Deck 20: Other Assurance and Nonassurance Services

Question 1

When conducting a review engagement,how is materiality calculated?

A)materiality is not calculated as a lower level of assurance is being provided
B)the concept of significance is used,rather than the concept of materiality
C)always as a percentage of net income before income taxes
D)in the same manner as an audit engagement

Answer 1

D

Question 2

When would the public accountant conduct audit procedures during a review engagement?

A)When junior staff are assigned to the engagement.
B)When required to assess plausibility.
C)When it is a first-time review engagement.
D)When a higher level of assurance is required for the bank.

Answer 2

B

Question 3

When is negative assurance used during a review engagement?

A)when the standards applicable to a review engagement have been met
B)if a qualification is required during the review engagement
C)when the criteria associated with a review engagement have not been satisfied
D)when the practitioner is unable to set appropriate criteria for the review engagement

Answer 3

A

Question 4

Performing inquiry,analytical procedures,and discussion with the limited objective of assessing whether the information being reported on is plausible within the framework of appropriate criteria is the definition of a(n)

A)compilation.
B)review.
C)audit.
D)examination.

Question 5

Which of the following components of an engagement letter would apply to both a review engagement and a compilation engagement?

A)negative assurance will be provided so there is no assurance that fraud will be detected
B)no assurance will be provided since only mathematical accuracy will be verified
C)procedures used during the engagement will be limited to analytical review and inquiry
D)a statement that an audit is not to be performed and that no opinion will be expressed

Question 6

When assessing the plausibility of the financial statements for a review engagement,the auditor will use which of the following criteria for auditing a small,privately held company?

A)standards of efficiency and effectiveness
B)the audit objectives associated with the audit of financial statements
C)an acceptable reporting framework such as ASPE
D)an enterprise risk-management framework to help detect fraud

Question 7

A review engagement requires what amount of evidence to be accumulated?

A)minimal
B)moderate
C)extensive
D)maximum

Question 8

The Locker Building is a new apartment building in a Vancouver suburb.In order to receive a subsidy from the municipality,it needs to prove that it has complied with the city's new rules about "green efficiency." The "green efficiency" rules are described on the municipality's website and list the requirements a building must meet to be considered green and efficient.Your firm,with the help of an environmental scientist,has been asked to perform a direct reporting engagement for the Locker Building.The suitable criteria in this case are the

A)green efficiency rules.
B)auditor's judgment.
C)environmental scientist's judgment.
D)federal environmental laws.

Question 9

List the financial statement users and the suitable engagements that auditors perform for them.

Question 10

Why is it important for the review engagement report to state that the review is not an audit?

A)to make sure that the public accountant is not sued
B)to clarify that only review engagement procedures were used during the engagement
C)to make users aware that a review provides a lower level of assurance
D)so that the user does not ask any unnecessary questions about the engagement

Question 11

Before performing a review of an entity's financial statements,an accountant should

A)complete a series of inquiries concerning the entity's procedures for recording,classifying,and summarizing transactions.
B)apply analytical procedures to provide limited assurance that no material modifications should be made to the financial statements.
C)obtain a sufficient level of knowledge of the accounting principles and practices of the industry in which the entity operates.
D)inquire whether management has omitted substantially all of the disclosures required by generally accepted accounting principles.

Question 12

Four different engagements that the auditor can complete are compilation,bookkeeping,audit,and review.Rank these engagements with respect to the level of assurance provided from highest assurance level to lowest assurance level.

A)audit,review,compilation,bookkeeping
B)audit,compilation,review,bookkeeping
C)review,audit,compilation,bookkeeping
D)bookkeeping,compilation,review,audit

Question 13

A review engagement includes

A)obtaining an understanding of the internal controls.
B)tests of controls or transactions.
C)inquiry,analytical procedures,and discussion.
D)independent confirmation or physical examination.

