Module A (Connect Practice)

Statements on Standards for Accounting and Review Services are applicable to engagements involving:

unaudited financial statements of non-issuers.

An SOC 1 Type 2 report supporting the auditors' report on internal control over financial reporting for an issuer provides assurance with respect to:

Controls placed in operation - Yes Operating effectiveness of controls - Yes

For each of the following statements, indicate whether it is appropriately related to financial forecasts (FF), financial projections (FP), both (B), or neither (N). 1. Financial information is prepared based on expected conditions or courses of action. 2. Accountant may perform an examination engagement. 3. Accountant is required to be independent to conduct engagement. 4. Engagement is conducted under attestation standards. 5. Financial information is prepared based on the occurrence of one or more hypothetical events. 6. Accountants' report indicates that differences between prospective financial information and actual results may occur. 7. Accountant may perform a review engagement. 8. Use of the accountants' report is limited to specific users.

1. FF 2. B 3. B 4. B 5. FP 6. B 7. N 8. FP

Which of the following statements would not be included in an accountants' report on an examination of a financial forecast?

An opinion on the likelihood of achieving the forecasted results.

Which of the following best describes the scope of audit and compilation engagements compared to a review engagement?

Audit - Greater then review Compilation - Lesser than review

In which of the following engagements would an accountant be required to be independent of the client?

Compilation engagement - No Preparation engagement - No

Which of the following statements is not true regarding an auditors' report on compliance with contractual provisions conducted in conjunction with a GAAS audit?

The auditors' report expresses an opinion on the financial statements and compliance with contractual provisions.

Dale, CPA, was engaged to conduct an audit of the financial statements of AM Company (a non-issuer). After considering the scope and cost of an audit engagement, AM Company has asked Dale to modify the scope of the engagement to a review. Which of the following best describes the professional guidance for this situation?

Dale would be permitted to modify the scope of the engagement if AM Company's request is based on their lender's willingness to accept a review engagement rather than an audit.

In which of the following engagements would general use of the accountants' report be appropriate?

Examination of financial forecast.

During a review of a non-issuer's financial statements, accountants are required to make certain inquiries of management. Which of the following inquiries is not required by SSARS?

Internal control deficiencies.

Which of the following is not a condition that must be met for an engagement to evaluate compliance with laws, regulations, or other matters?

Management provides a report attesting to satisfactory compliance.

In providing assurance services to clients, CPAs are building on their reputations for:

Objectivity and integrity.

Which of the following sections or paragraphs of the auditors' report would be modified if the report expresses an opinion on financial statements prepared using the cash basis of accounting rather than generally accepted accounting principles?

Opinion Section - Yes Auditor's Responsibility Section - No

Accountants are permitted to express limited assurance in which of the following reports?

Review report on unaudited financial statements.

Which of the following is not correct with respect to a user auditors' request for an SOC 1 report?

Type 1 reports would be most appropriate for auditors' reporting requirements for issuers.

To perform an attestation engagement on prospective financial information, accountants must do all of the following except

Understand the internal controls used in the processes that generated the prospective financial information.

Which of the following is not true with respect to a preparation engagement?

While not required to be independent, the accountants' communication to third parties should disclose their lack of independence.

If an accountant is not independent with respect to a non-issuer and has been requested to conduct a compilation engagement, the accountant should:

accept the engagement and disclose the lack of independence in the compilation report.

When accountants are not independent, which of the following reports can they issue:

compilation report on historical financial statements.

Auditors may accept an engagement and express an unmodified opinion on an element, account, or item of the financial statements if they:

conduct the engagement in accordance with generally accepted auditing standards.

Prospective financial information that reflects the results assuming the occurrence of one or more hypothetical events is referred to as a:

financial projection.

An assurance service is defined as a service that:

improves the quality of information for decision makers.

