Chapter 19 Additional Assurance Services: Historical Financial
Information
Chapter 19 - Additional Assurance Services: Historical Financial
Information
Chapter 19
Additional Assurance Services: Historical Financial
Information
True / False Questions
1.An audit opinion on cash basis financial statements is an
example of an opinion on financial statements that follow a special
purpose financial reporting framework.TrueFalse
2.The balance sheet for an individual may be titled a Statement
of Financial Condition.TrueFalse
3.The auditors should take exception to assets presented at
their estimated current values in personal financial
statements.TrueFalse
4.Personal financial statements may be compiled or reviewed, but
they should not be audited.TrueFalse
5.A compilation of financial statement provides limited
assurance regarding the financial statements.TrueFalse
6.Compiled financial statements may omit note
disclosures.TrueFalse
7.The auditors must issue a compilation report if they prepare a
client's financial statements and submit them to a client who
intends to use them for external purposes.TrueFalse
8.The auditors should not accept an engagement to issue a
compilation report on financial information presented in a
prescribed form.TrueFalse
9.Letters to underwriters should not contain negative
assurances.TrueFalse
10.When a U.S.-based organization prepares financial statements
which are for use in another country, a U.S. report, modified to
reflect the accounting principles of the other country, may be
issued.TrueFalse
Multiple Choice Questions
11.Which of the following is correct relating to compiled
financial statements when third party reliance upon those
statements is anticipated?A.A compilation report must be
issued.B.Omission of note disclosures is unacceptable.C.A written
engagement letter is required.D.Each page of the financial
statements should have a restriction such as "Restricted for
Management's Use Only".
12.Which communication option(s) may be used when an accountant
submits compiled financial statements to be used only by
management?
A.Option AB.Option BC.Option CD.Option D
13.A compilation report is not required when compiled financial
statements are expected to be used by:A.Management
only.B.Management and third parties.C.Third parties only.D.A
compilation report is required whenever financial statements are
compiled.
14.It is the end of the client's first quarter and Bill Smith,
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. The appropriate
report includes:A.Qualified opinion ("subject to" the omission of
the notes).B.Compilation report with an adverse opinion due to
inadequate disclosure.C.Standard compilation report.D.Compilation
report with an indication that all required disclosures under GAAP
may not be presented with the statements.
15.An accountant's standard report issued after compiling the
financial statements of a nonpublic entity should state that:A.I am
not aware of any material modifications that should be made to the
accompanying financial statements.B.A compilation consists
principally of inquiries of company personnel and analytical
procedures.C.A compilation is limited to presenting in the form of
financial statements information that is the representation of
management.D.A compilation is substantially less in scope than an
audit in accordance with GAAS, the objective of which is the
expression of an opinion.
16.Which of the following procedures is usually the first step
in reviewing the financial statements of a nonpublic entity?A.Make
preliminary judgments about risk and materiality to determine the
scope and nature of the procedures to be performed.B.Obtain a
general understanding of the entity's organization, its operating
characteristics, and its products or services.C.Assess the risk of
material misstatement arising from fraudulent financial reporting
and the misappropriation of assets.D.Perform a preliminary
assessment of the operating efficiency of the entity's internal
control activities.
17.Which of the following would be used on a review
engagement?A.Examination of board minutes.B.Confirmation of cash
and accounts receivable.C.Comparison of current-year to prior-year
account balances.D.Recalculation of depreciation expense.
18.Which of the following is correct concerning financial
statements prepared in the United States for use in another
country?A.The auditor must follow GAAP of both the United States
and of the other country.B.The type of audit report issued depends
upon whether it is for use primarily outside the United
States.C.The audit must only follow US GAAP.D.Auditors from the
other country must be involved with the audit to assure adequate
performance of that country's standards.
19.For a CPA, a client imposed scope limitation during a review
of financial statements is most likely to result in:A.Resignation
from the engagement.B.Issuance of a disclaimer of
opinion.C.Issuance of an adverse opinion.D.Only an explanatory
paragraph added to report, with no change in the assurance
provided.
20.Interim information of public companies:A.Must be as
comprehensive as that filed annually with the Securities and
Exchange Commission.B.Must be reviewed by CPAs before it is filed
with the Securities and Exchange Commission.C.Must be reviewed
continuously by CPAs using continuous auditing
techniques.D.Requires no accountant association until it becomes a
part of the companies' annual financial information.
21.In which of the following types of reports do the auditors
express negative assurance?A.Letters for underwriters.B.Reports on
audits of financial statements on a basis other than generally
accepted accounting principles.C.Reports on audits of specified
accounts.D.Reports on summary financial statements.
22.An assertion that is particularly difficult to audit with
respect to personal financial statements
is:A.Existence.B.Rights.C.Completeness.D.Legality.
23.In which of the following types of reports do accountants
provide no explicit
assurance?A.Compilations.B.Reviews.C.Examinations.D.Audits.
24.Which of the following types of services is most likely to
result in a report whose use is restricted to specified
parties?A.Compilations.B.Reviews.C.Agreed-upon
procedures.D.Audits.
25.Which of the following does not result in a modification of a
compilation report?A.A lack of independence on the part of the
auditors.B.A departure from generally accepted accounting
principles.C.A lack of adequate disclosure in the financial
statements.D.A lack of consistent application of generally accepted
accounting principles.
26.A practitioner's report on agreed-upon procedures that is in
the form of procedures and findings should contain:A.Negative
assurance that the procedures did not necessarily disclose all
reportable conditions.B.An acknowledgment of the practitioner's
responsibility for the sufficiency of the procedures.C.A statement
of restrictions on the use of the report.D.A disclaimer of opinion
on the entity's financial statements.
27.Which of the following statements is correct with respect to
an audit report issued for financial statements to be used
primarily outside of the United States?A.The report should follow
the U.S. format, modified as appropriate.B.The report should follow
the format of the other country.C.The report may follow either the
U.S. format, modified as appropriate, or may follow the format of
the other country.D.The report should follow the attestation
examination report format.
