Chapter 25
three types of compilation reports
- Compilation with full disclosure - Compilation that omits substantially all disclosures - Compilation without independence
the five Trust Services Categories
1. security 2. availability 3. processing integrity 4. confidentiality 5. privacy
The statement that "We are not aware of any material modifications that should be made to the accompanying financial statements" expresses which of the following? A) disclaimer of an opinion B) negative assurance C) negative confirmation D) shared opinion
B) negative assurance
Which of the following types of engagement reports would provide positive assurance? A) an examination B) a review C) an agreed-upon procedures engagement D) a compilation
A) an examination
Compilation reports may be of all except which of the following types? A) compilation with limited independence B) compilation with full disclosure C) compilation without independence D) compilation that omits substantially all disclosures
A) compilation with limited independence
Which of the following statements regarding prospective financial statements is most correct? A) CPAs are not attesting to the accuracy of the prospective financial statements. B) CPAs are attesting to the accuracy of the prospective financial statements. C) CPAs are performing a review on the company's assumptions and hypotheticals that underlie the prospective financial statements. D)CPAs are performing a review on the achievability of the prospective financial statements.
A) CPAs are not attesting to the accuracy of the prospective financial statements.
What type of SOC report is intended to meet the needs of entities that use service organizations and their auditors, who are responsible for understanding internal controls over financial reporting at service organizations? A) SOC 1 report B) SOC 2 report C) SOC 3 report D) none of the above
A) SOC 1 report
The distribution of which of the following types of reports is unrestricted? A) examinations and reviews B) reviews and agreed-upon procedures C) examinations and agreed-upon procedures D) examinations, reviews, and agreed-upon procedures
A) examinations and reviews
A CPA who has been engaged to audit financial statements that were prepared on a cash basis A) must ascertain that there is proper disclosure of the fact that the cash basis has been used. B) may not be associated with such statements which are not in accordance with generally accepted accounting principles. C) must render a qualified report explaining the departure from generally accepted accounting principles in the opinion paragraph. D) must restate the financial statements on an accrual basis and then render the standard (short-form) report.
A) must ascertain that there is proper disclosure of the fact that the cash basis has been used.
A review results in a conclusion that represents ________ assurance. A) limited assurance B) negative C) positive D) unequivocal
B) negative
Which of the following is not one of the five Trust Services categories? A) security B) confidentiality C) completeness D) availability
C) completeness
The Securities and Exchange Commission requires quarterly financial information as a part of the A) 10-K report. B) 10-Q report. C) 8-K report. D) auditor's report.
B) 10-Q report.
Which of the following is not an accurate statement regarding agreed-upon procedures engagements? A) These engagements are also known as procedures and findings engagements. B) A report for such an engagement describes the findings resulting from the procedures, but cannot describe the procedures agreed upon. C) All agreed-upon procedure engagements are now under the scope of attestation standards. D) Agreed-upon procedures engagements appeal to CPAs because management, or a third-party user, specifies the procedures they want done.
B) A report for such an engagement describes the findings resulting from the procedures, but cannot describe the procedures agreed upon.
An interim review of the financial information for public companies is performed following standards of the A) American Institute of Certified Public Accountants (AICPA). B) Public Company Accounting Oversight Board (PCAOB). C) Securities and Exchange Commission (SEC). D) Statements on Standards for Accounting and Review Services (SSARS).
B) Public Company Accounting Oversight Board (PCAOB).
What type of SOC report is intended to meet the needs of a broad range of users who need information and assurance about controls at a service organization that affect the security, availability, and processing integrity of the systems the service organization uses to process users' data and the confidentiality and privacy of the information processed by these systems? A) SOC 1 report B) SOC 2 report C) SOC 3 report D) none of the above
B) SOC 2 report
The service auditor's Type 2 report contains A) an opinion on the reasonableness of the financial statements. B) the two opinions about the description and suitability of the design of controls that are issued in a Type 1 report plus an additional opinion about the operating effectiveness of controls throughout the period. C) an opinion only on the operating effectiveness of the controls. D) an opinion on the service company's website.
B) the two opinions about the description and suitability of the design of controls that are issued in a Type 1 report plus an additional opinion about the operating effectiveness of controls throughout the period.
In a preparation service engagement, A) the CPA's responsibilities are similar to those performed during a review. B) theCPA does not provide any assurance of the financial statements. C) the CPA must issue a preparation service engagement report. D) the CPA must be independent.
