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Student: ___________________________________________________________________________

1. The AICPA Assurance Services Executive Committee identified five megatrends that can affect publicaccounting "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.

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.

3. Many individuals are apprehensive about using the Internet to purchase items. This apprehension mainlyarises 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.

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.

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.

6. What is the appropriate name for an assurance service provided by a CPA regarding a client's commercialInternet site with reference to the principles of privacy, security, processing integrity, availability, andconfidentiality?

A. WebTrustB. SysTrustC. XBRLD. WebSecure

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7. Extensible Business Reporting Language (XBRL) provides a computer readable identifying tag for eachindividual item of data. The advantages of XBRL include all of the following except

A. Increases the speed of handling of financial dataB. Reduces the chance of errorC. Improves the full disclosure of financial informationD. Permits automatic checking of information

8. Enhanced Business Reporting (EBR) focuses on improving business reporting by developing a voluntaryframework for presentation and disclosure of value drivers and non-financial measures of performance. Theadvantages 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.

9. Attestation engagements include

A. Only examinations.

B. Examinations and assurance services.C. Examinations, reviews, and agreed-upon procedures.D. Examinations, reviews, compilations, agreed-upon procedures and assurance services.

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 opinionor any other form of assurance.

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 inorder 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.

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.

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13. Attestation engagements may be more difficult than financial statement audits when

A. The establishment of suitable measurement criteria is difficultB. Internal controls are difficult to assessC. When management may not understand the underlying assumptions of the attestationD. When the report may be submitted to individuals with insufficient knowledge of the nature of an

attestation engagement

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 the above are true.

15. When unaudited financial statements are presented in comparative form with audited financial statementsin a document filed with the Securities and Exchange Commission, such statements should be

A. Marked as "unaudited": Yes; Withheld until audited: No; Referred to in the auditor's report: NoB. Marked as "unaudited": Yes; Withheld until audited: No; Referred to in the auditor's report: Yes

C. Marked as "unaudited": No; Withheld until audited: Yes; Referred to in the auditor's report: YesD. Marked as "unaudited": No; Withheld until audited: Yes; Referred to in the auditor's report: No

16. Which of the following procedures would not be performed in a review of financial statements of anonpublic 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.

17. ABC Company prepares financial statements showing the last two years, years X and Y (Year X is the yearprior 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 yearsstatements have not been audited.

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.

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19. Which of the following procedures should an accountant perform during an engagement to review thefinancial 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.

20. When an accountant is engaged to compile a nonpublic entity's financial statements that omit substantiallyall disclosures required by GAAP, the accountant should indicate in the compilation report that thefinancial statements are

A. Not designed for those who are uniformed about the omitted disclosures.B. Prepared in conformity with a comprehensive basis of accounting other than GAAP.C. Not compiled in accordance with Statements on Standards for Accounting and Review Services.D. Special-purpose financial statements that are not comparable to those of prior periods.

21. Which of the following procedures ordinarily should be applied when an independent accountant conductsa 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.

22. An auditor's special report on financial statements prepared in conformity with the cash basis of accountingshould 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 another comprehensive

basis of accounting.C. Refers to the note to the financial statements that describes the basis of accounting.

D.

Explains how the results of operations differ from financial statements prepared in conformity withgenerally accepted accounting principles.

23. Which of the following best describes an engagement to report on an entity's internal control over financialreporting for a nonpublic company?

A.

An attestation engagement to examine and report on management's written assertions about theeffectiveness 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 theexpected benefits of the entity's internal control structure.

D. A consulting engagement to provide constructive advice to the entity on its internal control structure.

24. Delta Life Insurance Co. prepares its financial statements on an accounting basis insurance companies usepursuant to the rules of a state insurance commission. Wall, CPA, is Delta's auditor. If Wall discovers thatthe 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.

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25. When providing limited assurance that the reviewed financial statements of a nonpublic entity require nomaterial modifications to be in accordance with generally accepted accounting principles, the accountantshould

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.

26. Which of the following procedures is ordinarily performed by an accountant in a compilation engagementof a nonpublic entity?

A. Reading the financial statements to consider whether they are free of obvious mistakes in the applicationof accounting principles.

B.Obtaining written representations from management indicating that the compiled financial statementswill not be used to obtain credit.

C. Making inquiries of management concerning actions taken at meetings of the stockholders and the boardof directors.

D.

Applying analytical procedures designed to corroborate management's assertions that are embodied inthe financial statement components.

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.

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.

29. Hamell Corporation is making a presentation to a perspective investor. The presentation includes aprojection showing that the company's sales will be between $25,000,000 and $27,000,000 within the nextthree years. Hamell believes the information will be better received if its CPA provides an attestation reporton 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. Inquire of the appropriate management concerning the likelihood of meeting the projection.D. Identify key factors affecting the information.

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30. Hamell Corporation is making a presentation to a perspective investor. The presentation includes aprojection showing that the company's sales will be between $25,000,000 and $27,000,000 within the nextthree years. Hamell believes the information will be better received if its CPA provides an attestation reporton 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 businessenvironment.

31. Which of the following is NOT a condition that must be met before an accountant can conduct anengagement 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.

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.

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.

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.

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 auditor's attention.

C. Provides a list of procedures performed and results found.D. Does not express an opinion.

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.

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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.

38. When interim financial information is presented as supplementary information accompanying auditedfinancial 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.

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.

40. Which of the following account titles would not be appropriate for a company that prepared its financialstatements 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.

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.

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.

43. Reports 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 all 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.

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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.

45. During a review the auditor is required to obtain written representations from management. Which of thefollowing 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.

46. SSARS 10 requires adequate documentation for a review engagement. Which items are required to bedocumented?

A. Analytical procedures: Yes; Management representations: No; Unusual matters considered duringperformance: No

B. Analytical procedures: No; Management representations: Yes; Unusual matters considered duringperformance: No

C. Analytical procedures: Yes; Management representations: Yes; Unusual matters considered duringperformance: No

D. Analytical procedures: Yes; Management representations: Yes; Unusual matters considered duringperformance: Yes

Question also found in textbook

47. Practice in connection with unaudited historical cost financial statements is conducted by

A. International accounting firms only.

B. Regional and local public accounting firms.C. Local public accounting firms only.D. All public accounting firms.

48. The official Statements on Standards for Accounting and Review Services are applicable to practice with

A. Audited financial statements of public companies.B. Unaudited financial statements of public companies.C. Unaudited financial statements of nonpublic companies.D. Audited financial statements of nonpublic companies.

49. Which of the following is a general standard of generally accepted attestation standards but not a

fundamental auditing principle?

A. Appropriate competence and capability.B. Adequate knowledge in the subject matter.C. Independence.D. Due care.

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50. In performing an attestation engagement on prospective financial information (PFI), which of the followingis not required?

A. If the basis of the PFI is different than the financial statements, a reconciliation of the two must beprovided.

B. Management must disclose all significant assumptions used.C. Management must disclose significant accounting policies and procedures used in generating the PFI.D. Management must disclose the probability of obtaining the results included in the PFI.

