Ordinarily, communications that fraud or noncompliance with laws and regulations may have occurred to parties other than the client's senior management (or the client's board of directors) is which of the following? I. Not part of the accountant's responsibility B. C. D. C. The disclosure of any evidence or information that comes to the accountant's attention during the performance of compilation or review procedures that fraud or noncompliance with laws and regulations
may have occurred to parties other than the client's senior management (or those charged with governance, if applicable) ordinarily is not part of the accountant's responsibility and, ordinarily, would be precluded by the accountant's ethical and legal obligations of confidentiality. Under certain circumstances, the accountant may have a duty to disclose this information to parties outside the entity, for example, in order to comply with legal and regulatory requirements, to a successor
accountant, or in response to a subpoena. Which of the following statements is correct regarding both a compilation and a review engagement of a nonissuer’s financial statements performed in accordance with the Statements on Standards for Accounting and Review Services (SSARS)? A. B. C. D. C. The CPA must establish an understanding with the client regarding the services to be performed and
document it in an engagement letter. The accountant should establish an understanding with the entity regarding the services to be performed for both compilation and review engagements, and should document the understanding through a written communication with management. Assessing fraud risk and obtaining an understanding of a client’s internal control are audit procedures. The phrase “substantially less in scope than an audit” is found in a review report. A CPA is engaged to audit the financial statements of a nonissuer. After the audit begins, the client's management questions the extent of procedures and objects to the confirmation of certain contracts. The client asks the accountant to change the scope of the engagement from an audit to a review. Under these circumstances, the accountant should do each of the following, except: A. B. C. D. A. issue an accountant's review report with a separate paragraph discussing the change in engagement scope. When an accountant determines that a change in the scope of an engagement from an audit to a review is appropriate, the accountant would issue a review report and would not refer to the original engagement, any procedures performed as part of the engagement, or any scope
limitation. The accountant should consider the additional audit effort and cost required to complete the audit, evaluate the possibility that financial statement information affected by the limitation on work to be performed may be incorrect or incomplete, and consider the reason given for the client's request and assess whether the request is reasonable. Which of the following would be used on a
review engagement? A. B. C. D. C. Comparison of current-year to prior-year account balances A review, while still an attest engagement, offers only limited assurance
that there are no material modifications that should be made to the financial statements for them to be in conformity with the applicable financial reporting framework. As a review does not offer the same level of assurance that an audit does, the requirements and procedures are different. The review would involve a comparison of current-year to prior-year account balances (an analytical procedure), asking about actions taken at board of directors' meetings (though not necessarily
examining the board minutes), as well as obtaining an understanding of the client's business and utilizing inquiry and other analytical procedures. A review would not involve obtaining an understanding of internal control, assessing fraud risks, or testing accounting records (confirming cash and accounts receivable balances). The accountant would not need to recalculate depreciation expense. These procedures are performed in an audit. If properly disclosed in the financial statements, which of the following would ordinarily cause an accountant to modify his or her standard compilation or review report? I. Uncertainty about the entity's ability to continue as a going concern A. B. C. D. D. If adequately disclosed in the financial statements, an uncertainty about an entity's ability to continue as a going concern or other accounting matters (other than those involving a change in accounting principles) may be, at the accountant's discretion, emphasized in the accountant's report (but will not require a modification to the standard compilation or review
report). Each page of a nonissuer's financial statements reviewed by an accountant should include the following reference: A. B. C. D. C. Statements on Standards for Accounting and Review Services (SSARS) require that each page of the financial statements be marked, “See independent accountant's review report.” An auditor's engagement letter most likely would include a
statement that: A. B. C. D. D. The auditor is required to establish a written understanding with the client regarding the services to be performed. This written understanding is accomplished through the engagement letter. The engagement letter includes the objectives of the engagement, management's responsibilities, the auditor's responsibilities, and the limitations of the engagement. The engagement letter would state, “An audit is not designed to detect error
or fraud that is immaterial to the financial statements.” The engagement letter does not address significant deficiencies discovered during the prior year's audit; significant deficiencies are addressed in a different communication with those charged with governance. The auditor does not explain the specific audit procedures he or she expects to apply in any communication with the client. These procedures are part of the audit plan and the auditor's working papers. Under generally accepted
auditing standards, the auditor does have a responsibility to evaluate whether there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time. However, this responsibility is not stated in the engagement letter When engaged to compile the financial statements of a nonissuer, an accountant is required to possess a level of knowledge of
the entity's accounting principles and practices. This requirement most likely will include obtaining a general understanding of the: A. B. C. D. A. Part of gaining an understanding of an entity's accounting practices is obtaining an adequate understanding of the qualifications of the accounting personnel. While engaged to compile the financial statements of an entity, the accountant may perform additional procedures he or she determines to be necessary; however, the
accountant should be careful that others do not interpret the additional procedures as being part of an audit. Even a general understanding of the design of the entity's internal controls, the level of internal control awareness of senior management, or the risk factors relating to misstatements arising from noncompliance with laws and regulations are outside compilation standards. Which of
the following procedures would be generally performed when evaluating the accounts receivable balance in an engagement to review financial statements in accordance with the Statements on Standards for Accounting and Review Services (SSARS)? A. B. C. D.
A. Perform a reasonableness test of the balance by computing days' sales in receivables When evaluating the accounts receivable balance under a review engagement, the accountant would perform analytical procedures such as computing the current period's days' sales in receivables ratio. Once computed, this
ratio could be compared to the client's prior period's ratio and/or an industry average ratio to determine if the reported accounts receivable balance (and its relationship to sales) is reasonable. Vouching a sample of subsequent cash receipts from customers, confirming individually significant receivable balances with customers, and reviewing subsequent bank statements for evidence of cash deposits are audit tests and confirmations that are not required in a review engagement. When an auditor submits a document that contains information in addition to audited financial statements to a client or to others, his responsibility: A. B. C. D. C. When an auditor submits a document that contains information in addition to audited financial statements to a client or to others, his responsibility is not limited to the audited financial statements, but rather includes reporting on all the
information included in the document. AU-C 725.A5 states, “Although an auditor has no obligation to apply auditing procedures to supplementary information presented outside the basic financial statements, the auditor may choose to modify or redirect certain of the procedures to be applied in the audit of the basic financial statements so that the auditor may express an opinion on the supplementary information....” If such audit procedures are applied, the auditor may refer to the additional
information in the opinion. If audit procedures are not applied, the auditor may disclaim an opinion on the additional information. But, in either case, the auditor should refer to the additional information in the report. When financial statements that an accountant has compiled in accordance with Statements on Standards for Accounting and Review Services omit substantially all disclosures
required by generally accepted accounting principles, the accountant's report should include: A. B. C. D. C. An accountant can compile financial statements that omit substantially all disclosures, as long as the omission is clearly indicated in the report and is not undertaken with the intention of misleading those who might reasonably be expected to use such financial statements. The accountant should modify the standard compilation report to include a separate paragraph that states all of the following items: Management has elected to omit substantially all the disclosures
required by the applicable financial reporting framework. The procedure, “The accountant should modify the accountant's report if there is a change in accounting principles that is adequately disclosed,” is: A. B. C. D. C. required for both a compilation and review. A change in accounting principle is a change from one accounting principle in accordance with the applicable financial reporting framework to another accounting principle in accordance with the applicable financial reporting framework when (1) two or more accounting principles apply or (2) the accounting principle formerly used is no longer in accordance with the applicable financial reporting framework. A change in the method of applying an accounting principle also is considered a change in accounting principle. Changes in accounting principle having a material effect on the financial statements for an audit they require the addition of an emphasis-of-matter paragraph in the independent auditor's report, the same is required for a compilation or a review. A nonissuer requests that a CPA change an audit engagement to a review engagement. If the accountant agrees to the change, how, if at all, should the accountant's review report be modified? A. B. C.
