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cpa audit

Which of the following is not true about the relationship between quality control standards and professional standards such as GAAS
a. quality control standards relate to the conduct of a firms entire practice whereas proff standards such as gaas relate to the conduct of an individual engagement
b. the adoption of quality control standards increases the likelihood of compliance with professional standards on individual engagements
c. a firm's failure to establish or comply w/ an appropriate system of quality control implies that the firm has also failed to follow professional standards on individual engagements
d. a firm that has not adopted an appropriate system of quality control may still be in compliance w/ proff standards with respect to individual engagements.

c. a firm's failure to establish or comply with an appropriate system of quality control does no necessarily imply that the firm has failed to follow proff standards on individual engagements.

Would the following factors ordinarily be considered in planning an audit engagement's personnel requirements?
1. opportunities for on-the-job training?
2. continuity and periodic rotation of personnel

1. yes to both
firm should consider achieving a balance of engagement manpower requirements, personnel skills and individual development and utilization.
1. engagement size and complexity
2. personnel availiabitliy
3. special expertise required
4. timing of the work to be performed
5. continuity and periodic rotation of personnel
6. opportunities for on-the-job training

The second or wrap-up review of teh audit documentation usually consists of focus on......

the fair presentation of teh financial statements in conformity with GAAP, the

Which of the following is an element of a cpa firm's quality control system that should be considered in establishing its quality control procedures
a. complying with laws and regulations
b. using statistical sampling techniques
c. assigning personnel to engagements
d. considering audit risk and materiality

c. the aicpa's statements on quality control standards assert that a system of quality control for a firm encompasses the firms org structure.

An auditor may express an opinion on an entity's a/r balance even if teh auditor has disclaimed an opinion on the fin stat taken as a whole:
a. reports on a/r discloses the reason for the disclaimer of opinion on the finn stat
b. use of the report on a/r is restricted to internal use only
c. auditor also reports on the current asset portion of the entity's balance sheet.
d. reports on a/r is presented separately from the disclaimer of opinion on the finn statements

d. if the auditor has disclaimed an opinion on the finn statements taken as a whole, the auditor may express an opinion on an entity's a/r balance only if the special report on a/r is presented separatey from the disclaimer of opinion on finn stat

Financial info is presented in a printed form that prescribes the wording of teh indp auditors report. The form is not acceptable to the auditor b/c the form calls for statements that are inconsistent with the auditor's responsibility. Under these circumstances the auditor most likely would....
a. w/draw from the engagement
b. reword the form or attach a separate report
c. express a qualified opinion with an explanation
d. restrict use of teh report to the party who designed teh form

b: an aduitor should not sign a preprinted report that includes statements that are inconsistent with teh auditor's responsibility. Instead the form should be revised or a separate more accurate report should be attached.

Field is an employee of corp. Hardy, cpa, is asked to express an opinion on filed's profit participation in golds net income. Hardy may accept this engagement only if:
a. hardy aslo audits golds complete finn statements
b. golds finn stat are prepared in conformity with GAAP
c. hardy report is available for distribution to golds other employees
d. field owns controlling interest in gold.

A. the engagement described is one to express an opinion on a specified element, account, or item of the finn stat. Since fileds profit participation is based on golds net incom eor stockholders equity, hardy can accept teh engagements only if hardy alos audits teh complete finn stat

What type of analytical procedure would an auditor most likely use in developing relationships among balance
sheet accounts when reviewing the financial statements of a non issuer?
a. Trend analysis.
b. Regression analysis.
c. Ratio analysis.
d. Risk analysis.

Choice "c" is correct. Ratio analysis is often used to examine relationships between balance sheet accounts.

Baker, CPA, was engaged to review the financial statements of Hall Co., a non issuer. During the
engagement Baker uncovered a complex scheme involving client illegal acts and fraud that materially affect
Hall's financial statements. If Baker believes that modification of the standard review report is not adequate
to indicate the deficiencies in the financial statements, Baker should:

If the accountant believes that modification of the standard report is not adequate to
indicate the deficiencies in the financial statements taken as a whole, the accountant should withdraw from
the review engagement and provide no further services with respect to those financial statements. Note that
the accountant should also request that management consider the effect of the scheme on the financial
statements.

Each page of a non issuer's financial statements reviewed by an accountant should include the following
reference:
a. See Accompanying Accountant's Footnotes.
b. Reviewed, No Material Modifications Required .
c. See Accountant's Review Report.
d. Reviewed , No Accountant's Assurance Expressed

Choice "c" is correct. Each page of the financial statements reviewed by the accountant should include a
reference such as "See Accountant's Review Report."

SASARS says if an accountant Prepared , through the use of computer software, financial statements that are in conformity with a comprehensive basis of accounting other than GAAP, and which are expected to be used by a third party" What must he do ?

