Question

This question consists of 13 items pertaining to possible deficiencies in an accountant’s review report. Select the best answer for each item. Indicate your answers in the space provided.
Jordan & Stone, CPAs, audited the financial statements of Tech Company, a non- public entity, for the year ended December 31, 2012, and expressed an unmodified opinion. For the year ended December 31, 2013, Tech issued comparative financial statements. Jordan & Stone reviewed Tech’s 2013 financial statements, and Kent, an assistant on the engagement, drafted the following accountant’s review report. Land, the engagement supervisor, decided not to reissue the prior year’s auditor’s report but instructed Kent to include a separate paragraph in the current year’s review report describing the responsibility assumed for the prior year’s audited financial statements. This is an appropriate reporting procedure.
Land reviewed Kent’s draft and indicated in the supervisor’s review notes (shown following the accountant’s review report) that there were several deficiencies in Kent’s draft.

Accountant’s Review Report
We have reviewed the accompanying balance sheet of Tech Company as of December 31, 2013 and 2012, and the related statements of income, retained earnings, and cash flows for the year then ended. A review includes primarily applying analytical procedures to management’s financial data and making inquiries of company management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole.
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America and for designing, implementing, and maintaining internal control relevant to the preparation and fair presentation of the financial statements.
Our responsibility is to conduct the review in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. Those standards require us to perform procedures to obtain limited assurance that there are no material modifications that should be made to the financial statements. We believe that the results of our procedures provide a reasonable basis for our report.
Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements. Because of the inherent limitations of a review engagement, this report is intended for the information of management and should not be used for any other purpose.
The financial statements for the year ended December 31, 2012, were audited by us, and our report was dated March 2, 2013. We have no responsibility for updating that report for events and circumstances occurring after that date.

Required:
Items 1 through 13 represent deficiencies noted by Land. For each deficiency, indicate whether Land is correct (C) or incorrect (I) in the criticism of Kent’s draft.

Supervisor’s Review Notes
1. There should be no reference to the prior year’s audited financial statements in the first (introductory) paragraph.
2. All the current- year basic financial statements are not properly identified in the first (introductory) paragraph.
3. There should be no reference to the American Institute of Certified Public Accountants in the third (accountant responsibility) paragraph.
4. There should be no mention of management’s responsibility for internal control in the second (management responsibility) paragraph.
5. There should be no comparison of the scope of a review to an audit in the first (introductory) paragraph.
6. Negative assurance should be expressed on the current year’s reviewed financial statements in the third (accountant responsibility) paragraph.
7. There should be a statement that no opinion is expressed on the current year’s financial statements in the first (introductory) paragraph.
8. There should be a reference to “conformity with generally accepted accounting principles” in the fourth paragraph.
9. There should be no restriction on the distribution of the accountant’s review report in the fourth paragraph.
10. There should be no reference to “material modifications” in the fourth paragraph.
11. There should be an indication of the type of opinion expressed on the prior year’s audited financial statements in the fifth (separate) paragraph.
12. There should be an indication that no auditing procedures were performed after the date of the report on the prior year’s financial statements in the fifth (separate) paragraph.
13. There should be no reference to “updating the prior year’s auditor’s report for events and circumstances occurring after that date” in the fifth (separate) paragraph.



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  • CreatedSeptember 22, 2014
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