When a CPA Reports on Audited Financial Statements Prepared on the Cash

question 559

Multiple Choice

When a CPA reports on audited financial statements prepared on the cash receipts and disbursements basis of accounting, the report should:

• A) Explain why this basis of accounting is more useful for the readers of this entity's financial statements than GAAP.
• B) Refer to the note in the financial statements that describes management's responsibility for the financial statements.
• C) State that the basis of presentation is a comprehensive basis of accounting (OCBOA) other than GAAP.
• D) Include a separate explanatory paragraph that discusses the justification for, and the CPA's concurrence with, the departure from GAAP.

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Definitions:

Sales Mix

The combination of different products or services that a company sells, impacting its overall profitability and performance.

Income Tax Rate

The percentage at which an individual or corporation is taxed on their income.

Relevant Range

The range of activity within which the assumptions about fixed and variable costs in cost-volume-profit analysis are valid.

Fixed Costs

Expenses that do not change with the level of production or sales, such as rent, salaries, and insurance.