A5 Course 3 and 4

19. In which of the following engagements would a practitioner provide limited assurance about the possible significant effects on the historical financial statements if a change in capitalization had occurred at an earlier date? a. A compilation of a financial projection. b. A review of pro forma financial information. c. An examination of management's discussion and analysis. d. An audit of condensed interim financial information.

b. A review of pro forma financial information.

24. Which of the following should a practitioner include in an agreed-upon procedures report? a. Negative assurance whether the subject matter is fairly stated based on the criteria. b. All findings from application of the agreed-upon procedures. c. The statement that "Nothing came to my attention that caused me to believe that the subject matter is not presented based on the criteria." d. Positive assurance about whether the subject matter is fairly stated based on the criteria.

b. All findings from application of the agreed-upon procedures.

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

yes and no

Kent Industries anticipates that its sales revenue will grow by 5% during the coming year based on historical returns, but also believes there is a slight chance for 10% growth if a new product that is currently being developed is launched during the year. Kent's management has prepared two sets of financial statements, one based on 5% growth and the other based on 10% growth, in an effort to plan for the future. Giacomo, CPA, has been hired to examine both sets of financial statements. Which of the following is true regarding Giacomo's two reports? A. Both the report on the 10% growth financial statements and the report on the 5% growth financial statements are appropriate for limited use. B. The report on the 10% growth financial statements would include a statement that the results might not be achieved, whereas the 5% growth financial statements would not require such a comment. C. Neither the report on the

A. Both the report on the 10% growth financial statements and the report on the 5% growth financial statements are appropriate for limited use.

30. When an accountant examines projected financial statements, the accountant's report should include a separate paragraph that: A. Describes the limitations on the usefulness of the presentation B. Provides an explanation of the differences between an examination and an audit C. States that the accountant is responsible for events and circumstances up to one year after the report's date D. Disclaims an opinion on whether the assumptions are suitably supported and provide a reasonable basis for the projection

A. Describes the limitations on the usefulness of the presentation

31. Which of the following should a practitioner perform as part of an engagement for agreed-upon procedures in accordance with Statements on Standards for Attestation Engagements? A. Issue a report on findings based on specified procedures performed B. Assess whether the procedures meet the needs of the parties C. Express negative assurance on findings of work performed D. Report the differences between agreed-upon and audit procedures

A. Issue a report on findings based on specified procedures performed

32. If an auditor of a nonissuer concludes that reasonable justification exists to change an audit engagement to an agreed-upon procedures engagement, then the report should: A. Not include a reference to the original audit engagement but may include a reference to procedures that have been performed B. Generally not include a reference to the original audit engagement but include an explanatory paragraph discussing the change requested by management C. Refer to the original audit engagement only if requested by management and approved by those charged with governance D. Refer to the original engagement only if the work performed to the date of the change was not sufficient to complete the revised engagement

A. Not include a reference to the original audit engagement but may include a reference to procedures that have been performed

34. Which of the following standards should a CPA firm apply in a review of pro forma financial information? A. Statements on standards for Attestation Engagements B. Statements on Standards for Consulting Services C. Statements on Standards for Accounting and Review Services D. Generally accepted auditing standards

A. Statements on standards for Attestation Engagements

80. An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided that : A. The accountant is independent from the responsible party . 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.

A. The accountant is independent from the responsible party .

41. A partitioner's report on agreed-upon procedures should contain which of the following statements? A. The engaging party acknowledged that the procedures performed were appropriate to meet the intended purpose of engagement B. Sufficiency of procedures is the responsibility of the practitioner C. All classification codes appeared to comply with such performance documents D. Nothing came to my attention as a result of applying the procedures

A. The engaging party acknowledged that the procedures performed were appropriate to meet the intended purpose of engagement

71. An accountant's compilation report on a financial projection that does not contain a range should include a statement that: A. There will usually be differences between the projected and actual results because events and circumstances frequently do not occur as expected B. The compilation included an evaluation of the support for the assumptions underlying the projection C. The accountants responsibility to update the report for future events and circumstances is limited to one year D. The projection is limited to presenting in the form of financial statements, information that is the accountants representation

A. There will usually be differences between the projected and actual results because events and circumstances frequently do not occur as expected

76. Which of the following activities would most likely be considered an attestation engagement? A. Consulting with management representatives of a firm to provide advice. B. Issuing a report about a firm's compliance with laws and regulations . C. Advocating a client's position on tax matters that are being reviewed by the IRS D. Preparing a client's tax returns .

