Quiz 4-6
In order for a firm to designate itself as "Members of the AICPA": all CPA owners must be members of the AICPA. all owners, not just CPA owners, must be members of the AICPA. the majority of CPA owners must be members of the AICPA. the majority of all owners, not just CPA owners, must be members of the AICPA.
A
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: Financial Accounting Standards Board. Government Accountability Office. Accounting and Review Services Committee. Auditing Standards Board.
c
The permanent file of an auditor's working papers generally would not include: A. bond indenture agreements. B. lease agreements. C. a working trial balance. D. a flowchart of internal control.
c
If an accountant has no previous experience in the prospective client's industry, he or she may obtain the required level of knowledge through which of the following? AICPA guides Industry publications Financial statement of other entities in the industry All of the answer choices are correct.
d
In designing a written audit plan, an auditor should establish specific audit objectives that relate primarily to the: timing of audit procedures. cost-benefit of gathering evidence. selected audit techniques. financial statement assertions.
d
In performing interviews and examining documents related to preliminary work in a financial statement audit of a nonissuer, an auditor identifies a business risk associated with plans for a new product line. What should the auditor do as a result? A. Modify the scope of the engagement to include an analysis of the budget for the new product line and consider the new risk in conjunction with other risks after the budget items have been analyzed. B. Analyze the newly identified risk in conjunction with economic circumstances related exclusively to the new product line and consider whether there is an immediate consequence for the risk of material misstatement for affected classes of transactions. C. Modify the financial statement disclosures to include the newly identified risk if it is likely that the new product line will have an adverse effect on the company's profitability. D. Analyze the newly identified risk in conjunction with other known business risks and consider whether there is an immediate consequence for the risk of material misstatement at various levels of the audit.
d
Internal control consists of five interrelated components, which include all of the following except: A. control environment. B. risk assessment. C. monitoring. D. materiality.
d
Knowledge of the client's "industry, regulatory, and other factors" includes an understanding of all of the following, except: broad economic environment in which the client operates. relevant accounting pronouncements. supplier and customer relationships. the entity's accounting policies and procedures.
d
The procedure, "The accountant should obtain an understanding of the entity's internal control," is: required for a review only. required for both a compilation and review. not required for a review but required for a compilation. not required for either a compilation or a review.
d
To compile financial statements of a nonissuer in accordance with the Statements on Standards for Accounting and Review Services, an accountant should: identify material misstatements in the financial statements. review bank statement reconciliations. make inquiries of significant customers, vendors, and creditors. obtain a general understanding of the client's business transactions.
d
Under the OMB's Uniform Guidance rules, when an entity uses funds from more than one federal program and the disbursements from the federal programs during the year exceed $750,000, then the entity: is not subject to the single-audit provisions. can elect to have a program-specific audit. will have a separate audit of each program. must have a single audit.
d
When planning a review of an audit client's interim financial statements, which of the following procedures should the accountant perform to update the accountant's knowledge about the entity's business and its internal control? Perform analytical procedures on selected accounts by comparing the interim amounts to the amounts for the previous audited fiscal year-end Inquire of the entity's outside legal counsel about the status of any previous pending litigation and any new litigation involving the entity Select a sample of material revenue transactions occurring during the interim period and examine supporting documentation Consider the results of audit procedures performed with respect to the current year's financial statements
d
When reviewing the financial statements of a nonissuer in accordance with the Statements on Standards for Accounting and Review Services (SSARS), an accountant's procedures should include: A. obtaining an understanding of internal control. B. assessing fraud risk. C. applying substantive tests of transactions. D. inquiring into actions taken at meetings of the board of directors.
d
Which of the following circumstances would generally require an accountant to decline to perform a compilation of financial statements under the Statements on Standards for Accounting and Review Services (SSARS)? A substantial portion of generally accepted accounting principles disclosures was omitted. There was a lack of independence between the accountant and client. The accountant had no prior experience with similar organizations within the industry. The accountant was not able to come to an understanding with representatives of the organization for services to be performed.