28.A "comfort letter" to an investment banking firm will
normally not:A.Express negative assurance.B.Be included with the
registration statement for the securities.C.Include the CPA's
opinion as to whether the audited financial statements comply in
all material respects with applicable requirements of the related
securities acts.D.Include a statement as to the auditors'
independence.
29.When the auditors have performed an audit and are asked to
report on the client's compliance with aspects of contractual
agreements, which of the following is correct?A.They may do so and
provide reasonable assurance as to compliance.B.They may do so and
provide negative assurance as to compliance.C.They only may do so
when details of the contracts have been audited.D.They may not do
so.
30.Which of the following is accurate relating to audit reports
on tax basis financial statements?A.No emphasis of matter paragraph
is included in the audit report.B.Use of the report need not be
restricted.C.The purpose of the financial statements should be
described in the audit report.D.Only reports with modified opinions
are appropriate.
31.Which of the following requires modification of a review
report?A.A change in accounting principles.B.A substantial doubt
about a company's ability to continue as a going concern.C.A
departure from generally accepted accounting principles.D.A change
in an accounting estimate.
32.Which of the following is correct when a company is issuing
summary financial statements developed from audited financial
statements?A.Such summary statements should always have a CPA's
report associated with them when audited financial statements
exist.B.The CPA may issue a report on whether the summary
information is fairly stated in all material respects in relation
to the basic financial statements.C.The CPA should perform a
compilation and review of the summary financial statements.D.The
CPA who has audited the financial statements who is asked to report
on the summary statements should decline the engagement because the
summary statements do not include all disclosures necessary under
generally accepted accounting principles.
33.Financial statements that are developed from and summarize
the overall information presented in audited financial statements
are referred to as:A.Agreed-upon procedure financial
statements.B.Compiled financial statements.C.Summary financial
statements.D.Reviewed financial statements.
34.Which of the following is not an example of financial
statements that use a special purpose financial reporting
framework?A.Of a partnership which follows accounting practices
used to file its tax return.B.Prepared for limited purposes such as
relating to a contract a company has entered into.C.Of an
organization that has limited the scope of the auditor's
examination.D.Of an organization that follows procedures of a
regulatory agency that oversees the company and its operations.
35.Whenever a report filed on a printed form designed by
authorities, call upon the independent auditors to make an
assertion that the auditors believe is not justified, the auditors
should:A.Submit a short-form report with explanations.B.Reword the
form or attach a separate report.C.Submit the form with
questionable items clearly omitted.D.Withdraw from the
engagement.
36.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.
If management refuses to correct the financial statement
presentations, the CPA should:A.Disclose the departure in a
separate paragraph of the report.B.Issue an adverse
opinion.C.Attach a note explaining the effects of the
departure.D.Issue a compilation report.
37.The accountants' compilation report should be dated as of the
date of:A.Completion of fieldwork.B.Completion of the
compilation.C.Transmittal of the compilation report.D.The latest
subsequent event referred to in the notes to the financial
statements.
38.A modification of the CPA's report on a review of the interim
financial statements of a publicly-held company would be
necessitated by which of the following?A.An uncertainty.B.Lack of
consistency.C.Reference to another accountant.D.Inadequate
disclosure.
39.A CPA should not normally refer to which one of the following
subjects in a "comfort letter" to underwriters?A.The independence
of the CPA.B.Changes in financial-statement items during a period
subsequent to the date and period of the latest financial
statements in the registration statement.C.Unaudited financial
statements and schedules in the registration
statement.D.Management's determination of line of business
classifications.
40.Inquiry and analytical procedures ordinarily performed during
a review of a nonpublic entity's financial statements
include:A.Analytical procedures designed to identify reportable
conditions related to internal control.B.Inquiries concerning
actions taken at meetings of the stockholders and the board of
directors.C.Analytical procedures designed to test the accounting
records by obtaining corroborating evidential matter.D.Inquiries of
knowledgeable outside parties such as the client's attorneys and
bankers.
41.Which of the following would not be included in a CPA's
report based upon a review of the financial statements of a
nonpublic entity?A.A statement that the review was in accordance
with generally accepted auditing standards.B.A statement that all
information included in the financial statements are the
representations of management.C.A statement describing the nature
of the procedures performed.D.A statement describing the auditor's
conclusions based upon the results of the review.
42.The objective of a review of interim financial information is
to provide the accountant with a basis for reporting whether:A.A
reasonable basis exists for expressing an updated opinion regarding
the financial statements that were previously audited.B.Material
modifications should be made to conform with generally accepted
accounting principles.C.The financial statements are presented
fairly in accordance with standards of interim reporting.D.The
financial statements are presented fairly in accordance with
generally accepted accounting principles.
43.If the auditor believes that financial statements prepared on
the entity's income tax basis are not suitably titled, the auditor
should:A.Issue a disclaimer of opinion.B.Explain in the notes to
the financial statements the terminology used.C.Issue a compilation
report.D.Modify the auditor's report to disclose any
reservations.
44.An auditor's report on financial statements prepared in
accordance with a special purpose financial reporting framework of
accounting other than generally accepted accounting principles
should include all of the following except:A.Reference to the note
to the financial statements that describes the basis of preparation
of the financial statements.B.Disclosure that the audit was
performed in accordance with generally accepted auditing
standards.C.An opinion as to whether the basis of accounting used
is appropriate under the circumstances.D.An opinion as to whether
the financial statements are presented fairly in conformity with
the basis of accounting described.
45.When an auditor reports on financial statements prepared on
an entity's income tax basis, the auditor's report
should:A.Disclose that the income tax basis is a basis of
accounting other than generally accepted accounting
principles.B.Disclaim an opinion on whether the statements were
examined in accordance with generally accepted auditing
standards.C.Not express an opinion on whether the statements are
presented in conformity with the basis of accounting used.D.Include
an explanation of how the results of operations differ from the
cash receipts and disbursements basis of accounting.
