All right, so if you look in your notes, you’ll
see here it talks about association with financial statements as I said these are different ways
that the CPA or the accountant can be associated with the financial statements. If it’s a publicly
held company we talked in the past about PCAOB, Public Company Accounting Oversight Board.
That’s for a public company. Stocks are publicly traded.
Okay, they’ve got 10 main or more assets, 500 or more, or 2,000 or more shareholders.
They’re covered by the 1934 Federal Security Regulations Act for example. In this section
we’re talking about nonpublic entities. Now with the nonpublic entity we’ve talked in
the past here’s an audit, here’s a review as we’re gonna look at today. Here’s a compilation.
As you look up in life, in other words in life you normally look up like I compare myself.
Hey, how am I doing? Let me see me versus Trump, me versus P. Diddy or whatever. Me
versus Jay-Z because I think of myself as Trump or actually I was comparing myself to
Justin Timberlake, JT. Yeah, he and his baby. All right, so audit, review, compilation,
so when you’re looking up you go “Hey, I’m doing a compilation which is less than this
and this.” In a review you look up. Hey, I’m doing this which is less than this. You don’t
look down and say but it’s more than this. All right, because I don’t in life go, “Hey,
I ain’t doing so well but I’m doing better than you.” Now you look up and go “Gosh, I
need to push myself and strive to pass this exam, become a CPA, surpass my parents in
career,” and then one day they’ll be sponging off me like I had been my whole life. So compilation,
review, audit, looking up. Now, in an audit you’ll see here it says the
accounting be engaged to audit the statements in which case we’re gonna follow GAAS which
is covered by clarified SAS which is Statements and Auditing Standards. We talked about that
in the past, we’re not talking about that today. The account may be engaged to do a
review, a review that is governed by SSARS by the ARC or ARSC which is the Account Review
Service Committee of the AICPA. Now you’re gonna see that a lot in these reports
we’re gonna talk about today. As we’re going through the reports, we’re gonna be talking
about the fact that this review is done in accordance with SSARS by the Accounting Review
Service Committee of the AICPA. You’re gonna see this in the reports as we go through it,
so I’ll start to plant that in your head. S, Statements on Standards for Accounting
and Review Services because these are accounting and review services AR, by the ARSC, Accounting
Review Service Committee of the AICPA. That’s what these services whether it be a review,
whether it be a compilation or this relatively new thing called preparation and engagement
to prepare financial statements. That’s where someone hired you to prepare the statements
which we really didn’t have standards for. All of these are gonna be subject to something
we’re gonna talk about in a minute called the general standards which is gonna be ARC
60. The 60 are gonna be the general standards. Those apply to all the services we’re talking
about then we’re gonna look over here. We’re gonna talk about ARC 70 and you got to apply
or you have to adhere to the general standards when you do this. ARC 80 compilation, you
still need to adhere to the general standards of 60 and review ARC 90, you still have to
apply or adhere to the general standards of ARC 60.
All right, it says audits of using compilations are all considered an attest engagement. Now
this creates a lot of confusion for people. There are two words we’re gonna be looking
at are an attest engagement and assurance. Let’s not confuse them. The attest engagement,
the attest engagement, it says audits, reviews and compilations are considered an attest
engagement. Now what does that mean? An attest engagement
just says that in this engagement you’re generally required to be independent. As you’ll see
in an audit you’re giving positive assurance, you have to be independent. In a compilation
you’re giving limited or negative assurance. You have to be independent. In a compilation
you’re giving no assurance so you don’t have to be independent.
However, there are certain times if you’re not then you’re gonna have to do certain things,
otherwise, we’re gonna assume you’re independent unless you let us know and now you can also
tell us the reasons. In the preparation of financial statements, it is not an attest
engagement. You don’t have to be independent. You don’t even have to look to see if you’re
independent because in the preparation of financial statements, ARC 70, you don’t have
to be independent. The question you’ll see is an attest engagement
basically says that you’re independent for an audit. You have to be a review. You have
to be a compilation. We assume you are unless you tell us otherwise, you don’t necessarily
have to be so that’s what’s happening with that test.
Now assurance is the other term. Assurance says you’re giving some sort of like positive
assurance in an audit is an opinion, limited or negative assurance in a review. For assurance
we are giving assurance in these two, an audit and review. We’re giving no assurance in a
compilation, no assurance in a preparation of financial statement engagement.
Okay, so if I added here at the bottom preparation of financial statement and that’s a different
type of engagement. Here, no assurance, not attest. Here, attest but no assurance. Here,
attest assurance. Here, attest assurance. That should help you answer some questions
right off the bat. Now just to clarify, audit, positive and think
of this, my love for you. Okay, positive assurance is I love you, positive assurance. In a compilation
we’re gonna say no assurance. I can’t give any opinion or any assurance about my love
for you. Okay, in a review we’re giving no opinion but we’re giving limited or negative
assurance which says I can’t say that I love you, I can’t give an opinion about that but
I’m not aware of the fact that I’m not in love with you. Okay, boom, what do you get?
Slapped. Positive assurance, I love you. Compilation, no opinion, no assurance, I can’t
say anything. I don’t know, we just met 20 minutes ago over a drink. A review, I can’t
say that I love you because that’s positive assurance. I haven’t done enough work yet
but I’m not aware of the fact that I’m not in love with you. That’s gonna be again the
difference between positive assurances, limited or negative assurance which is basically an
accounting saying positive assurance. In my opinion the statements are presented
in conformity or in conformity with GAAP or in conformity with the financial reporting
framework, general principles or special and so on. Review says I can’t give an opinion
about GAAP but I’m not aware of any material modifications that need to be made in order
for the statements to be GAAP. That’s not to say is the same way saying they are GAAP.
You’re saying I’m not aware of the fact that they’re not and if you become aware of it,
we may have to add that in explanatory paragraph, emphasis of a matter or other matter paragraph.
Compilation says I can’t give any opinion, I can’t give any assurance. That’s the difference,
preparation, no opinion, no assurance. You don’t have to be independent. You don�t
even have to look to see if you are. That’s a quick overview of where we’re going. In
your notes you’ll see the term attest engagement. You’ll see the term assurance, a preparation
engagement or non-attest engagements as well as non-assurance engagement. They’re non attest,
they’re non assurance.