d
An auditor suspects that a client's cashier is misappropriating cash receipts for personal use by lapping customer checks received in the mail. In attempting to uncover this embezzlement scheme, the auditor most likely would compare the: dates checks are deposited per bank statements with the dates remittance credits are recorded. daily cash summaries with the sums of the cash receipts journal entries. individual bank deposit slips with the details of the monthly bank statements. dates uncollectible accounts are authorized to be written off with the dates the write-offs are actually recorded.
a
Which of the following statements is correct concerning both an engagement to compile and an engagement to review a nonpublic entity's financial statements? The accountant does not contemplate obtaining an understanding of internal control. The accountant must be independent in fact and appearance. The accountant expresses no assurance on the financial statements. The accountant should obtain a written management representation letter.
a
After obtaining an understanding of the entity and its environment and assessing the risk of material misstatement, an auditor decided to perform tests of controls. The auditor most likely decided that: A. it would be efficient to perform tests of controls that would result in a reduction in planned substantive tests. B. additional evidence to support a further reduction in control risk is not available. C. an increase in the assessed level of control risk is justified for certain financial statement assertions. D. there were many internal control weaknesses that could allow errors to enter the accounting system.
a
A practitioner is engaged to express an opinion on management's assertion that the square footage of a warehouse offered for sale is 150,000 square feet. The practitioner should refer to which of the following sources for professional guidance? A. Statements on Auditing Standards B. Statements on Standards for Attestation Engagements C. Statements on Standards for Accounting and Review Services D. Statements on Standards for Consulting Services
b
A practitioner reporting on pro forma financial information does not possess an understanding of the client's business and the industry in which the client operates. The practitioner should take which of the following actions? A. Issue a disclaimer, because the scope of work was not sufficient to express an opinion. B. Review industry trade journals. C. Refer a substantial portion of the audit to another CPA who will act as the principal practitioner. D. Perform ratio analysis of the financial data of comparable prior periods.
b
An accountant was asked by a potential client to perform a compilation of its financial statements. The accountant is not familiar with the industry in which the client operates. In this situation, which of the following actions is the accountant most likely to take? A. Request that management engage an independent industry expert to consult with the accountant B. Accept the engagement and obtain an adequate level of knowledge about the industry C. Decline the engagement
b
As compared to the AICPA Code of Professional Conduct, the ethical and independence rules of the SEC tend to be: identical. more restrictive. less restrictive. The SEC has no rules specific to ethics and independence.
b
A company engages a practitioner to assist the audit committee by performing specific procedures that were agreed to by the audit committee. Which of the following statements is correct regarding the procedures to be performed? A. The procedures should be designed to allow the practitioner to provide negative assurance. B. The practitioner should not involve the audit committee in determining what procedures are to be performed. C. The practitioner has responsibility for the adequacy of the procedures to be performed. D. The specific procedures performed should be listed in the practitioner's report to the audit committee.
D
Which of the following procedures is usually the first step in reviewing the financial statements of a nonissuer? Make preliminary judgments about risk and materiality to determine the scope and nature of the procedures to be performed. Obtain a general understanding of the entity's organization, its operating characteristics, and its products or services. Assess the risk of material misstatement arising from fraudulent financial reporting and the misappropriation of assets. Perform a preliminary assessment of the operating efficiency of the entity's internal control activities.
b
Which of the following rules of the AICPA Code of Professional Conduct must be observed even by a member who is not in public practice? Independence in fact and appearance Integrity and objectivity Professional competence Compliance with standards
b
Which of the following situations would not impair objectivity, integrity, or independence with respect to an audit client? An auditor takes the client's audit committee to Las Vegas for the weekend. An out-of-town client takes the audit engagement team out to dinner at a renowned local restaurant. An auditor provides client management with box seats for the season at a major league baseball franchise. A client takes the audit engagement team on a two-day ski trip after the audit team worked for two consecutive weekends.
b
The OMB's Uniform Guidance rules contain a "percentage of coverage" rule that requires the auditor of entities receiving federal financial support who do not meet the criteria for low risk to test major programs that, in the aggregate, encompass at least: 100% of federal expenditures. 50% of federal expenditures. 40% of federal expenditures. 30% of federal expenditures.
