Audit Ch21 Part 3

Which of the following professional services is considered an attest engagement? a. A consulting service engagement to provide computer advice to a client. b. An engagement to report on compliance with statutory requirements. c. An income tax engagement to prepare federal and state tax returns. d. The compilation of an engagement to provide a peer review for another CPA firm.

b. An engagement to report on compliance with statutory requirements. (In an attest engagement, a practitioner issues an examination, a review, or an agreed-upon procedures report on subject matter (or an assertion about subject matter) that is the responsibility of another party (AT-C 105). Thus, attest engagements are not limited to traditional financial statement audits. For example, attest services may extend to management's compliance with specified requirements or the effectiveness of internal control over compliance.)

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? a. M, Inc., is the primary user of X's report. b. M, Inc., receives written assertions from X. c. M, Inc., engages X to establish suitable criteria. d. M, Inc., is the responsible party.

M, Inc., is the responsible party. (The responsible party is responsible for the subject matter of the attestation engagement. The subject matter is what is measured or evaluated against criteria, e.g., the status reports on the projects. Because M issues the status reports, it is the responsible party as well as the engaging party.)

A practitioner's report on agreed-upon procedures related to an entity's compliance with specified requirements should contain a. A statement of restrictions on the use of the report. b. An opinion about whether management complied with the specified requirements. c. Negative assurance that control risk has not been assessed. d. An acknowledgment of responsibility for the sufficiency of the procedures.

a. A statement of restrictions on the use of the report. (The report based on agreed-upon procedures should contain an alert restricting use to specified parties.)

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 a. An alert. b. A disclaimer of opinion. c. A qualified opinion. d. No additional information.

a. An alert. (The report should include an alert, in a separate paragraph, that restricts the use of the report when the criteria used to evaluate the subject matter are appropriate or available only for limited parties.)

All attestation engagements require the practitioner to a. Be independent. b. Express a conclusion. c. Consider financial information. d. Collect audit evidence.

a. Be independent. (All attestation engagements require the practitioner to be independent.)

Which of the following is most likely a precondition for an attestation engagement? a. The practitioner must be independent if required by law to accept the engagement. b. The criteria must be available to the intended users. c. The practitioner must be able to obtain the evidence necessary for an opinion. d. A written or oral report must be presented.

b. The criteria must be available to the intended users. (The criteria to be applied in the preparation and evaluation of the subject matter must be suitable and made available to the intended users. Suitable criteria are (1) relevant, (2) objective, (3) capable of reasonably consistent measurement (qualitatively or quantitatively), and (4) complete.)

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. (PFFI shows "what the significant effects on historical financial information would have been had a consummated or proposed transaction (or event) occurred at an earlier date." Consequently, the practitioner in a review engagement provides limited assurance.)

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? a. All significant assertions used to prepare the financial statements. b. All significant assumptions used to prepare the financial statements. c. Pro forma financial statements for the past 2 years. d. Historical financial statements for the past 3 years.

b. All significant assumptions used to prepare the financial statements. (Prospective financial statements consist of financial forecasts or projections, including summaries of significant assumptions and accounting policies. A practitioner should not accept an engagement to examine or apply agreed-upon procedures to prospective financial statements if the significant assumptions are not disclosed.)

An attestation examination engagement most likely results in which of the following? a. Limited assurance on subject matter that is the responsibility of others. b. An opinion on the subject matter. c. A conclusion about whether criteria are appropriate for specific subject matter. d. The results of a set of procedures provided by the responsible party.

b. An opinion on the subject matter. (Examination attestation engagements result in an opinion on whether the subject matter is presented in accordance with the specified criteria.)

In which of the following situations will a practitioner disclaim an opinion on an examination of prospective financial statements? a. The prospective financial statements depart from AICPA presentation guidelines. b. The practitioner was not able to perform certain procedures deemed necessary. c. The prospective financial statements fail to disclose significant assumptions. d. The significant assumptions do not provide a reasonable basis for the statements.

b. The practitioner was not able to perform certain procedures deemed necessary. (If the auditor becomes aware of a management-imposed scope limitation after accepting the engagement, a disclaimer of opinion should be issued.)

A practitioner may accept an engagement to examine a financial projection if a. The projection does not disclose the significant assumptions. b. The projection describes limits on its use. c. The practitioner's lack of independence is disclosed. d. The projection does not identify the hypothetical assumptions in the presentation.

b. The projection describes limits on its use. (A practitioner may accept an engagement to examine a financial projection if the responsible party agrees to (1) disclose the significant assumptions, (2) identify in the presentation which assumptions are hypothetical, and (3) describe the limits on the use of the projection.)

A practitioner may accept a compliance attestation engagement to perform (application of agreed-upon procedures | examination | review) a. yes|yes|yes b. no|yes|yes c. yes|yes|no d. no|no|yes

c. yes, yes, no (The practitioner may perform agreed-upon procedures if the specified users participate in establishing the procedures to be applied and take responsibility for the sufficiency of such procedures for their purposes. The practitioner also may conduct an examination in which (s)he gathers evidence to support an opinion. Both types of engagements may be performed with respect to compliance with specified requirements. But an examination to report on control over compliance is not performed under AT-C 315. AT-C 315 also does not provide for a review engagement.)

In an attestation review engagement, each of the following items should be included in the presentation of pro forma financial statements except 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 results. d. All direct and indirect effects attributed to the related transaction.

d. All direct and indirect effects attributed to the related transaction. (Pro forma adjustments are based on management's assumptions. They should include all significant direct effects of the transaction (or event).)

Which of the following components is appropriate in a practitioner's report on the results of applying agreed-upon procedures? a. A list of the procedures performed, as agreed to by the specified parties identified in the report. b. A statement that management is responsible for expressing an opinion. c. A title that includes the phrase "independent audit." d. A statement that the report is unrestricted in its use.

