Before issuing a report on the compilation of financial statements of a nonissuer, the accountant should:
Answer(s): D
Choice "d" is correct. Before issuing a report on the compilation of financial statements of a nonissuer, the accountant should read the financial statements to consider whether the financial statements are free from obvious material errors.Choice "a" is incorrect. Application of analytical procedures is a review procedure, and is not required in a compilation engagement.Choice "b" is incorrect. Corroboration of a sample of management assertions is an audit procedure, and is not required in a compilation engagement.Choice "c" is incorrect. Inquiry is generally a review procedure; however, it should also be obvious to the accountant if substantially all disclosures are omitted.
During a review of the financial statements of a nonissuer, an accountant becomes aware of a lack of adequate disclosure that is material to the financial statements. If management refuses to correct the financial statement presentations, the accountant should:
Answer(s): C
Choice "c" is correct. If, during a review of the financial statements of a nonissuer, an accountant becomes aware of a lack of adequate disclosure that is material to the financial statements, and management refuses to correct the financial statement presentations, the accountant should disclose this departure from GAAP in a separate paragraph of the report.Choices "a" and "b" are incorrect. Adverse opinions and "except for" qualified opinions pertain to audit reports. Opinions are not rendered based on review engagements. Choice "d" is incorrect. The accountant expresses only limited assurance on the financial statements as a result of a review even when there are no GAAP departures. GAAP departures require that a separate paragraph be added to the standard report, and that the limited assurance be modified to read, "...with the exception of the matter described in the following paragraph, I am not aware of any material modifications..."
Unaudited financial statements for the prior year presented in comparative form with audited financial statements for the current year should be clearly marked to indicate their status andI). The report on the prior period should be reissued to accompany the current period report.II). The report on the current period should include as a separate paragraph a description of the responsibility assumed for the prior period's financial statements.
Choice "d" is correct. Either I or II.Unaudited FS for the prior year presented in comparative form with audited FS for the current year should be clearly marked to indicate their status ("unaudited"), and either the report on the prior period should be reissued or the report on the current period should include a separate explanatory paragraph describing the responsibility assumed for the prior period's financial statements.
Comfort letters ordinarily are addressed to:
Answer(s): B
Choice "b" is correct. Comfort letters (containing comments on data that have not been audited) ordinarily are addressed to underwriters of securities, and most likely convey negative assurance on financial information.Choice "a" is incorrect. The SEC is not the addressee.Choice "c" is incorrect. Creditor financial institutions are not the addressees. Choice "d" is incorrect. While the client (or its audit committee) may receive a copy, ordinarily comfort letters are addressed to the underwriters.
This question consists of an item pertaining to possible deficiencies in an accountant's review report. Jordan & Stone, CPAs, audited the financial statements of Tech Co., a nonissuer, for the year ended December 31, 20X1, and expressed an unqualified opinion. For the year ended December 31, 20X2, Tech issued comparative financial statements. Jordan & Stone reviewed Tech's 20X2 financial statements and Kent, an assistant on the engagement, drafted the accountants' review report below. Land, the engagement supervisor, decided not to reissue the prior year's auditors' report, but instructed Kent to include a separate paragraph in the current year's review report describing the responsibility assumed for the prior year's audited financial statements. This is an appropriate reporting procedure.Land reviewed Kent's draft and indicated in the Supervisor's Review Notes below that there were several deficiencies in Kent's draft.Accountant's Review ReportWe have reviewed and audited the accompanying balance sheets of Tech Co. as of December 31, 20X2 and 20X1, and the related statements of income, retained earnings, and cash flows for the years then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants and generally accepted auditing standards. All information included in these financial statements is the representation of the management of Tech Co.A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole.Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements. Because of the inherent limitations of a review engagement, this report is intended for the information of management and should not be used for any other purpose. The financial statements for the year ended December 31, 20X1, were audited by us and our report was dated March 2, 20X2. We have no responsibility for updating that report for events and circumstances occurring after that date.Jordan and Stone, CPAsMarch 1, 20X3Supervisor's Review NotesThere should be no reference to the prior year's audited financial statements in the first (introductory) paragraph.
Answer(s): A
Correct. The auditors are issuing a review report this year and issued an audit opinion last year. A review report gives less assurance than an audit. The auditors should not make reference in the first paragraph to the fact that they audited last year's financial statements even though they are being comparatively shown, because it may mislead the reader of the financial statements as to the auditors' degree of assurance on this year's financial statements.
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