c
Although the scope of audits of recipients of federal financial assistance in accordance with federal audit regulations varies, these audits generally have which of the following elements in common? The auditor determines whether the federal financial assistance has been administered in accordance with applicable laws and regulations. The materiality levels are lower and are determined by the government entities that provided the federal financial assistance to the recipient. The auditor should obtain written management representations that the recipient's internal auditors will report their findings objectively without fear of political repercussions. The auditor is required to express both positive and negative assurance that noncompliance with laws and regulations that could have a material effect on the recipient's financial statements is disclosed to the inspector general.
a
Able, CPA, was engaged by Wedge Corp. to audit Wedge's financial statements. Wedge intended to use the audit report to obtain a $10 million loan from Care Bank. Able and Wedge's president agreed that Able would give an unmodified opinion on Wedge's financial statements in the audit report even though there were material misstatements in the financial statements. Care refused to make the loan. Wedge then gave the audit report to Ranch to encourage Ranch to purchase $10 million worth of Wedge common stock. Ranch reviewed the audit report and relied on it to purchase the stock. After the purchase, Able's agreement with Wedge's president was revealed. As a result, Wedge stock lost half its value and Ranch sued Able for fraud. What will be the result of Ranch's suit? A. Ranch will win because Able intentionally gave an unmodified opinion on Wedge's materially misstated financial statements. B. Ranch will win because Able is strictly liable for errors made in auditing Wedge's financial statements. C. Ranch will lose because Ranch is not a foreseen user of Able's audit report. D. Ranch will lose because Ranch is not in privity with Able.
a
Field, CPA, is auditing the financial statements of Miller Mailorder, Inc., (MMI) for the year ended January 31, 20X1. Field has compiled a list of possible errors and fraud that may result in the misstatement of MMI's financial statements, and a corresponding list of internal controls that, if properly designed and implemented, could assist MMI in preventing or detecting the errors and fraud. Select the internal control that most likely could assist MMI in preventing invoices from being sent to allies in a fraudulent scheme, and sales from being recorded for fictitious transactions. A. Sales invoices are compared with shipping documents and approved customer orders before invoices are mailed. B. Shipping documents are compared with sales invoices when goods are shipped. C. Shipping clerks compare goods received from the warehouse with approved sales orders. D. Approved sales orders are required for goods to be released from the warehouse.
a
In planning an audit, the auditor's knowledge about the design of relevant control activities should be used to: A. identify the types of potential misstatements that could occur. B. assess the operational efficiency of internal control. C. determine whether controls have been circumvented by collusion. D. document the assessed level of control risk.
a
North Co., a privately held entity, asked its tax accountant, King, a CPA in public practice, to review and generate 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.
a
Smith, CPA, is a partner of Johnson Accounting Firm. Johnson audited the books of Hometown Bank. Smith's independence would be impaired under which of the following circumstances? A. Smith is a director of Hometown Bank. B. Smith has a collateralized automobile loan with Hometown Bank. C. Smith had an account with Hometown Bank two years ago. D. Smith and a Hometown Bank board member belong to the same church.
a
The audit program usually cannot be finalized until the: consideration of the entity's internal control has been completed. engagement letter has been signed by the auditor and the client. material weaknesses have been communicated to the audit committee of the board of directors. search for unrecorded liabilities has been performed and documented
a
The one component of internal control that sets the tone of an organization, influencing the control consciousness of its people and serving as the foundation for all other components of internal control is: the control environment. risk assessment. control activities. information and communication.
a
The primary objective of procedures performed to obtain an understanding of internal control is to provide an auditor with: knowledge necessary for audit planning. audit evidence to use in assessing inherent risk. a basis for modifying tests of controls. an evaluation of the consistency of application of management's policies.
a
To compile financial statements, the accountant should possess a general understanding of the nature of the entity's operations. This most likely will include which of the following? Stated qualifications of the entity's accounting personnel Design of the entity's internal controls placed in operation Risk factors relating to misstatements arising from noncompliance with laws and regulations Internal control awareness of the entity's senior management
a
When engaged to compile the financial statements of a nonissuer, an accountant is required to possess a level of knowledge of the entity's accounting principles and practices. This requirement most likely will include obtaining a general understanding of the: stated qualifications of the entity's accounting personnel. design of the entity's internal controls placed in operation. risk factors relating to misstatements arising from noncompliance with laws and regulations. internal control awareness of the entity's senior management.