D. A. An accountant who has been engaged to audit financial statements of a nonissuer in accordance with generally accepted auditing standards (GAAS) may, before the completion of the audit, be requested to change the engagement to a review or compilation engagement. A change in the circumstances that affects the entity’s requirement for an audit, or a misunderstanding concerning the nature of an audit, review, or compilation, would normally be considered a reasonable basis for requesting a change in the engagement. The accountant should use professional judgment in deciding whether or not to change the engagement. No reference should be made in the report to the original engagement, any audit procedures that have been performed, or any scope limitations that resulted in the change in engagement. When planning a review of an audit client's interim financial statements, which of the following procedures should the accountant perform to update the accountant's knowledge about the entity's business and its internal control? A. B. C. D. D. Consider the results of audit procedures performed with respect to the current year's financial statements When performing a review of interim financial information, the accountant is required to become knowledgeable about the entity's business and its internal control in order to focus the inquiries and analytical procedures. The procedures to obtain this knowledge include the following: Reading documentation of the preceding year's audit and of reviews of prior interim period(s) of the current year and corresponding interim period(s) of the prior year to the extent necessary, based on the accountant's judgment, to enable the accountant to identify matters that may
affect the current-period interim financial information Which of the following statements is true with regard to review services performed under the Statements on Standards for Accounting and Review Services? A. B. C. D. B. The performance of a review engagement requires that the accountant perform procedures designed to accumulate review evidence that will provide a reasonable basis for obtaining limited assurance that there are no material modifications that should be made to the financial statements in order for the statements to be in conformity with the applicable financial reporting framework. Thus, the accountant does provide some level of assurance. The accountant is precluded from performing a review engagement if the accountant’s independence is impaired for any reason. The accountant need not possess an extensive knowledge of the client’s business, industry, and the economy to perform a review. Instead, he or she needs only to obtain knowledge of the client and possess an understanding of the industry in which the client operates, including the accounting principles and practices generally used in the industry, sufficient to assist the accountant with determining the specific nature, timing, and extent of review procedures to be performed. Before reissuing a compilation report on the financial statements of a nonissuer for the prior year, the predecessor accountant is required to: A. B. C. D. B. Before
reissuing a compilation report, the predecessor accountant should: The inability to complete which of the following activities most likely would prevent an accountant from accepting and completing an engagement for a review of financial statements performed in accordance with the Statements on Standards for Accounting and Review Services (SSARS)? A. B. C. D. B. The requirements of a review completed in accordance with SSARS include the requirement that inquiries be made to the appropriate individuals and analytical procedures be performed. The inability to perform detail testing on major account balances would not prevent a review to be performed in accordance with SSARS. Detail testing is an auditing procedure, not a procedure performed during a review engagement. Tests of internal control are performed in audit engagements and are not required for a review under SSARS. While an accountant should obtain sufficient knowledge regarding the company's industry and business during the review engagement, he or she is not required to have previous experience in the client's industry. Which of the following is a false statement regarding subsequent discovery of facts existing at the date of the accountant's compilation or review report? A. B. C. D. C. The existence of subsequent events does not impair independence, so no modification regarding independence is necessary for a compilation report. The standards for a compilation require that the accountant obtain additional or revised information. The standards for a review require that the accountant should perform additional procedures deemed necessary to obtain limited assurance that there are no material modifications that should be made to the financial statements in order for the statements to be in conformity with the applicable financial reporting framework. If the accountant determines that action should be taken to prevent further use of the accountant's report or the financial statements (because persons using the financial statements would attach importance to the information that is not included), the accountant should advise the client to make appropriate disclosure of the newly discovered facts and their impact on the financial statements. Appropriate disclosure depends on the circumstances. When an accountant is engaged to report on subject matter or presentation based on measurement or disclosure criteria contained in contractual agreements or regulatory provisions, he or she should do which of the following? A. B. C. D. A. If a report is issued on subject matter or presentations based on measurement or disclosure criteria contained in contractual agreements or regulatory provisions, the basis, assumptions, or purpose of the presentation are developed for, and directed only to, the parties to the agreement or regulatory agency responsible for the provisions. As such, the accountant will restrict the use of the report. Aside from the inclusion of an additional restricted use paragraph, a standard compilation and review report may be issued in connection with this type of engagement. Paige, CPA, is engaged to submit unaudited financial statements to a client that are not expected to be used by third parties. In documenting her understanding with the client, all of the following descriptions