The following are miscellaneous questions about compilation and review services. Choose the best response. a. A CPA
Question:
The following are miscellaneous questions about compilation and review services. Choose the best response.
a. A CPA is performing review services for a small, closely held manufacturing company. As a part of the follow-up of a significant decrease in the gross margin for the current year, the CPA discovers that there are no supporting documents for 540,000 of disbursements. The chief financial officer assures her that the disbursements are proper. What should the CPA do?
(1) Include the unsupported disbursements without further work in the statements on the grounds that she is not doing an audit.
(2) Modify the review opinion or withdraw from the engagement unless the unsupported disbursements are satisfactorily explained.
(3) Exclude the unsupported disbursements from the statements.
(4) Obtain a written representation from the chief financial officer that the disbursements are proper and should be included in the current financial statements.
b. Which of the following best describes the responsibility of the CPA in performing compilation services for a company?
(1) The CPA has to satisfy only himself or herself that the financial statements were prepared in conformity with accounting standards.
(2) The CPA must understand the client's business and accounting methods and read the financial statements for reasonableness.
(3) The CPA should obtain an understanding of internal control and perform tests of controls.
(4) The CPA is relieved of any responsibility to third parties.
c. The standard compilation report includes which statement or phrase?
(1) A compilation is substantially less in scope than a review or an audit
(2) The accountant does not express an opinion but expresses only limited assurance on the compiled financial statements.
(3) The objective of a compilation is to assist management in presenting financial information in the form of financial statements.
(4) The accountant has compiled the financial statements in accordance with standards established by the Auditing Standards Board
Intermediate Accounting
ISBN: 978-0077400163
6th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson