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Flashcards in AARS Deck (99):
1

An accountant is not required to comply with the provisions of Statements on Standards for Accounting and Review Services when

Reproducing client-prepared financial statements, without modification, as an accommodation to a client or preparing standard monthly journal entries for depreciation and expiration of prepaid expenses.

2

Before reissuing a compilation report on the financial statements of a nonissuer for the prior year, the predecessor accountant is required to

Compare the prior year's financial statements with those of the current year.

3

In reviewing the financial statements of a nonissuer, an accountant is required is required to modify the standard review report for which of the following matters?
a. Inability to assess the risk of material misstatement due to fraud and Discovery of significant deficiencies in the design of the entity’s internal control.
b. Inability to assess the risk of material misstatement due to fraud.
c. Neither.
d. Discovery of significant deficiencies in the design of the entity's internal control.

Inability to asses the risk of material misstatement due to fraud.

4

When an accountant is not independent with respect to an entity, what type of compilation reports may be issued?

A compilation report with special wording that notes the accountant's lack of independence may be issued.

5

Which of the following actions should an accountant take when engaged to compile a company’s financial statements in accordance with SSARS?

a. Make management inquiries and examine internal controls.
b. Express negative assurance on the financial statements.
c. Perform the engagement even though independence is compromised.
d. Perform analytical procedures.

Perform the engagement even though independence is compromised.

6

Which of the following statements would be appropriate in an accountant’s report on compiled financial statements of a nonissuer prepared in accordance with SSARS?

a. A compilation is performed to obtain reasonable assurance about whether the financial statements are free from material misstatements.
b. We are not aware of any material modifications that should be made to the accompanying financial statements.
c. A compilation is limited to presenting in the form of financial statements information that is a representation of management.
d. A compilation is substantially less in scope than an audit in accordance with GAAS.

A compilation is limited to presenting in the form of financial statements information that is the representation of management.

7

An accountant is required to comply with the provisions of the Statements on Standards for Accounting and Review Services when performing which of the following tasks?

a. Providing the client with software to generate financial statements.
b. Providing a blank financial statement format or template.
c. Generating financial statements of a nonissuer.
d. Preparing monthly journal entries.

Generating financial statements of a nonissuer.

8

Which of the following statements is correct regarding a compilation report on financial statements issued in accordance with SSARS?
a. The report should include a description of other procedures performed during the compilation.
b. The report should include a statement indicating that the information is the representation of the accountant.
c. The report should not be issued if the accountant is not independent from the entity.
d. The date on the report should be the date of completion of the compilation.

The date on the report should be the date of completion of the compilation.

9

Which of the following statements is correct regarding a review of a nonpublic entity’s financial statements in accordance with Statements on Standards for Accounting and Review Services (SSARS)?

a. The accountant must be independent to issue the review report.
b. The accountant is required to assess the risk of fraud.
c. It is not necessary for the accountant to obtain a management representation letter.
d. An opinion is expressed in the review report.

The accountant must be independent to issue the review report.

10

Which of the following procedures is usually the first step in reviewing the financial statements of a nonpublic entity?

a. Perform a preliminary assessment of the operating efficiency of the entity's internal control activities.
b. Obtain a general understanding of the entity's organization, it's operating characteristics, and its product or services.
c. Assess the risk of material misstatement arising from fraudulent financial reporting and the misappropriation of assets.
d. Make preliminary judgments about risk and materiality to determine the scope and nature of the procedures to be performed.

Obtain a general understanding of the entity's orgainzation, its operating characteristics, and its products or services.

11

Which of the following would be used on a review engagement?

a. Recalculation of depreciation expense.
b. Comparison of current year to prior year account balances.
c. Examination of board minutes.
d. Confirmation of cash and accounts receivable.

Comparison of current year to prior year account balances.

12

Which of the following procedure is ordinarily performed by an accountant during an engagement to compile the financial statements of a nonissuer?

a. Consider whether the financial statements are free from obvious material mistakes in the application of accounting principles.
b. Determine whether there is substantial doubt about the entity's ability to continue as a going concern.
c. Scan the entity's records for the period just after the balance sheet date to identify subsequent events requiring disclosure.
d. Make inquiries of the employees and senior management regarding transactions with related parties.

