Chapter 19
Which of the following forms of accountant associations is least likely to result in issuance of an accountant's report on financial statements or financial information? a. Compilation b. Review c. Preparation d. Agreed-Upon Procedures
D
T or F: The primary difficulty in the audit of personal financial statements is determining whether the individual involved has rights to the recorded assets.
False
Audit standards require that auditors apply analytical procedures during every audit to a client's preliminary and final ________ data.
Financial
1. Unmodified (unqualified) audit report 2. Cash-basis statements audit report. 3. Review report 4. Compilation report "In accordance with generally accepted auditing standards."
1, 2
1. Unmodified (unqualified) audit report 2. Cash-basis statements audit report. 3. Review report 4. Compilation report "Which is a basis of accounting other than generally accepted accounting principles."
2
1. Unmodified (unqualified) audit report 2. Cash-basis statements audit report. 3. Review report 4. Compilation report "Is substantially less in scope than an audit in accordance with generally accepted auditing standards....."
3
1. Unmodified (unqualified) audit report 2. Cash-basis statements audit report. 3. Review report 4. Compilation report "We are not aware of any material modifications that should be made"
3
1. Unmodified (unqualified) audit report 2. Cash-basis statements audit report. 3. Review report 4. Compilation report "In accordance with standards established by the American Institute of Certified Public Accountants."
3, 4
1. Unmodified (unqualified) audit report 2. Cash-basis statements audit report. 3. Review report 4. Compilation report In all cases, an indication that the CPA does not express an opinion.
3, 4
1. Unmodified (unqualified) audit report 2. Cash-basis statements audit report. 3. Review report 4. Compilation report "Management has elected to omit substantially all of the disclosures required by generally accepted accounting principles."
4
1. Unmodified (unqualified) audit report 2. Cash-basis statements audit report. 3. Review report 4. Compilation report "Presenting in the form of financial statements, information that is the representation of management."
4
Accountants that have reviewed prior-period FS and the current year should: a. issue a review report covering both years b. not issue a review report but instead issue an audit opinion c. issue separate review reports for the current year and the prior-period
A
An auditor must be independent to: a. issue a review report. b. perform a compilation. c. prepare financial statements. d. provide consulting services.
A
If auditors cannot develop confidence that audit procedures have located all concealed assets when auditing personal FS, auditors should: a. withdraw from the engagement b. issue an adverse opinion due to a scope limitation c. issue a qualified opinion due to a scope limitation
A
Which of the following is least likely to be included in a review of a nonpublic company's financial statements? a. Inquiry of legal counsel. b. Read financial statements. c. Analytically compare this year's totals of various assets with those of last year. d. Obtain written representations from management relating to the financial statements.
A
The auditors report should include an additional other-matter paragraph including an alert about restricting the use of the auditors' report for special-purpose statements prepared in accordance with: (Select all that apply) a. regulatory basis b. contractual basis c. tax basis d. cash basis
A, B
For an audit of FS prepared using another country's financial reporting framework, auditors may follow: (Select all that apply) a. auditing standards of the other country b. international auditing standards c. international financial reporting standards d. auditing standards of the US
A, B, D
For accountant reports on __________ procedures on specified elements, the report should indicate it is intended for the specified party and list the procedures performed and related findings.
Agreed-upon
For SSARS review, analytical procedure, an other review procedure, or an inquiry of management? Compare recorded amounts developed to expectations designed.
Analytical procedure
For SSARS review, analytical procedure, an other review procedure, or an inquiry of management? Develop expectations by identifying and using plausible relationships that are reasonably expected to exist.
Analytical procedure
Public companies are required to have _____audits and interim reviews.
Annual
A CPA who is not independent may perform which of the following services for a nonpublic company? Compilation, Review a. Yes, yes b. Yes, no c. No, yes d. No, no
B
A description of the purpose for which special purpose financial frameworks are prepared need not be included in financial statements that follow the a. Regulatory basis—general use. b. Cash basis. c. Regulatory basis—restricted use. d. Contractual basis.
B
Public companies are required to have annual audits and also interim reviews of their: a. annual information b. first 3 quarters of the year information c. first 2 quarters of the year information d. first quarter of the year information
B
The professional standards for CPAs associated with unaudited FS of nonpublic companies are called: a. Statements on Auditing Standards b. Statements on Standards for Accounting and Review Services c. Statements on Auditing Standards for Review Services
B
The type of service provided when a non-independent accountant assembles financial statements from client records: a. review of FS b. preparation of FS c. audit of FS
B
An accountant's standard report after compiling FS of a nonpublic entity should state that?