46.An auditor's report would be designated as a report on
financial statements following a special purpose financial
reporting framework for financial statements when they are:A.For an
interim period and are subjected to a review.B.Unaudited and are
prepared from a client's accounting records.C.Prepared in
accordance with a regulatory basis of accounting other than
generally accepted accounting principles.D.Purported to be in
accordance with generally accepted accounting principles but do not
include a presentation of the statement of cash flows.
47.The underwriter of a securities offering may request that an
auditor perform specified procedures and supply certain assurances
concerning unaudited information contained in a registration
statement. The auditor's response to such a request is commonly
called a:A.Report under federal security statutes.B.Comfort
letter.C.Review of interim financial information.D.Compilation
report for underwriters.
48.Comfort letters are ordinarily signed by
the:A.Client.B.Client's lawyer.C.Independent auditor.D.Internal
auditor.
49.Which of the following circumstances requires modification of
the accountant's report on a review of interim financial
information of publicly held entity?
A.Option AB.Option BC.Option CD.Option D
50.If compiled financial statements presented in conformity with
the cash receipts and disbursements basis of accounting do not
disclose the basis of accounting used, the accountant
should:A.Disclose the basis in the notes to the financial
statements.B.Clearly label each page "Unaudited."C.Disclose the
basis of accounting in the accountant's report.D.Recompile the
financial statements using generally accepted accounting
principles.
51.An auditor is reporting on cash basis financial statements.
These statements are best referred to in his opinion by which of
the following descriptions?A.Financial position and results of
operation arising from cash transactions.B.Assets and liabilities
arising from cash transactions, and revenue collected and expenses
paid.C.Balance sheet and income statement resulting from cash
transactions.D.Cash balance sheet and the source and application of
funds.
52.Which of the following should not be included in an
accountant's standard report based upon the compilation of an
entity's financial statements?A.A statement that a compilation is
limited to presenting in the form of financial statements
information that is the representation of management.B.A statement
that the compilation was performed in accordance with standards
established by the American Institute of CPAs.C.A statement that
the accountant has not audited or reviewed the financial
statements.D.A statement that the accountant does not express an
opinion but expresses only limited assurance on the financial
statements.
53.Each page of the financial statements compiled by an
accountant should include a reference such as:A.See accompanying
accountant's notes.B.Unaudited, see accountant's disclaimer.C.See
accountant's compilation report.D.Subject to compilation
restrictions.
54.During a review of the financial statements of a nonpublic
entity, the CPA finds that the financial statements contain a
material departure from generally accepted accounting principles.
If management refuses to correct the financial statement
presentations, the CPA should:A.Disclose the departure in a
separate paragraph of the report.B.Issue an adverse
opinion.C.Attach a note explaining the effects of the
departure.D.Issue a compilation report.
55.Which of the following is an auditor least likely to inquire
about when performing a review of a nonpublic company?A.Significant
transactions near the end of the period.B.Communications with
regulatory agencies.C.That financial statements are prepared in
conformity with a special basis of accounting.D.Questions that have
arisen in applying review procedures.
56.When performing a review of a nonpublic company, the auditors
must obtain in a representation letter acknowledgement of
management for its responsibility for each of the following
except:A.Responsibility for identifying illegal acts committed by
employees.B.Responsibility for the financial statements conforming
with generally accepted accounting principles.C.Responsibility to
prevent and detect fraud.D.Knowledge of any actual or suspected
fraud that is material.
Essay Questions
57.Items a through j present various phrases or characteristics
that may apply to audits, reviews, and compilations. Place an X in
the cell if the phrase or characteristic applies to the listed
service:
58.The financial statements of nonpublic companies may be
compiled or reviewed by the CPAs.
a. Describe a compilation of financial statements.b. Describe a
review of financial statements.c. Describe three procedures that
are performed in the review of a nonpublic company's financial
statements.
59.One may envision a continuum of assurance ranging from
absolute assurance to no assurance. In between may be reasonable
assurance, limited assurance, and a summary of findings with no
other assurance.
a. What level of assurance is provided in the CPA's report by
each of the following types of engagements?
( Examinations( Audits( Review( Agreed-upon procedures(
Compilations
b. What type of assurance is provided on financial statements
prepared following a special purpose basis of accounting other than
generally accepted accounting principles?
Chapter 19 Additional Assurance Services: Historical Financial
Information Answer Key
True / False Questions
1.An audit opinion on cash basis financial statements is an
example of an opinion on financial statements that follow a special
purpose financial reporting framework.TRUE
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
UnderstandDifficulty: MediumLearning Objective: 19-02 Identify the
types of special-purpose financial reporting frameworks and the
nature of the audit reports issued.Topic: Auditing Financial
StatementsOther Than GAAP2.The balance sheet for an individual may
be titled a Statement of Financial Condition.TRUE
AACSB: AnalyticAICPA BB: IndustryAICPA FN: MeasurementBloom's:
UnderstandDifficulty: MediumLearning Objective: 19-05 Explain the
special considerations involved in auditing personal financial
statements.Topic: Additional GAAS Audits3.The auditors should take
exception to assets presented at their estimated current values in
personal financial statements.FALSE
AACSB: AnalyticAICPA BB: IndustryAICPA FN: MeasurementBloom's:
UnderstandDifficulty: MediumLearning Objective: 19-05 Explain the
special considerations involved in auditing personal financial
statements.Topic: Additional GAAS Audits4.Personal financial
statements may be compiled or reviewed, but they should not be
audited.FALSE
AACSB: AnalyticAICPA BB: IndustryAICPA FN: MeasurementBloom's:
RememberDifficulty: EasyLearning Objective: 19-05 Explain the
special considerations involved in auditing personal financial
statements.Topic: Additional GAAS Audits5.A compilation of
financial statement provides limited assurance regarding the
financial statements.FALSE
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: UnderstandDifficulty:
MediumLearning Objective: 19-08 Explain the accountant's
responsibilities when performing a compilation of financial