51. To perform an attestation engagement on prospective information or pro forma information, accountantsmust do all of the following except

A. Obtain knowledge about the entity's business and accounting principles.B. Understand the internal controls used in the processes that generated the information.C. Obtain an understanding of the process through which the information was developed.D. Evaluate the assumptions used to prepare the information.

52. If a nonpublic company wants an auditor to perform an audit of its internal controls, the auditor shouldfollow:

A. PCAOB AS 5, An Audit of Internal Control Over Financial Reporting That Is Integrated with An Auditof Financial Statements

B.

AICPA SSAE 15 An Examination of an Entity's Internal Control Over Financial Reporting That IsIntegrated With an Audit of Its Financial Statements

C. AICPA SAS 109, Understanding the Entity and Its Environment and Assessing the Risks of MaterialMisstatement

D. FASB Concepts Statement No. 1, Objectives of Financial Reporting by Business Enterprises

53. A review service engagement involving unaudited financial statements involves

A. More work than a compilation and an audit.B. Less work than an audit but more work than a compilation.

C. Less work than a compilation but more work than an audit.D. More work than an audit but less work than a compilation.

54. When accountants are not independent, which of the following reports can nevertheless be issued?

A. Compilation report.B. Standard unqualified audit report.C. Examination report on a forecast.D. Examination of internal control over financial reporting.

55. For a compliance engagement, three conditions must be met. Which of the following is not one of the threeconditions?

A. Management accepts responsibility for compliance.B. Management's evaluation of compliance is capable of evaluation and is measured against reasonable

criteria.C. Sufficient evidence is available to support management's evaluation.D. Management provides a report attesting to the satisfactory compliance.

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56. Accountants are permitted to express "negative assurance" in which of the following reports?

A. Standard unqualified audit report on audited financial statements.B. Compilation report on unaudited financial statements.C. Review report on unaudited financial statements.D. Adverse opinion report on audited financial statements.

57. Which of the following conditions must be met before an accountant can conduct an examination of anentity's internal control?

A. Management presents its assertion about the effectiveness of its internal control in a written report.B. Management represents that there are no internal control deficiencies.C. The accountant represents that he/she has not conducted an audit of the financial statements.D. The accountant has designed a significant portion of the internal controls.

58. When interim financial information is presented in a footnote to annual financial statements, the standardaudit report on the annual financial statements should

A. Not mention the interim information unless there is an exception that the auditors need to include in thereport.

B.

Contain an audit opinion paragraph that specifically mentions the interim financial information if it is notin conformity with the AFRF.

C. Contain an extra paragraph that gives negative assurance on the interim information if it has beenreviewed.

D. Contain an extra explanatory paragraph if the interim information note is labeled "unaudited."

59. During a review of a nonpublic entity's financial statements, accountants are required to make certaininquiries of management. Which of the following inquiries is not required by the SSARS ?

A. The basis for the preparation of financial statements.B. Internal control deficiencies.C. Significant transactions occurring near the end of the reporting period.

D. Material subsequent events.

60. According to auditing standards, financial statements presented on a comprehensive basis of accountingother than GAAP should not

A. Contain a note describing the other basis of accounting.B. Describe in general how the other basis of accounting differs from generally accepted accounting

principles.C. Be accompanied by an audit report that gives an unqualified opinion with reference to the other basis of

accounting.D.

Contain a note with a quantified dollar reconciliation of the assets based on the other comprehensive basisof accounting with the assets based on generally accepted accounting principles.

61. To be useful, an audit of a service organization's controls should cover a minimum of:

A. A quarter.B. Six months.C. A year.D. The user entity's fiscal period.

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62. In providing assurance services to clients, public accounting firms are building on their reputations for

A. Knowledge and integrity.B. Objectivity and integrity.C. Independence and due care.D. Professionalism and trust.

63. The AICPA Special Committee on Assurance Services identified five global "mega trends" that can affect aCPA's business. Which of the following is not one of these mega trends?

A. The decreasing supply of natural resources.B. Information technology.C. New social structures.D. Demands for transparency.

64. An assurance service is defined as a service that

A. Provides auditing services to nonfinancial information.B. Reviews unaudited financial information.C. Improves the quality of information for decision makers.

D. Reduces the risk in management decision making.

65. Bill is surfing the Internet and finds a great pair of rollerblades at a really low price. He has never heard ofthe company and is concerned that he may not receive the product he orders. Bill may be more willing toplace an order with this company if

A. The Web site displays the WebTrust seal.B. The company provides its annual report and the report of the independent auditors on its Web site.C. The company provides a money-back guarantee.D. Only a partial payment is required prior to receiving the product.

66. Which of the following is not a principle of Trust Services?

A. Security.B. Authentication.C. Privacy.D. Confidentiality.

Question also found in Study Guide

67. An accountant's review on unaudited financial statements would not include

A. Performing analytical procedures.B. Confirmation of accounts receivable.

C. Inquiring about the accounting system and bookkeeping procedures.D.

Reading the financial statements for indications that they conform with the applicable financial reportingframework (e.g., GAAP, IFRS).

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68. An accountant should reissue (not update) the prior year's report when

A. The accountant is a successor accountant performing a compilation and a compilation report was issuedin the prior year.

B. The accountant is a successor accountant performing a compilation and a review report was issued in theprior year.

C. The accountant issued a review report in the prior year and is performing a compilation in the currentyear.

D. The accountant issued a compilation report in the prior year and is performing a review in the currentyear.

69. When an accountant compiles a prescribed form and the financial statements contain a departure from theinformation specified by the prescribed form, the accountant should

A. Withdraw from the engagement.B. Issue an adverse opinion.C. Ignore the departure because the financial statements do not purport to be in accordance with GAAP.D. Disclose the departure in the body of the accountant's report.

70. When an accountant is associated with a financial statement as part of a personal financial planning

engagement, the accountant's report should include a statement that

A. We have not audited, reviewed, or compiled the statement.B. These financial statements are not designed for those who are not informed about such differences.C. We do not express an opinion or any other form of assurance on them.D. We are not aware of any material modifications that should be made.

71. Which of the following is not a condition that must be met for an internal control examination?

A. Management accepts responsibility for the effectiveness of its internal control.B. Management must base its evaluation of internal control on standards established by the AICPA.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.

72. An accountant's standard internal control report for nonpublic companies is governed by

A. The Statements on Auditing Standards.B. The Statements on Standards for Accounting and Review Services.C. The Statements on Standards for Attestation Engagements.D. The COSO report.

73. The accountant's standard report for a review service would not include a statement that

A. A review service was performed in accordance with AICPA generally accepted auditing standards.

B. All information included in the representation of the management of the business.C. A review consists primarily of inquiries and analytical procedures.D.

The accountant is not aware of any material modifications that should be made to make this financialstatement conform to generally accepted accounting principles.

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74. An accountant could not issue compiled financial statements that would include a report

A.

Mentioning that the management has elected to omit substantively all footnote disclosures, and if theywere included they might influence users' conclusions about the business.

B. Attesting to the overall fairness of the financial statements.C. Stating that the accountant is not independent.D. Complete with all the disclosures required by GAAP.