or statements should be included in her engagement letter except: A. B. C. D. B. a description of the report. The engagement letter will include, among other items: The documentation of the understanding should also address the following additional matters if applicable: When the basic financial statements are accompanied by information presented for supplementary analysis purposes in a compilation or review engagement, the accountant should do which of the following? A. B. C. D. C. When the basic financial statements are accompanied by information presented for supplementary analysis purposes, the accountant should clearly indicate the degree of responsibility, if any, he or she is taking with respect to such information. An accountant does not obtain a management representation letter on a compilation engagement nor is he or she required to disclaim an opinion or withdraw from the engagement when supplemental information accompanies the basic financial statements. An accountant is asked to issue a review report on the balance sheet, but not on other related statements. The scope of the inquiry and analytical procedures has not been restricted, but the client failed to provide a representation letter. Which of the following should the accountant issue under these circumstances? A. B. C. D. D. A management representation letter is required for the issuance of a review report. Without this letter from management, the scope of the review is restricted, and the review cannot be completed. In this circumstance, the accountant would be precluded from issuing a review report on the financial statements and would ordinarily be precluded from issuing a compilation report on the financial statements. Clark, CPA, compiled and properly reported on the financial statements of Green Co., a nonissuer, for the year ended March 31, Year 1. These financial statements omitted substantially all disclosures required by generally accepted accounting principles (GAAP). Green asked Clark to compile the statements for the year ended March 31, Year 2, and to include all GAAP disclosures for Year 2 statements only, but otherwise present both years’ financial statements in comparative form. What is Clark’s responsibility concerning the proposed engagement? A. B. C. D. A. Compiled financial statements that omit substantially all of the disclosures required by an applicable financial reporting framework are not comparable to financial statements that include such disclosures. Accordingly, the accountant should not issue a report on comparative financial statements when statements for one or more, but not all, of the periods presented omit substantially all of the disclosures required by an applicable financial reporting framework. Which of the following statements is correct regarding a review engagement of a nonpublic company's financial statements performed in accordance with the Statements on Standards for Accounting and Review Services (SSARS)? A. B. C. D. C. A review provides an accountant with a basis for expressing limited assurance on the financial statements. A review is substantially less in scope than an audit. It involves applying inquiry and analytical procedures to obtain a basis for providing limited assurance that there are no material modifications that should be made to the financial statements for them to be in conformity with generally accepted accounting principles. Unlike an audit, a review does not involve obtaining an understanding of internal control, assessing control risk, assessing fraud risks, testing of accounting records, obtaining corroborating evidence (such as confirmations), or expressing an opinion on the financial statements taken as a whole. SSARS guidance for compilations of unaudited financial statements establishes standards and procedures for which of the following engagements? A. B. C. D. D. The objective of a compilation is to assist management in presenting financial information in the form of financial statements (AR-C 80.04). Compiling an individual’s personal financial statements to be used to obtain a mortgage would be considered a compilation engagement under the Statements on Standards for Accounting and Review Services (SSARS). Assisting in adjusting the books of account for a partnership and processing financial data for clients of other accounting firms are examples of services not meeting the definition for compilation engagements under SSARS. Which of the following is not a consideration in accepting or continuing a compilation or review engagement? A. B. C. D. D. Matters to consider in accepting or continuing the client engagement include whether: When a client undertakes to disclose newly discovered facts and their impact on the financial statements to persons known to be currently using or likely to use the financial statements, which of the following methods should be used? A. B. C. D. D. When the accountant has concluded that action should be taken to prevent further use of the accountant's report or the financial statements, the accountant should advise his or her client to make appropriate disclosure of the newly discovered facts and their impact on the financial statements to persons who are known to be currently using or who are likely to use the financial statements. When the client undertakes to make appropriate disclosure, the method used and the disclosure made will depend on the circumstances… If the effect of the subsequently discovered information on the accountant's report or the financial statements can promptly be determined, disclosure should consist of issuing, as soon as practicable, revised financial statements and, when applicable, the accountant's report. The reasons for the revision usually should be described in a note to the financial statements and, when applicable,
referred to in the accountant's report. The objective of a review of interim financial information of an issuer is to provide an accountant with a basis for reporting whether: A. B. C. D. A. The objective of a review of interim financial information of an issuer is to provide the CPA with a basis for reporting whether material modifications should be made to the interim information to comply with the applicable financial reporting framework. The procedure, “The accountant should request written representation from members of management who have appropriate responsibilities for the financial statements..,” is: A. B. C. D.