a
Which of the following acts by a CPA is a violation of professional standards regarding the confidentiality of client information? A. Releasing financial information to a local bank with the approval of the client's mail clerk B. Allowing a review of professional practice without client authorization C. Responding to an enforceable subpoena D. Faxing a tax return to a loan officer at the request of the client
a
Which of the following controls would an entity most likely use in safeguarding against the loss of marketable securities? An independent trust company that has no direct contact with the employees who have recordkeeping responsibilities has possession of the securities. The internal auditor verifies the marketable securities in the entity's safe each year on the balance sheet date. The independent auditor traces all purchases and sales of marketable securities through the subsidiary ledgers to the general ledger. A designated member of the board of directors controls the securities in a bank safe-deposit box.
a
Which of the following is required of an accountant in reviewing a company's financial statements under the Statements on Standards for Accounting and Review Services (SSARS)? A. Obtain knowledge of the client's industry B. Send bank confirmations C. Obtain a signed letter from the previous auditor D. Observe client's physical inventory
a
Which of the following is the authoritative body designated to promulgate attestation standards? Auditing Standards Board Governmental Accounting Standards Board Financial Accounting Standards Board Government Accountability Office
a
Which of the following is true? A review is an assurance engagement, as well as an attest engagement. A compilation is an assurance engagement, but not an attest engagement. A review is an attest engagement, but not an assurance engagement. A compilation is an assurance engagement, as well as an attest engagement.
a
Which of the following procedures would be generally performed when evaluating the accounts receivable balance in an engagement to review financial statements in accordance with the Statements on Standards for Accounting and Review Services (SSARS)? A. Perform a reasonableness test of the balance by computing days' sales in receivables B. Vouch a sample of subsequent cash receipts from customers C. Confirm individually significant receivable balances with customers D. Review subsequent bank statements for evidence of cash deposits
a
Field, CPA, is auditing the financial statements of Miller Mailorder, Inc., (MMI) for the year ended January 31, 20X1. Field has compiled a list of possible errors and fraud that may result in the misstatement of MMI's financial statements, and a corresponding list of internal controls that, if properly designed and implemented, could assist MMI in preventing or detecting the errors and fraud. Select the internal control that most likely could prevent or detect when different customer accounts are each credited for the same cash receipt. A. Remittance advices are separated from the checks in the mailroom and forwarded to the accounting department. B. Total amounts posted to the accounts receivable ledger from remittance advices are compared with the validated bank deposit slips. C. Validated deposit slips are compared with the cashier's daily cash summaries. D. An employee other than the bookkeeper periodically prepares a bank reconciliation.
b
In auditing a not-for-profit entity that receives governmental financial assistance, the auditor has a responsibility to: issue a separate report that describes the expected benefits and related costs of the auditor's suggested changes to the entity's internal control. assess whether management has identified laws and regulations that have a direct and material effect on the entity's financial statements. notify the governmental agency providing the financial assistance that the audit is not designed to provide any assurance of detecting misstatements caused by errors and fraud. render an opinion concerning the entity's continued eligibility for the governmental financial assistance.
b
In obtaining an understanding of an entity's internal control, an auditor is required to obtain knowledge about the: I. operating effectiveness of policies and procedures. II. design of policies and procedures. A. Both I and II B. II only C. I only D. Neither I nor II
b
Management philosophy and operating style most likely would have a significant influence on an entity's control environment when: the internal auditor reports directly to management. management is dominated by one individual. accurate management job descriptions delineate specific duties. the audit committee actively oversees the financial reporting process
b
The AICPA's Code of Professional Conduct states that: A. any acts carried out on behalf of the CPA by an uncompensated person cannot cause the CPA to violate the rules. B. a member may follow another country's rules if practicing outside of the United States. C. a member cannot be assumed to have control over another professional; therefore, another's acts cannot reflect on the member. D. another person cannot impair the independence of a CPA.
b
The phrase "generally accepted accounting principles" is an accounting term that: A. includes broad guidelines of general application but not detailed practices and procedures. B. encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time. C. provides a measure of conventions, rules, and procedures governed by the AICPA. D. is included in the audit report to indicate that the audit has been conducted in accordance with generally accepted auditing standards (GAAS).
