Chapter 18 -- SSARS

Question 1

Section 18.1: General Principles for SSARSs Engagements (AR-C 60)

What type of performance is done under SSARs?

Answer 1

“CPR”
Compliation
Performance
Reporting

Question 2

Section 18.1: General Principles for SSARSs Engagements (AR-C 60)

What standards apply to SSARs engagements?

Answer 2

• SSARs applies to the preparation for a nonissuer of other hsitorical or prospective financial information.
• An exampled of a preparation under SSARs would be pro forma financial statements.

Question 3

Section 18.1: General Principles for SSARSs Engagements (AR-C 60)

What is included when performing preparation in accordance with SSARs?

Answer 3

• Preparation is a service to prepare financial statements without attaching a report or determining whether the accountant is independent.
• A preparation of financial statements include preparation of Personal Financial Statements for presentation with a financial plan. (i.e. completing a personal financial statement to obtain a mortgage).

Question 4

Section 18.1: General Principles for SSARSs Engagements (AR-C 60)

What is included in a compilation in accordance with SSARs?

Answer 4

• A compilation is a service to assist management in presenting financial statements in the form of financial statements without undertaking to provide any assurance.
• The auditor will include a report

Question 5

Section 18.1: General Principles for SSARSs Engagements (AR-C 60)

When may SSARSs may be applied to other historical or prospective financial information?

Answer 5

• The other historical or prospective financial information is adapted as necessary in the circumstances
• Prospective financial statements may be prepared and compiled, but not reviewed

Question 6

Section 18.1: General Principles for SSARSs Engagements (AR-C 60)

What is included in a review in accordance with SSARs?

Answer 6

• In a review, the CPA obtains sufficient appropriate review evidence to form a conclusion that no material modifications need to be made to the statements for them to be in accordance with the applicable reporting framework.
• The auditor provides limited assurance.

Question 7

Section 18.1: General Principles for SSARSs Engagements (AR-C 60)

When may SSARSs may be applied to other historical or prospective financial information?

Answer 7

• The other historical or prospective financial information is adapted as necessary in the circumstances
• Prospective financial statements may be prepared and compiled, but not reviewed

Question 8

Section 18.2: Preparation of Financial Statements (AR-C 70)

What is not included in preparing financial statements under SSARs?

Answer 8

• Notes to the financial statement
• An accountant’s report

Question 9

Section 18.2: Preparation of Financial Statements (AR-C 70)

Where should a disclosure be presenting if it needs to be made when preparing financial statements under SSARs?

Answer 9

A disclosure would be placed on the face of the financial statements.

Question 10

Section 18.2: Preparation of Financial Statements (AR-C 70)

What is included in an accountant’s documentation in a preparation engagement?

Answer 10

• The engagement letter
• A copy of the financial statements that the accountant prepared
• Significant judgements or consultations made during the engagement by the auditor

Question 11

Section 18.2: Preparation of Financial Statements (AR-C 70)

What is the purpose of a preparation service under SSARs?

Answer 11

• A preparation service allows the accountant to generate financial statements and release them to the client or third parties without a report.
• Each page should stated that the prepare provides no assurance.
• Independence is not required, and does not need to be reported to management

Question 12

Section 18.2: Preparation of Financial Statements (AR-C 70)

What are the options for the preparer if they are not allowed by management to indicate no assurance was provided?

Answer 12

• The accountant may issue a disclaimer
• The accoutant may perform a compliation
• The accountant may withdraw from the engagement

Question 13

Section 18.2: Preparation of Financial Statements (AR-C 70)

How does the accountant prepare financial statements if all disclosures required are omitted?

Answer 13

• The statements should include a heading such as “Selected Information–Substantially All Disclosures Required by [the applicable financial reporting framework] Are Not Included.”
• Disclosures may be omitted, as long as the omission is not misleading to users.

Question 14

Section 18.2: Preparation of Financial Statements (AR-C 70)

What is management’s responsibility in the engagement letter as it relates to the preparation of financial statements?

Answer 14

• Management’s agreement about certain matters
• It acknowledges and understands its responsibilities
• Accuracy and completeness of records
• Significant judgments it provides for the preparation of the financial statements

Question 15

Section 18.2: Preparation of Financial Statements (AR-C 70)

What are the accountant’s responsibilities when engaged to prepare financial statements?

Answer 15

• A statement on each page that no assurance is provided
• The agreed-upon terms of the engagement should include identification of the applicable financial framework to be used
• The engagement documentation should include the engagement letter and a copy of the prepared financial statements

Question 16

Section 18.3: Compilation of Financial Statements (AR-C 80)

When should an auditor withdraw from a compilation engagement?

Answer 16

• Management is unwilling to revise financial statements due to misapplications of accounting principles and unreasonable accounting estimates.
• Management failed to provide information that is necessary to complete the engagement.

Question 17

Section 18.3: Compilation of Financial Statements (AR-C 80)

What does the guidance of a compilation apply to?

Answer 17

• Prospective financial information
• Proforma financial information
• Other historical financial information

Question 18

Section 18.3: Compilation of Financial Statements (AR-C 80)

What understanding should an auditor have when conducting a compilation?

Answer 18

• The applicable financial reporting framework
• The significant accounting policies that are used by management

Question 19

Section 18.3: Compilation of Financial Statements (AR-C 80)

Can an auditor who is on a compliance engagement perform other duties that may be part of an audit?

Answer 19

• An auditor can perform other accounting services while performing a compilation, preparation or review engagement.
• The additional work may be part of the compiliation, preparation or review, or they may be separate.

