audit chapter 18

In a preparation engagement, the financial statements should include a statement such as

"No assurance is provided."

Which phrase is included in an engagement letter for a preparation of financial statements?

"We will not express an opinion or a conclusion . . ."

When an accountant is not independent with respect to an entity, which of the following types of compilation reports may be issued?

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

Question: 14Special purpose frameworks acceptable under the SSARSs include all the following except

A contractual basis that the entity has agreed on with the accountant preparing the statements.

Each of the following statements concerning compilation of financial statements on certain prescribed forms is correct, except

A prescribed form cannot depart from generally accepted accounting principles or fail to include all required disclosures.

Which of the following would not be included in an accountant's documentation of a compilation of a client's financial statements?

A review of the segregation of duties in the cash disbursement process.

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 special purpose framework.

Which item is not included in the accountant's documentation of a preparation engagement?

A statement about whether the statements were fairly presented.

Which of the following should not be included in an accountant's report based upon the compilation of an entity's financial statements?

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

When an accountant compiles the financial statements of a nonissuer in accordance with Statements on Standards for Accounting and Review Services, the accountant's report should include

A statement that the accountant does not express an opinion on the financial statements.

When an accountant compiles a client's financial statements accompanied by supplemental information, which of the following is a required element of the accountant's separate report on the supplemental information?

A statement that the information has been compiled from information that is the representation of management without audit or review.

A potential client has requested that an accountant prepare financial statements. The accountant has no understanding of the client's industry. The accountant should

Accept the engagement with the expectation of obtaining an understanding in the industry

SSARSs may be applied to other historical or prospective financial information if they are

Adapted as necessary in the circumstances.

During an engagement to compile the financial statements of a nonissuer, an accountant becomes aware that management had stated land at appraised value and that, if GAAP had been followed, both the land account and stockholders' equity would have been decreased by $1 million, a material amount. The accountant decides to modify the standard compilation report because management will not revise the financial statements. Under these circumstances, the accountant should

Add a separate paragraph to the accountant's report that discloses the departure from GAAP and its effects on the financial statements.

A CPA firm providing SSARSs services is required to have

An effective quality control system.

In the course of an engagement to compile unaudited financial statements, the client requests that the accountant perform normal accounts receivable audit confirmation procedures. (S)he agrees and performs such procedures. The confirmation procedures

Are part of an accounting service and are not performed for the purpose of conducting an audit in accordance with GAAS.

An accountant may compile a nonissuer's financial statements intended for third-party use that omit all of the disclosures required by U.S. GAAP only if the omission is Clearly indicated in the accountant's report Not undertaken with the intention of misleading the financial statement users

Both I and II.

Which of the following accounting services is not a preparation service under the Statements on Standards for Accounting and Review Services? Preparing a working trial balance Preparing standard monthly journal entries

Both I and II.

In accordance with SSARSs, which of the following is an accurate comparison of a preparation service with a compilation service?

Both services allow the financial statements to be released to outside users.

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?

By consulting AICPA guides, industry publications, or individuals knowledgeable about the industry.

An accountant performing a compilation for a nonissuer believes that the financial statements might be materially misstated. The client refuses to provide additional or revised information. How should the accountant respond?

By withdrawing from the compilation engagement.

A CPA should not express negative or limited assurance in a standard

Compilation report on financial statements of a nonissuer

A CPA who is not independent may issue a

Compilation report.

Independence is not required on which of the following types of engagements?

Compilation.

Which of the following engagements may an accountant or practitioner perform when there is a lack of independence?

Compilation.

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?

Compilations.

An auditor is reporting on cash-basis financial statements. These statements are best referred to in the opinion by which of the following descriptions?

Compiled, through the use of computer software, financial statements to be used by third parties.

The guidance for a compilation of financial statements also applies to

Compiling prospective financial information.

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

Completion of the compilation.

An accountant should not compile unaudited financial statements for management of a nonissuer unless, at a minimum, the accountant

Complies with the Statements on Standards for Accounting and Review Services.

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

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

If compiled financial statements presented in conformity with the cash receipts and disbursements basis of accounting do not disclose the basis of accounting used, the accountant should

Disclose the basis of accounting in the accountant's report.

Miller, CPA, is engaged to compile the financial statements of Web Co., a nonissuer, in conformity with the income tax basis of accounting. If Web's financial statements do not disclose the basis of accounting used, Miller should

Disclose the special purpose framework in the accountant's compilation report

How does an accountant make the following representations when issuing the standard report for the compilation of a nonissuer's financial statements? The Financial Statements Have Not Been Audited The Accountant Has Compiled the Financial Statements

Explicitly Explicitly

A compilation of financial statements in accordance with Statements on Standards for Accounting and Review Services is best described as presenting

Financial statements without providing any assurance on them.

