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2011-10-03 14:00:38
Wrap up other engagement activities

Wrap-up and other engagement activities
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  1. 905.1 The wrap-up and other engagement activities are the same
    for both compilation and review engagements. The forms discussed in the
    following paragraphs may assist practitioners in documenting these activities.
  2. Documentation of Procedures

    Documentation of Procedures

    905.2 Disclosure
    Checklist. Chapters 3 and 4 address
    accounting and financial statement considerations unique to CIRAs. The matters
    discussed in those chapters should be considered by accountants who compile or
    review financial statements of CIRAs. The “CIRA Disclosure Checklist,”
    • at HOA-CX-13 should be
    • completed whenever full disclosures are made, which includes all reviewed
    • financial statements.
  3. 905.3 Procedures, Review, and
    Approval Forms. The procedures, review,
    and approval forms provide documentation of compliance with professional
    standards and peer review requirements. The staff person in charge of the
    engagement generally should complete the procedures section of the forms
    • The technical review of the
    • financial statements and selected workpapers is typically performed by the
    • engagement partner. However, firm policy may designate another senior
    • engagement member, such as a manager, to perform this technical review instead.
    • Additionally, SQCS No. 8, A Firm's System of Quality Control (Redrafted),
    • requires firms to establish criteria to determine which (if any) engagements
    • are subject to an engagement quality control review (EQCR). If an engagement
    • meets the criteria established by the firm, an EQCR should be performed and
    • completed before the report is released. (Smaller firms may be challenged to
    • perform technical reviews and/or engagement quality control reviews due to
    • limited personnel resources. SQCS No. 8 states that sole practitioners or small
    • firms may contract with qualified external individuals or firms to perform the
    • EQCR function.) Documentation of a technical review and/or an EQCR can be made
    • on the compilation and review procedures, review, and approval forms located at
    • HOA-CR-5.1 and HOA-CR-5.2.
  4. 905.4 Accounting
    and Engagement Issues. The “Accounting and Engagement Issues”
    form at HOA-CX-16.4 is not part of the basic practice aids to be completed on
    every engagement, but is used only if such situations occur during the
    engagement. HOA-CX-16.4 has been designed to document consultations, departure
    from professional standards, differences of opinion, and engagement withdrawal
    considerations on one common form. The form may be used to:
    • • Document consultations with other
    • professionals involving complex, unusual, unfamiliar, difficult, or contentious
    • issues, including the decisions made resulting from such consultation.

    • • Document the justification for any
    • departure from a presumptively mandatory requirement in the applicable
    • authoritative standards, including how the alternative procedures performed
    • were sufficient to achieve the objectives of the requirement.

    • • Document differences of opinion among
    • engagement team members, with those consulted, or between the engagement
    • partner and engagement quality control reviewer concerning engagement issues,
    • including the conclusions reached.

    • • Document significant issues,
    • consultations, conclusions, and the basis for conclusions relating to decisions
    • made to withdraw from an engagement or from both the engagement and the client
    • relationship.
  5. Required
    Workpapers for Compilation Engagements

    905.5 Workpaper documentation
    for compilation engagements is discussed in SSARS No. 19 (AR 80.14-.15). SSARS
    No. 19 (AR 80.14) says that the accountant should prepare documentation in
    sufficient detail to provide a clear understanding of the work performed. It
    does not, however, specify the form and content of the documentation but states
    that the following should be documented:
    Engagement letter.

    • • Any findings or issues that, in the
    • accountant's judgment, are significant (for example, if the accountant becomes
    • aware of information that indicates the financial statements were incorrect,
    • how the finding was addressed, and the results of the finding).

    • • Communications, whether oral or written,
    • to the appropriate level of management regarding fraud or illegal acts that
    • come to the accountant's attention.
  6. Required Workpapers for a Review Engagement

    905.6 Workpaper documentation
    for review engagements is discussed in SSARS No. 19 (AR 90.25-.26). SSARS No. 19
    (AR 90.25) says the accountant should prepare documentation in sufficient
    detail to provide a clear understanding of the work performed. It does not,
    however, specify the form and content of the documentation but states that the
    following should be documented:
    a. Engagement letter.

    • b. The analytical procedures
    • performed, including:

    • • The expectations, where significant
    • expectations are not otherwise readily determinable from the documentation of
    • the work performed, and factors considered in the development of those
    • expectations.

    • • Results of the comparison of the
    • expectations to the recorded amounts or ratios developed from recorded amounts.

    • • Management's responses to inquiries about
    • fluctuations or relationships that are inconsistent with other relevant
    • information or that differ from expectations.

    • c. Any additional procedures performed in
    • response to the significant unexpected differences arising from analytical
    • procedures and the results of such additional procedures.

    • d. The significant matters covered in the
    • accountant's inquiry procedures and the responses to those inquiries.

    • e. Any findings or issues that, in the
    • accountant's judgment, are significant.

    • f. Significant unusual matters that the
    • accountant considered during the performance of the review procedures,
    • including their disposition.

