CPA Quiz: Review And Compilation
20 questions · exam conditions
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Review And CompilationQuestion 1 of 20

An accountant performs a compilation engagement for a nonissuer and is asked to omit the accountant's report entirely because management wants to provide the financial statements to a lender "without extra pages." Under which circumstance would the practitioner need to communicate specific findings?

The accountant should communicate to management that a report is required for a compilation unless the compilation is omitted under permitted circumstances, and should not allow submission that implies assurance
The accountant should communicate directly with the lender to obtain permission to omit the compilation report
No communication is needed because management can decide whether to attach the accountant's report
The accountant should communicate only after the lender rejects the financial statements, because timing does not matter in compilation engagements
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CPA Quiz

CPA Quiz: Review And Compilation

Practice Review And Compilation in CPA with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Review And Compilation, giving you a quick way to practice the rules, question types, and explanations that matter most for CPA.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

All questions

Question 1

An accountant performs a compilation engagement for a nonissuer and is asked to omit the accountant's report entirely because management wants to provide the financial statements to a lender "without extra pages." Under which circumstance would the practitioner need to communicate specific findings?

  1. The accountant should communicate to management that a report is required for a compilation unless the compilation is omitted under permitted circumstances, and should not allow submission that implies assurance (correct answer)
  2. The accountant should communicate directly with the lender to obtain permission to omit the compilation report
  3. No communication is needed because management can decide whether to attach the accountant's report
  4. The accountant should communicate only after the lender rejects the financial statements, because timing does not matter in compilation engagements
Explanation: This question tests the requirements under AR-C Section 80 for compilation engagements performed by accountants for nonissuer entities, specifically the necessity of issuing an accountant's compilation report. The key facts are that the accountant is engaged to perform a compilation, but management requests to omit the report when submitting financial statements to a third-party lender to avoid 'extra pages.' Choice A is correct because it aligns with SSARS guidance requiring the accountant to communicate the need for a report in a compilation engagement to clearly disclaim any assurance, unless permitted circumstances allow omission, and to prevent submissions that could imply assurance to users. Choice B is incorrect as direct communication with the lender without management's authorization violates confidentiality and professional standards under AR-C Section 60. Choice C is incorrect because the accountant cannot defer the decision solely to management, as SSARS mandates the report to properly reflect the non-assurance nature of the engagement; choice D is incorrect since communication must occur before submission, not reactively after rejection, to comply with timely professional responsibilities. A transferable framework for professional judgment in compilation engagements involves evaluating the client's intended use of financial statements and ensuring the engagement type—such as compilation versus preparation—aligns with reporting needs. Accountants should apply a decision rule to always include the required report or reclassify the engagement if omission is desired, thereby upholding the disclaimer of assurance and protecting third-party users.

Question 2

An accountant is engaged to perform a compilation engagement for a nonissuer retailer on financial statements prepared using a special purpose framework. Management refuses to include substantially all disclosures because "the bank only wants the numbers," and the omission is not intended to mislead. Which report modification is appropriate given the circumstances?

  1. Add a separate paragraph stating that the accountant provides limited assurance based on inquiry and analytical procedures
  2. Issue a standard compilation report with no modification because disclosures are never required in a compilation
  3. Modify the compilation report to disclose the omission of substantially all disclosures and include the statement that the financial statements are not designed for those not informed about the omission (correct answer)
  4. Issue an adverse opinion because omission of disclosures is a departure from the applicable financial reporting framework
Explanation: This question tests the reporting requirements under AR-C Section 80 for compilation engagements when substantially all disclosures are omitted. The key facts are the use of a special purpose framework and management's refusal to include disclosures, with no intent to mislead. Choice C is correct because AR-C 80 requires modifying the compilation report to disclose the omission and state that the financial statements are not designed for those uninformed about it, aligning with standards to prevent misunderstanding. Choice A is incorrect as compilations provide no assurance, so adding limited assurance violates AR-C 80; choice B is incorrect because omissions require disclosure in the report even in compilations. Choice D is incorrect because adverse opinions are not issued in compilations, which disclaim assurance entirely under SSARS. Practitioners should assess if omitted disclosures could mislead users and request inclusion if necessary, withdrawing if the statements are misleading. This framework promotes transparency in compilation reports by clearly communicating limitations to intended users.

