[CPApracticer]

Can someone please help me understand this one. I do not understand how come the auditor doesn’t ussue an adverse opinion when the question says that that the lease is MATERIAL to the F/S and client will not capitalize on them

During an engagement to review the financial statements of a nonissuer, an accountant becomes aware that several leases that should be capitalized are not capitalized. The accountant considers these leases to be material to the financial statements. The accountant decides to modify the standard review report because management will not capitalize the leases. Under these circumstances, the accountant should:

Incorrect A.

issue an adverse opinion because of the departure from the applicable financial reporting framework.

B.

express no assurance of any kind on the entity’s financial statements.

C.

emphasize that the financial statements are for limited use only.

D.

disclose the departure from the applicable financial reporting framework in a separate paragraph of the accountant’s review report.

You answered A. The correct answer is D.

If an accountant who is engaged to review financial statements becomes aware of a departure from the applicable financial reporting framework, the accountant should disclose the departure in a separate paragraph of the review report.

The effects of the departure on the financial statements (if the effects have been determined by management or are known as the result of the accountant’s procedures) should be disclosed as well. The accountant is not required to determine the effects of a departure if management has not done so, provided that the accountant states in the report that such determination has not been made.

F: 54 (4/13) 60 (4/14) 67 (9/14) 66 (10/14) 63 (11/15) 79 (2/16) PASSED
A: 60 (5/13) 80 (4/16) PASSED
R: 60 (7/13) 61 (2/15) 70 (4/15) 77 (7/15) PASSED
B: (6/16)

[Anonymous]

Because it's a review not an audit

[busybee1213]

@CPApracticer In a review, the auditor's job is to provide limited (negative) assurance. The auditor isn't giving an opinion, but instead is saying “I am not aware of any material modifications necessary for statements to conform with applicable blah blah.” No understanding of internal control or assess control risk necessary in review. There are NO audit testing in a review- only analytical procedures and inquiry.

If auditor determines that material modifications to the F/S need to be made and mgmt refuses, auditor needs to add a paragraph called “Known Departures from {whatever framework}. This para should include effects of material modification if known. The auditor should also say in the conclusion “based on our review, except for the issue noted in the known departure para… we are not aware of any material modifications that should be made.”

I know I gave you a ton of info- but hopefully laying out the inherent differences in a review and audit will help you remember next time.

Good luck!!!

FAR- 1/5/16 PASSED
AUD- 4/18/16 PASSED
BEC- 7/21/16
REG- SEPTEMBER

[Author]

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