Auditing and Attestation Paper 30

(a) The requirement is to determine a CPA’s responsibilities when performing a review of a nonissuer’s financial statements that contain uncorrected departures from GAAP and the CPA believes that the review report is not adequate to indicate the deficiencies. Answer (a) is correct because SSARS state that in such circumstances the CPA should withdraw from the engagement and provide no further services with respect to those financial statements. Answers (b) and (d) are incorrect because restricting distribution is not adequate or appropriate in such a circumstance. Answer (c) is incorrect because the standards on special reports do not apply in this circumstance.

(c) The requirement is to determine the listed requirement when an accountant is providing limited assurance that the financial statements of a nonissuer require no material modifications to be in accordance with generally accepted accounting principles. Accountants perform reviews to provide such limited assurance. Answer (c) is correct because obtaining an understanding of the accounting principles in the industry is required for reviews. See SSARS for this and other requirements. Answer (a) is incorrect because reviews do not require the accountant to assess the risk of material misstatement. Answer (b) is incorrect because reviews generally do not include any communication with the entity’s lawyer. Answer (d) is incorrect because an “audit” program is not required since a review is being performed.

(c) The requirement is to identify the circumstances in which a CPA may issue a review report on the balance sheet of a nonissuer, and not report on the related financial statements. Answer (c) is correct because an accountant may issue a review report on one financial statement and not on the other related statements if the scope of the inquiry and analytical procedures has not been restricted. Answer (a) is incorrect because the CPA need not compile or report on the related statements of income, retained earnings, and cash flows when reviewing only the balance sheet. Answer (b) is incorrect because, when material modifications are needed, a CPA may still report on the balance sheet, but must indicate the modifications in the review report. Answer (d) is incorrect because the client need not be new.

(c) The requirement is to identify the reference that should be included in each page of a nonissuer’s reviewed financial statements. SSARS require that each page of the financial statements include a reference such as “See Accountant’s Review Report.”

(c) The requirement is to identify the statement that is included in an accountant’s review report on the financial statements of a nonissuer. Answer (c) is correct because a review report includes a statement that a review consists principally of inquires of company personnel and analytical procedures applied to financial data. See SSARS for information that should be included in a review report.

(c) The requirement is to identify the correct statement relating to a CPA’s report on comparative statements when the current year has been reviewed and the previous year has been audited. Answer (c) is correct because when a separate paragraph is being added to the CPA’s review report the CPA should clearly indicate the difference in the levels of assurance for the two years. In this situation, SSARS require the auditor to indicate that the previous year’s financial statements were audited, the date of the report, the type of opinion expressed and if the opinion was other than unqualified, the substantive reasons for that opinion, and that no auditing procedures were performed after the date of the previous report. Answer (a) is incorrect because the review report is not solely intended for management or the board of directors. Answer (b) is incorrect because the prior year’s audit report may still be appropriate. Answer (d) is incorrect because this statement does not need to be included within the review report.

(b) The requirement is to identify the statement included in the standard report issued by an accountant after reviewing the financial statements of a nonissuer. Answer (b) is correct because the report states that the accountant is not aware of any material modifications that should be made to the financial statements in order for them to be in conformity with generally accepted accounting principles. SSARS present the required disclosures for a review report.

(b) The requirement is to identify the information presented in a review report of financial statements of a nonissuer. Answer (b) is correct because the report indicates that all information included in the financial statements is the representation of the management of the entity.

(c) The requirement is to determine an accountant’s reporting responsibility when associated with a nonissuer’s reviewed statements which contain a material departure from generally accepted accounting principles. Answer (c) is correct because SSARS require the inclusion of a separate paragraph describing the departure. Answers (a) and (b) are incorrect because an adverse opinion or an “except for” qualified opinion may only be issued when an audit has been performed. Answer (d) is incorrect because expressing limited assurance (as is normally provided in reviews) on the financial statements is not adequate to disclose the departure.

(a) The requirement is to identify the reply which is correct concerning the content of a review report. Answer (a) is correct because a review report indicates that a review is substantially less in scope than an audit. Answer (b) is incorrect because a review report provides no information on internal control. Answer (c) is incorrect because while a review report states that the accountant is not aware of any material modifications that should be made to the financial statements, it does not provide limited assurance that the financial statements are fairly presented. Answer (d) is incorrect because while a review report does state that a review is substantially less in scope than an audit, it does not refer to a compilation.