As I have found more and more students interested in CPA preparation, I have also found concurrently that the standardized CPA preparation materials and programs to be lacking and materially deficient in motivating and instructing candidates to successfully navigate and pass the 4 stages of the CPA Exam. I have begun the blog and will maintain posts and responses as subsequent posts are made to assist exclusively in the subject of CPA exam preparation, whether that be in any of the 4 areas of the exam, in the education necessary to become a candidate as well as in test taking habits on a generalized basis. I welcome questions, concerns and stress relief posts and will respond accordingly and timely to those posts.
That being said... Let's discuss an important and often overlooked topic, a topic covered and often covered in some detail on the AUD exam. The topic is the subject of REVIEW ENGAGEMENTS.
Review engagements are intended to provide limited assurance that the financial statements presented and prepared by MANAGEMENT indicate that there are NO MATERIAL modifications that are needed in order for them to be in conformity with GAAP. This is known as NEGATIVE ASSURANCE which is far less in scope than an Audit Engagement.
When conducting a review the accountant MUST perform the following steps:
1) Make Inquiries of Management to understand the methodology used to compile, and build the financial data, to become aware of events subsequent to the date of the financial statements, and finally to learn of executive decisions that may have an effect on the financial picture. In addition inquiries of management are also made to assess the risk of potential fraud.
2) Apply Analytic Procedures to the financial data. Since a REVIEW Is less in scope, although still providing some assurance ( limited, negative ),during a review engagement, an accountant is required to apply Analytical Procedures to the financial data used to provide for the financial statements. Such analysis could consist of comparing financial statements on a horizontal (year-to-year) and on a vertical basis (expenses-to-revenue, assets-liabilities, etc).
3) Obtain an Engagement Letter.
4) Obtain a Management Representation Letter.
Engagement and Management Representation Letters will be discussed in a subsequent blog posting and are also critical to understand their elements to successfully pass the Exam.
Again I welcome ALL POSTS - Crazy or NOT - CPA = Can Produce Anything!