Consider whether the financial statements are free from obvious material mistakes in the application of accounting principles.

13

Which of the following procedures would a CPA most likely perform when reviewing the financial statements of a non-issuer?

a. Verify that the accounting estimates that could be material to the financial statements have been developed.
b. Obtain an understanding of the entity's internal control components.
c. Assess the entity's ability to continue as a going concern for a reasonable period of time.
d. Make inquiries about actions taken at the board of directors meetings.

Make inquiries about actions taken at the board of directors meetings.

14

Which of the following procedures would an accountant most likely perform during an engagement to review the financial statements of a non-issuer?

a. Review the predecessor accountant's working papers.
b. Communicate internal control deficiencies to senior management.
c. Corroborate litigation information with the entity's attorney.
d. Inquire of management about related-party transactions.

Inquire of management about related-party transactions.

15

In an engagement to review the financial statements of a nonissuer, the accountant most likely would perform which of the following procedures?

a. Evaluation of internal control over inventory.
b. Physical inspection of inventory.
c. Analysis of inventory turnover.
d. Vouching of inventory purchase transactions.

Analysis of inventory turnover.

16

Which of the following statements is true regarding analytical procedures in a review engagement?

a. Analytical procedures are required to be used in the final review stage.
b. Analytical procedures are not required to be used as a substantive test.
c. Analytical procedures involve the use of both financial and nonfinancial data.
d. Analytical procedures do not involve comparisons of recorded amounts to expected amounts.

Analytical procedures involve the use of both financial and nonfinancial data.

17

When providing limited assurance that the financial statements of a nonissuer require no material modifications to be in accordance with GAAP, the accountant should

Understand the accounting principles of the industry in which the entity operates.

18

Which of the following procedures is an accountant required to perform when reviewing the financial statements of a nonpublic entity in accordance with SSARS?

a. Confirm account balances.
b. Perform a physical inventory observation.
c. Obtain a management representation letter.
d. Assess control risk.

Obtain a management representation letter.

19

An accountant has been asked to compile the financial statements of a nonpublic company on a prescribed form that omits substantially all the disclosures required by GAAP. If the prescribed form is a standard preprinted form adopted by the company’s industry trade association, and is to be transmitted only to such association, the accountant

Need not advise the industry trade association of the omission of all disclosures.

20

An accountant’s standard report on a compilation of a projection should not include a statement that

The hypothetical assumptions used in the projection are reasonable in the circumstances.

21

An accountant agrees to the client's request to change an engagement from a review to a compilation of financial statements. The compilation report should include

No reference to the original engagement.

22

An accountant has been engaged to compile the financial statements of a nonpublic entity. The financial statements contain many departures from GAAP because of inadequacies in the accounting records. The accountant believes that modification of the compilation report is not adequate to indicate the deficiencies. Under these circumstances, the account should

Withdraw from the engagemnt and provide no further service concerning these financial statements.

23

An accountant’s compilation report on a financial forecast should include a statement that

There will usually be differences between the forecasted and actual results.

24

An accountant has been engaged to review a nonissuer’s financial statements that contain several departures from GAAP. Management is unwilling to revise the financial statements, and the accountant believes that modification of the standard review report is inadequate to communicate the deficiencies. Under these circumstances, the accountant should

Withdraw from the engagement and provide no further service concerning these financial statements.

25

Before reissuing a compilation report on the financial statements of a nonissuer for the prior year, the predecessor accountant is required to

Compare the prior year's financial statements with those of the current year.

26

Which of the following procedures would a CPA ordinarily perform when reviewing the financial statements of a nonissuer in accordance with SSARS?

a. Document whether control risk is assessed at or below the maximum level.
b. Obtain an understanding of the entity's internal control components.
c. Compare the financial statements with budget or forecasts.
d. Apply year-end cut off tests for the sales and purchasing functions.

Compare the financial statements with budgets or forecasts.

