Question

QUESTION 33

1. Wallace & Wallace, CPAs, audited the financial statements of West Co., a nonpublic entity, for the year ended September 30, 20X1, and expressed an unqualified opinion. For the year ended September 30, 20X2, West issued comparative financial statements. Wallace & Wallace reviewed West's 20X2 financial statements and Gordon, an assistant on the engagement, drafted the accountant's review report below. Martin, the engagement supervisor, decided not to reissue the prior year's auditor's report, but instructed Gordon to include a separate paragraph in the current year's review report describing the responsibility assumed for the prior year's audited financial statements.
   
   Martin reviewed Gordon's draft and indicated in Martin's Review Notes that there were many deficiencies in Gordon's draft.
   
   Accountant's Review Report
   
   We have reviewed the accompanying balance sheet of West Company as of September 30, 20X2, and the related statements of income and cash flows for the year then ended. A review includes primarily applying analytical procedures to management's financial data and making inquiries of company management. A review also includes assessing the accounting principles used and significant estimates made by management, as well as, evaluating the overall financial statement presentation.
   
   Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America.
   
   Our responsibility is to conduct the review in accordance with standards issued by the American Institute of Certified Public Accountants. Those standards require us to perform procedures to obtain limited assurance that there are no material modifications that should be made to the financial statements. We believe that the results of our procedures provide a reasonable basis for our report.
   
   Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements. Accordingly, the accompanying financial statements have been prepared assuming that the company will continue as a going concern. Furthermore, we have no responsibility to update this report for events and circumstances occurring after the date of this report.
   
   The financial statements for the year ended September 30, 20X1, were audited by us and we expressed an unqualified opinion on them in our report dated November 7, 20X1, but we have not performed any auditing procedures since that date. In our opinion, the financial statements referred to above are presented fairly, in all material respects, for the year then ended in conformity with generally accepted accounting principles.
   
   Wallace & Wallace, CPAs
   November 6, 20X2
   
   For each report deficiency noted by Martin, select whether (1) Martin is correct; (2) Gordon is correct; or (3) both are incorrect.

   -       1.       2.       3.    There should be a reference to the prior year's audited financial statements in the first (introductory) paragraph.       -       1.       2.       3.    All of the current year's basic financial statements are not properly identified in the first (introductory) paragraph.       -       1.       2.       3.    The standards referred to in the third (accountant's responsibilities) paragraph should not be standards issued by the American Institute of Certified Public Accountants, but should be Standards for the Compilation and Review of Financial Statements.       -       1.       2.       3.    The title of the report should be Independent Review Report.       -       1.       2.       3.    The statement in the third paragraph that the accountant is required to perform procedures to obtain limited assurance that there are no material modifications that should be made to the financial statements should be in the introductory paragraph following the description of a review.       -       1.       2.       3.    There should be a statement in the second (management's responsibilities) paragraph that describes management's responsibilities relative to internal control.       -       1.       2.       3.    There should be a comparison of the scope of a review to an audit in the introductory paragraph.       -       1.       2.       3.    There should be no reference to assessing the accounting principles used; significant estimates made by management; and evaluating the overall financial statement presentation in the introductory paragraph.

   1. Martin is correct 2. Gordon is correct 3. Both are incorrect

Answer 1

Answer-

2.Gordon is correct	There should be a reference to the prior year's audited financial statements in the first (introductory) paragraph.	Reference to prior yer financial statements should be in "Other mateers" para and not in Introductory paragraph.
1.Martin is correct	All of the current year's basic financial statements are not properly identified in the first (introductory) paragraph.	St of changes in Equity and Related notes is not mentioned in financial statements.
1.Martin is correct	The standards referred to in the third (accountant's responsibilities) paragraph should not be standards issued by the American Institute of Certified Public Accountants, but should be Standards for the Compilation and Review of Financial Statements.	review should be as per Standards for compilation and review of financial statements issued by A.I.C.P.A Accounting and review service committee.
2.Gordon is correct	The title of the report should be Independent Review Report.	As obtaining limites assurance should be in Auditors responsibilty paragraph, not in Introductory paragraph.
2.Gordon is correct	The statement in the third paragraph that the accountant is required to perform procedures to obtain limited assurance that there are no material modifications that should be made to the financial statements should be in the introductory paragraph following the description of a review.	As obtaining limites assurance should be in Auditors responsibilty paragraph, not in Introductory paragraph.
1.Martin is correct	There should be a statement in the second (management's responsibilities) paragraph that describes management's responsibilities relative to internal control.	as managment is responsible for Implementation and maintnance of internal controls.
1.Martin is correct	There should be a comparison of the scope of a review to an audit in the introductory paragraph.	as Review is less in scope than Audit.
1.Martin is correct	There should be no reference to assessing the accounting principles used; significant estimates made by management; and evaluating the overall financial statement presentation in the introductory paragraph.	As these all things are mentioned in Management represntation letter.