Audit Test 5
The phrase "Trust services" refers to: Multiple Choice WebTrust and SysTrust Services. XBRL and SysTrust Services. WebTrust and XBRL Services. all AICPA designated assurance services.
A
To perform an attestation engagement on prospective information or pro forma information, accountants must do all of the following except Multiple Choice Understand the internal controls used in the processes that generated the information. Evaluate the assumptions used to prepare the information. Obtain an understanding of the process through which the information was developed. Obtain knowledge about the entity's business and accounting principles.
A
When an accountant is engaged to compile a nonpublic entity's financial statements that omit substantially all disclosures required by GAAP, the accountant should indicate in the compilation report that the financial statements: Multiple Choice might influence users' conclusions about the business, if the disclosures were included. are prepared in conformity with a comprehensive basis of accounting other than GAAP. are not compiled in accordance with Statements on Standards for Accounting and Review Services. are special-purpose financial statements that are not comparable to those of prior periods.
A
The Securities Act of 1933 and Securities Exchange Act of 1934 contain Multiple Choice Both civil liability provisions applicable to auditors and criminal liability provisions applicable to auditors. Criminal liability provisions applicable to auditors. Neither civil liability provisions applicable to auditors nor criminal liability provisions applicable to auditors. Civil liability provisions applicable to auditors.
A Both laws contain both civil and criminal liability sections
Item 6 Item 6 0.6 points In an agreed-upon procedures engagement, an accountant: Multiple Choice follows all of the fundamental principles of GAAS. restricts the report to specified users. includes negative assurance in the report. gives a qualified audit report.
B
A lack of reasonable care that may be characterized by the failure of auditors to follow GAAS in the conduct of the audit is known as Multiple Choice Constructive fraud. Gross negligence. Fraud. Ordinary negligence.
D
If a nonissuer wants an accountant to perform an examination of its internal controls, the accountant should follow: Multiple Choice PCAOB AS 2201, "An Audit of Internal Control over Financial Reporting That Is Integrated with an Audit of Financial Statements." FASB Concepts Statement No. 1, "Objectives of Financial Reporting by Business Enterprises." AICPA AU 315, "Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement." AICPA AT 501, "An Examination of an Entity's Internal Control over Financial Reporting That Is Integrated with an Audit of Its Financial Statements."
D
When accountants are not independent, which of the following reports can they nevertheless issue? Multiple Choice Examination report on a forecast. Standard unmodified audit report. Examination of internal control over financial reporting. Compilation report.
D
report on sustainability, as defined by the AICPA, might include all of the following except Multiple Choice economic viability. social responsibility. environmental responsibility. internal control over financial reporting.
D
Item 12 Item 12 0.6 points An accountant's report includes the phrase "We are not aware". This phrase indicates: Multiple Choice an attestation was not performed. management had not established sufficient criteria for an opinion to be issued. the auditor is providing negative assurance. a disclaimer of opinion is presented.
c
Item 5 Item 5 0.6 points Which of the following procedures would not be performed in a review of financial statements of a nonpublic company? Multiple Choice Inquire about the accounting system and bookkeeping procedures. Perform analytical procedures to identify relationships and individual items that appear to be unusual. Obtain an attorney's letter regarding litigation and unasserted claims. Study the financial statements for indications that they conform to generally accepted accounting principles.
c
Item 9 Item 9 0.6 points When providing limited assurance that the reviewed financial statements of a nonpublic entity require no material modifications to be in accordance with generally accepted accounting principles, the accountant should: Multiple Choice assess the risk that a material misstatement could occur in a financial statement assertion. confirm with the entity's lawyer that material loss contingencies are disclosed. understand the accounting principles of the industry in which the entity operates. develop audit plans to determine whether the entity's financial statements are fairly presented.
c
When an entity registers a security offering under the Securities Act of 1933, the law provides an investor Multiple Choice An SEC guarantee that the information in the registration statement is true. Inside information about the entity's trade secrets. Financial information examined by independent auditors Insurance against loss from the investment.
