Oh to Review
During a review of financial statements, an accountant decides to emphasize a matter in the review report. Which of the following is an example of a matter that the accountant is most likely to emphasize?
A. Other entities in the same industry have recently changed from LIFO to FIFO.
B. The IRS has notified the entity that it intends to audit income tax returns for prior years.
C. The entity has had significant transactions with related parties.
D. The entity has had significant tax expenses as a result of a new tax law.
C. The entity has had significant transactions with related parties.
When financial statements of a nonissuer compiled by a CPA do not include normal disclosures because the statements are intended for internal use only, the CPA should
A. Express an adverse opinion on the financial statements because of lack of proper disclosure.
B. Issue a compilation report on the financial statements but make no mention of the lack of normal disclosures because disclosure in this case is not necessary.
C. Take no special action because disclosure in this situation is not appropriate.
D. Issue a compilation report on the financial statements and include in the report that the statements are not designed for those who are not informed about such matters.
D. Issue a compilation report on the financial statements and include in the report that the statements are not designed for those who are not informed about such matters.
Regardless of the service provided in a SSARSs engagement, the accountant should expect
A. Unrestricted access to all information needed.
B. Personal financial statements from key members of management.
C. A management representation letter.
D. Sufficient appropriate evidence to form an opinion.
A. Unrestricted access to all information needed.
Which phrase is included in an engagement letter for a preparation of financial statements?
A. “We will not express an opinion or a conclusion . . .”
B. “We are required to verify the accuracy . . .”
C. “Our engagement can be relied upon to identify fraud or error . . .”
D. “Our report will accompany the prepared financial statements . . .”
A. “We will not express an opinion or a conclusion . . .”
An accountant in a review engagement of a nonissuer determines that the statements are materially misstated but the effects of the matter(s) resulting in possible modification of the report are not pervasive. The accountant should
A. Withdraw from the engagement or express a qualified conclusion.
B. Issue a standard compilation report instead of a review report.
C. Express a qualified opinion or an adverse opinion.
D. Disclaim a conclusion or express an adverse conclusion.
A. Withdraw from the engagement or express a qualified conclusion.
An accountant performed a review engagement of the financial statements of a nonissuer oil and gas refinery. Which of the following would be included in the accountant’s documentation?
A. The internal auditor’s inspection reports of the level of oil reserves.
B. The response of the client’s legal counsel to pending workers’ compensation claims.
C. A memo on a discussion with the CFO regarding a suspected kiting scheme.
D. An evaluation of the refinery’s controls over oil pressure levels.
C. A memo on a discussion with the CFO regarding a suspected kiting scheme.
Prior to commencing the compilation of financial statements of a nonissuer, an accountant is required to
A. Verify that the financial information supplied by the entity agrees with the books of original entry.
B. Perform preliminary analytical procedures to identify accounts that may represent specific risks relevant to the engagement.
C. Make inquiries of management concerning the entity’s procedures used in adjusting and closing the books of account.
D. Obtain an understanding of any specialized financial reporting frameworks and practices used in the entity’s industry.
D. Obtain an understanding of any specialized financial reporting frameworks and practices used in the entity’s industry.
The cash basis of accounting is commonly known as an other comprehensive basis of accounting (OCBOA). The term for an OCBOA used in SSARSs is
A. GAAP.
B. A governmental basis.
C. Little GAAP.
D. A special purpose framework.
D. A special purpose framework.
A client has requested that an accountant prepare an income statement for the most recent 6-month period and present it comparatively with the prior year’s annual income statement. The accountant may accept the engagement if
A. Management accepts responsibility for the financial statement.
B. The statements are clearly labeled.
C. A disclaimer on the statement is presented.
D. Management instead requests comparison of the statement with a statement for the previous 6-month period.
D. Management instead requests comparison of the statement with a statement for the previous 6-month period.
Which of the following procedures would a CPA most likely perform when reviewing the financial statements of a nonissuer?
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. Perform substantive procedures to 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.
D. Make inquiries about actions taken at the board of directors’ meetings.
Which of the following procedures regarding accounts payable would an accountant most likely perform during a nonissuer’s review engagement?
A. Obtaining an understanding of the entity’s internal control over accounts payable.
B. Assessing fraud risk within the accounts payable function.
C. Comparing ratios developed from recorded amounts to expectations developed by the accountant.
D. Obtaining confirmations of the year-end accounts payable amounts from the client’s five largest vendors.
C. Comparing ratios developed from recorded amounts to expectations developed by the accountant.
Which of the following statements concerning a compilation of specific elements, accounts, or items of a financial statement is correct?
