Deck 17: Other Services Provided by Audit Firms

Question 1

The IAASB and the AICPA identify three levels of assurance that can be provided in an attestation engagement.

Answer 1

False

Question 2

Negative assurance infers that nothing has come to the reviewer's attention that requires change.

Answer 2

True

Question 3

The standard report on a review of separately issued interim financial statements of public companies identifies the information reviewed, indicates that the standards of the PCAOB were followed in performing the review, explains the nature of a review, disclaims an opinion, and provides negative assurance that the auditor is not aware of any material departures from GAAP.

Answer 3

True

Question 4

An example of the subject matter of a non-audit attestation engagement is management's assertions about historical financial information and associated disclosures.

Question 5

The subject matter of an attestation engagement has to be as of a point in time.

Question 6

An auditor does not express an opinion on the fairness of the financial statements when issuing a standard compilation report.

Question 7

The SEC requires publicly owned corporations to have their quarterly financial information reviewed by their independent auditors before it is issued.

Question 8

The SEC requires publicly owned corporations to have their quarterly financial information reviewed by their independent auditors before it is issued, but does not require that the auditor's review report be included with the quarterly information, although many companies do include the auditor's report.

Question 9

One procedure that is common to an audit engagement, as well as to both the compilation and review engagement, is obtaining an engagement letter.

Question 10

The subject matter of a non-audit attestation engagement can be quite varied.

Question 11

The auditor need not be independent to perform a review engagement as it has a scope that is far less than that of an audit.

Question 12

Review reports issued by auditors give positive assurance as to the fair presentation of financial statements.

Question 13

The International Auditing and Assurance Standards Board's term assurance engagement means the same as The American Institute of Certified Public Accountants' term attestation engagement.

Question 14

It is common for an auditor to issue a compilation report on financial statements that omit all of the disclosures required by GAAP.

Question 15

A compilation performed in accordance with AICPA standards may be performed by CPAs or accountants who are not certified or licensed.

Question 16

The performance of inquiry and analytical review procedures to provide a reasonable basis for expressing limited assurance is required for a review service.

Question 17

The auditor should perform review procedures (a) on the quarterly information contained in the annual report to shareholders and (b) when engaged to review the quarterly information issued at the end of each of the first three quarters of the fiscal year.

Question 18

In limited assurance engagements, practitioners perform limited procedures (usually analysis of an issue but without significant testing) and checks to see if anything comes to their attention indicating a problem.

Question 19

Review engagements provide limited assurance on financial statements and are less in scope than audits.

Question 20

Regarding interim financial statement reviews, the standards do not require auditors to understand the client's accounting and financial reporting practices and its related internal controls over the preparation of annual and quarterly reports, since they are not expressing an opinion.

Question 21

When auditing only a single financial statement or a specific element, account, or item of a financial statement, the auditor will have a better understanding of the entity than if the auditor audited the entity's complete set of financial statements.

Question 22

Pro forma financial information shows what the significant effects might have been had a consummated or proposed transaction or event occurred at an earlier date.

Question 23

A report on agreed-upon procedures issued by accountants provides a form of attestation assurance.

Question 24

The focus of forensic accounting is similar to financial statement auditing in that it is directed to the fairness of financial statements.

Question 25

Accruals, such as estimates of bad debt and income tax expenses, are not usually as precise on interim financial reports as they are on year-end financial reports.

Question 26

Special reports would include compliance with contractual agreements.

Question 27

A state insurance commission requires an insurance company to prepare its financial statements in accordance with Statutory Accounting Principles. This situation may prevent an auditor from issuing a special report on the financial statements as the Statutory Accounting Principles are not a recognized alternative comprehensive basis.

Question 28

When forming an opinion on special purpose financial statements, the auditor should evaluate whether the financial statements include a summary of significant accounting policies.

Question 29

A company issuing prospective financial statements can receive a compilation on the statements but not an examination.

Question 30

A special purpose framework can use a cash basis financial reporting framework.

Question 31

An other-matter paragraph restricting the use of the auditor's report is a reporting requirement for a cash basis special purpose financial statement.

Question 32

A review report issued by a public accounting firm on a public client's interim financial statements includes reference to adherence to the standards of the Public Company Accounting Oversight Board.

