The following are miscellaneous questions about compilation and review services. Choose the best response.
a. 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.
b. The standard compilation report includes which statement or phrase?
(1) Management is responsible for the financial statements.
(2) The accountant does not express an opinion but expresses only limited assurance
on the compiled financial statements.
(3) The objective of a compilation is to assist management in presenting financial
information in the form of financial statements.
(4) The accountant has compiled the financial statements in accordance with stan-
dards established by the Auditing Standards Board.
c. A CPA is performing review services for a small, closely held manufacturing com-
pany. 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 unsup-
ported 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.
