Exam 20: Other Assurance and Nonassurance Services

Always Quick Manufacturing Limited is a small business that manufactures metal and plastic components for a variety of industries. The bulk of the business is in the computing industry, although it has occasional contracts for the automotive industry. Jose, the owner, would like to expand the business so that he can bid on larger contracts. This requires an investment of about $500 000 to finance capital assets and about $300 000 for a working capital loan. Jose has financed the business himself to this point and has been given some alternatives by the bank. The alternatives pertain to which assets are used as guarantees and whether Jose also guarantees the loans personally (as he has substantial personal assets). The bank also stated that if Jose personally guarantees the loan, the company will only require a review engagement, whereas if the loan is only secured by corporate assets, an audit of the company will be required. Jose understands the differences among the guarantees but is not sure about the difference between a review and and audit engagement. Presently, the company financial statements are prepared using a compilation engagement. Required: Explain to Jose the difference between a review and an audit engagement in the context of his present compilation engagement.

Which of the following engagements would most likely be a compilation engagement?

"An engagement where the practitioner expresses a conclusion on a written assertion about a subject prepared by a party accountable for the assertion, such as management" is the definition of a(n)

A review engagement requires what amount of evidence to be accumulated?

Outline the three performance standards of CICA Handbook section 5025, "Standards for Assurance Engagements."

Four different engagements that the auditor can complete are compilation, bookkeeping, audit, and review. Rank these engagements with respect to the level of assurance provided from highest assurance level to lowest assurance level.

Before performing a review of an entity's financial statements, an accountant should

When would the public accountant conduct audit procedures during a review engagement?

A public accounting firm can issue a compilation report

When assessing the plausibility of the financial statements for a review engagement, the auditor will use which of the following criteria for auditing a small, privately held company?

You are a public accountant retained by the manager of a cooperative retirement village to do "write-up work." You are expected to prepare unaudited financial statements with each page marked "unaudited" and accompanied by a disclaimer of opinion stating no audit was made. In performing the work, you discover that there are no invoices to support $25 000 of the manager's claimed disbursements. The manager informs you that all the disbursements are proper. What should you do?

Prior to accepting an engagement to examine a financial forecast or projection included in a prospectus or other public offering document, the public accountant should

"An engagement where there is an accountability relationship between two or more parties and the practitioner is engaged to issue a written communication expressing a conclusion about subject matter for which the accountable party is responsible" is the definition of a(n)

Define "attestation engagements."

What is the purpose of an auditor reporting on the effectiveness of internal control over financial reporting?

Thermos Inc. is having its financial statements audited by Pilott & Levy, a PA firm. Leon Levy is the auditor in charge of the audit. The accountable party in this assurance engagement is

Yvan is preparing the audit plan for Share the Wealth, a non-profit organization. Share the Wealth is a large Montreal-based organization that receives corporate donations and has many stores that collect and re-sell costume jewelry and clothing. The purpose of the organization is to build recreation areas for children in less-fortunate areas of the city. Share the Wealth was started by two sisters. One of the sisters is still actively involved in the organization, but the other sister has been devoting less time to the organization since she has had triplets. Share the Wealth has a total of eight stores in Montreal where individuals can drop off donations and customers can purchase the second-hand clothing and costume jewelry. Share the Wealth has a total of 12 employees who work in the various stores. Depending on the schedule and availability, the employees will randomly be assigned to a store for the week. Required: Provide three procedures that Yvan should consider when performing the review engagement of Share the Wealth.

Describe the professional standards that must be followed when undertaking a compilation engagement as specified by the CICA Handbook.

Which of the following techniques would be conducted by a practitioner when conducting a review of compliance with agreements and regulations?