statements.Topic: Compilations of Historical Financial
Statements6.Compiled financial statements may omit note
disclosures.TRUE
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: UnderstandDifficulty:
MediumLearning Objective: 19-08 Explain the accountant's
responsibilities when performing a compilation of financial
statements.Topic: Compilations of Historical Financial
Statements7.The auditors must issue a compilation report if they
prepare a client's financial statements and submit them to a client
who intends to use them for external purposes.TRUE
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: ApplyDifficulty:
HardLearning Objective: 19-08 Explain the accountant's
responsibilities when performing a compilation of financial
statements.Topic: Compilations of Historical Financial
Statements8.The auditors should not accept an engagement to issue a
compilation report on financial information presented in a
prescribed form.FALSE
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: RememberDifficulty:
EasyLearning Objective: 19-08 Explain the accountant's
responsibilities when performing a compilation of financial
statements.Topic: Compilations of Historical Financial
Statements9.Letters to underwriters should not contain negative
assurances.FALSE
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: UnderstandDifficulty:
MediumLearning Objective: 19-01 Discuss additional audit-based
services; including reporting on compliance with contractual
agreements; letters for underwriters; and summary financial
statements.Topic: Audit-Based ServicesAssurance on Additional
Information10.When a U.S.-based organization prepares financial
statements which are for use in another country, a U.S. report,
modified to reflect the accounting principles of the other country,
may be issued.TRUE
AACSB: AnalyticAACSB: CommunicationAICPA BB: GlobalAICPA BB:
IndustryAICPA FN: MeasurementAICPA FN: ReportingBloom's:
UnderstandDifficulty: MediumLearning Objective: 19-03 Describe the
auditors' responsibilities when auditing financial statements that
use a generally accepted financial reporting framework of another
country.Topic: Auditing Financial StatementsOther Than GAAP
Multiple Choice Questions
11.Which of the following is correct relating to compiled
financial statements when third party reliance upon those
statements is anticipated?A.A compilation report must be
issued.B.Omission of note disclosures is unacceptable.C.A written
engagement letter is required.D.Each page of the financial
statements should have a restriction such as "Restricted for
Management's Use Only".
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: UnderstandDifficulty:
MediumLearning Objective: 19-08 Explain the accountant's
responsibilities when performing a compilation of financial
statements.Topic: Compilations of Historical Financial
Statements12.Which communication option(s) may be used when an
accountant submits compiled financial statements to be used only by
management?
A.Option AB.Option BC.Option CD.Option D
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: ApplyDifficulty:
HardLearning Objective: 19-08 Explain the accountant's
responsibilities when performing a compilation of financial
statements.Topic: Compilations of Historical Financial
Statements13.A compilation report is not required when compiled
financial statements are expected to be used by:A.Management
only.B.Management and third parties.C.Third parties only.D.A
compilation report is required whenever financial statements are
compiled.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: UnderstandDifficulty:
MediumLearning Objective: 19-08 Explain the accountant's
responsibilities when performing a compilation of financial
statements.Topic: Compilations of Historical Financial
Statements14.It is the end of the client's first quarter and Bill
Smith, 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. The appropriate
report includes:A.Qualified opinion ("subject to" the omission of
the notes).B.Compilation report with an adverse opinion due to
inadequate disclosure.C.Standard compilation report.D.Compilation
report with an indication that all required disclosures under GAAP
may not be presented with the statements.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: UnderstandDifficulty:
MediumLearning Objective: 19-08 Explain the accountant's
responsibilities when performing a compilation of financial
statements.Topic: Compilations of Historical Financial
Statements15.An accountant's standard report issued after compiling
the financial statements of a nonpublic entity should state
that:A.I am not aware of any material modifications that should be
made to the accompanying financial statements.B.A compilation
consists principally of inquiries of company personnel and
analytical procedures.C.A compilation is limited to presenting in
the form of financial statements information that is the
representation of management.D.A compilation is substantially less
in scope than an audit in accordance with GAAS, the objective of
which is the expression of an opinion.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: UnderstandDifficulty:
MediumLearning Objective: 19-08 Explain the accountant's
responsibilities when performing a compilation of financial
statements.Source: AICPATopic: Compilations of Historical Financial
Statements16.Which of the following procedures is usually the first
step in reviewing the financial statements of a nonpublic
entity?A.Make preliminary judgments about risk and materiality to
determine the scope and nature of the procedures to be
performed.B.Obtain a general understanding of the entity's
organization, its operating characteristics, and its products or
services.C.Assess the risk of material misstatement arising from
fraudulent financial reporting and the misappropriation of
assets.D.Perform a preliminary assessment of the operating
efficiency of the entity's internal control activities.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
ApplyDifficulty: HardLearning Objective: 19-06 Describe the nature
of financial statement reviews conducted under Statements on
Standards for Accounting and Review Services.Source: AICPATopic:
Reviews of Historical Financial Statements17.Which of the following
would be used on a review engagement?A.Examination of board
minutes.B.Confirmation of cash and accounts receivable.C.Comparison
of current-year to prior-year account balances.D.Recalculation of
depreciation expense.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
UnderstandDifficulty: MediumLearning Objective: 19-06 Describe the
nature of financial statement reviews conducted under Statements on
Standards for Accounting and Review Services.Source: AICPATopic:
Reviews of Historical Financial Statements18.Which of the following
is correct concerning financial statements prepared in the United
States for use in another country?A.The auditor must follow GAAP of
both the United States and of the other country.B.The type of audit
report issued depends upon whether it is for use primarily outside
the United States.C.The audit must only follow US GAAP.D.Auditors
from the other country must be involved with the audit to assure
adequate performance of that country's standards.