Question 33

Forensic accountants need to have excellent interviewing and people skills.

Question 34

One aspect of forensic accounting focuses on identifying the person who has perpetrated the fraud and having that person confess to the fraud.

Question 35

Reporting on a specified account is a form of special report that an auditor may issue in relation to a specific basis of accounting.

Question 36

A report on compliance with a contractual agreement typically involves the use of negative assurance by the auditor in a separate report.

Question 37

In agreed-upon procedure engagements, the practitioner does not perform a review, and does not provide an opinion or negative assurance.

Question 38

When a public accounting firm issues a report on financial statements that are issued on an other comprehensive basis of accounting, this special report includes an opinion paragraph identical to an adverse opinion.

Question 39

The SEC requires public filers to have quarterly financial information reviewed by independent auditors.

Question 40

Attestation standards require that the practitioner evaluate whether there is reasonable criteria capable of reasonably consistent estimation by which to judge the assertions being made in a financial forecast.

Question 41

When the CPA is not independent with respect to a compilation client, what should the CPA do?

A) The CPA must not accept the engagement.
B) The CPA must include a separate paragraph in the report stating the lack of independence.
C) The CPA must change the engagement to a review engagement.
D) The CPA must issue a disclaimer.

Question 42

Which of the following engagements requires less evidence than a review of financial statements?

A) A compilation.
B) An audit.
C) An examination.
D) Attestation.

Question 43

When an accountant is asked to compile financial statements that omit substantially all of the required disclosures, which of the following actions is appropriate?

A) The CPA cannot accept the engagement.
B) The CPA may accept the engagement.
C) The CPA may accept the engagement if the CPA believes the omission is not undertaken to mislead users.
D) The CPA must express an adverse opinion.

Question 44

Which one of the following statements is false regarding a review?

A) A review involves assessing fraud risk.
B) A review does not involve obtaining an understanding of the entity's internal control.
C) A review does not involve testing accounting records by obtaining sufficient appropriate evidence through inspection, observation, confirmation, or examining source documents.
D) A review does not involve a practitioner obtaining assurance that he or she will become aware of all significant matters that would be investigated in an audit.

Question 45

What types of companies can have a compilation performed in accordance with the AICPA standards?

A) Public Companies: Yes; Nonpublic Companies: Yes
B) Public Companies: No; Nonpublic Companies: No
C) Public Companies: No; Nonpublic Companies: Yes
D) Public Companies: Yes; Nonpublic Companies: No

Question 46

Which of the following is not an AICPA standard of reporting for attestation engagements?

A) The practitioner must identify the subject matter or the assertion being reported on and state the character of the engagement in the report.
B) The practitioner must state the practitioner's conclusion about the subject matter or the assertion in relation to the criteria against which the subject matter was evaluated in the report.
C) The practitioner must obtain sufficient evidence to provide a reasonable basis for the conclusions that is expressed in the report.
D) The practitioner must state all of the practitioner's significant reservations about the engagement, the subject matter, and if applicable, the assertion related thereto in the report.

Question 47

Which of the following is not a critical component of attestation services?

A) Information or process (the subject matter) on which the assurance service is provided.
B) Criteria for evaluation, such as compliance with regulations.
C) Sufficient appropriate evidence.
D) Two parties involved, the practitioner (or the CPA) and the intended users of the report.

Question 48

What are the two levels of assurance that can be provided in an attestation engagement?

A) Risk assurance and reduction assurance.
B) Professional assurance and compliance assurance.
C) Sufficient assurance and appropriate assurance.
D) Reasonable assurance and limited assurance.

Question 49

Which of the following is an accounting service that involves performing inquiry and analytical procedures as a reasonable basis for expressing limited assurance that no material modifications need to be made to the financial statements in order for the financial statements to conform to GAAP?

A) A compilation.
B) An audit.
C) A review.
D) An agreed upon procedure.

Question 50

Many corporate websites now include sustainability reports, and the placement on those websites is usually quite prominent.

Question 51

Currently, there are various frameworks and standards to assist companies in producing relevant and reliable sustainability data for external users.

Question 52

Which of the following standards represents the standards followed by CPAs providing a review of a client's financial statements?

