Which of the following statements is correct regarding a review engagement of a nonissuer's financial statements performed in accordance with the Statements on Standards for Accounting and Review Services (SSARS)?
Answer(s): C
Choice "c" is correct. A review report is issued when inquiry and analytical procedures provide a reasonable basis for the expression of limited assurance on the financial statements. Choice "a" is incorrect. While the accountant is required to establish an understanding with the client, preferably in writing, an engagement letter is not required. Choice "b" is incorrect. When performing a review under SSARS, the accountant is not required to obtain an understanding of the client's internal control. Choice "d" is incorrect. A review results in the expression of limited assurance that no material modifications are necessary for the financial statements to be in conformity with generally accepted accounting principles. The limited nature of the work performed during a review does not provide sufficient evidence for an opinion on the financial statements taken as a whole.
Which of the following procedures does a CPA normally perform first in a review engagement in accordance with Statements on Standards for Accounting and Review Services (SSARS)?
Answer(s): A
Choice "a" is correct. In performing a review engagement in accordance with SSARS, the accountant should inquire of management regarding the accounting principles and practices used, and the method of applying them.Choice "b" is incorrect. When performing a review under SSARS, the accountant is not required to make inquiries concerning the client's system of internal control. Choice "c" is incorrect. The accountant may inquire about the existence of related party transactions,but would likely make a more basic inquiry, about the client's accounting principles and practices, first.Choice "d" is incorrect. In performing a review engagement in accordance with SSARS, the accountant generally directs his/her inquiries to members of management, not to external parties.
Which of the following describes how the objective of a review of financial statements differs from the objective of a compilation engagement?
Choice "c" is correct. A review provides limited assurance that there are no material modifications that should be made to the financial statements in order for them to be in conformity with generally accepted accounting principles, whereas a compilation provides no assurance. Choice "a" is incorrect. A review does not test for completeness, nor does a compilation test for reasonableness. A review provides limited assurance about the financial statements based on inquiry and analytical review procedures, while a compilation provides no assurance and includes no testing for reasonableness.Choice "b" is incorrect. A review provides limited assurance that there are no material modifications that should be made to the financial statements in order for them to be in conformity with generally accepted accounting principles, and it is based on inquiry and analytical review procedures. Positive assurance (such as an audit opinion) is only provided when more extensive procedures have been performed.Choice "d" is incorrect. A review provides limited assurance that there are no material modifications that should be made to the financial statements in order for them to be in conformity with generally accepted accounting principles, and it is based on inquiry and analytical review procedures. Positive or reasonable assurance (such as an audit opinion) is only provided when more extensive procedures have been performed. A compilation provides no assurance at all.
The standard report issued by an accountant after reviewing the financial statements of a nonissuer should state that:
Answer(s): B
Choice "b" is correct. The standard report issued by an accountant after reviewing the financial statements of a nonissuer states that a review consists of inquiries of company personnel and analytical procedures applied to financial data.Choice "a" is incorrect. A compilation report uses language similar to this, stating that a compilation is limited to presenting, in the form of financial statements, information that is the representation of management.Choice "c" is incorrect. A compilation report uses language similar to this, stating that the accountant does not express an opinion or any other form of assurance on the financial statements. A review provides negative assurance.Choice "d" is incorrect. While it is true that a review of the financial statements of a nonpublic entity does not require the accountant to obtain an understanding of the entity's internal control or assess control risk, the report does not explicitly state this.
While auditing the financial statements of a nonissuer, a CPA was requested to change the engagement to a review in accordance with Statements on Standards for Accounting and Review Services (SSARS) because of a scope limitation. If the CPA believes the client's request is reasonable, the CPA's review report should:I). Refer to the scope limitation that caused the change.II). Describe the auditing procedures that have already been applied.
Answer(s): D
Choice "d" is correct. If the CPA believes the client's request is reasonable, he/she must comply with the standards for a review and issue an appropriate report. The report should not refer to the original engagement, to any auditing procedures performed, or to the scope limitation. Choices "a", "b", and "c" are incorrect, based on the above Explanation.Reporting on Comparative Financial Statements
Post your Comments and Discuss AICPA CPA-Auditing exam prep with other Community members:
Our website is free, but we have to fight against AI bots and content theft. We're sorry for the inconvenience caused by these security measures. You can access the rest of the CPA-Auditing content, but please register or login to continue.