Compilation is limited to presenting in the form of FS information that is representation of management
A standard report after compiling FS of nonpublic entity should state?
Compilation limited to presenting in form of FS
In which of the following types of reports do accountants provide no explicit assurance?
Compilations
Similarity or difference between PCAOB/ASB reviews and those under SSARS? Conducted for clients that have not had an annual audit.
Difference
Similarity or difference between PCAOB/ASB reviews and those under SSARS? Public companies must have FS reviewed quarterly
Difference
Similarity or difference between PCAOB/ASB reviews and those under SSARS? SSARS reviews are not typically on interim information
Difference
Review reports ______ result in an opinion like audit reports.
Do not
SSARS reviews are performed on clients that ______an annual audit.
Do not need
On a review report, _____ page of the review report should include a caption with words like "Independent Accountant's Review Report."
Each
Incorrect or Correct? The Attestation Standards, not the Statements on Auditing Standards apply to engagements involving special-purpose frameworks.
Incorrect
For SSARS review, analytical procedure, an other review procedure, or an inquiry of management? Determine status of unrecorded adjustments.
Inquiry of management
For SSARS review, analytical procedure, an other review procedure, or an inquiry of management? Inquire as to accounting principles, practices, and methods used
Inquiry of management
For SSARS review, analytical procedure, an other review procedure, or an inquiry of management? Inquire as to communications from regulatory agencies
Inquiry of management
Nonpublic companies _____choose to have interim reviews.
May
Comparison of current year to prior year account balances would be used on what type of engagement?
Review
Interim information of public companies must be?
Reviewed by CPAs before being filed with the SEC
If management imposes a scope limitation, what type of report should be issued?
The auditors should withdraw from the engagement
Accountants should inform the audit committee of: (Select all that apply) a. difficulties encountered during the review b. quality of significant accounting policies and estimates c. any significant deficiencies and material weaknesses noted d. material instances of fraud or illegal acts
A, B, C
Typical review procedures include: (Select all that apply) a. a review of actions taken at stockholder meetings b. testing of account balances c. inquiries of management on whether the FS are in accordance with GAAP d. corroborating management responses to inquiries
A, C
When FS of nonpublic companies that follow another country's financial reporting framework are intended for use in the US, the auditors should issue: a. an audit report with an emphasis-of-matter paragraph b. a qualified audit opinion c. a disclaimer of opinion on the FS
A; public companies require opinion
Nonpublic companies that are audited may also want interim reviews. Auditors must then follow the _______.
ASB standards
Interim financial information of public companies must?
Be reviewed by a CPA
A bank may require the audit of the BS but not the other FS of a company. In conducting the audit, the auditor should follow: a. special-reporting framework standards b. international auditing standards adapted for the circumstance c. GAAS adapted for the circumstance
C
Compilation reports should be modified for: a. the existence of major uncertainties b. lack of consistent application of GAAP c. departures from GAAP
C
Historical financial information that is derived from the FS but contains less detail are called: a. special-purpose financial statements b. review financial statements c. summary financial statements
C
The proper report by an auditor relating to summarized financial statements includes: a. A statement about the type of opinion expressed in the prior year b. An adverse opinion c. An opinion on whether the summarized information is fairly stated in all material respects in relation to the basic financial statements d. No assurance on the information
C
When performing a review of a nonpublic company, what is least likely to be included in auditor inquiries of management members with responsibility for financial and accounting matters? a. Subsequent events b. Significant journal entries and other adjustments c. Communications with related parties d. Unusual or complex situations affecting the financial statements
C
Incorrect or Correct? A special-purpose financial reporting framework is any framework other than GAAP.
Correct
Which of the following procedures is ordinarily included in a review of the interim financial statements of an issuer (public company)? a. Observation of the counting of inventory. b. Inquiry of lawyers. c. Confirmation of accounts receivable. d. Consideration of internal control.
