Practical Application Of Auditing Principles

Practical Application of Auditing Principles

Situation 1- Compilation of Financial Statements

CPA 's responsibilities on compilation of financial statements

Assembling of the financial statements in accordance with Statements on Standards for Accounting and Review Services issued by AICPA

Performing the compilation procedure based on significant assumption guidelines and the accounting policies adopted by the client

CPA is responsible to compile financial statements in the form that are representation of the management

CPA should not form an opinion on the compiled financial statements and therefore there is no question of issuance

of unqualified or qualified report on the compiled statements

Actions required of CPA to minimize misunderstanding

CPA should issue only a compilation report in to clarify the nature of compilation engagement and the responsibilities of the accountant . Such report should contain only the following matters

An identification of the fact that financial statements are representative of management information

It must contain a statement that compilation is limited in scope and does not

enable the accountant to express an opinion or any other form of assurances on

the compiled statements

That the accountant assumes no responsibility about the contents of the statements and also no responsibility to update the report for events occurring after the date of the report

Situation 2- Compilation of unaudited quarterly statements

An accountant may be entrusted to compile unaudited financial statements based upon the information supplied by an independent agent of the client . Under such circumstances compilation involves presenting information that is representation of client without expressing an opinion on the statements . The sufficiency of financial statement will always be limited to the extent of information provided by the independent agent of clients (investors . Clients are absolutely wrong in withholding the fee of CPA as he was not providing auditing or review services and accordingly was not `independent

CPA 's responsibilities on compilation of financial statements

Compilation of the information into financial statements in accordance with Statements on Standards of Accounting and Review Services issued by the AICPA

Compilation is limited only to presenting information in the form of financial statements that is representation of clients (investors

As the financial statements are not audited or reviewed , the CPA need not express an opinion or any other form of assurance on such financial statements

Actions required of CPA to minimize misunderstanding

CPA may issue a compilation report on plain and not on CPA 's letter head . Also there is no requirement for the CPA to manually sign such compilation report

As the agent of client did not provided complete information and CPA was not providing an audit or review services , the CPA need not be `independent ' while issuing compilation report in respect of such financial statements

It is very important that the compilation report must indicate very specifically a statement stating that CPA is not independent with respect to compilation of such financial statements . This will absolve CPA from the responsibility about the accuracy or sufficiency of information stated in the financial statements

The date...