Question

1. Assume your CPA firm has been asked by Buffalo Brewing Co. (BBC), a small nonpublic company, to submit a proposal for the audit of the company. After performing a preliminary investigation of the company, including its management and accounting system, you advise the president of BBC that the fee for a full audit will be approximately $20,000. The president was surprised at the size of the fee, and after discussions with members of the BBC board of directors, he concluded that the company could not afford an audit at this time.
a. Discuss management's alternatives to having their company's financial statements audited in accordance with generally accepted auditing standards. What other services might they consider rather than an audit?
b. What things should BBC's management consider when selecting the type of service that you should provide? Explain.

2. On January 22, 20X5, Cat Montana, CPA, completed the engagement to compile the financial statements of Bozeman Co. for the year ended 12/31/X4. Bozeman Co. is a nonpublic company in which Cat's dependent son has a material direct financial interest. Bozeman uses the AICPA’s Financial Reporting Framework for Small and Medium Sized Entities (FRF for SMEs) and has elected to omit substantially all of the disclosures ordinarily included (not with the intention of misleading financial statement users). Draft the report to be issued by Cat on the compiled financial statements under SSARS No. 21.

3. Answer the following questions:
a. What type of report is most likely to result from a client imposed scope limitation during a review of financial statements by a CPA?
b. During a review of the financial statements of a non-public entity, the CPA finds that the financial statements contain a material departure from generally accepted accounting principles.
What should the CPA do if management refuses to correct the financial statement presentations?
c. It is the end of the client's first quarter and Clark Kent, CPA has been engaged to perform a compilation and to issue a compilation report on the financial statements. The client does not wish to present notes to the financial statements. What is the appropriate report?
d. The agreed-upon terms of the engagement should be documented in an engagement letter or other suitable form of written agreement for which of the services discussed in this unit?
e. Using the AR-C 70 Appendix — Preparation of Financial Statements Versus Assistance in Preparing Financial Statements (see table), list two examples of accountant services for which this section does not apply.

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1. Buffalo Brewing Co. (BBC)
BBC’s management can opt for one of three other services if the company cannot afford the fee for a full audit. The first service that the company’s management can opt for is to engage the CPA firm to prepare the company’s financial statements....

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