27

An accountant compiled the financial statements of a nonissuer in accordance with SSARS. If the accountant has an ownership interest in the entity, which of the following statements is correct?

a. The accountant should include the disclaimer "I am an owner of the entity" in the report.
b. The accountant should include the statements "I am not independent with respect to the entity" in the compilation report.
c. the accountant should refuse the compilation engagement.
d. A report need not be issued for a compilation of a nonissuer.

The accountant should include the statements "I am not independent with respect to the entity" in the compilation report.

28

An accountant is required to comply with the provisions of SSARS when

Compiling financial statements generated through the use of computer software.

29

Which of the following is required of an accountant in reviewing a company’s financial statements under SSARS?

a. Observe client's physical inventory.
b. Send bank confirmation.
c. Confirm accounts receivable.
d. Obtain knowledge of the client's industry

Obtain knowledge of the client's industry.

30

Which of the following services, if any, may an accountant who is not independent provide?

a. No services.
b. Reviews, but not compilations.
c. But compilations and reviews.
d. Compilations, but not reviews.

Compilations, but not reviews.

31

Which of the following situations would preclude an accountant from issuing a review report on a company’s financial statements in accordance with Statements on Standards for Accounting and Review Services (SSARS)?

a. Finished-goods inventory does not include any overhead amounts.
b. Land has been recorded at appraisal value instead of historical cost.
c. The owner of a company is the accountant's father.
d. The accountant was engaged to review only the balance sheet.

The owner fo the company is the accountant's father.

32

Which of the following is not typically performed when the auditors perform a review of financial statements?

a. Inquiries about significant subsequent events.
b. Analytical procedures applied to financial data.
c. Obtaining an understanding of accounting principles followed in the client's industry.
d. Confirmation of accounts receivable.

Confirmation of accounts receivable.

33

What must be obtained in a review of a nonpublic company?

Engagement letter and representation letter.

34

When performing a review of a nonpublic company, which is least likely to be included in accountant inquiries of management members with responsibility for financial and accounting matters?

a. Subsequent events.
b. Significant journal entries and other adjustments.
c. Unusual or complex situations affecting the financial statements.
d. Communications with related parties.

Communications with related parties.

35

In which of the following reports should a CPA not express negative (limited) assurance?

a. A letter for an underwriter (a "comfort letter")
b. A standard review report on financial statements of a nonpublic company.
c. A standard review report on interim financial statements of a public entity.
d. A standard complication report on financial statements of a nonpublic entity.

A standard compilation report on financial statements of a nonpublic entity.

36

Which of the following is correct relating to compiled financial statements when third-party reliance upon those statements is anticipated?

a. An opinion on fairness of financial statement presentation is required.
b. Each page of the financial statements should have a restriction such as "Restricted for Management's Use Only".
c. A compilation report must be issued.
d. Omission of note disclosures in unacceptable.

A compilation report must be issued.

37

Which communication option(s) may be used when an accountant submits compiled financial statements to be used only by management?

Compilation report and written engagement letter.

38

Reviews of annual information of nonpublic companies

Are designed to obtain evidence to provide a reasonable basis for obtaining limited assurance that there are no material modifications needed.

39

Which of the following circumstance requires modification of the accountant’s report on a review of interim financial information of a publicly held entity?

a. Inconsistent accounting principle application and inadequate disclosure.
b. Inconsistent accounting principle application.
c. Inadequate disclosure.
d. Neither.

Inadequate disclosure.

40

When performing a review of a nonpublic company, the auditors must obtain in a representation letter acknowledgement of management for its responsibility for each of the following except:

a. Knowledge of any actual or suspected fraud that is material.
b. Responsibility to prevent and detect fraud.
c. Responsibility for the financial statements confirming with GAAP.
d. Responsibility for identifying all illegal acts committed by employees.

Responsibility for identifying all illegal acts committed by employees.

41

Which of the following is most likely to result in modification of a compilation report?

a. A lack of consistency in application of GAAP.
b. A major uncertainty facing the financial statements.
c. A departure from GAAP.
d. A question concerning an entity's ability to continue as a going concern.

A departure from GAAP.

42

A review of a nonpublic company’s financial statements is considered

An assurance engagement and an attest engagement.

43

A review engagement relationship for a nonpublic company ordinarily involves an accountant and

A responsible party and intended users.

