Compilation and Review of Financial Statements

Question 1

What are the 2 levels of service that CPAs can perform with respect to unaudited financial statements of a nonissuer?

Answer 1

Compilation and review

Question 2

What type of assurance does a compilation give?

Answer 2

No assurance

Question 3

What type of assurance does a review give?

Answer 3

Limited(negative) assurance

Question 4

When an accountant performs more than one service, the accountant generally should issue the report for which service?

Answer 4

Highest level of service rendered

Question 5

Who does the Statements on Standards for Accounting and Review Services pertain to?

Answer 5

Nonissuers

Question 6

What does SSARS provide standards with respect to?

Answer 6

Compilation and reviews of nonissuers

Question 7

Who does SAS apply to?

Answer 7

Issuers(Public companies)

Question 8

What are the 5 levels of compilation and review engagements?

Answer 8

3 party relationship, financial reporting framework, financial statements or financial information, sufficient appropriate evidence(review only), and written communication or report

Question 9

What is management responsible for?

Answer 9

Identification of an applicable financial reporting framework, preparation and fair presentation of the financial statements, and design, implementation, and maintenace of internal control

Question 10

How does the accountant determine the materiality?

Answer 10

Professional judgment

Question 11

How does an accountant establish an understanding with the client?

Answer 11

Engagement letter which is presumptively mandatory

Question 12

Is independence required for a compilation letter?

Answer 12

No

Question 13

What are the compilation requirements?

Answer 13

Knowledge of industry accounting principles and practices, understanding of client’s business, and reading the financial statements

Question 14

If the client refuses to provide such information due to financial statements being inaccurate or incomplete, the accountant should?

Answer 14

Withdraw from the compilation engagement

Question 15

Documentation in a compilation engagement should include?

Answer 15

engagement letter, any significant findings or issues, and oral or written communications with management regarding fraud or illegal acts

Question 16

What should the accountant’s report in a compilation engagement include?

Answer 16

Title, addressee, introductory paragraph, management’s responsibility paragraph, accountant’s responsibility paragraph, signature of accountant, and date of the accountant’s report

Question 17

What should the introductory paragraph state?

Answer 17

State that the financial statements have been compiled and state that the accountant has not reviewed or audited the financial statements

Question 18

What should the accountant’s responsibility paragraph include?

Answer 18

SSARS issued by the AICPA and objective of a compilation is to assist management

Question 19

What are the 2 things that can be done when there are departures from the applicable financial reporting framework?

Answer 19

Disclose or withdraw

Question 20

When reporting when not independent what should the accountant do?

Answer 20

Disclose the lack of independence

Question 21

When financial statements are not expected to be used by 3rd parties, what should the accountant do?

Answer 21

Include a reference on each page of the financial statements restricting their use

Question 22

The performance requirements applicable to a review are?

Answer 22

Understanding, Learn, Inquires, Analytical procedures, Review, Client rep letter, Professional judgment, and Accountant should communicate results

Question 23

What is the accounting not required to do in a review engagement?

Answer 23

Test internal control, Perform audit tests, Assess fraud risk, and Communicate with the predecessor accountant

Question 24

If a review is incomplete, will it prevent the issuance of a review report?

Answer 24

Yes

Question 25

The accountant’s report in a review engagement should include?

Answer 25

Title, addressee, introductory paragraph, management’s responsibility paragraph, accountant’s responsibility paragraph, engagement results paragraph, signature of accountant, and date of the accountant’s report

Question 26

What should the introductory paragraph in a review report state?

Answer 26

A review includes primarily applying analytical procedures to management’s financial data and making inquiries of company management and a review is substantially less in scope than an audit

Question 27

What should each page of the statements in a review report be marked as?

Answer 27

See Independent Accountant’s Review Report

Question 28

Is an accountant’s independence required for review engagement?

Answer 28

Yes

Question 29

Should a change in engagement be justified?

Answer 29

Yes

Question 30

What are some acceptable reasons for a engagement change?

Answer 30

Change in client requirements and misunderstanding as to the nature of the service to be rendered