Question

During a review of financial statements, an accountant decides to emphasize a matter in the review report. Which of the following is an example of a matter that the accountant would most likely want to emphasize?

Question 4 options:

A) The entity has had significant tax expenses as a result of a new tax law.

B) Other entities in the same industry have recently changed from LIFO to FIFO.

C) The IRS has notified the entity that it intends to audit income tax returns for prior years.

D) The entity has had significant transactions with related parties.

Answer 1

Review of Financial Statements refers to the limited assurance obtained by an accountant that whether there are any material modifications that need to be made to an entity's financial statements required by the applicable financial reporting framework followed by that entity.
A review is different from the audit, as it provides less assurance to the users of financial statements.

The accountant will emphasize the matters which according to his opinion is of best of interest of users to be reported promptly.
Out of the given options available, the accountant is most likely would emphasize the significant transactions with the related parties, i.e. Option D.
Related Parties Transactions and Disclosures is the most significant and important of all the options given. It is very crucial for the accountant to closely monitor it and report it promptly, for a clear picture and better understanding of the financials of the entity.

Why not the other options :
A) The new tax law is applicable to all entities, and if there is any increase according to it, that will be shown and reflected in the financial statements, which doesn't need to be emphasized more in the report.
B) It is a change in accounting policy, which can be opted differently by the entities. If the other industries have changed to FIFO, it doesn't mean that our entity should do the same.
C) This would not impact the current year financial statements, and hence would not be included in the review report.