Question 14

Leon Levy,a partner at the audit firm where you work,asked you to work on the audit of the balance sheet of Geminy Corp.Geminy is not a public company and has not been required to have audited financial statements in the past.This year,due to a new bank loan,its bank requested that audited financial statements be provided.Who are the primary users in this assurance engagement?

A)Leon Levy
B)the bank
C)management of Geminy Corp
D)shareholders of Geminy Corp

Question 15

As part of the conduct of a review engagement,which of the following would be a typical procedure used for the assessment of the ending accounts receivable balance?

A)circularization of positive confirmations to all balances exceeding materiality
B)comparison of the age of the accounts receivable to the prior year
C)use of negative confirmations on all large balances
D)detailed examination of all accounts over 120 days to assess the bad debt allowance

Question 16

As part of the review engagement for a small manufacturing company,which of the following would be a typical review procedure for the sales cycle?

A)review of internal controls over the granting of credit
B)examination of sales documents to ensure credit approval is documented
C)recalculation of the taxes and extensions on a sample of invoices
D)comparison of sales and gross profit to the prior year

Question 17

As part of the conduct of a review engagement,which of the following procedures would be appropriate for assessing the ending value of inventory?

A)discussion with management with respect to the costing method used
B)observation of the inventory count
C)observation of the warehouse,paying particular attention to dusty and damaged goods
D)confirmation with customers that are holding consignment inventory with respect to quantity and condition of the inventory

Question 18

Sean Clem has done a review engagement and prepared the tax return for your web design business for the last five years.The books and records have always been well organized,although year-end adjusting entries have been required.You do some of the accounting yourself and the rest of the accounting records are handled by your spouse,who is also an employee of the business.
This year,you would like to expand your business to provide ISP (internet service provider)services to your clients.This would involve purchasing additional computer equipment and software.You are also considering hiring an additional employee (you currently have three),and you are looking at obtaining a loan for $100 000 from the bank.The bank says that you should have your records audited,but you are not sure what this will mean.
Required:
What would Sean say to you about the differences between an audit and a review?

Question 19

As part of the conduct of a review engagement,which of the following procedures would be appropriate for assessing the ending value of accounts payable?

A)sending zero-balance confirmations to frequently used suppliers
B)use of negative confirmations to suppliers with material balances
C)comparison of the accounts payable balances by supplier to the prior year
D)examination of invoices received after the year-end to ensure that they were recorded in the proper period

Question 20

What is meant by limited assurance?

Question 21

You have just recently become a member of your local non-profit housing co-op by moving into the largest unit.The board of directors has asked that you handle the review engagement but you are concerned about independence.What is a practical way for you to stay in the co-op but also perform the review engagement?

A)Request a bylaw stating that the accountant cannot vote for board members.
B)Do a compilation rather than a review engagement.
C)Have all the preparation work for the review engagement completed by a board member.
D)Include a paragraph in the review engagement report stating that you are not independent.

Question 22

The level of assurance that is provided by the public accountant on a compilation report is

A)none.
B)low.
C)medium.
D)high.

Question 23

Always Quick Manufacturing Limited is a small business that manufactures metal and plastic components for a variety of industries.The bulk of the business is in the computing industry,although it has occasional contracts for the automotive industry.
Jose,the owner,would like to expand the business so that he can bid on larger contracts.This requires an investment of about $500 000 to finance capital assets and about $300 000 for a working capital loan.Jose has financed the business himself to this point and has been given some alternatives by the bank.
The alternatives pertain to which assets are used as guarantees and whether Jose also guarantees the loans personally (as he has substantial personal assets).The bank also stated that if Jose personally guarantees the loan,the company will only require a review engagement,whereas if the loan is only secured by corporate assets,an audit of the company will be required.
Jose understands the differences among the guarantees but is not sure about the difference between a review and and audit engagement.Presently,the company financial statements are prepared using a compilation engagement.
Required:
Explain to Jose the difference between a review and an audit engagement in the context of his present compilation engagement.

