2011 Becker CPA PassMaster A2 5

2011 Becker CPA PassMaster A2 5 - Becker Professional...

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Unformatted text preview: Becker Professional Education Registered to: www.‘viivid Book.org [email protected] Quest ion CPA-03381 Gole, CPA, is engaged to review the Year 2 financial statements of North Co., a nonissuer. Previously, Gole audited North's Year 1 financial statements and expressed an unqualified opinion. Gole decides to include a separate paragraph in the Year 2 review report because North plans to present comparative financial statements for Year 2 and Year 1. This separate paragraph should indicate that: a. The Year 2 review report is intended solely for the information of management and the board of directors. b. The Year 1 auditor's report may no longer be relied on. c. No auditing procedures were performed after the date of the Year 1 auditor's report. d. There are justifiable reasons for changing the level of service from an audit to a review. Explanation Choice c Is correct. If the review report on the current period includes a separate paragraph describing the responsibility assumed for the prior period's financial statements, the additional paragraph should explicitly state that no audit procedures were performed subsequent to the previous period's audit. Choice a is incorrect. The review report can be considered a general use report; no restriction on use is necessary. Choice "b" is incorrect. The previous year's audit report may still be relied upon. Choice "d" is incorrect. No mention of the reasons for the change in engagement service is necessary. 2011 Edition. Distributed by DeVryi'Becker Educational Development Corp. Copyright ?2010 DeVryz‘Becker Educational Development Corp. All rights reserved. Becker Professional Education Registered to: www.Vivid Book.org [email protected] Question CPA-03383 When unaudited financial statements of a nonissuer are presented in comparative form with audited financial statements in the subsequent year, the unaudited financial statements should be clearly marked to indicate their status and: l. The report on the unaudited financial statements should be reissued. II. The report on the audited financial statements should include a separate paragraph describing the responsibility assumed for the unaudited financial statements. a. | only. b. H only. c. Both | and II. d. Either I or II. Explanation Choice "d" is correct. When audited financial statements are presented in comparative form with unaudited financial statements from a prior year, the auditor should either reissue his or her report on the unaudited statements or include a separate paragraph in the current year report describing the responsibility assumed for the unaudited statements. Choices "a", "b", and "c" are incorrect, per above explanation. 2011 Edition. Distributed by DeVrnyecker Educational Development Corp. Copyright ?2010 DeVryi'Becker Educational Development Corp. All rights reserved. Becker Professional Education Registered to: www.‘viivid Book.org [email protected] Question CPA-03387 When unaudited financial statements are presented in comparative form with audited financial statements in a document filed with the Securities and Exchange Commission, such statements should be: Withheid Referred to in Marked as untii the auditor's "unaudited" audited report a. Yes No No b. Yes No Yes c. No Yes Yes d. N 0 Yes N o Explanation Choice a is correct. When unaudited financial statements (generally the first quarter of the following year in an annual report) are presented in comparative form with audited financial statements in documents filed with the SEC, such statements should be clearly marked as "unaudited," but should not be referred to in the auditor's report. The statements need not be withheld until audited. Choices "b", "c", and "d" are incorrect, based on explanation above. 2011 Edition. Distributed by DeVrviBecker Educational Development Corp. Copyright ?2010 DeVrvi'Becker Educational Development Corp. All rights reserved. Becker Professional Education Registered to: www.Vivid Book.org [email protected] Question CPA-03388 Clark, CPA, compiled and properly reported on the financial statements of Green Go, a nonissuer, for the year ended March 31, 20x1. These financial statements omitted substantially all disclosures required by generally accepted accounting principles (GAAP). Green asked Clark to compile the statements for the year ended March 31, 20x2, and to include all GAAP disclosures for the 20x2 statements only, but otherwise present both years‘ financial statements in comparative form. What is Clark's responsibility concerning the proposed engagement? a. Clark may not report on the comparative financial statements because the 20x1 statements are not comparable to the 20x2 statements that include the GAAP disclosures. b. Clark may report on the comparative financial statements provided the 20m statements do not contain any obvious material misstatements. c. Clark may report on the comparative financial statements provided an explanatory paragraph is added to Clark's report on the