A. The accountant performing the compilation must be independent with regard to the client.
B. The compilation cannot be relied upon to disclose errors, fraud, or illegal acts.
C. The compilation involves compiling financial statements for different subsidiaries of the company.
D. The compilation must be performed in conformance with an accounting basis consistent with GAAP.
B. The compilation cannot be relied upon to disclose errors, fraud, or illegal acts.
Which of the following engagements may an accountant or practitioner perform when there is a lack of independence?
A. Compilation.
B. Agreed-upon procedures.
C. Review.
D. Attestation.
A. Compilation.
Which item is not included in the accountant’s documentation of a preparation engagement?
A. A copy of the financial statements.
B. Significant judgments made by the accountant during the engagement.
C. A statement about whether the statements were fairly presented.
D. The engagement letter.
C. A statement about whether the statements were fairly presented.
In an engagement to review the financial statements of a nonissuer, the accountant most likely would perform which of the following procedures?
A. Physical inspection of inventory.
B. Vouching of inventory purchase transactions.
C. Analysis of inventory turnover.
D. Evaluation of internal control over inventory.
C. Analysis of inventory turnover.
Which of the following procedures would an accountant most likely perform when reviewing the financial statements of a nonissuer?
A. Ask management about the entity’s procedures for recording transactions.
B. Obtain an understanding of the entity’s internal control components.
C. Send a letter of inquiry to the entity’s attorney regarding pending litigation.
D. Assess the risk of material misstatement arising from fraudulent financial reporting.
A. Ask management about the entity’s procedures for recording transactions.
Which of the following statements is correct regarding a compilation report on financial statements issued in accordance with Statements on Standards for Accounting and Review Services (SSARSs)?
A. The report should not be issued if the accountant is not independent from the entity.
B. The report should include a statement indicating that the information is the representation of the accountant.
C. The report should include a description of procedures performed during the compilation.
D. The date on the report should be the date of completion of the compilation.
D. The date on the report should be the date of completion of the compilation.
Special purpose frameworks acceptable under the SSARSs include all the following except
A. A regulatory basis required to be used by an entity.
B. A modified cash basis selected for use by management of the entity.
C. A contractual basis that the entity has agreed on with the accountant preparing the statements.
D. The tax basis used by the entity to file its tax returns.
C. A contractual basis that the entity has agreed on with the accountant preparing the statements.
In a preparation engagement, the accountant’s name ordinarily is
A. Included in a note to the financial statements.
B. Included in a report presented by the accountant.
C. Identified on the face of the financial statements.
D. Not disclosed on the financial statements.
D. Not disclosed on the financial statements.
The accountant should make inquiries about material subsequent events when performing
A. Both Review and Compilation Services
B. Only Review Services
C. Neither Review nor Compilation Services
D. Only Compilation Services
B. Only Review Services
During the review of work performed for a review engagement, the supervising accountant becomes aware that information provided by management is incorrect. In this situation, the accountant should
A. Make inquiries of management regarding the intent to commit fraud.
B. Conclude that the financial statements are misstated.
C. Disclaim an opinion due to a scope limitation.
D. Request that management consider the effect of the related matters on the financial statements.
D. Request that management consider the effect of the related matters on the financial statements.
A CPA should not express negative or limited assurance in a standard
A. Compilation report on financial statements of a nonissuer.
B. Review report on financial statements of a nonissuer.
C. Review report on interim financial statements of an issuer.
D. Comfort letter on financial information included in a registration statement of an issuer.
A. Compilation report on financial statements of a nonissuer.
When engaged to review the financial statements of a nonissuer, which of the following is generally the responsibility of the accountant?
A. Designing, implementing, and maintaining internal control.
B. Identification of the applicable financial reporting framework.
C. The preparation and fair presentation of the financial statements.
D. Possessing or obtaining knowledge regarding the accounting principles and practices of the industry.
D. Possessing or obtaining knowledge regarding the accounting principles and practices of the industry.
An engagement letter is used to document the agreed-upon terms between management and the accountant in a preparation engagement. This agreement should include all of the following except
A. The expected form and content of the accountant’s report.
B. Identification of the applicable financial reporting framework.
C. A management agreement that each page will include a statement indicating that no assurance is provided.
D. Whether the financial statements will omit substantially all disclosures required by the framework.
A. The expected form and content of the accountant’s report.
An accountant began an audit of the financial statements of a nonissuer and was asked to change the engagement to a review because of a restriction on the scope of the audit. If the change is reasonably justified, the accountant’s review report should refer to the
A. Both Auditing Procedures That May Have Been Performed and Reason for the Change
B. Only Auditing Procedures That May Have Been Performed
C. Only Reason for the Change
D. Neither Auditing Procedures That May Have Been Performed nor Reason for the Change
D. Neither Auditing Procedures That May Have Been Performed nor Reason for the Change