75. The combination of prior year/current year order of lower level of service would not include

A. Review followed by compilation.B. Audit followed by compilation.C. Compilation followed by review.D. Audit followed by review.

76. This question is related to other public accounting services and reports. For each statement, description, orphrase (1-5), indicate the related type of engagement or report (A-F).

1. Reports on financial

statements prepared onother comprehensivebases of accounting

The information should conform tothe accounting principles in APB Opinion

No. 28, "Interim Financial Reporting."

_

___

2. Reviews of unauditedfinancial statements ofa nonpublic company

In our opinion, the schedule of accountsreceivable referred to above presents fairly, in

all material respects.

____

3. Reviews of unauditedinterim financial statementsof a public company

Limited to presenting in the form offinancial statements information thatis the representation of management.

____

4. Reports on elements,accounts, or items ofa financial statement

As described in Note 2, these financialstatements were prepared on the cash receipts

and disbursements basis of accounting.

____

5. Compilations offinancial statements

A reasonable basis for expressinglimited assurance that there are no material

modifications that should be made to thestatements.

____

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77. This question is related to other public accounting services and reports. For each statement, description, orphrase (1-5), indicate the related type of engagement or report (A-F).

1. Reports on compliancewith contractual agreementsor regulatory requirements

Management issues a separatereport containing assertions.

____

2. Reports on internal control

In our opinion, the schedule ofinventory referred to above presents

fairly, in all material respects.

____

3. Reviews of unaudited financialstatements of a nonpubliccompany

It is substantially less in scopethan an audit in accordance with

generally accepted auditing standards.

____

4. Reports on the agreed-uponprocedures

Negative assurance about conformingto the rules and regulations of a regulatory

agency.

_

___

5. Reports on elements, accounts,or items of a financial statement

The report identifies specific usersand describes, in detail, the procedures

specified by the users.

____

78. For each term list below (items 1-5) select the correct term (items A-F).

1.Attestation

An engagement whereby a practitioner provides limitedassurance about financial information.

____

2.Compilation

A service whereby the practitioner assists in assemblingfinancial information.

____

3. ServiceOrganization

Professional services resulting in a report on subject matter ora claim about subject matter that is the responsibility of another

party.____

4. ReviewService

An entity that provides a service to another companyregarding the processing of transactions or information.

____

5.AssuranceService

Professional services aimed at improving the quality ofinformation both financial and non-financial for decision makers.

____

Questions are also Found in the Study Guide

79. Auditing standards apply to work on all audited financial statements and to work on unaudited financialstatements of public and nonpublic companies.

True False

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80. In a review services engagement, an accountant performs some limited audit procedures to achieve a levelof assurance.

True False

81. A review service provides a basis for expressing an opinion on financial statements.

True False

82. CPA SysTrust provides assurance that a Web site meets certain criteria.

True False

83. A compilation report cannot be issued by an accountant who is not independent.

True False

84. When the current year service is being performed by a new accountant, the accountant cannot update thepredecessors' report.

True False

85. When prescribed forms are compiled by an accountant, the compilation report always must call attention toGAAP departures and disclosure deficiencies.

True False

86. An accountant associated with personal financial statements would need to give the standard compilationreport disclaimer.

True False

87. Enhanced Business Reporting (EBR) focuses on improving business reporting by developing a voluntary

framework for presentation and disclosure of value drivers.

True False

88. For a compliance attestation engagement, the auditor accepts responsibility for compliance.

True False

89. An accountant may report on interim information presented separately from audited financial statements.

True False

90. Companies that are not subject to SEC regulations can choose to present financial information inaccordance with a comprehensive basis of accounting other than GAAP.

True False

91. Attest reports on internal control effectiveness are required to be issued for all nonpublic companies.

True False

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92. Special purpose reports on internal control of a service organization can be relied on by the user auditor inconnection with the evaluation of the client organization.

True False

93. Management does not have to accept responsibility for the effectiveness of its internal control in order foran accountant to conduct an examination of a client's internal control.

True False


94. The issue that auditing standards handicapped the service of CPA firms to small business clientswas referred to as the "________________________ _____________________________,_____________________________ _____________________________" question.

________________________________________

95. Review work on unaudited financial statements consists primarily of conducting_____________________________, performing _____________________________, and obtaining amanagement representation letter.

________________________________________

96. Each page of the financial statements of a review service should be marked "_____________________________ _____________________________ __________________________________________________________."

________________________________________

97. Assurance services are _______________________________ professional services that improve the_____________________________ of information, or its _____________________________, for decisionmakers.

________________________________________

98. The combination of prior year/current year order of the same or higher level of service would include: (a)compilation followed by _____________________________, (b) _____________________________followed by review, and (c) review followed by _____________________________.

________________________________________

99. When the current year service is being performed by a new accountant, the_____________________________ can be asked to ___________________________ the prior report.

________________________________________

100.Industry trade associations and regulatory agencies often use _________________________________________________ to specify the ____________________________ and_____________________________ of accounting information required for special purposes.

________________________________________

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101.When inquiries are made by a successor accountant to a predecessor accountant, the_____________________________ must obtain the ________________________________________________________ for the _____________________________ to disclose confidentialinformation.

________________________________________

102.A _____________________________ _____________________________ is based on expected conditionsand courses of action.

________________________________________

103.The _____________________________ requires the presentation of interim information outside the basicfinancial statements.

________________________________________

104.The interim information review _____________________________ __________________________________________________________ a complete assessment of internal control risk.

________________________________________

105.The "Little GAAP" fallback position has been the accounting known as ______________________________.

________________________________________

106.Engagements to perform _____________________________ _______________________procedures are not considered audits because they have a __________________________________________________________.

________________________________________

107.In a compilation engagement, the accountant explicitly states that _____ ________________ and _____________________ is expressed.

________________________________________

108.In _____________________________engagements, justifiable departures from official pronouncementsare treated the same as they are in _____________________________.

________________________________________

109.Review work on unaudited financial statements consists primarily of conducting inquiries, performinganalytical procedures, and obtaining a management representation letter. List the typical proceduresaccountants would perform on a review engagement.

7/17/2019 A


110.George Wilson is on the board of directors of a small manufacturing company, Smith Plastics, Inc. Georgeholds a CPA certificate and is a member of the AICPA. The president of the company, John Smith, hasasked George to prepare financial statements for the company to be submitted to Sixth First Bank as part ofa loan request. Mr. Smith tells George that the bank would like a review or an audit, but would settle for acompilation from a CPA. He would like George to do the compilation.Required: Under what conditions, if any, George Wilson would be allowed to prepare a compilation of the financialstatements of Smith Plastics, Inc.?

111.Donna Prima, CPA, was engaged to review the unaudited financial statements of Rooster Restaurants, Inc.,a nonpublic company. During her review, Donna found that Rooster had not capitalized leases as requiredby GAAP. The result was so material, that Donna modified the standard review report to state that "thefinancial statements are not in conformity with GAAP."

Required: Is Donna's report in accordance with professional standards? If not, what should she have done under thecircumstances? Explain.