Question 3

A practitioner is engaged to perform a review of a nonissuer entity. The practitioner identifies that accounts receivable increased significantly, but management refuses to provide an aged trial balance or any support for collectability estimates. Which report modification is appropriate given the circumstances if the practitioner cannot obtain sufficient information to complete required procedures?

  1. Issue a qualified conclusion due to a scope limitation, or withdraw if necessary (correct answer)
  2. Issue an adverse conclusion due to a scope limitation
  3. Issue a standard review report because confirmations are not required in a review
  4. Issue a disclaimer of opinion under auditing standards
Explanation: This question tests scope limitations under AR-C Section 90 in review engagements. The key facts are the significant increase in accounts receivable without supporting information, preventing procedure completion. Choice A is correct because AR-C 90 requires a qualified conclusion or withdrawal for scope limitations that preclude sufficient evidence. Choice B is incorrect as adverse conclusions are for misstatements, not scope issues; choice C is incorrect because reviews require addressing such matters. Choice D is incorrect since disclaimers under auditing standards do not apply to reviews. Practitioners should evaluate the impact of limitations on the ability to form a conclusion and modify accordingly. This decision rule ensures reports reflect the reliability of limited assurance provided.

Question 4

A practitioner is performing a review engagement of a nonissuer technology startup. Management refuses to provide a written management representation letter at the conclusion of the engagement, stating that verbal representations should be sufficient. Which report modification is appropriate given the circumstances?

  1. Issue the standard review report because written representations are not required in a review
  2. Issue a qualified conclusion due to a departure from the financial reporting framework
  3. Withdraw from the review engagement because the practitioner cannot complete the engagement without written representations (correct answer)
  4. Convert the engagement to an audit and request written representations as part of the audit
Explanation: This question tests the requirement for written representations under AR-C Section 90 in review engagements. The key facts are management's refusal to provide a written representation letter, which is essential for completing the engagement. Choice C is correct because AR-C 90 requires written representations, and inability to obtain them necessitates withdrawal to avoid issuing an incomplete report. Choice A is incorrect as written representations are mandatory in reviews; choice B is incorrect because the issue is a scope limitation, not a framework departure. Choice D is incorrect as converting to an audit requires client agreement and changes the engagement scope under professional standards. Practitioners should insist on written representations to confirm management's responsibilities and support limited assurance. This framework protects the practitioner from undue risk when evidence is insufficient.

Question 5

An accountant is engaged to review the financial statements of a nonissuer. During the review, the accountant becomes aware of a material departure from the applicable financial reporting framework. Management refuses to correct the financial statements.

What is the most appropriate action for the accountant to take regarding the review report?

  1. Issue an adverse opinion on the financial statements.
  2. Withdraw from the engagement and provide no report.
  3. Issue the standard review report and document the matter in the working papers.
  4. Modify the review report to disclose the departure from the financial reporting framework. (correct answer)
Explanation: When an accountant performing a review becomes aware of a material departure from the applicable financial reporting framework and management does not revise the financial statements, the accountant should modify the review report. The modification includes a separate paragraph describing the nature of the departure and its effects on the financial statements.

Question 6

A client requests that an accountant compile financial statements that omit substantially all disclosures required by the applicable financial reporting framework. If the accountant believes the omission is not intended to mislead users, which action is appropriate?

  1. The accountant must withdraw from the engagement immediately.
  2. The accountant may issue a compilation report, provided the report discloses the omission of the disclosures. (correct answer)
  3. The accountant must insist that the client include at least the summary of significant accounting policies.
  4. The accountant may issue the standard compilation report without modification.
Explanation: SSARS permits an accountant to compile financial statements that omit substantially all disclosures required by the framework, as long as the omission is not undertaken to mislead users. The accountant's report must be modified to clearly indicate that the disclosures have been omitted.

Question 7

An accountant reviewed a nonissuer's financial statements for the current year and had compiled the financial statements for the prior year. How should the accountant report on the comparative financial statements?