Issue a report,
SSARS apply when an accountant "submits" financial statements. Submission is
defined as presenting financial statements to a client or third party that the accountant has prepared , either
manually or through use of computer software. Preparing financial statements that are in conformity with another comprehensive basis of accounting constitutes a submission of financial statements under SSARS. If the financial statements are expected to be used by a third party, SSARS would require the accountant to
report.

If a cpa is conducting an audit and the client wishes to downgrade its engagment from an audit to a review, and has a justified reason to do so, the review report should reference
1. "scope limitation that caused the changed engagement"
2. "original engagement that was agreed to"
yes/no

no to both,
If the accountant concludes that there is reasonable justification to change the
engagement, the accountant's review report should not include reference to the original engagement, to any
auditing procedures that may have been performed, or to the scope limitation that resulted in the changed
engagement.

Which of the following statements should be included in an accountant's standard report based on the
compilation of a non issuer's financial statements?
a. A compilation consists principally of inquiries of company personnel and analytical procedures applied to
financial data.
b. A compilation is limited to presenting in the form of financial statements information that is the
representation of management.
c. A compilation is not designed to detect material modifications that should be made to the financial
statements.
d. A compilation is substantially less in scope than an audit in accordance with generally accepted auditing
standards.

Choice "b" is correct. The accountant's compilation report should state that a compilation is limited to
presenting in the form of financial statements information that is the representation of management.

North Co., a privately-held entity, asked its tax accountant, King, a CPA in public practice, to prepare North's
interim financial statements on King's microcomputer when King prepared North's quarterly tax return. King
should not submit these financial statements to North unless, as a minimum, King complies with the
provisions of:
a. Statements on Standards for Accounting and Review Services.
b. Statements on Standards for Unaudited Financial Services.
c. Statements on Standards for Consulting Services.
d. Statements on Standards for Attestation Engagements.

Choice "a" is correct. An accountant should not submit unaudited financial statements unless the auditor
complies with the provisions applicable to a compilation engagement (under SSARS).

An accountant's standard report on a review of the financial statements of a non issuer should state that the
accountant:
a. Does not express an opinion or any form of limited assurance on the financial statements.
b. Is not aware of any material modifications that should be made to the financial statements for them to
conform with GAAP.
c. Obtained reasonable assurance about whether the financial statements are free of material misstatement.
d. Examined evidence, on a test basis, supporting the amounts and disclosures in the financial statements.

"b" is correct. The accountant's report on a review engagement should state that the accountant is
not aware of any material modifications that should be made to the financial statements for them to conform
with GAAP.

During an engagement to review the financial statements of a non issuer an accountant becomes aware of a
material departure from GAAP. If the accountant decides to modify the standard review report because
management will not revise the financial statements, the accountant should :

If the accountant concludes that modification of the standard report is appropriate, the
departure should be disclosed in a separate paragraph of the report.

Which of the following representations does an accountant make implicitly when issuing the standard report
for the compilation of a non issuer's financial statements?
a. The accountant is independent with respect to the entity.
b. The financial statements have not been audited.
c. A compilation consists principally of inquiries and analytical procedures.
d. The accountant does not express any assurance on the financial statements.

Choice "a" is correct. If the accountant is not independent, he should specifically disclose the lack of
independence. Otherwise, independence is implied .

Which of the following accounting services mayan accountant perform without being required to issue a
compilation or review report under the Statements on Standards for Accounting and Review Services?
I. Preparing a working trial balance.
II. Preparing standard monthly journal entries.

Choice "c" is correct. An accountant can prepare a working trial balance and prepare standard monthly
journal entries without being required to issue a compilation or review report under the SSARS as long as the
performance of these services does not carry forward into the submission of financial statements.

Which of the following inquiry or analytical procedures ordinarily is performed in an engagement to review a
non issuer's financial statements?
a. Analytical procedures designed to test the accounting records by obtaining corroborating evidential
matter.
b. Inquiries concerning the entity's procedures for recording and summarizing transactions.
c. Analytical procedures designed to test management's assertions regarding continued existence.
d. Inquiries of the entity's attorney concerning contingent liabilities.

Choice "b" is correct. When reviewing a nonissuer's financial statements, an accountant ordinarily makes
inquiries concerning the entity's procedures for recording and summarizing transactions.

Statements on Standards for Accounting and Review Services establish standards and procedures for which
of the following engagements?
a. Proposing adjustments to the books of account for a partnership.
b. Reviewing interim financial data required to be filed with the SEC.
c. Preparing standard monthly journal entries.
d. Compiling an individual's personal financial statement to be used to obtain a mortgage.

Choice "d" is correct. Statements on Standards for Accounting and Review Services (SSARS) establish
standards and procedures for an engagement to compile an individual's personal financial statements to be
used to obtain a mortgage.

