[jeff]

Welcome to the Q4 2016 CPA Exam Study Group for AUD.

If this is your first post in the study group – please post your target exam date (just the time frame to preserve your anonymity), and your past history with this exam (optional, of course).

[Forem004]

@thebigguy

Compilation—Corporation on the U.S. GAAP Basis, Standard Report
Management is responsible for the accompanying financial statements of XYZ Company (a corporation), which comprise the balance sheet as of December 31, 20XX, and the related statements of income and retained earnings and cash flows for the year then ended, and the related notes to the financial statements in accordance with accounting principles generally accepted in the United States of America. I (We) have performed a compilation engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. I (We) did not audit or review the financial statements nor was I (were we) required to perform any procedures to verify the accuracy or completeness of the information provided by management. Accordingly, I (we) do not express an opinion, a conclusion, nor provide any form of assurance on these financial statements.

Firm’s Signature

City, State
Report Date

Notes:
1. Authority—SSARS No. 21 (AR‐C 80.A43, Illustration 1). SSARS No. 21 is effective for engagement periods ending on or after December 15, 2015.
2. SSARS No. 21 does not include a requirement that the accountant’s compilation report include a title.
3. SSARS No. 21 (AR‐C 80) does not include a requirement for the accountant’s compilation report to include the addressee. However, normally, all compilation reports are addressed to management. Many small entities do not have boards of directors and/or stockholders. In addition, management may, or may not, include the owners of the entity.
4. The authors believe that the type of legal entity, if not obvious from the name, should be disclosed parenthetically after the name of the company.
5. The report should include the city and state in which the accountant practices (AR‐C 80.17h). That information may be shown on the accountant’s letterhead (AR‐C 80.A21).
6. The report should be dated as of the completion of the accountant’s procedures [SSARS No. 21 (AR‐C 80.17i)]. Section 604 discusses dating the accountant’s report.
7. The financial statements should have all notes necessary for a fair presentation under GAAP. If notes are omitted, see Appendix 6A‐3.
Appendix 6A‐1
CAR 5/16 6‐65 8. Each page of the financial statements and notes should be appropriately headed such as:
XYZ COMPANY BALANCE SHEET December 31, 20XX
XYZ COMPANY
STATEMENT OF CASH FLOWS Year Ended December 31, 20XX
XYZ COMPANY
STATEMENT OF INCOME
AND RETAINED EARNINGS Year Ended December 31, 20XX
XYZ COMPANY
NOTES TO FINANCIAL STATEMENTS December 31, 20XX
9. This standard report is appropriate if a combined statement of income and retained earnings is presented. If a separate statement of retained earnings (or statement of changes in stockholders’ equity) is presented, the first sentence would be modified as follows:
Management is responsible for the accompanying financial statements of XYZ Company (a corpo­ ration), which comprise the balance sheet as of December 31, 20XX and the related statements of income, retained earnings (changes in stockholder’s equity), and cash flows for the year then ended, and the related notes to the financial statements in accordance with accounting principles generally accepted in the United States of America.
10. Appendixes 7B‐1 through 7B‐15 present illustrative accountants’ compilation reports for interim financial statements.

[Forem004]

Compilation—Corporation on the U.S. GAAP Basis, Substantially All Disclosures Omitted

To Management XYZ Company City, State
Management is responsible for the accompanying financial statements of XYZ Company (a corporation), which comprise the balance sheet as of December 31, 20XX, and the related statements of income and retained earnings and cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. I (We) have performed a compilation engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. I (We) did not audit or review the financial statements nor was I (were we) required to perform any procedures to verify the accuracy or completeness of the information provided by management. Accordingly, I (we) do not express an opinion, a conclusion, nor provide any form of assurance on these financial statements.
Management has elected to omit substantially all the disclosures required by accounting principles generally accepted in the United States of America. If the omitted disclosures were included in the financial statements, they might influence the user’s conclusions about the Company’s financial position, results of operations, and cash flows. Accordingly, the financial statements are not designed for those who are not informed about such matters.

Firm’s Signature

City, State
Report Date

Notes:
1. Authority—SSARS No. 21 (AR‐C 80.A43, Illustration 3). SSARS No. 21 is effective for engagement periods ending on or after December 15, 2015.
2. Selected notes to the financial statements, if presented, may be labeled as follows [SSARS No. 21 (AR‐C 80.A31)]:
XYZ COMPANY
SELECTED INFORMATION—Substantially All Disclosures Required by
[Identify the applicable financial reporting framework, for example, Accounting Principles Gener­ ally Accepted in the United States of America] Are Not Included
December 31, 20XX
3. The accountant may only compile financial statements that omit substantially all disclosures when, to the accountant’s knowledge, the omission is not undertaken to mislead those reasonably expected to use the financial statements. [SSARS No. 21 (AR‐C 80.24)] See section 606 concerning reporting on financial statements that omit substantially all disclosures.
4. See applicable Notes to Appendix 6A‐1.
Appendix 6A‐3

[Forem004]

Review—Corporation on the U.S. GAAP Basis, Standard Report

INDEPENDENT ACCOUNTANT’S REVIEW REPORT

I (We) have reviewed the accompanying financial statements of XYZ Company (a corporation), which comprise the balance sheet as of December 31, 20XX, and the related statements of income and retained earnings and cash flows for the year then ended, and the related notes to the financial statements. A review includes primarily applying analytical procedures to management’s financial data and making inquiries of company management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, I (we) do not express such an opinion.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement whether due to fraud or error.
Accountant’s Responsibility
My (Our) responsibility is to conduct the review engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA. Those standards require me (us) to perform procedures to obtain limited assurance as a basis for reporting whether I am (we are) aware of any material modifications that should be made to the financial statements for them to be in accordance with accounting principles generally accepted in the United States of America. I (We) believe that the results of my (our) procedures provide a reasonable basis for my (our) conclusion.
Accountant’s Conclusion
Based on my (our) review, I am (we are) 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.