44

Which of the following statements is correct concerning materiality for purpose of a review of a nonpublic company’s financial statements?

a. It is an amount that could reasonably be expected to influence user economic decisions.
b. It will in almost all situations be less than the tolerable misstatement amount for tests of an individual account.
c. It should be considered for individual misstatements, and not in the aggregate sense for the overall financial statements.
d. It ordinarily is an amount smaller than that used in an audit of nonpublic company financial statements.

It is an amount that could reasonably be expected to influence users econcomic decisions.

45

Which of the following is included in compilation performance requirements?

a. Perform tests of details of transactions only for current assets and liabilities.
b. Obtain an understanding of the client's industry (e.g., through AICPA guides, industry publications).
c. Read the financial statements and perform analytical procedures as considered necessary.
d. Obtain a knowledge of the client through performance of tests and controls.

Obtain an understanding of the client's industry.

46

Which statement is most accurate concerning an accountant's responsibility when evaluating management's responses to inquires when performing a review?

a. The accountant ordinarily is not required to corroborate management's responses and other information; however, the accountant should consider the reasonableness and consistency of management's responses.
b. The accountant is ordinarily required to corroborate with additional evidence only significant accounting matters.
c. The accountant should corroborate all management responses.
d. The accountant is not required to evaluate the reasonableness and consistency of management's responses.

The accountant ordinarilly is not required to corroborate management's responses with other information, however, the accountant should consider the reasonableness and consistency of management's responses.

47

When making a review of interim financial information the auditor’s work consists primarily of

Making inquiries and performing analytical procedures concerning significant accounting matters.

48

A CPA is reporting on comparative financial statements of a nonissuer. The CPA audited the prior year's financial statements and reviewed those of the current year in accordance with SSARS. The CPA has added a separate paragraph to the review report to describe the responsibility assumed for the prior year's audited fiancial statements. This separate paragraph should indicated

The type of opinion expressed previously.

49

Statements on Standards for Accounting and Review Services (SSARS) apply when an accountant has

Generated, through the use of computer software, financial statements prepared in accordance with a comprehensive basis of accounting other than GAAP.

50

General Retailing, a nonissuer, has asked Ford, CPA, to compile its financial statements that omit substantially all disclosures required by GAAP. Ford may comply with General’s request provided the omission is clearly indicated in Ford’s report and the

Omission is not undertaken with the intention of misleading the users of General's financial statements

51

Davis, CPA, accepted an engagement to audit the financial statements of Tech Resources, a nonissuer. Before the completion of the audit, Tech requested Davis to change the engagement to a compilation of financial statements. Before Davis agrees to change the engagement, Davis is required to consider the

Reason given for Tech's request.

52

A company hires one of its board members, a CPA, to issue accounting reports for the company. Assuming any required disclosures are made, which of the following reports may the CPA issue without violating independence rules?

a. Compilations
b. Reviews.
c. Audits.
d. Agreed-upon procedures.

Compilations.

53

Which of the following is not generally considered a procedure followed by an accountant in obtaining a reasonable basis for the expression of limited assurance for a review of financial statements?

a. Confirmation of accounts receivable.
b. Make inquiries of management.
c. Obtain written representation.
d. Apply analytical procedures.

Confirmation of accounts receivable.

54

An accountant should obtain a management representation letter during an engagement to

Review a nonissuer's financial statements.

55

CPA is not required to comply with the provisions of SSARS when

Processing financial data for clients of other CPA firms and Consulting on accounting matters.

56

Statements on Standards for Accounting and Review Services (SSARS) establish standards and procedures for which of the following engagements?

a. Processing financial data for clients of other accounting firms.
b. Compiling individual's personal financial statement to be used to obtain a mortgage.
c. Reviewing interim financial data required to be filed with the SEC.
d. Assisting in adjusting the books of account for partnership.

