financial statement reviews 2

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There are a variety of non-audit services that CPAs perform for companies. Understanding what these services entail helps to ensure you are in compliance for any type of client engagement.

Melissa O’Neil, CPA, has been engaged by a non-public company, Caldwell, Inc., to review the financial statements of the most recently completed fiscal year.

  • What sources should O’Neil consult in order to prepare for this review?
  • What are the required procedures that O’Neil must perform?
  • What information should the review report contain?
  • What should O’Neil do if she finds there was a material departure from GAAP?

Just do response each posted # 1 to 3 down below only.

Posted 1

When O’Neil prepares to review the financial statements for Caldwell, he should review the companies policies and procedures along with inquiring if another CPA has completed the same task in the past. A previous review would be very beneficial to O’Neil because it would serve as a template for her own review plus it would highlight any past issue there were. A flowchart of the business would also be beneficial because she would be able to understand how data and information flows through the company. O’Neil will need to perform procedures on items deemed material and analyze those records. She will also need to follow up with management on any inconsistencies found. The report will review company procedures and detail any deficiencies that were found. This report will be used as a tool for the company to correct any procedures O’Neil feels are not within proper boundaries. Any material departure from GAAP would be documented in the report.

Posted 2

Hello Class,

It is different from publicly traded companies, nonpublic companies may or may not require having an annual audit; it depends on the size of the company. Nonpublic companies that do not have an annual audit may engage CPAs to review their annual or interim financial statements under Statements on Standards for Accounting and Review Services (SSARS) (Whittington & Pany, 2016, p. 747). There are several sources O’Neil should consult the company in order to prepare for the review. First, O’Neil should make inquiries to take a look over the Caldwell Inc.’s policies and standards to understand the management’s honesty and integrity including any disagreement over accounting principles. Next, provide engagement letter to establish a clear understanding with the managers and specifying the objectives and limitations of engagements, management’s and accountant’s responsibilities. Ensure the client is willing to provide necessary accounting information. In addition, understanding the company’s industry, including its operations and organization structure are important to help O’Neil design review procedures.

According to Whittington & Pany, the required procedures include four steps: “(1) perform analytical procedures, (2) make inquiries of management and others within the organization (3) perform other procedures considered necessary, and (4) obtain representations from management relating to the financial statements” (2013, p. 748).

The review report information should contain any misstatements that O’Neil may have found during the review and whether the material modifications should be made to the financial statements. Also, any significant deficiencies, unusual matters, and the review procedures performed should be included in the report. The responsibilities of both client and accountant and the accountant’s conclusion of her review should include in the report as well (Whittington & Pany, 2016, p. 749).

If O’Neil found a material departure from GAAP, a modification report to address the issue must be taken place. She also needs to communicate to the audit committee regarding any adjustments made during the review (Whittington & Pany, 2016, p. 751).

Posted 3

Good morning classmates,

Melissa O’Neil, CPA, has been engaged by a non-public company, Caldwell, Inc., to review the financial statements of the most recently completed fiscal year.

  • What sources should O’Neil consult in order to prepare for this review? The screening process is the first step that the CPA will want to do before taking on the non-public company for review. The CPA will want to inquire if the company had previously been reviewed by other CPA’s in the past, and if so, was there a reason why they did not use that CPA again. They will also want to obtain an understanding of the client and the industry that they operate in. Lastly, they want to ensure that the company is ethical and the CPA will want to review if the non-public company is using generally accepted accounting principles, and if their financial statements are prepared to conform with GAAP. In order to do that, they are going to need financial statements, and confirmations from outside sources to help ensure that GAAP is being used and followed.
  • What are the required procedures that O’Neil must perform? Below are the required procedures that would be performed for a non-public company:
  1. Perform analytical procedures
  2. Make inquiries of management and others within the organization
  3. Perform other procedures considered necessary
  4. Obtain representations from management relating to the financial statements (Pany & Whittington, 2016, p. 746)
  • What information should the review report contain? The review report that the CPA will issue looks similar to an audit report. It will have an opening paragraph explaining what the CPA did in the review, what management’s and the accountant’s responsibilities are and were, and then the accountant’s conclusion of the review. Because this is not a full audit, the CPA will be unable to express an opinion on the financial statements, and this will be mentioned in the review report.
  • What should O’Neil do if she finds there was a material departure from GAAP? Any material departure from GAAP is to be reported in a paragraph in the review. It would reference the material difference, what GAAP says how it should be reported, and then how management is actually reporting it.
 
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