Deck 16: Other Public Accounting Services and Reports

Question 1

The environmental audit evaluates a company's operations and performance in terms of conformity with federal, provincial, and municipal laws and regulations.

Answer 1

True

Question 2

A review engagement consists primarily of enquiry, analytical procedures, and discussion.

Answer 2

True

Question 3

In Value for Money audits, the focus is on the financial statements.

Answer 3

False

Question 4

Since the Management Discussion and Analysis report is not part of the financial statements, the auditor bears no responsibility for it.

Question 5

If a prospectus is issued more than 90 days beyond the balance sheet date, then auditor will need to perform procedures on interim financial statement information prior to permitting the use of their audit opinion in the prospectus.

Question 6

Review engagement standards require that the accountant performing the engagement have an objective state of mind.

Question 7

Statements prepared on a basis other than Canadian generally accepted accounting principles can be compiled or reviewed, but not audited.

Question 8

Ordinarily, which of the following procedures should be applied when an independent accountant conducts a review of interim financial information of a publicly held company?

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.

Question 9

Auditing standards apply to work on all audited financial statements but not to work on other assurance engagements.

Question 10

Which of the following procedures would not be performed in a review of the financial statements of a private company?

A)Enquire about the accounting system and bookkeeping procedures.
B)Perform analytical procedures to identify relationships and individual items that appear to be unusual.
C)Obtain a lawyer's letter about claims and possible claims.
D)Study the financial statements for indications that they conform to generally accepted accounting principles.

Question 11

Effectiveness refers to outputs of resources maximized for the related inputs and inputs minimized for the related outputs.

Question 12

An environmental audit focuses on compliance with legislation rather than the effect of compliance on the financial statements.

Question 13

XYZ Ltd.has prepared financial statements that not in accordance with GAAP.The review report should

A)Ensure that the nature of the departure is described in the notes.
B)Contain a reservation describing the nature of the departure from GAAP.
C)Be a standard review report, since a review is not an audit.
D)Indicate the dollar effect of restatement for each account affected.

Question 14

Under CICA rules, the auditor verifies the accuracy of management's internal controls statement just as they verify the accuracy of financial statements.

Question 15

A VFM audit will tend to use a multidisciplinary audit team with expertise in different areas such as like economics or engineering.

Question 16

An accountant who is not independent can compile financial statements for a private company as long as the fact of lack of independence is disclosed in the body of the report.

Question 17

In a compilation engagement, the accountant performs no audit procedures.

Question 18

When providing assurance on internal control, the auditor provides a negative assurance report.

Question 19

Federal and provincial governments and their agencies and local governments use the
CICA Public Sector Standards to guide their audits.

Question 20

Accounting principles require that interim financial statements be prepared.

Question 21

Which of the following procedures should an accountant perform during an engagement to review the financial statements of a private company?

A)Communicate internal control system weaknesses that were discovered during the assessment of control risk.
B)Obtain a letter of representation signed by top-level management.
C)Send bank confirmations to the company's financial institutions.
D)Examine cash disbursements in the subsequent period for evidence of unrecorded liabilities.

Question 22

An accountant's review engagement report would not include a statement that

A)The engagement was performed in accordance with generally accepted auditing standards
B)An accountant reviews information supplied by the company.
C)A review does not constitute an audit and an audit opinion is not expressed on the financial statements.
D)The accountant is not aware of any material departure from generally accepted accounting standards (GAAP).

Question 23

Before reporting on the financial statements of a Canadian entity that have been prepared in accordance with the accounting principles of another country, an auditor practicing in Canada should

A)Understand the accounting principles that are generally accepted in the other country.
B)Be certified by the appropriate auditing or accountancy board of the other country.
C)Notify management that the auditor is required to deny an opinion on the financial statements.
D)Recast the financial statements according to Canadian GAAP.

