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Exam AUD topic 1 question 260 discussion

Actual exam question from AICPA's AUD
Question #: 260
Topic #: 1
[All AUD Questions]

Clark, CPA, compiled and properly reported on the financial statements of Green Co., a nonissuer, for the year ended March 31, 20X1. These financial statements omitted substantially all disclosures required by generally accepted accounting principles (GAAP). Green asked Clark to compile the statements for the year ended March 31, 20X2, and to include all GAAP disclosures for the 20X2 statements only, but otherwise present both years' financial statements in comparative form. What is Clark's responsibility concerning the proposed engagement?

  • A. Clark may not report on the comparative financial statements because the 20X1 statements are not comparable to the 20X2 statements that include the GAAP disclosures.
  • B. Clark may report on the comparative financial statements provided the 20X1 statements do not contain any obvious material misstatements.
  • C. Clark may report on the comparative financial statements provided an explanatory paragraph is added to Clark's report on the comparative financial statements.
  • D. Clark may report on the comparative financial statements provided Clark updates the report on the 20X1 statements that do not include the GAAP disclosures.
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Suggested Answer: A 🗳️
Choice "A" is correct. Compiled financial statements that omit substantially all the disclosures required by GAAP are not comparable to financial statements that do include required GAAP disclosures. Accordingly, the 20X1 statements are not comparable to the 20X2 statements and Clark cannot report on them.
Choice "B" is incorrect. The lack of material misstatements does not alter the fact that the statements are not comparable and therefore Clark may not report on them.
Choice "C" is incorrect. Compiled financial statements that omit substantially all of the disclosures required by GAAP are not comparable to financial statements that include such disclosures. Accordingly, Clark may not report on the comparative financial statements, even if an explanatory paragraph is added.
Choice "D" is incorrect. Updating the auditor's report does not change the fact that the financial statements for the two periods are not comparable.
by gemazyni at April 5, 2025, 4:23 p.m.

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