Question 24

The statement that "nothing came to our attention that would indicate that these statements are not fairly presented" expresses which of the following?

A)disclaimer of an opinion
B)negative assurance
C)negative confirmation
D)piecemeal opinion

Question 25

Yvan is preparing the audit plan for Share the Wealth,a non-profit organization.Share the Wealth is a large Montreal-based organization that receives corporate donations and has many stores that collect and re-sell costume jewelry and clothing.The purpose of the organization is to build recreation areas for children in less-fortunate areas of the city.
Share the Wealth was started by two sisters.One of the sisters is still actively involved in the organization,but the other sister has been devoting less time to the organization since she has had triplets.
Share the Wealth has a total of eight stores in Montreal where individuals can drop off donations and customers can purchase the second-hand clothing and costume jewelry.Share the Wealth has a total of 12 employees who work in the various stores.Depending on the schedule and availability,the employees will randomly be assigned to a store for the week.
Required:
Provide three procedures that Yvan should consider when performing the review engagement of Share the Wealth.

Question 26

A financial statement review emphasizes four broad areas,one of which is to "perform analytical procedures." State the other three areas emphasized.

Question 27

A compilation presents information,in the form of financial statements,that is the representation of management.The public accountant who prepares the compilation undertakes to express

A)limited assurance on the statements.
B)minimal assurance on the statements.
C)no assurance on the statements.
D)full assurance on the statements.

Question 28

A public accounting firm can issue a compilation report

A)only if the partners are independent.
B)only if all the partners and the staff in the office performing the engagement are independent.
C)if the partners have no material or direct immaterial interest in client.
D)even if it is not independent.

Question 29

Which of the following engagements would most likely be a compilation engagement?

A)An engagement with respect to financial statements attached to a personal tax return.
B)An engagement with respect to financial statements for a large public company.
C)An engagement with respect to financial statements for a company that has a large bank loan.
D)An engagement with respect to financial statements that accompany future-oriented information to obtain financing.

Question 30

Which of the following is a professional standard that must be followed by an accountant when conducting a compilation engagement?

A)work being adequately planned and properly executed
B)having adequate technical training and proficiency in auditing
C)obtaining an adequate understanding of the business and its industry
D)documenting the processes used to compile and record transactions

Question 31

An accountant who reviews the financial statements of an entity should issue a report stating that a review

A)does not constitute an audit.
B)provides negative assurance that the internal control structure is functioning as designed.
C)provides only limited assurance that the financial statements are fairly presented.
D)is substantially greater in scope than a compilation.

Question 32

Which of the following components of an engagement letter would apply to both a review engagement and a compilation engagement?

A)negative assurance will be provided,so there is no assurance that fraud will be detected
B)no assurance will be provided since only mathematical accuracy will be verified
C)procedures used during the engagement will be limited to analytical review and inquiry
D)a statement that each page of the statements should be clearly marked "unaudited"

Question 33

What is the title of a compilation report?

A)Opinion
B)Criteria Schedule
C)Engagement Report
D)Notice to Reader

Question 34

Which of the following items includes criteria for accepting a compilation engagement?

A)evaluation of whether the financial statements are in accordance with ASPE
B)no reason to believe that the financial statements are false or misleading
C)completion of an independence threat analysis,ensuring that there are no threats to independence
D)completion of a client risk analysis with the conclusion that risks are low

Question 35

Richard is performing a compilation engagement.Richard is concerned that the information is

A)arithmetically correct.
B)accurate.
C)complete.
D)in accordance with ASPE.

Question 36

The fact that a client has a material accounting departure for failure to follow ASPE would require the accountant to disclose that fact in a separate paragraph giving rise to the modification when the accountant is performing

A)a compilation.
B)a review and an audit.
C)either a compilation or a review.
D)neither a compilation nor a review,only an audit.

Question 37

The accountant is working on an engagement with respect to the client's financial statements.Which of the following engagements would omit an assessment of the client's accounting policies' compliance with GAAP?

