Audit Exam 4 Module A

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An assurance service is defined as a service that

Improves the quality of information for decision makers

If the auditor expresses an adverse or disclaimer of opinion on the complete set of financial statements, she or he is not permitted to:

Express an unmodified opinion on a single financial statement.

The Standard report issued by a CPA after reviewing the financial statements of a nonissuer in accordance with Statements for accounting and Review Services (SSARS) should state that the CPA:

Is not aware of any material modifications that should be made to the financial statements

Which of the following procedures would not be performed in a review of financial statements of a nonpublic company?

Obtain an attorney's letter regarding litigation and unasserted claims.

General retailing, a nonissuer, has asked Ford, CPA, to compile its financial statements that omit substantially all disclosures required by GAAP. Ford may comply with General's Request provided the omission is clearly indicated in Ford's report and the:

Omission is not undertaken with the intention of misleading the users of General's financial statements.

The accountants should obtain a letter from the entity's attorney to corroborate the information furnished by management concerning litigation.

not required for review or compilation

The accountants should obtain an understanding of the entity's internal control.

not required for review or compilation

The accountants, as the entity's successor accountants, should communicate with the predecessor accountants to obtain access to the predecessors' audit documentation.

not required for review or compilation

When interim financial information is presented in a footnote to annual financial statements, the standard audit report on the annual financial statements should

Not mention the interim information unless there is an exception that the auditors need to include in the report

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

Objectivity and integrity

Which of the following would be considered a preparation of financial statements engagement?

Preparation of personal financial statements for presentation alongside a financial plan.

Which of the following is correct regarding a compilation of financial statements engagement in accordance with statement on standards for accounting and review services?

The accountant is not required to make inquiries nor perform procedures to corroborate the information provided by the client

The official Statements on Standards for Accounting and Review Services are applicable to practice with

Unaudited financial statements of nonissuers.

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

Understand the internal controls used in the processes that generated the information

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

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

The accountants should perform analytical procedures designed to identify relationships that appear to be unusual.

Required for Review

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 review & required for Compilation

The accountants should obtain a level of knowledge of the accounting principles and practices of the entity's industry.

Required for review & required for Compilation

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

Review report on unaudited financial statements.

Which of the following is a generally accepted attestation standard but is not a fundamental auditing principle?

Adequate knowledge of the subject matter

An accountant need not assess compliance with independence rules during

A preparation of financial statement engagement.

Compilation:

A service whereby the practitioner assists in assembling financial information and issues a report providing no assurance.

Preparation of Financial Statements:

A service whereby the practitioner assists in assembling financial information, but issues no report.

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

A statement referring to standards established by the AICPA

If a nonissuer wants an accountant to perform an examination of its internal controls, the accountant should follow

AICPA AT 501, "An Examination of an Entity's Internal Control over Financial Reporting That Is Integrated with an Audit of Its Financial Statements."

If a nonissuer wants an accountant to perform an examination of its internal controls, the accountant should follow:

AICPA AT 501, "An Examination of an Entity's Internal Control over Financial Reporting That Is Integrated with an Audit of Its Financial Statements."

Which of the following best describes an engagement to report on an entity's internal control over financial reporting for a nonpublic company?

An attestation engagement to examine and report on management's written assertions about the effectiveness of its internal control structure.

Review Service:

An engagement whereby a practitioner provides limited assurance about financial information.

Service Organization:

An entity that provides a service to another company regarding the processing of transactions or information.

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

Compilation report.

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

Internal control deficiencies

Which of the following activities is an accountant not responsible for in reviewing engagements performed in accordance with Statements for accounting and Review Services?

Developing an understanding of internal control

The accountants should make inquiries concerning actions taken at the board of directors' meetings.

Required for Review

A review service engagement involving unaudited financial statements involves

Less work than an audit but more work than a compilation

Which of the following procedures regarding notes payable would an accountant most likely perform during a nonissuer's review engagement?

Making inquiries of management regarding maturities, interest rate, and collateral.

The performance of an attestation engagement on prospective financial information does not require which of the following?

Management must disclose the probability of obtaining the results included in the prospective financial information.

Which of the following conditions must be met before an accountant can conduct an examination of an entity's internal control?

Management must present its assertion about the effectiveness of its internal control in a written report.

For a compliance engagement, three conditions must be met. Which of the following is not one of the three conditions?

Management provides a report attesting to satisfactory compliance

Assurance Service

Professional services aimed at improving the quality of information both financial and non-financial for decision makers.

Attestation:

Professional services resulting in a report on subject matter or a claim about subject matter that is the responsibility of another party.

B. Harper is surfing the Internet and finds a great pair of rollerblades at a really low price, but he has never heard of the company and is concerned that the product he ordered may not be the product he receives. Harper may be more willing to place an order with this company if

The website displays the WebTrust seal.

The phrase "Trust services" refers to:

WebTrust and SysTrust Services.

What is the appropriate name for an assurance service provided by a CPA regarding a client's commercial Internet site with reference to the principles of privacy, security, processing integrity, availability, and confidentiality?

WebTrust.

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

a. Compilation report.

Which of the following procedures is ordinarily performed by an accountant in a compilation engagement of a nonpublic entity?

a. Reading the financial statements to consider whether they are free of obvious mistakes in the application of accounting principles.

Shelly's Bank has loaned money to Pete's Auto Supply. The loan is collateralized by inventory. The loan also requires a CPA to observe the count of the inventory and trace sampled items to the vendor invoices in order to determine the value of inventory is not misstated. This service would be:

an attestation engagement.

The procedures used in a review engagement are:

analytical procedures, inquiry, and obtaining a management representation letter.

Assurance services are defined as independent professional services that:

improve the quality of information, or its context, for decision makers.

Extensible Business Reporting Language (XBRL) provides a computer readable identifying tag for each individual item of data. The advantages of XBRL include all of the following except:

improves the full disclosure of financial information.

When an accountant is engaged to compile a nonpublic entity's financial statements that omit substantially all disclosures required by GAAP, the accountant should indicate in the compilation report that the financial statements:

might influence users' conclusions about the business, if the disclosures were included

When a company uses a service organization to prepare its payroll, the company's auditors:

need to understand the internal controls over the transaction regardless of the location of the control

The accountants should assess the risk of material misstatement

not required for review or compilation

The accountants should obtain management representations from the entity

required for review

The accountants should study the relationship of the financial statement elements that would be expected to conform to a predictable pattern.

required for review

In an agreed-upon procedures engagement, an accountant:

restricts the report to specified users


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