CPA Exam — AUDForming Conclusions and ReportingEasy
A CPA is performing an engagement to review the financial statements of a non-public entity. Which of the following procedures would typically be performed in such an engagement?
- AConfirmation of accounts receivable directly with debtors.
- BObservation of physical inventory counts at year-end.
- CInquiry of management about significant subsequent events.
- DAssessment of internal control over financial reporting.
Show answer & explanationAnswer & explanation
Correct answer: C. Inquiry of management about significant subsequent events.
A review engagement provides limited assurance, primarily through inquiry and analytical procedures. Inquiry of management regarding subsequent events is a standard procedure in a review.
Why the other options are wrong
- A. Confirmations are typically performed in an audit, not a review, as they provide a higher level of assurance.
- B. Observation of inventory is an audit procedure designed to obtain direct evidence about the existence and condition of inventory.
- D. Assessing internal control is a core procedure in an audit to determine the nature, timing, and extent of substantive testing, not a review.
Review Engagement Procedures
A review engagement provides limited assurance on financial statements, primarily through inquiry and analytical procedures, without performing extensive audit procedures.
- Less extensive than an audit.
- Primarily uses inquiry and analytical procedures.
- Provides limited (negative) assurance.
Memory trick: Reviews Really Rely on Reading and Asking.