A)review
B)compilation
C)audit
D)attestation

Question 38

Which of the following procedures would most likely be conducted by an accountant during a compilation engagement?

A)Enquire of management with respect to the purpose of new capital assets.
B)Compare gross profit on a year-by-year basis over the last five years.
C)Circularize negative accounts receivable confirmations.
D)Assemble and recalculate the financial statement allocations.

Question 39

A review service engagement for an accountants' association with unaudited financial statements involves which of the following?

A)more work than a compilation,and more than an audit.
B)less work than an audit,but more than a compilation.
C)less work than a compilation,but more than an audit.
D)less work than an audit,and less than a compilation.

Question 40

Which of the following would be required in a compilation?

A)an understanding between the client and the accountant for the services to be provided
B)a formal engagement letter signed by the client
C)management's acknowledgements for its responsibility with regards to the financial statements
D)a confirmation of the auditor's independence

Question 41

"An engagement where there is an accountability relationship between two or more parties and the practitioner is engaged to issue a written communication expressing a conclusion about subject matter for which the accountable party is responsible" is the definition of a(n)

A)audit engagement.
B)assurance engagement.
C)review engagement.
D)compilation engagement.

Question 42

For the conduct of an assurance engagement,the practitioner is required to identify or develop criteria to evaluate the subject matter.Identify some characteristics of suitable criteria.

A)relevance,reliability,neutrality,understandability,completeness
B)reliability,accuracy,neutrality,timeliness
C)understandability,completeness,timeliness,free from bias
D)completeness,timeliness,free from bias,competent

Question 43

Describe the professional standards that must be followed when undertaking a compilation engagement as specified by the CPA Canada Handbook.

Question 44

Thermos Inc.is having its financial statements audited by Pilott & Levy,a PA firm.Leon Levy is the auditor in charge of the audit.The accountable party in this assurance engagement is

A)Leon Levy.
B)Pilott & Levy.
C)management of Thermos Inc.
D)the board of directors of Thermos Inc.

Question 45

In addition to having modifications of wording for the financial statement audit opinion,other types of opinions can have modifications as well.Which of the following describes a situation where there would be a qualification or disclaimer of opinion for a direct reporting engagement?

A)The subject matter does not conform to the criteria.
B)The information is not presented fairly.
C)The practitioner conducted alternative procedures where there was a scope limitation.
D)The practitioner and management disagree about the content of the report.

Question 46

Define "direct reporting engagements."

Question 47

Define "assurance engagements."

Question 48

The Federal Auditor General provides the results of operational audits to Parliament in Auditor General reports.What type of engagements are these?

A)direct reporting
B)attest engagement
C)review engagement
D)compilation engagement

Question 49

Criteria are the benchmarks against which nonfinancial information will be evaluated while applying professional judgment during assurance engagements.According to the umbrella standards,suitable criteria should have which features?

Question 50

You have just signed off the audit report on the financial statements of your client.What type of engagement did you complete?

A)review
B)direct reporting
C)attest and assurance
D)operational

Question 51

Prior to accepting an engagement to examine a financial forecast or projection included in a prospectus or other public offering document,the public accountant should

A)obtain an understanding of the controls over preparation of internal forecasts such as budgets.
B)increase the risk profile of the client with respect to management integrity.
C)ensure that management will provide sufficient evidence to conduct the engagement.
D)inform the client that the engagement may not detect errors in the client's forecasts.

Question 52

Outline the three performance standards of "Standards for Assurance Engagements."

Question 53

With respect to working on an engagement to examine a financial forecast or projection included in a prospectus or other public offering document,the public accountant and the client should agree upon

A)allocation of the responsibility of creating the assumptions to the public accountant.
B)the period of time to be covered.
C)delegation of forecast preparation to the public accountant.
D)the fact that the forecast may not be prepared in accordance with standards.

