Section N: Compilation and Review Reports

Which of the following statements should be included in a practitioner's report on the application of agreed-upon procedures? a. A statement referring to standards established by the AICPA. b. A statement of scope limitation that will qualify the practitioner's opinion. c. A statement that the practitioner performed an examination of prospective financial statements. d. A statement of negative assurance based on procedures performed.

a. A statement referring to standards established by the AICPA.

Which of the following conditions must be met when a CPA is considering whether to accept a review engagement? (select all that apply) a. Management must agree to provide a representation letter at the conclusion of the review engagement. b. The CPA may not always be independent of the client. c. The CPA must obtain an agreement from management that it acknowledges its responsibility for the preparation and fair presentation of the financial statements. d. The financial reporting framework selected by management must be acceptable.

a. Management must agree to provide a representation letter at the conclusion of the review engagement. c. The CPA must obtain an agreement from management that it acknowledges its responsibility for the preparation and fair presentation of the financial statements. d. The financial reporting framework selected by management must be acceptable.

Which of the following statements with respect to an auditor's report expressing an opinion on a specific item on a financial statement is correct? a. Materiality must be related to the specified item rather than to the financial statements taken as a whole. b. Such a report can only be expressed if the auditor is also engaged to audit the entire set of financial statements. c. The auditor who has issued an adverse opinion on the financial statements taken as a whole can never express an opinion on a specified item in these financial statements. d. The attention devoted to the specific item is usually less than it would be if the financial statements taken as a whole were being audited.

a. Materiality must be related to the specified item rather than to the financial statements taken as a whole.

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 would most likely want to emphasize? a. The entity has had significant transactions with related parties. b. The entity has had significant tax expenses as a result of a new tax law. c. Other entities in the same industry have recently changed from LIFO to FIFO. d. The IRS has notified the entity that it intends to audit income tax returns for prior years.

a. The entity has had significant transactions with related parties.

To provide limited assurance, the CPA must perform procedures to gather evidence that no material modifications are needed for the financial statements to be in accordance with the financial reporting framework. a. True. b. False.

a. True.

At the conclusion of a compilation engagement, _______. a. the CPA provides a written compilation report to the client. b. the auditor uses the compilation report to assist the client in raising funds in capital markets. c. the auditor provides a verbal report to management only. d. the auditor attests to the accuracy and fairness of the financial statements.

a. the CPA provides a written compilation report to the client.

In a compilation engagement, _______. a. the CPA will assist management in the presentation of financial statements but will not provide assurance as to whether the financial statements are presented fairly in accordance with the applicable financial reporting framework. b. an internal auditor reviews the client firm's filings with the Securities and Exchange Commission (SEC) for compliance and accuracy. c. the CPA will assist management in the presentation of financial statements and will provide assurance as to whether the financial statements are presented fairly in accordance with the applicable financial reporting framework. d. the current and prior auditors will jointly determine the fairness and conformity of a client's financial statements.

a. the CPA will assist management in the presentation of financial statements but will not provide assurance as to whether the financial statements are presented fairly in accordance with the applicable financial reporting framework.

Which of the following statements would be appropriate in an accountant's report on compiled financial statements of a nonissuer prepared in accordance with Statements on Standards for Accounting and Review Services (SSARS)? a. A compilation is performed to obtain reasonable assurance about whether the financial statements are free from material misstatement. b. A compilation is limited to presenting in the form of financial statements information that is a representation of management. c. A compilation is substantially less in scope than an audit in accordance with generally accepted auditing standards (GAAS). d. We are not aware of any material modifications that should be made to the accompanying financial statements.

b. A compilation is limited to presenting in the form of financial statements information that is a representation of management.

When an accountant compiles projected financial statements, the accountant's report should include a separate paragraph that a. Expresses limited assurance that the results will be within the projected range. b. Describes the limitations on the usefulness of the projection. c. Disclaims any form of assurance on the historical financial statements. d. Evaluates the hypothetical assumptions used to prepare the projection.

b. Describes the limitations on the usefulness of the projection.

In a compilation engagement, the CPA will assist management in the presentation of financial statements and will provide assurance as to whether the financial statements are presented fairly in accordance with the applicable financial reporting framework. a. True. b. False.

b. False.

A modification of the CPA's report on a review of the interim financial statements of a publicly-held company would be necessitated by which of the following? a. Reference to another accountant. b. Inadequate disclosure. c. An uncertainty. d. Lack of consistency.

b. Inadequate disclosure.

A practitioner's report on agreed-upon procedures should contain which of the following statements? a. Nothing came to my attention as a result of applying the procedures. b. The procedures performed were those agreed to by the specified parties identified in the report. c. Sufficiency of procedures is the responsibility of the practitioner. d. All classification codes appeared to comply with such performance documents.

b. The procedures performed were those agreed to by the specified parties identified in the report.

Under which of the following circumstances could an auditor consider rendering an opinion on pro forma statements that give effect to proposed transactions? a. When the time interval between the date of the financial statements and the consummation of the transaction are relatively long. b. When the proposed transactions are subject to a definitive agreement among the parties. c. When the pro forma statements include amounts based on financial projections. d. When certain subsequent events have some chance of interfering with the consummation of the transactions.

b. When the proposed transactions are subject to a definitive agreement among the parties.

A review engagement _______. a. is virtually identical to an audit of a client's financial statements. b. is an attest engagement that provides negative assurance with regard to the financial statements of a client. c. comes under the umbrella of non-attest services. d. comes under the umbrella of assurance services.

b. is an attest engagement that provides negative assurance with regard to the financial statements of a client.

