The various scenarios below involve issues that CPAs may encounter for employers and clients seeking financial statements services.

RequiredProvide the information requested in each scenario.

1. The two-person firm of M&N, CPAs, performs extensive bookkeeping services for a client that is applying for a bank loan. The loan officer has informed the client that it will need to submit financial statements with its loan application, and so it has asked M&N to provide them. However, M&N are finding it difficult to determine whether the bookkeeping services they currently perform for the client impair their independence. After much discussion, M says to N, This is getting much too complicated; why not play it safe? N replies to M, Yeah, great idea; lets just assume that were not independent. What is your reaction to this approach?

2. You are a CPA in public practice performing a financial statement engagement for a GAAP-basis client and have determined that the entity has not accrued a contingent loss believed to be probable. How will this omission affect the outcome of your engagement? Answer this question under each of the following alternative assumptions: a. The engagement you are performing is financial statement preparation. b. The engagement you are performing is financial statement compilation. c. The engagement you are performing is financial statement review.

3. A CPA in public practice performing a financial statement preparation engagement for a GAAP-basis client has determined that the entity has not disclosed a contingent loss believed to be possible. The CPA plans to include a description of this omission in the financial statements along with the following statement: Accordingly, these financial statements are not fairly presented in material conformity with GAAP. Can the CPA include this statement in the financial statements? Explain.

4. Refer to the preceding question. Assume instead that the engagement is not financial statement preparation. Can the CPA include this statement in the accountants report? Answer this question under each of the following alternative assumptions: a. The engagement the CPA is performing is financial statement compilation. b. The engagement the CPA is performing is financial statement review.