The following draft of a review engagment report has been submitted by a staff m

Question

The following draft of a review engagment report has been submitted by a staff member to the manager for review. The table below contains the comments by the manager about the draft. Indicate by selecting from the list provided whether the original draft is correct, the audit manager's comment is correct, or neither is correct.

We have reviewed the accompanying balance sheet of ABC Company as of December 31, Year 1, and the related statements of income, retained earnings, and cash flows for the year then ended. A review includes primarily making inquiries of company management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the finacnial statements as a whole. Accordingly, we do not express such an opinion.

Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America and for designing, implementing, and maintaining internal control relevant to the preparation and fair presentation of the financial statements.

Our responsibility is to conduct the review in accordance with Statements on Standards for Accounting and REview Services issued by the Auditing Standards Board. Those standards require us to perfom procedures to obtain limited assurance that there are no material modifications that should be made to the financial statements. We believe that the results of our procedures provide a reasonable basis for our report.

Based on our examination, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America.

For each, state: A) The original draft is correct, B) The manager's comment is correct, or C) Neither is correct.

Manager's Comments:

1) The report should not refer to the statement of cash flows because a nonissuer does not prepare this statement.

2) The second sentence in the first paragraph also should refer to analytical procedures.

3) The third sentence in the first paragraph should state that the review is "substantially greater in scope..."

4) The last sentence in the frst paragraph should be deleted.

5) The second paragraph should state that the CPA is responsible for the preparation of the fair presentation of the financial statements.

6) The first sentence in the third paragraph should state that the accounting and review standards are established by the federal government.

7) The fourth paragraph should state, "Based on our study..." rather than "Based on our examination..."

8) The fourth paragraph should state, "conformity with auditing principles" rather than "conformity with accounting principles.

Explanation / Answer

The Answers are as below

1. Original Draft is Correct

2.The Manager Comment is Correct

3.Original Draft is Correct

4. Original Draft is Correct

5. Original Draft is Correct

6. Neither is correct, The Correct Answer is Our responsibility is to conduct the reviews in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants

7. Neither is correct, The Correct Answer is “Based on our reviews..”

8.Original Draft is Correct

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