Which of the following procedures would most likely be included in a review engagement of a non issuer?
a. Preparing a bank transfer schedule.
b. Inquiring about related party transactions.
c. Assessing the internal control structure.
d. Performing cutoff tests on sales and purchases transactions.

Choice "b" is correct. A review engagement is based on inquiry and analytical procedures. Inquiring about
related party transactions is a procedure which would most likely be included in a review engagement of a
non public entity.

The authoritative body designated to promulgate standards concerning an accountant's association with
unaudited financial statements of an entity that is not required to file financial statements with an agency
regulating the issuance of the entity's securities is the:

Choice "c" is correct. The accounting and review services committee is the authoritative body designated to
promulgate standards concerning an accountant's association with unaudited financial statements of a
non issuer (i.e., an entity that is not required to file financial statements with an agency regulating the issuance
of the entity's securities).

An accountant who reviews the financial statements of a non issuer should issue a report stating that a review:
a. Is substantially less in scope than an audit.
b. Provides negative assurance that the internal control structure is functioning as designed.
c. Provides only limited assurance that the financial statements are fairly presented .
d. Is substantially more in scope than a compilation.

Choice "a" is correct. An accountant who reviews the financial statements of a non issuer should issue a
report stating that a review is substantially less in scope than an audit. (This is why you have to "memorize"
the key phrases in the review and compilation reports .)

Which of the following is not true about documentation requirements related to a review of a non issuer's
financial statements?
a. Written documentation from a compilation engagement may be used to provide support for the review
report.
b. A management representation letter should be included in the documentation files .
c. The auditor must document evidence obtained about the operating effectiveness of controls.
d. Documentation should include the results of analytical procedures.

Choice "c" is correct. The accountant is not required to evaluate control risk or test the operating
effectiveness of controls in a review of a non public entity's financial statements.

When performing an engagement to review a non issuer's financial statements, an accountant most likely
would:
a. Obtain an understanding of the entity's internal control.
b. Limit the distribution of the accountant's report.
c. Confirm a sample of significant accounts receivable balances.
d. Ask about actions taken at board of directors' meetings.

Choice "d" is correct. A review is based on inquiry and analytical procedures. The accountant should inquire
about actions authorized by the stockholders, the board of directors, or other management groups.

Which of the following statements is correct regarding a review engagement of a non issuer's financial
statements performed in accordance with the Statements on Standards for Accounting and Review Services
(SSARS)?
a. An accountant must establish an understanding with the client in an engagement letter.
b. An accountant must obtain an understanding of the client's internal control when performing a review.
c. A review provides an accountant with a basis for expressing limited assurance on the financial
statements.
d. A review report contains an accountant's opinion of the financial statements taken as a whole.

Choice "c" is correct. A review report is issued when inquiry and analytical procedures provide a reasonable
basis for the expression of limited assurance on the financial statements.

The standard report issued by an accountant after reviewing the financial statements of a non issuer should
state that:
a. A review is limited to presenting in the form of financial statements information that is the representation
of management.
b. A review consists of inquiries of company personnel and analytical procedures applied to financial data.
c. The accountant does not express an opinion or any other form of assurance on the financial statements.
d. The accountant did not obtain an understanding of the entity's internal control or assess control risk

Choice "b" is correct. The standard report issued by an accountant after reviewing the financial statements of
a non issuer states that a review consists of inquiries of company personnel and analytical procedures applied
to financial data.

Independence is not required on which of the following types of engagements?
a. Audit.
b. Review.
c. Compilation.
d. Agreed-upon procedures.

Choice "c" is correct. An accountant need not be independent to compile financial statements, but should
disclose this lack of independence.

Which of the following statements is correct regarding a review of a non public entity's financial statements in
accordance with Statements on Standards for Accounting and Review Services (SSARS)?
a. The accountant is required to assess the risk of fraud .
b. It is not necessary for the accountant to obtain a management representation letter.
c. An opinion is expressed in the review report.
d. The accountant must be independent to issue the review report.

Choice "d" is correct. In order to issue a review report on the financial statements of a nonpublic entity, the
accountant must be independent.

An accountant is required to comply with the provisions of Statements on Standards for Accounting and
Review Services when:
I. Reproducing client-prepared financial statements, without modification, as an accommodation to a client.
II. Preparing standard monthly journal entries for depreciation and expiration of prepaid expenses.

d. Neither I nor II.
Choice "d" is correct. Statements on Standards for Accounting and Review Services (SSARS) provide
standards with respect to compilations and reviews of financial statements. SSARS do not apply to the
reproduction of client-prepared financial statements or to the preparation of standard monthly journal entries,
since neither of these would be considered a compilation or a review.