A. The accountant is only required to obtain a management representation letter when performing a review of the financial statements of a nonissuer. This procedure is not required for a compilation, due to the fact that the accountant does not express any assurance in a compilation. When an accountant is engaged to compile a nonissuer's financial statements that omit substantially all disclosures required by GAAP, the accountant should indicate in the compilation report that the financial statements are: A. B. C. D. A. Compiled financial statements that omit substantially all disclosures required by GAAP are not designed for those who are uninformed about the omitted disclosures. The fact that financial statements omit substantially all disclosures does not mean the statements are prepared in conformity with a comprehensive basis of accounting other than GAAP. The Statements on Standards for Accounting and Review Services (SSARS) do allow compilation of financial statements that omit substantially all disclosures required by GAAP (or applicable financial reporting framework) as long as the report contains the caution about the limited use of the statements. Special-purpose financial statements are those prepared for contractual or regulatory purposes, not statements that omit substantially all disclosures. An accountant compiled the financial statements of a nonissuer in accordance with Statements on Standards for Accounting and Review Services (SSARS). If the accountant has an ownership interest in the entity, which of the following statements is correct? A. B. C. D. D. According to AR-C 80.22, independence is impaired if, during the engagement, the accountant has a direct financial interest in the client. Ownership is a form of direct financial interest. If the accountant is not independent, the accountant should include a final paragraph in the accountant's compilation report referencing the nonindependence of the accountant. Which of the following circumstances would ordinarily preclude a CPA from issuing a review or a compilation report on the financial statements of a nonissuer client that had originally engaged the CPA to perform an audit? I. The CPA has been prohibited by the client from corresponding with the entity's legal counsel. B. C. D. C. When a client refuses to allow correspondence with legal counsel (a required procedure for an audit) or to provide a representation letter (a required procedure for both an audit and a review), the accountant cannot ignore that there may be reasons behind the client's refusal to cooperate. SSARSs ordinarily preclude the accountant from downgrading the engagement under these circumstances. The accountant should agree the limitations of the engagement are: A. B. C. D. B. While performing an engagement to either compile or review the financial statements of a nonissuer, the accountant would be required to establish an understanding with the entity regarding the limitations of the services to be performed. This understanding must be documented through a written communication with management (an engagement letter). When an independent CPA assists in preparing the financial statements of an issuer, but has not audited or reviewed them, the CPA should issue a disclaimer of opinion. In such situations, the CPA has no responsibility to apply any procedures beyond: A.
B. C. D. B. When an independent CPA assists in the preparation of financial statements of a publicly held entity, but has not audited or reviewed the financial statements, he complies with the “Principles Underlying an Audit Conducted in Accordance with Generally Accepted Auditing Standards” by disclaiming an opinion. However, he does have a responsibility of reading the financial statements for obvious material misstatements. The fact that the internal control is not being relied on would be documented in an audit where control risk is assessed at the maximum. Audit procedures would be required to ascertain whether the financial statements are in conformity with GAAP. In a compilation engagement, the CPA would report that management has elected to omit substantially all required disclosures. A CPA should not submit unaudited financial statements of a nonissuer to a client or a third party unless, as a minimum, the CPA complies with the provisions applicable to: A. B. C. D. A. The accountant is required to comply with the provisions of AR-C 80 whenever the accountant is engaged to report on compiled financial statements or submits financial statements to a client or to third parties. Which of the following statements is correct regarding a compilation report on financial statements issued in accordance with Statements on Standards for Accounting and Review Services (SSARS)? A. B. C. D. D.
The basic elements of the compilation report are as follows: The report does not include a description of the procedures performed during the compilation, and the accountant is permitted to perform the compilation even if she is not independent. In this circumstance, the report would state that the accountant is not independent. The Statements on Standards for Accounting and Review Services (SSARS) consider which of the following to be a submission of financial statements when the accountant has: A. B. C. D. D.
