AUD 5.04 - Agreed Upon Procedures & Prospective FS

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  1. Who is responsible to ensure the agreed-upon procedures are sufficient as evidence?
    Management, who created the procedures
  2. The practitioner is responsible to provide what end result regarding agreed-upon procedures?
    A list of the procedures and the findings
  3. The practitioner is prevented from providing what end result regarding agreed-upon procedures?
    An opinion or negative assurance
  4. What are the conditions that must be met to accept an agreed-upon procedures (AUP) engagement?
    • I—A-M—S-U-R-E
    • Independenceof the practitioner
    • ==========
    • Agreementof the parties
    • Measurabilityand Consistency: reasonably consistent measurement and findings
    • =============
    • Sufficiencyof the procedures
    • Use of the report is Restricted
    • The client is Responsible for the subject matter
    • Engagements to perform AUPs on prospective FS must include a summary of significant assumptions
  5. Name the required reporting elements and to which type of engagement it belongs (1) compilation of prospective FS, (2) examination of prospective FS, (3) AUP, (4) pro forma FS
    • -,2,3,4 – Title that includes the word “independent”
    • 1,2,3,4 -- Identification of prospective or pro forma FS
    • 1,2,3,4 -- Compliance with AICPA standards
    • 1,-,3,-- -- Limitation of scope
    • -,-,3,- -- List of procedures performed
    • -,2,-,- -- Prospective FS conform with AICPA presentation guidelines
    • 1,2,3,4 -- Caveat that prospective results may not be achieved
    • 1,2,3,- -- CPA has no responsibility for updating report
    • *,*,3,- -- Limitation of use
    • * = only required for projection
  6. What special caveat must be included in the practitioner’s report regarding an AUP?
    We did not conduct an examination or review and therefore do not express an opinion or conclusion
  7. What is a prospective FS?
    Forward-looking FS based on projections rather than on past events
  8. What are the 2 types of prospective FS and provide a definition.
    • Financial Forecast: based on expected conditions and expected courses of action
    • Financial Projection: based on hypothetical assumptions; a “what-if” scenario
  9. Which type of prospective FS, a forecast or projection, is appropriate for general use?
    Forecast
  10. Which type of prospective FS, a forecast or projection, is appropriate for limited use?
    Both
  11. What is the purpose of a compilation of prospective FS engagement?
    The practitioner is engaged for the proper assembling of the financial data based on the responsible party’s assumptions.
  12. What type of assurance is provided for a compilation of prospective FS regarding preparation according to AICPA guidelines, or that the assumptions used are reasonable?
    None
  13. For which type of engagement is independence required: (1) compilation of prospective FS, (2) examination of prospective FS, (3) AUP, (4) pro forma FS
    --, 2, 3, 4
  14. Which standards are applied to the compilation of FS engagement?
    SSARS: Statements on Standards for Accting and Review Services
  15. Which standards are applied to an AUP?
    SSAE: Statements on Standards for Attestation Engagements
  16. Which standards are applied to an examination of prospective FS?
    SSAE: Statements on Standards for Attestation Engagements
  17. True / False: The practitioner is required to gather supporting evidence regarding the information that will be included in a compilation of prospective FS
    • False
    • The practitioner is not required to gather evidence.
  18. What is the purpose of an examination of prospective FS?
    To express an opinion that the statements are presented in conformity with AICPA guidelines and that the underlying assumptions provide a reasonable basis for the prospective statements.
  19. When providing a report on either the examination of the prospective FS, or a projection of the FS, what additional information used in their compilation must be provided?
    • Prospective FS: The assumptions used in their generation
    • Projected FS: The hypothetical assumptions used
  20. What issues would require the practitioner to modify the opinion on prospective FS, and which opinion must be given?
    • AICPA guidelines are not followed (qualified or adverse)
    • Significant assumptions are not disclosed (adverse)
    • Basis of the FS is not reasonable (adverse)
    • Scope limitation occurs (disclaimer)
  21. A partial presentation of prospective financial information occurs when which essential elements are omitted?
    • sales
    • COS / COGS
    • gross profit
    • unusual or infrequent items
    • income tax expense
    • discontinued operations
    • income from continuing operations
    • net income
    • EPS
    • significant changes in financial position
  22. What is the purpose of pro forma FS?
    Used to demonstrate the effect of a future or hypothetical event by showing how it might have affected the historical FS if it had occurred during the period covered by those FS.
  23. True / False: The practitioner may be engaged to perform a compilation of pro forma financial statements.
    • False
    • The practitioner can only examine or review, but not compile, pro forma FS
  24. What specific item must the practitioner reference In a report for an examination or review pro forma FS?
    The original historic FS on which the pro forma is based and whether or not those historic FS were audited or reviewed.
  25. True / False: Prospective FS may cover a period that has (1) partially expired, or (2) completely expired.
    • Prospective may cover a period that is partially expired b/c a portion remains a future (prospective) estimate.
    • Prospective may NOT cover a period that is completely expired as those would be historic FS.
  26. True / False: Pro forma FS are considered prospective FS.
    • False
    • Pro forma uses historic FS amounts and are thus not not a future projection (prospective)
  27. True / False: The practitioner can perform a review of prospective FS.
    • False
    • The practitioner may perform an examination or compilation, but NOT a review
  28. True / False: In a pro forma engagement, the primary procedure the auditor applies is to ensure the adjustments are mathematically correct.
    True

Card Set Information

Author:
BethG
ID:
332878
Filename:
AUD 5.04 - Agreed Upon Procedures & Prospective FS
Updated:
2017-07-13 16:32:07
Tags:
audit AUD
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Description:
Becker Review 2017
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