audit chapter 19
Accepting an engagement to examine an entity's financial projection most likely would be appropriate if the projection were to be distributed to
A bank with which the entity is negotiating for a loan.
All of the following are correct statements regarding compliance attestation engagements except
A compliance attestation provides a legal determination of an entity's compliance.
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 disclaimer of responsibility for the sufficiency of those procedures.
Which of the following components is appropriate in a practitioner's report on the results of applying agreed-upon procedures?
A list of the procedures performed, as agreed to by the specified parties identified in the report.
Which of the following statements about written representations in an attestation review engagement is correct?
A representation letter should be obtained from the responsible party.
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 review of pro forma financial information.
A practitioner's report on agreed-upon procedures related to an entity's compliance with specified requirements should contain
A statement of restrictions on the use of the report.
A practitioner's report on agreed-upon procedures that is in the form of procedures and findings should contain
A statement of restrictions on the use of the 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.
In an attestation review engagement, the practitioner should request from the responsible party
A written assertion.
A CPA is required to comply with the provisions of Statements on Standards for Attestation Engagements (SSAEs) when engaged to
Review management's discussion and analysis (MD&A) prepared pursuant to rules and regulations adopted by the SEC.
When performing a review under SSAEs or SSARSs, the practitioner must
Be independent.
Preconditions for all attestation engagements include all of the following except
Be satisfied that the practitioner can be considered the responsible party.
A practitioner examining pro forma financial information (PFFI) does not have an understanding of the constituent parts of an entity resulting from a business combination. The practitioner should take which of the following actions?
Communicate with a practitioner who audited the underlying historical information.
Auditor X, a CPA, is performing an attestation review engagement. The subject matter is a production report of Y Company representing the total production of its 12 products for the prior year. Corporation A has engaged X to provide assurance on the production report to determine whether an acquisition of Y is appropriate. Which of the following statements about review evidence is true?
Comparisons of the current year's production with that of the past should be performed.
A practitioner has examined a client's compliance with debt covenants associated with a bank loan and is ready to issue a report. Which of the following standards apply to the report?
Compliance attestation standards.
Which report may not be presented in an attestation engagement?
Consulting report.
A CPA in public practice is required to comply with the provisions of the Statements on Standards for Attestation Engagements (SSAEs) when Testifying as an expert witness in accounting and auditing matters given stipulated facts Examining a client's financial projection that presents a hypothetical course of action
NO YES
A practitioner accepted an engagement to examine the entity's compliance with a contractual agreement. The practitioner should perform the following: Plan the engagement. Perform procedures to provide reasonable assurance of detecting material noncompliance. Consider subsequent events. Create a report containing limited assurance whether the entity is in compliance.
I, II, and III.
Auditor X, a CPA, is performing an attestation review engagement. The subject matter is a production report of Y Company representing the total production of its 12 products for the prior year. Corporation A has engaged X to provide assurance on the production report to determine whether an acquisition of Y is appropriate. Which of the following statements about the attestation review report to be issued is true?
If the conclusion is expressed on the assertion, the assertion should either accompany the report or be included in the report.
When a practitioner examines projected financial statements, the report should include a separate paragraph that
Indicates that the prospective results may not be achieved.
Company Y has asked Practitioner X to review its financial projection for the next few years. X should
Inform Y that prospective financial statements may be examined but not reviewed.
A financial forecast consists of prospective financial statements that present an entity's expected financial position, results of operations, and cash flows. A forecast
Is based on assumptions reflecting conditions expected to exist and courses of action expected to be taken.
B Corporation has requested M, Inc., to issue status reports on projects supported by B Corporation funding. M has engaged X, a CPA, to perform an attestation engagement to provide assurance on the status reports. B Corporation
Is the primary user of X's report.
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?
Issue a report on findings based on specified procedures performed.
Which of the following activities would most likely be considered an attestation engagement?
Issuing a report about a firm's compliance with laws and regulations
A review typically consists of inquiries and analytical procedures. An attestation review may not rely heavily on analytical procedures because the subject matter may be
Less quantitative.
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 contain a(n)
List of the procedures performed (or reference thereto) and Mill's findings.
Practitioner was engaged by a group of pension recipients to apply agreed-upon procedures to financial data supplied by Pension regarding Pension's written assertion about its compliance with contractual requirements to pay benefits. The report on these agreed-upon procedures should contain a(n)
List of the procedures performed (or reference to them) and Practitioner's findings.
B Corporation has requested M, Inc., to issue status reports on projects supported by B Corporation funding. M has engaged X, a CPA, to perform an attestation engagement to provide assurance on the status reports. Which of the following statements is true?