comparative financial statements. d. Clark may report on the comparative financial statements provided Clark updates the report on the 20x1 statements that do not include the GAAP disclosures. Explanation Choice "a" is correct. Compiled financial statements that omit substantially all the disclosures required by GAAP are not comparable to financial statements that do include required GAAP disclosures. Accordingly, the 20x1 statements are not comparable to the 20x2 statements and Clark cannot report on them. Choice "b" is incorrect. The lack of material misstatements does not alter the fact that the statements are not comparable and therefore Clark may not report on them. Choice "c" is incorrect. Compiled financial statements that omit substantially all of the disclosures required by GAAP are not comparable to financial statements that include such disclosures. Accordingly, Clark may not report on the comparative financial statements, even if an explanatory paragraph is added. Choice "d" is incorrect. Updating the auditor's report does not change the fact that the financial statements for the two periods are not comparable. 2011 Edition. Distributed by DeVrnyecker Educational Development Corp. Copyright ?2010 DeVryi'Becker Educational Development Corp. All rights reserved. Becker Professional Education Registered to: www.Vivid Book.org [email protected] Question CPA-05834 Before reissuing a compilation report on the financial statements of a nonissuer for the prior year, the predecessor accountant is required to: a. Obtain an updated management representation letter from the entity‘s management. b. Compare the prior year's financial statements with those of the current year. c. Review the successor accountant's working papers for matters affecting the prior year. d. Make inquiries of the entity's lawyers concerning continuing litigation. Explanation Choice "b" is correct. Before reissuing a compilation report on the financial statements of a nonissuer for the prior year, the predecessor accountant is required to compare the prior year‘s financial statements with those of the current year. Choice a is incorrect. Before reissuing a compilation report on the financial statements of a nonissuer for the prior year, the predecessor accountant should obtain a letter from the successor accountants. An updated management representation letter is not required. Choice c Is incorrect. The predecessor accountant is not required to review the successor accountant's working papers, especially since it is unlikely that the current year documentation includes information relevant to the previous year's financial statements. Choice "d" is incorrect. The predecessor accountant is not required to make inquiries of the entity's lawyers concerning continuing litigation. 2011 Edition. Distributed by DeVrnyecker Educational Development Corp. Copyright ?2010 DeVryi'Becker Educational Development Corp. All rights reserved. Becker Professional Education Registered to: www.‘vlivid Book.org [email protected] Question CPA-06695 Before reissuing a compilation report on the financial statements of a nonissuer for the prior year, the predecessor accountant is required to: a. Make inquiries about actions taken at meetings of the board of directors during the current year. b. Verify that the reissued report will not be used to obtain credit from a financial institution. c. Review the successor accountant's working papers for matters affecting the prior year. d. Compare the prior year's financial statements with those of the current year. Explanation Choice "d" is correct. Before reissuing a compilation report, the predecessor accountant is required to read the financial statements of the current period and the successor's report. The predecessor accountant is also required to compare the prior year's financial statements with those of the current year before reissuing a compilation report. Finally, the predecessor accountant is required to obtain a letter from the successor accountant that indicates whether the successor accountant is aware of any matter that might have a material effect on the financial statements, including disclosures, reported on by the predecessor accountant. Choice a Is incorrect. Making inquiries about actions taken at meetings of the board of directors during the current year is not a required procedure. Choice "b" is incorrect. Verifying that the reissued report will not be used to obtain credit from financial institutions is not a required procedure. Choice c Is incorrect. Reviewing the successor accountant's workpapers for matters affecting the prior year is not a required procedure. 2011 Edition. Distributed by DeVrnyecker Educational Development Corp. Copyright ?2010 DeVryi'Becker Educational Development Corp. All rights reserved. ...
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This note was uploaded on 09/28/2011 for the course ACCT 540 taught by Professor Haight during the Spring '11 term at NMSU.

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2011 Becker CPA PassMaster A2 5 - Becker Professional...

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