The limitations of the CPA’s professional responsibilities whenhe or she is associated with…

The limitations of the CPA’s professional responsibilities whenhe or she is associated with…

The limitations of the CPA’s professional responsibilities whenhe or she is associated with unaudited financial statements areoften misunderstood. These misunderstandings can be substantiallyreduced by carefully following professional pronouncements in thecourse of the work and taking other appropriate measures.
Required
The following list describes seven situations the CPA may encounteror contentions he or she may have to deal with in the associationwith and preparation of unaudited financial statements. Brieflydiscuss the extent of the CPA’s responsibilities and, ifappropriate, the actions that should be taken to minimize anymisunderstandings. Number your answers to correspond with thenumbering in the following list.
1. The CPA was engaged by telephone to perform write-up workincluding the preparation of financial statements. The clientbelieves that the CPA has been engaged to audit the financialstatements.
2. A group of businessmen who own a farm that is managed by anindependent agent engage a CPA to prepare quarterly unauditedfinancial statements for them. The CPA prepares the financialstatements from information given by the independent agent.Subsequently, the businessmen find the statements were inaccuratebecause their independent agent was embezzling funds. Thebusinessmen refuse to pay the CPA’s fee and blame the CPA forallowing the situation to go undetected, contending that the CPAshould not have relied on representations from the independentagent
3. In comparing the trial balance with the general ledger, the CPAfinds an account labeled “audit fees” in which the client hasaccumulated the CPA’s quarterly billings for accounting services,including the preparation of quarterly unaudited financialstatements.
4. Unaudited financial statements were accompanied by the followingletter of transmittal from the CPA: We are enclosing your company’sbalance sheet as of June 30, 20X0, and the related statements ofincome and retained earnings and cash flows for the six months thenended that we have reviewed
5. TO determine appropriate account classification, the CPA reviewda number of the clients invoices. The CPA noted in the workingpapers that some invoices were missing but did nothing furtherbecause the CPA felt they did not affect the unaudited financialstatements he or she was preparing. When the client subsequentlydiscovered that invoices were missing, the client contended thatthe CPA should not have ignored the missing invoices when preparingthe financial statements and had a responsibility to at leastinform the client that they were missing.
6. The CPA has prepared a draft of unaudited financial statementsprepared by the client’s records. While reviewing this draft theclient, the CPA learns that the land and buiding were recorded atappraisal value.
7. The CPA is engaged to review, but not audit, the financialstatements prepared by the client’s controller. During this review,the CPA learns of several items that by Generally AcceptedAccounting Principles would require adjustment of the statementsand footnote disclosures. The controller agrees to make therecommended adjustments to the statements but says that he or sheis not going to add the footnotes because the statements areunaudited. QUESTION TITLE :- Seven situations the CPA

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