b
The procedure of an accountant obtaining a general level of knowledge of the accounting principles and practices of the entity's industry is: required for a review only. required for both a compilation and review. not required for a review but required for a compilation. not required for either a compilation or a review.
b
To obtain an understanding of a continuing client's business in planning an audit, an auditor most likely would: A. perform tests of details of transactions and balances. B. review prior-year working papers and the permanent file for the client. C. read specialized industry journals. D. reevaluate the client's internal control.
b
What standards are applicable for a compilation of a nonissuer? A. Statements on Auditing Standards B. Statements on Standards for Accounting and Review Services (SSARS) C. Statements on Standards for Attestation Engagements (SSAE) D. Generally accepted auditing standards (GAAS)
b
When compiling the financial statements of a nonissuer, an accountant should: A. review agreements with financial institutions for restrictions on cash balances. B. understand the accounting principles and practices of the entity's industry. C. inquire of key personnel concerning related parties and subsequent events. D. perform ratio analyses of the financial data of comparable prior periods.
b
When the shipping department returns nonconforming goods to a vendor, the purchasing department should send to the accounting department the: unpaid voucher. debit memo. vendor invoice. credit memo.
b
Which of the following actions by a CPA most likely violates the profession's ethical standards? A. Using a records-retention agency to store confidential client records B. Retaining client records after the client has demanded their return C. Arranging with a financial institution to collect notes issued by a client in payment of fees due Compiling the financial statements of a client that employed the CPA's spouse as a bookkeeper
b
Which of the following inquiries would an accountant most likely make during a review of financial statements? A. Inquiries directed toward internal audit personnel related to their activities concerning the design and effectiveness of the entity's internal control B. Inquiries directed toward management regarding the entity's accounting principles and practices and the methods followed in applying them C. Inquiries directed toward in-house legal counsel related to litigation, compliance with laws and regulations, fraud or suspected fraud, etc. D. Inquiries directed toward marketing, sales, or production personnel related to change in the entity's marketing or production strategies, sales trends, etc.
b
Which of the following is considered a control environment factor? Detection risk Human resources policies and practices Both detection risk and human resources policies and practices Neither detection risk nor human resources policies and practices
b
Which of the following is required documentation in an audit in accordance with generally accepted auditing standards? A. A flowchart or narrative of the accounting system describing the recording and classification of transactions for financial reporting B. An audit plan setting forth in detail the procedures necessary to accomplish the engagement's objectives C. A planning memorandum establishing the timing of the audit procedures and coordinating the assistance of entity personnel D. An internal control questionnaire identifying policies and procedures that assure specific objectives will be achieved
b
A company employs three accounts payable clerks and one treasurer. Their responsibilities are as follows: Employee Responsibility Clerk 1 Reviews vendor invoices for proper signature approval Clerk 2 Enters vendor invoices into the accounting system and verifies payment terms Clerk 3 Posts entered vendor invoices to the accounts payable ledger for payment and mails checks Treasurer Reviews the vendor invoices and signs each check Which of the following would indicate a weakness in the company's internal control? A. Clerk 1 opens all of the incoming mail. B. Clerk 2 reconciles the accounts payable ledger with the general ledger monthly. C. Clerk 3 mails the checks and remittances after they have been signed. D. The treasurer uses a stamp for signing checks.
c
A written audit plan is required to be prepared by an auditor for: A. every account balance that is immaterial. B. every person who assists in the performance of the audit engagement. C. every audit. D. every audit where the opinion to be rendered by the auditor is likely to be other than unmodified.
c
According to the AICPA Code of Professional Conduct, in which of the following circumstances may a CPA serve on a company's board of directors? The CPA audits a bank to which the company has applied for financing, and board approval is required for said financing to occur. The CPA is asked by the company to test the internal controls of the company and offers compensation to the CPA for said services. The CPA does not audit the company and has no other business connection with the company. The CPA performs attestation services for a nonpublic company.
c
According to the SEC, an auditor is not independent of its issuer audit client in which of the following situations? A. The auditor's cousin has an insurance policy obtained from the issuer before it became an audit client. B. The auditor has an automobile loan at standard terms from the audit client that is collateralized by the automobile. C. The auditor has an investment in an entity that has the ability to exercise significant influence over the audit client. D. The auditor's grandparent was in an accounting role at the audit client and ended employment before the period under audit began.
