Module A
13) Attestation engagements may be more difficult than financial statement audits when: a. the establishment of suitable measurement criteria is difficult b. internal controls are difficult to assess c. management may not understand the underlying assumptions of the attestation d. the report may be submitted to individuals with insufficient knowledge of the nature of an attestation engagement
a
17) ABC Company prepares financial statements showing the last two years, years X and Y. (Year X is the year prior to year Y.) The auditor performed an audit of year X and a review of year Y. The auditor may: A) report on the year Y review and reissue the year X audit report. B) provide only the report concerning the year Y review. C) reissue the year X audit report with an explanatory paragraph disclosing that only a review was performed on year Y. D) notify the client that prior-year audited financial statements cannot be presented when the current year's statements have not been audited.
a
20) 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: A) might influence users' conclusions about the business, if the disclosures were included. B) are prepared in conformity with a comprehensive basis of accounting other than GAAP. C) are not compiled in accordance with Statements on Standards for Accounting and Review Services. D) are special-purpose financial statements that are not comparable to those of prior periods.
a
23) Which of the following best describes an engagement to report on an entity's internal control over financial reporting for a nonpublic company? A) An attestation engagement to examine and report on management's written assertions about the effectiveness of its internal control structure. B) An audit engagement to render an opinion on the entity's internal control structure. C) 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. D) A consulting engagement to provide constructive advice to the entity on its internal control structure.
a
24) Delta Life Insurance Co. prepares its financial statements on an accounting basis insurance companies use pursuant to the rules of a state insurance commission. Wall, CPA, is Delta's auditor. If Wall discovers that the statements are not suitably titled, Wall should: A) disclose any reservations in an explanatory paragraph and qualify the opinion. B) apply to the state insurance commission for an advisory opinion. C) issue a special statutory basis report that clearly disclaims any opinion. D) explain in the notes to the financial statements the terminology used.
a
18) In an agreed-upon procedures engagement, an accountant: A) follows all of the fundamental principles of GAAS. B) restricts the report to specified users. C) includes negative assurance in the report. D) gives a qualified audit report.
b
26) Which of the following procedures is ordinarily performed by an accountant in a compilation engagement of a nonpublic entity? A) Reading the financial statements to consider whether they are free of obvious mistakes in the application of accounting principles. B) Obtaining written representations from management indicating that the compiled financial statements will not be used to obtain credit. C) Making inquiries of management concerning actions taken at meetings of the stockholders and the board of directors. D) Applying analytical procedures designed to corroborate management's assertions that are embodied in the financial statement components.
a
37) In order to perform a review of interim financial information, the auditor must: A) have audited or be in the process of auditing the entity's latest financial statements. B) tested the entity's internal controls to determine that financial information is reliable. C) sent confirmation to third-parties concerning significant related-party transactions. D) established sufficient criteria to form an opinion on the fair presentation of the financial information.
a
4) The phrase "Trust services" refers to: a. WebTrust and SysTrust Services b. XBRL and SysTrust Services c. WebTrust and XBRL Services d. all AICPA designated assurance services
a
40) Which of the following account titles would not be appropriate for a company that prepared its financial statements using the tax basis of accounting? A) Balance Sheet. B) Statement of Assets, Liabilities, and Owner's Equity. C) Statement of Revenue and Expenses. D) Statement of Change in Partners' Capital Accounts.
a
48) An auditor that is requested to provide a report on application of requirements of an appropriate financial reporting framework may not: A) issue an opinion on the accounting treatment of a hypothetical transaction. B) discuss the requirements with the client's current auditors. C) limit the report to the sole use of specified parties. D) state that differences in facts, circumstances, or assumptions might change the conclusion.
a
6) What is the appropriate name for an assurance service provided by a CPA regarding a client's commercial Internet site with reference to the principles of privacy, security, processing, integrity, availability, and confidentiality? a. WebTrust b. SysTrust c. XBRL d. WebSecure
a
11) 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: a. an assurance service engagement b. an attestation engagement c. a review engagement d. a compilation engagement
b
12) The reporting standards for an attestation are different from that of an audit because they require: a. the report to include an opinion b. the report to identify the subject matter of the assertion being reported on c. the report requires a statement that the presentation is not in accordance with GAAP d. the report requires a disclosure of the procedures performed during the attestation
b
14) In an agreed-upon procedures engagement, an accountant must: a. follow the attestation standard related to internal control b. follow the attestation standard related to evidential matter c. include negative assurance explicitly in the report d. all of these are true
b
15) A responsible party for information to subject to an attestation engagement would not include: a. the client's controller b. the independent accountant c. the client's vice president of marketing d. a client employee named in a contract or regulation as being responsible for the information
b
19) Which of the following procedures should an accountant perform during an engagement to review the financial statements of a nonpublic entity? A) Communicate reportable conditions discovered during the assessment of control risk. B) Obtain a client representation letter from members of management. C) Send bank confirmation letters to the entity's financial institutions. D) Examine cash disbursements in the subsequent period for unrecorded liabilities.
