General Information
May an accountant accept an engagement to compile or review the financial statements of a not-for-profit entity if the accountant is unfamiliar with the specialized industry accounting principles but plans to obtain the required level of knowledge before compiling or reviewing the financial statements?
A. Neither Compilation or Review
B. Compilation Only
C. Review Only
D. Both Compilation and Review
D. Both Compilation and Review
Which of the following would not be included in an accountant’s report based upon a review of the financial statements of a nonissuer?
A. A statement that the review was in accordance with GAAS.
B. A statement that management is responsible for the financial statements.
C. A statement describing the primary procedures performed.
D. A statement describing the results of the review.
A. A statement that the review was in accordance with GAAS.
Which of the following is a true statement about preparing financial statements in accordance with SSARSs?
A. The accountant must be independent.
B. The accountant’s name must appear on the financial statements.
C. The financial framework must be GAAP.
D. Management must accept responsibility for the financial statements.
D. Management must accept responsibility for the financial statements.
When an accountant is not independent with respect to an entity, which of the following types of compilation reports may be issued?
A. The standard compilation report may be issued, regardless of independence.
B. A compilation report with negative assurance may be issued.
C. A compilation report with special wording that notes the accountant’s lack of independence may be issued.
D. A compilation report may be issued if the engagement is upgraded to a review.
C. A compilation report with special wording that notes the accountant’s lack of independence may be issued.
During an engagement to review the financial statements of a nonissuer, an accountant becomes aware of a material departure from GAAP. If the accountant decides to modify the standard review report, the accountant should
A. Express limited assurance on the accounting principles that conform with GAAP.
B. Express a qualified or adverse conclusion.
C. Express an adverse or a qualified opinion, depending on materiality.
D. Express positive assurance on the accounting principles that conform with GAAP.
B. Express a qualified or adverse conclusion.
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. Preparing monthly journal entries.
B. Providing the client with software to generate financial statements.
C. Generating financial statements of a nonissuer.
D. Providing a blank financial statement format or template.
C. Generating financial statements of a nonissuer.
An accountant’s standard report on a review of the financial statements of a nonissuer should state that the accountant
A. Does not express an opinion or any form of limited assurance on the financial statements.
B. Is not aware of any material modifications that should be made to the financial statements for them to conform with GAAP.
C. Obtained reasonable assurance about whether the financial statements are free of material misstatement.
D. Examined evidence, on a test basis, supporting the amounts and disclosures in the financial statements.
B. Is not aware of any material modifications that should be made to the financial statements for them to conform with GAAP.
In accordance with SSARSs, which of the following is an accurate comparison of a preparation service with a compilation service?
A. Both services require a full set of notes to be presented with the financial statements.
B. Only a compilation service requires an engagement letter.
C. Both services allow the financial statements to be released to outside users.
D. Both services require a report to be presented by the accountant.
C. Both services allow the financial statements to be released to outside users.
Which of the following representations may an accountant make implicitly when issuing a report on the compilation of a nonissuer’s financial statements?
A. The accountant is independent with respect to the entity.
B. The financial statements have not been audited.
C. A compilation consists principally of inquiries and analytical procedures.
D. The accountant does not express any assurance on the financial statements.
A. The accountant is independent with respect to the entity.
If comparative statements have been reviewed, a continuing accountant should
A. Update his or her report on the financial statements of a prior period.
B. Disclaim any assurance on the prior periods’ statements.
C. Issue a report on the statements of a prior period separately from the current-period report.
D. Express an adverse opinion with respect to the prior period’s financial statements.
A. Update his or her report on the financial statements of a prior period.
An accountant is engaged to perform compilation services for a new client in an industry with which the accountant has no previous experience. How should the accountant obtain sufficient knowledge of the industry to perform the compilation service?
A. By obtaining the most recent letter of credit from the entity’s primary financial institution.
B. By consulting AICPA guides, industry publications, or individuals knowledgeable about the industry.
C. By researching the entity’s Internet site and searching for current press releases.
D. By reviewing the predecessor accountant’s workpapers without the knowledge of the entity.
B. By consulting AICPA guides, industry publications, or individuals knowledgeable about the industry.
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 (SSARSs)?