Which of the following procedures would an accountant most likely perform during an engagement to review
the financial statements of a non issuer?
a. Review the predecessor accountant's working papers.
b. Inquire of management about related party transactions.
c. Corroborate litigation information with the entity's attorney.
d. Communicate internal control deficiencies to senior management.

Choice "b" is correct. In a review of a non issuer's financial statements, an accountant should inquire about
the existence of related party transactions.

Which of the following procedures would a CPA most likely perform when reviewing the financial statements
of a non issuer?
a. Verify that the accounting estimates that could be material to the financial statements have been
developed.
b. Obtain an understanding of the entity's internal control components.
c. Assess the entity's ability to continue as a going concern for a reasonable period of time.
d. Make inquiries about actions taken at the board of directors meetings.

Choice "d" is correct. In a review of a non issuer's financial statements, an accountant should inquire about
actions taken at board of directors meetings.

When an accountant is not independent with respect to an entity, which of the following types of compilation
reports may be issued?
a. The standard compilation report may be issued, regardless of independence.
b. A compilation report with negative assurance may be issued.
c. A compilation report with special wording that notes the accountant's lack of independence may be
issued.
d. A compilation report may be issued if the engagement is upgraded to a review.

Choice "c" is correct. An accountant who is not independent with respect to an entity may compile financial
statements for such an entity and issue a report. However, the last paragraph of the report should disclose
this lack of independence. The accountant is permitted , but not required , to disclose the reason(s) for the
lack of independence.

Financial statements of a non issuer that have been reviewed by an accountant should be accompanied by a
report stating that:
a. The scope of the inquiry and analytical procedures performed by the accountant has not been restricted.
b. Management is responsible for the preparation and fair presentation of the financial statements.
c. A review includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements.
d. A review is greater in scope than a compilation, the objective of which is to present financial statements
that are free of material misstatements.

Choice "b" is correct. Financial statements of a non issuer that have been reviewed by an accountant should
be accompanied by a report stating that management is responsible for the preparation and fair presentation
of the financial statements.

Which of the following is true about management representations obtained during an engagement to review
the financial statements of a non issuer?
a. Written representations from the current management are required for all periods being reported on.
b. Written representations with respect to prior periods should not be provided by the current management if
they were not present during those periods.
c. Written representations should be addressed to members of management whom the accountant believes
are responsible for and knowledgeable about the matters covered in the representation letter.
d. Written representations need not include information concerning subsequent events.

Choice "a" is correct. Written representations from the current management are required for all periods being
reported on.

If requested to perform a review engagement for a non issuer in which an accountant has an immaterial direct
financial interest, the accountant is:
a. Not independent and, therefore, may not be associated with the financial statements.
b. Not independent and, therefore, may not issue a review report.
c. Not independent and, therefore, may issue a review report, but may not issue an auditor's opinion.
d. Independent because the financial interest is immaterial and, therefore, may issue a review report.

Choice "b" is correct. An accountant with an immaterial direct financial interest in a client is no longer
independent with respect to that client. The accountant is precluded from issuing a review report on the
financial statements of an entity with respect to which he is not independent. If the accountant is not
independent, he may issue a compilation report provided he complies with the compilation standards.

Each page of a non issuer's financial statements reviewed by an accountant should include the following
reference:
a. See Accompanying Accountant's Footnotes.
b. Reviewed, No Material Modifications Required .
c. See Independent Accountant's Review Report.
d. Reviewed , No Accountant's Assurance Expressed.

Choice "c" is correct. Each page of the financial statements reviewed by the accountant should include a
reference such as "See Independent Accountant's Review Report."

An accountant has been engaged to review a non issuer's financial statements that contain several departures
from GAAP. If the financial statements are not revised and modification of the standard review report is not
adequate to indicate the deficiencies, the accountant should:
a. Withdraw from the engagement and provide no further services concerning these financial statements.
b. Inform management that the engagement can proceed only if the accountant's report is restricted to
internal use.
c. Determine the effects of the departures from GAAP and issue a special report on the financial statements.
d. Issue a modified review report provided the entity agrees that the financial statements will not be used to
obtain credit.

Choice "a" is correct. If an auditor believes that modification of the standard report is not adequate to indicate
the deficiencies in the financial statements, he should withdraw from the review engagement and provide no
additional services with respect to the financial statements.

Gole, CPA, is engaged to review the Year 2 financial statements of North Co. , a non issuer. Previously, Gole
audited North's Year 1 financial statements and expressed an unqualified opinion. Gole decides to include a
separate paragraph in the Year 2 review report because North plans to present comparative financial
statements for Year 2 and Year 1. This separate paragraph should indicate that:
a. The Year 2 review report is intended solely for the information of management and the board of directors.
b. The Year 1 auditor's report may no longer be relied on.
c. No auditing procedures were performed after the date of the Year 1 auditor's report.
d. There are justifiable reasons for changing the level of service from an audit to a review.