b
2) Assurance services are defined as independent professional services that: a. establish criteria for effective measurement of business activity. b. improve the quality of information, or its context, for decision makers. c. attest to the adequacy of controls over business operations. d. develop efficient and effective accounting systems to ensure compliance with accounting standards and policy.
b
21) Which of the following procedures ordinarily should be applied when an independent accountant conducts a review of interim financial information of a publicly held entity? A) Verify changes in key account balances. B) Read the minutes of the board of directors' meetings. C) Inspect the open purchase order file. D) Perform cut-off tests for cash receipts and disbursements.
b
31) Which of the following is not a condition that must be met before an accountant can conduct an engagement concerning a nonpublic entity's internal control over financial reporting? A) Management accepts responsibility for the effectiveness of its internal control. B) Management has appropriately documented the internal controls. C) Management's evaluation of control can be supported by sufficient evidence. D) Management presents a written assertion about the effectiveness of its internal control.
b
36) In a compilation engagement: A) all appropriate disclosures must be presented. B) managers or owners may choose to omit all the footnote disclosures. C) financial statements must be presented in prescribed forms. D) an auditor provides only negative assurance.
b
38) When interim financial information is presented as supplementary information accompanying audited financial statements, the auditor should make reference to the information: A) in all cases. B) when it has not been labeled as "unaudited". C) when it is material to the financial statement users. D) when the information has been reviewed rather than audited.
b
41) When a company uses a service organization to prepare its payroll, the company's auditors: A) have no obligation concerning the internal controls at the service organization. B) need to understand the internal controls over the transaction regardless of the location of the control. C) must audit the internal controls at the service organization. D) should include the audit report of the service company's auditors with their auditors' report.
b
10) The accountant's standard report for a compilation service would not include a statement that: a. a compilation service has been performed in accordance with standards established by the AICPA b. financial statement information is the representation of the owners of the business c. compilation service consists primarily of inquiries of company personnel and analytical procedures applied to financial data. d. financial statements have not been audited or reviewed and the accountant does not express an opinion or any other form of assurance
c
16) Which of the following procedures would not be performed in a review of financial statements of a nonpublic company? a. inquire about the accounting system and bookkeeping procedures b. perform analytical procedures to identify relationships and individual items that appear to be unusual c. obtain an attorney's letter regarding litigation and unasserted claims d. study the financial statements for indications that they conform to generally accepted accounting principles
c
22) An auditor's special report on financial statements prepared in conformity with the cash basis of accounting should include a separate explanatory paragraph before the opinion paragraph that: A) justifies the reasons for departing from generally accepted principles. B) states whether the financial statements are fairly presented in conformity with a special purpose framework. C) refers to the note to the financial statements that describes the special purpose framework. D) explains how the results of operations differ from financial statements prepared in conformity with generally accepted accounting principles.
c
25) 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: A) assess the risk that a material misstatement could occur in a financial statement assertion. B) confirm with the entity's lawyer that material loss contingencies are disclosed. C) understand the accounting principles of the industry in which the entity operates. D) develop audit plans to determine whether the entity's financial statements are fairly presented.
c
28) Compiled financial statements of a nonpublic entity should be accompanied by a report stating that: A) the scope of the accountant's procedures has not been restricted in testing the financial information that is the representation of management. B) the accountant assessed the accounting principles used and significant estimates made by management. C) the accountant does not express an opinion or any other form of assurance on the financial statements. D) a compilation consists primarily of inquiries of entity personnel and analytical procedures applied to financial data.
c
29) 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: A) obtain knowledge about the client's business. B) evaluate the assumptions used in preparing the projection. C) confirm expected sales with customers. D) identify key factors affecting the information.
c
3) Many individuals are apprehensive about using the Internet to purchase items. This apprehension mainly arises from users' concerns about: a. the reliability of computer technology. b. the time delays in Internet purchases. c. a lack of security for information transmitted over the internet. d. the lack of CPA involvement in Internet company financial information.
c
30) Hamell Corporation is making a presentation to a perspective 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. The CPA should insure that proper disclosure is made to indicate that: A) the $27,000,000 estimate is a best case scenario. B) the range of the projection is appropriate given the circumstances. C) the range does not indicate a "best" and "worst" case scenario. D) projections are limited in their information content due to uncontrollable changes in the business environment.
c
32) Which of the following steps is not required in performing a compliance attestation engagement? A) Assess planning materiality. B) Assess inherent risk. C) Confirm restrictions with applicable third-parties. D) Consider subsequent events.