AR-C 80, Compilation Engagements _______. a. provides guidance on materiality thresholds. b. provides guidance for the performance of a compilation engagement. c. provides guidance for the performance of an audit engagement. d. assists the auditor with respect to fee arrangements.

b. provides guidance for the performance of a compilation engagement.

A compilation engagement is _______. a. an audit of the system of internal control, whereby an auditor expresses an opinion on the system of internal control. b. when an accounting firm assists management in the presentation of financial statements but does not audit, review, nor provide assurance as to whether the financial statements are presented fairly. c. an audit of the financial statements, whereby an auditor expresses an opinion on the financial statements. d. when an audit firm assists management in the presentation of financial statements and attempts to provide assurance as to whether the financial statements are presented fairly.

b. when an accounting firm assists management in the presentation of financial statements but does not audit, review, nor provide assurance as to whether the financial statements are presented fairly.

Which of the following components is appropriate in a practitioner's report on the results of applying agreed-upon procedures? a. A statement that management is responsible for expressing an opinion. b. A title that includes the phrase "independent audit." c. A list of the procedures performed, as agreed to by the specified parties identified in the report. d. A statement that the report is unrestricted in its use.

c. A list of the procedures performed, as agreed to by the specified parties identified in the report.

During a review of the financial statements of a non-issuer (non-public entity), the CPA finds that the financial statements contain a material departure from generally accepted accounting principles. If management refuses to correct the financial statement presentations, the CPA should a. Attach a footnote explaining the effects of the departure. b. Issue an adverse opinion. c. Disclose the departure in a separate paragraph of the report. d. Issue a compilation report.

c. Disclose the departure in a separate paragraph of the report.

With regard to financial statements, which level of assurance provides that no material modifications should be made to the financial statements for them to be in accordance with the applicable financial reporting framework? a. No assurance. b. Probable assurance. c. Negative assurance. d. Reasonable assurance.

c. Negative assurance.

General Retailing, a nonissuer, has asked Ford, CPA, to compile its financial statements that omit substantially all disclosures required by GAAP. Ford may comply with General's request provided the omission is clearly indicated in Ford's report and the a. Distribution of the financial statements and Ford's report is restricted to internal use only. b. Reason for omitting the disclosures is acknowledged in the notes to the financial statements. c. Omission is not undertaken with the intention of misleading the users of General's financial statements. d. Omitted disclosures are not significant.

c. Omission is not undertaken with the intention of misleading the users of General's financial statements.

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 (SSARS)? 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 date on the report should be the date of completion of the compilation. d. The report should include a description of other procedures performed during the compilation.

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

If an accountant is performing a review engagement for a non-issuer and considers it necessary to communicate a matter that is not presented in the financial statements, then the accountant should include this information in which of the following paragraphs in the review report? a. The opinion paragraph. b. The emphasis-of-matter paragraph. c. The other-matter paragraph. d. The introductory paragraph.

c. The other-matter paragraph.

In which of the following situations will a practitioner disclaim an opinion on an examination of prospective financial statements? a. The significant assumptions do not provide a reasonable basis for the statements. b. The prospective financial statements depart from AICPA presentation guidelines. c. The practitioner was not able to perform certain procedures deemed necessary. d. The prospective financial statements fail to disclose significant assumptions.

c. The practitioner was not able to perform certain procedures deemed necessary.

A compilation engagement would be described as _______. a. an audit engagement. b. an attest service. c. a non-attest service. d. an assurance service.

c. a non-attest service.

Before reissuing a compilation report on the financial statements of a nonissuer for the prior year, the predecessor accountant is required to a. Verify that the reissued report will not be used to obtain credit from a financial institution. b. Review the successor accountant's working papers for matters affecting the prior year. c. Make inquiries about actions taken at meetings of the board of directors during the current year. d. Compare the prior year's financial statements with those of the current year.

d. Compare the prior year's financial statements with those of the current year.

In which of the following engagements does the CPA provides limited assurance that no material modifications should be made to the financial statements for them to be in accordance with the applicable financial reporting framework? a. Audit engagement. b. Compilation engagement. c. Material engagement. d. Review engagement.

d. Review engagement.

Each page of the financial statements compiled by an accountant may include a reference such as a. Unaudited, see accountant's disclaimer. b. See accompanying accountant's footnotes. c. See accountant's review report. d. See accountant's compilation report.

d. See accountant's compilation report.

A practitioner is engaged to express an opinion on management's assertion that the square footage of a warehouse offered for sale is 150,000 square feet. The practitioner should refer to which of the following sources for professional guidance? a. Statements on Standards for Consulting Services. b. Statements on Standards for Accounting and Review Services. c. Statements on Auditing Standards. d. Statements on Standards for Attestation Engagements.

d. Statements on Standards for Attestation Engagements.

A non-issuer engaged a practitioner to perform agreed-upon procedures on specified matters. The date of the practitioner's report would ordinarily be determined by the occurrence of which of the following events? a. The receipt of the signed engagement letter from the client. b. The delivery of the final report to the client. c. The client's review and approval of the contents of a draft report. d. The completion of the agreed-upon procedures.

d. The completion of the agreed-upon procedures.

An accountant's compilation report on a financial forecast should include a statement that a. The hypothetical assumptions used in the forecast are reasonable in the circumstances. b. The forecast should be read only in conjunction with the audited historical financial statements. c. The accountant expresses only limited assurance on the forecasted statements and their assumptions. d. There will usually be differences between the forecasted and actual results.

d. There will usually be differences between the forecasted and actual results.