B. Issuing a report about a firm's compliance with laws and regulations .

74. Mill, CPA, was engaged by a group of royalty recipients to apply agreed-upon procedures to financial data supplied by Modern regarding Modern's written assertion about its compliance with contractual requirements to pay royalties. Mill's report on these agreed-upon procedures should contain a (an): A. Disclaimer of opinion about the fair presentation of Modern's financial statements . B. List of the procedures performed (or reference thereto ) and Mill's findings . C. Opinion about the effectiveness of Modern's internal control activities concerning royalty payments D. Acknowledgment that the sufficiency of the procedures is solely Mill's responsibility

B. List of the procedures performed (or reference thereto ) and Mill's findings .

75. Accepting an engagement to compile a financial projection most likely would be inappropriate if the projection is to be distributed to: A. The entity's principal stockholder, to the exclusion of the other stockholders. B. Potential stockholders in an offering statement . C. A financial institution in a loan application D. A state or federal regulatory agency

B. Potential stockholders in an offering statement .

29. 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. Issues 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 ration analysis of the financial data of comparable prior periods

B. Review industry trade journals

72. 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 if 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

B. Review management's discussion and analysis (MD&A) prepared pursuant to rules and regulations adopted by the SEC

37. 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 performing an assertion-based examination, the engaging parry is not the responsible party, and a written assertion has been provided D. When reporting on an examination of a financial projection

B. When reporting on an assertion about the subject matter instead of reporting directly on the subject matter

28. Accepting an engagement to examine an entity's financial projection most likely would be appropriate if the projection were to be distributed to: A. All employees who work for the entity B. Potential stockholders who request a prospectus or a registration statement C. A bank with which the entity is negotiating for a loan D. All stockholders of a record as of the report date

C. A bank with which the entity is negotiating for a loan

79. Which of the following engagements require the practitioner to be independent in order to issue a report, even though the report contains no assurance? . A. Preparation . B. Compilation . C. Agreed -upon procedure D. Review

C. Agreed -upon procedure

33. Which of the following is least likely to be included in an examination report related to a financial projection? A. An opinion that the projection is presented in conformity AICPA guidelines B. A statement that the report is intended solely for the information and use of specified parties C. An indication that had the accountants performed additional procedures; other matter might have come to their attention that would have been reported D. An opinion that the underlying assumptions are suitably supported and provide a reasonable basis for management's projection

C. An indication that had the accountants performed additional procedures; other matter might have come to their attention that would have been reported

69. Which of the following procedures should an accountant perform during an engagement to compile prospective financial statements? A. Test the entities internal controls to determine if adequate controls exist so that financial projections can be reasonably achieved. B. Make inquires prior to the date of the report about possible future transactions that may impact the forecast once the report is issued. C. Make inquires about the accounting principles used in the preparation of the prospective financial statements D. Compare the prospective financial statements with the entities historical results for the prior year

C. Make inquires about the accounting principles used in the preparation of the prospective financial statements

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

C. Results of performing a review of management's assertion

39. An accountant's standard report on a compilation of a projection should not include a: A. Statement that the compilation engagement was performed in accordance with Statements on Standards for Accounting and Review Services B. Disclaimer of responsibility to update the report of events occurring after the report's date C. Statement that the accountant expresses only limited assurance that the results may be achieved D. Statement that describes the limitations on the presentation's usefulness

C. Statement that the accountant expresses only limited assurance that the results may be achieved

40. Which of following statements is least likely to be included in a report on the examination of a financial projection? A. Differences will usually exist between the projected and actual results B. This report is not intended to be and should not be used by anyone other than these specified parties C. The accompanying projection is presentation is presented in conformity with guidelines for presentations of a projection established by the Public Company Accounting Oversight Board D. The underlying assumptions are suitably supported and provide a reasonable basis for management's projection

C. The accompanying projection is presentation is presented in conformity with guidelines for presentations of a projection established by the Public Company Accounting Oversight Board

38. An accountant may accept an engagement to apply aggred-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 prospective financial statements C. The accountant and engaging party agree, or will be able to agree, on the criteria to be used in the determination of the findings D. The accountant takes responsibility for the adequacy of the procedures performed

C. The accountant and engaging party agree, or will be able to agree, on the criteria to be used in the determination of the findings

78. According to the AICPA Statements on Standards for Attestation Engagements, a public accounting firm should establish quality control policies to provide assurance about which of the following matters related to agreed-upon procedures engagements? A. Use of the report is not restricted. B. The public accounting firm takes responsibility for the sufficiency of procedures. C. The practitioner is independent from the client and other specified parties. D. The practitioner sets the criteria to be used in the determination of findings.