A) Statements on Standards for Accounting and Review Services.
B) Statements on Auditing Standards.
C) Statements on Standards for Consulting and Review Services.
D) Statements on Accounting Principles.

Question 53

A review report provides the user with which one of the following types of assurance?

A) Reasonable assurance.
B) Basic assurance.
C) Absolute assurance.
D) Limited assurance.

Question 54

What are the two topics that attestation standards provide guidance on?

A) They provide a plan for the engagement and criteria about who can participate in the engagement.
B) They provide guidance about gathering evidence regarding specific assertions and communicate an opinion on the fairness of the presentation to a third party.
C) They provide sufficient assurance on subject matter and appropriate assurance about reporting.
D) They provide guidance on reviewing evidence and compiling evidence.

Question 55

For which of the following services must a CPA be independent?

A) Audits: Yes; Reviews: Yes; Compilations: Yes
B) Audits: Yes; Reviews: Yes; Compilations: No
C) Audits: Yes; Reviews: No; Compilations: No
D) Audits: Yes; Reviews: No; Compilations: Yes

Question 56

What does the review service provided by the CPA firm require?

A) It requires the CPA to make inquiries concerning matters affecting the financial statements.
B) It requires the CPA to confirm accounts receivable.
C) It requires the CPA to test internal controls.
D) It requires the CPA to provide reasonable assurance.

Question 57

Some companies choose to provide no objective assurance regarding their sustainability reports.

Question 58

Which of the following is not subject matter that would be attested to in a non-audit attestation engagement?

A) Historical events such as the price of a market basket of goods on a certain date.
B) Corporate governance, compliance with law and regulations, or human resource practices.
C) Management's assertions about historical financial information and associated disclosures.
D) Prospective financial information, performance measurements, or backlog data.

Question 59

Which of the following is not an AICPA general standard for attestation engagements?

A) The practitioner must have adequate technical training and proficiency to perform the attestation engagement.
B) The practitioner must have reason to believe that the subject matter is capable of evaluation against criteria that are suitable and available to users.
C) The practitioner must adequately plan the work and must properly supervise any assistants.
D) The practitioner must exercise due professional care in the planning and performance of the engagement and the preparation of the report.

Question 60

A compilation report provides the user with which one of the following types of assurance?

A) No assurance.
B) Absolute assurance.
C) Limited assurance.
D) Negative assurance.

Question 61

When forming an opinion on special purpose financial statements, which of the following items does the auditor not need to evaluate?

A) Whether the financial statements adequately describe the applicable financial reporting framework.
B) Whether the financial statements have the appropriate title.
C) Whether the financial statements include a summary of significant accounting policies.
D) Whether the financial statements differ in GAAS presentation.

Question 62

Which of the following situations is not one where the practitioner will modify the standard compilation report?

A) There is an omission of disclosures for the compilation.
B) A compilation report is not required
C) The practitioner lacks independence.
D) An understanding of internal controls cannot be obtained.

Question 63

Which of the following procedures is not a review procedure for interim financial information?

A) Making inquiries.
B) Performing analytical procedures.
C) Reading the minutes of the board of directors' meetings
D) Obtaining oral assurance from management that there are no subsequent events.

Question 64

Other comprehensive bases of accounting do not include which of the following?

A) Cash basis.
B) Tax basis.
C) Regulatory basis.
D) Intended basis.

Question 65

Which one of the following procedures is not a standard procedure when performing a review?

A) Assess the internal control over financial reporting.
B) Read the financial statements to determine whether they appear to conform to GAAP.
C) Obtain or prepare a trial balance of the general ledger and foot and reconcile it to the general ledger.
D) Trace the financial statement amounts to the trial balance.

Question 66

In which of the following cases should the auditor's report on compliance not include a statement that nothing came to the auditor's attention that caused the auditor to believe that the entity failed to comply with specified aspects of the contractual agreements or regulatory requirements?

A) When the auditor has not identified any instances of noncompliance.
B) When the auditor has expressed an unmodified or qualified opinion on the financial statements to which the applicable covenants of such contractual agreements or regulatory requirements relate.
C) When the applicable covenants or regulatory requirements relate to accounting matters that have been subjected to the audit procedures applied in the audit of financial statements.
D) When the auditor needs to obtain further evidence to corroborate audit evidence acquired from management and the accounting records.

