In the Standard Report on Condensed Financial Statements That Are

question 966

Multiple Choice

In the standard report on condensed financial statements that are derived from a public entity's audited financial statements, a CPA should indicate that the:

• A) Condensed financial statements are prepared in conformity with another comprehensive basis of accounting.
• B) CPA has audited and expressed an opinion on the complete financial statements.
• C) Condensed financial statements are not fairly presented in all material respects.
• D) CPA expresses limited assurance that the financial statements conform with GAAP.

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Definitions:

Variable Costing

An accounting method that only includes variable production costs (direct materials, direct labor, and variable manufacturing overhead) in the cost of goods sold and inventory valuation.

Fixed Factory Overhead

Fixed factory overhead refers to those manufacturing costs that do not change with the level of production, including rent, depreciation, and salaries of permanent staff.

Absorption Costing

A method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed overhead - in the cost of a product.

Financial Reporting

The process of producing statements that disclose an organization's financial status to management, investors, and the government.