    • g. Communications, whether oral or written,
    • to the appropriate level of management regarding fraud or illegal acts that
    • come to the accountant's attention.

    h. The representation letter.
  7. Filing Instructions

    905.7 Each firm that
    performs compilation and review services should ensure that the completed
    workpapers are assembled and retained in accordance with the firm's standard
    • Section 207 of PPC's
    • Guide to Compilation and Review Engagements discusses workpaper retention
    • and contains some suggested firm policies that can be adapted to any size firm.
  8. Subsequent Discovery of Facts Existing at
    Date of Report

    905.8 An accountant will
    sometimes discover information about a client after issuing a review or
    compilation report on the financial statements of the entity. SSARS No. 19 (AR
    80.47-.52 and AR 90.54-.59) addresses the actions that should be taken if
    important facts are discovered after a compilation or review report has been
    issued. The following is a summary:
    • a. If the information that the accountant
    • becomes aware of is of such a nature and from such a source that the CPA would
    • have investigated it had it come to his attention during the engagement, the
    • accountant should investigate it as soon after it comes to his attention as is
    • practical. In a compilation engagement, that investigation consists of
    • obtaining additional or revised information. In a review engagement, that
    • investigation consists of performing the additional procedures deemed necessary
    • to achieve limited assurance that there are no material modifications that
    • should be made to the financial statements to be in conformity with generally
    • accepted accounting principles.

    • b. If, after investigation, the CPA
    • determines that (1) his report or the financial statements would have been
    • affected if the information had been known to him at the date of the report and
    • (2) the accountant believes there are persons currently relying on, or likely
    • to rely on, the financial statements who would attach importance to the
    • information, the accountant should advise his client to make appropriate
    • disclosure of the newly discovered facts and their impact on the financial
    • statements to persons who are relying on the financial statements and the
    • related accountant's report.

    • c. The method of disclosure by
    • the client might, depending upon the circumstances, take one of the following
    • forms:

    • (1) Prompt issuance of revised financial
    • statements and, when applicable, the accountant's report. The reasons for the
    • revision should usually be described in a note to the financial statements and,
    • when applicable, referred to in the accountant's report. (When applicable
    • refers to whether the accountant had previously issued a report on the
    • financial statements.)

    • (2) Disclosure of the revision in
    • subsequent financial statements instead of reissuing the earlier statements
    • (usually only done when issuance of the subsequent financial statements is
    • imminent).

    • (3) Notification to the users of the
    • statements that they should not be relied upon and that revised statements will
    • be issued upon completion of an investigation.

    • d. If the client refuses to make the
    • requested disclosures, the CPA should notify each member of the board of
    • directors of the client's refusal and take appropriate steps as outlined in AR
    • 80.51 and AR 90.58 to prevent future reliance upon the report.
  9. Communication of Fraud or Illegal Acts

    905.9 SSARS No. 19 (AR
    80.54 and 90.61) sets forth the accountant's responsibilities for
    communications about fraud and illegal acts discovered in compilation and
    review engagements. SSARS No. 19 states that when the accountant suspects fraud
    or illegal acts may have occurred, the matter should be communicated to the
    appropriate level of management.
    • The accountant need not
    • report matters regarding illegal acts that are clearly inconsequential and may
    • reach agreement in advance with the CIRA on the nature of any such matters to
    • be communicated. If the suspected fraud or illegal acts involve senior
    • management, then the matter should be communicated at the highest level within
    • the CIRA. And, if the suspected fraud or illegal act involves the board of
    • directors, the accountant should consider resigning from the engagement and
    • consulting legal counsel. Additional procedures are not required to
    • substantiate whether fraud or illegal acts have, in fact, occurred. However,
    • the accountant should request that management consider the effect of the matter
    • on the financial statements. In addition, the accountant should consider the
    • impact the suspected matters might have on the engagement. The accountant is
    • required to document any communications, whether oral or written, regarding
    • fraud or illegal acts.
  10. 905.10 The disclosure to
    third parties of any evidence or information that fraud or an illegal act may
    have occurred that comes to the accountant's attention during the performance
    of the compilation or review procedures is not usually part of the accountant's
    • In fact, in most instances,
    • the accountant is precluded from communicating such matters to third parties by
    • ethical and legal obligations of confidentiality. There are certain instances,
    • however, such as complying with legal and regulatory requirements,
    • communicating with a successor accountant regarding acceptance of an engagement
    • in accordance with SSARS No. 4, and responding to a subpoena, where an
    • accountant has a duty to disclose matters related to fraud and illegal acts to
    • parties outside of the entity.
  11. Communication
    of Internal Control Related Matters

    905.11 The SSARS do not
    require or even suggest that the accountant obtain an understanding of internal
    control or communicate any significant deficiencies or material weaknesses in a
    compilation or review engagement.
    • Thus, SAS No. 115, Communicating
    • Internal Control Related Matters Identified in an Audit, does not apply to
    • compilation or review engagements.
  12. 905.12 The authors believe
    that an accountant has no obligation in compilation and review engagements
    beyond client service considerations (unless expressly agreed upon) to inquire
    about internal control matters or to communicate deficiencies in internal
    control. However
    • even though there is no
    • obligation to inquire about or report internal control matters, if the
    • accountant becomes aware of significant weaknesses, it is only prudent that he
    • or she communicate those findings to the client.