Compiling an individual's personal financial statement to be used to obtain a mortgage

57

Blue Co., a privately held entity, asked its tax accountant, Cook, a CPA in public practice, to prepare its financial statements in conjunction with preparation of Blue’s tax return. Cook should not submit these financial statements to Blue unless, as a minimum, Cook complies with the provisions of

Statements on Standards for Accounting and Review Services

58

A CPA should not submit unaudited financial statements of a nonpublic company to a client or others unless, as a minimum, the CPA complies with the provisions applicable to

Compilation engagements

59

A CPA in public practice does not have to be independent in fact and appearance when providing which of the following services?

a. Compilation of financial forecasts.
b. Compilation of financial forecasts and compilation of personal financial statements.
c. Compilation of financial financial statements.
d. Neither.

Compilation of financial forecasts or Compilation of personal financial statements

60

When an accountant is not independent, the accountant is precluded from issuing a

Review report.

61

If requested to perform a review engagement for a nonpublic entity in which an accountant has an immaterial direct financial interest, the accountant is

Not independent and, therfore, may not issue a review report.

62

Prior to commencing the compilation of financial statements of a nonpublic entity, the accountant should

Acquire a knowledge of any specialized account principles and practices used in the entity's industry

63

When compiling a nonpublic entity’s financial statements, an accountant would be least likely to

a. Read the compiled financial statements and consider whether they appear to include adequate disclosure.
b. Perform analytical procedures designed to identify relationships that appear to be unusual.
c. Issue a compilation report on one or more, but not all, of the basic financial statements.
d. Omit substantially all of the disclosures required by GAAP.

Perform analytical procedures designed to identify relationships that appear to be unusual.

64

Performing inquiry and analytical procedures is the primary basis for an accountant to issue a

Review report on comparative financial statements for a nonpublic entity in its second year of operations

65

Before performing a review of a nonpublic entity’s financial statements, an accountant should

Obtain a sufficient level of knowledge of the accounting principles and practices of the industry in which the entity operates.

66

Which of the following procedures is not usually performed by the accountant in a review engagement of a nonpublic entity?

a. Reading the financial statements to consider whether they conform with GAAP.
b. Communicating any material weaknesses discovered during the consideration of internal control.
c. Issuing a report stating that the review was performed in accordance with standards established by the AICPA.
d. Writing and engagement letter to establish an understanding regarding the services performed.

Communicating any material weaknesses discovered during the consideration of internal control.

67

Which of the following procedure is usually performed by the accountant in a review engagement of a nonpublic entity?

a. Comparing the financial statements with statements for comparable prior periods.
b. Sending a letter of inquiry to the entity's lawyer.
c. Communicating reportable conditions discovered during the study of the internal control.
d. Confirming a significant percentage of receivables by direct communication with debtors.

Comparing the financial statements with statements for comparable prior periods.

68

When performing an engagement to review a nonpublic entity’s financial statements, an accountant most likely would

Ask about actions taken at board of directors' meetings.

69

When AICPA professional standards relating to a review of a nonissuer’s (nonpublic entity’s) financial statements uses the term “should” to indicate the accountant’s responsibility to perform a procedure, performance of the procedure is considered:

Presumptively mandatory - The accountant is required to comply with it except in rare circumstances.

70

An accountant’s objective of a review of the financial statements of a nonissuer (nonpublic company) is to provide what type of assurance?

Limited assurance.

71

Which of the following should be the first step in reviewing the financial statements of a nonpublic entity?

a. Obtaining a general understanding of the entity's organization, its operating characteristics, and its products or services.
b. Completing a series of inquiries concerning the entity's procedures for recording, classifying, and summarizing transactions.
c. Comparing the financial statements with statements for comparable prior periods and with anticipated results.
d. Applying analytical procedures designed to identify relationships and individual items that appear to be unusual.

Obtaining a general understanding of the entity's organization, its operating characteristics, and its products of services.

72

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?

a. Compilation report with the client's consent.
b. Issue no report.
c. Review report on the one statement.
d. Qualified review report.

Issue no report.

73

An accountant’s compilation report should be dated as of the date of

Completion of the compilation.

74

When an accountant is engaged to report on a nonpublic entity’s compiled financial statements that omit substantially all disclosures required by GAAP, the accountant should indicate in the compilation report that the financial statements are

Not designed for those who are uniformed about the omitted disclosures.