Choice "c" is correct. If the review report on the current period includes a separate paragraph describing the
responsibility assumed for the prior period's financial statements, the additional paragraph should explicitly
state that no audit procedures were performed subsequent to the previous period's audit.

When unaudited financial statements of a non issuer are presented in comparative form with audited financial
statements in the subsequent year, the unaudited financial statements should be clearly marked to indicate
their status and:
I. The report on the unaudited financial statements should be reissued.
II. The report on the audited financial statements should include a separate paragraph describing the
responsibility assumed for the unaudited financial statements.

When audited financial statements are presented in comparative form with unaudited
financial statements from a prior year, the auditor should either reissue his or her report on the unaudited
statements or include a separate paragraph in the current year report describing the responsibility assumed
for the unaudited statements.

Mark compiled a report on yr1, lots of gaap departures, omitted gaap disclosures. Mark compiled yr2 and included all gaap disclosures. Now company wants mark to compare financial statements. What can mark do?

a. Clark may not report on the comparative financial statements because the 20X1 statements are not
comparable to the 20X2 statements that include the GAAP disclosures.

Before reissuing a compilation report on the financial statements of a non issuer for the prior year, the
predecessor accountant is required to:
a. Obtain an updated management representation letter from the entity's management.
b. Compare the prior year's financial statements with those of the current year.
c. Review the successor accountant's working papers for matters affecting the prior year.
d. Make inquiries of the entity's lawyers concerning continuing litigation.

Choice "b" is correct. Before reissuing a compilation report on the financial statements of a non issuer for the
prior year, the predecessor accountant is required to compare the prior year's financial statements with those
of the current year.

Silver, CPA, has been hired by Andrews Co., a publicly held company, to conduct a review of its interim
financial information. While performing review procedures, Silver becomes aware of a significant change in
the control activities at one of Andrew's branch locations. Which of the following might Silver consider
performing in response to this situation?
a. Making additional inquiries, such as whether management has monitored the changes and considered
whether they were operating as intended .
b. Employing analytical procedures with a less precise expectation.
c. Both "a" and "b" above.
d. Neither "a" nor "b" above.

Choice "a" is correct. An accountant's knowledge of an entity's business and its internal control influences the
inquiries made and analytical procedures performed . A significant change in control activities would likely
result in further inquiry of management.

Davidson, CPA, is performing a review under auditing standards of Gold's interim financial information. As
part of planning, Davidson reads the audit documentation from the preceding year's annual audit. Which of
the following is least likely to affect Davidson's review?
a. A summary of both corrected and uncorrected misstatements.
b. Identified risks of material misstatement due to fraud .
c. Significant weaknesses in internal control.
d. Scope limitations that were overcome through acceptable alternative procedures.

Choice "d" is correct. Scope limitations relate to problems in performing the audit, and, especially since they
were overcome, they would bear little relationship to procedures performed in a review.

Which of the following is not a required procedure in an engagement to review the interim financial
information of a publicly held entity?
a. Obtaining corroborating evidence about the entity's ability to continue as a going concern.
b. Comparing disaggregated revenue data for the current interim period with that of comparable prior
periods.
c. Obtaining evidence that the interim financial information reconciles with the accounting records.
d. Inquiring of management about their knowledge of fraud or suspected fraud.

Choice "a" is correct. A review of interim financial information is not designed to provide information regarding
an entity's ability to continue as a going concern. Even if such information comes to the accountant's
attention, the accountant is not required to corroborate it.

In which case would the accountant be least likely to perform a review of interim financial information under
PCAOB standards?
a. Quarterly reports are required to be filed with the SEC.
b. Selected quarterly financial data is included in an annual report.
c. Quarterly financial data is included in the financial statements of a non issuer.
d. The accountant is performing an initial audit of financial statements that include selected quarterly data.

Choice "c" is correct. A review of quarterly financial data included in financial statements of a non issuer is
performed under Statements on Auditing Standards, not under PCAOB standards. A review of interim
financial information under PCAOB standards is conducted for public companies (or companies anticipating
going public).

The objective of a review of interim financial information of a public entity is to provide an accountant with a
basis for reporting whether:
a. Material modifications should be made to conform with generally accepted accounting principles.
b. A reasonable basis exists for expressing an updated opinion regarding the financial statements that were
previously audited.
c. Condensed financial statements or pro forma financial information should be included in a registration
statement.
d. The financial statements are presented fairly in accordance with generally accepted accounting principles.

e "a" is correct. The objective of a review of interim financial information is to provide the accountant,
through inquiries and analytical procedures, with a basis for reporting whether material modifications should
be made to such information to conform with generally accepted accounting principles.