Question 54

What is the purpose of an auditor reporting on the effectiveness of internal control over financial reporting?

A)To attest to the effectiveness and efficiency of internal controls at an organization.
B)To state an opinion on management's assessment of the effectiveness of internal controls.
C)To provide an alternative to the operational audits conducted by internal auditors.
D)To state that the controls are in conformity with standards with respect to internal controls.

Question 55

"An engagement where the practitioner expresses a conclusion on a written assertion about a subject prepared by a party accountable for the assertion,such as management" is the definition of a(n)

A)audit engagement.
B)attestation engagement.
C)review engagement.
D)assurance engagement.

Question 56

The interim financial statements are usually

A)not audited by the auditors.
B)not compiled by the auditors.
C)not reviewed by the auditors.
D)checked for compliance by the auditors.

Question 57

Define "attestation engagements."

Question 58

Which of the following techniques would be conducted by a practitioner when conducting a review of compliance with agreements and regulations?

A)use of a specialist to ensure that the terms of the agreement are complied with
B)inquiring about how the client monitors its compliance with the provisions
C)testing control procedures throughout the year that pertain to the provisions of the agreement
D)discussing with client's legal counsel to identify any legal liabilities with respect to potential violations of the agreements

Question 59

An engagement for applying specified auditing procedures to financial information other than financial statements provides no assurance.This results in

A)a report that can be readily tailored to any type of engagement.
B)a broad set of audit procedures being conducted for specific information.
C)frequent disagreement between auditor and client with respect to results.
D)distribution of the report normally being restricted.

Question 60

Identify the reporting standards for compilation engagements.

Question 61

You are a public accountant retained by the manager of a cooperative retirement village to do "write-up work." You are expected to prepare unaudited financial statements with each page marked "unaudited" and accompanied by a disclaimer of opinion stating no audit was made.In performing the work,you discover that there are no invoices to support $25 000 of the manager's claimed disbursements.The manager informs you that all the disbursements are proper.What should you do?

A)Submit the expected statements but omit $25 000 of unsupported disbursements.
B)Include the unsupported disbursements in the statements since you are not expected to make an audit.
C)Obtain from the manager a written statement that you informed him of the missing invoices and include his assurance that the disbursements are proper.
D)Obtain further information about the $25 000 of unsupported items and withdraw if the situation is not satisfactorily resolved.

Question 62

What is an auditor's responsibility for supplementary information that is outside the basic financial statements but required by accounting guidelines?

A)The auditor should apply certain limited procedures to the required supplementary information and add an explanatory paragraph to the financial statement audit report.
B)The auditor has no responsibility for required supplementary information as long as it is outside the basic financial statements.
C)The auditor's only responsibility for required supplementary information is to determine that such information has not been omitted.
D)The auditor should apply tests of details of transactions and balances to the required supplementary information and report any material misstatements in such information.

Question 63

Which of the following matters would be addressed in a report on the results of applying specified auditing procedures to financial information other than financial statements?

A)an opinion with respect to the quality of the information examined
B)explanations of the differences between audits,reviews,and special engagements
C)the factual results of the procedures
D)provision of negative assurance with respect to the accounts examined

Question 64

As part of a loan agreement that it is thinking of obtaining,Always Quick Manufacturing Limited has decided that it will use accounts receivable and inventory as security for working capital funds.The bank has indicated that in addition to an annual financial statement audit,it would require quarterly assurance on the accounts receivable and inventory amounts.The type of assurance required has not been stated.The bank has told Jose,the owner of the company,that he would need to provide a detailed inventory list and an aged accounts receivable trial balance on the fifteenth of each month for the information as at the preceding month end.Jose would like to know what his alternatives are.
Required:
Your partner is going to meet with Jose next week and would like you to prepare a memo to file that will be used as part of the meeting.Draft a brief memo that includes a list of alternative types of engagements that could be used to provide assurance on the accounts receivable and inventory balances.