Question 24

An operational audit would not include determining

A)Whether the entity is acquiring, protecting, and using its resources effectively.
B)The effectiveness of an organization and its programs, activities, and functions.
C)The causes of inefficiencies or uneconomical practices.
D)Whether the entity has complied with laws and regulations.

Question 25

CA is a minority shareholder in ABC Co., and has just completed a compilation engagement for the company.The Notice to Reader should

A)Disclaim an opinion.
B)Provide negative assurance.
C)Include a statement that CA is not objective.
D)Not be issued since CA is not objective.

Question 26

Which of the following departures from GAAP financial statements would receive an unqualified audit report?

A)Accounting for a material capital lease as an operating lease.
B)Use of an appropriate disclosed basis of accounting in accordance with legislation.
C)Failing to consolidate a controlled subsidiary.
D)Inventory written up to most recent quoted prices.

Question 27

When independent CAs in public practice take engagements to audit governmental units or entities that receive financial assistance from governmental units they must follow

A)GAAS only.
B)GAAS and PS.
C)PS only.
D)Internal auditing standards.

Question 28

An auditor has been engaged to report on management's report on internal control.Management's report points to a material weakness in its system of internal controls over inventory.The auditor's report should be:

A)An adverse opinion.
B)A qualified opinion for a GAAP departure.
C)A clean opinion.
D)A clean opinion with an emphasis of matter paragraph.

Question 29

Snow, CA, was engaged by Master Limited to examine and report on management's written assertion about the effectiveness of Master's internal control system over financial reporting.Snow's report should state that

A)Because of the inherent limitations in any system of internal control, errors or irregularities may occur and not be detected.
B)Management's assertion is based on criteria established by the Canadian Institute of
C)The results of Snow's tests will form the basis for Snow's opinion on the fairness of
D)The purpose of the engagement is to enable Snow to plan an audit and determine the nature, timing, and extent of tests to be performed.

Question 30

An accountant's communication on the financial statements in a compilation engagement would not include a statement that

A)The statements may not be appropriate for the purposes of users.
B)The financial statement information has been compiled.
C)A compilation engagement 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 did not attempt to verify accuracy or completeness.

Question 31

The term significance as used in the assurance standards refers to:

A)The concept of materiality extended to non-financial factors.
B)An amount greater than materiality for audit purposes.
C)An estimate of risk in an assurance engagement.
D)The importance of a criteria for evaluation of information.

Question 32

The primary purpose for the development of standards by the Criteria of Control
Committee was to:

A)Provide guidance for companies developing best practice control systems.
B)Provide a basis similar to GAAP for reporting on controls.
C)Provide detailed tests of controls for audits of financial statements.
D)Provide clarity on who is responsible for controls.

Question 33

Which of the following best describes a CA's engagement to report on an entity's internal controls over financial reporting?

A)An assurance engagement to examine and report on management's written assertions about the effectiveness of its internal control system.
B)An audit engagement to render an opinion on the entity's internal control system.
C)A prospective engagement to project, for a period of time not to exceed one year, and report on the expected benefits of the entity's internal control structure.
D)A consulting engagement to provide constructive advice to the entity on its internal control system.

Question 34

If an accountant is engaged to compile the financial statements of a private entity and the statements omit substantially all disclosures required by GAAP, which of the following alternatives is correct.

A)If the accountant concludes that the omissions result in misleading financial statements and the matter cannot be resolved, the accountant should withdraw from the engagement.
B)The report should be amended to state that the financial statements have been prepared in accordance with a comprehensive basis of accounting other than GAAP.
C)The report should be amended to state that the financial statements have not been compiled in accordance with standards for compilation and review engagements.
D)The report should indicate that the statements are special-purpose financial statements that are not comparable to those of prior periods.

Question 35

The auditor learned the following in the course of an audit engagement.Which of the items, discovered by the auditor, need not be communicated to the audit committee?

A)The theft of several items of inventory by warehouse employees.
B)Management's significant accounting policies.
C)Significant audit adjustments recommended by the auditors.
D)All of these items should be communicated to the audit committee.

