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Area IV: Forming Conclusions and ReportingAUDSSARSCompilation

CPA · Question 21 · Area IV: Forming Conclusions and Reporting

An accountant is engaged to perform a compilation of a nonissuer's financial statements. The entity omits substantially all disclosures required by GAAP. The accountant decides to accept the engagement. Which of the following statements must be included in the compilation report?

Answer options:

A.

A statement that the accountant assumes no responsibility for the financial statements.

B.

An adverse opinion stating that the financial statements are not in accordance with GAAP.

C.

A restricted use paragraph limiting the report to management only.

D.

A paragraph stating that management has elected to omit substantially all disclosures and that if the omitted disclosures were included, they might influence the user's conclusions.

How to approach this question

Compilation with Omitted Disclosures is allowed IF: 1. Not intended to mislead. 2. Disclosed in the report. The report must warn the user.

Full Answer

D.A paragraph stating that management has elected to omit substantially all disclosures and that if the omitted disclosures were included, they might influence the user's conclusions.✓ Correct
D
When management elects to omit substantially all disclosures in a compilation engagement, the accountant's report must include a paragraph stating that management has elected to omit the disclosures and that if they were included, they might influence the user's conclusions about the company's financial position, results of operations, and cash flows.

Common mistakes

Thinking omitted disclosures requires a restricted use report (old rule) or an adverse opinion (audit rule).
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