Which of the following accounting services may an accountant perform without being required to issue a compilation or review report under the Statements on Standards for Accounting and Review Services?I). Preparing a working trial balance.II). Preparing standard monthly journal entries.
Answer(s): C
Choice "c" is correct. An accountant can prepare a working trial balance and prepare standard monthly journal entries without being required to issue a compilation or review report under the SSARS as long as the performance of these services does not carry forward into the submission of financial statements.Choice "a" is incorrect. Monthly journal entries can be prepared. Choice "b" is incorrect. A working trial balance can be prepared. Choice "d" is incorrect. Both of these services can be rendered as long as they do not carry forward into the preparation of financial statements.
Which of the following inquiry or analytical procedures ordinarily is performed in an engagement to review a nonissuer's financial statements?
Answer(s): B
Choice "b" is correct. When reviewing a nonissuer's financial statements, an accountant ordinarily makes inquiries concerning the entity's procedures for recording and summarizing transactions. Choices "a", "c", and "d" are incorrect. The following audit procedures generally are not performed in a review engagement:A . Tests of the accounting records.C . Tests of management's assertions regarding continued existence. D . Inquiries of the entity's attorney concerning contingent liabilities.
When compiling the financial statements of a nonissuer, an accountant should:
Choice "b" is correct. When compiling the financial statements of a nonissuer, an accountant should understand the accounting principles and practices of the entity's industry. Choice "a" is incorrect. Reviewing agreements with financial institutions for restrictions is generally performed during an audit.Choice "c" is incorrect. Inquiring of key personnel concerning related parties and subsequent events is not required in a compilation.Choice "d" is incorrect. Performing ratio analyses of the financial data of comparable prior periods is generally performed for review engagements and audits, not compilations.
Jones Retailing, a nonissuer, has asked Winters, CPA, to compile financial statements that omit substantially all disclosures required by generally accepted accounting principles. Winters may compile such financial statements provided the:
Answer(s): D
Choice "d" is correct. An accountant may compile FS that omit substantially all disclosures required by GAAP provided the omission is not undertaken to mislead the users of the FS and is properly disclosed in the accountant's report as an additional third paragraph. Choice "a" is incorrect. There is no requirement that the reason for omitting the disclosures be explained in an engagement letter or acknowledged in the management representation letter (which, by the way, is not required for compilation engagements). Choice "b" is incorrect. Financial statements compiled in accordance with GAAP may omit substantially all required disclosures.Choice "c" is incorrect. Substantially all disclosures required by GAAP may be omitted in a compilation without restricting use to internal parties.
Which of the following procedures is usually performed by the accountant in a review engagement of a nonissuer?
Choice "b" is correct. Comparing the financial statements with statements for comparable prior periods (analytical procedures) is a procedure that is usually performed by the accountant in a review engagement of a nonissuer.Choice "a" is incorrect. Sending a letter of inquiry to the entity's lawyer is a procedure generally performed only in an audit of an entity's financial statements. Choice "c" is incorrect. Confirming a significant percentage of receivables by direct communication with debtors is a procedure generally performed only in an audit of an entity's financial statements. Choice "d" is incorrect. Communicating significant deficiencies discovered during the study of the internal control structure is a procedure generally performed only in an audit of an entity's financial statements.(The internal control structure is generally not evaluated in a review engagement.)
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