D
Which of the following would be used in a review engagement? a. Examination of board minutes b. Confirmation of cash and A/R c. Recalculating depreciation expense d. Compare current year to prior year
D - analytical procedure
During a review engagement, accountants will perform all of the following except: a. analytical procedures b. inquiries of management and others within the organization c. obtain representations from management relating to the FS d. perform tests of controls and substantive tests
D - those are for audits
T or F: Audits of summary financial statements often replace audits of the basic (complete) financial statements.
False
T or F: CPAs may perform a review even if they are not independent of the client.
False
T or F: If auditors are engaged to audit financial statements prepared on the cash basis of accounting, they must issue either a qualified report or an adverse report.
False
T or F: One advantage to CPAs of performing a compilation or review is that they cannot be held liable to third parties for not identifying misstatements or omissions in the client's financial statements.
False
T or F: Reviews of the interim financial statements of an issuer are similar in scope to an audit, with the only major differences being that the CPAs are not required to observe the taking of physical inventory or to confirm accounts receivable when performing a review.
False
T or F: Tax basis financial statements are ordinarily restricted to use by the company and the taxing authority.
False
T or F: The requirements for performing a quarterly review of an issuer are the same as those of a review of a nonissuer company.
False
T or F: CPAs that are preparing FS and encounter departures from GAAP that are not corrected by management should modify their report.
False - withdraw from engagement
A departure from GAAP is included as a _____ paragraph to the report.
Fourth
Auditors that audit a complete set of FS and the BS will use different __________ measures to assess misstatements on each engagement.
Materiality
For SSARS review, analytical procedure, an other review procedure, or an inquiry of management? Read FS
Other review procedure
For SSARS review, analytical procedure, an other review procedure, or an inquiry of management? Read the minutes of board meetings
Other review procedure
Public company guidance comes from the ________.
PCAOB
The date of a review report _____ be earlier than the date on which sufficient evidence is received.
Should not
Similarity or difference between PCAOB/ASB reviews and those under SSARS? A final step is communicating the results.
Similarity
Similarity or difference between PCAOB/ASB reviews and those under SSARS? A starting point is establishing an understanding with the client as to the nature of the engagement.
Similarity
T or F: A review of the financial statements of a nonissuer client does not include a consideration of the client's internal control.
True
T or F: CPAs may perform a compilation even if they are not independent of the client.
True
T or F: Engagement letters are required for review, compilation and preparation engagements.
True
T or F: In compiled financial statements, management may omit substantially all of the disclosures required by generally accepted accounting principles if this omission is clearly indicated in the accountants' report.
True
T or F: Letters for underwriters are commonly called comfort letters.
True
T or F: Professional standards for compilations and reviews of the financial statements of nonissuer companies are issued by the Accounting and Review Services Committee, not by the Auditing Standards Board.
True
T or F: The accountants' report on either a review or a compilation engagement should disclaim an opinion on the financial statements.
True
T or F: When issuing a report on cash-basis financial statements, the auditors' report must state that the financial statements are prepared on a basis of accounting other than generally accepted accounting principles.
True
1. Unmodified (unqualified) audit report 2. Cash-basis statements audit report. 3. Review report 4. Compilation report "Adequate informative disclosure....."
X
1. Unmodified (unqualified) audit report 2. Cash-basis statements audit report. 3. Review report 4. Compilation report "Designed to obtain absolute assurance."
X
1. Unmodified (unqualified) audit report 2. Cash-basis statements audit report. 3. Review report 4. Compilation report "Is in compliance with the requirements of the Foreign Corrupt Practices Act."
X
1. Unmodified (unqualified) audit report 2. Cash-basis statements audit report. 3. Review report 4. Compilation report "Met those criteria."
X
A CPA performing a compilation has discovered that the client refuses to present notes to the financial statements. The appropriate report is: a. no report, auditor resignation is ordinarily required. b. qualified. c. a compilation report with an indication that all required disclosures under generally accepted accounting principle may not be presented with the statements. d. adverse.
C
Incorrect or Correct? If a regulatory agency requires a particular layout for the audit report, the auditor may be able to use that layout rather than the suggested report included in the Professional Standards.
Correct
Incorrect or Correct? Some, but not all, special-purpose frameworks require an indication that the financial statements are intended solely for certain specified users.