AACSB: AnalyticAACSB: CommunicationAICPA BB: GlobalAICPA BB:
IndustryAICPA FN: MeasurementAICPA FN: ReportingBloom's:
UnderstandDifficulty: MediumLearning Objective: 19-03 Describe the
auditors' responsibilities when auditing financial statements that
use a generally accepted financial reporting framework of another
country.Topic: Auditing Financial StatementsOther Than GAAP19.For a
CPA, a client imposed scope limitation during a review of financial
statements is most likely to result in:A.Resignation from the
engagement.B.Issuance of a disclaimer of opinion.C.Issuance of an
adverse opinion.D.Only an explanatory paragraph added to report,
with no change in the assurance provided.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: ApplyDifficulty:
HardLearning Objective: 19-04 Discuss audits of single financial
statements and specifi c accounts or items of a financial
statement.Topic: Additional GAAS Audits20.Interim information of
public companies:A.Must be as comprehensive as that filed annually
with the Securities and Exchange Commission.B.Must be reviewed by
CPAs before it is filed with the Securities and Exchange
Commission.C.Must be reviewed continuously by CPAs using continuous
auditing techniques.D.Requires no accountant association until it
becomes a part of the companies' annual financial information.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
UnderstandDifficulty: MediumLearning Objective: 19-07 Discuss how
reviews performed under Statements on Standards for Accounting and
Review Services differ from those erformed under the Statements on
Auditing Standards.Topic: Reviews of Historical Financial
Statements21.In which of the following types of reports do the
auditors express negative assurance?A.Letters for
underwriters.B.Reports on audits of financial statements on a basis
other than generally accepted accounting principles.C.Reports on
audits of specified accounts.D.Reports on summary financial
statements.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: ApplyDifficulty:
HardLearning Objective: 19-01 Discuss additional audit-based
services; including reporting on compliance with contractual
agreements; letters for underwriters; and summary financial
statements.Topic: Audit-Based ServicesAssurance on Additional
Information22.An assertion that is particularly difficult to audit
with respect to personal financial statements
is:A.Existence.B.Rights.C.Completeness.D.Legality.
AACSB: AnalyticAICPA BB: IndustryAICPA FN: MeasurementBloom's:
UnderstandDifficulty: MediumLearning Objective: 19-05 Explain the
special considerations involved in auditing personal financial
statements.Topic: Additional GAAS Audits23.In which of the
following types of reports do accountants provide no explicit
assurance?A.Compilations.B.Reviews.C.Examinations.D.Audits.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
RememberDifficulty: EasyLearning Objective: 19-06 Describe the
nature of financial statement reviews conducted under Statements on
Standards for Accounting and Review Services.Topic: Reviews of
Historical Financial Statements24.Which of the following types of
services is most likely to result in a report whose use is
restricted to specified
parties?A.Compilations.B.Reviews.C.Agreed-upon
procedures.D.Audits.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: UnderstandDifficulty:
MediumLearning Objective: 19-04 Discuss audits of single financial
statements and specifi c accounts or items of a financial
statement.Topic: Additional GAAS Audits25.Which of the following
does not result in a modification of a compilation report?A.A lack
of independence on the part of the auditors.B.A departure from
generally accepted accounting principles.C.A lack of adequate
disclosure in the financial statements.D.A lack of consistent
application of generally accepted accounting principles.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: ApplyDifficulty:
HardLearning Objective: 19-08 Explain the accountant's
responsibilities when performing a compilation of financial
statements.Topic: Compilations of Historical Financial
Statements26.A practitioner's report on agreed-upon procedures that
is in the form of procedures and findings should contain:A.Negative
assurance that the procedures did not necessarily disclose all
reportable conditions.B.An acknowledgment of the practitioner's
responsibility for the sufficiency of the procedures.C.A statement
of restrictions on the use of the report.D.A disclaimer of opinion
on the entity's financial statements.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: UnderstandDifficulty:
MediumLearning Objective: 19-04 Discuss audits of single financial
statements and specifi c accounts or items of a financial
statement.Source: AICPATopic: Additional GAAS Audits27.Which of the
following statements is correct with respect to an audit report
issued for financial statements to be used primarily outside of the
United States?A.The report should follow the U.S. format, modified
as appropriate.B.The report should follow the format of the other
country.C.The report may follow either the U.S. format, modified as
appropriate, or may follow the format of the other country.D.The
report should follow the attestation examination report format.
AACSB: AnalyticAACSB: CommunicationAICPA BB: GlobalAICPA BB:
IndustryAICPA FN: MeasurementAICPA FN: ReportingBloom's:
UnderstandDifficulty: MediumLearning Objective: 19-03 Describe the
auditors' responsibilities when auditing financial statements that
use a generally accepted financial reporting framework of another
country.Topic: Auditing Financial StatementsOther Than GAAP28.A
"comfort letter" to an investment banking firm will normally
not:A.Express negative assurance.B.Be included with the
registration statement for the securities.C.Include the CPA's
opinion as to whether the audited financial statements comply in
all material respects with applicable requirements of the related
securities acts.D.Include a statement as to the auditors'
independence.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: UnderstandDifficulty:
MediumLearning Objective: 19-01 Discuss additional audit-based
services; including reporting on compliance with contractual
agreements; letters for underwriters; and summary financial
statements.Topic: Audit-Based ServicesAssurance on Additional
Information29.When the auditors have performed an audit and are
asked to report on the client's compliance with aspects of
contractual agreements, which of the following is correct?A.They
may do so and provide reasonable assurance as to compliance.B.They
may do so and provide negative assurance as to compliance.C.They
only may do so when details of the contracts have been
audited.D.They may not do so.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: ApplyDifficulty:
HardLearning Objective: 19-04 Discuss audits of single financial
statements and specifi c accounts or items of a financial
statement.Topic: Additional GAAS Audits30.Which of the following is
accurate relating to audit reports on tax basis financial
statements?A.No emphasis of matter paragraph is included in the
audit report.B.Use of the report need not be restricted.C.The
purpose of the financial statements should be described in the
audit report.D.Only reports with modified opinions are
appropriate.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
UnderstandDifficulty: MediumLearning Objective: 19-02 Identify the
types of special-purpose financial reporting frameworks and the
nature of the audit reports issued.Topic: Auditing Financial
StatementsOther Than GAAP31.Which of the following requires
