M5-Review Reports

Question 1

Modifications are made to the standard review report only when there is a departure from generally accepted accounting principles. (true or false)

Answer 1

true

Neither an inability to assess risk nor a discovery of internal control deficiencies constitutes a departure from GAAP, and therefore neither would result in a modified review report. Note that assessing the risk of material misstatement due to fraud is a requirement of an audit, not a review. Also, note that testing of internal control is not required in a review of financial statements of a nonissuer.

Question 2

If the accountant believes that modification of the standard report is not adequate to indicate the deficiencies in the financial statements taken as a whole, the accountant should withdraw from the review engagement and provide no further services with respect to those financial statements. Note that the accountant should also request that management consider the effect of the scheme on the financial statements. (true or false)

Answer 2

true

Question 3

Before reissuing a compilation report on the financial statements of a nonissue for the prior year, the predecessor accountant is required to compare the prior year’s financial statements with those of the current year. (true or false)

Answer 3

true

Question 4

When the prior period has been audited, the accountant should issue the current period compilation or review report, and any additional paragraph should indicate:

Answer 4

• That prior period statements were audited;
• The date of the previous report(s);
• The opinions expressed, and, if other than unmodified, the reasons for the modification; and
• That no auditing procedures have been performed since the previous report date

Question 5

Unaudited financial statements for the prior year presented in comparative form with audited financial statements for the current year should be clearly marked to indicate their status (“unaudited”), and either the report on the prior period should be reissued or the report on the current period should include a separate explanatory paragraph describing the responsibility assumed for the prior period’s financial statements. (true or false)

Answer 5

true

Question 6

If an accountant believes that modification of the standard report is not adequate to indicate the deficiencies in the financial statements, he or she should withdraw from the review engagement and provide no additional services with respect to the financial statements. (true or false)

Answer 6

true