An accountant has been engaged to review a nonissuer's financial statements that contain several departures from GAAP. If the financial statements are not revised and modification of the standard review report is not adequate to indicate the deficiencies, the accountant should:
Answer(s): A
Choice "a" is correct. If an auditor believes that modification of the standard report is not adequate to indicate the deficiencies in the financial statements, he should withdraw from the review engagement and provide no additional services with respect to the financial statements. Choice "b" is incorrect. Limiting the use of the report is not an acceptable option for financial statements under review that contain several departures from GAAP. Choice "c" is incorrect. Issuing a special report is inappropriate for financial statements under review that contain several departures from GAAP.Choice "d" is incorrect. If modification of the standard review report is not adequate to indicate departures from GAAP, a modified report should not be issueD. Use of the financial statements is irrelevant.
Statements on Standards for Accounting and Review Services (SSARS) require an accountant to report when the accountant has:
Answer(s): D
Choice "d" is correct. SSARS apply when an accountant "submits" financial statements. Submission is defined as presenting financial statements to a client or third party that the accountant has prepared, either manually or through use of computer software. Preparing financial statements that are in conformity with another comprehensive basis of accounting constitutes a submission of financial statements under SSARS. If the financial statements are expected to be used by a third party, SSARS would require the accountant to report.Choice "a" is incorrect. Typing or reproducing client-prepared financial statements, without modification, as an accommodation to a client does not constitute submission of financial statements because the accountant has not prepared those statements. Choice "b" is incorrect. Providing a client with a financial statement format does not constitute a submission of financial statements (the accountant is not preparing the financial statements) and therefore, this does not fall within the guidelines of SSARS. Choice "c" is incorrect. Proposing correcting journal entries does not constitute submission of financial statements because the client will be the one recording the entries.
Which of the following procedures should an accountant perform during an engagement to review the financial statements of a nonissuer?
Answer(s): B
Choice "b" is correct. An accountant performing a review should obtain a client representation letter from the owner, manager, or chief executive officer, and, if appropriate, the chief financial officer. Choice "a" is incorrect. A review does not contemplate obtaining an understanding of internal control or assessing control risk.Choice "c" is incorrect. Confirmation is a substantive audit procedure that is not appropriate for a review engagement.Choice "d" is incorrect. A search for unrecorded liabilities is an audit procedure that is not appropriate for a review engagement.
An accountant who had begun an audit of the financial statements of a nonissuer was asked to change the engagement to a review because of a restriction on the scope of the audit. If there is reasonable justification for the change, the accountant's review report should include reference to the:
Answer(s): C
Choice "c" is correct. If the accountant concludes that there is reasonable justification to change the engagement, the accountant's review report should not include reference to the original engagement, to any auditing procedures that may have been performed, or to the scope limitation that resulted in the changed engagement.Choices "a", "b", and "d" are incorrect, per above Explanation.
Which of the following statements should be included in an accountant's standard report based on the compilation of a nonissuer's financial statements?
Choice "b" is correct. The accountant's compilation report should state that a compilation is limited to presenting in the form of financial statements information that is the representation of management.Choice "a" is incorrect. A review (not a compilation) consists principally of inquiries of management and analytical procedures applied to financial data.Choice "c" is incorrect. While a compilation is not designed to detect material misstatements in the financial statements, no mention of this limitation is made in the compilation report. Choice "d" is incorrect. The review report states that a review is substantially less in scope than an audit in accordance with GAAS.
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