Accounting and Review Services

A CPA in public practice must be independent in fact and appearance when providing which of the following services? compilation of financial forecast compilation of personal financial statements

CPA does not have to be independent for either

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.

Make inquiries about the accounting principles used in the preparation of the prospective financial statements. This answer is correct because the professional standards require that accountants make inquiries about the accounting principles used in the preparation of the prospective financial statements.

When third-party use of prospective financial statements is expected, an accountant may not accept an engagement to A. Perform a review. B. Perform a compilation. C. Perform an examination. D. Apply agreed-upon procedures

A. Perform a review This answer is correct because the professional standards which present the standards with respect to the accountant's obligations for prospective financial statements (forecasts and projections), does not allow for the review form of association under any circumstance. This answer is incorrect because an accountant may accept an engagement to apply agreed-upon procedures when third-party use of prospective financial statements is restricted to specified third-party users who have participated in establishing the nature and scope of the engagement and who take responsibility for the adequacy of the procedures.

Which of the following AICPA standards did the PCAOB not adopt as a part of its interim standards? a. Auditing Standards Board Standards. b. Attestation Standards. c. Accounting and Review Services Standards. d. Quality Control Standards.

Accounting and Review Services Standards. This answer is correct because the PCAOB did not adopt the AICPA's Accounting and Review Services Standards because they only apply to nonpublic companies ("non-issuers").

An accountant has been asked to compile the financial statements of a nonpublic company on a prescribed form that omits substantially all the disclosures required by generally accepted accounting principles. If the prescribed form is a standard preprinted form adopted by the company's industry trade association, and is to be transmitted only to such association, the accountant a. Need not advise the industry trade association of the omission of all disclosures. b. Should disclose the details of the omissions in separate paragraphs of the compilation report. c. Is precluded from issuing a compilation report when all disclosures are omitted. d. Should express limited assurance that the financial statement are free of material misstatements.

Need not advise the industry trade association of the omission of all disclosures. This answer is correct because the professional standards state that there is a presumption that the information required by a prescribed form is sufficient to meet the needs of the body that designed or adopted it; accordingly, there is no need for that body to be advised of departures from GAAP. This answer is incorrect because details of the omissions need not be provided.

Which of the following is most likely to result in modification of a compilation report? a. A departure from generally accepted accounting principles. b. A lack of consistency in application of generally accepted accounting principles. c. A question concerning an entity's ability to continue as a going concern. d. A major uncertainty facing the financial statements.

a. A departure from generally accepted accounting principles.

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(n) a. Adverse opinion. b. Pro forma opinion. c. Qualified opinion. d. Unmodified opinion with an emphasis-of-matter paragraph.

a. Adverse opinion. This answer is correct because the attestation standards require issuance of an adverse opinion when one or more significant assumptions do not provide a reasonable basis for the forecast. This answer is incorrect because management must disclose the criteria used to assess the effectiveness of internal control.

Which of the following procedures is not usually performed by the accountant in a review engagement of a nonpublic entity? a. Communicating any material weaknesses discovered during the consideration of internal control. b. Reading the financial statements to consider whether they conform with generally accepted accounting principles. c. Writing an engagement letter to establish an understanding regarding the services to be performed. d. Issuing a report stating that the review was performed in accordance with standards established by the AICPA.

a. Communicating any material weaknesses discovered during the consideration of internal control. This answer is correct because reviews of a nonpublic company do not include a consideration of internal control.

Documentation of a financial statement preparation engagement performed under SSARS is most likely to include a(n): a. Copy of the financial statements. b. Representations letter. c. Internal control assessment. d. Listing of all professional judgments made throughout the engagement.

a. Copy of the financial statements. This answer is correct because required documentation for a financial statement preparation engagement includes a copy of the financial statements (as well as an engagement letter or other suitable form of written agreement).

If, after discussions with management, an accountant who has prepared financial statements knows that the financial statements include a material departure from GAAP that management will not allow correction of, the accountant should a. Disclose the material misstatement on the face of the financial statements or in a note to the financial statements. b. Require that management change the financial statements to eliminate the departure from GAAP. c. In all circumstances, resign the engagement. d. Issue an adverse opinion on the financial statements.

a. Disclose the material misstatement on the face of the financial statements or in a note to the financial statements. When, after discussions with management, the accountant prepares financial statements that contain a known departure or departures from the applicable financial reporting framework (including inadequate disclosure), the accountant should disclose the material misstatement or misstatements in the financial statements—either on the face of the statements or in the notes.

