Jones Retailing, a Nonissuer, Has Asked Winters, CPA, to Compile

question 638

Multiple Choice

Jones Retailing, a nonissuer, has asked Winters, CPA, to compile financial statements that omit substantially all disclosures required by generally accepted accounting principles. Winters may compile such financial statements provided the:

• A) Reason for omitting the disclosures is explained in the engagement letter and acknowledged in the management representation letter.
• B) Financial statements are prepared on a comprehensive basis of accounting other than generally accepted accounting principles.
• C) Use of the financial statements is restricted to internal use only.
• D) Omission is not undertaken to mislead the users of the financial statements and is properly disclosed in the accountant's report.

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Definitions:

Cost Variance

The difference between the expected (budgeted) cost of an activity and the actual cost incurred, used in budgeting and financial reporting to monitor performance.

Standard Cost

A predetermined cost of manufacturing, projecting what each product should cost under normal conditions.

Actual Cost

Actual cost is the true amount of money spent on producing a product, completing a project, or conducting an activity, including all direct and indirect expenses.

Direct Labor Rate Variance

The difference between the actual rate and the standard rate paid for direct labor multiplied by the actual direct labor hours used in producing a product.