If an Accountant Is Engaged to Compile the Financial Statements

question 38

Multiple Choice

If an accountant is engaged to compile the financial statements of a private entity and the statements omit substantially all disclosures required by GAAP, which of the following alternatives is correct?

• A) If the accountant concludes that the omissions result in misleading financial statements and the matter cannot be resolved, the accountant should withdraw from the engagement.
• B) The report should be amended to state that the financial statements have been prepared in accordance with a comprehensive basis of accounting other than GAAP.
• C) The report should be amended to state that the financial statements have not been compiled in accordance with standards for compilation and review engagements.
• D) The report should indicate that the statements are special-purpose financial statements that are not comparable to those of prior periods.

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Definitions:

Total Manufacturing Cost

The aggregate cost of direct materials, direct labor, and manufacturing overhead incurred in producing products.

Machine-Hours

A measure of production time, referring to the number of hours a machine is operated in the manufacturing process.

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to individual units of production, based on estimated costs and activity levels.

Manufacturing Departments

The sections of a manufacturing organization dedicated to specific production activities or processes.