Correct
An audit report on financial statements prepared using a special-purpose framework must include: a. an emphasis-of-matter paragraph describing the basis of accounting used b. an introductory paragraph to identify the basis of accounting used c. an opinion paragraph that highlights the basis of accounting used
A
Auditors provide comfort letters to __________ to help fulfill their obligation to perform a reasonable investigation of the securities registration statement. a. underwriters b. the SEC c. management
A
Comfort letters to underwriters are normally signed by the: a. Independent auditor b. Underwriter c. Client's lawyer d. Chief executive officer
A
For a compilation service, accountants must at least: a. read the compiled statements for appropriate format b. inquire of management about significant transactions c. test material account balances
A
In performing a compilation of the financial statements of a nonissuer company, the CPA concludes that modification of the accountants' report is not adequate to indicate the deficiencies in the statements. If the client is not willing to correct these deficiencies, the CPAs should: a. withdraw from the engagement. b. insist upon performing a review of the statements. c. issue a report with a negative assurance clause. d. express an adverse auditors' opinion.
A
In which of the following reports should a CPA not express negative (limited) assurance? a. Standard compilation report on financial statements of a nonpublic entity b. Standard review report on interim financial statements of a public entity c. Standard review report on financial statements of a nonpublic entity d. Comfort letter on financial information included in a restoration statement filed with the SEC
A
The date on which the accountant has accumulated review evidence sufficient to provide limited assurance on the FS should be the date of: a. the review report b. the engagement letter c. stockholder's report issuance
A
Which of the following is a particular concern relating to audits of personal financial statements? a. Completeness. b. The lack of GAAP for individuals. c. Existence. d. Inability to confirm receivables.
A
Which of the following is not a special-purpose financial reporting framework? a. IFRS b. Regulatory basis c. Cash basis d. Contractual basis
A
Which of the following must be obtained in a review of a nonpublic company? Engagement Letter, Representation Letter a. Yes, yes b. Yes, no c. No, yes d. No, no
A
Which of the following would not be included in a CPA's review report on the financial statements of a nonissuer company? a. A statement that the review was performed in accordance with generally accepted auditing standards. b. A statement describing the principal procedures performed during a review. c. A statement that a review is less in scope than an audit. d. A statement that all information is based upon representations of management.
A
Which of following is correct relating to compiled FS when third party reliance on FS is anticipated?
A compilation report must be attached
Accountants that perform a review of the current year FS but performed a compilation in the prior-period can: (Select all that apply) a. include a reference to the prior year's report in the current year's report b. issue on report highlighting the service that provides the most assurance to the user c. reissue the prior year's report and present it with the current year's report d. issue one report covering both years and outlining the different services provided
A, C
In order to provide negative assurance with respect to a client's compliance with indenture provisions, auditors must have: (Select all that apply) a. performed audit procedures on the applicable restrictions b. receive a report from management detailing compliance c. conducted an audit of the related FS d. performed an audit or review of the related FS
A, C
When performing compilation services, accountants do not provide __________ on the financial statements so they do not need to be independent.
Assurance
Accountants should report information about significant adjustments found during the review and disagreements with management over accounting principles or review procedures to: a. management b. the audit committee c. the bank requiring the review engagement d. the SEC
B
An accountant who becomes aware of a material departure from GAAP when performing a review should issue: a. a qualified review report that includes "with the exception" in the opinion paragraph b. a review report that includes "with the exception" in the conclusion paragraph c. an adverse report
B
Auditors provide this type of assurance on compliance reports prepared for contractual agreements or regulatory requirements. a. no assurance b. negative assurance c. absolute assurance c. positive assurance
B
CPAs who are looking to acquire information about a prospective client before accepting a review engagement should: a. review the prior year working papers b. contact the client's predecessor CPA c. talk to competitors and major customers of the client
B
CPAs who perform compilations for clients when they are not independent should: a. modify their opinion in the compilation report b. indicate their lack of independence in the compilation report c. withdraw from the engagement
B
Concerning interim quarterly financial statements, management of public companies: a. Must engage CPAs to audit the statements b. Must engage CPAs to review the statements c. May choose to engage CPAs to review the statements d. May not engage CPAs to become associated with the statements
B
An audit report on a schedule of gross assets and liabilities of a company measured in accordance with GAAP needs to note in an emphasis-of-matter paragraph that: a. the schedule is meant to be complete presentation of company's revenues and expenses b. the schedule is not in accordance with GAAP c. the schedule is not intended to be a complete presentation of the company's assets and liabilities
C
An auditors' report on cash-basis financial statements should include a statement that: a. disclosure is inadequate. b. the financial statements are misleading. c. the financial statements are not prepared in conformity with GAAP. d. the auditors are disclaiming an opinion.