An independent accountant's report is based on a review of interim financial information. If this report is
presented in a registration statement, a prospectus should include a statement clarifying that the:
a. Accountant's review report is not a part of the registration statement within the meaning of the Securities
Act of 1933.
b. Accountant assumes no responsibility to update the report for events and circumstances occurring after
the date of the report.
c. Accountant's review was performed in accordance with standards established by the Securities and
Exchange Commission.
d. Accountant obtained corroborating evidence to determine whether material modifications are needed for
such information to conform with GAAP.

Choice "a" is correct. If a report on a review of interim financial information is presented in a registration
statement, the prospectus should include a statement that the report is not a "report" or "part" of the
registration statement. The accountant should also read the other portions of the registration statement to
ensure that his or her name is not used in a way that indicates greater responsibility than s/he intends.

Which of the following matters is covered in a typical comfort letter?
a. Negative assurance concerning whether the entity's internal controls operated as designed during the
period being audited.
b. An opinion regarding whether the entity complied with laws and regulations under Government Auditing
Standards and the Single Audit Act of 1984.
c. Positive assurance concerning whether unaudited condensed financial information complied with
generally accepted accounting principles.
d. An opinion as to whether the audited financial statements comply in form with the accounting
requirements of the SEC.

Choice "d" is correct. In a typical comfort letter, the accountants express an opinion (i.e., positive assurance)
concerning the financial statements' compliance (as to form) with the pertinent accounting requirements of the
SEC.

Comfort letters ordinarily are signed by the client's:
a. Independent auditor.
b. Underwriter of securities.
c. Audit committee.
d. Senior management.

Choice "a" is correct. A comfort letter is a letter containing a negative assurance from the CPA to the
underwriter or certain other requesting parties just before the registration of the client's securities.

When an accountant issues to an underwriter a comfort letter containing comments on data that have not
been audited, the underwriter most likely will receive:
a. Negative assurance on capsule information.
b. Positive assurance on supplementary disclosures.
c. A limited opinion on "pro forma" financial statements.
d. A disclaimer on prospective financial statements.

Choice "a" is correct. When an accountant issues to an underwriter a comfort letter containing comments on
data that have not been audited, the underwriter most likely will receive negative assurance on capsule
information

When issuing letters for underwriters, commonly referred to as comfort letters, an accountant may provide
negative assurance concerning:
a. The absence of any significant deficiencies in internal control.
b. The conformity of the entity's unaudited condensed interim financial information with generally accepted
accounting principles (GAAP).
c. The results of procedures performed in compiling the entity's financial forecast.
d. The compliance of the entity's registration statement with the requirements of the Securities Act of 1933.

Choice "b" is correct. When issuing letters for underwriters, commonly referred to as comfort letters, an
accountant may provide negative assurance concerning the conformity of the entity's unaudited condensed
interim financial information with generally accepted accounting principles (GAAP).

When a CPA examines a client's projected financial statements, the CPA's report should:
a. Explain the principal differences between historical and projected financial statements.
b. State that the CPA performed procedures to evaluate management's assumptions.
c. Refer to the CPA's auditor's report on the historical financial statements.
d. Include the CPA's opinion on the client's ability to continue as a going concern.

Choice "b" is correct. When a CPA examines projected financial statements, the standard report should
include a statement that the examination "".included such procedures as we considered necessary to
evaluate both the assumptions used by management and the preparation and presentation of the projection."

A CPA is required to comply with the provisions of Statements on Standards for Attestation Engagements
(SSAE) when engaged to:
a. Report on financial statements that the CPA generated through the use of computer software.
b. Review management's discussion and analysis (MD&A) prepared pursuant to rules and regulations
adopted by the SEC.
c. Provide the client with a financial statement format that does not include dollar amounts.
d. Audit financial statements that the client prepared for use in another country.

Choice "b" is correct. A CPA is required to comply with the provisions of Statements on Standards for
Attestation Engagements (SSAE) when engaged to review management's discussion and analysis (MD&A)
prepared pursuant to rules and regulations adopted by the SEC.

A CPA in public practice is required to comply with the provisions of the Statements on Standards for
Attestation Engagements (SSAE) when:
1." Testifying as an expert witness
in accounting and auditing
matters given stipulated facts"
2. Compiling a client's financial
projection that presents a
hypothetical course of action

Choice "c" is correct. Statements on Standards for Attestation Engagements provide guidance with respect to
compilation of a financial projection, but they do not address services involving advocating for a client, such
as testifying as an expert witness.

In an attest engagement, use of the accountant's report should be restricted to specified parties in all of the
following situations, except:
a. When the criteria used to evaluate the subject matter are appropriate for only a limited number of parties.
b. When reporting on an assertion about the subject matter instead of reporting directly on the subject
matter.
c. When reporting directly on the subject matter and a written assertion has not been provided.
d. When reporting on an agreed-upon procedures engagement.

