Financial Statement Reviews
Question Description
There are a variety ofnon-audit services that CPAs perform for companies. Understanding whatthese services entail helps to ensure you are in compliance for any typeof client engagement.
Melissa O’Neil, CPA, has been engaged by anon-public company, Caldwell, Inc., to review the financial statementsof 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
WhenO’Neil prepares to review the financial statements for Caldwell, heshould review the companies policies and procedures along with inquiringif another CPA has completed the same task in the past. A previousreview would be very beneficial to O’Neil because it would serve as atemplate for her own review plus it would highlight any past issue therewere. A flowchart of the business would also be beneficial because shewould be able to understand how data and information flows through thecompany. O’Neil will need to perform procedures on items deemed materialand analyze those records. She will also need to follow up withmanagement on any inconsistencies found. The report will review companyprocedures and detail any deficiencies that were found. This report willbe used as a tool for the company to correct any procedures O’Neilfeels are not within proper boundaries. Any material departure from GAAPwould be documented in the report.
Posted 2
Hello Class,
Itis different from publicly traded companies, nonpublic companies may ormay not require having an annual audit; it depends on the size of thecompany. Nonpublic companies that do not have an annual audit may engageCPAs to review their annual or interim financial statements underStatements on Standards for Accounting and Review Services (SSARS)(Whittington & Pany, 2016, p. 747). There are several sources O’Neilshould consult the company in order to prepare for the review. First,O’Neil should make inquiries to take a look over the Caldwell Inc.’spolicies and standards to understand the management’s honesty andintegrity including any disagreement over accounting principles. Next,provide engagement letter to establish a clear understanding with themanagers and specifying the objectives and limitations of engagements,management’s and accountant’s responsibilities. Ensure the client iswilling to provide necessary accounting information. In addition,understanding the company’s industry, including its operations andorganization structure are important to help O’Neil design reviewprocedures.
According to Whittington & Pany, the requiredprocedures 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) obtainrepresentations from management relating to the financial statements”(2013, p. 748).
The review report information should contain anymisstatements that O’Neil may have found during the review and whetherthe material modifications should be made to the financial statements.Also, any significant deficiencies, unusual matters, and the reviewprocedures performed should be included in the report. Theresponsibilities of both client and accountant and the accountant’sconclusion of her review should include in the report as well(Whittington & Pany, 2016, p. 749).
If O’Neil found amaterial departure from GAAP, a modification report to address the issuemust be taken place. She also needs to communicate to the auditcommittee regarding any adjustments made during the review (Whittington& Pany, 2016, p. 751).
Posted 3
Good morning classmates,
MelissaO’Neil, CPA, has been engaged by a non-public company, Caldwell, Inc.,to review the financial statements of the most recently completed fiscalyear.
- 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 dobefore taking on the non-public company for review. The CPA will want toinquire if the company had previously been reviewed by other CPA’s inthe past, and if so, was there a reason why they did not use that CPAagain. They will also want to obtain an understanding of the client andthe industry that they operate in. Lastly, they want to ensure that thecompany is ethical and the CPA will want to review if the non-publiccompany is using generally accepted accounting principles, and if theirfinancial statements are prepared to conform with GAAP. In order to dothat, they are going to need financial statements, and confirmationsfrom outside sources to help ensure that GAAP is being used andfollowed.
- What are the required procedures that O’Neil must perform? Below are the required procedures that would be performed for a non-public company:
- Perform analytical procedures
- Make inquiries of management and others within the organization
- Perform other procedures considered necessary
- 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 auditreport. It will have an opening paragraph explaining what the CPA did inthe review, what management’s and the accountant’s responsibilities areand were, and then the accountant’s conclusion of the review. Becausethis is not a full audit, the CPA will be unable to express an opinionon the financial statements, and this will be mentioned in the reviewreport.
- 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 inthe review. It would reference the material difference, what GAAP sayshow it should be reported, and then how management is actually reportingit.
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