M. Jordan & E. Stone, CPAs, audited the financial statements of Tech Company, a non-issuer, for the year ended December 31, 2019, and expressed an unmodified opinion. For the year ended December 31, 2020, Tech issued comparative financial statements. Jordan & Stone reviewed Tech's 2020 financial statements and B. Kent, an assistant on the engagement, drafted the accountants' review report that follows. Stone, the engagement supervisor, decided not to reissue the prior-year audit report but instructed Kent to include a separate paragraph in the current-year review report describing the responsibility assumed for the prior-year audited financial statements. Stone reviewed Kent's draft and indicated in the following supervisor's review notes that the draft contained several deficiencies . Accountants' Review Report—Kent's Draft We have reviewed and audited the accompanying financial statements of Tech Co, which comprise the balance sheets as of December 31, 2020 and 2019, and the related statements of income, changes in stockholders' equity, and cash flows for the years then ended, and the related notes to the financial statements. These engagements were conducted in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the AICPA and generally accepted auditing standards. A review includes primarily applying analytical procedures to management's financial data and making inquiries of company management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement whether due to fraud or error. Accountant's Responsibility We are required to perform procedures to obtain limited assurance as a basis for reporting whether we are aware of any material modifications that should be made to the financial statements for them to be in accordance with accounting principles generally accepted in the United States of America. We believe that the results of our procedures provide a reasonable basis for our conclusion. Accountant's Conclusion Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in accordance with accounting principles generally accepted in the United States of America. Because of the inherent limitations of a review engagement, this report is intended for the information of management and should not be used for any other purpose. Other Matter We audited the financial statements for the year ended December 31, 2019, and our report was dated March 2, 2020. We have no responsibility for updating that report for events and circumstances occurring after that date. Jordan and Stone, CPAs Chicago, IL March 1, 2021 Required: These supervisor's review notes may or may not be correct. For each item a-m, indicate whether Stone is correct or incorrect in the criticism of Kent's draft.

a. The report should contain no reference to the prior-year audited financial statements in the first paragraph.(Correct) b.All current-year financial statements are not properly identified in the first paragraph. (Incorrect) c. The report should contain no reference to the American Institute of Certified Public Accountants in the first paragraph. (Correct) d. The basic procedures performed in a review (analytical procedures and inquiries) should be provided in the Accountant's Responsibility section of the report and not the first paragraph. (Incorrect) e. The report should contain no comparison of the scope of a review to an audit in the first paragraph. (Incorrect) f. Limited assurance should be expressed on the current-year reviewed financial statements in the first paragraph. (Incorrect) g. The report should contain a statement that no opinion is expressed on the current-year financial statements in the first paragraph. (Correct) h. The report should contain a reference to "accounting principles generally accepted in the United States of America" in the Management's Responsibility for the Financial Statements section. (Correct) i. The report should not express a restriction on the use of the accountants' review report in the Accountant's Conclusion section. (Correct) j. The Accountant's Responsibility section should indicate that the accountant is required to be independent of the client. (Correct) k. The report should indicate the type of opinion expressed on the prior-year audited financial statements in the other-matter paragraph. (Correct) l. The report should indicate that no auditing procedures were performed after the date of the report on the prior-year financial statements in the other-matter paragraph. (Correct) m. The report should not contain a reference to "updating the prior-year auditors' report for events and circumstances occurring after that date" in the other-matter paragraph.(Correct)

If a non-issuer prepares financial statements that omit substantially all footnote disclosures required by GAAP, the accountants' compilation report:

should indicate that the disclosures are omitted and that this omission might affect users' conclusions.

The conclusions provided in an accountants' report on an agreed-upon procedures engagement are in the form of a(n):

summary of findings.

Indicate (either yes or no) whether each of the following would be included in an auditors' report on financial statements prepared using a special purpose framework. 1. A statement that the engagement was performed under auditing standards related to the special purpose framework. 2. Statements providing a general description of an audit examination. 3. The auditors' opinion on the fairness of the financial statements. 4. A statement indicating that the financial statements were prepared using a special purpose framework as well as identifying footnote or other disclosures providing further information about the special purpose framework.Yesselected answer correct 5. The auditors' opinion on the appropriateness of the special purpose framework for general use. 6. Statements describing management's responsibility for the financial statements. 7. A statement indicating that management is responsible for the selection of the special purpose framework used to prepare the financial statements. 8. The auditors' opinion on the materiality of differences between the financial information prepared using the special purpose framework and that under generally accepted accounting principles.

1. No 2. Yes 3. Yes 4. Yes 5. No 6. Yes 7. Yes 8. No

Which of the following statements should be included in a practitioners' report on the application of agreed-upon procedures?