112.Public accounting firms have consistently looked for additional services that might increase the profitabilityof the public accounting firm. To that end, there are now four different reporting related services beingstudied by the AICPA to determine how CPAs can provide value to clients. Required: A. Describe two of the services identified by the AICPA. B. Why would the public prefer to have a public accounting firm as a provider of these services?

C. What are the possible negative consequences for public accounting firms if they provide services outsidethe realm of traditional accounting services?

7/17/2019 A


113.Big Ben's Toy (BBT) Company has recently outsourced its payroll operation to Mary's Payroll Service(MPS). MPS receives the changes to the payroll data base (hirings, firings, rate increases, etc.) and thenumber of hours worked for all hourly employees. MPS calculates the payroll and sends BBT printedpayroll checks, a payroll register, and a list of payments to be made to third parties (IRS, insurance, pensionplan, etc.). BBT transfers an appropriate amount into its payroll bank account and distributes the checks.Accounts payable uses the list of third-party payments to make appropriate payments. You have been hired to perform an audit of BBT Company. During your opening meeting with BBTmanagement you state that your audit plan includes inquiries of Mary's Payroll Service and a review of the

SAS 70 report on internal controls at MPS. BBT's management is confused and states that BBT should nothave to pay you to review controls at another organization. Prepare a brief explanation to BBT's management as to why it is necessary to review the controls at MPSand the importance of this review to BBT Company.

Question is also Found in the Study Guide

7/17/2019 A


114.Complete the key words, names, and phrases in the following accountant's report on a review of financialstatements of a nonpublic entity. We have _____________________________ the accompanying _______________________________________________ of Dandy Company as of December 31, 2010 and 2009, and the_____________________________ _____________________________ _____,_______________________ __________________________, ________________,_____________________________ __________________________, and_____________________________ _____________________________for the years then ended, in

____________________ _____ _____________________________ __________________________________ _____ _____________________________ __________________________________ _____________________________ issued by the_____________________________ _____________________________ __________________________________ __________________________________________________________. All information included in these financial statements is the_____________________________ _____ _____ _____________________________ of Dandy Company.A review consists principally of _____________________________ __________________________________ _____________________________ and_____________________________ _____________________________ applied to_____________________________ _____. It is substantially __________ ______ _____________ thanan audit in accordance with _____________________________ _____________________________

_____________________________ _____________________________, the objective of which is the_________________________ _____ _____ _____________________________ regarding the financialstatements __________ ____ ____ ______________. Accordingly, we ___ ____ _____________________ ____ ________________. Based on our review, we are ______ _______________________ of any_______________________________ _______________________________ that should be made to theaccompanying financial statements in order for them to be in _________________________ _____________________________________ ______________________ ________________________________________________.

7/17/2019 A


A Key

1. The AICPA Assurance Services Executive Committee identified five megatrends that can affect publicaccounting "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.

Original

AACSB: Analytic

AICPA BB: Marketing AICPA FN: Risk Analysi

Bloom's: Knowledg Difficulty: Medium

Louwers - Module A... #

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.

Original

AACSB: Analytic


Bloom's: Knowledg Difficulty: Easy

Louwers - Module A... #2

3. Many individuals are apprehensive about using the Internet to purchase items. This apprehensionmainly 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.

Original

AACSB: Analytic


Bloom's: Technology Difficulty: Medium


7/17/2019 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.

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AACSB: Analytic

AICPA BB: Marketing AICPA FN: Research Bloom's: Knowledg

Difficulty: Medium Louwers - Module A... #4

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.

Original

AACSB: Analytic


Bloom's: Application Difficulty: Medium


6. What is the appropriate name for an assurance service provided by a CPA regarding a client'scommercial Internet site with reference to the principles of privacy, security, processing integrity,availability, and confidentiality?

A. WebTrustB. SysTrustC. XBRLD. WebSecure

AICPA

AACSB: Analytic




7/17/2019 A


7. Extensible Business Reporting Language (XBRL) provides a computer readable identifying tag for eachindividual item of data. The advantages of XBRL include all of the following except

A. Increases the speed of handling of financial dataB. Reduces the chance of errorC. Improves the full disclosure of financial informationD. Permits automatic checking of information

Original

AACSB: Analytic



Louwers - Module A... #

8. Enhanced Business Reporting (EBR) focuses on improving business reporting by developing avoluntary framework for presentation and disclosure of value drivers and non-financial measures ofperformance. 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.

Original

AACSB: Analytic


Bloom's: Application Difficulty: Easy


9. Attestation engagements include

A. Only examinations.B. Examinations and assurance services.C. Examinations, reviews, and agreed-upon procedures.D. Examinations, reviews, compilations, agreed-upon procedures and assurance services.

Original

AACSB: Analytic AICPA BB: Marketing AICPA FN: Research Bloom's: Application


7/17/2019 A


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.

Original

AACSB: Communication

AICPA BB: Lega AICPA FN: Reporting Bloom's: Application

Difficulty: Hard Louwers - Module A... #1

11. Shelly's Bank has loaned money to Pete's Auto Supply. The loan is collateralized by inventory. Theloan also requires a CPA to observe the count of the inventory and trace sampled items to the vendorinvoices 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.

Original

AACSB: Analytic

AICPA BB: Marketing AICPA FN: Research Bloom's: Application


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.

Original




7/17/2019 A


13. Attestation engagements may be more difficult than financial statement audits when

A. The establishment of suitable measurement criteria is difficultB. Internal controls are difficult to assessC. When management may not understand the underlying assumptions of the attestationD. When the report may be submitted to individuals with insufficient knowledge of the nature of an

attestation engagement

Original

AACSB: Analytic AICPA BB: Lega

AICPA FN: Risk Analysi Bloom's: Application


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 the above are true.

Original


AICPA FN: Research Bloom's: Application


15. When unaudited financial statements are presented in comparative form with audited financialstatements in a document filed with the Securities and Exchange Commission, such statements shouldbe

A. Marked as "unaudited": Yes; Withheld until audited: No; Referred to in the auditor's report: NoB. Marked as "unaudited": Yes; Withheld until audited: No; Referred to in the auditor's report: YesC. Marked as "unaudited": No; Withheld until audited: Yes; Referred to in the auditor's report: YesD. Marked as "unaudited": No; Withheld until audited: Yes; Referred to in the auditor's report: No

Original

AACSB: Communication AICPA BB: Lega

AICPA FN: Reporting Bloom's: Application


7/17/2019 A


16. Which of the following procedures would not be performed in a review of financial statements of anonpublic 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.

Original




17. ABC Company prepares financial statements showing the last two years, years X and Y (Year X is theyear 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 currentyears statements have not been audited.

Original


AICPA BB: Lega AICPA FN: Risk Analysi



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.

Original




7/17/2019 A


19. Which of the following procedures should an accountant perform during an engagement to review thefinancial 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.

AICPA




20. When an accountant is engaged to compile a nonpublic entity's financial statements that omitsubstantially all disclosures required by GAAP, the accountant should indicate in the compilation reportthat the financial statements are

A. Not designed for those who are uniformed about the omitted disclosures.B. Prepared in conformity with a comprehensive basis of accounting other than GAAP.C. Not compiled in accordance with Statements on Standards for Accounting and Review Services.D. Special-purpose financial statements that are not comparable to those of prior periods.

