A review engagement does not provide a basis for expressing an opinion on a set of financial statements.
True
False
True
The main difference between a financial forecast and a projection is that the forecast contains one or more hypothetical assumptions.
True
False
False
Association refers to two public accountants that are familiar with each other and work together.
True
False
False
The public can still rely on a set of prospective financial statements that does not include the summary of significant assumptions as long as a public accountant prepared them.
True
False
False
Management letters which are addressed to management are required by auditing standards.
True
False
False
What four statements should a PA include in the Notice to Reader report?
The fact that the statements are compiled from information from management and that they are not audited, reviewed or attempted to verify the information. It should also caution the reader that the statements may not be appropriate and there should be absolutely no expression or opinion or negative assurance.
What does the phrase Notice to Reader mean?
The term or phrase Notice to Reader is to alert the reader of the financial statements that the statements are not audited nor is there any assurance by a PA on the statements. It also cautions the readers that these statements (by virtue of not having any assurance either through a review or an audit) may not be appropriate for their needs. It puts the reader "on Notice".
Does a successor accountant need to communicate with a predecessor accountant for a compilation engagement? If so, what needs to be said, if not, why not?
Yes, a successor accountant need to communicate with a predecessor accountant even for a compilation engagement, in fact this needs to occur for all public accounting engagements. The successor should enquire of the predecessor "whether there are any circumstances that should be taken in account which might influence the potential successors' decision whether or not to accept the appointment".
What items must prospective financial statements contain?
Sales or gross revenue
Gross profit or cost of sales
Unusual or infrequently occurring items
Income tax provision
Discontinued operations or extraordinary items
Income from continuing operations
Net income
Primary and fully diluted EPS
Significant changes in financial position
Statement that assumptions are based on current information, with a warning that the prospective results may not be achieved.
Summary of significant assumptions
Summary of significant accounting policies
assurance engagement:
an engagement by a practitioner designed to report on the credibility of information, which is the responsibility of another party and which is referred to as the subject-matter, by evaluating that information against identified suitable criteria and expressing a conclusion.
financial forecast:
presents, to the best of the preparer's knowledge and belief, an entity's expected financial position, results of operations, and changes in financial position; based on assumptions about expected conditions and expected courses of action.
financial projection:
similar to a forecast, with the important exception that a projection depends on one or more hypothetical assumptions.
hypothetical assumption:
expression of a condition and course of action the issuer of a financial projection expects could take place.
reportable condition:
significant deficiency in the design or operation of a company's internal control structure which could adversely affect the organization's ability to record, process, summarize and report financial data in conformity with GAAP.
service organization:
another business that executes and/or records transactions on behalf of the client.
