An auditor is performing a 'compilation' of a nonissuer's financial statements that omit substantially all disclosures required by GAAP. The auditor concludes that the omission is NOT intended to mislead users. Which of the following is correct?

Answer options:

The auditor must withdraw from the engagement.

The auditor must issue an adverse opinion.

The auditor may issue the report, but must add a paragraph warning that the statements are not designed for those who are not informed about such matters.

The auditor must restrict the use of the report to management only.

How to approach this question

Compilation with Omitted Disclosures: Allowed? Yes. Condition? Not misleading + Warning paragraph.

Full Answer

C.The auditor may issue the report, but must add a paragraph warning that the statements are not designed for those who are not informed about such matters.✓ Correct

AR-C 80 permits the compilation of financial statements that omit substantially all disclosures, provided the omission is not intended to mislead and the report clearly indicates the omission.

Common mistakes

Thinking omitted disclosures always requires withdrawal.

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