A list of the procedures performed, as agreed to by the specified parties identified in the report. (In an agreed-upon procedures engagement, the practitioner is engaged to report on the results of performing specific procedures agreed upon with specified parties. The report lists the procedures performed and provides the results of those procedures but provides no form of positive or negative assurance.)

A qualified opinion in an attestation examination engagement most likely is expressed when a. Misstatements are material but not pervasive to the subject matter. b. Evidence to support an opinion is not available. c. Misstatements are material and pervasive to the subject matter. d. Evidence to support an opinion is available but the practitioner is precluded from acquiring it.

a. Misstatements are material but not pervasive to the subject matter. (A qualified opinion is expressed when, having collected sufficient appropriate evidence, the practitioner concludes that misstatements, individually or in the aggregate, are material, but not pervasive, to the subject matter.)

When a practitioner examines projected financial statements, the report should include a separate paragraph that a. Indicates that the prospective results may not be achieved. b. Provides an explanation of the differences between an examination and an audit. c. States that the practitioner is responsible for events and circumstances up to one year after the report's date. d. Disclaims an opinion on whether the assumptions provide a reasonable basis for the projection.

a. Indicates that the prospective results may not be achieved. (When the presentation is a forecast or projection, the practitioner's report should include a separate paragraph stating that differences between (1) forecasted or projected results and (2) actual results frequently occur. Events and circumstances often are not as expected, and differences may be material.)

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. (An agreed-upon procedures engagement is one in which a practitioner is engaged by a client to issue a report of findings based on specific procedures performed on subject matter.)

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) a. Attestation review. b. Financial statement review. c. Examination. d. Agreed-upon procedures engagement.

a. Attestation review. (The practitioner provides limited assurance about whether any material modifications should be made to subject matter for it to conform to specific criteria in an attestation review.)

The practitioner's report on an examination of pro forma financial information (PFFI) a. Should have the same date as the related historical financial statements. b. Should be added to the report on the historical financial statements. c. Need not mention the report on the historical financial statements. d. May state an unmodified, qualified, or adverse opinion.

d. May state an unmodified, qualified, or adverse opinion. (The report should include an opinion on whether (1) management's assumptions provide a reasonable basis for the significant effects attributable to the transaction or event, (2) the pro forma adjustments give appropriate effect to the assumptions, and (3) the pro forma amounts reflect the proper application of those adjustments to the historical data. Scope limitations, uncertainties, reservations about the assumptions or the presentation (including inadequate disclosure), and other matters may lead to modification of the opinion or a disclaimer.)

In an examination engagement, the practitioner most likely should consider materiality when a. Deciding whether to restrict the use of the report. b. Accumulating uncorrected misstatements during the engagement. c. A responsible party who is the engaging party refuses to provide a written assertion. d. Planning the examination.

d. Planning the examination. (The practitioner should consider materiality when (1) planning and performing the examination and (2) determining the nature, timing, and extent of procedures.)

In an attestation review engagement, the practitioner should request from the responsible party a. A written assertion. b. A disclaimer. c. A hold-harmless agreement. d. Permission to communicate with the responsible party's attorney.

a. A written assertion. (The practitioner must request a written assertion from the responsible party in attestation examination or review engagements.)

A practitioner may report on an examination of pro forma financial information (PFFI) if the related historical financial statements have been a. Audited. b. Audited or reviewed. c. Audited, reviewed, or compiled. d. Reviewed or compiled.

a. Audited. (A practitioner may examine or review PFFI only if certain conditions are met. One condition is that the level of assurance provided be limited to that given on the historical statements. Accordingly, an examination that provides a basis for positive assurance is appropriate only if the historical statements have been audited.)

When performing a review under SSAEs or SSARSs, the practitioner must a. Be independent. b. Request a written assertion from the responsible party. c. Restrict the use of the report. d. Confirm that the responsible party is the engaging party.

a. Be independent. (Under the SSAEs, the practitioner must be independent to accept an attestation engagement to perform (1) an examination, (2) a review, or (3) agreed-upon procedures.)

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) a. Adverse opinion. b. Pro forma opinion. c. Qualified opinion. d. Unmodified opinion with an explanatory paragraph.

a. Adverse opinion. (An examination results in issuance of a report stating the practitioner's opinion on whether (1) the presentation conforms with AICPA guidelines and (2) the underlying assumptions are suitably supported and provide a reasonable basis for the forecast. If significant assumptions are not disclosed in the presentation, including the summary of assumptions, the practitioner must express an adverse opinion. Moreover, a practitioner should not examine a presentation that omits all such disclosures.)

All of the following are correct statements regarding compliance attestation engagements except a. A practitioner may be asked to provide assurance about the entity's compliance with specified requirements (laws, regulations, rules, contracts, or grants). b. A practitioner performs procedures to provide reasonable assurance of detecting material noncompliance. c. A practitioner obtains an understanding of the relevant portions of internal control over compliance. d. A compliance attestation provides a legal determination of an entity's compliance.

a. A compliance attestation provides a legal determination of an entity's compliance. (A compliance attestation engagement includes but is not limited to providing assurance about the entity's (1) compliance with specified requirements (laws, regulations, rules, contracts, or grants) and (2) effectiveness of internal control over compliance with specified requirements (only in an agreed-upon procedures engagement). A compliance attestation engagement does not provide a legal determination of an entity's compliance.)

In an attestation review engagement, the objectives of the practitioner are to a. Form an opinion about whether the subject matter is in accordance with the criteria. b. Express a conclusion about the fairness of financial statements. c. Offer assurance that the practitioner's subject matter is appropriately presented. d. 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.

d. 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. (The objective of a review is to provide limited assurance about whether the subject matter requires material modifications.)

Preconditions for all attestation engagements include all of the following except a. Be satisfied that the practitioner can be considered the responsible party. b. Determine that the subject matter is appropriate. c. Expect to prepare a written report. d. Have unrestricted access to information the practitioner considers necessary.

a. Be satisfied that the practitioner can be considered the responsible party. (The responsible party is responsible for the subject matter. The practitioner cannot be the responsible party.)