Choice "b" is correct. There is no requirement that the accountant's report be restricted to specified parties
when reporting on an assertion about the subject matter instead of reporting directly on the subject matter.

An entity engaged a CPA to determine whether the client's web sites meet defined criteria for standard
business practices and controls over transaction integrity and information protection. In performing this
engagement, the CPA should comply with the provisions of:
a. Statements on Assurance Standards.
b. Statements on Standards for Attestation Engagements.
c. Statements on Standards for Management Consulting Services.
d. Statements on Auditing Standards.

Choice "b" is correct. A WebTrust engagement is an attestation engagement in which the CPA determines
whether the client's web site meets defined criteria relating to transaction integrity, information protection, and
disclosure of business practices. Attestation engagements should be performed in accordance with
Statements on Standards for Attestation Engagements (SSAEs).

A CPA's report on agreed-upon procedures related to management's assertion about an entity's compliance
with specified requirements should contain:
a. A statement of limitations on the use of the report.
b. An opinion about whether management's assertion is fairly stated.
c. Negative assurance that control risk has not been assessed.
d. An acknowledgment of responsibility for the sufficiency of the procedures.

Choice "a" is correct. The practitioner's report on agreed-upon procedures related to management's assertion
about the entity's compliance with specified requirements is intended solely for the use of specified parties.
Thus, the report should include a statement of limitations on the use of the report.

An accountant may accept an engagement to apply agreed-upon procedures to prospective financial
statements provided that:
a. Use of the report is restricted to the specified parties.
b. The prospective financial statements are also examined.
c. Responsibility for the adequacy of the procedures performed is taken by the accountant.
d. Negative assurance is expressed on the prospective financial statements taken as a whole.

Choice "a" is correct. An accountant may accept an engagement to apply agreed-upon procedures to
prospective financial statements provided that certain conditions are met, including that the use of the report
be restricted to the specified parties.

An accountant's compilation report on a financial forecast should include a statement that:
a. The forecast should be read only in conjunction with the audited historical financial statements.
b. The accountant expresses only limited assurance on the forecasted statements and their assumptions.
c. There will usually be differences between the forecasted and actual results.
d. The hypothetical assumptions used in the forecast are reasonable in the circumstances.

Choice "c" is correct. The accountant's compilation report on a client's financial forecast should include a
caveat that the prospective results may not be achieved.

Which of the following is a conceptual difference between the attestation standards and generally accepted
auditing standards?
a. The attestation standards provide a framework for the attest function beyond historical financial
statements.
b. The requirement that the practitioner be independent in mental attitude is omitted from the attestation
standards.
c. The attestation standards do not permit an attest engagement to be part of a business acquisition study
or a feasibility study.
d. None of the standards of fieldwork in generally accepted auditing standards are included in the attestation
standards.

Choice "a" is correct. Attestation standards provide a framework for the attest function beyond historical
financial statements.

An accountant's report on a review of pro forma financial information should include a:
a. Statement that the entity's internal control was not relied on in the review.
b. Disclaimer of opinion on the financial statements from which the pro forma financial information is derived.
c. Caveat that it is uncertain whether the transaction or event reflected in the pro forma financial information
will ever occur.
d. Reference to the financial statements from which the historical financial information is derived.

Choice "d" is correct. The accountant's report on a review of pro forma financial information should include a
reference to the financial statements from which the historical information is derived and a statement as to
whether such financial statements were audited or reviewed.

An accountant's compilation report on a financial forecast should include a statement that the:
a. Compilation does not include evaluation of the support of the assumptions underlying the forecast.
b. Hypothetical assumptions used in the forecast are reasonable.
c. Range of assumptions selected is one in which one end of the range is less likely to occur than the other.
d. Prospective statements are limited to presenting , in the form of a forecast, information that is the
accountant's representation .

Choice "a" is correct. An accountant's compilation report on a financial forecast should include a statement
that the compilation does not include evaluation of the support of the assumptions underlying the forecast.
(An examination of the financial forecast would include evaluation of the support).

Which of the following professional services would be considered an attest engagement?
a. A management consulting engagement to provide EDP advice to a client.
b. An engagement to report on management's discussion and analysis (MD&A).
c. An income tax engagement to prepare federal and state tax returns.
d. The compilation of financial statements from a client's accounting records.

Choice "b" is correct. An engagement to report on management's discussion and analysis (MD&A) would be
considered an attest engagement, because the accountant is issuing an examination, review, or agreed-upon
procedures report on another party's assertion.

Which of the following statements concerning prospective financial statements is correct?
a. Only a financial forecast would normally be appropriate for limited use.
b. Only a financial projection would normally be appropriate for general use.
c. Any type of prospective financial statements would normally be appropriate for limited use.
d. Any type of prospective financial statements would normally be appropriate for general use.

