entering into the nitty-gritty of the precautions to be taken by the professionals, first of all, I would like to throw some lights on the definitions of the basics of the Projected Financial Statements: WHAT IS FINANCIAL FORECASTS AND PROJECTIONS? Financial forecasts and projections are two types of prospective financial statements that attempt to reflect a company’s expected financial position and expected results of operations. FINANCIAL FORECAST A financial forecast reflects, to the best of the company’s knowledge, the expected financial results of a future period. It is based on expected conditions and expected courses of action. It is to be noted that in almost all situations, the party responsible for the prospective financial statements is the management of the company. FINANCIAL PROJECTIONS A financial projection is different than a forecast in that it is based on hypothetical assumptions. A projection reflects the financial position and results of operations based on a “What if” type of scenario. It is to be noted that only a financial forecast is appropriate for general use. Now, I would like to touch upon those areas, which needs to be taken care of and needs some fine-tuning before accepting any assignment of preparing/compiling of projected financial statements. PRECAUTIONS TO BE TAKEN BY THE PROFESSIONALS BEFORE COMPILING PROJECTED FINANCIAL STATEMENTS 1. Make sure that the assumptions...
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...Services 1. Which of the following statements best describes assurance services? a. Independent professional services that are intended to enhance the credibility of information to meet the needs of an intended user. b. Services designed to express an opinion on the fairness of historical financial statements based on the results of an audit. c. The preparation of financial statements or the collection, classification, and summarization of other financial information. d. Services designed for the improvement of operations, resulting in better outcomes. Assurance engagements performed by professional accountants are intended to enhance the credibility of information about a subject matter by evaluating whether the subject matter conforms in all material respects with suitable criteria, thereby improving the likelihood that the information will meet the needs of an intended user. The level of assurance provided by the professional accountant’s conclusion conveys the degree of confidence that the intended user may place in the credibility of the subject matter. 2. Which of the following is not an assurance service? a. Examination of prospective information b. Audit of historical financial statements c. Review of financial statements d. Compilation of financial information Services performed by professional accountants that are not assurance engagements include the following: 1. Agreed-upon procedures 2. Compilation of financial or other information 3. Preparation...
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...but not necessarily in all attest engagements. Furthermore, the assessment may not be at a low level. Answer (C) is incorrect. An attest engagement results in a conclusion about an assertion. Answer (D) is correct. When a CPA in the practice of public accounting performs an attest engagement, the engagement is subject to the Statements on Standards for Attestation Engagements (codified as AT 101 to AT 801). An attest engagement is one in which a practitioner is engaged to issue or does issue an examination, a review, or an agreed-upon procedures report on subject matter, or an assertion about the subject matter, that is the responsibility of another party. [2] Gleim #: 1.1.7 -- Source: CPA, adapted A CPA is required to comply with the provisions of Statements on Standards for Attestation Engagements (SSAE) when engaged to A. Review management’s discussion and analysis (MD&A) prepared pursuant to rules and regulations adopted by the SEC. B. Report on financial statements that the CPA generated through the use of computer software. C. Audit financial statements that the client prepared for use in another country. D. Provide the client with a financial statement format that does not include dollar amounts. Copyright 2012 Gleim Publications Inc. Printed for Evelyn McDowell Page 1 Gleim EQE Test Prep: Auditing and Systems (10 questions)...
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... |Must adjust the financial statements; affect | | | |your the accounting estimates and are on the | | | |books as of the balance sheet date. | |2 |Analytical Procedures |Nothing; subsequent event occurring after field| | | |work but before issuance of report | |3 |Inquiry |Disclosed as footnotes in the financial | | | |statements; aren’t on the books before the | | | |balance sheet date and have no direct effect on| | | |the financial statements under audit | |4 |Nothing; subsequent event occurring after field|Disclosed as footnotes in the financial | | |work but before issuance of report |statements; the event is material...