The accountant is required to comply with the provisions of AR-C 80 whenever he or she is engaged to report on compiled financial statements or submits financial statements to a client or to third parties. Submission is defined as a "submission of financial statements” as "presenting to management financial statements that an accountant has prepared." Generating, through the use of computer software, financial statements prepared in accordance with a comprehensive basis of accounting other than GAAP would meet the definition of submission under the Statements on Standards for Accounting and Review Services (SSARS). Typing client-prepared financial statements, without modification, as an accommodation to the client; providing a client with a financial statement format that does not include dollar amounts, to be used by the client in preparing financial statements; and proposing correcting journal entries to be recorded by the client that change client-prepared financial statements would be examples of services not meeting the definition of submission under SSARS. If an accountant becomes aware that unaudited financial statements not expected to be used by a third party were in fact distributed to third parties by the client, the accountant should do all of the following except: A. B. C. D. B. If the accountant becomes aware that the financial statements have been distributed to third parties, the accountant should discuss the situation with the client and determine the appropriate course of action, including considering requesting that the client have the statements returned. If the accountant requests that the financial statements be returned and the client does not comply with this request within a reasonable period of time, the accountant should notify known third parties that the financial statements are not intended for third party use, preferably in consultation with his or her attorney. The accountant is not required to issue a compilation report in this situation. Which of the following statements would least likely appear in an auditor's engagement letter? A. B. C. D. D. Of the statements listed, the least likely to appear in an auditor's engagement letter is a statement assuring the client that the auditor, after performing preliminary analytical procedures, will discuss other procedures considered necessary to complete the engagement. Among others, what the engagement letter should contain are statements regarding: - the basis of the auditor's fee, Which of the following procedures most likely would be performed in an engagement to review financial statements of a nonissuer? A. B. C. D. A. A review includes primarily applying analytical procedures to management's financial data and making inquiries of company management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. A review does not contemplate obtaining an understanding of the entity's internal control; assessing fraud risk; testing accounting records by obtaining sufficient appropriate audit evidence through inspection, observation, confirmation, or the examination of source documents (for example, cancelled checks or bank images); or other procedures ordinarily performed in an audit. Testing internal controls over cash receipts, testing the aging of accounts payable, and confirmation of notes receivable are all procedures more commonly found in an audit of financial statements. Which of the following is not a quality control policy or procedure related to the review of work performed by other engagement team members? A. B. C. D. D. A review may include consideration of whether, for example: Summarization of findings from the firm's annual inspection is a monitoring activity, not engagement performance. In which of the following circumstances does an accountant not have a duty to disclose that fraud or noncompliance with laws and regulations may have occurred to parties outside of the entity? A. B. C. D. C.
AR-C 90.A89 states that “A duty to disclose…may exist in the following circumstances: (a) to comply with certain legal and regulatory requirements, (b) to a successor accountant management has given permission for communication between the predecessor accountant and the successor accountant, and (c) in response to a subpoena.” There is no duty to communicate such matters to the predecessor accountant. Which of the following statements is incorrect regarding notification of third parties if the client refuses to disclose newly discovered facts and their impact on the financial statements? A. B. C. D. C. If the client has not cooperated, the accountant's disclosure need not detail the specific information but can merely indicate that the client has not cooperated with the accountant's attempt to substantiate information that has come to the accountant's attention and that, if the information is true, the accountant believes that the compilation or review report must no longer be used or associated with the financial statements. No such disclosure should be made unless the accountant believes that the financial statements are likely to be misleading and that the accountant's review report should not be used. When an accountant submits unaudited financial statements to his or her client that are not expected to be used by third parties, he or she should do which of the following? A. B. C. D. D. For nonissuers, a compilation report does not need to be issued unless the accountant has been specifically engaged to perform a compilation engagement. This is true whether prepared financial statements are intended to be used by management or third parties. An accountant compiles the financial statements of a nonissuer and issues the standard compilation report. Although not specifically stated in this report, it is implied that: A. B. C. D. B. A standard compilation report implies that substantially all disclosures required by GAAP (or applicable financial reporting framework) are included in the financial statements. The standard compilation report explicitly states that the accountant has not reviewed or audited the financial statements. The financial statements may be used to obtain credit if a standard compilation report is issued. The standard compilation report's limitation to presenting information that is the representation of management is explicitly addressed by stating, “Management is responsible for the preparation and fair presentation of the financial statements…” Which of the following statements should be included in an accountant's standard report based on the compilation of a nonissuer's financial statements? A. B. C. D. B. The standard compilation report states, in part: Our Responsibilities: a. prepare financial statements in accordance with accounting principles generally accepted in the United States of America based on information provided by you and b. apply accounting and financial reporting expertise to assist you in the presentation of financial statements without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements in order for them to be in accordance with accounting principles generally accepted in the United States of America. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. A review report also states that: the accountant is not aware of any material modifications that should be made to the
