CPA Exam — AUDForming Conclusions and ReportingMedium
A CPA is engaged to compile the financial statements of a small, non-public entity. In connection with this engagement, which of the following is a required procedure for the CPA?
- AObtaining an understanding of the entity's internal control.
- BConfirming accounts payable balances with vendor statements.
- CPerforming analytical procedures to identify unusual relationships.
- DReading the financial statements to consider whether they are free from obvious material errors.
Show answer & explanationAnswer & explanation
Correct answer: D. Reading the financial statements to consider whether they are free from obvious material errors.
In a compilation engagement, the CPA's primary responsibility is to present financial information in the form of financial statements without expressing any assurance. A required procedure is to read the financial statements to ensure they are free from obvious material errors and to consider whether they are appropriate in form and free from obvious material misstatements.
Why the other options are wrong
- A. Obtaining an understanding of internal control is an audit procedure, not required for a compilation.
- B. Confirming balances is an audit procedure, providing a high level of assurance, not performed in a compilation.
- C. Analytical procedures are typically performed in a review or audit engagement, not a compilation.
Compilation Engagement Procedures
A compilation engagement involves presenting financial information without expressing assurance, primarily requiring reading the financial statements for obvious material errors.
- No assurance expressed
- Limited procedures
- Read F/S for obvious errors
Memory trick: Compilations JUST ORGANIZE and READ for obvious mistakes.