C
Auditors that are involved with financial information prepared on a regulatory basis that requests a specific layout for the auditors' report that is not acceptable can: a. use the form requirements even though it's not acceptable b. add a paragraph to the audit report to explain the form requirements c. reword the form or attach an appropriately worded separate report
C
Comfort letters help underwriters in fulfilling their obligation to perform a reasonable investigation of a(n): a. condensed financial statements. b. annual report sent to shareholders. c. registration statement for the sale of securities. d. annual report filed with the Securities and Exchange Commission.
C
Nonpublic companies that have SSARS reviews on their financial information: a. have had a review of their quarterly information b. follow the PCAOB standards c. have not had an annual audit performed
C
The income statement for an individual is called the: a. statement of financial position b. statement of income and expenses c. statement of changes in net worth
C
Which assertion is generally most difficult to attest to with respect to personal financial statements? a. Existence and occurrence b. Rights and obligations c. Completeness d. Valuation
C
Which communication option(s) may be used when a compilation report is only used by management? Compilation Report; Engagement Letter a. Yes, yes b. Yes, no c. No, yes d. No, no
C
Which of the following is most likely to result in modification of a compilation report? a. A question concerning an entity's ability to continue as a going concern. b. A major uncertainty facing the financial statements. c. A departure from generally accepted accounting principles. d. A lack of consistency in application of generally accepted accounting principles.
C
Which of the following is not typically performed when the auditors are performing a review of client financial statements? a. Analytical procedures applied to financial data b. Inquiries about significant subsequent events c. Confirmation of accounts receivable d. Obtaining an understanding of accounting principles followed in the client's industry
C
A proper compilation report on financial statements that omit note disclosures: a. Includes an adverse opinion b. Includes a disclaimer of opinion on the accuracy of such note disclosures c. Indicates that management has omitted such information d. Indicates that note disclosures are not necessary for those not informed about such matters
C (on exam)
Incorrect or Correct? An audit opinion on FS that use a special-purpose framework may be unmodified.
Correct
Incorrect or Correct? An audit report on FS that are prepared using a special-purpose framework must include an emphasis-of-matter paragraph alerting users that the FS were prepared in accordance with the framework.
Correct
An engagement in which specified users agree with the CPAs on the procedures to be performed is: a. considered unethical under the professional standards. b. only allowable under engagements related to not-for-profit organizations. c. a form of special audit engagement. d. referred to as an agreed-upon procedures engagement.
D
Auditors must obtain a representation letter from the client for all review engagements in which: a. the audit procedures performed are outlined b. the understanding of the services provided are detailed c. the accountant acknowledges their responsibility to prevent/detect fraud d. management acknowledges their responsibility for the FS
D
Financial statements prepared following which of the following are most likely to be considered a special-purpose financial reporting framework? a. GAAP b. IFRS c. Financial reporting standards of a foreign nation d. Cash basis of accounting
D
When a circumstance leads to a scope limitation, what type of report should be issued?
Disclaimer
Auditors who report on a particular account or element need to indicate whether the information is presented ___________ on the basis of accounting used.
Fairly
T or F: Auditors may not issue a report that covers only specified items or elements in the financial statements, such as net sales or working capital.
False
Incorrect or Correct? An audit report on FS that are prepared using a special-purpose framework will indicate that the audit was conducted in accordance with the special-purpose financial reporting framework auditing standards.
Incorrect - "auditing standards"
Incorrect or Correct? An audit report on FS that are prepared using a special-purpose framework must in all circumstances include a description of the purposes for which the statements are prepared.
Incorrect - just contractual and regulatory
Is a compilation report required when compiled FS are expected to be used by management only?
No
T or F: A compilation refers to the preparation of financial statements for a nonissuer client without performing investigative procedures to determine the reliability of the information.
True
T or F: The purpose of a review is to provide users of the financial statements with limited assurance that the statements are prepared in conformity with generally accepted accounting principles (or some other financial reporting framework).
True
T or F: When CPAs perform an audit they are acting as auditors, but when performing a compilation they are acting as accountants.
True
