When providing limited assurance that the reviewed financial statements of a non

Question

When providing limited assurance that the reviewed financial statements of a nonpublic entity require no material modifications to be in accordance with generally accepted accounting principles, the accountant should:

a. Assess the risk that a material misstatement could occur in a financial statement assertion.

   b. Confirm with the entity’s lawyer that material loss contingencies are disclosed.

   c. Understand the accounting principles of the industry in which the entity operates.

   d. Develop audit plans to determine whether the entity's financial statements are fairly presented.

Explanation / Answer

Option (c) is correct because

A private entity may engage a CPA(central public accounts) to perform a review of its financial statements and issue a report that provides limited assurance that material changes to the financial statements are not necessary.The CPA(central public accounts) obtains a working knowledge of the industry in which the entity operates and acquires information on key aspects of the organization, including operating methods, products and services, and material transactions with related parties.

The CPA will then make inquiries concerning such financial statement-related matters as accounting principles and practices, recordkeeping practices, accounting policies, actions of the board of directors, and changes in business activities.

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