Problems

21-33: The following report was drafted on October 25, 2018, by Major, CPA, at the completion of an engagement to compile the financial statements of Ajax Company for the fiscal year ended September 30, 2018. Ajax is a non-public entity in which Majors child has a material direct financial interest. Ajax decided to omit substantially all of the disclosures required by generally accepted accounting principles because the financial statements will be for managements use only. The statement of cash flows was also omitted because management does not believe it to be a useful financial statement. To the Board of Directors of Ajax Company: I have compiled the accompanying financial statements of Ajax Company as of September 30, 2018, and for the year then ended. I planned and performed the compilation to obtain limited assurance about whether the financial statements are free of material misstatements. 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. My responsibility is to conduct the compilation in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. I have not audited the accompanying financial statements and, accordingly, do not express any opinion on them. Management has elected to omit substantially all of the disclosures required by accounting principles generally accepted in the United States of America. If the omitted disclosures were included in the financial statements, they might influence the users conclusions about the companys financial position, results of operations, and cash flows. I am not independent with respect to Ajax Company. This lack of independence is due to my daughters ownership of a material direct financial interest in Ajax Company. This report is intended solely for the information and use of the board of directors and management of Ajax Company and should not be used for any other purpose. Major, CPA

Required:

Identify the deficiencies contained in Majors report on the compiled financial statements. List the deficiencies sequentially as they appear in the report. Do not redraft the report. (AICPA, adapted)

21-34: This question consists of 13 items pertaining to possible deficiencies in an accountants review report. Indicate whether each statement about a possible deficiency is correct (C) or incorrect (I) in the space provided. Jordan & Stone, CPAs, audited the financial statements of Tech Company, a non-public entity, for the year ended December 31, 2017, and expressed an unmodified opinion. For the year ended December 31, 2018, Tech issued comparative financial statements. Jordan & Stone reviewed Techs 2018 financial statements, and Kent, an assistant on the engagement, drafted the following accountants review report. Land, the engagement supervisor, decided not to reissue the prior years auditors report but instructed Kent to include a separate paragraph in the current years review report describing the responsibility assumed for the prior years audited financial statements. (This is an appropriate reporting procedure.)

Land reviewed Kents draft and indicated in the supervisors review notes (shown following the accountants review report) that there were several deficiencies in Kents draft. Accountants Review Report We have reviewed the accompanying balance sheet of Tech Company as of December 31, 2018 and 2017, and the related statements of income, retained earnings, and cash flows for the year then ended. A review includes primarily applying analytical procedures to managements 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, 2017, were audited by us, and our report was dated March 2, 2018. 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 Kents draft. (AICPA, adapted) S