An accountant performing a compilation or review of the financial statements of a nonissuer should:
Answer(s): A
Choice "a" is correct. An accountant should be able to justify departures from SSARS. Choice "b" is incorrect. An accountant may occasionally depart from SSARS guidelines, but should be prepared to justify such departures.Choice "c" is incorrect. While it is true that an accountant should exercise professional judgment in applying SSARS, it is not true that SSARS are considered recommendations. SSARS are professional standards, which the accountant should generally follow. Choice "d" is incorrect. Statements on Auditing Standards do not apply to compilations or reviews of the financial statements of a nonissuer.
When performing an engagement to review a nonissuer's financial statements, an accountant most likely would:
Answer(s): D
Choice "d" is correct. A review is based on inquiry and analytical procedures. The accountant should inquire about actions authorized by the stockholders, the board of directors, or other management groups.Choice "a" is incorrect. The accountant is not required to obtain an understanding of internal control in a review engagement under SSARS. An understanding would be required in an audit or in a review of the interim financial statements of a public entity, conducted under auditing (PCAOB) standards. Choice "b" is incorrect. Distribution of a review report is not limited; however, each page of the financial statements should be marked, "See Accountant's Review Report." Choice "c" is incorrect. Confirmation is an auditing procedure used to corroborate stated account balances. A review is based on inquiry and analytical procedures, and would not include confirmation of balances.
Which of the following should be the first step in reviewing the financial statements of a nonissuer?
Answer(s): C
Choice "c" is correct. In reviewing the financial statements of a nonissuer, the accountant's first step would be to obtain a general understanding of the entity's organization, its operating characteristics, and its products or services.Choices "a", "b", and "d" are incorrect. Inquiry and analytical review procedures would be performed after a general understanding of the client is obtained. This understanding will help the accountant more appropriately tailor the inquiry and analytical review procedures to the specific client engagement.
An accountant has been asked to issue a review report on the balance sheet of a nonissuer without reporting on the related statements of income, retained earnings, and cash flows. The accountant may issue the requested review report only if:
Choice "d" is correct. A review engagement may involve reporting on only one financial statement, provided the scope of the engagement was not limited.Choice "a" is incorrect. A review engagement may involve reporting on only one financial statement, provided the scope of the engagement was not limited. There are no requirements regarding the use of the balance sheet.Choice "b" is incorrect. A review engagement may involve reporting on only one financial statement, provided the scope of the engagement was not limited. There is no requirement that the balance sheet be part of a comprehensive personal financial plan. Choice "c" is incorrect. A review engagement may involve reporting on only one financial statement, provided the scope of the engagement was not limited. There is no requirement that accounting principles remain consistent during the year.
An accountant is asked to issue a review report on the balance sheet, but not on other related statements. The scope of the inquiry and analytical procedures has not been restricted, but the client failed to provide a representation letter. Which of the following should the accountant issue under these circumstances?
Choice "d" is correct. A management representation letter is required for a review engagement. If no representation letter is provided, the review is incomplete and a no review report may be issued. Since there is no requirement for a representation letter in relation to a compilation engagement, the engagement may be changed to a compilation engagement (with the client's consent). Choices "a", "b", and "c" are incorrect. Incomplete reviews do not result in any sort of modification to the review report; rather, no review report may be issued.
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