75

When an accountant is not independent of a client and is requested to perform a compilation of its financial statements, the accountant

May accept the engagement and should disclose the lack of independence, and may disclose the reason for the lack of independence.

76

How does an accountant make the representations for "the financial statements have not been audited" and "the accountant has compiled the financial statements" when issuing the standard report of the compilation of a nonpublic entity’s financial statements?

Explicitly

77

In performing a compilation of financial statements of a nonpublic entity, the accountant decides that modification of the standard report is not adequate to indicate deficiencies in the financial statements taken as a whole, and the client is not willing to correct the deficiencies. The accountant should therefore

Withdraw from the engagement.

78

If an accountant submits compiled financial statements to a client that are reasonably expected to be used by a third party, which of the following is correct?

a. No compilation report is required, but an engagement letter must indicate that the financial statements are to be used by a third party.
b. A compilation report is required.
c. Notes describing the compilation must be included with the financial statements.
d. Compilations are not allowed under such a circumstance.

A compilation report is required.

79

Which of the following is correct relating to an accountant’s responsibility when submitting compiled financial statements to the management of a client that has informed the auditor that the financial statements are for management use only?

a. A restricted-use compilation report must be included with the financial reports.
b. The accountant must document this restriction in an engagement letter.
c. The accountant must perform substantive tests of control to obtain assurance that use of the financial statements will be so restricted.
d. Each page of the financial statements should have a restriction such as "Restricted for Management's Use Only".

Each page of the financial statements should have a restriction such as "Restricted for Management's Use Only."

80

Which of the following statements should not be included in an accountant’s standard report based on the compilation of an entity’s financial statements?

a. A statement that the accountant has not audited or reviewed the financial statements.
b. A statement that the accountant does not express an opinion but expresses only limited assurance on the financial statements.
c. A statement that a compilation is limited to presenting, in the form of the financial statements, information that is the representation of management.
d. A statement that the compilation was performed in accordance with standards established by the AICPA.

A statement that the accountant does not express an opinion but expresses only limited assurance on the financial statements.

81

Clark, CPA, compiled and properly reported on the financial statements of Green Co., a nonpublic entity, for the year ended March 31, year 1. These financial statements omitted substantially all disclosures required by GAAP. Green asked Clark to compile the statements for the year ended March 31, year 2, and to include all GAAP disclosures for the year 2 statements only, but otherwise present both years’ financial statements in comparative form. What is Clark’s responsibility concerning the proposed engagement?

Clark may not report on the comparative financial statements because the year 1 statements are not comparable to the year 2 statements.

82

When compiled financial statements are accompanied by a report, that report should state all of the following except

a. A compilation is limited to presenting in the form of financial statements information that is representation of management.
b. A compilation consists principally of inquiries of company personnel and analytical procedures applied to financial data.
c. A compilation was performed.
d. The accountant does not express an opinion or any other form of assurance on them.

A compilation consists principally of inquiries of company personnel and analytical procedures applied to financial data.

83

When a compilation report is being issued, each page of the financial statements should include a reference such as

See accountant's compilation report.

84

A CPA who is not independent may issue a

Compilation report.

85

Which of the following should be included in an accountant’s standard report based upon the review of a nonpublic entity’s financial statements?

a. A statement that the accountant is independent with respect to the entity.
b. A statement that the review consist principally of inquires and analytical procedures.
c. A statement that the review performed in accordance with GARS.
d. A statement that a review is substantially greater in scope than a compilation.

A statement that a review consists principally of inquiries and analytical procedures.

86

An auditor who was engaged to perform an audit of the financial statements of a nonpublic entity has been asked by the client to refrain from performing various audit procedures and change the nature of the engagement to a review of the financial statements in accordance with standards established by the AICPA. The client’s request was made because the cost to complete the audit was significant. Under the circumstances the auditor would most likely

Honor the client's request.

87

During a review of the financial statements of a nonpublic entity, the CPA finds that the financial statements contain a material departure from generally accepted accounting principles. If management refuses to correct the financial statement presentations, the CPA should

Disclose the departure in a separate paragraph of the report.