Accepting an engagement to apply agreed-upon procedures to a financial projection requires the practitioner to a. Determine that the statements include a summary of significant assumptions. b. Issue a report suitable for general use. c. Also perform an examination. d. Take responsibility for the sufficiency of the procedures to be applied.

a. Determine that the statements include a summary of significant assumptions. (To accept an engagement to apply agreed-upon procedures to prospective financial statements, a practitioner must be independent. Also, (1) the statements must include a summary of significant assumptions, (2) the specified parties must agree to the procedures and be responsible for their sufficiency, and (3) an alert must restrict use of the report to the specified parties.)

For an agreed-upon procedures compliance attestation engagement, the practitioner should not obtain an understanding of the specified requirements through a. Evaluation of management's written assertion about compliance. b. Consideration of relevant laws. c. Consideration of knowledge obtained from prior engagements. d. Interviews with legal counsel.

a. Evaluation of management's written assertion about compliance. (For an examination, a precondition of the engagement is that the practitioner obtain from management a written assertion about compliance. If management refuses, the practitioner should withdraw if possible.)

Which of the following is not an objective of an examination engagement? a. Expressing an opinion on historical financial statements. b. Obtaining reasonable assurance about whether the subject matter is free from material misstatement. c. Expressing an opinion in a written report about whether the responsible party's assertion is fairly stated. d. Communicating further as required.

a. Expressing an opinion on historical financial statements. (A difference between an audit under SASs (GAAS) and an examination under SSAEs is that an examination expresses an opinion on (1) subject matter or (2) the responsible party's assertion. The subject matter may have many forms if it can be measured and evaluated against suitable criteria. An audit is intended to result in expression of an opinion on historical financial statements.)

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. (A written report stating the results of applying agreed-upon procedures to specific subject matter should be in the form of procedures and findings. All findings should be reported, any agreed materiality limits should be described, and an alert restricting use of the report to specified parties should be included.)

An objective of an attestation examination engagement is to a. Obtain reasonable assurance about whether the presentation of subject matter is free from material misstatement. b. Express an opinion on subject matter that is the responsibility of the practitioner. c. Evaluate and report on the fairness of reasonable criteria provided by the responsible party. d. Gather evidence that no material modifications need be made to subject matter for it to be in accordance with the financial reporting framework.

a. Obtain reasonable assurance about whether the presentation of subject matter is free from material misstatement. (The objectives of an examination attestation engagement are to (1) obtain reasonable assurance about whether the subject matter, as measured or evaluated based on the criteria, is free from material misstatement; (2) express an opinion in a written report about whether (a) the subject matter is in accordance with (or based on) the criteria, or (b) the responsible party's assertion is fairly stated; and (3) communicate further as required (e.g., to those charged with governance).)

Prospective financial information presented in the format of historical financial statements that omit either gross profit or net income is deemed to be a a. Partial presentation. b. Projected balance sheet. c. Financial forecast. d. Financial projection.

a. Partial presentation. (Under the minimum presentation guidelines, prospective financial statements may take the form of complete basic statements or be limited to certain minimum items (when the items would be presented for the period's historical statements). A presentation is partial if it omits one or more of the following: (1) sales or gross revenues, (2) gross profit or cost of sales, (3) unusual or infrequently occurring items, (4) provision for income taxes, (5) discontinued operations, (6) income from continuing operations, (7) net income, (8) basic and diluted earnings per share, and (9) significant changes in financial position.)

A review engagement in accordance with the attestation standards a. Provides a limited level of assurance. b. Does not require the practitioner to request a written assertion from the responsible party. c. Addresses subject matter in the form of historical financial statements. d. Is more likely to involve performance of analytical procedures than a financial statement review.

a. Provides a limited level of assurance. (In an attestation review, the practitioner provides limited assurance about whether any material modifications should be made to subject matter for it to conform to specific criteria.)

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) a. Qualified opinion. b. Adverse opinion. c. Unmodified opinion. d. Disclaimer of opinion.

a. Qualified opinion. (If noncompliance is believed to be material, the report should describe the material noncompliance, and the opinion is modified. If the misstatement is material but not pervasive, a qualified opinion is expressed. The practitioner includes a separate paragraph in the report describing the matter resulting in the modification.)

An examination of pro forma financial information (PFFI) a. Requires the practitioner to obtain an engagement letter. b. Is guided by the accounting and review standards. c. Provides limited assurance. d. Does not require the practitioner to be independent.

a. Requires the practitioner to obtain an engagement letter. (Requirements for reviews or examinations of PFFI are similar to those for other attestation services. These requirements include (1) obtaining an engagement letter, (2) requesting a written assertion and written representations, (3) assessing the suitability of management's criteria for developing PFFI, (4) maintaining documentation, and (5) the practitioner's independence.)

At the end of an attestation review, the practitioner's report a. Should state any assertions or be accompanied by such assertions. b. May be in writing or presented orally to the board of directors. c. May include an adverse conclusion. d. Should express an opinion on the relevant written assertion or subject matter.

a. Should state any assertions or be accompanied by such assertions. (If the report is on an assertion, the assertion should accompany the report or be clearly stated in the report.)

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. (Statements on Standards for Attestation Engagements apply to examination and review services for PFFI.)

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? a. The assertion should be in writing. b. The assertion must be made by the engaging party. c. If no assertion is presented, the practitioner need not disclose the omission in the report. d. The assertion should cover the financial statements for the same period.

a. The assertion should be in writing. (The basic concept of an attestation engagement is that a party who is not the practitioner makes an assertion about whether the subject matter is measured or evaluated in accordance with suitable criteria. The practitioner must request a written assertion when performing an examination, a review, or an agreed-upon procedures engagement.)