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?

Generating financial statements of a nonissuer.

Before accepting an engagement to compile or review the financial statements of a nonissuer, which of the following specific inquiries should a successor accountant consider making to the predecessor accountant?

How would you describe the integrity of the owner?

When engaged to compile unaudited financial statements for a nonissuer, the accountant's responsibility to detect fraud

Includes informing the client that the engagement cannot be relied upon to disclose fraud and noncompliance with laws and regulations.

Which of the following factors most likely would cause an accountant not to accept an engagement to compile the financial statements of a nonissuer?

Indications that reports of asset misappropriation are not investigated by management.

When financial statements that an accountant has compiled in accordance with Statements on Standards for Accounting and Review Services omit substantially all disclosures required by generally accepted accounting principles, the accountant's report should include

Information alerting readers about omission of the disclosures and notification that the omission may influence the user's conclusions about the financial statements.

An accountant agreed to perform a compilation of a company's financial statements under Statements of Standards for Accounting and Review Services (SSARSs). During fieldwork, the accountant decided to perform some analytical procedures. Which of the following would the accountant do related to the compilation engagement?

Issue a compilation report even though review procedures were performed on the engagement.

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

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.

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

Management instead requests comparison of the statement with a statement for the previous 6-month period.

Which of the following is a true statement about preparing financial statements in accordance with SSARSs?

Management must accept responsibility for the financial statements.

An accountant normally accepts a SSARSs engagement if

Management, not the accountant, accepts responsibility for the financial statements.

An accountant is 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 standard monthly journal entries for depreciation and expiration of prepaid expenses

Neither I nor II.

An accountant has compiled the financial statements of a nonissuer in accordance with Statements on Standards for Accounting and Review Services (SSARSs). Do the SSARSs require that the compilation report be printed on the accountant's letterhead and that the report be manually signed by the accountant? Printed on the Accountant's Letterhead Manually Signed by the Accountant

No No

In a SSARSs engagement, the accountant is responsible for selecting the Financial Reporting Framework Procedures to Be Applied in the Engagement

No Yes

Which of the following is a true statement about a report on a preparation of financial statements under SSARSs?

No report is presented for a preparation engagement

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

Not designed for those who are uninformed about such matters.

When an accountant attaches a compilation report to a nonissuer's 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 uninformed about the omitted disclosures.

In a preparation engagement, the accountant's name ordinarily is

Not disclosed on the financial statements.

If requested to perform a compilation engagement for a nonissuer in which an accountant has an immaterial direct financial interest, the accountant is

Not independent and, therefore, may issue a compilation report, but may not issue a review report.

Prior to commencing the compilation of financial statements of a nonissuer, an accountant is required to

Obtain an understanding of any specialized financial reporting frameworks and practices used in the entity's industry.

An accountant was asked by a potential client to perform a compilation of its financial statements. The accountant is not familiar with the industry in which the client operates. In this situation, which of the following actions is the accountant most likely to take?

Obtain an understanding of the applicable financial reporting framework.

To compile financial statements of a nonissuer in accordance with Statements on Standards for Accounting and Review Services, an accountant should

Obtain an understanding of the entity's significant accounting policies.

An accountant has accepted an engagement to perform a compilation for a nonissuer. The first procedure should be to

Obtain an understanding of the relevant framework

During the compilation of a client's financial statements, an accountant comes to believe that the financial statements are materially misstated. The accountant should

Obtain the additional or revised information needed to correct the financial statements.

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

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

A nonissuer has asked an accountant to compile its financial statements that omit substantially all disclosures required by generally accepted accounting principles (GAAP). The accountant may comply with the entity's request provided that the

Omission is not employed in order to mislead the users of the financial statements and is properly disclosed in the accountant's report.

Jones Retailing, a nonissuer, has asked Winters, CPA, to compile financial statements that omit substantially all disclosures required by U.S. GAAP. Winters may compile such financial statements provided the

Omission is not undertaken to mislead the users of the financial statements and is disclosed in the accountant's report.

General Retailing, a nonissuer, has asked Ford, CPA, to compile its financial statements that omit substantially all disclosures required by U.S. 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.

In a preparation service, management's omission of substantially all disclosures ordinarily included in the financial statements should be disclosed

On the face of the financial statements.

When compiling a nonissuer's financial statements, an accountant is least likely to

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

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.

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

Preparations and compilations but not reviews.

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

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

Which service is a preparation service under SSARSs?

Preparing pro forma financial information.

SSARSs are primarily useful for the preparation, compilation, and review of financial statements for

Private companies.

Which of the following procedures is an accountant required to perform before issuing a compilation report under Statements on Standards for Accounting and Review Services (SSARSs)?