A statement referring to standards established by the AICPA.

The following numbered items 1-10 state procedures accountants should consider performing in review engagements and compilation engagements on the annual financial statements of non-issuers. Required: For each item (taken separately), tell whether the item is required in all review engagements and/or required in all compilation engagements. For each item, give two responses, one regarding review engagements and the other regarding compilation engagements.

1. The accountants should establish an understanding in writing with the entity's management regarding the nature and limitations of the services to be performed. - Required for a review? (Y); Required for a compilation? (Y) 2. The accountants should make inquiries concerning actions taken at the board of directors' meetings. - Required for a review? (Y); Required for a compilation? (N) 3. The accountants, as the entity's successor accountants, should communicate with the predecessor accountants to obtain access to the predecessors' documentation. - Required for a review? (N); Required for a compilation? (N) 4. The accountants should obtain a level of knowledge of the accounting principles and practices of the entity's industry. - Required for a review? (Y); Required for a compilation? (Y) 5. The accountants should obtain an understanding of the entity's internal control over financial reporting. - Required for a review? (N); Required for a compilation? (N) 6. The accountants should perform analytical procedures designed to identify unusual relationships. - Required for a review? (Y); Required for a compilation? (N) 7. The accountants should assess the risk of material misstatement. - Required for a review? (N); Required for a compilation? (N) 8. The accountants should obtain a letter from the entity's attorney to corroborate the information furnished by management concerning litigation. - Required for a review? (N); Required for a compilation? (N) 9. The accountants should obtain written representations from the entity's management. - Required for a review? (Y); Required for a compilation? (N) 10. The accountants should study the relationship of the financial statement elements that would be expected to conform to a predictable pattern. - Required for a review? (Y); Required for a compilation? (N)

Which of the following would not ordinarily be included in an accountants' review report on a non-issuer's financial statements?

A statement that a review engagement is greater in scope than a compilation.

TrailBlazer, Inc. is considering the acquisition of Sonic Company and has prepared prospective financial statements under the assumption that financing would be received and the transaction would be approved by their respective boards of directors and would be consummated by March 15, 2021. In order to obtain financing, TrailBlazer has approached Oregon National Bank for a $10 million loan. After reviewing the prospective financial statements, Oregon National Bank has requested having an independent accountant evaluate the prospective financial statements. Required: d. Indicate whether the following statements or issues would be referenced in an accountants' report on that engagement. (Your responses may be "Yes", "No", or "Possibly".)

1. The financial statements/information evaluated by the accountant. - Examination (Y); Agreed-Upon Procedures(Y) 2. The accountants' opinion on the presentation of the prospective financial information. - Examination (Y); Agreed-Upon Procedures(N) 3. A description of the nature of the engagement. - Examination (Y); Agreed-Upon Procedures(Y) 4. A limitation on the use of the accountants' report. - Examination (P); Agreed-Upon Procedures(Y) 5. The procedures performed by the accountant on TrailBlazer's internal control over financial reporting. - Examination (N); Agreed-Upon Procedures(P) 6. A notation that differences between prospective financial information and actual results may occur. - Examination (Y); Agreed-Upon Procedures(Y) 7. An opinion on the achievability of the results reflected in the prospective financial information. - Examination (N); Agreed-Upon Procedures(N) 8. A detailed listing of procedures performed by the accountant. - Examination (N); Agreed-Upon Procedures(Y) 9. The accountants' opinion on the reasonableness of the assumptions used in preparing the prospective financial information. - Examination (Y); Agreed-Upon Procedures(N)

Which of the following would not be included in an accountants' report on compliance with laws, regulations, or other matters conducted separately from an audit?

A statement that the accountants' engagement provides a legal determination with respect to compliance.

Which of the following would not be included in an auditors' report on financial statements prepared using a special purpose framework?

An opinion on the appropriateness of the special purpose framework.

Which of the following would be included in an accountants' report on an agreed-upon procedures engagement?

Summary of findings - Yes Summary of procedures performed - Yes

B. Harper is shopping online and finds a great pair of running shoes at a really low price. However, he is not familiar with the company and is concerned with the accuracy of the website in presenting the quality of the shoes. Harper may be more willing to place an order with this company if:

the website displays the WebTrust seal.