88

Which of the following would not be included in a CPA’s report based upon a review of the financial statements of a nonpublic entity?

a. A statement that all information included in the financial statements are the representations of management.
b. A statement describing the principal procedures performed.
c. A statement describing the auditor's conclusions based upon the results of the review.
d. a statement that the review was in accordance with GAAP.

A statement that all information included in the financial statements are the representations of management.

89

An accountant who had begun an audit of the financial statements of a nonpublic entity was asked to change the engagement to a review because of a restriction on the scope of the audit. If there is reasonable justification for the change, the accountant’s review report should not include reference to the

Original engagement that was agreed to and Scope limitation that caused the change in engagement.

90

Each page of a nonpublic entity's financial statements reviewed by an accountant should include the follwing reference:

See Accountant's Review Report.

91

An accountant had begun to audit the financial statements of a nonpublic entity. What circumstance most likely would be considered a reasonable basis for agreeing to the entity’s request to change the engagement to a compilation?

The entity's principal creditors no longer require the entity to furnish audited financial statements.

92

An accountant has been asked to issue a review report on the balance sheet of a nonpublic entity without reporting on the related statements of income, retained earnings, and cash flows. The accountant may issue the requested review report only if

The scope of the accountant's inquiry and analytical procedures has not been restricted.

93

While performing a review, information indicating that the entity being reviewed may lack the ability to continue as a going concern has come to the accountant’s attention. The client agrees that such a situation does exist, but refuses to add disclosures relating to it. What effect is this most likely to have the accountant’s review report?

a. An adverse opinion should be issued, with modification of the opinion paragraph and addition of an explanatory paragraph.
b. A qualified opinion would be issued, with modification of the opinion paragraph and addition of an explanatory paragraph.
c. No, effect, a standard unmodified (unqualified) report is appropriate.
d. The report should indicated a departure from GAAP, with modification of the report's third paragraph and addition of an explanatory paragraph.

The report should indicate a departure from GAAP, with modification of the report's third paragraph and addition of an explanatory paragraph.

94

An accountant’s standard report issued after compiling the financial statements of a nonpublic entity should state that

A compilation is limited to presenting in the form of financial statements information that is the representation of management.

95

Which of the following statement is correct regarding a review engagement of a nonpublic company’s financial statements performed in accordance with the SSARS?

a. An accountant must obtain an understanding of the client's internal control when performing a review.
b. A review report contains an accountant's opinion of the financial statements taken as a whole.
c. A review provides an accountant with a basis for expressing limited assurance on the financial statements.
d. An accountant must establish an understanding with the client in an engagement letter.

A review provides an accountant with a basis for expressing limited assurance on the financial statements.

96

Which of the following procedures does a CPA normally perform first in a review engagement in accordance with SSARS?

a. Inquiry regarding the client's principles and practices and the method of applying them.
b. Inquiry concerning the effectiveness of the client's system of internal control.
c. Inquiry of the client's professional advisors, including bankers, insurance agents, and consultants.
d. Inquiry to identify transactions between related parties and management.

Inquiry regarding the client's principles and practices and the method of applying them

97

Which of the following describes how the objective of a review of financial statements differs the objective of a compilation engagement?

a. In a review engagement, accountants provide limited assurance, but a compilation expresses no assurance.
b. The primary objective of a review engagement is to test the completeness of the financial statements prepared, but a compilation tests for reasonableness.
c. In a review engagement, accountants provide reasonable or positive assurance that the financial statements are fairly presented, but a compilation provides limited assurance.
d. The primary objective of a review engagement is to provide positive assurance that the financial statements are fairly presented, but a compilation provides no such assurance.

In a review engagement, accountants provide limited assurance, but a compilation expresses no assurance.

98

The standard report issued by an accountant after reviewing the financial statements of a nonpublic entity should state that

A review consists of inquiries of company personnel and analytical procedures applied to financial data.

99

While auditing the financial statements of a nonissuer (nonpublic) entity, a CPA was requested to change the engagement to a review in accordance with SSARS because of a scope limitation. If the CPA believes the client’s request is reasonable, the CPA’s review report should not

Refer to the scope limitation that caused the change or describe the auditing procedures that have already been applied.