modification of a review report?A.A change in accounting
principles.B.A substantial doubt about a company's ability to
continue as a going concern.C.A departure from generally accepted
accounting principles.D.A change in an accounting estimate.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
ApplyDifficulty: HardLearning Objective: 19-06 Describe the nature
of financial statement reviews conducted under Statements on
Standards for Accounting and Review Services.Topic: Reviews of
Historical Financial Statements32.Which of the following is correct
when a company is issuing summary financial statements developed
from audited financial statements?A.Such summary statements should
always have a CPA's report associated with them when audited
financial statements exist.B.The CPA may issue a report on whether
the summary information is fairly stated in all material respects
in relation to the basic financial statements.C.The CPA should
perform a compilation and review of the summary financial
statements.D.The CPA who has audited the financial statements who
is asked to report on the summary statements should decline the
engagement because the summary statements do not include all
disclosures necessary under generally accepted accounting
principles.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: ApplyDifficulty:
HardLearning Objective: 19-01 Discuss additional audit-based
services; including reporting on compliance with contractual
agreements; letters for underwriters; and summary financial
statements.Topic: Audit-Based ServicesAssurance on Additional
Information33.Financial statements that are developed from and
summarize the overall information presented in audited financial
statements are referred to as:A.Agreed-upon procedure financial
statements.B.Compiled financial statements.C.Summary financial
statements.D.Reviewed financial statements.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: UnderstandDifficulty:
MediumLearning Objective: 19-01 Discuss additional audit-based
services; including reporting on compliance with contractual
agreements; letters for underwriters; and summary financial
statements.Topic: Audit-Based ServicesAssurance on Additional
Information34.Which of the following is not an example of financial
statements that use a special purpose financial reporting
framework?A.Of a partnership which follows accounting practices
used to file its tax return.B.Prepared for limited purposes such as
relating to a contract a company has entered into.C.Of an
organization that has limited the scope of the auditor's
examination.D.Of an organization that follows procedures of a
regulatory agency that oversees the company and its operations.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
UnderstandDifficulty: MediumLearning Objective: 19-02 Identify the
types of special-purpose financial reporting frameworks and the
nature of the audit reports issued.Source: AICPATopic: Auditing
Financial StatementsOther Than GAAP35.Whenever a report filed on a
printed form designed by authorities, call upon the independent
auditors to make an assertion that the auditors believe is not
justified, the auditors should:A.Submit a short-form report with
explanations.B.Reword the form or attach a separate report.C.Submit
the form with questionable items clearly omitted.D.Withdraw from
the engagement.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
UnderstandDifficulty: MediumLearning Objective: 19-02 Identify the
types of special-purpose financial reporting frameworks and the
nature of the audit reports issued.Source: AICPATopic: Auditing
Financial StatementsOther Than GAAP36.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. If management refuses to correct
the financial statement presentations, the CPA should:A.Disclose
the departure in a separate paragraph of the report.B.Issue an
adverse opinion.C.Attach a note explaining the effects of the
departure.D.Issue a compilation report.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
UnderstandDifficulty: MediumLearning Objective: 19-06 Describe the
nature of financial statement reviews conducted under Statements on
Standards for Accounting and Review Services.Source: AICPATopic:
Reviews of Historical Financial Statements37.The accountants'
compilation report should be dated as of the date of:A.Completion
of fieldwork.B.Completion of the compilation.C.Transmittal of the
compilation report.D.The latest subsequent event referred to in the
notes to the financial statements.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
UnderstandDifficulty: MediumLearning Objective: 19-06 Describe the
nature of financial statement reviews conducted under Statements on
Standards for Accounting and Review Services.Source: AICPATopic:
Reviews of Historical Financial Statements38.A modification of the
CPA's report on a review of the interim financial statements of a
publicly-held company would be necessitated by which of the
following?A.An uncertainty.B.Lack of consistency.C.Reference to
another accountant.D.Inadequate disclosure.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
UnderstandDifficulty: MediumLearning Objective: 19-07 Discuss how
reviews performed under Statements on Standards for Accounting and
Review Services differ from those erformed under the Statements on
Auditing Standards.Source: AICPATopic: Reviews of Historical
Financial Statements39.A CPA should not normally refer to which one
of the following subjects in a "comfort letter" to
underwriters?A.The independence of the CPA.B.Changes in
financial-statement items during a period subsequent to the date
and period of the latest financial statements in the registration
statement.C.Unaudited financial statements and schedules in the
registration statement.D.Management's determination of line of
business classifications.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: ApplyDifficulty:
HardLearning Objective: 19-01 Discuss additional audit-based
services; including reporting on compliance with contractual
agreements; letters for underwriters; and summary financial
statements.Source: AICPATopic: Audit-Based ServicesAssurance on
Additional Information40.Inquiry and analytical procedures
ordinarily performed during a review of a nonpublic entity's
financial statements include:A.Analytical procedures designed to
identify reportable conditions related to internal
control.B.Inquiries concerning actions taken at meetings of the
stockholders and the board of directors.C.Analytical procedures
designed to test the accounting records by obtaining corroborating
evidential matter.D.Inquiries of knowledgeable outside parties such
as the client's attorneys and bankers.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
UnderstandDifficulty: MediumLearning Objective: 19-06 Describe the
nature of financial statement reviews conducted under Statements on
Standards for Accounting and Review Services.Source: AICPATopic:
Reviews of Historical Financial Statements41.Which of the following
would not be included in a CPA's report based upon a review of the
financial statements of a nonpublic entity?A.A statement that the
review was in accordance with generally accepted auditing
standards.B.A statement that all information included in the
financial statements are the representations of management.C.A
statement describing the nature of the procedures performed.D.A
statement describing the auditor's conclusions based upon the
results of the review.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
UnderstandDifficulty: MediumLearning Objective: 19-06 Describe the
nature of financial statement reviews conducted under Statements on