A CPA is engaged to audit the financial statements of a nonissuer. After the audit begins, the client's management questions the extent of procedures and objects to the confirmation of certain contracts. The client asks the accountant to change the scope of the engagement from an audit to a review. Under these circumstances, the accountant should do each of the following, except a. Issue an accountant's review report with a separate paragraph discussing the change in engagement scope. b. Consider the additional audit effort and cost required to complete the audit. c. Evaluate the possibility that financial statement information affected by the limitation on work to be performed may be incorrect or incomplete. d. Consider the reason given for the client's request and assess whether the request is reasonable.

a. Issue an accountant's review report with a separate paragraph discussing the change in engagement scope. auditors should consider the extra work involved in completing the audit when making such a decision.

A CPA is required to comply with the provisions of Statements on Standards for Attestation Engagements when engaged to a. Provide assurance on investment performance statistics prepared by an investment company on established criteria. b. Issue a letter for an underwriter, also known as a comfort letter, to a broker or dealer of securities. c. Compile financial statements in conformity with a comprehensive basis of accounting other than GAAP. d. Communicate with an audit committee regarding management's consultations with another CPA.

a. Provide assurance on investment performance statistics prepared by an investment company on established criteria. This answer is incorrect because the Statements on Auditing Standards apply to letters for underwriters.

is an engagement letter needed in an agreed upon procedure?

an engagement letter is not required for agreed-upon procedures of special elements, accounts, or items of financial statements.

Which of the following statements extracted from a client's lawyer's letter concerning litigation, claims, and assessments most likely would cause the auditor to request clarification? a. "We believe that the possible liability to the company is nominal in amount." b. "We believe that the action can be settled for less than the damages claimed." c. "We believe that the plaintiff's case against the company is without merit." "d. We believe that the company will be able to defend this action successfully."

b. "We believe that the action can be settled for less than the damages claimed." This answer is correct because the statement that the likely settlement is less than claimed is very general and may or may not involve a material amount. This answer is incorrect because indicating that the case is without merit suggests that the lawyer believes there will be no damages awarded related to the litigation.

An accountant's compilation report should be dated as of the date of a. Completion of fieldwork. b. Completion of the required compilation procedures. c. Transmittal of the compilation report. d. The latest subsequent event referred to in the notes to the financial statements.

b. Completion of the required compilation procedures. This answer is incorrect because compilations have no required fieldwork.

When AICPA professional standards relating to a review of a nonissuer's (nonpublic entity's) financial statements uses the term "should" to indicate the accountant's responsibility to perform a procedure, performance of that procedure is considered: a. Unconditionally required—The accountant is required to comply with it. b. Presumptively mandatory—The accountant is required to comply with it except in rare circumstances. c. Advisory—The accountant should consider this is as general advice and determine whether to follow the procedure. d. Optional—There is no requirement under any circumstance that the accountant perform the procedure.

b. Presumptively mandatory—The accountant is required to comply with it except in rare circumstances. terms "must" or "is required" are used to indicate an unconditional requirement.

Which statement is most accurate concerning an accountant's responsibility when evaluating management's responses to inquiries when performing a review? a. The accountant is not required to evaluate the reasonableness and consistency of management's responses. b. The accountant ordinarily is not required to corroborate management's responses with other information; however, the accountant should consider the reasonableness and consistency of management's responses. c. The accountant is ordinarily required to corroborate with additional evidence only significant management responses. d. The accountant should corroborate all management responses.

b. The accountant ordinarily is not required to corroborate management's responses with other information; however, the accountant should consider the reasonableness and consistency of management's responses. This answer is correct because while the accountant ordinarily is not required to corroborate management's responses with other information, the accountant should consider the reasonableness and consistency of management's responses.

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.

b. The hypothetical assumptions used in the projection are reasonable in the circumstances. This answer is correct because the accountants do not indicate that the hypothetical assumptions used in the projection are reasonable.

Which of the following statements is least likely to be included in a practitioner's report on agreed-upon procedures? a. The use of the report is subject to specified restrictions. b. The report has provided limited assurance. c. The subject matter is the responsibility of the responsible party. d. The procedures performed were agreed to by the specified parties.

b. The report has provided limited assurance. This answer is correct because a report issued based on the application of agreed-upon procedures includes a summary of procedures performed and findings, but not limited assurance; limited assurance is provided based on review engagements.

