CPA Exam — AUDForming Conclusions and ReportingEasy
A CPA is engaged to compile the financial statements of a small, non-public entity. In connection with this engagement, the CPA is required to:
- AIssue an opinion on the fairness of the financial statements.
- BPerform analytical procedures to identify unusual relationships.
- CObtain an understanding of the entity's internal control.
- DRead the financial statements for obvious material misstatements.
Show answer & explanationAnswer & explanation
Correct answer: D. Read the financial statements for obvious material misstatements.
In a compilation engagement, the CPA's primary responsibility is to present management's financial statements in the form of financial statements, without undertaking to obtain or provide any assurance. However, the CPA must read the financial statements to ensure they are free from obvious material misstatements.
Why the other options are wrong
- A. Issuing an opinion is characteristic of an audit, not a compilation, which provides no assurance.
- B. Analytical procedures are typically performed in a review or audit, not a compilation.
- C. Understanding internal control is a requirement for an audit, not a compilation.
Compilation Engagement
A compilation engagement involves presenting management's financial information in the form of financial statements without expressing any assurance on them.
- No assurance provided.
- CPA is not required to verify information.
- Must read for obvious material misstatements.
Memory trick: Compile Carefully, Confirm Nothing.