financial statements and An independent accountant's report is based on a review of interim financial information. If this report is presented in a registration statement, a prospectus should include a statement clarifying that the: A. B. C. D. A. accountant's review report is not a part of the registration statement within the meaning of the Securities Act of 1933. In an independent accountant's review report on interim financial information included in a registration statement, a prospectus should include a statement clarifying that the accountant's review report is not a part of the registration statement within the meaning of the Securities Act of 1933. (AU-C 925.A6 states, “If the registration statement includes the auditor's review report on interim financial information, then the requirements...assist the auditor in determining that the issuer discloses the fact that an interim review report is not a report on, or a part of, the registration statement prepared or certified by the auditor, within the meaning of Section 7 and Section 11 of the Securities Act of 1933, and that the auditor's liability under Section 11 does not extend to the auditor's review report.”) This statement describes the limited purpose of the accountant's review and the restricted degree of reliance that should be placed on the review report. An accountant does assume responsibility to update the report for subsequent events and circumstances, up to the effective date of the registration statement. The accountant's review is performed in accordance with the PCAOB Auditing Standards for a public entity and the AICPA Statements on Auditing Standards for a nonissuer. Obtaining corroborating evidence to determine whether material modifications are needed for such information to conform with GAAP is an audit procedure and is not required in a review engagement. An accountant is required to comply with the provisions of Statements on Standards for Accounting and Review Services when: I. reproducing client-prepared financial statements,
without modification, as an accommodation to a client. A. B. C. D. D. An accountant must comply with the provisions of Statements on Standards for Accounting and Review Services (SSARS) whenever he or she submits financial statements to a client or to third parties. Submission is defined as presenting to management financial statements that an accountant has prepared. Reproducing client-prepared financial statements does not meet the definition of preparation. Preparing monthly journal entries also does not constitute the preparation of financial statements. West, CPA, is engaged to compile the financial statements of Lake Co., a nonissuer. Lake's financial statements are prepared in conformity with the cash basis of accounting. If Lake's financial statements do not disclose the basis of accounting used, which of the following statements best describes West's reporting responsibility concerning this matter? A. B. C. D. B. West should disclose the basis of accounting used in West's compilation report. Financial statements prepared in accordance with an other comprehensive basis of accounting (OCBOA) are not considered appropriate in form unless the financial statements include: A description of the OCBOA, including a summary of significant accounting policies and a description of the primary differences from generally accepted accounting principles (GAAP). The effects of the differences need not be
quantified. An entity may request the accountant to compile financial statements that omit substantially all the disclosures required by an applicable financial reporting framework, including disclosures that might appear in the body of the financial statements. The accountant may compile such financial statements, provided that the omission of substantially all disclosures is not, to his or her knowledge, undertaken with the intention of misleading those who might reasonably be expected to use such financial statements. When reporting on financial statements that omit substantially all disclosures, the accountant should include, after the paragraph describing the accountant's responsibility, a paragraph in the compilation report that includes the following elements: A statement that management has elected to omit substantially all the disclosures (and the statement of cash flows, if applicable) required by the applicable financial reporting framework (or ordinarily included in the financial statements if the financial statements are prepared in accordance with an OCBOA) A statement that management has elected to omit substantially all the disclosures (and the statement of cash flows, if applicable) required by the applicable financial reporting framework (or ordinarily included in the financial statements if the financial statements are prepared in accordance with an OCBOA) The procedure, “The accountant should communicate illegal employee acts is: A. B. C. D. D. As a result of the limited procedures performed in a compilation and a review, evidence or information may come to the accountant's attention that noncompliance with laws and regulations may have occurred. In this case, the matter should be brought to the attention of the appropriate level of management. The accountant is not required to report matters regarding illegal acts [noncompliance] that are clearly inconsequential. North Co., a privately held entity, asked its tax accountant, King, a CPA in public practice, to review and generate North's interim financial statements on King's