A. The owner of a company is the accountant’s father.
B. The accountant was engaged to review only the balance sheet.
C. Land has been recorded at appraisal value instead of historical cost.
D. Finished-goods inventory does not include any overhead amounts.
A. The owner of a company is the accountant’s father.
An accountant may complete an engagement to prepare financial statements under SSARSs even if
A. The accountant lacks professional competence.
B. Management uses an unacceptable financial reporting framework.
C. Management does not accept responsibility for the financial statements.
D. The accountant is not independent.
D. The accountant is not independent.
Each page of the financial statements compiled and reported on by an accountant may include a reference such as
A. See Accompanying Accountant’s Notes.
B. Unaudited, See Accountant’s Disclaimer.
C. See Accountant’s Compilation Report.
D. Subject to Compilation Restrictions.
C. See Accountant’s Compilation Report.
The procedures ordinarily performed during a review of a nonissuer’s financial statements include
A. Assessing fraud risks.
B. Inquiring of management about subsequent events.
C. Testing accounting records.
D. Evaluating the responses to inquiries by gathering corroborative evidence.
B. Inquiring of management about subsequent events.
An accountant normally accepts a SSARSs engagement if
A. The accountant has reason to believe that relevant ethical requirements cannot be satisfied.
B. The accountant’s preliminary understanding of the engagement circumstances indicates that information needed to perform the engagement is likely to be unavailable or unreliable.
C. Management, not the accountant, accepts responsibility for the financial statements.
D. The accountant has cause to doubt management’s integrity.
C. Management, not the accountant, accepts responsibility for the financial statements.
Each page of a nonissuer’s financial statements reviewed by an accountant may include the following reference:
A. See Independent Accountant’s Review Report.
B. Reviewed, No Accountant’s Assurance Expressed.
C. See Accompanying Accountant’s Notes.
D. Reviewed, No Material Modifications Required.
A. See Independent Accountant’s Review Report.
A potential client has requested that an accountant prepare financial statements. The accountant has no understanding of the client’s industry. The accountant should
A. Not accept the engagement because of the lack of understanding of the industry.
B. Accept the engagement only after (s)he has obtained an understanding in the industry.
C. Accept the engagement with the expectation of obtaining an understanding in the industry.
D. Accept the engagement and use an understanding of other industries to complete the engagement.
C. Accept the engagement with the expectation of obtaining an understanding in the industry.
In performing a compilation of financial statements of a nonissuer, the accountant decides that modification of the standard report is not adequate to indicate deficiencies in the financial statements as a whole, and the client is not willing to correct the deficiencies. The accountant should therefore
A. Perform a review of the financial statements.
B. Issue a special purpose report.
C. Withdraw from the engagement.
D. Express an adverse audit opinion.
C. Withdraw from the engagement.
Which of the following procedures would an accountant most likely perform during an engagement to review the financial statements of a nonissuer?
A. Review the predecessor accountant’s working papers.
B. Inquire of management about related party transactions.
C. Corroborate litigation information with the entity’s attorney.
D. Communicate internal control deficiencies to senior management.
B. Inquire of management about related party transactions.
A CPA firm providing SSARSs services is required to have
A. An appropriate internal control system.
B. The same financial reporting framework as the client.
C. A system of financial checks and balances.
D. An effective quality control system.
D. An effective quality control system.
An accountant has been engaged to review a nonissuer’s financial statements that contain several departures from GAAP. If the financial statements are materially misstated, the accountant
A. May withdraw from the engagement based on the review evidence obtained.
B. Informs management that the engagement can proceed only if distribution of the report is restricted to internal use.
C. Should disclaim a conclusion on the financial statements.
D. Must express a modified conclusion on the financial statements.
A. May withdraw from the engagement based on the review evidence obtained.
An accountant may prepare financial statements that exclude substantially all disclosures unless
A. The notes are important to understanding the financial statements.
B. The financial statements would be misleading to users.
C. The notes describe significant related party transactions.
D. The accountant believes that the notes help the users interpret the financial statements.
B. The financial statements would be misleading to users.
When an accountant compiles a nonissuer’s financial statements that omit substantially all disclosures required by U.S. GAAP, the accountant should indicate in the compilation report that the financial statements are
A. Restricted for internal use only by the entity’s management.
B. Not to be given to financial institutions for the purpose of obtaining credit.
C. Compiled in conformity with a special purpose framework other than U.S. GAAP.
D. Not designed for those who are uninformed about such matters.
D. Not designed for those who are uninformed about such matters.
The client has requested the accountant to change engagements from an audit to a review because the client will not allow the accountant to communicate with client’s legal counsel as required by GAAS. Under these circumstances, the accountant ordinarily
A. Should issue a review report with no mention of a scope limitation.
B. Should refuse to issue a review report but not a compilation report.
C. Should not accept a review engagement.
D. Should mention the scope limitation in the review report.
C. Should not accept a review engagement.