Standards for Accounting and Review Services.Source: AICPATopic:
Reviews of Historical Financial Statements42.The objective of a
review of interim financial information is to provide the
accountant with a basis for reporting whether:A.A reasonable basis
exists for expressing an updated opinion regarding the financial
statements that were previously audited.B.Material modifications
should be made to conform with generally accepted accounting
principles.C.The financial statements are presented fairly in
accordance with standards of interim reporting.D.The financial
statements are presented fairly in accordance with generally
accepted accounting principles.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
UnderstandDifficulty: MediumLearning Objective: 19-07 Discuss how
reviews performed under Statements on Standards for Accounting and
Review Services differ from those erformed under the Statements on
Auditing Standards.Source: AICPATopic: Reviews of Historical
Financial Statements43.If the auditor believes that financial
statements prepared on the entity's income tax basis are not
suitably titled, the auditor should:A.Issue a disclaimer of
opinion.B.Explain in the notes to the financial statements the
terminology used.C.Issue a compilation report.D.Modify the
auditor's report to disclose any reservations.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
RememberDifficulty: EasyLearning Objective: 19-02 Identify the
types of special-purpose financial reporting frameworks and the
nature of the audit reports issued.Source: AICPATopic: Auditing
Financial StatementsOther Than GAAP44.An auditor's report on
financial statements prepared in accordance with a special purpose
financial reporting framework of accounting other than generally
accepted accounting principles should include all of the following
except:A.Reference to the note to the financial statements that
describes the basis of preparation of the financial
statements.B.Disclosure that the audit was performed in accordance
with generally accepted auditing standards.C.An opinion as to
whether the basis of accounting used is appropriate under the
circumstances.D.An opinion as to whether the financial statements
are presented fairly in conformity with the basis of accounting
described.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
UnderstandDifficulty: MediumLearning Objective: 19-02 Identify the
types of special-purpose financial reporting frameworks and the
nature of the audit reports issued.Source: AICPATopic: Auditing
Financial StatementsOther Than GAAP45.When an auditor reports on
financial statements prepared on an entity's income tax basis, the
auditor's report should:A.Disclose that the income tax basis is a
basis of accounting other than generally accepted accounting
principles.B.Disclaim an opinion on whether the statements were
examined in accordance with generally accepted auditing
standards.C.Not express an opinion on whether the statements are
presented in conformity with the basis of accounting used.D.Include
an explanation of how the results of operations differ from the
cash receipts and disbursements basis of accounting.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
UnderstandDifficulty: MediumLearning Objective: 19-02 Identify the
types of special-purpose financial reporting frameworks and the
nature of the audit reports issued.Source: AICPATopic: Auditing
Financial StatementsOther Than GAAP46.An auditor's report would be
designated as a report on financial statements following a special
purpose financial reporting framework for financial statements when
they are:A.For an interim period and are subjected to a
review.B.Unaudited and are prepared from a client's accounting
records.C.Prepared in accordance with a regulatory basis of
accounting other than generally accepted accounting
principles.D.Purported to be in accordance with generally accepted
accounting principles but do not include a presentation of the
statement of cash flows.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
UnderstandDifficulty: MediumLearning Objective: 19-02 Identify the
types of special-purpose financial reporting frameworks and the
nature of the audit reports issued.Source: AICPATopic: Auditing
Financial StatementsOther Than GAAP47.The underwriter of a
securities offering may request that an auditor perform specified
procedures and supply certain assurances concerning unaudited
information contained in a registration statement. The auditor's
response to such a request is commonly called a:A.Report under
federal security statutes.B.Comfort letter.C.Review of interim
financial information.D.Compilation report for underwriters.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: RememberDifficulty:
EasyLearning Objective: 19-01 Discuss additional audit-based
services; including reporting on compliance with contractual
agreements; letters for underwriters; and summary financial
statements.Source: AICPATopic: Audit-Based ServicesAssurance on
Additional Information48.Comfort letters are ordinarily signed by
the:A.Client.B.Client's lawyer.C.Independent auditor.D.Internal
auditor.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: RememberDifficulty:
EasyLearning Objective: 19-01 Discuss additional audit-based
services; including reporting on compliance with contractual
agreements; letters for underwriters; and summary financial
statements.Source: AICPATopic: Audit-Based ServicesAssurance on
Additional Information49.Which of the following circumstances
requires modification of the accountant's report on a review of
interim financial information of publicly held entity?
A.Option AB.Option BC.Option CD.Option D
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
ApplyDifficulty: HardLearning Objective: 19-07 Discuss how reviews
performed under Statements on Standards for Accounting and Review
Services differ from those erformed under the Statements on
Auditing Standards.Source: AICPATopic: Reviews of Historical
Financial Statements50.If compiled financial statements presented
in conformity with the cash receipts and disbursements basis of
accounting do not disclose the basis of accounting used, the
accountant should:A.Disclose the basis in the notes to the
financial statements.B.Clearly label each page
"Unaudited."C.Disclose the basis of accounting in the accountant's
report.D.Recompile the financial statements using generally
accepted accounting principles.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
ApplyDifficulty: HardLearning Objective: 19-02 Identify the types
of special-purpose financial reporting frameworks and the nature of
the audit reports issued.Source: AICPATopic: Auditing Financial
StatementsOther Than GAAP51.An auditor is reporting on cash basis
financial statements. These statements are best referred to in his
opinion by which of the following descriptions?A.Financial position
and results of operation arising from cash transactions.B.Assets
and liabilities arising from cash transactions, and revenue
collected and expenses paid.C.Balance sheet and income statement
resulting from cash transactions.D.Cash balance sheet and the
source and application of funds.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
UnderstandDifficulty: MediumLearning Objective: 19-02 Identify the
types of special-purpose financial reporting frameworks and the
nature of the audit reports issued.Source: AICPATopic: Auditing
Financial StatementsOther Than GAAP52.Which of the following should
not be included in an accountant's standard report based upon the
compilation of an entity's financial statements?A.A statement that
a compilation is limited to presenting in the form of financial