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. Sufficiency of procedures is the responsibility of the practitioner. All classification codes appeared to comply with such performance documents. Nothing came to my attention as a result of applying the procedures.

a. The procedures performed were those agreed to by the specified parties identified in the report. (In an agreed-upon procedures engagement, the practitioner may perform the engagement provided that the specified parties agree with the practitioner about the procedures to be performed. The procedures and the findings are included in the practitioner's report.)

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.(Prospective financial statements (PFSs) consist of financial forecasts or projections, including summaries of significant assumptions and accounting policies. A practitioner may examine or apply agreed-upon procedures to PFSs. An examination report should state that the prospective results may not be achieved.)

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? a. They are considered a financial projection. b. They are considered a financial forecast. c. They contain a range of forecasted results. d. They are prepared by a practitioner who lacks independence.

a. They are considered a financial projection. (Prospective financial statements consist of financial forecasts and projections. Only reports on examinations of forecasts are appropriate for general use.)

A practitioner may accept an engagement to apply agreed-upon procedures to prospective financial statements provided that a. Use of the report is restricted to the specified parties. b. The prospective financial statements also are examined. c. Responsibility for the sufficiency of the procedures performed is taken by the practitioner. d. Limited assurance is expressed on the prospective financial statements taken as a whole.

a. Use of the report is restricted to the specified parties. (The following conditions should be met to accept an engagement: (1) The specified parties have participated in determining its nature and scope, and they take responsibility for the adequacy of the procedures; (2) report use is restricted to those parties; and (3) the statements include a summary of significant assumptions.)

An examination differs from an audit because a. Use of the report is more likely to be restricted. b. An objective of an examination is to obtain reasonable assurance. c. An examination does not require a request for a written assertion from the responsible party. d. The engaging party is generally the responsible party.

a. a. Use of the report is more likely to be restricted. (Use of an examination report is more likely to be restricted than an audit report. The report should include an alert, in a separate paragraph, that restricts its use when the criteria used to evaluate the subject matter are appropriate or available only for limited parties.)

Relative to prospective financial statements, a practitioner may accept an engagement to (review, examination) a. no yes b. yes yes c. yes no d. no no

a. no yes (AT-C 305 does not provide for a review of PFSs but does allow an examination.)

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? a. Issue a disclaimer, because the scope of work was not sufficient to express an opinion. b. Communicate with a practitioner who audited the underlying historical information. c. Refer a substantial portion of the audit to another CPA who will act as the principal practitioner. d. Perform ratio analysis of the financial data of comparable prior periods.

b. Communicate with a practitioner who audited the underlying historical information. (Before examining PFFI, a practitioner should have an appropriate level of knowledge of the accounting and financial reporting practices of the entity. This knowledge enables the practitioner to perform examination procedures on the PFFI. In the case of a business combination, the practitioner can obtain an understanding, for example, by communicating with other practitioners who audited (reviewed) the historical financial information on which the PFFI is based. Relevant matters include (1) accounting and reporting practices; (2) transactions within the constituent parts of the combined entity; (3) material contingencies; and (4) industry, legal, and regulatory factors related to the combined entity (and divestees or acquirees).)

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? a. Internal control standards. b. Compliance attestation standards. c. Agreed-upon procedures standards. d. Auditing standards.

b. Compliance attestation standards. (A practitioner may be asked to examine or apply agreed-upon procedures to an entity's compliance with specified requirements (laws, regulations, rules, contracts, or grants). Accordingly, the compliance attestation standards apply to an examination of compliance with the contractual requirements stated in debt covenants (e.g., in a bond indenture).)

Which report may not be presented in an attestation engagement? a. Examination report. b. Consulting report. c. Agreed-upon procedures report. d. Review report.

b. Consulting report. (Performance of a consulting service typically involves such activities as (1) determining client objectives, (2) fact finding, (3) definition of problems (opportunities), (4) evaluation of alternatives, (5) proposals for action, (6) communication of results, (7) implementations, and (8) follow-up. Unlike an attestation engagement, a consulting service (1) usually has two parties (not three, including an external asserter), (2) does not require independence, (3) provides recommendations not measured against formal criteria, (4) focuses on better outcomes (not reliable information), and (5) does not give explicit assurance.)

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 a. Pro forma financial statements. b. Financial projections. c. Partial presentations. d. Financial forecasts.

b. Financial projections. (PFSs include forecasts and projections. The difference between a forecast and a projection is that only the projection is based on one or more hypothetical assumptions, which are conditions or actions not necessarily expected to occur.)

Company Y has asked Practitioner X to review its financial projection for the next few years. X should a. Accept the review engagement if X is independent. b. Inform Y that prospective financial statements may be examined but not reviewed. c. Inform Y that only financial forecasts may be reviewed. d. Accept the engagement if a lack of independence is disclosed.

b. Inform Y that prospective financial statements may be examined but not reviewed. (A practitioner may accept an engagement to examine or apply agreed-upon procedures to, but not review, prospective financial statements.)

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. (A practitioner may be asked to provide assurance about the entity's compliance with requirements of specified laws, regulations, rules, contracts, or grants. The engagement also may apply to the responsible party's written assertion about compliance. But an examination to report on control over compliance is not performed under AT-C 315. AT-C 315 also does not provide for a review engagement. AT-C 315 describes the conditions under which a practitioner may accept a compliance engagement, the types of engagements, the responsibilities of the parties, and the reports that should be issued. AT-C 105, Concepts Common to All Attestation Engagements, provides the framework for application of this standard.)

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) 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. (In an agreed-upon procedures engagement, an independent practitioner issues a report in the form of procedures and findings for use by specified parties. It does not express an opinion or conclusion. The report is based on specific agreed-upon procedures applied to subject matter. The specified parties determine the procedures they believe to be appropriate. Their needs vary, so the nature, timing, and extent of the procedures vary. Consequently, the specified parties assume responsibility for the sufficiency of the procedures because they best understand their needs.)