  1. The accountant must reissue the prior year's compilation report separately from the current year's review report.
  2. The report on the current period should be expanded to include a separate paragraph describing the responsibility assumed for the prior period's compiled financial statements. (correct answer)
  3. The accountant must perform review procedures on the prior year's financial statements to equalize the level of service.
  4. The accountant should only issue a report on the current year's financial statements and not reference the prior period.
Explanation: When the level of service performed on comparative financial statements differs between periods, the accountant's report should be updated. The report should include a separate paragraph (an other-matter paragraph) that describes the service performed in the prior period, the date of the previous report, a statement that no procedures were performed after that date, and the type of assurance (or lack thereof) expressed.

Question 8

An accountant is engaged to review financial statements prepared on the cash basis of accounting, a special purpose framework. The financial statements and related disclosures are appropriate for the framework. What modification, if any, is required for the accountant's review report?

  1. The report's conclusion must be modified because the statements do not conform to GAAP.
  2. No modification is needed; the standard review report for a nonissuer may be used.
  3. An emphasis-of-matter paragraph should be added to draw attention to the special purpose framework. (correct answer)
  4. The accountant must issue a compilation report instead of a review report.
Explanation: When reporting on financial statements prepared in accordance with a special purpose framework, the accountant should include an emphasis-of-matter paragraph in the review report. This paragraph states that the financial statements are prepared in accordance with the special purpose framework, refers to the note describing the framework, and indicates that the framework is a basis of accounting other than GAAP.

Question 9

An accountant performing a compilation of financial statements that omit substantially all disclosures concludes that the omissions are intended to mislead users of the financial statements. The accountant's most appropriate course of action is to:

  1. Issue the compilation report with a paragraph describing the misleading nature of the statements.
  2. Issue an adverse conclusion on the financial statements.
  3. Withdraw from the engagement. (correct answer)
  4. Insist that the client include all required disclosures before issuing a report.
Explanation: If an accountant, in a compilation engagement where disclosures are omitted, believes that the financial statements are misleading, the accountant should withdraw from the engagement. Simply disclosing the omission is insufficient if the intent is to mislead.

Question 10

An accountant has reviewed a nonissuer's basic financial statements and is asked to issue a separate report on supplementary information that is accompanying the statements. The supplementary information was subjected to the review procedures. The report on the supplementary information should:

  1. Express an opinion on whether the information is fairly stated in all material respects.
  2. State that the review procedures were not sufficient to express any assurance on the information.
  3. State whether the accountant is aware of any material modifications that should be made to the information. (correct answer)
  4. Disclaim any responsibility for the supplementary information.
Explanation: When reporting on supplementary information in conjunction with a review of financial statements, the accountant's conclusion should be based on the review procedures performed. The report should state whether the accountant is aware of any material modifications that should be made to the supplementary information for it to be in accordance with the applicable criteria.

Question 11

An accountant was engaged to perform a review of a company's financial statements. During the engagement, the client's controller was uncooperative and significantly delayed providing necessary information, preventing the accountant from completing key analytical procedures. The client has now requested to change the engagement to a compilation.

Under these circumstances, what is the accountant's most appropriate response?

  1. Agree to the change and issue a standard compilation report without referencing the change.
  2. Issue a review report with a qualified conclusion due to the scope limitation.
  3. Refuse to change the engagement and withdraw, considering the reason for the request is unreasonable. (correct answer)
  4. Agree to the change but require that the compilation report describe the review procedures that were not completed.
Explanation: When asked to change an engagement to a lower level of service, the accountant must consider the reason for the request. A scope limitation imposed by the client is generally not considered a reasonable basis for the change. In this case, the inability to complete procedures due to client actions suggests the client may be trying to hide information, making withdrawal the most appropriate action.

Question 12

An accountant performing a review concludes there is substantial doubt about an entity's ability to continue as a going concern. Management has included adequate disclosures regarding this matter in the financial statements. How should the accountant's review report be modified?

  1. The conclusion paragraph should be modified to state the financial statements are not fairly presented.
  2. The report should include an emphasis-of-matter paragraph referencing management's disclosures. (correct answer)
  3. The accountant should issue a compilation report instead of a review report.
  4. No modification to the standard review report is necessary if the disclosure is adequate.
Explanation: When an accountant becomes aware of conditions that indicate substantial doubt about an entity's ability to continue as a going concern, and management's disclosures are adequate, the accountant should include an emphasis-of-matter paragraph in the review report. This paragraph draws attention to the note in the financial statements that discusses the matter, but it does not modify the accountant's conclusion.