Firm’s Signature

City, State
Report Date

Notes:
1. Authority—SSARS No. 21 (AR‐C 90.A147, Illustration 2). SSARS No. 21 is effective for engagement periods ending on or after December 15, 2015.
2. SSARS No. 21 (AR‐C 90.39a) states that the accountant’s review report should have a title and that title should include the word “Independent.”
Appendix 6B‐1
CAR 5/16 6‐101
3. SSARS No. 21 (AR‐C 90.39b) requires review reports to include an appropriate addressee. Normally, all review reports are addressed to management, as many small entities do not have boards of directors and/or stockholders. Management may, or may not, include the owners of the entity.
4. The authors believe that the type of legal entity, if not obvious from the name, should be disclosed parenthetically after the name of the company.
5. The report should be dated no earlier than the date on which the accountant has completed procedures sufficient to obtain limited assurance as the basis for the review report [SSARS No. 21 (AR‐C 90.39i)]. Section 604 discusses dating the accountant’s report.
6. If the accountant is to issue an unmodified review report, the financial statements should be accompanied by all disclosures required by GAAP.
7. Each page of the financial statements and notes should be appropriately headed such as:
XYZ COMPANY BALANCE SHEET December 31, 20XX
XYZ COMPANY
STATEMENT OF CASH FLOWS Year Ended December 31, 20XX
XYZ COMPANY
STATEMENT OF INCOME
AND RETAINED EARNINGS Year Ended December 31, 20XX
XYZ COMPANY
NOTES TO FINANCIAL STATEMENTS December 31, 20XX
8. A review report cannot be issued when the accountant is not independent [SSARS No. 21 (AR‐C 90.07)].
9. This standard report is appropriate if a combined statement of income and retained earnings is presented. If a separate statement of retained earnings (or statement of changes in stockholders’ equity) is presented, the first sentence would be modified as follows:
I (We) have reviewed the accompanying financial statements of XYZ Company (a corporation), which comprise the balance sheet as of December 31, 20XX, and the related statements of income, retained earnings (changes in stockholders’ equity), and cash flows for the year then ended, and the related notes to the financial statements.
Appendix 6B‐1

[Anonymous]

@Pharoah – The answer is A. It is the only one to me that makes sense.

[thebigguy1992]

14. In a financial statement audit of a nonissuer, an auditor would consider a judgmental misstatement to be a misstatement that

Involves an estimate.
Exists because of non-statistical sampling performed by the auditor.
Arises from a flaw in the accounting system.
Arises from a routine calculation.

Answer is A. who else would be tempted to put B though? non-statistical sampling means it involves human judgement, which could be construed as a judgmental misstatement

[GiniC]

@thebugguy1992 –

The question asks about a misstatement – misstatements do not happen because of anything due to sampling, only because of things the client did. So option B is completely unrelated to the cause of misstatements, it's only about how you might find one. Does that help?

[thebigguy1992]

Which of the following procedures would an auditor most likely perform to identify unusual sales transactions?

Tracing credits in the accounts receivable ledger to source documentation.
Performing a trend analysis of quarterly sales.
Examining duplicate sales invoices for credit approval by the credit manager.
Tracing cash receipt entries to the bank statement deposit for amount and date.

why is the answer B?

[Anonymous]

Tracing tests for completeness. The question does not ask for completeness, eliminating A and D.

Examining duplicate sales invoices for credit approval by the credit manager would provide evidence that sales on account were appropriately authorized, but would not help to identify unusual transactions.

Trend analysis is an analytical procedure that can assist in identifying unusual transactions.

[thebigguy1992]

25. Which of the following tasks can be achieved using generalized audit software?

Determining acceptable risk levels for substantive testing of account balances.
Filtering data based on accounts receivable data recording.
Detecting transactions that may be suspicious due to alteration of data input.
Assessing likelihood of fraud based on input of fraud risk factors.

Why is the answer B? I know GAS is extracting data and is used mostly during parallel simulation. I've never heard of it being used for filtering data based on A/R data recording though?

[Anonymous]

Basically since its general I think of automated. Whenever its automated or general it usually means it will do the least subjective work that relies on professional judgement. The only choice that reflects a general task that requires no judgement is B.

[CPATG17]

Scores have been released for Deb 8th and I haven't got mine yet. Still waiting!!

AUD - 08/23/2016
REG - TBD
BEC - TBD
FAR - TBD

[CPYay]

Where do you live? I took mine 11/30 and got the score at 6am in California.

[GiniC]

A Generalized Audit Software Packages (GASP) is software designed to read, process and write data with functions to perform specific audit routines.

One of the big advantages of GASPs is that they can extract data from the client's system without the auditor learning the hardware and software of the client's system. Your only option that involves collecting data is B.

[GiniC]

I have handwritten notes in my audit text that say material weaknesses (in internal control) get reported EXTERNALLY as well as to management and those charged with governance. But it's stuck in my head that we (auditors) don't reveal/report outside the client company except in very specific circumstances.

Does anyone know what that note might have referred to? I can't remember… The report on the effectiveness of internal control for issuers does go in the annual report – do you think that's all it means?

[CPYay]

@GiniC

The only thing I can think of is perhaps a PCAOB audit (integrated). A material weakness would result in an adverse opinion on internal control and would subsequently be mentioned in the audit report.

Other than that, I'm not sure.

[Author]

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