c
An accountant is required to comply with the provisions of the Statements on Standards for Accounting and Review Services (SSARS) when performing which of the following tasks? Preparing monthly journal entries Providing the client with software to generate financial statements Preparing financial statements of a nonissuer Providing a blank financial statement format or template
c
An auditor should design the written audit plan so that: A. all material transactions will be selected for substantive testing. B. substantive tests prior to the balance sheet date will be minimized. C. the audit procedures selected will achieve specific audit objectives. D. each account balance will be tested under either tests of controls or tests of transactions.
c
An auditor who performed analytical procedures that compared current-year financial information to the comparable prior period noted a significant increase in net income. Given this result, which of the following expectations of recorded amounts would be unreasonable? A. A decrease in costs of goods sold as a percentage of sales B. A decrease in accounts payable C. A decrease in retained earnings D. A decrease in notes payable
c
In addition to descriptions of the nature, timing, and extent of planned risk assessment procedures and planned further audit procedures, which of the following additional pieces of information should be documented in the audit plan? A. Procedures performed to assess independence and the ability to perform the engagement B. The understanding of the terms of the engagement, including scope, fees, and resource allocation C. Other audit procedures to be performed to comply with generally accepted auditing standards D. Issues with management integrity that could affect the decision to continue the audit engagement
c
In an audit of a nonprofit organization under the Uniform Guidance rules, an auditor must comply with all of the following, except: A. plan the testing of internal control over major programs to achieve a low assessed level of control risk for the assertions relevant to the compliance requirements for each major program. B. compliance testing shall include tests of transactions and such other auditing procedures necessary to provide the auditor sufficient evidence to support an opinion on compliance for each major program. C. correspond with all individuals or entities that have received or made use of the federal award funds and determine the appropriateness of such distributions. D. follow up on prior audit findings.
c
In connection with a compilation or review of financial statements, how might an accountant obtain an understanding of an entity's business, including the stated qualifications of accounting personnel? I. Experience with the entity II. Inquiry of the entity's personnel A. I only B. II only C. Both I and II D. Neither I nor II
c
In obtaining an understanding of a manufacturing entity's internal control concerning inventory balances, an auditor most likely would: A. analyze the liquidity and turnover ratios of the inventory. B. perform analytical procedures designed to identify cost variances. C. review the entity's descriptions of inventory policies and procedures. D. perform test counts of inventory during the entity's physical count.
c
In performing an attestation engagement, a CPA typically: A. supplies litigation support services. B. assesses control risk at a low level. C. expresses a conclusion about an assertion. D. provides management consulting advice
c
Internal control is a process, effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in all of the following categories, except: A. reliability of financial reporting. B. effectiveness and efficiency of operations. C. segregation of functional responsibilities in asset management. D. compliance with applicable laws and regulations.
c
Sound internal control procedures dictate that immediately upon receiving checks from customers by mail, a responsible employee should: A. add the checks to the daily cash summary. B. verify that each check is supported by a prenumbered sales invoice. C. prepare a duplicate listing of checks received. D. record the checks in the cash receipts journal.
c
The scope of audits of recipients of federal financial assistance in accordance with federal audit regulations varies. Which of the following elements do these audits have in common? The auditor is required to disclose all situations and transactions that could be indicative of fraud, abuse, and noncompliance with laws and regulations to the federal inspector general. The materiality levels are higher and are determined by the government entities that provide the federal financial assistance to the recipients. The auditor is required to document an understanding of internal control established to ensure compliance with the applicable laws and regulations. The accounts should be 100% verified by substantive tests because certain statistical sampling applications are not permitted.
c
The standard report issued by a CPA after reviewing the financial statements of a nonissuer in accordance with Statements on Standards for Accounting and Review Services (SSARS) should state that the CPA: assessed the accounting principles used and significant estimates made by management. has no responsibility to update the CPA's report for events and circumstances occurring after the report's date. is not aware of any material modifications that should be made to the financial statements. believes that there will usually be differences between the projected and actual results.