C. The practitioner is independent from the client and other specified parties.

35. Each of the following items should be included in a presentation of pro forma financial statements, expect: A. The significant assumptions used in developing the pro forma information B. The source of the historical information on which the pro forma information is based C. An indication that the pro forma information is not necessarily indicative of result D. All direct and indirect effects attributed to the related transaction

D. All direct and indirect effects attributed to the related transaction

73. Which of the following would not be considered an attest engagement subject to attestation standards? A. An engagement to examine management's assertion about a subject matter B. An engagement to review pro forma financial statements C. an engagement to examine a financial forecast D. An engagement to review the financial statements of a nonpublic company

D. An engagement to review the financial statements of a nonpublic company

68. 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 A. Statements on standards for accounting and review services (SSARS) B. Statements on auditing standards (SAS) C. Statements on standards of consulting services (SSCS) D. Statements on standards for attestation engagements (SSAE)

D. Statements on standards for attestation engagements (SSAE)

70. A company engages a practitioner to assist the audit committee by performing specific procedures that were agreed 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 practitioners report to the audit committee.

D. The specific procedures performed should be listed in the practitioners report to the audit committee.

15. 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. Unmodified opinion with an explanatory paragraph.

a. Adverse opinion.

16. 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.

23. What information should a practitioner include in the standard report on an examination of prospective financial statements? a. The prospective results might not be achieved. b. The projection should be read only in conjunction with the audited historical financial statements. c. There are no known material modifications that should be made as a result of applying the procedure. d. The practitioner assumes the responsibility to update the report for events and circumstances occurring after the date of the report.

a. The prospective results might not be achieved.

27. An accountant's compilation report on a financial forecast should include a statement that: a. There will usually be differences between forecasted and actual results. 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.

a. There will usually be differences between forecasted and actual results.

21. Accepting an engagement to compile an entity's financial projections most likely would be inappropriate if the projections are 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.

b. Offering statement of the entity's initial public offering of common stock.

10. Mill, CPA, was engaged by a group of royalty recipients to apply agreed-upon procedures to financial data supplied by Modern Co. regarding Modern's written assertion about its compliance with contractual requirements to pay royalties. Mill's report on these agreed-upon procedures should include: a. disclaimer of opinion about the fair presentation of Modern's financial statements b. a description of the procedures performed and Mill's findings c. opinion about the effectiveness of Modern's internal control activities concerning royalty payments d. acknowledgment that the sufficiency of the procedures is solely Mill's responsibility

b. a description of the procedures performed and Mill's findings

13. Which of the following statements best serves as management's assertion of consistency in an MD&A presentation? a. information included in the presentation is properly classified and described b. nonfinancial data have been accurately derived from related records c. reported transactions took place during a given period d. description of transaction are included to understand financial condition

b. nonfinancial data have been accurately derived from related records

7. 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. statement 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. statements on standards for attestation engagements

4. which of the following statements is least likely to be included in a practitioner's report on agreed-upon procedures? a. the practitioner is required to be independent b. the report has limited assurance c. the subject matter is the responsibility of the responsible party d. the adequacy of the procedures performed was acknowledged by the engaging party

b. the report has limited assurance

20. A CPA was engaged to calculate the rate of return on a specified investment according to an agreed-upon formula and verify that the resultant percentage agrees to the percentage in an identified schedule. The CPA's report on these agreed-upon procedures should contain: a. An opinion about the fairness of the agreed-upon procedures. b. A separate paragraph describing the effectiveness of the internal controls. c. A disclaimer of responsibility for the sufficiency of those procedures. d. A disclaimer of opinion on the fair presentation of the financial statements.

c. A disclaimer of responsibility for the sufficiency of those procedures.

25. In performing an attest engagement, a CPA typically: a. Supplies litigation support services. b. Assesses control risk at a low level. c. Issues a report on subject matter (or on an assertion about subject matter) that is the responsibility of another party. d. Provides management consulting advice.

c. Issues a report on subject matter (or on an assertion about subject matter) that is the responsibility of another party.