M, Inc., is the responsible party.
The practitioner's report on an examination of pro forma financial information (PFFI)
May state an unmodified, qualified, or adverse opinion.
A qualified opinion in an attestation examination engagement most likely is expressed when
Misstatements are material but not pervasive to the subject matter
In which of the following situations will a practitioner disclaim an opinion on an examination of prospective financial statements?
The practitioner was not able to perform certain procedures deemed necessary.
A practitioner's report on agreed-upon procedures should contain which of the following statements?
The procedures performed were those agreed to by the specified parties identified in the report.
A practitioner may accept an engagement to examine a financial projection if
The projection describes limits on its use.
A practitioner may perform an agreed-upon procedures engagement on prospective financial statements provided that which of the following is met?
The prospective financial statements include a summary of significant assumptions.
What information should a practitioner include in the standard report on an examination of prospective financial statements?
The prospective results might not be achieved.
Which of the following statements is least likely to be included in a practitioner's report on agreed-upon procedures?
The report has provided limited assurance.
Which of the following is most likely documented for an attestation examination engagement?
The reviewer of the work.
In an engagement to examine management's discussion and analysis (MD&A), which of the following best defines control risk?
The risk that material misstatements in the MD&A presentation will not be prevented in a timely manner.
Which of the following characteristics of prospective financial statements would require the practitioner to include in a report on the prospective financial statements an alert that restricts the use and distribution of the report?
They are considered a financial projection
A practitioner may accept an agreed-upon procedures engagement to calculate the rate of return on a specified investment and verify that the percentage agrees with the percentage in an identified schedule provided that
Use of the practitioner's report is restricted.
An examination differs from an audit because
Use of the report is more likely to be restricted.
A practitioner may accept an engagement to apply agreed-upon procedures to prospective financial statements provided that
Use of the report is restricted to the specified parties.
An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided the
Use of the report is restricted to the specified users.
An attestation engagement addresses subject matter that is the responsibility of someone other than the practitioner. The subject matter of an attestation engagement is best defined as
What is measured or evaluated against criteria.
A practitioner who performs an examination attestation engagement should document
Who reviewed the work.
In an attestation review engagement, the practitioner concludes that misstatements are material and pervasive. The practitioner therefore should
Withdraw from the engagement.
Which of the following examination reports on prospective financial statements is(are) appropriate for general use? Financial forecast Financial projection
Yes No
A practitioner may accept a compliance attestation engagement to perform Application of Agreed-Upon Procedures Examination Review
Yes Yes No
Modifications of the opinion when reporting on an attestation examination engagement include Qualified Adverse Disclaimer
Yes Yes Yes
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)
Adverse opinion.
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 issue?
Adverse.
In an attestation review engagement, each of the following items should be included in the presentation of pro forma financial statements except
All direct and indirect effects attributed to the related transaction.
Which of the following should a practitioner include in an agreed-upon procedures report?
All findings from application of the agreed-upon procedures.
Which of the following items should be included in prospective financial statements issued in an attestation engagement performed in accordance with Statements on Standards for Attestation Engagements?
All significant assumptions used to prepare the financial statements.
When a practitioner examines a financial forecast that fails to disclose several significant assumptions used to prepare the forecast, the practitioner should describe the assumptions in the practitioner's report and express
An adverse opinion.
If the criteria used to evaluate the subject matter in an examination engagement are appropriate or available only for limited parties, the report should include
An alert.
Which of the following professional services is considered an attest engagement?
An engagement to report on compliance with statutory requirements.
An attestation examination engagement most likely results in which of the following?
An opinion on the subject matter.
Which of the following statements concerning prospective financial statements is true?
Any type of prospective financial statements would normally be appropriate for limited use.
The practitioner provides limited assurance about whether any material modifications should be made to subject matter for it to conform to specific criteria in a(n)
Attestation review.
A practitioner may report on an examination of pro forma financial information (PFFI) if the related historical financial statements have been
Audited.
All attestation engagements require the practitioner to
Be independent.
Accepting an engagement to apply agreed-upon procedures to a financial projection requires the practitioner to
Determine that the statements include a summary of significant assumptions.
In an examination or review attestation engagement, an engaging party may not be the responsible party. For example, this party may be a potential acquirer of another entity. If a responsible party who is not the engaging party refuses to provide a written assertion, the practitioner should
Disclose the refusal in the report.
An examination of a financial forecast is a professional service that involves
Evaluating the preparation of a financial forecast and the support underlying management's assumptions.
