Multiple Choice Questions
The following are miscellaneous questions about compilation and review services. Choose the best response.
a. It is acceptable for a CPA to be associated with financial statements when not independent with respect to the client and still issue a substantially unmodified report for which of the following:
(1) Audits of companies following GAAP.
(2) Audits of companies on a comprehensive basis of accounting other than GAAP.
(3) Review of financial statements following GAAP.
(4) Compilation of financial statements following GAAP.
b. 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 $40,000 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.
c. 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.