Question 20

Section 18.3: Compilation of Financial Statements (AR-C 80)

What is the objective of a compilation?

Answer 20

The objective of a compilation is to apply accounting and financial reporting to assist management in the presentation of financial statements without having to obtain or provide an assurance on them.

Question 21

Section 18.3: Compilation of Financial Statements (AR-C 80)

When should an auditor propose appropriate revisions to management during a compilation engagement?

Answer 21

• The statements do not adequately refer to or describe the applicable financial reporting framework
• Revisions of the statements are required for them to be in accordance with the framework
• The statements are misleading

Question 22

Section 18.3: Compilation of Financial Statements (AR-C 80)

What type of compilation report is issued if the accountant is not independent?

Answer 22

A compiliation report with special wording that notes the accountant’s lack of independence

Question 23

Section 18.4: Review of Financial Statements (SSARS)

What are the first steps an accountant performs in reviewing a nonissuers financial statements?

Answer 23

Obtain a general understanding of:
* The entity’s organization
* The entity’s operating characteristics
* The nature of assets, liabilities, revenues and expenses, including related party transactions

Question 24

Section 18.4: Review of Financial Statements (SSARS)

What should be performed during a review of a nonissuers financial statements?

Answer 24

• The accountant must be independent
• Obtain a client representation letter from management
• Perform inquiries of management that may have an effect on the financial statements
• Applying analytical procedures

Question 25

# Section 18.4: Review of Financial Statements (SSARS) What type of analytical procedures are performed in an nonissuers review of financial statements?

Answer 25

* Read the financial statements to confirm that they conform with GAAP * Reconcile the financial statements with the accounting records * Obtain written representation from management * Comparison of current and prior year account balances * Compare current year budget to forecast * Industry benchmarks

Question 26

# Section 18.4: Review of Financial Statements (SSARS) What is included in the review report of a nonissuers financial statements?

Answer 26

* For a review, an accountant expresses a conclusion, not an opinion. An opinion is issued for audits. * The accountant expresses limited assurance on the financial statements * A review is substantially less in scope than an audit * “...not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in accordance with accounting principles generally accepted in the United States of America.”

Question 27

# Section 18.4: Review of Financial Statements (SSARS) How are materially misstated discoveries reported in a nonissuer review?

Answer 27

* The accountant would express a modified conclusion. * On the review report, the accountant would create a heading titled "Qualified Conclusion or Adverse Conclusion" * The accountant would describe the matter causing the conclusion under the paragraph, before the conclusion paragraph, titled "Basis for Qualified Conclusion" or "Basis for Adverse Conclusion"

Question 28

# Section 18.4: Review of Financial Statements (SSARS) How is a going concern reported in a review of a nonissuers financial statements?

Answer 28

* The accountant should issue a modified review report. * The report should have a separate section titled "Substantial Doubt about the Entity's Ability to Continue as a Going Concern"

Question 29

# Section 18.4: Review of Financial Statements (SSARS) When should an accountant withdraw from an engagement to review a nonissuers financial statements?

Answer 29

* If they determine that there is not enought sufficient or appropriate evidence to form a conclusion. * If the accountant believes that modification of the report is not adequate because of fraud.

Question 30

# Section 18.4: Review of Financial Statements (SSARS) When should an accountant not accept a nonissuers review engagement?

Answer 30

The client will not allow the accountant to communicate with legal counsel as required by GAAS.

Question 31

# Section 18.4: Review of Financial Statements (SSARS) How does an accountant report a review of nonissuers comparative financial statements when the review also includes a prior year's audited financial statements?

Answer 31

If the prior-period report is not reissued, a separate paragraph is added to the review report indicating: * The prior-period statements were audited * The date of the previous report * The opinion expressed * The substantive reasons if the opinion was not unmodified * No audit procedures were performed after the date of the previous report

Question 32

# Section 18.4: Review of Financial Statements (SSARS) When is an Other-Matter paragraph included in a review report of a nonissuers financial statements?

Answer 32

An other-matter paragraph is included in the report * If required by SSARSs * At the accountant’s discretion. * It refers to a matter other than those presented or disclosed in the statements that is relevant to users’ understanding of the review, the accountant’s responsibilities, or the report.

Question 33

# Section 18.4: Review of Financial Statements (SSARS) What should be included in the accountant's working papers when performing a review of nonissuers financial statements?

Answer 33

The nature, timing, and extent of the procedures performed to comply with SSARSs The results of the procedures performed and the evidence obtained Significant findings or issues arising during the review, the conclusions reached, and significant professional judgments made in reaching those conclusions.

Question 34

# Section 18.5: Compilation of Pro Forma Financial Information (PFFI) What are examples of PFFI transactions and events?

Answer 34

* Business combination * Change in capitalization * Disposition of a signficant portion of a business * Change the form of a business * Proposed sale of securities and the application of the proceeds

Question 35

# Section 18.5: Compilation of Pro Forma Financial Information (PFFI) What is the accountant's objective when performing a PFFI?

Answer 35

* The accountant's objective is to assist management to present the pro forma financial information and to report it in writing withouth provide any assurances. * The PFFI may be compiled only if it is contained in a document that includes the financial statements on which they are based. * The statements must have been reviewed, compiled or audited in order to be included in the document.

Question 36

# Section 18.5: Compilation of Pro Forma Financial Information (PFFI) How are significant assumptions reported in a PFFI?

Answer 36

The accountant must include a summary any significant assumptions with the PFFI, in addition to the complete financial statements that were used to compile the PFFI and the accountant's report.