c
33) An accountant's report includes the phrase "We are not aware". This phrase indicates: A) an attestation was not performed. B) management had not established sufficient criteria for an opinion to be issued. C) the auditor is providing negative assurance. D) a disclaimer of opinion is presented.
c
34) The procedures used in a review engagement are: A) physical examination, reperformance, and obtaining a management representation letter. B) analytical procedures, reperformance, and obtaining a management representation letter. C) analytical procedures, inquiry, and obtaining a management representation letter. D) physical examination, inquiry, and obtaining a management representation letter.
c
39) Other Comprehensive Basis of Accounting (OCBOA) includes all of the following except: A) statements that conform to a regulatory agency. B) statements prepared on a tax basis. C) statements that conform to accounting principles that are generally accepted. D) statements prepared on a cash basis.
c
42) Auditors can gain sufficient understanding of the internal controls at a service organization by: A) reviewing the contract with the service organization. B) inquiry with management of the service organization. C) reviewing a report on internal controls provided by the service organization's auditors. D) sending a confirmation concerning internal controls to the service organization's auditors.
c
43) A report on an entity's internal control over financial reporting: A) is required for all companies whether they report to the SEC or not. B) is optional for all companies whether they report to the SEC or not. C) is required by the PCAOB for large public companies and may be performed by a CPA for nonpublic companies. D) is limited to inquiry and analytical procedures for reports for non-SEC companies.
c
45) During a review the auditor is required to obtain written representations from management. Which of the following is not one of the required elements of the representation? A) Management's responsibility for the fair presentation of the financial statements. B) Management's belief that it has answered all inquiries fully and truthfully. C) Management has made all adjustments identified during the review. D) Management has disclosed information about subsequent events.
c
46) AR 90 requires adequate documentation for a review engagement. Which items are required to be documented? A) Analytical procedures: Yes; Management representations: No; Understanding of internal controls: No B) Analytical procedures: No; Management representations: Yes; Understanding of internal controls: No C) Analytical procedures: Yes; Management representations: Yes; Understanding of internal controls: No D) Analytical procedures: Yes; Management representations: Yes; Understanding of internal controls: Yes
c
5) Which of the following is not a principle of Trust Service engagements? a. security from unauthorized use b. availability of the system, products, or services c. proficiency in preparing transactions d. confidentiality of information
c
50) A preparation of financial statements engagement might include all of the following except A) Preparation of financial statements prior to review by another accountant. B) Preparation of financial statements to be presented alongside an entity's tax return. C) Preparation of financial statements solely for submission to a taxing authority. D) Preparation of financial statements for presentation alongside a personal financial plan.
c
7) At a minimum, in order to comply with PCAOB AS 2201, an auditor of a public company that has material transactions processed by a service organization would have to request from the service organization A) a description of its internal controls. B) a type one service auditors' report. C) a type two service auditors' report. D) a Service Organization Control (SOC) 3 report.
c
7) Extensible Business Reporting Language (XBRL) provides a computer readable identifying tag for each individual form of data. The advantages of XBRL include all of the following except: a. increases the speed of handling of financial data b. reduces the chance of error c. improves the full disclosure of financial information d. permits automatic checking of information
c
9) Attestation engagements include: a. only examination b. examinations and assurance services c. examinations, reviews, and agreed-upon procedures d. examinations, reviews, compilations, agreed-upon procedures, and assurance services
c
1) The AICPA Assurance Services Executive Committee identified five megatrends that can affect public accounting firms' business. Which of the following is not one of the megatrends they identified? a. information technology. b. the shift from the industrial age to the knowledge age. c. globalization. d. merging of corporations creating fewer audit opportunities.
d
27) In reporting on a nonpublic entity's internal control over financial reporting, an accountant should include a paragraph that describes the: A) documentary evidence regarding the control environment factors. B) changes in the entity's internal control since the prior report. C) potential benefits from the accountant's suggested improvements. D) inherent limitations of internal control.
d
35) In a compilation engagement, the accountant: A) provides reasonable assurance that no material misstatements exist. B) provides assurance that no material misstatement came to the auditors attention. C) provides a list of procedures performed and results found. D) does not express an opinion.
d
44) During a review engagement, which of the following is not a required inquiry of management? A) The accounting principles and practices used. B) Significant transactions occurring near the end of the reporting period. C) Status of uncorrected misstatements identified in previous engagements. D) The changes made to internal controls during the period under review.
d
49) A report on sustainability, as defined by the AICPA, might include all of the following except A) economic viability. B) social responsibility. C) environmental responsibility. D) internal control over financial reporting.
d
8) Enhanced Business Reporting (EBR) focuses on improving business reporting by developing a voluntary framework for presentation and disclosure of value drivers and non-financial measures of performance. The advantages of EBR include all of the following except: a. more efficient and effective regulatory process b. reduced financing costs for companies c. better allocation of capital by investors d. better footnote disclosure in the companies' SEC filings
d
