cpa audit review ch 19 review 1

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Joens1313
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cpa audit review ch 19 review 1
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2014-11-08 11:45:22
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cpa audit review ch 19 review 1
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  1. Which of the following actions should an accountant take when engaged to compile a company’s financial statements in accordance with Statements on Standards for Accounting and Review Services (SSARSs)?  

    Perform the engagement even though independence is compromised.  

    Perform analytical procedures.  

    Make management inquiries and examine internal controls.

    Express negative assurance on the financial statements.
    Perform the engagement even though independence is compromised.  

    An accountant may perform and report on a compilation without being independent if the lack of independence is disclosed in the report.
  2. The client has requested the accountant to change engagements from an audit to a review or to a compilation because the client will not allow the accountant to communicate with client’s legal counsel as required by GAAS. Under these circumstances, the accountant  

    Should ordinarily mention the scope limitation in the review report.  

    Should refuse to issue a review report but would not ordinarily refuse to issue a compilation report.

    Should issue the standard review report with no mention of a scope limitation.

    Would ordinarily refuse to issue either a review or a compilation report.
    Would ordinarily refuse to issue either a review or a compilation report.  

    The accountant should consider that the information affected by the restriction may be incorrect, incomplete, or otherwise unsatisfactory. An accountant who has been engaged to audit the financial statements ordinarily should refuse to issue either a review or a compilation report when not allowed to consult with the client’s legal counsel (AR 80 and AR 90).
  3. Auditing & Attestation Testlet 1 of 4Question 12   When providing limited assurance that the financial statements of a nonissuer require no material modifications to be in accordance with generally accepted accounting principles, the accountant should  

    Assess the risk that a material misstatement could occur in a financial statement assertion.  

    Confirm with the entity’s lawyer that material loss contingencies are disclosed.  

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

    Develop an audit plan to determine whether the entity’s financial statements are fairly presented.
    Understand the accounting principles of the industry in which the entity operates.  

    The accountant should have an understanding of the accounting principles and practices of the industry in which the entity operates. It should suffice to assist in determining the nature, timing, and extent of review procedures (AR 90).
  4. 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  

    Compiled in conformity with a comprehensive basis of accounting other than U.S. GAAP.

    Restricted for internal use only by the entity’s management.  

    Not to be given to financial institutions for the purpose of obtaining credit.

    Not designed for those who are uninformed about such matters.
    Not designed for those who are uninformed about such matters.  

    The accountant may not accept the engagement unless (1) (s)he modifies the standard compilation report to indicate that substantially all disclosures required by the applicable reporting framework have been omitted and (2) the omission is not, to the accountant’s knowledge, made to mislead users of the statements. The language given is from an example compilation report when substantially all disclosures are omitted.
  5. Which of the following statements should be included in an accountant’s standard report based on the compilation of a nonissuer’s financial statements?  

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

    A compilation is substantially less in scope than an audit in accordance with generally accepted auditing standards.  

    A compilation’s objective is to present in the form of financial statements information that is the representation of management.

    A compilation is designed to detect material modifications that should be made to the financial statements.
    A compilation’s objective is to present in the form of financial statements information that is the representation of management.  

    The standard compilation report contains three paragraphs. The first paragraph identifies the financial statements and presents a disclaimer of assurance. The second paragraph states that management is responsible for the preparation and fair presentation of the statements. The third paragraph explains the accountant’s responsibility to follow SSARS and the objective of a compilation.
  6. 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  

    Perform a review of the financial statements.  

    Withdraw from the engagement.  

    Issue a special purpose report.

    Express an adverse audit opinion.
    Withdraw from the engagement. 

    If the accountant believes that modification of the standard report is not adequate to indicate the deficiencies in the financial statements as a whole, the accountant should withdraw from the compilation engagement. (S)he should provide no further services with respect to those financial statements. The accountant may wish to consult with his/her legal counsel upon withdrawal.
  7. Accepting an engagement to compile a financial projection for an issuer most likely would be inappropriate if the projection were intended for use by  

    A labor union with which the entity is negotiating a contract.  

    All shareholders of record as of the report date.

    The principal shareholder, to the exclusion of the other shareholders.

    A bank with which the entity is negotiating for a loan.
    All shareholders of record as of the report date.  

    .Financial projections are not appropriate for general use, that is, by persons with whom the responsible party is not negotiating directly. Intended use by all shareholders of record is a general use of the projection because the entity is not negotiating directly with all of them.

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