Chapter 19

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

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

The proper report by an auditor relating to summarized financial statements includes:

An opinion on whether the summarized information is fairly stated in all material respects in relation to the basic financial statements.

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

Communications with related parties.

Which assertion is generally most difficult to attest to with respect to personal financial statements?

Completeness.

Which of the following is not typically performed when the auditors are performing a review of client financial statements?

Confirmation of accounts receivable.

State whether you agree or disagree with each of the following relating to the topic of special-purpose financial reporting frameworks. International Financial Reporting Standards are considered a special-purpose financial reporting framework. Cash-basis financial statements are considered as having been prepared following a special-purpose financial reporting framework, and their use should be restricted to specified users. Financial statements prepared following a contractual basis are considered as having been prepared following a special-purpose financial reporting framework, and their use should be restricted to specified users. An emphasis-of-matter paragraph should be added to a cash-basis set of financial statements indicating that the framework is other than GAAP. When financial statements are prepared following a contractual basis, the auditors must obtain an understanding of significant management interpretations of the contract.

Disagree, disagree, agree, agree, agree.

Which of the following must be obtained in a review of a nonpublic company?

Engagement letter and representation letter.

The following statements relate to auditor reporting on financial statements prepared using special-purpose financial reporting frameworks. For each, indicate whether the statement is correct or incorrect. A special-purpose financial reporting framework is any framework other than GAAP. Some, but not all, special-purpose frameworks require an indication that the financial statements are intended solely for certain specified users. An audit report on financial statements that are prepared using a special-purpose framework must include an emphasis-of-matter paragraph alerting users that the financial statements were prepared in accordance with the framework. An audit report on financial statements that are prepared using a special-purpose framework must include, in all circumstances, a description of the purposes for which the statements are prepared. An audit opinion on financial statements that use a special-purpose framework may be unmodified. The Attestation Standards, not the Statements on Auditing Standards, apply to engagements involving special-purpose frameworks. If a regulatory agency requires a particular layout for the audit report, the auditor may be able to use that layout rather than the suggested report included in the Professional Standards. An audit report on financial statements that are prepared using a special-purpose framework will indicate that the audit was conducted in accordance with the special-purpose financial reporting framework auditing standards.

Incorrect, correct, correct, incorrect, correct, incorrect, correct, incorrect.

Comfort letters to underwriters are normally signed by the:

Independent auditor.

A proper compilation report on financial statements that omit note disclosures:

Indicates that management has omitted such information.

Concerning interim quarterly financial statements, management of public companies:

Must engage CPAs to review the statements.

Listed below are four types of reports issued by CPAs: Unmodified (unqualified) audit report Cash-basis statements audit report Review report Compilation report Indicate the type of report (or reports) in which the following phrases appear by selecting the identifying numbers from the dropdown provided below. A phrase may appropriately appear in more than one type of report. If the phrase should not appear in any of the reports, select "X" from the dropdown. "adequate informative disclosure..." "in accordance with generally accepted auditing standards." In all cases, an indication that the CPA does not express an opinion. "Management has elected to omit substantially all of the disclosures required by generally accepted accounting principles." "is substantially less in scope than an audit in accordance with generally accepted auditing standards..." "which is a basis of accounting other than generally accepted accounting principles."

None, 1 and 2, 3 and 4, 4, 3, 2.

Which of the following forms of accountant association is least likely to result in issuance of an accountant's report on financial statements or financial information?

Preparation.

Select the necessary words from the list of possibilities to complete the following statements. No answer is used more than once. Comfort letters help underwriters in fulfilling their obligation to perform a __________ of the securities registration statement. The tax and cash bases of accounting are considered __________ financial reporting frameworks. At a minimum, the accountant _________ the compiled financial statements for appropriate format and obvious material misstatements. Standards for a CPA's association with the audited financial statements of nonissuers are issued by the Auditing Standards Board, whereas standards for the preparation, compilation or review of the annual financial statements of nonissuer companies are issued by the __________. Accounting services designed to provide no assurance or no summary of findings on the financial statements are __________ engagements.

Reasonable investigation, special purpose, must read, Accounting and Review Services Committee, preparation and compilation.

Financial statements prepared following which of the following are most likely to be considered a special-purpose financial reporting framework?

The cash basis of accounting.

A CPA who is not independent may perform which of the following services for a nonpublic company?

Yes to compilation, no to review.