Choice "c" is correct. Any type of prospective financial statements (financial forecasts and financial
projections) would normally be appropriate for limited use.

Negative assurance may be expressed when an accountant is requested to report on the:
a. Compilation of prospective financial statements.
b. Compliance with the provisions of the Foreign Corrupt Practices Act.
c. Results of performing a review of management's assertion.
d. Audit of historical financial statements.

Choice "c" is correct. Negative assurance may be expressed when an accountant is requested to report on
the results of performing a review of management's assertion.

When an accountant examines a financial forecast that fails to disclose several significant assumptions used
to prepare the forecast, the accountant should describe the assumptions in the accountant's report and issue
a (an):
a. "Except for" qualified opinion.
b. "Subject to" qualified opinion.
c. Unqualified opinion with a separate explanatory paragraph.
d. Adverse opinion.

Choice "d" is correct. When an accountant examines a financial forecast that fails to disclose significant
assumptions used to prepare the forecast, the accountant should issue an adverse opinion.

Prospective financial information presented in the format of historical financial statements that omit either
gross profit or net income is deemed to be a:
a. Partial presentation.
b. Projected balance sheet.
c. Financial forecast.
d. Financial projection.

Choice "a" is correct. "Partial presentations" are presentations of prospective financial information which
would not ordinarily be appropriate for general use because they omit one or more of these essential
elements: (a) sales or gross revenue, (b) gross profit or cost of sales, (c) unusual or infrequently occurring
items, (d) provision for income taxes, (e) discontinued operations or extraordinary items, (f) income from
continuing operations, (g) net income, (h) earnings per share, and (i) significant changes in financial position.

An accountant's standard report on a compilation of a projection should not include a statement that:
a. There will usually be differences between the forecasted and actual results.
b. The hypothetical assumptions used in the projection are reasonable in the circumstances.
c. The accountant has no responsibility to update the report for future events and circumstances.
d. The compilation of a projection is limited in scope.

Choice "b" is correct. An accountant's standard report on a compilation of a projection does not include a
statement that the hypothetical assumptions used in the projection are reasonable in the circumstances.

Which of the following professional services would be considered an attestation engagement?
a. Advocating on behalf of a client about trust tax matters under review by the Internal Revenue Service.
b. Providing financial analysis, planning, and capital acquisition services as a part-time, in-house controller.
c. Advising management in the selection of a computer system to meet business needs.
d. Preparing the income statement and balance sheet for one year in the future based on client expectations
and predictions.

Choice "d" is correct. Preparing future financial statements constitutes a compilation of prospective financial
statements, which is considered to be an attestation service.

An accountant may accept an engagement to apply agreed-upon procedures to prospective financial
statements provided the:
a. Provisions of Statements on Standards for Accounting and Review Services (SSARS) are followed.
b. Accountant also examines the prospective financial statements.
c. Distribution (use) of the report is restricted to the specified users.
d. The accountant takes responsibility for the adequacy of the procedures performed.

Choice "c" is correct. In an agreed-upon procedures engagement, use of the report is restricted to the
specified users.

A CPA is engaged to examine an entity's financial forecast. The CPA believes that several significant
assumptions do not provide a reasonable basis for the forecast. Under these circumstances, the CPA should
issue a(an):
a. Adverse opinion.
b. Pro forma opinion.
c. Qualified opinion.
d. Unqualified opinion with an explanatory paragraph.

Choice "a" is correct. If one or more of the significant assumptions do not provide a reasonable basis for the
financial statements, an adverse opinion would be issued.

Which of the following prospective financial statements is(are) appropriate for general use?
1. financial forecast
2. financial projection

1. yes
2. no

Accepting an engagement to compile an entity's financial projection most likely would be inappropriate if the
projection is to be included in a(an):
a. Mortgage application for the purpose of expanding the entity's facilities.
b. Offering statement of the entity's initial public offering of common stock.
c. Comprehensive document to be used in negotiating a new labor contract.
d. Report to the audit committee that is not sent to the stockholders.

Choice "b" is correct. Financial projections are not appropriate for general use, and therefore should not be
included in an offering statement of the entity's initial public offering of common stock.

Which of the following procedures should an accountant perform during an engagement to compile
prospective financial statements?
a. Test the entity's internal controls to determine if adequate controls exist so that financial projections can
be reasonably achieved.
b. Make inquiries prior to the date of the report about possible future transactions that may impact the
forecast once the report is issued.
c. Make inquiries about the accounting principles used in the preparation of the prospective financial
statements.
d. Compare the prospective financial statements with the entity's historical results for the prior year.

Choice "c" is correct. An accountant performing an engagement to compile prospective financial statements
should make inquiries about the accounting principles used in the preparation of the prospective financial
statements.

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