AICPA



Difficulty: Medium


21. Which of the following procedures ordinarily should be applied when an independent accountantconducts 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.

AICPA



Difficulty: Easy Louwers - Module A... #2

7/17/2019 A


22. An auditor's special report on financial statements prepared in conformity with the cash basis ofaccounting 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 another

comprehensive basis of accounting.C. Refers to the note to the financial statements that describes the basis of accounting.D

.

Explains how the results of operations differ from financial statements prepared in conformity with

generally accepted accounting principles.

AICPA





23. Which of the following best describes an engagement to report on an entity's internal control overfinancial reporting for a nonpublic company?

A

. An attestation engagement to examine and report on management's written assertions about theeffectiveness 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 theexpected benefits of the entity's internal control structure.

D. A consulting engagement to provide constructive advice to the entity on its internal control structure.

AICPA

AACSB: Analytic AICPA BB: Lega AICPA FN: Risk Analysi



24. Delta Life Insurance Co. prepares its financial statements on an accounting basis insurance companiesuse pursuant to the rules of a state insurance commission. Wall, CPA, is Delta's auditor. If Walldiscovers 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.

AICPA





7/17/2019 A


25. When providing limited assurance that the reviewed financial statements of a nonpublic entity requireno material modifications to be in accordance with generally accepted accounting principles, theaccountant 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.

AICPA




26. Which of the following procedures is ordinarily performed by an accountant in a compilationengagement of a nonpublic entity?

A. Reading the financial statements to consider whether they are free of obvious mistakes in theapplication of accounting principles.

B. Obtaining written representations from management indicating that the compiled financial statementswill not be used to obtain credit.

C. Making inquiries of management concerning actions taken at meetings of the stockholders and theboard of directors.

D.

Applying analytical procedures designed to corroborate management's assertions that are embodied inthe financial statement components.

AICPA




27. In reporting on a nonpublic entity's internal control over financial reporting, an accountant shouldinclude 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.

AICPA





7/17/2019 A


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 informationthat is the representation of management.

B. The accountant assessed the accounting principles used and significant estimates made bymanagement.

C. The accountant does not express an opinion or any other form of assurance on the financialstatements.

D. A compilation consists primarily of inquiries of entity personnel and analytical procedures applied tofinancial data.

AICPA





29. 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 withinthe next three years. Hamell believes the information will be better received if its CPA providesan attestation report on the projection. In order to provide such a report the CPA must do all of thefollowing EXCEPT

A. Obtain knowledge about the client's business.B. Evaluate the assumptions used in preparing the projection.C. Inquire of the appropriate management concerning the likelihood of meeting the projection.D. Identify key factors affecting the information.

Original




7/17/2019 A


30. Hamell Corporation is making a presentation to a perspective investor. The presentation includes aprojection showing that the company's sales will be between $25,000,000 and $27,000,000 withinthe next three years. Hamell believes the information will be better received if its CPA provides anattestation report on the projection. The CPA should insure that proper disclosure is made to indicatethat

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 businessenvironment.

Original




31. Which of the following is NOT a condition that must be met before an accountant can conduct anengagement 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.

Original




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.

Original




7/17/2019 A


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.

Original




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.

Original




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 auditor's attention.C. Provides a list of procedures performed and results found.D. Does not express an opinion.

Original




7/17/2019 A


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.

Original




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.

Original




38. When interim financial information is presented as supplementary information accompanying auditedfinancial 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.

Original


AICPA FN: Risk Analysi

Bloom's: Application Difficulty: Hard


7/17/2019 A


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.

Original




40. Which of the following account titles would not be appropriate for a company that prepared its financialstatements 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.

Original




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.

Original





7/17/2019 A


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.

Original




43. Reports 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 all 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.

Original


AICPA BB: Lega AICPA FN: Reporting

Bloom's: Knowledg Difficulty: Easy


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.

Original





7/17/2019 A


45. During a review the auditor is required to obtain written representations from management. Which ofthe 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.

Original




46. SSARS 10 requires adequate documentation for a review engagement. Which items are required to bedocumented?

A. Analytical procedures: Yes; Management representations: No; Unusual matters considered during

performance: NoB. Analytical procedures: No; Management representations: Yes; Unusual matters considered during

performance: NoC. Analytical procedures: Yes; Management representations: Yes; Unusual matters considered during

performance: NoD. Analytical procedures: Yes; Management representations: Yes; Unusual matters considered during

performance: Yes

Original




Question also found in textbook

Louwers - Module A..

47. Practice in connection with unaudited historical cost financial statements is conducted by

A. International accounting firms only.B. Regional and local public accounting firms.

C. Local public accounting firms only.D. All public accounting firms.

Original

AACSB: Analytic



7/17/2019 A


48. The official Statements on Standards for Accounting and Review Services are applicable to practice with

A. Audited financial statements of public companies.B. Unaudited financial statements of public companies.C. Unaudited financial statements of nonpublic companies.D. Audited financial statements of nonpublic companies.

Original




49. Which of the following is a general standard of generally accepted attestation standards but not afundamental auditing principle?

A. Appropriate competence and capability.B. Adequate knowledge in the subject matter.

C. Independence.D. Due care.

Original




50. In performing an attestation engagement on prospective financial information (PFI), which of thefollowing is not required?

A. If the basis of the PFI is different than the financial statements, a reconciliation of the two must beprovided.

B. Management must disclose all significant assumptions used.C. Management must disclose significant accounting policies and procedures used in generating the

PFI.D. Management must disclose the probability of obtaining the results included in the PFI.

Original




7/17/2019 A


51. To perform an attestation engagement on prospective information or pro forma information,accountants must do all of the following except

A. Obtain knowledge about the entity's business and accounting principles.B. Understand the internal controls used in the processes that generated the information.C. Obtain an understanding of the process through which the information was developed.D. Evaluate the assumptions used to prepare the information.

Original




52. If a nonpublic company wants an auditor to perform an audit of its internal controls, the auditor shouldfollow:

A. PCAOB AS 5, An Audit of Internal Control Over Financial Reporting That Is Integrated with An

Audit of Financial StatementsB

. AICPA SSAE 15 An Examination of an Entity's Internal Control Over Financial Reporting That IsIntegrated With an Audit of Its Financial Statements

C. AICPA SAS 109, Understanding the Entity and Its Environment and Assessing the Risks of MaterialMisstatement

D. FASB Concepts Statement No. 1, Objectives of Financial Reporting by Business Enterprises

Original




53. A review service engagement involving unaudited financial statements involves

A. More work than a compilation and an audit.B. Less work than an audit but more work than a compilation.C. Less work than a compilation but more work than an audit.D. More work than an audit but less work than a compilation.

Original

AACSB: Analytic

AICPA BB: Resource Managemen AICPA FN: Risk Analysi



7/17/2019 A


54. When accountants are not independent, which of the following reports can nevertheless be issued?

A. Compilation report.B. Standard unqualified audit report.C. Examination report on a forecast.D. Examination of internal control over financial reporting.

