[Anonymous]

This is NINJA AUD question #1193

During an engagement to review the financial statements of a nonissuer, an accountant becomes aware of a material departure from GAAP. If the accountant decides to modify the standard review report because management will not revise the financial statements, the accountant should:

A.

express negative assurance on the accounting principles that do not conform with GAAP.

B.

disclose the departure from GAAP in a separate paragraph of the report.

C.

issue an adverse or an “except for” qualified opinion, depending on materiality.

D.

express positive assurance on the accounting principles that conform with GAAP.

The solution states:

In reference to a departure from GAAP in the financial statements of a nonissuer which are to be reported on by a review engagement, AR 90.35 specifies the appropriate reporting. This section explains that the report, if modified, should disclose the departure from GAAP in a separate paragraph.

Positive assurance and adverse or “except for” qualified opinions are appropriate only in an audit engagement.

A review provides limited assurance, thus expression of negative assurance is not appropriate.

The part I don’t get is:

“A review provides limited assurance, thus expression of negative assurance is not appropriate.”

I thought limited assurance meant negative assurance? All the research I’ve done on google says this is the case. Please let me know what I am missing or is the question just incorrect?

[Son]

I think the explanation is just worded in an awkward way. I would guess you just need to read that phrase in the context of the answer choice it relates to:

“A review provides limited assurance, thus expression of negative assurance [on the accounting principles that do NOT conform with GAAP] is not appropriate.”

The logic here is not very straightforward, but the way I read it the explanation is only saying that you cannot provide negative assurance on incorrectly applied accounting principles. I also think the answer doesn't really address the “trick” with this answer choice: I would imagine the examiners are trying to imply that negative assurance means that principle is applied incorrectly, and you're highlighting the error in your report by providing “negative assurance” on it (implying as if the word “negative” meant “bad” in this context). But, as you know, negative (or limited assurance – it's the same thing as you've correctly noted) only means you're unaware of anything that should be corrected based on your review.

Hope I didn't confuse you even more:)

AUD - passed
REG - passed
BEC - passed
FAR - passed

[Anonymous]

I think I see where you are coming from. The solution is definately trickier than the problem in this case.

[Author]

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