Which of the following forms of auditor association are possible relating to management's discussion and analysis (MD&A)? Review Examination a. Yes No b. Yes Yes c. No Yes d. No No

b. Yes Yes This answer is correct because the professional standards provide for both review and examinations of MD&A.

A review of a nonpublic company's financial statements is considered

both an attestation and assurance engagement

An accountant should follow the financial statement preparation requirements of the Statements on Standards for Accounting and Review Services when he or she prepares a. Financial statements when also engaged to perform a review. b. Personal financial statements for inclusion in written personal financial plans prepared by the accountant. c. A single financial statement that omits substantially all disclosures required by GAAP. d. General ledger transactions in an accounting software system.

c. A single financial statement that omits substantially all disclosures required by GAAP. This answer is correct because the SSARS state that when a single financial statement is prepared the financial preparation standards apply, regardless of whether disclosures are presented. This answer is incorrect because the accountant will issue a review report on the financial statements, with the engagement not being considered a financial statement preparation engagement.

Which of the following circumstances requires modification of the accountant's report on a review of interim financial information of a publicly held entity? Inconsistent accounting principle application Inadequate disclosure a. Yes Yes b. Yes No c. No Yes d. No No

c. No Yes

A practitioner has been engaged to apply agreed-upon procedures in accordance with Statements on Standards for Attestation Engagements (SSAE) to prospective financial statements. Which of the following conditions should be met for the practitioner to perform the engagement? a. The prospective financial statement includes a summary of significant accounting policies. b. The practitioner takes responsibility for the sufficiency of the agreed-upon procedures. c. The practitioner and specified parties agree upon the procedures to be performed by the practitioner. d. The practitioner reports on the criteria to be used in the determination of findings.

c. The practitioner and specified parties agree upon the procedures to be performed by the practitioner.

Which of the following statements would not normally be included in a representation letter for a review of interim financial information? a. To the best of our knowledge and belief, no events have occurred subsequent to the balance sheet and through the date of this letter that would require adjustment to or disclosure in the interim financial information. b.We acknowledge our responsibility for the design and implementation of programs and controls to prevent and detect fraud. c. We understand that a review consists principally of performing analytical procedures and making inquiries about the interim financial information. d. We have made available to you all financial records and data.

c. We understand that a review consists principally of performing analytical procedures and making inquiries about the interim financial information. This answer is correct because written representations are ordinarily obtained on the interim financial information itself, internal control (including representations on fraud responsibility), the completeness of information, recognition, measurement and disclosure, and on subsequent events; ordinarily the nature of a review is not included in the representation letter.

In performing a compilation of financial statements of a nonpublic entity, the accountant decides that modification of the standard report is not adequate to indicate deficiencies in the financial statements taken as a whole, and the client is not willing to correct the deficiencies. The accountant should therefore a. Perform a review of the financial statements. b. Issue a special compilation report. c. Withdraw from the engagement. d. Express an adverse audit opinion

c. Withdraw from the engagement. This answer is correct because when an auditor performing a compilation believes that modification of the standard compilation report is not adequate to indicate the financial statements' deficiencies, the auditor should withdraw from the compilation and provide no further services with respect to the financial statements. This answer is incorrect because there is no "special compilation report".

Accepting an engagement to compile a financial projection for a publicly held company most likely would be inappropriate if the projection were to be distributed to a. A bank with which the entity is negotiating for a loan. b. A labor union with which the entity is negotiating a contract. c. The principal stockholder, to the exclusion of the other stockholders. d. All stockholders of record as of the report date.

d. All stockholders of record as of the report date. a financial projection is for limited use!!!! a financial forecast is for general use

A CPA's report on an examination of a forecast should include all of the following except a. A description of what the forecast information is intended to represent. b. A caveat as to the ultimate attainment of the forecasted results. c. A statement that the CPA assumes no responsibility to update the report for events occurring after the date of the report. d. An opinion as to whether the forecast is fairly presented.

d. An opinion as to whether the forecast is fairly presented. This answer is correct because a forecast examination report presents an opinion concluding whether the forecast meets AICPA guidelines, not on whether the forecast is fairly presented.