Original




55. For a compliance engagement, three conditions must be met. Which of the following is not one of thethree conditions?

A. Management accepts responsibility for compliance.B. Management's evaluation of compliance is capable of evaluation and is measured against reasonable

criteria.C. Sufficient evidence is available to support management's evaluation.D. Management provides a report attesting to the satisfactory compliance.

Original




56. Accountants are permitted to express "negative assurance" in which of the following reports?

A. Standard unqualified audit report on audited financial statements.B. Compilation report on unaudited financial statements.C. Review report on unaudited financial statements.D. Adverse opinion report on audited financial statements.

Original




7/17/2019 A


57. Which of the following conditions must be met before an accountant can conduct an examination of anentity's internal control?

A. Management presents its assertion about the effectiveness of its internal control in a written report.B. Management represents that there are no internal control deficiencies.C. The accountant represents that he/she has not conducted an audit of the financial statements.D. The accountant has designed a significant portion of the internal controls.

Original




58. When interim financial information is presented in a footnote to annual financial statements, thestandard audit report on the annual financial statements should

A. Not mention the interim information unless there is an exception that the auditors need to include in

the report.B. Contain an audit opinion paragraph that specifically mentions the interim financial information if it is

not in conformity with the AFRF.C. Contain an extra paragraph that gives negative assurance on the interim information if it has been

reviewed.D. Contain an extra explanatory paragraph if the interim information note is labeled "unaudited."

Original


AICPA BB: Lega



59. During a review of a nonpublic entity's financial statements, accountants are required to make certaininquiries of management. Which of the following inquiries is not required by the SSARS ?

A. The basis for the preparation of financial statements.B. Internal control deficiencies.C. Significant transactions occurring near the end of the reporting period.D. Material subsequent events.

Original




7/17/2019 A


60. According to auditing standards, financial statements presented on a comprehensive basis of accountingother than GAAP should not

A. Contain a note describing the other basis of accounting.B. Describe in general how the other basis of accounting differs from generally accepted accounting

principles.C. Be accompanied by an audit report that gives an unqualified opinion with reference to the other basis

of accounting.

D. Contain a note with a quantified dollar reconciliation of the assets based on the other comprehensivebasis of accounting with the assets based on generally accepted accounting principles.

Original




61. To be useful, an audit of a service organization's controls should cover a minimum of:

A. A quarter.B. Six months.C. A year.D. The user entity's fiscal period.

Original




62. In providing assurance services to clients, public accounting firms are building on their reputations for

A. Knowledge and integrity.B. Objectivity and integrity.C. Independence and due care.D. Professionalism and trust.

Original

AACSB: Ethic



7/17/2019 A


63. The AICPA Special Committee on Assurance Services identified five global "mega trends" that canaffect a CPA's business. Which of the following is not one of these mega trends?

A. The decreasing supply of natural resources.B. Information technology.C. New social structures.D. Demands for transparency.

Original




64. An assurance service is defined as a service that

A. Provides auditing services to nonfinancial information.B. Reviews unaudited financial information.

C. Improves the quality of information for decision makers.D. Reduces the risk in management decision making.

Original




65. Bill is surfing the Internet and finds a great pair of rollerblades at a really low price. He has neverheard of the company and is concerned that he may not receive the product he orders. Bill may be morewilling to place an order with this company if

A. The Web site displays the WebTrust seal.B. The company provides its annual report and the report of the independent auditors on its Web site.C. The company provides a money-back guarantee.D. Only a partial payment is required prior to receiving the product.

Original

AACSB: Analytic AICPA BB: Marketing



7/17/2019 A


7/17/2019 A


69. When an accountant compiles a prescribed form and the financial statements contain a departure fromthe information specified by the prescribed form, the accountant should

A. Withdraw from the engagement.B. Issue an adverse opinion.C. Ignore the departure because the financial statements do not purport to be in accordance with GAAP.D. Disclose the departure in the body of the accountant's report.

Original




70. When an accountant is associated with a financial statement as part of a personal financial planningengagement, the accountant's report should include a statement that

A. We have not audited, reviewed, or compiled the statement.

B. These financial statements are not designed for those who are not informed about such differences.C. We do not express an opinion or any other form of assurance on them.D. We are not aware of any material modifications that should be made.

Original




71. Which of the following is not a condition that must be met for an internal control examination?

A. Management accepts responsibility for the effectiveness of its internal control.B. Management must base its evaluation of internal control on standards established by the AICPA.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.

Original

AACSB: Analytic

AICPA BB: Lega AICPA FN: Research Bloom's: Application


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72. An accountant's standard internal control report for nonpublic companies is governed by

A. The Statements on Auditing Standards.B. The Statements on Standards for Accounting and Review Services.C. The Statements on Standards for Attestation Engagements.D. The COSO report.

Original




73. The accountant's standard report for a review service would not include a statement that

A. A review service was performed in accordance with AICPA generally accepted auditing standards.B. All information included in the representation of the management of the business.C. A review consists primarily of inquiries and analytical procedures.

D.

The accountant is not aware of any material modifications that should be made to make this financialstatement conform to generally accepted accounting principles.

Original




74. An accountant could not issue compiled financial statements that would include a report

A.

Mentioning that the management has elected to omit substantively all footnote disclosures, and if theywere included they might influence users' conclusions about the business.

B. Attesting to the overall fairness of the financial statements.C. Stating that the accountant is not independent.D. Complete with all the disclosures required by GAAP.

Original




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75. The combination of prior year/current year order of lower level of service would not include

A. Review followed by compilation.B. Audit followed by compilation.C. Compilation followed by review.D. Audit followed by review.

Original




76. This question is related to other public accounting services and reports. For each statement, description,or phrase (1-5), indicate the related type of engagement or report (A-F).

1. Reports on financialstatements prepared on

other comprehensivebases of accounting

The information should conform to

the accounting principles in APB OpinionNo. 28, "Interim Financial Reporting."

3

2. Reviews of unauditedfinancial statements ofa nonpublic company

In our opinion, the schedule of accountsreceivable referred to above presents fairly, in

all material respects.4

3. Reviews of unauditedinterim financial statementsof a public company

Limited to presenting in the form offinancial statements information thatis the representation of management.

5

4. Reports on elements,accounts, or items ofa financial statement

As described in Note 2, these financialstatements were prepared on the cash receipts

and disbursements basis of accounting.1

5. Compilations offinancial statements

A reasonable basis for expressinglimited assurance that there are no materialmodifications that should be made to the

statements.2

AACSB: Communication AICPA BB: Lega



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77. This question is related to other public accounting services and reports. For each statement, description,or phrase (1-5), indicate the related type of engagement or report (A-F).

1. Reports on compliancewith contractual agreementsor regulatory requirements

Management issues a separatereport containing assertions.

2

2. Reports on internal control

In our opinion, the schedule ofinventory referred to above presents

fairly, in all material respects.