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...accounting issues. A CPA at all times should maintain a high level of ethical conduct that goes above and beyond society’s laws. As a CPA we are to keep our professional judgment unbiased and base our opinions on factual information and keep all personal interest separate from the work. CPA’s should keep all client information confidential, and only report information deemed necessary for investors and outside users, as well as determine and discuss with the client and differences in accounting issues that relate to transactions are handled so that they may be resolves in an accurate and timely manner (Schroeder, 2005). The difference between and audit and a review is that an audit provides a basis for an opinion for a company’s financials. A review on the other hand does not offer a basis for an opinion due to the lack of contemplation of internal control structure. A review proposes no assurance of an awareness of any or all significance matter that would normally be exposed during an audit ( K2S, pc, 2007). Deferred taxes reported are temporary differences they are calculated based on what was required to be reported versus what has been...
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...__________________________ 1. How can management information, such as financial statements, help management and investors make more informed decisions? Are there any risks associated with the compilation and analysis of information, for example, accuracy or relevance? How can such risks be minimized? • Financial statements help management by using balance sheets, income statements and cash flow statements. They are part of an accounting report that a company can communicate their financial information. These...
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...ABACUS, Vol. 45, No. 3, 2009 doi: 10.1111/j.1467-6281.2009.00295.x MARTIN BLOOM Accounting For Goodwill abac_295 379..389 This article provides a means of resolving one of accounting’s ongoing problems—how to account for goodwill in an era where the unidentifiable intangible asset is often an entity’s largest value component. Despite the general recognition that, in practice, the two classes of goodwill are indistinguishable in terms of their ability to generate streams of revenue, a distinction is traditionally drawn between internally generated and purchased goodwill. The former should not be brought to account because it is impossible to do so within the accepted rules of double entry bookkeeping and historical cost based accounting. On the other hand, there is no difficulty in bringing purchased goodwill to account, but controversy has always existed as to how to treat the amount once recognized. It can confidently be expected that, as anomalies and practical difficulties manifest themselves in practice, the current impairment regime will, in its turn, be abandoned. Key words: Accounting; Double account; Goodwill, internally generated, purchased. Controversy on how to account for goodwill has continued over many decades. It is certainly an example of Sterling’s (1975) lament that because of the way we conceive of issues ‘accountants do not resolve issues, we abandon them’ (quoted in Chambers, 1995). The ideas proposed here are based on redefining the problem. They...
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...a major federal financial assistance program in a compliance audit should issue either a qualified or adverse opinion, including the basis for the opinion. The auditor would express a disclaimer of opinion only in the event of scope limitations, which is not the case here. When the audit includes basic compliance requirements which are not applicable to a major federal program, the auditor expresses a positive opinion on the compliance with respect to the items actually tested and negative assurance on those aspects of compliance which were not tested. The auditor never expresses no assurance or reasonable assurance. It is the objective of the audit procedures performed to provide the auditor with reasonable assurance that any material noncompliance with requirements will be detected. In addition to having competence, technical knowledge, skills, and experience to perform the audit professionally, auditors must complete at least 24 hours of CPE relating to governmental auditing every two years. Individuals who work on GAGAS audits for 20% or more of their time must complete at least 80 hours of CPE relating to governmental auditing every two years. The engagement letter should contain information such as: * the objective of the audit (an expression of an opinion on the financial statements); * the fact that management is responsible for: * the financial statements, * establishing and maintaining effective internal control over financial reporting, ...
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...deferred taxes is temporary difference. Temporary difference is the difference between the tax basis of an asset or liability and its reported (carrying or book) amount in the financial statements (Kieso, Wyegrandt, and Warfield, 2007). The reason is that the difference in the timing of the recording of the revenue and expenses. The accounting method that is used for deferred taxes is accrual. Deferred tax is recognized on the financial statements when the taxes are recognize on the asset or liability. The retrospective approach is an approach that the Financial Accounting Standards Board requires for companies when reporting accounting changes (Kieso, Wyegrandt, and Warfield, 2007). In this approach, when one would make the changes of the accounting principle he or she would go back in previous financial statement to make the changes. This would show the consistency in the company financial statements. When reporting an error the same principle applies. When making corrections to an error, one must restate the prior statement in order to correct the error. Afterwards, document what the error was and report it to the company management. When a company becomes acquired during an acquisition it becomes a subsidiary. The two main reasons why companies become subsidiaries is either management or financial issues that the company may have. A subsidiary company need for a company to come in to provide controls and stability in the company structure. A subsidiary is able to keep the...