B) theCPA does not provide any assurance of the financial statements.
Which of the following is not an element of the examination of prospective financial statements? A) evaluating the preparation of the prospective financial statements B) understanding internal controls C) evaluating the support underlying the assumptions D) issuing an examination report
B) understanding internal controls
Each page of the financial statements reviewed for a nonpublic entity should include the reference A) "These financial statements are unaudited." B) "We express no assurance on these financial statements." C) "See independent accountant's review report." D) "See the audit opinion for the review procedures performed."
C) "See independent accountant's review report."
Which of the following statements is true regarding review and audit services? A) A review requires more substantive evidence than an audit. B) An audit requires less evidence related to internal control than a review. C) A review requires less evidence than an audit. D) None of the above statements is true.
C) A review requires less evidence than an audit.
Statements on Standards for Attestation Engagements are established by the A) Securities and Exchange Commission. B) Public Company Accounting Oversight Board. C) Auditing Standards Board of the AICPA. D) Accounting and Review Services Committee.
C) Auditing Standards Board of the AICPA.
One of the bases other than GAAP or IFRS is the Financial reporting framework for small-and medium-sized businesses. This basis A) has not yet been approved by the AICPA. B) is the same as the income tax basis. C) draws upon a blend of traditional accounting principles and accrual income tax methods of accounting. D) must be used by a business with sales under $1 million.
C) draws upon a blend of traditional accounting principles and accrual income tax methods of accounting.
An agreed-upon procedures engagement is one in which A) the CPA and management agree that procedures will be applied to all accounts and circumstances. B) the CPA and management agree that procedures will not be applied to all accounts and circumstances. C) the CPA, the responsible party making the assertions, and the specific persons who are the intended users of the CPA's report agree to all the procedures the CPA will perform. D) the CPA, the responsible party making the assertions, and the specific persons who are the intended users of the CPA's report agree that the CPA will apply his judgment to determine the procedures to be performed.
C) the CPA, the responsible party making the assertions, and the specific persons who are the intended users of the CPA's report agree to all the procedures the CPA will perform.
All of the following are steps that should be performed in a review engagement except for A) understand the company's ownership structure. B) read the company's financial statements. C) perform analytical procedures. D) assess fraud risk.
D) assess fraud risk.
The Web Trust service requires that a CPA update its testing of the e-commerce aspects of an entity's website at least every A) ninety days. B) month. C) six months. D) twelve months.
D) twelve months.
A public company interim review includes five requirements for review service engagements. Name these five requirements.
Obtain knowledge of the accounting principles of the client's industry; obtain knowledge of the client; make inquires of management; perform analytical procedures; and obtain letter of representation.
What is the best reason that standards prohibit accepting an engagement on a projection for general use? A) The CPA's procedures would violate SSARS. B) Reports on projections are not well understood by the general public. C) Underlying hypothetical assumptions are difficult to interpret without obtaining additional information. D) The CPA is not qualified to report on the use of GAAP in the projected financial statement.
C) Underlying hypothetical assumptions are difficult to interpret without obtaining additional information.
Distribution of which of the following types of reports is limited? A) audit B) review C) agreed-upon procedures D) examination
C) agreed-upon procedures
The highest level of assurance is provided for in which one of the following engagements? A) review B) compilation C) audit D) preparation service
C) audit
Which of the following attestation engagements result in a conclusion that represents positive assurance? A) review B) compilation C) examination D) agreed-upon procedure engagement
C) examination
Which of the following would not be included in a CPA's report based upon a review of the financial statements of a nonpublic entity? A) a statement that the review was in accordance with generally accepted auditing standards B) a statement that all information included in the financial statements is the representation of management C) a statement that the review primarily consists of analytical procedures and inquiries D) a statement that the accountant has conducted a review
A) a statement that the review was in accordance with generally accepted auditing standards
The engagement and report on debt compliance letters should be limited to compliance matters that the auditor is qualified to evaluate. Which of the following engagements would be inappropriate for the CPA to attempt to evaluate? A) determining whether the client has properly restricted its business activities to the requirements of an agreement B) determining whether principal and interest payments were made when due C) determining whether the proper limitations were maintained on dividends, working capital, and debt ratios D) determining whether the accounting records were adequate for conducting an ordinary audit
A) determining whether the client has properly restricted its business activities to the requirements of an agreement
As a CPA, you have been engaged to perform an attestation engagement. You would typically A) express a conclusion about an assertion. B) provide management consulting services. C) prepare financial forecasts to secure in preparation for receiving debt funding. D) compile financial statements for the client.