Question 13

A successor accountant is reviewing a nonissuer's current-period financial statements. The prior-period financial statements, which were compiled by a predecessor accountant, are also presented. The predecessor's report is not reissued. What should the successor accountant do?

  1. Perform a full review of the prior-period financial statements to provide assurance on them.
  2. Insist that the client have the predecessor accountant reissue their report.
  3. Include an other-matter paragraph in the current-period report referencing the predecessor's report on the prior period. (correct answer)
  4. State in the report that a review of the prior-period financial statements was not performed and no assurance is given.
Explanation: When a predecessor accountant's report is not reissued, the successor accountant should include an other-matter paragraph in their report on the current period. This paragraph should state that the prior-period financial statements were handled by another accountant, the type of service performed (compilation), the date of the report, and the assurance (or lack thereof) provided.

Question 14

During a review of a nonissuer's financial statements, an accountant accumulates several uncorrected misstatements that are individually immaterial. However, the aggregate of these misstatements is material to the financial statements as a whole. Management refuses to make the proposed adjustments. The accountant should:

  1. Issue a standard, unmodified review report since each misstatement is immaterial.
  2. Issue a review report with a modified conclusion describing the aggregate material misstatement. (correct answer)
  3. Withdraw from the engagement and communicate the reasons to the board of directors.
  4. Issue an unmodified review report but include an other-matter paragraph about the misstatements.
Explanation: The accountant must evaluate the effect of uncorrected misstatements, both individually and in the aggregate. If the aggregate of uncorrected misstatements is material, it constitutes a departure from the applicable financial reporting framework. Therefore, the accountant should modify the conclusion in the review report and describe the material misstatement.

Question 15

During a compilation engagement, an accountant becomes aware that the client's inventory is materially overstated. The client agrees to disclose this departure from the applicable financial reporting framework in a footnote but will not adjust the financial statements. What is the accountant's reporting obligation?

  1. Withdraw from the engagement because the financial statements are materially misstated.
  2. Issue a standard compilation report because the departure is disclosed.
  3. Modify the compilation report to describe the departure from the framework. (correct answer)
  4. Issue a review report instead, concluding that the statements are not fairly presented.
Explanation: If the accountant becomes aware of a departure from the applicable financial reporting framework during a compilation, the accountant should recommend that the client revise the financial statements. If the client does not make the revisions, the accountant should consider modifying the compilation report to disclose the departure. Disclosure in a footnote by the client is insufficient; the accountant's report must be modified.

Question 16

During a review engagement, a client's management refuses to provide a signed representation letter after the accountant has performed all other necessary review procedures.

The client's refusal to provide a representation letter constitutes a scope limitation. What is the most likely effect on the accountant's report?

  1. The accountant should issue a compilation report instead.
  2. The accountant is precluded from issuing a review report and should withdraw. (correct answer)
  3. The accountant should issue a review report with a modified conclusion.
  4. The accountant should issue an unmodified review report but describe the limitation in an other-matter paragraph.
Explanation: A signed representation letter from management is a required component of a review engagement. Management's refusal to provide one is a scope limitation that is so significant that the accountant cannot complete the engagement. Therefore, the accountant is precluded from issuing a review report and should withdraw from the engagement.

Question 17

A practitioner is performing a review for a nonissuer and identifies evidence that management may have overridden controls to accelerate revenue recognition. The practitioner believes the matter could be material and pervasive. What is the most appropriate action for the practitioner to take?

  1. Expand inquiries and other review procedures to address the risk of material misstatement due to fraud, and consider the effect on the review report if unresolved (correct answer)
  2. Rely solely on the management representation letter because fraud considerations are outside the scope of a review
  3. Immediately issue a disclaimer of opinion under auditing standards
  4. Discuss the matter only with the controller because communication to those charged with governance is prohibited in a review
Explanation: This question tests fraud considerations under AR-C Section 90 in review engagements. The key facts are indicators of material and pervasive revenue fraud. Choice A is correct because AR-C 90 requires expanding procedures and considering report modifications if unresolved, addressing risks to the conclusion. Choice B is incorrect as fraud is within review scope; choice C is incorrect because disclaimers are not automatic. Choice D is incorrect since communication to governance is required. Practitioners should scale procedures based on risk assessment and document findings. This rule enhances detection and response in limited assurance contexts.