8. Which of the following statements should be included in a practitioner's report on the application of agree-upon procedures? a. a statement that the practitioner performed an examination of prospective financial statements b. a statement of scope limitation that will qualify the practitioner's opinion c. a statement referring to standards established by the AICPA d. a statement of negative assurance based on a procedure performed

c. a statement referring to standards established by the AICPA

9. A company hired a practitioner to perform an examination of prospective financial statements. The practitioner concluded that the assumptions did not provide a reasonable basis for the prospective financial statements. Which of the following types of opinion should the practitioner use? a. unmodified opinion b. qualified c. adverse d. disclaimer

c. adverse

1. Which of the following statements concerning prospective financial statements is correct? a. only a financial forecast would normally be appropriate form limited use b. only a financial projection would normally be appropriate for general use c. any type of perspective financial statements would normally be appropriate for limited use d. any type of prospective financial statements would normally be appropriate for general use

c. any type of perspective financial statements would normally be appropriate for limited use

3. A practitioner has been engaged to apply agreed-upon procedures in accordance with Statements on Standards for Attestation Engagements to prospective financial statements. Which of the following conditions must be met for the practitioner to finalize the engagement? a. the prospective financial statements include a summary of significant accounting policies b. the practitioner takes responsibility for the sufficiency of the agreed-upon procedures c. the engaging party acknowledges that the procedures performed were appropriate to meet the intended purpose of the engagement d. the practitioner reviews the findings and reaches an opinion based on the procedures performed

c. the engaging party acknowledges that the procedures performed were appropriate to meet the intended purpose of the engagement

6. An accountant's compilation report on 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 forecasted and actual results d. the hypothetical assumptions used in the forecast are reasonable in the circumstances

c. there will usually be differences between forecasted and actual results

26. Accepting an engagement to compile a financial projection for a nonissuer 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 the report date.

d. All stockholders of record as the report date.

18. When an accountant compiles projected financial statements, the accountant's report should include a statement that: a. Explains the difference between a compilation and a review. b. Documents the assessment of the risk of material misstatement due to fraud. c. Expresses limited assurance that the actual results may be within the projected range. d. Describes the limitations on the projection's usefulness.

d. Describes the limitations on the projection's usefulness.

22. An examination of a financial forecast is a professional service that involves: a. Compiling or assembling a financial forecast that is based on management's assumptions. b. Limiting the distribution of the accountant's report to management and the board of directors. c. Assuming responsibility to update management on key events for one year after the report's date. d. Evaluating the preparation of a financial forecast and the support underlying management's assumptions.

d. Evaluating the preparation of a financial forecast and the support underlying management's assumptions.

17. 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. Examining the income statement and balance sheet for one year in the future based on client expectations and predictions.

d. Examining the income statement and balance sheet for one year in the future based on client expectations and predictions.

14. Which of the following standards should be a CPA firm apply in a review of Management Discussion and Analysis? a. Statements on Standards for Accounting and Review Services b. Statements on Standards for Consulting Services c. Statements on Auditing Standards d. Statements on Standards for Attestation Engagements

d. Statements on Standards for Attestation Engagements

12. The accountant may report on agreed-upon procedures applied to specified elements, accounts, or items of financial statements a. without being independent of the client company since no opinion or any other form of assurance is given on the sufficiency of agreed-upon procedures performed. b. as long as the accountant assumes responsibility for the adequacy of the agreed-upon procedures the account has agreed to perform c. but must be independent of the client company and provide limited assurance on the sufficiency of the agreed-upon procedures performed d. but must be independent of the client company and give no opinion or any other form of assurance on the sufficiency of the agreed-upon procedures applied

d. but must be independent of the client company and give no opinion or any other form of assurance on the sufficiency of the agreed-upon procedures applied

11. An accountant who accepts an engagement to compile financial projection most likely would make the client aware that the a. projection may not include in a document with the 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

5. All of the following should contain a restricted use paragraph in the report, except for an engagement to: a. report on compliance with aspects of regulatory requirements in connection with audited financial statements b. issue a letter to requesting parties in connection with a nonissuer entity's financial statements included in a registration statement filed with the SEC c. report on a financial projection d. report on pro forma financial statements

d. report on pro forma financial statements