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) a. Disclaimer of opinion about the fair presentation of Employer's financial statements. b. List of the procedures performed (or reference to them) and Practitioner's findings. c. Opinion about the effectiveness of Employer's internal control over pension payments. d. Acknowledgment that the sufficiency of the procedures is solely Practitioner's responsibility.

b. List of the procedures performed (or reference to them) and Practitioner's findings. (The practitioner's report should be in the form of procedures and findings but should not provide any assurance about whether the entity is in compliance or whether the responsible party's assertion is fairly stated (AT-C 315).)

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? a. Prospective financial statements. b. Pro forma financial information. c. Interim financial information. d. A financial projection.

b. Pro forma financial information. (PFFI shows what the significant effects on historical financial information might have been had a consummated or proposed transaction (or event) occurred at an earlier date. Examples of these transactions include a business combination, disposal of a segment, a change in the form or status of an entity, and a change in capitalization.)

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. Statements 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. (SSAEs relate to services that practitioners provide beyond those on traditional historical financial statements. Thus, an engagement to express an opinion on management's assertion that the square footage of a warehouse offered for sale is 150,000 square feet is a service beyond those on traditional historical financial statements.)

In an attestation review, the practitioner provides limited assurance about whether any material modifications should be made to subject matter for it to conform to specific criteria. a. Relevant. b. Subjective. c. Capable of reasonably consistent measurement. d. Complete.

b. Subjective. (Suitable criteria for subject matter are (1) relevant, (2) objective (free from bias), (3) measurable (capable of reasonably consistent qualitative or quantitative measurement), and (4) complete (not omitting relevant matters that could reasonably be expected to affect decisions).)

If an attestation examination report expresses an opinion on a written assertion, a. The practitioner should include a disclaimer of opinion directly on the subject matter. b. The assertion should accompany the report or be clearly stated in the report. c. It should include an alert limiting its use to only those parties with access to the written assertion. d. It should state the reason(s) the opinion is not expressed directly on the subject matter.

b. The assertion should accompany the report or be clearly stated in the report. (An attestation examination report should be in writing. It should express an opinion (1) on a written assertion or (2) directly on the subject matter. If the report is on the assertion, it should accompany the report or be clearly stated in the report.)

The party responsible for assumptions identified in the preparation of prospective financial statements is usually a. A third-party lending institution. b. The client's management. c. The reporting accountant. d. The client's independent CPA.

b. The client's management. (Management is usually the responsible party, that is, the person(s) responsible for the assumptions underlying PFSs. However, the responsible party may be a party outside the entity, such as a possible acquirer.)

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? a. The receipt of the signed engagement letter from the client. b. The completion of the agreed-upon procedures. c. The client's review and approval of the contents of a draft report. d. The delivery of the final report to the client.

b. The completion of the agreed-upon procedures. (The date of the report is no earlier than when the practitioner completed the agreed-upon engagement procedures and determined the findings. Completion includes (1) review of documentation, (2) preparation of the written presentation of the subject matter (if applicable), and (3) the receipt of the responsible party's written assertion (unless that party has refused).)

Which of the following statements is least likely to be included in a practitioner's report on agreed-upon procedures? a. The use of the report is subject to specified restrictions. b. The report has provided limited assurance. c. The subject matter is the responsibility of the responsible party. d. The procedures performed were agreed to by the specified parties.

b. The report has provided limited assurance. (A practitioner's report on agreed-upon procedures includes a list of the procedures performed and the related findings (the results of applying the agreed-upon procedures to the specific subject matter). The report does not provide limited (negative) assurance that the subject matter (or assertion) is stated fairly in accordance with the criteria. Thus, the practitioner does not state that nothing comes to his or her attention indicating that the subject matter is not presented (or the assertion is not fairly stated) based on the criteria.)

Which of the following examination reports on prospective financial statements is(are) appropriate for general use? (Financial Forecast, Financial Projection) a. Yes, Yes b. Yes, no c. No, yes d. No, no

b. Yes, no (A financial forecast is based on conditions the responsible party expects to exist and the course of action it expects to take. A projection is sometimes prepared to present one or more hypothetical courses of action for evaluation, as in response to a question such as "What would happen if . . .?" Only an examination report on a forecast is appropriate for general use. All other engagement services are for limited use.)

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 shareholders who request a prospectus or a registration statement. c. A bank with which the entity is negotiating for a loan. d. All shareholders of record as of the report date.

c. A bank with which the entity is negotiating for a loan. (A projection is based on one or more hypothetical assumptions and, therefore, should be considered for limited use only. Limited use of PFSs means use by the responsible party and those with whom that party is negotiating directly. Examples of appropriate use include negotiations for a bank loan and submission to a regulatory body. A projection is inappropriate for distribution to those who will not be negotiating directly with the responsible party.)

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. (The sufficiency of the procedures is solely the responsibility of the parties specified in the report. Consequently, the auditor makes no representation regarding the sufficiency of the procedures listed either for the purpose for which the report was requested or for any other purpose.)

Which of the following statements about written representations in an attestation review engagement is correct? a. A representation letter should be obtained from an engaging party who is not the responsible party instead of from the responsible party. b. A representation letter should be obtained from an engaging party who is not the responsible party if the responsible party refuses to provide written representations. c. A representation letter should be obtained from the responsible party. d. A representation letter should be obtained from the responsible party only if a modified conclusion report is issued.

c. A representation letter should be obtained from the responsible party. (In all cases, the responsible party should provide a written letter of representations addressed to the practitioner in an attestation review engagement.)