A) express a conclusion about an assertion.
The last paragraph of the accountant's review report A) details the responsibilities of management. B) details the responsibilities of the accountant. C) expresses limited assurance in the form of negative assurance. D) lists the analytical procedures performed.
C) expresses limited assurance in the form of negative assurance.
In a review service where the client has failed to follow applicable accounting standards, the accountant is A) not required to determine the effect of a departure if management has not done so, but that fact must be disclosed in the report. B) required to determine the effect of a departure if management has not done so, and that fact must be disclosed in the report. C) not required to determine the effect of a departure if management has not done so, and that fact need not be disclosed in the report. D) required to determine the effect of a departure if management has not done so, and that fact need not be disclosed in the report.
A) not required to determine the effect of a departure if management has not done so, but that fact must be disclosed in the report.
You are preparing to issue a report on the compilation of financial statements for a nonpublic company. Prior to issuing the report you should A) read the financial statements to determine if they are free from obvious material errors. B) perform analytical procedures to determine if they are free from material misstatements. C) perform tests of balances on selected accounts to determine if they are free from material misstatements. D) perform limited control tests to determine if there are any material misstatements.
A) read the financial statements to determine if they are free from obvious material errors.
Reports on agreed-upon procedures are intended to be distributed A) to only the involved parties, who would have the requisite knowledge about those procedures and the level of assurance resulting from them. B) to only the involved parties, who would have the requisite knowledge about those procedures but not the level of assurance resulting from them. C) to any party to whom the client wishes. D) only to the stockholders of the client.
A) to only the involved parties, who would have the requisite knowledge about those procedures and the level of assurance resulting from them.
Professional standards prohibit which one of the following types of engagements for prospective financial statements from being undertaken? A) a compilation B) a review C) an examination D) an agreed-upon procedures engagement
B) a review
Practitioners who perform preparation, compilation, or review engagements are referred to in the Statements on Standards for Accounting and Review Services (SSARS) standards as A) bookkeepers. B) accountants. C) auditors. D) CPAs.
B) accountants.
General use statements are prepared for use by A) known contractual parties. B) any third party. C) regulators. D) internal auditors.
B) any third party.
Two of the types of services provided in connection with the Statements on Standards for Accounting and Review Services are A) audit and examination services. B) compilation and review services. C) examination and review services. D) management advisory services and compilations.
B) compilation and review services.
Which of the following is not one of the types of engagements and related forms of conclusions that are defined by the attestation standards? A) reviews B) compilations C) examinations D) agreed-upon procedures
B) compilations
When CPAs do audits for specified elements, accounts, or items, A) materiality is defined in terms of the overall financial statements. B) materiality is defined in terms of the elements, accounts, or items being audited. C) auditors do not need to extend their audit efforts to include other elements, accounts, or items that are interrelated with those being audited. D) the authority for auditing specified elements, accounts, or items is in the review and compilation standards.
B) materiality is defined in terms of the elements, accounts, or items being audited.
Your accounting firm has accepted a compilation engagement from a client in which your firm is not independent. In that case you A) may not accept the engagement. B) may accept the engagement and disclose the lack of independence. C) may accept the engagement and not disclose the lack of independence. D) may accept the engagement and disclose the lack of independence and the reason for the lack of independence.
B) may accept the engagement and disclose the lack of independence.
One of the first steps that should be performed for a review of a nonpublic entity's financial statements is to A) read the financial statements. B) obtain knowledge of the accounting principles and practices of the client's industry. C) inquire whether management has omitted substantially all of the disclosures required by applicable accounting standards. D) apply analytical procedures to provide limited assurance that no material modifications should be made to the financial statements.
B) obtain knowledge of the accounting principles and practices of the client's industry.