Question 36

When compiling the financial statements of a private company, an accountant should

A)Review agreements with financial institutions for restrictions on cash balances.
B)Study and understand the client's business.
C)Inquire of key personnel concerning related parties and subsequent events.
D)Perform ratio analyses of the financial data of comparable prior periods.

Question 37

Which of the following statements about a compilation engagement is not true?

A)The accountant must have adequate technical training and proficiency in accounting.
B)The accountant does not have to have an objective state of mind.
C)The statements must comply with generally accepted accounting principles.
D)The accountant should adequately plan and properly execute the work.

Question 38

When unaudited financial statements are presented in comparative form with audited financial statements, such statements should be

A)A
B)B
C)C
D)D

Question 39

In providing guidance to accountants, which ranks highest?

A)Research study
B)Criteria of Control guidance
C)Handbook Recommendation
D)Handbook Guideline

Question 40

Auditors of governmental units would be presumed to be lacking in independence if they were

A)Free from sources of external impairment.
B)Organizationally independent.
C)Members of a political party which campaigned against the program under audit.
D)Auditing in a level of government other than the one to which they are normally assigned.

Question 41

Briefly distinguish between a compliance audit and a value for money audit.

Question 42

Economy is related to

A)Efficiency variance.
B)Volume variance.
C)Price variance.
D)Capacity variance.

Question 43

A review engagement consists primarily of enquiry, analytical procedures, and discussion.List some specific examples of the question the accountant could ask or the procedures the accountant could perform on a review engagement.

Question 44

List three matters which the auditor is responsible for reporting on to the audit committee of a public company.

Question 45

In 2009, Marg Levy, PA, performed an environmental audit of Scoop Mining.As a result of that engagement she prepared a report which included several recommendations to improve compliance with environmental protection laws.In 2010, Ms.Levy has been approached to perform another audit of environmental protection procedures some of which are based on her earlier recommendations.

A)Ms.Levy must decline the audit as it conflicts with her independence.
B)Ms.Levy must restrict herself to performing specified tests of procedures that were not in her recommendations in order to protect her independence.
C)Ms.Levy may perform the audit including work on her recommended procedures as independence is less important in an environmental compliance audit than in a financial statement audit.
D)Ms.Levy may perform the audit including work on her recommended procedures since she cannot be associated with non-financial information so the concept of independence does not apply.

Question 46

One of the key differences between a financial statement audit and a value for money audit is:

A)In most cases VFM audits have mandates established through legislation or contracts.
B)In a financial statement audit, the auditor has to use his or her professional judgment to redefine their broad mandate in specific terms with specific objectives.
C)In a VFM audit, standards are defined by professions and associations.
D)In a financial statement audit, sufficient appropriate evidence must be obtained to afford a reasonable basis to support the content of the auditor's report.

Question 47

Donna Prima, PA, was engaged to review the financial statements of Rooster Restaurants, Inc., a private company.During her review, Donna found that Rooster had not capitalized leases as required under GAAP.The result was so material, that Donna modified the standard review report to state that "the financial statements are not in accordance with GAAP." Required:
Is Prima's report in accordance with professional standards? If not, what should she have done under the circumstances? Explain.

Question 48

The purpose of an operational audit is to:

A)Determine the effectiveness of internal controls.
B)Detect material misstatements in the company's financial statements.
C)Provide assurance on fair presentation of company financial statements.
D)Assess the economy, efficiency and effectiveness of resources and objectives.

Question 49

George Wilson CA is on the board of directors of a small manufacturing company, Smith
Plastics, Inc.The president of the company, John Smith, has asked George to prepare
financial statements for the company to be submitted to Vancouver-Dominion Bank as part of a loan request.Mr.Smith tells George that the bank would like a review or an audit, but
would settle for a compilation from a CA.He would like George to do the compilation.Required:
Under what conditions, if any, would George Wilson be allowed to compile the financial statements of Smith Plastics, Inc.?