Which of the following procedures is more likely to be performed in a review engagement of a nonissuer than in a compilation engagement?
Answer(s): C
Choice "c" is correct. Obtaining a representation letter from the CEO is more likely to be performed in a review engagement of a nonissuer (where obtaining the letter is required) than in a compilation engagement.Choice "a" is incorrect. Gaining an understanding of the entity's business transactions would be performed in both a compilation and a review engagement. Choice "b" is incorrect. Making a preliminary assessment of control risk would only be performed in an audit, not in a compilation or review.Choice "d" is incorrect. Assisting the entity in adjusting (compiling) the accounting records is more likely to be performed in a compilation engagement than in a review.
Statements on Standards for Accounting and Review Services establish standards and procedures for which of the following engagements?
Answer(s): D
Choice "d" is correct. Statements on Standards for Accounting and Review Services (SSARS) establish standards and procedures for an engagement to compile an individual's personal financial statements to be used to obtain a mortgage.Choice "a" is incorrect. Proposing adjustments to the books of account for a partnership is an engagement that does not pertain to SSARS, as it falls short of submitting financial statements. Choice "b" is incorrect. Reviewing interim financial data required to be filed with the SEC is covered under PCAOB standards. SSARS only applies to nonissuers. Choice "c" is incorrect. Preparing standard monthly journal entries is not covered by SSARS, as it falls short of submitting financial statements.
When compiling a nonissuer's financial statements, an accountant would be least likely to:
Answer(s): A
Choice "a" is correct. During a compilation of a nonissuer's financial statements, an accountant generally would not perform analytical procedures. (Analytical procedures are required in a review.) Choice "b" is incorrect. The accountant compiling financial statements generally would read those statements to consider whether they appear to include adequate disclosure. Choice "c" is incorrect. The accountant compiling financial statements might omit substantially all of the disclosures required by GAAP.Choice "d" is incorrect. The accountant compiling financial statements might issue a compilation report on one or more, but not all, of the basic financial statements.
Which of the following procedures would most likely be included in a review engagement of a nonissuer?
Answer(s): B
Choice "b" is correct. A review engagement is based on inquiry and analytical procedures. Inquiring about related party transactions is a procedure which would most likely be included in a review engagement of a nonpublic entity.Choice "a" is incorrect. Preparing a bank transfer schedule pertains to an audit engagement. Choice "c" is incorrect. Assessing the internal control structure pertains to an audit engagement. Choice "d" is incorrect. Performing cutoff tests on sales and purchases transactions pertains to an audit engagement.
Baker, CPA, was engaged to review the financial statements of Hall Company, a nonissuer. Evidence came to Baker's attention that indicated substantial doubt as to Hall's ability to continue as a going concern. The principal conditions and events that caused the substantial doubt have been fully disclosed in the notes to Hall's financial statements. Which of the following statements best describes Baker's reporting responsibility concerning this matter?
Choice "a" is correct. Since the principal conditions and events that caused the substantial doubt as to the company's ability to continue as a going concern have been fully disclosed in the notes to Hall's financial statements, Baker is not required to modify the accountant's review report. Baker may, however, choose to emphasize this issue in the report. Choice "b" is incorrect. The auditor is permitted to modify his review report as he/she feels appropriate in the circumstances.Choice "c" is incorrect. Baker did not perform a compilation; therefore, a compilation report would not be appropriate.Choice "d" is incorrect. Since the facts have been fully disclosed in the notes to the financial statements, no modification to the review report is required. Also, an opinion is never expressed based on a review engagement.
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