7.04 - COMPARISON OF PREP ENG, COMPILATION, AND REVIEW Flashcards
7.04 - COMPARISON OF PREP ENG, COMPILATION, AND REVIEW
According to Statements on Standards for Accounting and Review Engagements, in which of the following situations would the accountant be required to issue a report?
Castor Company engages Hornsby, CPA to prepare financial statements which are expected to be presented to First Bank for the purpose of obtaining a loan.
A financial statement preparation engagement where the client refused to allow the inclusion of a “no assurance provided” statement on each page of the financial statements.
A review engagement from which the accountant withdrew after completing substantially all of the required work.
Hornsby, CPA compiles financial statements that are reasonably expected to be used by a third party.
Hornsby, CPA compiles financial statements that are reasonably expected to be used by a third party.
EXPLANATION:
A compilation engagement requires a written report regardless of whether the financial statements are reasonably
expected to be used by a third party.
A preparation engagement does not require a report, even when it will be presented to third parties.
A client’s refusal to include a legend indicating that no assurance is provided on each page of the financial statements does not require the accountant to issue a report. In most cases, the accountant will include a disclaimer instead.
No report is issued when a CPA withdraws from an engagement
7.04 - COMPARISON OF PREP ENG, COMPILATION, AND REVIEW
Performing inquiry and analytical procedures is the primary basis for an accountant to issue a…
Management advisory report prepared at the request of a client’s audit committee.
Review report on comparative financial
statements for a nonpublic entity in its second year of operations.
Review report on prospective nancial
statements that present an entity’s expected financial position, given one or more hypothetical assumptions.
Report on compliance with requirements governing major federal assistance programs in accordance with the Single Audit Act.
Review report on comparative financial
statements for a nonpublic entity in its second year of operations.
EXPLANATION:
A review of historical financial statements consists principally of inquiry and analytics.
Major financial assistance programs must be audited and reviews are not performed on prospective financial statements.
Management advisory services do not require the use of inquiry and analytical procedures.