5

3. Reviews of unaudited financialstatements of a nonpubliccompany

It is substantially less in scopethan an audit in accordance with

generally accepted auditing standards.3

4. Reports on the agreed-uponprocedures

Negative assurance about conformingto the rules and regulations of a regulatory

agency.1

5. Reports on elements, accounts,or items of a financial statement

The report identifies specific usersand describes, in detail, the procedures

specified by the users.4




78. For each term list below (items 1-5) select the correct term (items A-F).

1.Attestation

An engagement whereby a practitioner provides limitedassurance about financial information.

4

2.Compilation

A service whereby the practitioner assists in assemblingfinancial information.

2

3. ServiceOrganization

Professional services resulting in a report on subject matter ora claim about subject matter that is the responsibility of another

party.1

4. ReviewService

An entity that provides a service to another companyregarding the processing of transactions or information.

3

5.AssuranceService

Professional services aimed at improving the quality ofinformation both financial and non-financial for decision makers.

5

AACSB: Analytic AICPA BB: Marketing





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79. Auditing standards apply to work on all audited financial statements and to work on unaudited financialstatements of public and nonpublic companies.

FALSE


80. In a review services engagement, an accountant performs some limited audit procedures to achieve alevel of assurance.

TRUE


81. A review service provides a basis for expressing an opinion on financial statements.

FALSE


82. CPA SysTrust provides assurance that a Web site meets certain criteria.

FALSE Louwers - Module A... #82

83. A compilation report cannot be issued by an accountant who is not independent.

FALSE


84. When the current year service is being performed by a new accountant, the accountant cannot update thepredecessors' report.

TRUE


85. When prescribed forms are compiled by an accountant, the compilation report always must callattention to GAAP departures and disclosure deficiencies.

FALSE


86. An accountant associated with personal financial statements would need to give the standardcompilation report disclaimer.

TRUE


87. Enhanced Business Reporting (EBR) focuses on improving business reporting by developing avoluntary framework for presentation and disclosure of value drivers.

TRUE


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88. For a compliance attestation engagement, the auditor accepts responsibility for compliance.

FALSE


89. An accountant may report on interim information presented separately from audited financialstatements.

TRUE Louwers - Module A... #8

90. Companies that are not subject to SEC regulations can choose to present financial information inaccordance with a comprehensive basis of accounting other than GAAP.

TRUE


91. Attest reports on internal control effectiveness are required to be issued for all nonpublic companies.

FALSE Louwers - Module A... #9

92. Special purpose reports on internal control of a service organization can be relied on by the user auditorin connection with the evaluation of the client organization.

TRUE


93. Management does not have to accept responsibility for the effectiveness of its internal control in orderfor an accountant to conduct an examination of a client's internal control.

FALSE




94. The issue that auditing standards handicapped the service of CPA firms to small business clientswas referred to as the "________________________ _____________________________,_____________________________ _____________________________" question.

Big GAAP, Little GAAP


95. Review work on unaudited financial statements consists primarily of conducting_____________________________, performing _____________________________, and obtaining amanagement representation letter.

inquiry, analytical


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96. Each page of the financial statements of a review service should be marked "_____________________________ _____________________________ __________________________________________________________."

"See accountant's review report"


97. Assurance services are _______________________________ professional services that improve the

_____________________________ of information, or its _____________________________, fordecision makers.

independent, quality, context


98. The combination of prior year/current year order of the same or higher level of service would include:(a) compilation followed by _____________________________, (b) _____________________________ followed by review, and (c) review followed by _____________________________.

compilation, compilation, review


99. When the current year service is being performed by a new accountant, the_____________________________ can be asked to ___________________________ the prior report.

predecessor, reissue


100. Industry trade associations and regulatory agencies often use _________________________________________________ to specify the ____________________________ and_____________________________ of accounting information required for special purposes.

prescribed forms, content, measurement


101. When inquiries are made by a successor accountant to a predecessor accountant, the_____________________________ must obtain the ________________________________________________________ for the _____________________________ to disclose confidentialinformation.

successor, client's permission, predecessor


102. A _____________________________ _____________________________ is based on expectedconditions and courses of action.

financial forecast


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103. The _____________________________ requires the presentation of interim information outside thebasic financial statements.

SEC


104. The interim information review _____________________________ _____________________________ _____________________________ a complete assessment of internal control risk.

does not require


105. The "Little GAAP" fallback position has been the accounting known as______________________________.

OCBOA (other comprehensive bases of accounting)


106. Engagements to perform _____________________________ _______________________

procedures are not considered audits because they have a __________________________________________________________.

agreed upon, limited scope


107. In a compilation engagement, the accountant explicitly states that _____ ________________ and _____________________ is expressed.

no opinion, no assurance


108. In _____________________________engagements, justifiable departures from officialpronouncements are treated the same as they are in _____________________________.

review, audits


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109. Review work on unaudited financial statements consists primarily of conducting inquiries, performinganalytical procedures, and obtaining a management representation letter. List the typical proceduresaccountants would perform on a review engagement.

The typical review procedures would include

1. Obtain knowledge of the client's business. 2. Inquire about the accounting system. 3. Inquire about the preparation of the financial statements in accordance with the applicable financial

reporting framework (e.g., GAAP, IFRS)

4. Inquire about accounting principles and practices used

5. Inquire about significant transactions that occurred or were recognized near the end of the reportingperiod

6. Inquire of the status of uncorrected misstatements identified during previous engagements 7. Inquire about questions that have arisen during the engagement 8. Inquire about subsequent events 9. Inquire about significant journal entries or adjustments

10. Inquire about communications with regulatory agencies 11. Perform analytical procedures to identify relationships and individual items that appear to beunusual. 12. Read the financial statements to determine if they conform to the applicable financial reporting

framework (e.g., GAAP, IFRS).

13. Inquire of officers and directors on accounting matters. 14. Perform any procedures considered necessary. 15. Prepare working papers. 16. Obtain a written representation letter.




110. George Wilson is on the board of directors of a small manufacturing company, Smith Plastics, Inc.George holds a CPA certificate and is a member of the AICPA. The president of the company, JohnSmith, has asked George to prepare financial statements for the company to be submitted to Sixth FirstBank as part of a loan request. Mr. Smith tells George that the bank would like a review or an audit, butwould settle for a compilation from a CPA. He would like George to do the compilation.Required: Under what conditions, if any, George Wilson would be allowed to prepare a compilation of thefinancial statements of Smith Plastics, Inc.?

George Wilson is not independent of Smith Plastics since he is a director. However, this does notprevent him from issuing a compilation report if he follows the requirements of SSARS 1. A separate

last paragraph of the report should state: "I am not independent with respect to Smith Plastics, Inc." Noreason should be given for the lack of independence.




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111. Donna Prima, CPA, was engaged to review the unaudited financial statements of Rooster Restaurants,Inc., a nonpublic company. During her review, Donna found that Rooster had not capitalized leases asrequired by GAAP. The result was so material, that Donna modified the standard review report to statethat "the financial statements are not in conformity with GAAP." Required: Is Donna's report in accordance with professional standards? If not, what should she have done underthe circumstances? Explain.

