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CHAPTER 30 NONAUDIT ENGAGEMENTS: PROCEDURES AND REPORTS Questions and Answers: 1. Give examples of how an auditor might assume that “what was held true in the past for the enterprise under examination will hold true in the future.” Answer: Examples of using “what has held true in the past will hold true in the future:” (a)evaluating the collectibility of accounts receivable base
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  CHAPTER 30NONAUDIT ENGAGEMENTS:PROCEDURES AND REPORTS Questions and Answers:  1.Give examples of how an auditor might assume that “what was held true inthe past for the enterprise under examination will hold true in the future.”Answer:Examples of using “what has held true in the past will hold true in thefuture:”(a)evaluating the collectiilit! of accounts receivale ased on pastcollection histor! ()evaluating inventor! osolescence on the asis of past usage patterns (c)assessing the economic usefulness and useful lives of fixed assets asedupon experience with similar assets (d)rel!ing on a control ris# assessment for a period etween the time of thesrcinal assessment at interim and the fiscal !ear$end and(e)expecting to encounter classification and evaluation errors whenmanagement has een #nown to have acted without sufficient decisionplanning in the past.%.&hat are unaudited statements' n connection with unaudited statements which general reporting guides should the auditor follow for puliccompanies'Answer:inancial statements are unaudited if the *+A has not applied an! auditingprocedures or has not applied procedures which produced sufficientevidence upon which to ase an opinion on the financial statements as awhole.&ith respect to unaudited statements in addition to a disclaimer of opinion  (pulic companies) the following guides should e followed:  30-2 Solutions Manual – Public Accountancy Profession 1.f the *+A should learn that the statements are not in conformit! withfinancial reporting standards (including ade,uate disclosures) he shouldexplain the departures in the disclaimer.%.f prior !ears- unaudited statements are present the disclaimer shouldcover them as well as the current !ear statement..Each page of the statements should e clearl! laeled as unaudited../ow are prospective financial statements defined'Answer: +rospective financial statements   are defined as complete financialstatements in the same form as traditional income statements statement of financial positions and statements of changes in financial position./owever an areviated presentation constitutes prospective financialstatements if its contains all of these items (if applicale):1.0ale or gross revenue%.Gross profit.nusual or infre,uentl! occurring items2.+rovision for income taxes3.4iscontinued operations or extraordinar! items5.6et income7.+rimar! and full! diluted earnings per share8.0ummar! of significant changes in financial position9.0ummar! of significant assumptions1.0ummar! of significant accounting policies;mission of an! items 1<8 ma#es the presentation a partial presentation.;mission of 9 or 1 ma#es it a deficient presentation.2.&hat are the similarities and differences etween examination reports onforecasts and audit reports on historical financial statements' *ompilationreports on forecasts' *ompilation reports on historical financialstatements'Answer: Similarities and Differences Audit =eport   Nonaudit Engagements: Procedures and Reports   30-3 Examination =eport on a )orecast on /istorical 0tatements  a.dentification of financial statementsand what the!intend to represent.a.dentification of statements audited..&arning aoutultimate attainmentof prospectiveresults.c.0tatement aoutreview inaccordance withA0+* standards.c.0tatement that auditwas in accordancewith +0A.d.;pinion > assuranceaout presentationand reasonaleassumptions. d.;pinion aoutconformit! with+=0.e.0tatement aout noresponsiilit! toupdate the report. *ompilation =eport on a )orecast *ompilation =eport on /istorical 0tatements  a.dentification of financial statementsand what the!represent.a.dentification of statementscompiled..&arning aoutultimate attainmentof prospectiveresults..0tatement > warningthat information isthe representationof management(owners).c.0tatement aoutcompilation inaccordance withc.0ame #ind of statement aoutcompilation and  30-4 Solutions Manual – Public Accountancy Profession A0+* standards.A0+* standards.d.4isclaimer of opinion > assurance.d.4isclaimer of opinion > assurance.e.0tatement aout noresponsiilit! toupdate the report.3&hat is the difference etween a review services engagement and acompilation service engagement regarding historical financial statement'*ompare oth of these to an audit engagement'Answer:?oth review service and compilation service engagements are less than anaudit. A comparison of the three amounts to a hierarch!   of assurance:1.Audit engagementAuditor otains sufficientcompetent evidence thatserves as a asis for anopinion on financialstatements. @he auditor otains reasonale assurance   within theinherent limitations of theaudit process.%.=eviewengagementAccountant otains limited assurance   throughanal!tical procedures thatthere are no materialmodifications that shoulde made to financialstatements..*ompilationengagementAccountant puts clientinformation in financialstatement form without otaining an! assurance  (ecause no procedures
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