Question 18

An accountant is engaged to perform a compilation for a nonissuer and becomes aware that management intends to use the compiled financial statements to solicit outside investors, but the statements omit substantially all disclosures and the omission is not clearly described to prospective users. What is the most appropriate action for the accountant to take?

  1. Proceed with the compilation and rely on management's responsibility to communicate disclosure omissions to users
  2. Modify the compilation report to include a paragraph providing limited assurance over the omitted disclosures
  3. Request that management include disclosures or ensure the omission is not misleading; if management refuses and the statements would be misleading, consider withdrawing (correct answer)
  4. Issue a review report without performing additional procedures so investors receive some assurance
Explanation: This question tests responsibilities under AR-C Section 80 when compiled statements may mislead external users. The key facts are the omission of disclosures without clear description to investors. Choice C is correct because AR-C 80 requires requesting corrections if statements are misleading, and withdrawal if refused, to avoid association with deceptive information. Choice A is incorrect as accountants cannot rely solely on management for external communications; choice B is incorrect because compilations provide no assurance. Choice D is incorrect since upgrading to review requires additional procedures. Practitioners should evaluate intended use and potential misleading effects before issuing reports. This framework protects users and the profession from misuse of compiled statements.

Question 19

A practitioner is engaged to perform a review of a nonissuer not-for-profit's financial statements. The practitioner identifies that contributions revenue increased 60% while cash receipts are flat; management explains that a large pledge was recorded but cannot provide donor documentation or board approval. Which report modification is appropriate given the circumstances if the practitioner cannot resolve the matter through additional procedures?

  1. Issue an unmodified review report because the practitioner is not required to obtain evidence beyond management inquiry
  2. Modify the review report to express a qualified conclusion or adverse conclusion due to a material misstatement (correct answer)
  3. Issue a compilation report that disclaims assurance and does not mention the unresolved issue
  4. Issue a disclaimer of opinion because the practitioner could not obtain audit evidence
Explanation: This question tests reporting modifications under AR-C Section 90 for review engagements with unresolved material misstatements. The key facts are the unexplained increase in contributions revenue without documentation, indicating a potential misstatement. Choice B is correct because AR-C 90 requires a qualified or adverse conclusion when material misstatements cannot be resolved, reflecting the impact on limited assurance. Choice A is incorrect as practitioners must address unresolved matters beyond inquiry; choice C is incorrect because downgrading to compilation does not resolve the issue. Choice D is incorrect since disclaimers are not standard in reviews but may apply in severe scope limitations under SSARS. Practitioners should assess the pervasiveness of misstatements to choose between qualified or adverse conclusions. This decision rule maintains the credibility of review reports by highlighting known issues.

Question 20

An accountant is performing a compilation for a nonissuer and is asked to include projected financial information for the next year within the same financial statement package, without labeling it as prospective information. What is the most appropriate action for the accountant to take?

  1. Include the projections as presented because a compilation allows mixing historical and prospective information without additional reporting
  2. Refuse to include unlabeled prospective information in the historical financial statements; if preparing prospective information, perform and report under the appropriate prospective information standards (correct answer)
  3. Include the projections and add a paragraph stating the accountant does not guarantee results
  4. Upgrade the engagement to a review and provide negative assurance on the projections
Explanation: This question tests the inclusion of prospective information in compilation engagements under AR-C Section 80. The key facts are the request to include unlabeled projections in historical statements. Choice B is correct because AR-C 80 prohibits mixing without proper labeling, requiring separate standards like AT-C for prospective information to avoid confusion. Choice A is incorrect as mixing implies inappropriate assurance; choice C is incorrect because guarantees are irrelevant. Choice D is incorrect since reviews require specific procedures. Practitioners should segregate historical and prospective data to match appropriate reporting standards. This rule prevents user misunderstanding of information reliability.