Statements on Standards for Accounting and Review Services (SSARS) establish standards and procedures for which of the following engagements? a. Assisting in adjusting the books of account for partnership. b. Reviewing interim financial data required to be filed with the SEC. c. Processing financial data for clients of other accounting firms. d. Compiling an individual's personal financial statement to be used to obtain a mortgage.

d. Compiling an individual's personal financial statement to be used to obtain a mortgage. This answer is incorrect because the SSARS do not apply when processing the financial data for clients of other accounting firms.

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? a. Perform analytical procedures on selected accounts by comparing the interim amounts to the amounts for the previous audited fiscal year-end. b. Inquire of the entity's outside legal counsel about the status of a previous pending litigation and any new litigation involving the entity. c. Select a sample of material revenue transactions occurring during the interim period and examine supporting documentation. d. Consider the results of audit procedures performed with respect to the current year's financial statements.

d. Consider the results of audit procedures performed with respect to the current year's financial statements This answer is correct because auditors will consider results of previous audits and audit procedures performed with respect to the current year's financial statements.

An accountant who accepts an engagement to compile a financial projection most likely would make the client aware that the a. Projection may not be included in a document with audited historical financial statements. b. Accountant's responsibility to update the projection for future events and circumstances is limited to one year. c. Projection omits all hypothetical assumptions and presents the most likely future financial position. d. Engagement does not include an evaluation of the support for the assumptions underlying the projection.

d. Engagement does not include an evaluation of the support for the assumptions underlying the projection. This is correct because in a financial projection report the CPA does not include an evaluation of the assumptions underlying the projection and, accordingly, the client should be aware of this limitation.

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. a. I only. b. II only. c. Both I and II. d. Neither I nor II.

d. Neither I nor II

Which of the following procedures is most likely to be an appropriate procedure when performed as an agreed-upon procedures engagement under the attestation standards? a. Evaluation of the competence or objectivity of another party. b. Interpreting documents outside the scope of the practitioner's professional expertise. c. Obtaining an understanding about a particular subject. d. Performance of mathematical computations.

d. Performance of mathematical computations. This answer is correct because an accountant will perform mathematical computation in an agreed-upon procedures engagement. This answer is incorrect because an accountant may (1) compare procedures to written requirements, (2) discuss procedures to be applied with specified users, and/or (3) review relevant contracts or communication from specified users to report on management's assertions. In reporting to users, only specific information will be presented.

Which of the following is not an assertion embodied in management's discussion and analysis (MD&A)? a. Completeness. b. Consistency with the financial statements. c. Occurrence. d. Rights and obligations.

d. Rights and obligations. This answer is correct because the attestation standards on MD&A do not include an assertion for rights and obligations. Those standards indicate that the four standards are completeness, consistency with the financial statements, occurrence, and presentation and disclosure.

An accountant compiled the financial statements of a nonissuer in accordance with Statements on Standards for Accounting and Review Services (SSARS). If the accountant has an ownership interest in the entity, which of the following statements is correct? a. The accountant should refuse the compilation engagement. b. A report need not be issued for a compilation of a nonissuer. c. The accountant should include the disclaimer "Although I am not independent with respect to the entity, I have objectively compiled the financial statements" in the compilation report. d. The accountant should include the statement "I am not independent with respect to the entity" in the compilation report.

d. The accountant should include the statement "I am not independent with respect to the entity" in the compilation report. This answer is correct because a compilation may be performed, but the report must indicate that the accountant is not independent. This answer is incorrect because while the lack of independence must be indicated explicitly, the accountant may or may not choose to indicate the reason for the lack of independence.

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

d. There will usually be differences between the forecasted and actual results. This answer is correct because the attestation standards require a caveat on the fact that there will usually be differences between the forecasted and actual results.

An accountant is required to comply with the provisions of Statements on Standards for Accounting and Review Services (SSARS) when drafting financial notes and reproducing client prepared financial statements, without modification, for client. t or f

false, the accountant is required to do neither

When third-party use of prospective financial statements is expected, an accountant may not accept an engagement to a. Perform a review. b. Perform a compilation. c. Perform an examination. d. Apply agreed-upon procedures.

perform a review This answer is correct because the professional standards which present the standards with respect to the accountant's obligations for prospective financial statements (forecasts and projections), does not allow for the review form of association under any circumstance. This answer is incorrect because an accountant may accept an engagement to apply agreed-upon procedures when third-party use of prospective financial statements is restricted to specified third-party users who have participated in establishing the nature and scope of the engagement and who take responsibility for the adequacy of the procedures.