Question 1

You have just recently become a member of your local non-profit housing co-op by moving into the largest unit.The board of directors has asked that you handle the review engagement but you are concerned about independence.What is a practical way for you to stay in the co-op but also perform the review engagement?

Accepted Answer

Requesting a bylaw stating that the accountant cannot vote for board members is a practical way to stay in the co-op but also perform the review engagement because it would help to ensure the accountant's independence.

Question 2

The level of assurance that is provided by the public accountant on a compilation report is

Accepted Answer

A compilation report provides no assurance from the public accountant. It is essentially a presentation of financial statements based on information provided by management, without the accountant performing any procedures to verify the accuracy of the information.

Question 3

Always Quick Manufacturing Limited is a small business that manufactures metal and plastic components for a variety of industries.The bulk of the business is in the computing industry,although it has occasional contracts for the automotive industry.
Jose,the owner,would like to expand the business so that he can bid on larger contracts.This requires an investment of about $500 000 to finance capital assets and about $300 000 for a working capital loan.Jose has financed the business himself to this point and has been given some alternatives by the bank.
The alternatives pertain to which assets are used as guarantees and whether Jose also guarantees the loans personally (as he has substantial personal assets).The bank also stated that if Jose personally guarantees the loan,the company will only require a review engagement,whereas if the loan is only secured by corporate assets,an audit of the company will be required.
Jose understands the differences among the guarantees but is not sure about the difference between a review and and audit engagement.Presently,the company financial statements are prepared using a compilation engagement.
Required:
Explain to Jose the difference between a review and an audit engagement in the context of his present compilation engagement.

Accepted Answer

The answer of Always Quick Manufacturing Limited is a small...

Question 4

The statement that "nothing came to our attention that would indicate that these statements are not fairly presented" expresses which of the following?

Accepted Answer

This statement is a negative assurance, indicating that the auditor did not find any evidence suggesting that the financial statements are not fairly presented. A negative assurance is a type of auditor's report that provides limited assurance, and typically includes a statement that the auditor is not providing an opinion on the financial statements.

Question 5

Yvan is preparing the audit plan for Share the Wealth,a non-profit organization.Share the Wealth is a large Montreal-based organization that receives corporate donations and has many stores that collect and re-sell costume jewelry and clothing.The purpose of the organization is to build recreation areas for children in less-fortunate areas of the city.
Share the Wealth was started by two sisters.One of the sisters is still actively involved in the organization,but the other sister has been devoting less time to the organization since she has had triplets.
Share the Wealth has a total of eight stores in Montreal where individuals can drop off donations and customers can purchase the second-hand clothing and costume jewelry.Share the Wealth has a total of 12 employees who work in the various stores.Depending on the schedule and availability,the employees will randomly be assigned to a store for the week.
Required:
Provide three procedures that Yvan should consider when performing the review engagement of Share the Wealth.

Accepted Answer

The answer of Yvan is preparing the audit plan for...

Question 6

A financial statement review emphasizes four broad areas,one of which is to "perform analytical procedures." State the other three areas emphasized.

Accepted Answer

The answer of A financial statement review emphasizes four broad...

Question 7

A compilation presents information,in the form of financial statements,that is the representation of management.The public accountant who prepares the compilation undertakes to express

Accepted Answer

In a compilation, the public accountant does not express any assurance on the financial statements. The accountant's role is to assist in presenting financial information in the form of financial statements without undertaking to express any assurance on them.

Question 8

A public accounting firm can issue a compilation report

Accepted Answer

A compilation report can be issued by a public accounting firm even if it is not independent, as the report does not provide assurance on the financial statements. Independence is required for audits and reviews, but not for compilations.

Question 9

Which of the following engagements would most likely be a compilation engagement?

Accepted Answer

A compilation engagement is typically performed for privately-held companies or individuals and involves the accountant compiling financial statements based on information provided by the client. Option A, which involves financial statements attached to a personal tax return, is the only engagement that fits this description. The other options are more complex and would require a review or audit engagement, rather than a compilation engagement.

Question 10

Which of the following is a professional standard that must be followed by an accountant when conducting a compilation engagement?

Accepted Answer

In a compilation engagement, accountants must ensure that the work is adequately planned and properly executed to meet professional standards.

Question 11

An accountant who reviews the financial statements of an entity should issue a report stating that a review

Accepted Answer

A review does not constitute an audit, as it provides limited assurance and involves different procedures than an audit.

Question 12

Which of the following components of an engagement letter would apply to both a review engagement and a compilation engagement?

Accepted Answer

A statement that each page of the financial statements should be clearly marked "unaudited" is required for both review and compilation engagements to avoid confusion with audited financial statements. The other options are specific to either review or compilation engagements.

Question 13

What is the title of a compilation report?

Accepted Answer

The title of a compilation report is "Notice to Reader," indicating that the financial statements have been compiled from information provided by management without an audit or review.

Question 14

Which of the following items includes criteria for accepting a compilation engagement?

Accepted Answer

The correct criterion for accepting a compilation engagement is ensuring there's no reason to believe the financial statements are false or misleading. This ensures the integrity of the financial information without requiring the same level of assurance or independence as an audit or review engagement.

Question 15

Richard is performing a compilation engagement.Richard is concerned that the information is

Accepted Answer

Richard is performing a compilation engagement, which means that he is not expressing an opinion on the financial statements. However, he is still responsible for ensuring that the information in the financial statements is arithmetically correct.

Question 16

The fact that a client has a material accounting departure for failure to follow ASPE would require the accountant to disclose that fact in a separate paragraph giving rise to the modification when the accountant is performing

Accepted Answer

According to the handbook section 5855, when an accountant becomes aware of a material departure from the ASPE in a review or an audit, they have to issue a qualified or adverse opinion. The opinion paragraph must include the phrase "except for the effects of the matter described in the preceding paragraph." Furthermore, the accountant should include a separate paragraph describing the nature of the material departure. Thus, the correct answer is B, which refers to both review and audit engagements.

Question 17

The accountant is working on an engagement with respect to the client's financial statements.Which of the following engagements would omit an assessment of the client's accounting policies' compliance with GAAP?

Accepted Answer

A compilation engagement involves the preparation of financial statements without providing assurance on their accuracy or conformity with GAAP, so there would be no assessment of compliance with GAAP. Reviews and audits both involve providing assurance on the financial statements and would include an assessment of compliance with GAAP. Attestation engagements may or may not involve testing compliance with GAAP, depending on the nature of the engagement.

Question 18

Which of the following procedures would most likely be conducted by an accountant during a compilation engagement?

Accepted Answer

Assembling and recalculating the financial statement allocations is a common procedure in a compilation engagement where the accountant is helping the client to prepare financial statements. The other procedures mentioned (enquiring about new capital assets, comparing gross profit, and circularizing negative accounts receivable confirmations) are more commonly associated with review or audit engagements where the accountant is providing assurance over the financial statements.

Question 19

A review service engagement for an accountants' association with unaudited financial statements involves which of the following?

Accepted Answer

A review service engagement involves more work than a compilation because it requires some analytical procedures and inquiries to provide a limited assurance, but it involves less work than an audit, which requires extensive testing and verification for a reasonable assurance.

Question 20

Which of the following would be required in a compilation?

Accepted Answer

In a compilation, an understanding between the client and the accountant for the services to be provided is required, but a formal engagement letter, management's acknowledgment, or auditor's independence confirmation is not necessary.

Quiz 20: Other Assurance and Nonassurance Services