A5_M4 Agreed-Upon Procedures and Prospective Financial Statements

A practitioner is associated with a prospective financial statements primarily in one of four ways:

1. preparation engagement 2. compilation engagement 3. examination engagement 4. agreed-upon procedures engagement

The purpose of an examination of prospective financial statements is to express an opinion as the whether:

1. the statements are presented in conformity with AICPA guidelines; and 2. the underlying assumptions provide a reasonable basis for the prospective statements

Accepting an engagement to examine an entity's financial projection most likely would be appropriate if the projection were to be distributed to:

A bank with which the entity is negotiating for a loan.

An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements, provided that: (2/)

the accountant and engaging party agree, or will be able to agree, on the criteria to be used in the determination of the findings

An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements, provided that: (1/)

the accountant is independent from the responsible party

The date of the agreed-upon procedures report is ordinarily determined by

the completion of the agreed-upon procedures

The following issues would require the practitioner to modify the opinion in an examination

-AICPA presentation are not followed (Q/A) -Significant assumptions are not disclosed (A) -Basis not reasonable (A) -Scope limitation (D)

It is appropriate to include what components in the practitioner's report in an agreed-upon procedures engagement?

-description of the procedures performed -related findings, -a description of any specified materiality threshold established for reporting exceptions

The uses of prospective financial statements can be categorized as:

-general use -limited use

Agreed-upon procedures attestation engagements may be performed provided that the following conditions exist: (I AM SURE)

-independence of the practitioner -agreement of the parties -measurability and consistency -sufficiency of the procedures -use of the report can be general or restricted to specified parties -responsibility for the subject matter -engagements

The subject matter should be capable of

-reasonably consistent measurement -procedures should be expected to result in reasonably consistent finding -evidential matter to support the report should be expected to exist

The client is responsible for (or has a reasonable basis for providing an assertion about):

-the subject matter; or -the client is able to provide evidence that a third party (the responsible party) is responsible for the subject matter

A practitioner should not prepare prospective financial information that:

1. excludes the summary of significant assumptions; or 2. in the case of financial projection, excludes either an identification of the hypothetical assumptions or a description of the limitations on the usefulness of the presentation

Types of prospective financial statements

1. financial forecast 2. financial projection

An agreed-upon procedures engagement is a type of attestation engagement in which

a practitioner is engaged by a client and performs specific procedures on underlying subject matter or subject matter information and reports the findings

A statement referring to standards established by the AICPA should be included in

a practitioner's report on the application of agreed-upon procedures

A practitioner's report on agreed-upon procedures that is in the form of procedures and findings should contain:

a statement that the subject matter is the responsibility of the responsible party

Prospective financial statements must include

a summary of significant assumptions

Prior to the issuance of the practitioner's report, the engaging party must

acknowledge and agree that the procedures performed were appropriate to meet the intended purpose of the engagement

A company hired a practitioner to perform an examination of prospective financial statements. The practitioner concluded that the assumptions did not provide a reasonable basis for the prospective financial statements. Which of the following types of opinion should the practitioner issue?

adverse

When an accountant examines a financial forecast that fails to disclose several significant assumptions used to prepare the forecast, the accountant should describe the assumptions in the accountant's report and issue a (an):

adverse opinion

A practitioner should include all findings from the application of the agreed-upon procedures in an....

agreed-upon procedures report

When an accountant compiles a financial forecast, the accountant's report should include a(an);

caveat that the prospective results of the financial forecast may not be achieved

An accountant performing an engagement to compile prospective financial statements should:

make inquiries about the accounting principles used in the preparation of the prospective financial statements

The practitioner is not required to gather supporting evidence, but should

be aware of obvious inappropriate assumptions used to construct the statements

An examination report on prospective financial statements states that the prospective results t

might not be achieved

An examination of prospective financial statements is

more substantial in scope and responsibility

If an auditor of a nonissuer concludes that reasonable justification exists to change an audit engagement to an agreed-upon procedures engagement, the report should

not include a reference to the original audit engagement but may include a reference to procedures that have been performed

Pro Forma financial statements may be used to

demonstrate the effect of a future or hypothetical event by showing how it might have affected the historical financial statements if it had occurred during the period covered by those financial statements

When an accountant compiles projected financial statements, the accountant's report should include a statement that:

describes the limitations on the projection's usefulness

An accountant who accepts an engagement to compile a financial projection most likely would make the client aware that the:

engagement does not include an evaluation of the support for the assumptions underlying the projection

An examination of a financial forecast is a professional service that involves:

evaluating the preparation of a financial forecast and the support underlying management's assumptions

Independence is required for

examination engagements

Financial forecast relects, to the best of the responsible party's knowledge, the

expected financial results of a future period. -it is based on expected conditions and expected courses of action.

Only a financial forecast is appropriate for

general use

Financial projection is a different from a forecast in that it is based on

hypothetical assumptions -reflects the financial position and results of operations based on a "what-of" type of scenario

A compilation of prospective financial statements does not require

independence

Independence is not required, but

lack of independence should be disclosed in a separate paragraph in the compilation report

Both financial forecasts and financial projections are appropriate for

limited use

Prospective financial information presented in the format of historical financial statements that omit either gross profit or net income is deemed to be a:

partial presentation

Prospective financial statements may cover a period that has

partially expired

General use means that the statements issued will be used by

parties not negotiating directly with the responsible party (the issuing company)

One of the conditions/policies that must exist in an agreed-upon procedures attestation engagement is that the

practitioner must be independent from the client and other specified parties pertaining to the engagement

The accountant should evaluate the

pro forma adjustments

A practitioner may perform agreed-upon procedures engagement on projected financial statements provided that the

projected financial statements include a summary of significant assumptions

Prospective financial statements are forward-looking and based on

projections

The purpose of a compilation of a prospective financial statements is the

proper assembling of the financial data based on the responsible party's assumptions

Pro forma financial statements are not

prospective financial statements

SSARS provides guidance for compilations of

prospective financial statements

SSARS provides guidance for preparation of

prospective financial statements

An accountant's report on a review of pro forma financial information should include a:

reference to the financial statements from which the historical information is derived

Prospective financial statements considered a financial projection would require a paragraph

restricting the use of distribution of the report

An agreed-upon procedures engagement is one in which the practitioner is engaged to issue a report on findings based on

specific procedures performed

When a CPA examines a client's projected financial statements, the CPA's report should:

state that the CPA performed procedures to evaluate management's assumptions

The client takes responsibility for the

sufficiency of the procedures to be performed to meet the intended purpose of the engagement

An accountant's standard report on a compilation of a projection should not include a statement that:

the hypothetical assumptions used in the projection are reasonable in the circumstances

A report on agreed-upon procedures should include a list of

the procedures performed (or reference thereto) and the related finding

Limited use means that the financial statements will only by used by

the responsible party alone or by parties negotiating directly with the responsible party

A report on agreed-upon procedures should include a disclaimer of responsibility for

the sufficiency of the procedures

The engaging party (client) is responsible for

the sufficiency of the procedures

An accountant's compilation report on a financial forecast should include a statement that:

there will usually be differences between the forecasted and actual results

An accountant's compilation report on a financial projection that does not contain a range should include a statement that:

there will usually be differences between the projected and actual results because events and circumstances frequently do not occur as expected