Webstar, a nonpublic company, is owned by Ben Williams and three of his friends. Previously the company’s financing has been internally generated, with limited equity contributions by the owners. The company has not been audited in the past, and Williams has said to you that while he generally understands the nature of an audit, he would like to discuss services other than an audit. Specifically, he read a brief article in a management journal which described reviews, compilations, financial statements prepared following another comprehensive basis of accounting (other than generally accepted accounting principles), and auditing specified elements of financial statements. Among his questions are the following:
a. Review of financial statements:
(1) Is the review form of association available for Webstar’s financial statements?
(2) What procedures are typically included in a review?
(3) What type of assurance is included in a review report?
(4) What will result in modification of a review report?
(5) Williams says that he heard something about there being a requirement that every company obtain a review of its financial statements. He has been concerned, since he never has had this done. What’s the story with this?

b. Compilation of financial statements:
(1) Is the compilation form of association available?
(2) What procedures are typically included in a compilation?
(3) If a compilation is performed, must a compilation report be issued?
(4) What type of assurance would be provided in a compilation report?
(5) What will result in modification of a compilation report?

c. Financial statements: Williams says he isn’t sure he wants to prepare financial statements following GAAP. He says he needs only statements based on the income tax method he uses to file his income taxes.
(1) Are you able to issue an audit report based on the income tax basis?
(2) What type of report is this?
(3) How will the report issued differ from that of a GAAP audit?

d. Auditing a small portion of financial statements: Williams has given some thought to having an audit of just his company’s revenues for the year and receivables at year-end.
(1) May you perform an audit of only these two accounts?
(2) What types of engagements are possible here?
(3) What type of assurance will be provided in these reports?
Draft brief answers to each of the above questions.