statements information that is the representation of management.B.A
statement that the compilation was performed in accordance with
standards established by the American Institute of CPAs.C.A
statement that the accountant has not audited or reviewed the
financial statements.D.A statement that the accountant does not
express an opinion but expresses only limited assurance on the
financial statements.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
ApplyDifficulty: HardLearning Objective: 19-06 Describe the nature
of financial statement reviews conducted under Statements on
Standards for Accounting and Review Services.Source: AICPATopic:
Reviews of Historical Financial Statements53.Each page of the
financial statements compiled by an accountant should include a
reference such as:A.See accompanying accountant's
notes.B.Unaudited, see accountant's disclaimer.C.See accountant's
compilation report.D.Subject to compilation restrictions.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: RememberDifficulty:
EasyLearning Objective: 19-08 Explain the accountant's
responsibilities when performing a compilation of financial
statements.Source: AICPATopic: Compilations of Historical Financial
Statements54.During a review of the financial statements of a
nonpublic entity, the CPA finds that the financial statements
contain a material departure from generally accepted accounting
principles. If management refuses to correct the financial
statement presentations, the CPA should:A.Disclose the departure in
a separate paragraph of the report.B.Issue an adverse
opinion.C.Attach a note explaining the effects of the
departure.D.Issue a compilation report.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: ApplyDifficulty:
HardLearning Objective: 19-08 Explain the accountant's
responsibilities when performing a compilation of financial
statements.Source: AICPATopic: Compilations of Historical Financial
Statements55.Which of the following is an auditor least likely to
inquire about when performing a review of a nonpublic
company?A.Significant transactions near the end of the
period.B.Communications with regulatory agencies.C.That financial
statements are prepared in conformity with a special basis of
accounting.D.Questions that have arisen in applying review
procedures.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
UnderstandDifficulty: MediumLearning Objective: 19-02 Identify the
types of special-purpose financial reporting frameworks and the
nature of the audit reports issued.Topic: Auditing Financial
StatementsOther Than GAAP56.When performing a review of a nonpublic
company, the auditors must obtain in a representation letter
acknowledgement of management for its responsibility for each of
the following except:A.Responsibility for identifying illegal acts
committed by employees.B.Responsibility for the financial
statements conforming with generally accepted accounting
principles.C.Responsibility to prevent and detect fraud.D.Knowledge
of any actual or suspected fraud that is material.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
ApplyDifficulty: HardLearning Objective: 19-06 Describe the nature
of financial statement reviews conducted under Statements on
Standards for Accounting and Review Services.Topic: Reviews of
Historical Financial StatementsEssay Questions
57.Items a through j present various phrases or characteristics
that may apply to audits, reviews, and compilations. Place an X in
the cell if the phrase or characteristic applies to the listed
service:
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
ApplyDifficulty: HardLearning Objective: 19-06 Describe the nature
of financial statement reviews conducted under Statements on
Standards for Accounting and Review Services.Learning Objective:
19-08 Explain the accountant's responsibilities when performing a
compilation of financial statements.Topic: Compilations of
Historical Financial StatementsTopic: Reviews of Historical
Financial Statements58.The financial statements of nonpublic
companies may be compiled or reviewed by the CPAs.
a. Describe a compilation of financial statements.b. Describe a
review of financial statements.c. Describe three procedures that
are performed in the review of a nonpublic company's financial
statements.
a. A compilation is limited to taking the representations of
management and putting them in the form of financial statements. No
explicit assurance is provided on the financial statements.
b. A review of financial statements involves the performance of
inquiry and analytical procedures to provide the accountants with a
reasonable basis for expressing limited assurance that the
financial statements are in accordance with generally accepted
accounting principles.
c. Procedures performed in the review of financial statements
include (only three required):
( Inquiries of officers and other executives.( Analytical
procedures applied to financial data by reference to prior
financial data, budgets, and other operating data.( Inquiries
concerning actions taken in meetings of stockholders, board of
directors, and committees of the board.( Additional procedures if
the accountants become aware that the information may be incorrect,
incomplete, or otherwise unsatisfactory.
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA FN:
MeasurementAICPA FN: ReportingBloom's: UnderstandDifficulty:
MediumLearning Objective: 19-08 Explain the accountant's
responsibilities when performing a compilation of financial
statements.Topic: Compilations of Historical Financial
Statements59.One may envision a continuum of assurance ranging from
absolute assurance to no assurance. In between may be reasonable
assurance, limited assurance, and a summary of findings with no
other assurance.
a. What level of assurance is provided in the CPA's report by
each of the following types of engagements?
( Examinations( Audits( Review( Agreed-upon procedures(
Compilations
b. What type of assurance is provided on financial statements
prepared following a special purpose basis of accounting other than
generally accepted accounting principles?a. Assurance provided:
( Examinations--reasonable assurance( Audits--reasonable
assurance( Review--limited assurance( Agreed-upon
procedures--summary of findings( Compilations--no assurance
b. The assurance provided is dependent upon the nature of the
service provided. With financial statements the options (and
assurance) possible are audit (reasonable assurance), review
(limited assurance), and compilations (no assurance). Additionally,
agreed-upon procedures could be applied to various elements,
accounts or items of the financial statements (a summary of
findings would be provided).
AACSB: AnalyticAACSB: CommunicationAICPA BB: IndustryAICPA BB:
LegalAICPA FN: MeasurementAICPA FN: ReportingBloom's:
ApplyDifficulty: HardLearning Objective: 19-01 Discuss additional
audit-based services; including reporting on compliance with
contractual agreements; letters for underwriters; and summary
financial statements.Learning Objective: 19-02 Identify the types
of special-purpose financial reporting frameworks and the nature of
the audit reports issued.Learning Objective: 19-06 Describe the
nature of financial statement reviews conducted under Statements on
Standards for Accounting and Review Services.Learning Objective:
19-08 Explain the accountant's responsibilities when performing a
compilation of financial statements.Topic: Audit-Based
ServicesAssurance on Additional InformationTopic: Auditing
Financial StatementsOther Than GAAPTopic: Compilations of
Historical Financial StatementsTopic: Reviews of Historical
Financial Statements19-1