The annual financial statements of a publicly held company have been audited, and its interim financial statements have been reviewed. Which of the following is true about the application of professional standards to this review?
Answer(s): A
Choice "a" is correct. A review of the interim financial information of a publicly held company is conducted in accordance with PCAOB standards, and it is these standards which should be referenced in the auditor's review report. (Note, however, that the PCAOB has adopted, at least initially, generally accepted auditing standards in this area.)Choices "b" and "c" are incorrect. Statements on Standards for Accounting and Review Services apply to reviews of the financial statements of nonissuers.Choice "d" is incorrect. A review of the interim financial information of a publicly held company is conducted in accordance with PCAOB standards.
Which of the following is not a required procedure in an engagement to review the interim financial information of a publicly held entity?
Choice "a" is correct. A review of interim financial information is not designed to provide information regarding an entity's ability to continue as a going concern. Even if such information comes to the accountant's attention, the accountant is not required to corroborate it. Choice "b" is incorrect. As part of a review, the accountant is required to compare disaggregated revenue data for the current interim period with that of comparable prior periods. Choice "c" is incorrect. As part of a review, the accountant is required to obtain evidence that the interim financial information reconciles with the accounting records. Choice "d" is incorrect. As part of a review, the accountant is required to inquire of management about their knowledge of fraud, suspected fraud, or allegations of fraud.
In which case would the accountant be least likely to perform a review of interim financial information under PCAOB (auditing) standards?
Answer(s): C
Choice "c" is correct. A review of data included in financial statements of a nonissuer is performed under Statements on Standards for Accounting and Review Services, not under PCAOB (auditing) standards. A review of interim financial information under PCAOB (auditing) standards is only conducted for public companies (or companies anticipating going public). Choice "a" is incorrect. When an entity is required by the SEC to file a quarterly report, the SEC also requires that an independent accountant perform a review (of the interim financial information) in accordance with PCAOB (auditing) standards before the report is filed. Choice "b" is incorrect. When a company is required by the SEC to include selected quarterly financial data in its annual report or in other SEC filings, a review (of the interim financial information) in accordance with PCAOB (auditing) standards is required. Choice "d" is incorrect. An accountant performing an initial audit of financial statements that include selected quarterly data should also perform a review (of the interim financial information) in accordance with PCAOB (auditing) standards as part of the overall audit.
An independent accountant's report is based on a review of interim financial information. If this report is presented in a registration statement, a prospectus should include a statement clarifying that the:
Choice "a" is correct. If a report on a review of interim financial information is presented in a registration statement, the prospectus should include a statement that the report is not a "report" or "part" of the registration statement. The accountant should also read the other portions of the registration statement to ensure that his or her name is not used in a way that indicates greater responsibility than s/he intends.Choice "b" is incorrect. The auditor is responsible to update the report for events occurring after the date of the report but prior to filing.Choice "c" is incorrect. The accountant's review of interim financial information is performed in accordance with PCAOB standards, as approved (not established) by the SEC.Choice "d" is incorrect. Obtaining corroborating evidence is an audit procedure, not a review procedure.
The objective of a review of interim financial information of a public entity is to provide an accountant with a basis for reporting whether:
Answer(s): B
Choice "b" is correct. The objective of a review is to provide the accountant with a reasonable basis for expressing limited assurance that there are no material modifications that should be made to the accompanying financial statements for them to be in conformity with generally accepted accounting principles.Choice "a" is incorrect. When performing a review, the accountant does not gather enough evidence to update an audit opinion.Choice "c" is incorrect. There are no "standards of interim reporting." Choice "d" is incorrect. Expressing an opinion as to whether the financial statements are presented fairly in accordance with GAAP is the result of an audit, not a review.
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