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...Question 1 (7 marks) The following are independent statements concerning certain auditing issues. Required Indicate whether you agree or disagree with each statement, and explain your reasoning. a. An adverse report would be issued when an auditor was unable to observe a company’s inventory count at the beginning of the year because the auditor was appointed during the year. (1 mark) b. When encountering a violation of generally accepted accounting principles in an audit of financial statements, the auditor will decide between an unmodified report, a qualified report, or a disclaimer of opinion report. The main consideration will be the materiality of the matter in question. (1 mark) c. A public accountant is not required to be independent of an entity to perform a compilation engagement for that entity. In such a situation, however, disclosure of a lack of independence is not required. (1 mark) d. If there is significant doubt and material uncertainty that an auditee will continue operating in the future and these doubts have been properly disclosed in the notes to the financial statements, the auditor is required to include an emphasis of matter paragraph in the audit report. (1 mark) e. When replaced as auditor, the outgoing auditor has a professional responsibility to reply promptly to an enquiry letter from the incoming auditor, but is not required to allow the incoming auditor access to the most recent year’s audit working papers. (1 mark) f...
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...A View of an Accounting Fraud and Litigation from Inside the Courtroom What the Jury Heard in the PharMor Case 1 In the Phar‐Mor case, several members of top management confessed to, and were convicted of, financial statement fraud. Certain of Phar‐Mor’s creditors and investors subsequently brought suit against Phar‐Mor’s independent auditor, Coopers & Lybrand, alleging the firm was reckless in performing its audits. A jury found the audit firm liable for fraud. While this module can only contain a very small portion of what the jury heard in the five‐month trial, we identify the most important points presented to the jury through a careful review of the trial transcripts and selected interviews with attorneys who were in the courtroom on a daily basis. Unless otherwise noted, all facts and statements are based on actual trial transcripts. Background The $500 million accounting fraud at Phar‐Mor, Inc., led to the bankruptcy of one of the largest private companies in the United States in 1992. As a result of the company’s fraud and subsequent failure, charges were filed against both Phar‐Mor’s management and the company’s auditors. Phar‐Mor’s former management was collectively fined just over $1 million, and two former members of Phar‐Mor management received prison sentences. The company’s former auditors, Coopers & Lybrand LLP (Coopers), faced claims of more than $1 billion, although final settlements were a small fraction of that amount...
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...FROM: DATE: August 29, 2011 SUBJECT: CPA Report The methodology used to deferred taxes is by having a temporary tax. By doing this the company can show what they have to pay for the years later on. The company can show how much is left by putting the temporary tax under the Long-term Liabilities on the balance sheet. Schroeder, Clark, & Cathey (2005) states: “Accounting for deferred taxes involves the following steps: Calculate taxable income and income tax payable for the year. Compute deferred income taxes at the end of the year. Determine deferred tax expense (benefit) and make the journal entry to record income taxes. Classify deferred tax assets and liabilities as current or noncurrent in the financial statements.” The procedures for reporting accounting changes depend what types of changes are being made. There are three types of accounting changes: Change in Accounting Principle, Change in Accounting Estimate, and Change in Reporting Entity (Schroeder, Clark, & Cathey, 2005, p.1152). Each change is different due to what is being change. If inventory is change then the Change in Accounting Principle would be used. If a depreciated asset is being changed by the number of years that at one time had a different useful life then the Change in Accounting Estimate. The Change in Reporting Entity is when a company merges with another company and becomes a partnership or when a partnership is no longer needed and changes to a corporation....
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