microcomputer when King prepared North's quarterly tax return. King should not submit these financial statements to North unless, as a minimum, King complies with the provisions of: A. B. C. D. A. The Statements on Standards for Accounting and Review Services (SSARS) is used by accountants to conduct a review engagement responsibly. SSARS requires accountants to perform procedures that will obtain limited assurance that material modifications have been made. Which of the following is a false statement regarding communications to management and others that fraud or noncompliance with laws and regulations may have occurred? A. B. C. D. C. The communication regarding fraud or noncompliance with laws and regulations may be oral or written. If the communication is oral, the accountant should document it. Miller, CPA, is engaged to compile the financial statements of Web Co., a nonissuer, in conformity with the income tax basis of accounting. If Web's financial statements do not disclose the basis of accounting used, Miller should: A. B. C. D. A. When financial statements are prepared in conformity with a special-purpose framework, such as the income tax basis of accounting, and the basis of accounting is not disclosed, the CPA should disclose the basis of accounting in the accountant's compilation report. Labeling each page, issuing a special report, or withdrawing from the engagement is not necessary. When the basic financial statements are accompanied by information presented for supplementary analysis purposes in a review engagement, the accountant's review report should state that the review has been made for the purpose of expressing a conclusion that there are no material modifications that should be made to the financial statements in order for them to be in conformity with generally accepted accounting principles, and which of the following? I. The other data accompanying the financial statements are
presented only for purposes of additional analysis and have been subjected to the inquiry and analytical procedures applied in the review of the basic financial statements, and the accountant did not become aware of any material modifications that should be made to such data. A. B. C. D. C. The accountant's review report should state the other data was subjected to the inquiry and analytical procedures applied in the review of the basic financial statements and provide the same negative assurance as the basic financial statements or state that the other data has not been subjected to those procedures but has been compiled from information that is the representation of management and the accountant does not express an opinion or provide any assurance on the data. Financial statements of a nonissuer that have been reviewed by an accountant should be accompanied by a report stating that a review: A. B. C. D. C. The following form of standard report is used for a review: A review engagement includes primarily applying analytical procedures to your financial data and making inquiries of company management. A review engagement is substantially less in scope than an audit engagement, the objective of which is the expression of an opinion regarding the financial statements as a whole. A review engagement does not contemplate obtaining an understanding of the entity's internal control; assessing fraud risk; testing accounting records by obtaining sufficient appropriate audit evidence through inspection, observation, confirmation, or the examination of source documents; or other procedures ordinarily performed in an audit engagement. Accordingly, we will not express an opinion regarding the financial statements. Which of the following is correct if an accountant is engaged to submit unaudited financial statements that are reasonably expected to be used by a third party? A. B. C. D. A. The only time a compilation report is not required is when the financial statements are not expected to be used by a third party. There is no prohibition that an entity's financial statements cannot be prepared on a comprehensive basis of accounting other than generally accepted accounting principles (OCBOA) or omit substantially all disclosures when used by a third party. The restriction is added to each page of the financial statements when there is a reasonable expectation the financial statement will not be used by a third party. Which of the following representations does an accountant make implicitly when issuing the standard report for the compilation of a nonissuer's financial statements? A. B. C. D. A. An implicit representation is one that is implied rather than stated; an explicit representation is one that is fully and clearly expressed. If the accountant is not independent with respect to a client when issuing a compilation report, the accountant should specifically disclose the lack of independence in a final paragraph in the compilation report. Otherwise, the report contains the implicit representation that the accountant is independent. A review consists of inquiries and analytical procedures, not a compilation. The other two representations are made explicitly in the report: The financial statements have not been audited. Which type of documentation is required for a review engagement?Review Engagement Documentation Requirements
Engagement letter. A copy of the reviewed financial statements. Accountant's review report. Communications with management and those charged with governance about significant matters arising during the engagement.
Which of the following procedures is usually the first step in reviewing the financial statements of a Nonissuer?Which of the following procedures is usually the first step in reviewing the financial statements of a nonissuer? Obtain a general understanding of the entity's organization, its operating characteristics, and its products or services.
Which of the following is not an accurate statement regarding agreed upon procedures engagements?Which of the following is not an accurate statement regarding agreed-upon procedures engagements? A report for such an engagement describes the findings resulting from the procedures, but cannot describe the procedures agreed upon.
What kinds of report is being issued in review engagement?Ratios and relationships of recorded amounts. Analytical procedures on comparisons. Receipt of appropriate financial information. Procedures for recording financial information.
|