c
A public entity subject to the periodic reporting requirements of the Securities Exchange Act of 1934 must file an annual report with the SEC known as the Multiple Choice Regulation S-X. Form 8-K. Form 10-Q. Form 10-K.
d
The performance of an attestation engagement on prospective financial information does not require which of the following? Multiple Choice Management must disclose the probability of obtaining the results included in the prospective financial information. If the basis of the prospective financial information is different than the financial statements, a reconciliation of the two must be provided. Management must disclose significant accounting policies and procedures used in generating the prospective financial information. Management must disclose all significant assumptions used in generating the prospective financial information.
A
Item 14 Item 14 1 points Locke, CPA, was engaged by Hall Inc. to audit Willow Company. Hall purchased Willow after receiving Willow's audited financial statements, which included Locke's unmodified auditors' opinion. Locke was negligent in the performance of the Willow audit engagement; this negligence was caused by failure to perform the engagement in accordance with terms of the engagement letter. As a result of Locke's negligence, Hall suffered damages of $75,000. Hall appears to have grounds to sue Locke for Breach of Contract Negligence a. Yes Yes b. Yes No c. No Yes d. No No Multiple Choice Option a Option b Option c Option d
a
Item 8 Item 8 0.6 points Which of the following best describes an engagement to report on an entity's internal control over financial reporting for a nonpublic company? Multiple Choice An attestation engagement to examine and report on management's written assertions about the effectiveness of its internal control structure. An audit engagement to render an opinion on the entity's internal control structure. A prospective engagement to project, for a period of time not to exceed one year, and report on the expected benefits of the entity's internal control structure. A consulting engagement to provide constructive advice to the entity on its internal control structure.
a
When a client sues an accountant for failure to perform consulting work properly, the accountants' best defense is probably based on the doctrine of Multiple Choice Contributory negligence on the part of the client. Lack of privity of contract. No negligence on the part of the consultant. Lack of any measurable dollar amount of damages.
a
Which of the following third parties is known by name to auditors as the audit is conducted? Multiple Choice Primary beneficiary. General third party. Foreseen third party. Foreseeable third party.
a Primary beneficiaries are known by name to auditors and, in some cases, are specifically identified in the contract (engagement letter).
Item 13 Item 13 1 points When investors sue auditors for damages under section 11 of the Securities Act of 1933, they must allege and prove Multiple Choice They relied on the materially misstated financial statements. The audited financial statements contained a material misstatement. Their reliance on the materially misstated financial statements was the direct cause of their loss. Scienter on the part of auditors.
b
Item 4 Item 4 0.6 points Shelly's Bank has loaned money to Pete's Auto Supply. The loan is collateralized by inventory. The loan also requires a CPA to observe the count of the inventory and trace sampled items to the vendor invoices in order to determine the value of inventory is not misstated. This service would be: Multiple Choice an assurance service engagement. an attestation engagement. a review engagement. a compilation engagement.
b
When a company uses a service organization to prepare its payroll, the company's auditors: Multiple Choice have no obligation concerning the internal controls at the service organization. need to understand the internal controls over the transaction regardless of the location of the control. must audit the internal controls at the service organization. should include the audit report of the service company's auditors with their auditors' report.
b
When accountants agree to perform a compilation or review of unaudited financial statements, the best way to avoid client's misunderstanding the nature of the work is to describe it completely in Multiple Choice A report to the clients' board of directors at the close of the engagement. An engagement letter. The auditors' opinion. A management letter to the board of directors' audit committee.
b
Which of the following would be the auditors' most likely defense in an action brought under the Securities Exchange Act of 1934? Multiple Choice The investor did not suffer a loss based on the materially misstated financial statements. The auditors acted in good faith and were not aware of the materially misstated financial statements. The investor did not have privity with auditors. The financial statements were not filed with the Securities and Exchange Commission.
b These are appropriate defenses under the Securities Exchange Act of 1934 and demonstrate lack of scienter.