c
Which of the following activities is an accountant not responsible for in review engagements performed in accordance with the Statements on Standards for Accounting and Review Services (SSARS)? A. Performing basic analytical procedures B. Remaining independent C. Developing an understanding of internal control D. Providing any form of assurance
c
Which of the following components of internal control would be considered the foundation for the other components? Information and communication Risk assessment Control environment Control activities
c
Which of the following describes how the objective of a review of financial statements differs from the objective of a compilation engagement? The primary objective of a review engagement is to test the completeness of the financial statements prepared, but a compilation tests for reasonableness. The primary objective of a review engagement is to provide positive assurance that the financial statements are fairly presented, but a compilation provides no such assurance. In a review engagement, accountants provide limited assurance, but a compilation expresses no assurance. In a review engagement, accountants provide reasonable or positive assurance that the financial statements are fairly presented, but a compilation provides limited assurance.
c
Which of the following elements should the auditor not consider in evaluating the entity's control environment? Communication and enforcement of integrity and ethical values Participation of those charged with governance Measurements and review of the entity's financial performance Assignment of authority and responsibility
c
Which of the following factors would a CPA ordinarily consider in the planning stage of an audit engagement? I. Financial statement accounts likely to contain a misstatement II. Conditions that require extension of audit tests A. I only B. II only C. Both I and II D. Neither I nor II
c
Which of the following is a correct statement about the circumstances under which a CPA firm may or may not disclose the names of its clients without the clients' express permission? A. A CPA firm may disclose this information if the practice is limited to bankruptcy matters, so that prospective clients with similar concerns will be able to contact current clients. B. A CPA firm may disclose this information if the practice is limited to performing asset valuations in anticipation of mergers and acquisitions. C. A CPA firm may disclose this information unless disclosure would suggest that the client may be experiencing financial difficulties. D. A CPA firm may not disclose this information because the identity of its clients is confidential information.
c
Which of the following is a management control method that most likely could improve management's ability to supervise company activities effectively? Monitoring compliance with internal control requirements imposed by regulatory bodies Limiting direct access to assets by physical segregation and protective devices Establishing budgets and forecasts to identify variances from expectations Supporting employees with the resources necessary to discharge their responsibilities
c
Which of the following is correct regarding a compilation of financial statements engagement in accordance with the Statements on Standards for Accounting and Review Services (SSARS)? A. If the accountant's independence is impaired, a qualified opinion must be issued. B. The accountant may not base the report on information obtained from prior engagements with the same client. C. The accountant is not required to make inquiries nor perform procedures to corroborate the information provided by the client. D. The accountant should perform analytical procedures to financial data.
c
Which of the following procedures most likely would not be included in a review engagement of a nonpublic entity? Obtaining a management representation letter Considering whether the financial statements conform with GAAP Assessing control risk Inquiring about subsequent events
c
Which of the following procedures should an accountant perform during an engagement to compile prospective financial statements? Test the entity's internal controls to determine if adequate controls exist so that financial projections can be reasonably achieved Make inquiries prior to the date of the report about possible future transactions that may impact the forecast once the report is issued Make inquiries about the accounting principles used in the preparation of the prospective financial statements Compare the prospective financial statements with the entity's historical results for the prior year
c
Which of the following procedures would an auditor least likely perform in planning a financial statement audit? Coordinating the assistance of entity personnel in data preparation Discussing matters that may affect the audit with firm personnel responsible for nonaudit services to the entity Selecting a sample of vendor invoices for comparison to receiving reports Reading the current year's interim financial statements
c
Which of the following should be the first step in reviewing the financial statements of a nonpublic entity? Comparing the financial statements with statements for comparable prior periods and with anticipated results Completing a series of inquiries concerning the entity's procedures for recording, classifying, and summarizing transactions Obtaining a general understanding of the entity's organization, its operating characteristics, and its assets, liabilities, revenues, and expenses Applying analytical procedures designed to identify relationships and individual items that appear to be unusual
c
A CPA in public practice is required to comply with the provisions of the Statements on Standards for Accounting and Review Services (SSARS) when: advising a client regarding the selection of computer software. advocating a client's position before the IRS. both advising a client regarding the selection of computer software and advocating a client's position before the IRS. neither advising a client regarding the selection of computer software nor advocating a client's position before the IRS.