For an agreed-upon procedures compliance attestation engagement, the practitioner should not obtain an understanding of the specified requirements through
Evaluation of management's written assertion about compliance.
Which of the following professional services would be considered an attestation engagement?
Examining the financial statements for one year in the future based on client expectations and predictions.
A practitioner in an attestation review engagement intends to express a qualified conclusion in the report based on a misstatement that is material but not pervasive. The practitioner should use the language
Except for the effects.
In accordance with AT-C 315, Compliance Attestation, a practitioner may perform an engagement to examine an entity's compliance with specified laws, regulations, rules, contracts, or grants (compliance with specified requirements). In such an engagement, the practitioner's objective may be to
Express an opinion about whether management's assertion about compliance is fairly stated.
Which of the following is not an objective of an examination engagement?
Expressing an opinion on historical financial statements.
Which of the following is a prospective financial statement for general use upon which a practitioner may appropriately report?
Financial forecast
Given one or more hypothetical assumptions, a responsible party may prepare, to the best of its knowledge and belief, an entity's expected financial position, results of operations, and cash flows. Such prospective financial statements are known as
Financial projections.
Limited assurance may be expressed when a practitioner is requested to apply agreed-upon procedures to specified Elements of a Financial Statement Accounts of a Financial Statement
No No
An accountant has been engaged to examine pro forma adjustments that show the effects on previously audited historical financial statements due to a proposed disposition of a significant portion of an entity's business. Other than the procedures previously applied to the historical financial statements, the accountant is required to Reevaluate the entity's internal control over financial reporting Determine that the computations of the pro forma adjustments are mathematically correct
No Yes
Relative to prospective financial statements, a practitioner may accept an engagement to Review Examination
No Yes
A practitioner is engaged to examine prospective financial statements (PFSs). If they include a projection that does not identify the hypothetical assumptions, the practitioner should
Not accept the engagement.
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
Not include a reference to the original audit engagement but may include a reference to procedures that have been performed.
In an attestation review engagement, the objectives of the practitioner are to
Obtain limited assurance about whether any material modifications should be made to the subject matter in order for it be in accordance with the criteria.
An objective of an attestation examination engagement is to
Obtain reasonable assurance about whether the presentation of subject matter is free from material misstatement.
Prospective financial information presented in the format of historical financial statements that omit either gross profit or net income is deemed to be a
Partial presentation.
In an examination engagement, the practitioner most likely should consider materiality when
Planning the examination.
Which of the following presents what the effects on historical financial data might have been if a consummated transaction had occurred at an earlier date?
Pro forma financial information.
A review engagement in accordance with the attestation standards
Provides a limited level of assurance.
When performing an examination regarding compliance with specified requirements, the practitioner finds noncompliance believed to be material but not pervasive. The practitioner most likely expresses a(n)
Qualified opinion.
A practitioner's report on a review of pro forma financial information should include a
Reference to the financial statements from which the historical financial information is derived.
An examination of pro forma financial information (PFFI)
Requires the practitioner to obtain an engagement letter.
At the end of an attestation review, the practitioner's report
Should state any assertions or be accompanied by such assertions.
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?
Statements on Standards for Attestation Engagements.
Which of the following standards should a CPA firm apply in a review of pro forma financial information?
Statements on Standards for Attestation Engagements.
In relation to the subject matter in an attestation engagement, suitable criteria are all of the following except
Subjective.
If an attestation examination report expresses an opinion on a written assertion,
The assertion should accompany the report or be clearly stated in the report.
Auditor X, a CPA, is performing an attestation review engagement. The subject matter is a production report of Y Company representing the total production of its 12 products for the prior year. Corporation A has engaged X to provide assurance on the production report to determine whether an acquisition of Y is appropriate. Based on these facts, which of the following statements made about the assertion is true?
The assertion should be in writing.
The party responsible for assumptions identified in the preparation of prospective financial statements is usually
The client's management.
A nonissuer engaged a practitioner to perform agreed-upon procedures on specified matters. The date of the practitioner's report would ordinarily be determined by the occurrence of which of the following events?
The completion of the agreed-upon procedures.
Which of the following is most likely a precondition for an attestation engagement?
The criteria must be available to the intended users.
Which of the following is a fundamental aspect of an attestation engagement?
The engaging party is often the responsible party.
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 must be met for the practitioner to perform the engagement?
The practitioner and specified parties agree upon the procedures to be performed by the practitioner.
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?
The practitioner is independent from the client and other specified parties.
