An accountant's standard report on a review of the financial statements of a nonissuer should state that the accountant:
Answer(s): B
Choice "b" is correct. The accountant's report on a review engagement should state that the accountant is not aware of any material modifications that should be made to the financial statements for them to conform with GAAP.Choice "a" is incorrect. An accountant expresses limited assurance in a review engagement. Choice "c" is incorrect. "Reasonable assurance about whether the financial statements are free of material misstatement" is required for audit engagements, but is not necessary for review engagements.Choice "d" is incorrect. Examining evidence on a test basis is required for an audit engagement; procedures for a review engagement are limited to inquiry and analytical procedures.
An accountant has been asked to issue a review report on the balance sheet of a nonissuer but not to report on the other basic financial statements. The accountant may not do so:
Answer(s): D
Choice "d" 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. Compliance with this request would not violate any ethical standards of the profession.Choice "b" is incorrect. Compliance with this request would not necessarily result in an incomplete review.Choice "c" is incorrect. An accountant can still review only the balance sheet, even if the review discloses material departures from GAAP. However, these departures should be reflected in the accountant's report.
When performing an engagement to review a nonissuer's financial statements, an accountant most likely would:
Choice "b" is correct. As part of the inquiries made during a review engagement, an accountant would ask about actions taken at board of directors' meetings that affect the financial statements. Choice "a" is incorrect. Certain procedures, such as confirmation of receivables and observation of inventory, are customarily performed in an audit but not in compilation or review engagements. Choice "c" is incorrect. A review engagement does not include obtaining an understanding of the client's internal control.Choice "d" is incorrect. The accountant would not normally restrict the use of the review report.
During an engagement to review the financial statements of a nonissuer an accountant becomes aware of a material departure from GAAP. If the accountant decides to modify the standard review report because management will not revise the financial statements, the accountant should:
Choice "b" is correct. If the accountant concludes that modification of the standard report is appropriate, the departure should be disclosed in a separate paragraph of the report. Choice "a" is incorrect. An accountant would not express negative assurance on the accounting principles that do not conform with GAAP in a review engagement. Choice "c" is incorrect. An accountant would not issue an opinion in a review engagement. Choice "d" is incorrect. An accountant would not express positive assurance (i.e., an opinion) on the accounting principles that conform with GAAP in a review engagement.
Which of the following representations does an accountant make implicitly when issuing the standard report for the compilation of a nonissuer's financial statements?
Answer(s): A
Choice "a" is correct. If the accountant is not independent, he should specifically disclose the lack of independence. Otherwise, independence is implied.Choice "b" is incorrect. The report accompanying compiled financial statements explicitly states that the financial statements have not been audited.Choice "c" is incorrect. Inquiry and analytical procedures are not performed in a compilation engagement.Choice "d" is incorrect. The report accompanying compiled financial statements explicitly states that the accountant provides no assurance on the financial statements.
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