d
A CPA is engaged to examine management's assertion that the entity's schedule of investment returns is presented in accordance with specific criteria. In performing this engagement, the CPA should comply with the provisions of: Statements on Standards for Accounting and Review Services (SSARS). Statements on Auditing Standards (SAS). Statements on Standards for Consulting Services (SSCS). Statements on Standards for Attestation Engagements (SSAE).
d
A CPA is required to comply with the provisions of Statements on Standards for Accounting and Review Services when: processing financial data for clients of other CPA firms. consulting on accounting matters. Both I and II I only II only Neither I nor II
d
A CPA purchased stock in a client corporation and placed it in a trust as an educational fund for the CPA's minor child. The trust securities are not material to the CPA's wealth but are material to the child's personal net worth. According to the AICPA Code of Professional Conduct, would this action impair the CPA's independence with the client? No, because the CPA would not have a direct financial interest in the client Yes, because the stock would be a direct financial interest and materiality is a factor Yes, because the stock would be an indirect financial interest and materiality is not a factor Yes, because the stock would be a direct financial interest and materiality is not a factor
d
A member of a group engagement team will not be subject to discipline if a foreign component auditor departed from the ethics requirement as long as: the member of a state CPA society is in compliance with the IESBA's Code of Ethics for Professional Accountants. the foreign component accountant is in accord with the ethics and independence requirements set forth in the AICPA's Code of Professional Conduct. the member is in compliance with the AICPA's Code of Professional Conduct. the foreign component auditor is in accord with the ethics and independence requirements set forth in the IESBA's Code of Ethics for Professional Accountants.
d
According to the Code of Professional Conduct of the AICPA, for which type of service may a CPA receive a contingent fee? Performing an audit of a financial statement Performing a review of a financial statement Performing an examination of prospective financial information Seeking a private letter ruling
d
An auditor assesses control risk because it: A. is relevant to the auditor's understanding of the control environment. B. provides assurance that the auditor's materiality levels are appropriate. C. indicates to the auditor where inherent risk may be the greatest. D. affects the level of detection risk that the auditor may accept.
d
An auditor obtains knowledge about a new client's business and its industry to: A. make constructive suggestions concerning improvements to the client's internal control. B. develop an attitude of professional skepticism concerning management's financial statement assertions. C. evaluate whether the aggregation of known misstatements causes the financial statements taken as a whole to be materially misstated. D. understand the events and transactions that may have an effect on the client's financial statements.
d
An auditor reviews a client's accounting policies and procedures when considering which of the following planning matters? A. Method of sampling to be used B. Preliminary judgments about materiality levels C. Nature of reports to be rendered D. Understanding the client's operations and business
d
Audit plans should be designed so that: most of the required procedures can be performed as interim work. inherent risk is assessed at a sufficiently low level. the auditor can make constructive suggestions to management. the audit evidence gathered supports the auditor's conclusions.
d
Audit programs should be designed so that: A. most of the required procedures can be performed as interim work. B. inherent risk is assessed at a sufficiently low level. C. the auditor can make constructive suggestions to management. D. the audit evidence gathered supports the auditor's conclusions.
d
Communication with which of the following will help to obtain sufficient knowledge of the communication component to understand how the entity communicates financial reporting roles, responsibilities, and significant matters pertaining to financial reporting? I. With personnel regarding their roles and responsibilities in the internal control structure II. With personnel about how their activities in the financial reporting system relate to others III. With personnel about how and to whom to report financial reporting exceptions IV. Between management and those charged with governance, as well as third parties such as regulatory authorities A. I and III B. I and IV C. I, II, and IV D. I, II, III, and IV
d
How do the OMB's Uniform Guidance rules define a subrecipient? A. As a nonfederal entity that provides a federal award to another entity to carry out a federal program B. As an individual who receives and expends federal awards received from a pass-through entity C. As a dealer, distributor, merchant, or other seller providing goods or services that are required for the conduct of a federal program D. As a nonfederal entity that expends federal awards received from another entity to carry out a federal program
d
If an accountant has no previous experience in the prospective client's industry, he or she may obtain the required level of knowledge through all of the following except: textbooks and periodicals. individuals knowledgeable about the industry. conferences, classes, and workshops. The accountant can obtain the required level of knowledge through any of the items listed.
d
