What type of analytical procedure would an auditor most likely use in developing relationships among balance sheet accounts when reviewing the financial statements of a nonissuer?
Answer(s): C
Choice "c" is correct. Ratio analysis is often used to examine relationships between balance sheet accounts.Choice "a" is incorrect. Trend analysis would be more appropriate for examining income statement accounts.Choice "b" is incorrect. Regression analysis would not likely be used since twenty to thirty past observations are generally required to reliably make estimates. Choice "d" is incorrect. Risk analysis would not be used to evaluate relationships between balance sheet accounts.
Compiled financial statements should be accompanied by an accountant's report stating that:
Answer(s): B
Choice "b" is correct. Compiled financial statements should be accompanied by a report stating that the financial statements were compiled in accordance with SSARS issued by the AICPA. Choice "a" is incorrect. An audit, not a compilation, includes assessing the accounting principles used and significant management estimates, as well as evaluating the overall financial statement presentation.Choice "c" is incorrect. A review report, not a compilation report, includes the phrase, "is substantially less in scope than an audit."Choice "d" is incorrect. The accountant expresses no such assurance in a compilation engagement; limited assurance (i.e., "...accountant is not aware of...") is expressed in a review engagement.
Moore, CPA, has been asked to issue a review report on the balance sheet of Dover Co., a nonissuer. Moore will not be reporting on Dover's statements of income, retained earnings, and cash flows.Moore may issue the review report provided the:
Choice "b" is correct. An accountant may issue a review report on one financial statement, such as a balance sheet, and not on other related financial statements, if the scope of the accountant's inquiry and analytical procedures has not been restricted.Choice "a" is incorrect. The balance sheet need not be presented in a prescribed form of an industry trade association.Choice "c" is incorrect. There is no limitation on the use of a reviewed financial statement. Choice "d" is incorrect. Specialized accounting principles should be considered by the accountant when performing the review, but need not be disclosed.
Baker, CPA, was engaged to review the financial statements of Hall Co., a nonissuer. During the engagement Baker uncovered a complex scheme involving client illegal acts and fraud that materially affect Hall's financial statements. If Baker believes that modification of the standard review report is not adequate to indicate the deficiencies in the financial statements, Baker should:
Choice "c" is correct. If the accountant believes that modification of the standard report is not adequate to indicate the deficiencies in the financial statements taken as a whole, the accountant should withdraw from the review engagement and provide no further services with respect to those financial statements.Note that the accountant should also request that management consider the effect of the scheme on the financial statements.Choice "a" is incorrect. Since Baker believes modification of the standard report is not adequate, a disclaimer is inappropriate. Baker should withdraw from the engagement. Choices "b" and "d" are incorrect. No opinion may be given based on a review engagement.
Each page of a nonissuer's financial statements reviewed by an accountant should include the following reference:
Choice "c" is correct. Each page of the financial statements reviewed by the accountant should include a reference such as "See Accountant's Review Report." Choices "a", "b", and "d" are incorrect, based on the above Explanation.
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