An accountant has compiled the financial statements of a nonissuer in accordance with Statements on Standards for Accounting and Review Services (SSARS). The financial statements are expected to be used by a third party. Does SSARS require that the compilation report be printed on the accountant's letterhead and that the report be manually signed by the accountant?
Answer(s): D
Choice "d" is correct. SSARS does not require that the compilation report be printed on the accountant's letterhead, nor does it require a manual signature. According to SSARS, a compilation report must state that a compilation has been performed, describe what a compilation is, and emphasize that since no audit or review was performed, no assurance is provided. Although a signature is required, it need not be manual.Choices "a", "b", and "c" are incorrect, per the above Explanation.
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.II). Preparing standard monthly journal entries for depreciation and expiration of prepaid expenses.
Choice "d" is correct. An accountant is required to comply with the provisions of Statements on Standards for Accounting and Review Services when submitting unaudited financial statements. Submission is defined as: presenting to a client or third parties financial statements the accountant has prepared. An accountant who reproduces client-prepared financial statements has not prepared those statements. Preparation of standard monthly journal entries is a bookkeeping service that also does not involve preparation of financial statements.
If requested to perform a review engagement for a nonissuer in which an accountant has an immaterial direct financial interest, the accountant is:
Answer(s): B
Choice "b" is correct. An accountant with an immaterial direct financial interest in a client is no longer independent with respect to that client. The accountant is precluded from issuing a review report on the financial statements of an entity with respect to which he is not independent. If the accountant is not independent, he may issue a compilation report provided he complies with the compilation standards.Choice "a" is incorrect. An accountant who is not independent may still be associated with the financial statements; for example, by performing a compilation engagement. Choice "c" is incorrect. The accountant is precluded from issuing a review report on the financial statements of an entity with respect to which he is not independent. Choice "d" is incorrect. An accountant with any direct financial interest in a client (even an immaterial interest) is no longer independent with respect to that client.
Kell engaged March, CPA, to submit to Kell a written personal financial plan containing unaudited personal financial statements. March anticipates omitting certain disclosures required by GAAP because the engagement's sole purpose is to assist Kell in developing a personal financial plan. For March to be exempt from complying with the requirements of SSARS 1, Compilation and Review of Financial Statements, Kell is required to agree that the:
Choice "d" is correct. An accountant may submit a written personal financial plan containing unaudited personal financial statements to a client without complying with requirements of SSARS 1 when both of the following conditions exist:1) The accountant establishes an understanding with the client that the financial statements will be used solely to assist the client in developing a financial plan and will not be used to obtain credit, and2) Nothing comes to the accountant's attention during the engagement indicating that the financial statements will be used to obtain credit.Choice "a" is incorrect. Comparative balance sheets may be presented. Choice "b" is incorrect. It does not matter whether the omitted disclosures required by GAAP are material.Choice "c" is incorrect. The client is not required to agree that the financial statements will not be disclosed to a non-CPA financial planner.
When providing limited assurance that the financial statements of a nonissuer require no material modifications to be in accordance with generally accepted accounting principles, the accountant should:
Answer(s): C
Choice "c" is correct. In a review engagement, the auditor should possess a level of knowledge of the accounting principles and practices of the industry in which the entity operates. This will provide, through the performance of inquiry and analytical procedures, a reasonable basis for expressing limited assurance that there are no material modifications that should be made to the financial statements to be in conformity with generally accepted accounting principles. Choice "a" is incorrect. Assessing the risk that a material misstatement could occur in a financial statement assertion is an audit procedure, not a review procedure. Choice "b" is incorrect. Confirmation with the entity's attorney is an audit procedure, not a review procedure.Choice "d" is incorrect. Development of audit programs are part of an audit engagement, not a review procedure.
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