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:
Answer(s): A
Choice "a" is correct. If financial statements have been compiled on a basis other than GAAP, and the client makes no disclosures in the financial statements to that effect, the accountant should disclose the basis of accounting in the accountant's compilation report. Choice "b" is incorrect. Under the circumstances, the accountant need only make reference to the other basis of accounting used to compile the financial statements; special labeling of the financial statements is not required.Choice "c" is incorrect. A special report is not warranted in the circumstances. Choice "d" is incorrect. It is not necessary to withdraw from the engagement.
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:
Choice "a" is correct. If substantially all disclosures required by GAAP are omitted from compiled financial statements, the accountant's compilation report should state that the financial statements are not designed for those who are not informed about such matters. Choice "b" is incorrect. Omission of substantially all disclosures is not a comprehensive basis of accounting other than GAAP.Choice "c" is incorrect. If the disclosure is made, the compilation is prepared in accordance with SSARS.Choice "d" is incorrect. Omission of substantially all disclosures does not make these special-purpose financial statements.
North Co., a privately-held entity, asked its tax accountant, King, a CPA in public practice, to prepare 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:
Choice "a" is correct. An accountant should not submit unaudited financial statements unless the auditor complies with the provisions applicable to a compilation engagement (under SSARS). Choices "b", "c", and "d" are incorrect, per above Explanation.
Davis, CPA, accepted an engagement to audit the financial statements of Tech Resources, a nonissuer. Before the completion of the audit, Tech requested Davis to change the engagement to a compilation of financial statements. Before Davis agrees to change the engagement, Davis is required to consider the:
Answer(s): B
Choice "b" is correct. When an auditor is requested to change the engagement from an audit to a compilation, the auditor must consider the effort needed to complete the audit, the cost of completing the audit, and the reasons for the client's request. If the audit is substantially complete or an insignificant effort is needed to complete the audit, the auditor should consider the propriety of agreeing to the request.In addition, if the reason for the request is to limit the scope of the auditor's examination, the auditor must consider whether the information affected by the scope limitation is incorrect, incomplete, or otherwise unsatisfactory.A change in circumstance (e.g., an audit is no longer necessary) or a misunderstanding as to the nature of an audit would, on the other hand, be considered a reasonable basis for the change. Choices "a", "c", and "d" are incorrect, based on the above Explanation.
Smith, CPA, has been asked to issue a review report on the balance sheet of Cone Company, a nonissuer, and not on the other related financial statements. Smith may do so only if:
Answer(s): C
Choice "c" is correct. An accountant may issue a review report on one financial statement, such as a balance sheet, as long as the scope of the inquiry and analytical procedures has not been restricted. Choice "a" is incorrect. There is no requirement that Smith compile the other financial statements. Choice "b" is incorrect. An accountant can still review only the balance sheet, even if the review discloses material departures from GAAP. These departures should be reflected in the accountant's report, however.Choice "d" is incorrect. Smith may audit only the balance sheet even if Cone is a continuing client.
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