A practitioner's report on agreed-upon procedures that is in the form of procedures and findings should contain a. Negative assurance that the procedures did not necessarily disclose all reportable conditions.This answer is incorrect.A practitioner who performs an agreed-upon procedures engagement does not provide negative assurance or express an opinion. b. An acknowledgment of the practitioner's responsibility for the sufficiency of the procedures. c. A statement of restrictions on the use of the report. d. A disclaimer of opinion on the entity's financial statements.

c. A statement of restrictions on the use of the report. (An independent practitioner may accept such an engagement if, among other things, the use of the report is restricted. The report should state that it is intended solely for the information and use of the specified parties and is not intended to be used and should not be used by anyone other than these specified parties.)

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

c. A statement referring to standards established by the AICPA. (An agreed-upon procedures engagement is an attestation engagement in which a practitioner is engaged by a client to issue a report of findings based on specific procedures performed on subject matter. A statement referring to the standards established by the AICPA is included in all practitioner reports on attestation engagements. Thus, it should be included in a practitioner's report on the application of agreed-upon procedures.)

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? a. Unqualified. b. Qualified. c. Adverse. d. Disclaimer.

c. Adverse (An examination results in issuance of a report stating the practitioner's opinion on whether (1) the presentation conforms with AICPA guidelines and (2) the assumptions provide a reasonable basis for the presentation. If significant assumptions are not disclosed in the presentation, the practitioner must express an adverse opinion. Moreover, a practitioner should not examine a presentation that omits all such disclosures.)

Which of the following statements concerning prospective financial statements is true? a. Only a financial forecast would normally be appropriate for limited use. b. Only a financial projection would normally be appropriate for general use. c. Any type of prospective 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 prospective financial statements would normally be appropriate for limited use. (Limited use of PFSs means use by the responsible party and those with whom that party is negotiating directly, e.g., in a submission to a regulatory body or in negotiations for a bank loan. These third parties can communicate directly with the responsible party. Consequently, any PFSs useful in the circumstances are appropriate for limited use.)

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? a. Sufficient, appropriate evidence should be obtained to support the findings of specific procedures. b. X should request that Corporation A provide a letter of representations. c. Comparisons of the current year's production with that of the past should be performed. d. Comparisons of the current year's production with that of the past should be performed.

c. Comparisons of the current year's production with that of the past should be performed. (Evidence in a review engagement primarily consists of inquiries and analytical procedures. Analytical procedures are evaluations of financial information made by a study of plausible relationships among financial and nonfinancial data. Comparing the current year's production with the production of prior years is an analytical procedure. It evaluates the relationships among financial data from comparable periods.)

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 a. The responsible party's assertion. b. Scope limitation. c. Except for the effects. d. Subject to the outcome.

c. Except for the effects. (If the subject matter is misstated and not corrected, the practitioner should determine whether an "except for the effects" qualification is appropriate. A qualified conclusion normally is expressed when the misstatement is material but not pervasive. In this case, the assurance should be directly on the subject matter, not on the assertion.)

A practitioner accepted an engagement to examine the entity's compliance with a contractual agreement. The practitioner should perform the following: I. Plan the engagement. II. Perform procedures to provide reasonable assurance of detecting material noncompliance. III. Consider subsequent events. IV. Create a report containing limited assurance whether the entity is in compliance. a. I and IV. b. II, III, and IV. c. I, II, and III. d. I, II, III, and IV.

c. I, II, and III. The following summarizes the practitioner's procedures in a compliance attestation examination engagement: Obtain an understanding of the specified compliance requirements. Obtain an understanding of the relevant portions of internal control over compliance to plan the engagement and to assess control risk. Obtain a written representation letter from the responsible party. Form an opinion.

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? a. The report should express an opinion on the fairness of the production report. b. If a misstatement in the production report is material and pervasive, an adverse conclusion should be expressed. c. If the conclusion is expressed on the assertion, the assertion should either accompany the report or be included in the report. d. The report should list the procedures performed during the engagement.

c. If the conclusion is expressed on the assertion, the assertion should either accompany the report or be included in the report. (The report should (1) be in writing and (2) state the conclusion on the written assertion or directly on the subject matter. The assertion should accompany, or be clearly stated in, the report if the conclusion is on the assertion.)

Limited assurance may be expressed when a practitioner is requested to apply agreed-upon procedures to specified a. Elements of a F/S and Accts of a F/S b. Elements of a F/S but not Accts of a F/S c. Not elements and not accounts d. Not elements, but Accounts of a Financial Statement

c. Not elements and not accounts (The practitioner does not express an opinion or limited assurance when engaged to apply agreed-upon procedures. Instead, the practitioner's report on agreed-upon procedures should be in the form of procedures and findings.)

A CPA in public practice is required to comply with the provisions of the Statements on Standards for Attestation Engagements (SSAEs) when a. Testifying as an expert witness in accounting and auditing matters given stipulated facts: yes Examining a client's financial projection that presents a hypothetical course of action: yes b. Testifying as an expert witness in accounting and auditing matters given stipulated facts: yes Examining a client's financial projection that presents a hypothetical course of action: no c. Testifying as an expert witness in accounting and auditing matters given stipulated facts: no Examining a client's financial projection that presents a hypothetical course of action: yes d. Testifying as an expert witness in accounting and auditing matters given stipulated facts: no Examining a client's financial projection that presents a hypothetical course of action: no

c. Testifying as an expert witness in accounting and auditing matters given stipulated facts: no Examining a client's financial projection that presents a hypothetical course of action: yes (The SSAEs apply to an examination or an agreed-upon procedures engagement performed on prospective financial statements (a forecast or a projection). A projection is sometimes prepared to present one or more hypothetical courses of action for evaluation, as in response to a question such as "What would happen if . . .?" Litigation support services are transaction services, a category of consulting services.)