Donna's report is not in accordance with Statements for Accounting and Review Services. Review engagements are not audits; therefore an adverse type of opinion cannot be given. Donna shouldhave modified the standard review report by adding an explanatory paragraph to describe the knowndeparture from GAAP. This exception would be referred to with the negative assurance provided in thelast paragraph of the review report.


AICPA BB: Lega AICPA FN: Research Bloom's: Application


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112. Public accounting firms have consistently looked for additional services that might increase theprofitability of the public accounting firm. To that end, there are now four different reporting relatedservices being studied by the AICPA to determine how CPAs can provide value to clients. Required: A. Describe two of the services identified by the AICPA. B. Why would the public prefer to have a public accounting firm as a provider of these services?

C. What are the possible negative consequences for public accounting firms if they provide servicesoutside the realm of traditional accounting services?

A. Students may choose any two of the following: a. SysTrust Services: An assurance service that reviews a client's information system to provideassurance to business partners concerning the security, privacy, confidentiality of information, systemavailability and processing integrity. b. WebTrust Services: An assurance service designed to reduce the concerns of Internet users regardingthe existence of a company and the reliability of key business information placed on the website. c. XBRL Services: XBRL provides a computer readable identifying tag for each individual item of data.For example, company net profit has its own unique tag. The XBRL tag enables automated processingof business information by computer software, As a result of XBRL, computers can now treat XBRLdata "intelligently": they can recognize the information in a XBRL document, select it, analyze it,store it, exchange it with other computers and present it automatically in a variety of ways for users.

XBRL greatly increases the speed of handling of financial data, reduces the chance of error and permitsautomatic checking of information. d. Enhanced Business Reporting (EBR) Services: EBR focuses on improving business reporting bydeveloping an internationally-recognized, voluntary framework for presentation and disclosure of valuedrivers, non-financial performance measures, and qualitative information. Benefits would include betterallocation of capital by investors, reduced financing costs of companies and more efficient and effectiveregulatory processes, strengthening global competitiveness and stability in the capital markets. B. The public might prefer to have these services provided by public accounting firms because of theirreputation for integrity and objectivity. Often the public is skeptical of advice and recommendationsprovided by other professionals, such as attorneys and consultants. This skepticism is often founded inthe belief that recommendations are based on an economic incentive to sell a product or service that the

professional represents. Public accounting firms that perform an assurance service without representingany particular product or service are acting as client advocates and are seen as such by the public. C. The accounting profession needs to be very careful regarding the pursuit of revenues as a primaryobjective. First, CPAs have always been viewed as specialists in financial and business informationand assurance regarding that information. As they begin to branch out into information that might beperceived as outside their expertise, the public may lose confidence in the profession. Second, if theprofession pursues revenues without maintaining the traditional values that have been the cornerstoneof the profession (i.e., independence and objectivity), the profession's image and public trust may bedamaged.

AACSB: Analytic



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113. Big Ben's Toy (BBT) Company has recently outsourced its payroll operation to Mary's Payroll Service(MPS). MPS receives the changes to the payroll data base (hirings, firings, rate increases, etc.) and thenumber of hours worked for all hourly employees. MPS calculates the payroll and sends BBT printedpayroll checks, a payroll register, and a list of payments to be made to third parties (IRS, insurance,pension plan, etc.). BBT transfers an appropriate amount into its payroll bank account and distributesthe checks. Accounts payable uses the list of third-party payments to make appropriate payments. You have been hired to perform an audit of BBT Company. During your opening meeting with BBTmanagement you state that your audit plan includes inquiries of Mary's Payroll Service and a review

of the SAS 70 report on internal controls at MPS. BBT's management is confused and states that BBTshould not have to pay you to review controls at another organization. Prepare a brief explanation to BBT's management as to why it is necessary to review the controls atMPS and the importance of this review to BBT Company.

The outsourcing of significant portions of a business does not alleviate the company from itsresponsibilities for that portion of the business. Auditing standards require the auditor to gain anunderstanding of internal controls over all material areas of financial reporting, and in almost allcases payroll would be material. In addition, if the company is required to report on internal controlsin compliance with PCAOB Standard No. 5 ( AS 5), controls over third-party providers of financialinformation would need to be included. Finally, if there were a failure to meet regulatory requirements,such as improperly calculating the tax liability, the appropriate regulatory body would not take action

against the third-party provider, but against the organization responsible for meeting these regulatoryrequirements.

AACSB: Analytic

AICPA BB: Critical Thinking AICPA FN: Risk Analysi



Question is also Found in the Study Guide


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114. Complete the key words, names, and phrases in the following accountant's report on a review offinancial statements of a nonpublic entity. We have _____________________________ the accompanying _______________________________________________ of Dandy Company as of December 31, 2010 and 2009, and the_____________________________ _____________________________ _____,_______________________ __________________________, ________________,_____________________________ __________________________, and_____________________________ _____________________________for the years then ended, in

____________________ _____ _____________________________ __________________________________ _____ _____________________________ __________________________________ _____________________________ issued by the_____________________________ _____________________________ __________________________________ __________________________________________________________. All information included in these financial statements is the_____________________________ _____ _____ _____________________________ of DandyCompany. A review consists principally of _____________________________ __________________________________ _____________________________ and_____________________________ _____________________________ applied to_____________________________ _____. It is substantially __________ ______ _____________

than an audit in accordance with __________________________________________________________ __________________________________________________________, the objective of which is the ______________________________ _____ _____________________________ regarding the financial statements __________ ________ ______________. Accordingly, we ___ ____ _______________ ______ ____________________. Based on our review, we are ______ _______________________ of any_______________________________ _______________________________ that should be made tothe accompanying financial statements in order for them to be in _______________________________ _______________________________ ___________________________________________________ ___________________.

We have reviewed the accompanying balance sheet of Dandy Company as of December 31, 2010 and2009, and the related statements of income, comprehensive income, retained earnings, and cash flows for the years then ended, in accordance with Statements on Standards for Accounting and ReviewServices issued by the American Institute of Certified Public Accountants. All information included inthese financial statements is the representation of the management of Dandy Company. A review consists principally of inquiries of company personnel and analytical procedures appliedto financial data. It is substantially less in scope than an audit in accordance with generally acceptedauditing standards, the objective of which is the expression of an opinion regarding the financialstatements taken as a whole. Accordingly, we do no express such an opinion. Based on our review, we are not aware of any material modifications that should be made to theaccompanying financial statements in order form them to be in conformity with generally acceptedaccounting principles.




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A Summary

Category # ofQuestions

AACSB: Analytic 64

AACSB: Communication 19AACSB: Ethics 1

AICPA BB: Critical Thinking 1

AICPA BB: Legal 67

AICPA BB: Marketing 15

AICPA BB: Resource Management 1

AICPA FN: Reporting 14

AICPA FN: Research 30

AICPA FN: Risk Analysis 40

Bloom's: Application 79

Bloom's: Knowledge 4

Bloom's: Technology 1

Difficulty: Easy 17

Difficulty: Hard 16

Difficulty: Medium 51

Louwers - Module A... 119

A

Documents

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