Read the financial statements and consider whether such financial statements appear to be free from obvious material errors.

Before issuing a report on the compilation of financial statements of a nonissuer, the accountant should

Read the financial statements to consider whether the financial statements are free from obvious material errors.

Which of the following procedures is ordinarily performed by an accountant in a compilation engagement of a nonissuer?

Reading the financial statements to consider whether they are free of obvious mistakes in the application of accounting principles.

A practitioner engaged to compile a nonissuer's financial statements who is not independent

Should disclose the lack of independence.

When engaged to compile the financial statements of a nonissuer, an accountant should possess a level of knowledge of the entity's accounting principles and practices. This most likely will include obtaining a general understanding of the

Significant accounting policies adopted by management.

An accountant compiles the financial statements of a nonissuer and issues the compilation report. Although not specifically stated in this report, it is implied that

Substantially all disclosures required by GAAP are included in the financial statements.

A CPA is considering whether to accept an engagement to prepare financial statements for a new client. Which of the following statements is correct regarding the independence of the CPA?

The CPA is not required to make a determination of whether the CPA is independent of the client.

Which of the following situations precludes an accountant from preparing financial statements that omit substantially all disclosures required by the selected financial reporting framework?

The accountant becomes aware that the omission was undertaken with the intention of misleading users of the financial statements.

Compiled financial statements should be accompanied by an accountant's report stating that

The accountant compiled the financial statements in accordance with Statements on Standards for Accounting and Review Services.

Compiled financial statements of a nonissuer intended for third-party use should be accompanied by a report stating that

The accountant does not express an opinion or any other form of assurance on the financial statements.

A practitioner has been hired to compile the unaudited financial statements of a nonissuer. The accountant's compilation report will include a statement that

The accountant does not express any form of assurance on the financial statements.

Which of the following representations may an accountant make implicitly when issuing a report on the compilation of a nonissuer's financial statements?

The accountant is independent with respect to the entity.

An accountant may complete an engagement to prepare financial statements under SSARSs even if

The accountant is not independent.

Which of the following is correct regarding a compilation of financial statements engagement in accordance with Statements on Standards for Accounting and Review Services?

The accountant is not required to make inquiries or perform procedures to corroborate the information provided by the client.

An accountant compiled the financial statements of a nonissuer in accordance with Statements on Standards for Accounting and Review Services (SSARSs). If the accountant has an ownership interest in the entity, which of the following statements is correct?

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

Which of the following circumstances would generally require an accountant to decline to perform a compilation of financial statements under Statements on Standards for Accounting and Review Services?

The accountant was not able to come to an understanding with representatives of the organization for services to be performed.

Which of the following statements concerning a compilation of specific elements, accounts, or items of a financial statement is correct?

The compilation cannot be relied upon to disclose errors, fraud, or illegal acts.

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)?

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

Which of the following matters should an accountant include when establishing an understanding with a client regarding the services to be performed for a compilation engagement?

The effect that independence impairments, if present, will have on the expected form of the accountant's report.

An accountant may prepare financial statements that exclude substantially all disclosures unless

The purpose is to mislead users.

When compiling the financial statements of a nonissuer, an accountant should

Understand the accounting principles and practices of the entity's industry.

Regardless of the service provided in a SSARSs engagement, the accountant should expect

Unrestricted access to all information needed.

An accountant is engaged to perform services for a nonissuer client that maintains a software-based accounting system (system). The AICPA's guidance on preparation of financial statements (AR-C 70) most likely applies when the agreement with the client provides that the accountant is to

Use the general ledger to prepare financial statements outside the system.

West, CPA, is engaged to compile the financial statements of Lake Co., a nonissuer. Lake's financial statements are prepared in conformity with the cash basis of accounting. If Lake's financial statements do not disclose the basis of accounting used, which of the following statements best describes West's reporting responsibility concerning this matter?

West should disclose the basis of accounting used in West's compilation report.

An accountant has been engaged to compile a nonissuer's financial statements that contain several misapplications of accounting principles and unreasonable accounting estimates. Management is unwilling to revise the financial statements, and the accountant believes that modification of the standard compilation report is not adequate to communicate the deficiencies. Under these circumstances, the accountant should

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

An accountant has been engaged to compile the financial statements of a nonissuer. The financial statements contain many departures from U.S. 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 accountant should

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

An accountant is unable to complete a compilation engagement for a nonissuer because management has not provided the necessary information. As a result, the accountant should

Withdraw from the engagement.

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

Withdraw from the engagement.

An accountant is required to comply with the provisions of Statements on Standards for Accounting and Review Services (SSARSs) when Compiling financial statements generated through the use of computer software Reproducing client-prepared financial statements, without modification, for the client

Yes No

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? Compilation Review

Yes Yes

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

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