Which of the following is a fundamental aspect of an attestation engagement? a. Independence is not required of the practitioner. b. The practitioner makes assertions regarding the client's subject matter. c. The engaging party is often the responsible party. d. Assurance is not provided.

c. The engaging party is often the responsible party. (In an attestation engagement, a party who is not the practitioner makes an assertion about whether the subject matter is measured or evaluated in accordance with suitable criteria. The party responsible for the subject matter is the responsible party. Most often the engaging party, the party who engages the practitioner, is also 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? a. The prospective financial statement includes a summary of significant accounting policies. b. The practitioner takes responsibility for the sufficiency of the agreed-upon procedures. c. The practitioner and specified parties agree upon the procedures to be performed by the practitioner. d. The practitioner reports on the criteria to be used in the determination of findings.

c. The practitioner and specified parties agree upon the procedures to be performed by the practitioner. (The following conditions should be met to accept an engagement: (1) The specified parties agree to the procedures and take responsibility for their sufficiency, (2) an alert restricts report use to those parties, and (3) the statements include a summary of significant assumptions.)

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. (A practitioner must be independent of the client and other specified parties to perform an agreed-upon procedures engagement. The practitioner assists specified parties in evaluating subject matter or an assertion as a result of the needs of the specified parties. The practitioner's services are obtained because the specified parties require that findings be independently derived.)

Which of the following is most likely documented for an attestation examination engagement? a. The assumption of responsibility for the subject matter by the practitioner. b. The reason the engagement was accepted. c. The reviewer of the work. d. The names of all users.

c. The reviewer of the work. (The practitioner should prepare engagement documentation that suffices to (1) describe the nature, timing, and extent of the procedures performed and (2) identify the specific items or matters tested. It also should state (1) who performed the work, (2) the date such work was completed, (3) who reviewed the work, and (4) the date and extent of such review.)

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 a. The practitioner's report does not enumerate the procedures performed. b. The practitioner accepts responsibility for the sufficiency of the procedures. c. Use of the practitioner's report is restricted. d. The practitioner is also the entity's continuing auditor.

c. Use of the practitioner's report is restricted. (An independent practitioner may accept such an engagement if (1) the specified parties agree to the procedures and take responsibility for their sufficiency, (2) the subject matter is subject to reasonably consistent measurement, (3) evidence is expected to exist providing a reasonable basis for the findings, (4) the use of the report is restricted, and (5) other conditions are met. The report should state that it is intended solely for the information and use of the specified parties and is not intended to be used and should not be used by anyone other than these specified parties.)

An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided the a. Provisions of Statements on Standards for Accounting and Review Services (SSARSs) are followed. b. Accountant also examines the prospective financial statements. c. Use of the report is restricted to the specified users. d. The accountant takes responsibility for the adequacy of the procedures performed.

c. Use of the report is restricted to the specified users. (The following conditions should be met to accept an engagement: (1) The specified parties agree to the procedures and take responsibility for their sufficiency, (2) an alert restricts report use to those parties, and (3) the statements include a summary of significant assumptions.)

In an attestation review engagement, the practitioner concludes that misstatements are material and pervasive. The practitioner therefore should a. Express an adverse conclusion. b. Express a qualified conclusion. c. Withdraw from the engagement. d. Request additional management representations.

c. Withdraw from the engagement. (This answer is correct. When misstatements are material and pervasive, the practitioner should withdraw from the engagement.)

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 a. Reevaluate the entity's internal control over financial reporting: yes. Determine that the computations of the pro forma adjustments are mathematically correct: yes. b. Reevaluate the entity's internal control over financial reporting: yes. Determine that the computations of the pro forma adjustments are mathematically correct: no. c. Reevaluate the entity's internal control over financial reporting: no. Determine that the computations of the pro forma adjustments are mathematically correct: yes. d. Reevaluate the entity's internal control over financial reporting: no. Determine that the computations of the pro forma adjustments are mathematically correct: no.

c. no yes (In an examination of PFFI, the practitioner's additional procedures include (1) understanding the underlying transaction or event; (2) discussing the assumptions about the transaction or event with management; (3) evaluating whether adjustments are consistent with each other and the data and are included for all significant effects; (4) gathering sufficient evidence to support the adjustments; (5) evaluating whether the assumptions are sufficiently, clearly, and comprehensively presented; (6) determining that computations are correct and that the pro forma column properly reflects their application to the historical statements; (7) obtaining written management representations; and (8) evaluating the PFFI to determine whether certain matters (the transaction or event, assumptions, adjustments, and uncertainties) have been properly described and the sources of the historical information have been properly identified. Moreover, in a business combination, the practitioner must obtain a sufficient understanding of each part of the combined entity. However, no evaluation of internal control beyond that done in the engagement is performed with respect to the historical statements.)

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 a. Accept the engagement and perform procedures to identify the hypothetical assumptions. b. Accept the engagement if the projection is not meant for general use. c. Not accept the engagement. d. Accept the engagement and express an "except for" opinion.

c. not accept the engagement. (A practitioner should not examine (1) a presentation that discloses none of the significant assumptions or (2) a projection that does not identify the hypothetical assumptions or describe the limits on its use.)

Modifications of the opinion when reporting on an attestation examination engagement include (qualified | adverse | disclaimer) a. no no no b. yes yes no c. yes yes yes d. yes no yes

c. yes yes yes (Modifications of an attestation engagement examination opinion (qualified, adverse, and disclaimer) are similar to those in an audit of 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 a. An "except for" qualified opinion. b. A "subject to" qualified opinion. c. An unmodified opinion with a separate explanatory paragraph. d. An adverse opinion.

d. An adverse opinion. (An examination results in issuance of a report stating the practitioner's opinion on whether (1) the presentation conforms with AICPA guidelines and (2) the underlying assumptions are suitably supported and provide a reasonable basis for the forecast. If significant assumptions are not disclosed in the presentation, including the summary of assumptions, the practitioner must express an adverse opinion. Moreover, a practitioner should not examine a presentation that omits all such disclosures.)