Question 67

Craig Marks, CPA performs an audit of Treasure, Inc., which keeps its financial statements on the tax basis of accounting. Craig is aware of this fact and audits the financial statements on the criteria of the tax basis. What type of engagement is this?

A) This engagement is not permitted by the AICPA.
B) This engagement is an audit that will result in the issuance of a special report.
C) This engagement is a compilation.
D) This engagement is only performed by tax accountants who do not provide attest services.

Question 68

For which of the following special purpose financial statements is a dual opinion on a special purpose framework and GAAP required?

A) Cash basis.
B) Tax basis.
C) Regulatory basis for general use.
D) Contractual basis.

Question 69

For which of the following special purpose financial statements is a description of purpose for which special purpose financial statements are prepared not required?

A) Cash basis.
B) Regulatory basis for use by management and the regulator only.
C) Regulatory basis for general use.
D) Contractual basis.

Question 70

For which of the following special purpose financial statements is an emphasis-of-matter paragraph alerting readers about the preparation in accordance with the special purpose framework not required?

A) Cash basis.
B) Tax basis.
C) Regulatory basis for general use.
D) Contractual basis.

Question 71

Which of the following is not a way that the disclosure and reporting requirements for interim financial statements differ from those for annual financial statements?

A) Accruals for estimates of bad debt are not usually as precise on interim dates as they are at year end.
B) Information disclosed in the latest annual statements does not have to be repeated in the interim statements except for continuing contingencies and other uncertainties.
C) Accruals for estimates of income tax expenses are not usually as precise on interim dates as they are at year end.
D) The interim information does not have to be filed with the SEC for public companies.

Question 72

For which of the following special purpose financial statements is an other-matter paragraph restricting the use of the auditor's report required?

A) Cash basis.
B) Tax basis.
C) Regulatory basis for general use.
D) Contractual basis.

Question 73

Which of the following engagements is sometimes referred to as bookkeeping services?

A) Reviews.
B) Special reports.
C) Compilations.
D) Audits.

Question 74

How many paragraphs does the standard review report for U.S. nonpublic companies or development stage companies have?

A) One.
B) Two.
C) Three.
D) Four.

Question 75

What are the performance standards required for interim review engagements on the quarterly financial information of public companies?

A) Statements on Standards for Accounting and Review Services.
B) Standards of the Public Company Accounting Oversight Board.
C) Statements on Reviews for Public Registrants and Securities Acts.
D) Standards set by the Public Oversight Board of the Enforcement Division of the SEC.

Question 76

Which one of the following reports is not a special report issued as a result of an examination?

A) Report on a specified financial statement element.
B) Report on compliance with contractual agreements.
C) Agreed upon procedures.
D) Report on information presented in prescribed forms.

Question 77

Which of the following services provides limited assurance?

A) Review.
B) Audit.
C) Examination.
D) Compilation.

Question 78

Which of the following items is not contained in the standard report on a review of separately issued interim financial statements of public companies?

A) A description of the information reviewed.
B) A statement indicating that the standards of the PCAOB were followed in performing the review.
C) A description of the nature of the review.
D) Positive assurance that the auditor is not aware of any material departures from GAAP.

Question 79

When are publicly owned companies required to file a Form 10Q with the SEC?

A) Within 10 to 15 days (depending on the company size) after the end of each of the first three quarters of the fiscal year
B) Within 30 to 45 days (depending on the company size) after the end of each of the first three quarters of the fiscal year
C) Within 40 to 45 days (depending on the company size) after the end of each of the first three quarters of the fiscal year
D) Within 45 to 60 days (depending on the company size) after the end of each of the first three quarters of the fiscal year

Question 80

Which of the following statements is false regarding compilation procedures?

A) The practitioner should have a general knowledge of the organization's industry, the nature of its accounting records, the accounting basis to be used (GAAP or a special purpose framework other than GAAP), and the form and content of the financial statements.
B) The practitioner is required to make inquiries or perform procedures to verify, corroborate, or review information provided by the client.
C) The practitioner is not required to obtain an understanding of internal control over financial reporting.
D) The practitioner should read the financial statements, including footnotes, to make sure that they are appropriate in form and free from obvious material misstatement.