In a WebTrust attestation engagement the client engages a CPA to provide what level of assurance that the company's website complies with Trust Services categories? A) absolute B) reasonable C) limited D) moderate
B) reasonable
Attestation standards allow a CPA to perform all but which of the following services for a forecast or projection? A) compilation B) review C) examination D) agreed-upon procedures
B) review
The concept of limited assurance is provided for in which of the following engagements? A) audit B) review C) compilation D) agreed-upon procedures
B) review
Which of the following is a correct statement regarding review, compilation, and preparation services? A) A written engagement letter is not needed for a review, compilation or preparation service. B)The Statements on Standards for Accounting and Review Services (SSARS) clarity project used international standards as the base standard when revising the SSARS. C) CPAs must be independent of the client in a review service engagement and for an audit engagement. D) The amount of evidence accumulated in a review is minimal.
C) CPAs must be independent of the client in a review service engagement and for an audit engagement.
Which of the following statements is not correct? A) Forecasts can be provided for general use. B) Forecasts can be provided for limited use. C) Projections can be provided for general use. D) Projections can be provided for limited use.
C) Projections can be provided for general use.
When a CPA performs an examination engagement under the attestation standards, the amount of evidence gathered is ________ and the level of assurance is ________. A) extensive; varying B) significant; high C) extensive; high D) significant; moderate
C) extensive; high
When the accountant has performed a review and has determined that no material changes to the financial statements are needed, the first paragraph of the review report A) expresses positive assurance about the financial statements. B) notes the accountant's responsibility to conduct the review. C) identifies the entity and the period of financial statements subject to the review. D) specifies that management is responsible for the financial statements.
C) identifies the entity and the period of financial statements subject to the review.
An accountant who reviews the financial statements of a nonpublic entity should issue a report stating that a review A) is substantially equivalent in scope to an audit. B) is substantially more in scope than a compilation. C) is substantially less in scope than an audit. D) provides only minimal assurance that the financial statements are fairly presented.
C) is substantially less in scope than an audit.
Clients occasionally enter into loan agreements that require them to provide the ________ with a report from a CPA about the existence or nonexistence of some condition. A) underwriters of securities B) audit committee C) lender D) Securities and Exchange Commission
C) lender
When performing a review service, auditors must make inquiries of management. Which of the following inquiries are typically made of management? A) Is each account on the financial statements prepared in conformity with accounting standards and consistently applied? B) What unusual or significant transactions occurred this year? C) Do you have knowledge of an actual or suspected fraud? D) All of the above are inquiries typically made of management.
D) All of the above are inquiries typically made of management.
The standards for preparation, compilation, and review engagements of financial statements are the A) AICPA's Code of Professional Conduct. B) Statements on Auditing Standards (SASs). C) Statements of Standards on Attestation Engagements (SSAEs). D) Statements on Standards for Accounting and Review Services (SSARS).
D) Statements on Standards for Accounting and Review Services (SSARS).
Which of the following is nota standard contained in both the Attestation Standards and Generally Accepted Auditing Standards? A) The examination is to be performed by a person having adequate technical training. B) An independence in mental attitude is to be maintained. C) Sufficient evidence is to be obtained. D) The practitioner must obtain a sufficient understanding of the client's internal control.
D) The practitioner must obtain a sufficient understanding of the client's internal control.
As a CPA you have been asked to examine an entity's financial projections. Acceptance of the engagement would be appropriate if distribution is limited to A) stockholders of record as of the date of the report. B) potential investors and creditors by posting on the company's website. C) general public by posting on the company's website. D) a financial institution for which the company is negotiating a loan.
D) a financial institution for which the company is negotiating a loan.
An accountant has accepted an engagement in which the audit procedures of inquiry and analytical procedures will be employed. These procedures will form the basis for issuance of A) a compilation report. B) an audit report on supplemental information issued by the client. C) a management advisory report requested by the audit committee. D) a review report on financial statements for a nonpublic company.
D) a review report on financial statements for a nonpublic company.
The quarterly reports submitted to the SEC by the client A) have to be audited, and the CPA firm must be identified. B) do not have to be audited, but the CPA firm which does the annual audit must be identified. C) have to be audited, but the CPA firm does not have to be identified. D) do not have to be audited, but the CPA firm which does the annual audit must review the quarterly statements before they are submitted to the SEC.
D) do not have to be audited, but the CPA firm which does the annual audit must review the quarterly statements before they are submitted to the SEC.
A CPA firm can issue a compilation report A) only if the partners are independent. B) only if all the partners and the staff in the office performing the engagement are independent. C) if the partners have no material or direct immaterial interest in client. D) even if it is not independent.
D) even if it is not independent.