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 a. Withdraw from the engagement. b. Express a qualified opinion or conclusion. c. Require the engaging party to provide a written assertion. d. Disclose the refusal in the report.

d. Disclose the refusal in the report. (In an examination or review attestation engagement, when an engaging party is not the responsible party, and the responsible party refuses to provide a written assertion, the practitioner need not withdraw from the engagement. But the practitioner should (1) disclose the refusal in the report and (2) restrict use of the report to the engaging party.)

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. Restricting the use of the practitioner's report to management and the board of directors. c. Assuming responsibility to update management on key events for 1 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. (An examination of a financial forecast involves evaluating the preparation of the statements, the support underlying the assumptions, and the presentation of the statements for conformity with AICPA guidelines (AT-C 305).)

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 financial statements for one year in the future based on client expectations and predictions.

d. Examining the financial statements for one year in the future based on client expectations and predictions. (Statements on Standards for Attestation Engagements (SSAEs) apply generally to performance of an examination, review, or agreed-upon procedures attestation engagement to report on subject matter, or an assertion about it, that is the responsibility of another party. The subject matter may be prospective financial statements (PFSs). PFSs include financial forecasts and projections. A forecast is based on the responsible party's assumptions reflecting the conditions it expects to exist and the course of action it expects to take. Furthermore, a review is not permitted to be performed with regard to a forecast or projection. However, a practitioner may examine or apply agreed-upon procedures to PFSs.)

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 a. Review compliance with specified requirements. b. Express an opinion on internal control over compliance with specified requirements. c. Issue a written report describing the procedures applied and the findings. d. Express an opinion about whether management's assertion about compliance is fairly stated.

d. Express an opinion about whether management's assertion about compliance is fairly stated. (An examination of an entity's compliance with specified laws, regulations, rules, contracts, or grants is intended to result in an expression of opinion about whether (1) the entity complied, in all material respects, with the specified requirements, or (2) management's assertion about compliance with specified requirements is fairly stated in all material respects)

Which of the following is a prospective financial statement for general use upon which a practitioner may appropriately report? a. Financial projection. b. Partial presentation. c. Pro forma financial statement. d. Financial forecast.

d. Financial forecast. (Prospective financial statements are for general use if they are for use by persons with whom the responsible party is not negotiating directly, e.g., in an offering statement of the party's securities. Only a report based on a financial forecast is appropriate for general use)

A financial forecast consists of prospective financial statements that present an entity's expected financial position, results of operations, and cash flows. A forecast a. Is based on the most conservative estimates. b. Presents estimates given one or more hypothetical assumptions. c. Unlike a projection, may contain a range. d. Is based on assumptions reflecting conditions expected to exist and courses of action expected to be taken.

d. Is based on assumptions reflecting conditions expected to exist and courses of action expected to be taken. (According to AT-C 305, a financial forecast consists of prospective financial statements that present, to the best of the responsible party's knowledge and belief, an entity's expected financial position, results of operations, and cash flows. A forecast is based on the responsible party's assumptions reflecting conditions it expects to exist and the course of action it expects to take.)

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 a. Is the responsible party. b. Determines the procedures that should be performed. c. Provides a written assertion. d. Is the primary user of X's report.

d. Is the primary user of X's report. (The purpose of the engagement is to provide assurance on the status reports regarding projects funded by B Corporation. B therefore is the primary user of the reports issued by X.)

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 a. Less qualitative. b. More representative. c. Less subjective. d. Less quantitative.

d. Less quantitative. (Use of analytical procedures is less likely because the subject matter may be qualitative, not quantitative. The practitioner then should perform other procedures, in addition to inquiries that provide equivalent review evidence.)

A practitioner's report on a review of pro forma financial information should include a a. Statement that the entity's internal control was not relied on in the review. b. Disclaimer of opinion on the financial statements from which the pro forma financial information is derived. c. Caveat that it is uncertain whether the transaction or event reflected in the pro forma financial information will ever occur. d. Reference to the financial statements from which the historical financial information is derived.

d. Reference to the financial statements from which the historical financial information is derived. (A practitioner's report on PFFI should include, among other things, (1) an identification of the pro forma information, (2) a reference to the financial statements from which the historical financial information is derived and a statement as to whether such financial statements were audited or reviewed, (3) a statement that the review was made in accordance with standards established by the AICPA, (4) a caveat that a review is substantially less in scope than an examination and that no opinion is expressed, (5) a separate paragraph explaining the objective of PFFI and its limitations, and (6) the practitioner's conclusion providing limited assurance.)

A practitioner may perform an agreed-upon procedures engagement on prospective financial statements provided that which of the following is met? a. Use of the agreed-upon procedures report is not restricted. b. The practitioner sets the criteria to be used in the determination of findings. c. The client agrees that the practitioner will decide appropriate procedures to be performed. d. The prospective financial statements include a summary of significant assumptions.

d. The prospective financial statements include a summary of significant assumptions. (A practitioner may accept an engagement to apply agreed-upon procedures to PFSs if the practitioner is independent and (1) the specified parties agree to the procedures and take responsibility for their sufficiency, (2) an alert restricts report use to specified parties, and (3) the statements include a summary of significant assumptions.)

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 asa. Financial statements and information derived from financial statements. b. Data collected by the practitioner. c. Information used to develop the criteria. d. What is measured or evaluated against criteria.

d. What is measured or evaluated against criteria. (Subject matter is what is measured or evaluated against criteria. Subject matter may have many forms, for example, historical or prospective performance (e.g., performance measures) or physical characteristics (e.g., square footage of facilities).)

A practitioner who performs an examination attestation engagement should document a. An affirmation that the person who performed the work performed the review. b. Why a review of the work was necessary. c. The reasons a review of the work was not performed. d. Who reviewed the work.

d. Who reviewed the work. (For an examination service, attestation documentation should suffice, among other things, to (1) describe the nature, timing, and extent of the procedures performed and (2) identify the specific items or matters tested. It also should state (1) who performed the work, (2) the date such work was completed, (3) who reviewed the work, and (4) the date and extent of such review.)