Which level of financial statement preparation involves inquiry and analysis?

Which level of financial statement preparation involves inquiry and analysis?

• A. Reviewed
• B. Compilation
• C. Audit
• D. Forecast

Answer: (A)

Inquiry and analytical procedures are the hallmark of a reviewed financial statement engagement. In this level, the practitioner asks management about policies and estimates and performs analytical procedures to spot unusual or unexpected relationships. This provides limited assurance that the financial statements are free of material misstatement, without conducting the substantive tests and evidence gathering of an audit. Compilation involves presenting information with no assurance, and typically requires no inquiry or analysis. Audit requires substantial testing and evidence collection, offering reasonable (greater) assurance. Forecasts are forward-looking projections, not a standard level of financial statement assurance.

Inquiry and analytical procedures are the hallmark of a reviewed financial statement engagement. In this level, the practitioner asks management about policies and estimates and performs analytical procedures to spot unusual or unexpected relationships. This provides limited assurance that the financial statements are free of material misstatement, without conducting the substantive tests and evidence gathering of an audit.

Compilation involves presenting information with no assurance, and typically requires no inquiry or analysis. Audit requires substantial testing and evidence collection, offering reasonable (greater) assurance. Forecasts are forward-looking projections, not a standard level of financial statement assurance.