Item 2 Item 2 1 points Individuals who believe they relied on misstated financial statements to make a decision and have suffered losses as a result will issue an action known as a Multiple Choice Breach of contract. Tort. Constructive fraud. Securities litigation.
b A tort is a lawsuit filed by the plaintiff who believes that they have suffered damage due to another party's failure to exercise the appropriate level of professional care.
Under the Securities Exchange Act of 1934, entities are required to report to the public about changing auditors on Multiple Choice Form 10-Q. Form 8-K. Form 10-K. Form S-1.
b Information related to auditor changes is one of the "special events" entities must report on Form 8-K.
Which of the following statements regarding auditors' liability under the Securities Act of 1933 is not true? Multiple Choice The act relates to the initial issuance of securities to the public, normally through an initial public offering. Third parties must demonstrate that they relied on misstated financial statements that were examined by auditors. Auditors may be liable if they are found to have engaged in ordinary negligence. Auditors' liability arises because of audited financial information filed with the SEC.
b Third parties are only required to demonstrate that the financial statements are materially misstated; they are not required to demonstrate reliance on these financial statements.
A group of investors sued Anderson, Olds, and Watershed, CPAs (AOW) for alleged damages suffered when the entity in which they held common stock went bankrupt. To avoid liability under the common law, AOW must demonstrate which of the following? Multiple Choice The investors relied on the financial statements audited by AOW. The investors actually suffered a loss. The audit was conducted in accordance with generally accepted auditing standards and with due professional care. The investors' loss was a direct result of their reliance on the audited financial statements.
c
Auditors can gain sufficient understanding of the internal controls at a service organization by: Multiple Choice reviewing the contract with the service organization. inquiry with management of the service organization. reviewing a report on internal controls provided by the service organization's auditors. sending a confirmation concerning internal controls to the service organization's auditors.
c
Hamell Corporation is making a presentation to a prospective investor. The presentation includes a projection showing that the company's sales will be between $25,000,000 and $27,000,000 within the next three years. Hamell believes the information will be better received if its CPA provides an attestation report on the projection. In order to provide such a report the CPA must do all of the following EXCEPT: Multiple Choice obtain knowledge about the client's business. evaluate the assumptions used in preparing the projection. confirm expected sales with customers. identify key factors affecting the information.
c
Item 10 Item 10 0.6 points Compiled financial statements of a nonpublic entity should be accompanied by a report stating that: Multiple Choice the scope of the accountant's procedures has not been restricted in testing the financial information that is the representation of management. the accountant assessed the accounting principles used and significant estimates made by management. the accountant does not express an opinion or any other form of assurance on the financial statements. a compilation consists primarily of inquiries of entity personnel and analytical procedures applied to financial data.
c
Item 19 Item 19 0.6 points An accountant may allow general distribution of reports based on Multiple Choice An agreed-upon-procedures engagement. An examination of prospective financial information. An examination of forecasted financial information. None of the choices are correct.
c
Item 2 Item 2 0.6 points Extensible Business Reporting Language (XBRL) provides a computer readable identifying tag for each individual item of data. The advantages of XBRL include all of the following except: Multiple Choice increases the speed of handling of financial data. reduces the chance of error. improves the full disclosure of financial information. permits automatic checking of information.
c
Item 3 Item 3 0.6 points The accountant's standard report for a compilation service would not include a statement that: Multiple Choice a compilation service has been performed in accordance with standards established by the AICPA. financial statement information is the representation of the owners of the business. compilation service consists primarily of inquiries of company personnel and analytical procedures applied to financial statements have not been audited or reviewed and the accountant does not express an opinion or any other form of assurance.
c
Item 15 Item 15 1 points An investor seeking to recover stock market losses from a CPA firm associated with an initial offering of securities based on an unmodified opinion on financial statements that accompanied a registration statement, must establish that Multiple Choice The investor relied on the financial statements. The CPA firm would have discovered the false statement or omission if it had exercised due care in its examination. The CPA firm did not act in good faith. The audited financial statements contain a false statement or omission of material fact.
d
