Which of the following procedures is usually the first step in reviewing the financial statements of a nonissuer?

Question

Quizplus · Accepted Answer

Choice "B" is correct. In reviewing the financial statements of a nonpublic entity, one of the first steps would be to obtain sufficient knowledge of the entity's business, including its organization, operating characteristics, and products or services. Choice "A" is incorrect. In an audit, preliminary judgments about risk and materiality are used to determine the scope and nature of procedures to be performed. A review is substantially less in scope than an audit and consists principally of inquiries and analytical procedures. Choice "C" is incorrect. In an audit, the risk of material misstatement arising from fraud must be assessed in order to determine the scope and nature of procedures to be performed. A review is substantially less in scope than an audit and consists principally of inquiries and analytical procedures. While inquiries would be made about fraud, a formal fraud risk assessment is not required. Choice "D" is incorrect. In a review of a nonissuer's financial statements, no assessment or testing of internal control is required.

Which of the Following Procedures Is Usually the First Step