Deck 21: Assurance,Attestation,and Internal Auditing Services

Question 1

Prospective financial statements may be prepared for

A) General use.
B) Limited use.
C) Internal use.
D) All of the above.

Answer 1

D

Question 2

The two standards of fieldwork for attestation engagements do not include the requirement that the CPA gain an understanding of internal control.

Answer 2

True

Question 3

Which of the following is a conceptual difference between the attestation standards and generally accepted auditing standards?

A) The attestation standards provide a framework for the attest function beyond historical financial statements.
B) The requirement that the practitioner be independent in mental attitude is omitted from the attestation standards.
C) The attestation standards do not permit an attest engagement to be part of a business acquisition study or a feasibility study.
D) None of the standards of fieldwork in generally accepted auditing standards are included in the attestation standards.

Answer 3

A

Question 4

Independence is one of the general standards for attestation engagements.

Question 5

Attestation standards provide guidance for performing assurance services with respect to several types of engagements,including prospective financial statements.

Question 6

The public has turned to CPAs to provide assurance services primarily because

A) The independence and objectivity of CPAs increase the public trust.
B) There is a need to develop new revenue streams for accounting firms.
C) Audits do not provide reliable information for decision makers.
D) CPAs have been proactive in identifying new types of assurance services to market to customers.

Question 7

Management and the external auditor are responsible for the effectiveness of the entity's internal control.

Question 8

Which of the following is the authoritative body designated to promulgate attestation standards for nonpublic entities?

A) AICPA (Auditing Standards Board).
B) Governmental Accounting Standards Board.
C) Financial Accounting Standards Board.
D) General Accounting Office.

Question 9

For a practitioner to examine management's assertions about the effectiveness of internal controls,all of the following conditions are necessary except:

A) Sufficient competent evidence can be developed to support the evaluation.
B) The practitioner must have already concluded that the financial statements are fairly presented in accordance with the applicable accounting framework.
C) The entity's management accepts responsibility for the effectiveness of its internal control.
D) All of the conditions above are necessary.

Question 10

A practitioner is allowed to perform either of two types of attestation engagements for reporting on internal control:
(1)examination or (2)review.

Question 11

Which of the following conditions is necessary for a practitioner to accept an attest engagement to examine and report on an entity's internal control over financial reporting?

A) The practitioner anticipates relying on the entity's internal control in a financial statement audit.
B) Management accepts responsibility for the effectiveness of internal control.
C) The practitioner is a continuing auditor who previously has audited the entity's financial statements.
D) Management agrees not to present the practitioner's report in a general-use document to stockholders.

Question 12

Assurance services are independent professional services that improve the quality of information specifically for internal decision makers.

Question 13

Given one or more hypothetical assumptions,a responsible party may prepare,to the best of his knowledge and belief,an entity's expected financial position,results of operations,and changes in cash flows.Such prospective financial statements are known as

A) Pro forma financial statements.
B) Financial projections.
C) Partial presentations.
D) Financial forecasts.

Question 14

An attest service occurs when a practitioner is engaged to issue a report on subject matter that is the responsibility of another party.

Question 15

Which of the following are prospective financial statements upon which an accountant may appropriately report for general use?

A) Pro forma financial statements.
B) Financial projections.
C) Partial presentations.
D) Financial forecasts.

Question 16

An accountant's report expressing an opinion on an entity's internal controls should state that

A) Only those controls on which the accountant intends to rely for purposes of the financial statement audit were reviewed, tested, and evaluated.
B) The establishment and maintenance of the internal controls is the responsibility of management.
C) The study and evaluation of the internal controls was conducted in accordance with generally accepted auditing standards.
D) Distribution of the report is restricted for use only by management and the board of directors.

Question 17

In performing an attestation engagement,a CPA typically

A) Supplies litigation support services.
B) Assesses control risk at a low level.
C) Expresses a conclusion about an assertion.
D) Provides management consulting advice.

Question 18

Examples of attest engagements include examination,review,and agreed-upon procedures engagements.

Question 19

Electronic commerce is an example of a category of assurance services.

Question 20

Limited assurance is provided in a review engagement.

Question 21

An accountant's standard report on a compilation of a projection should not include

A) A statement that he or she does not express an opinion on the statements or assumptions.
B) A statement that a compilation of a projection is limited in scope.
C) A disclaimer of responsibility to update the report for events occurring after the report's date.
D) A statement that the accountant expresses only limited assurance that the results may be achieved.

Question 22

Which of the following procedures is not included in a review engagement of a nonpublic entity?

A) Inquiries of management.
B) Inquiries regarding significant events subsequent to the balance sheet date.
C) Any procedures designed to identify relationships among data that appear to be unusual.
D) A study and evaluation of internal control.

Question 23

Absolute assurance is provided in

A) An audit engagement.
B) A compilation engagement.
C) A review engagement.
D) None of the above.

Question 24

In an examination of prospective financial statements,which of the following would not require a departure from the standard examination report?

A) Scope limitation.
B) Unreasonable assumptions.
C) Departure from AICPA presentation guidelines.
D) All of the above would require a departure from the standard examination report.

Question 25

The report of a CPA on a review of the financial statements of a nonpublic entity should not include a statement that

A) All information included in the financial statements is the representation of the entity's management.
B) The review was performed in accordance with generally accepted auditing standards.
C) The CPA is not aware of any material modifications that should be made to the financial statements in order for them to be in conformity with generally accepted accounting principles.
D) A review consists principally of inquiries of company personnel and analytical procedures applied to financial data.

Question 26

During a review of the financial statements of a nonpublic entity,the CPA finds that the financial statements contain a material departure from generally accepted accounting principles.If management refuses to correct the problem,the CPA should

A) Disclose the departure in a separate paragraph of the report.
B) Issue an adverse opinion.
C) Attach a footnote explaining the effects of the departure.
D) Issue a compilation report.

Question 27

Inquiry of the entity's personnel and analytical procedures are the primary bases for the issuance of a(n)

A) Compilation report on financial statements for a nonpublic company in its first year of operations.
B) Auditor's report on financial statements supplemented with price-level information.
C) Review report on comparative financial statements for a nonpublic company in its second year of operations.
D) Management advisory report prepared at the request of the client's audit committee.

Question 28

The International Professional Practices Framework developed by the IIA includes all of the following types of guidance,except:

A) Standards.
B) Interpretations of Standards.
C) Practice advisories.
D) Practice guides.

Question 29

Prior to commencing the compilation of financial statements of a nonpublic entity,the accountant should

A) Perform analytical procedures sufficient to determine whether fluctuations among account balances appear reasonable.
B) Complete the preliminary phase of the study and evaluation of the entity's internal control.
C) Verify that the financial information supplied by the entity agrees with the books of original entry and supporting documentation.
D) Acquire a knowledge of any specialized accounting principles and practices used in the entity's industry.

Question 30

May an accountant plan and perform an engagement to compile or review the financial statements of a not-for-profit entity if the accountant is unfamiliar with the specialized industry accounting principles?

A) Only a compilation could be performed without the specialized knowledge.
B) Only a review could be performed without the specialized knowledge.
C) Both a compilation and a review could be performed without the specialized knowledge.
D) Neither a compilation nor a review could be performed without the specialized knowledge.

Question 31

An examination of a financial forecast is a professional service that involves

A) Compiling or assembling a financial forecast that is based on management's assumptions.
B) Limiting the distribution of the accountant's report to management and the board of directors.
C) Assuming responsibility to update management on key events for one year after the report's date.
D) Evaluating the preparation of a financial forecast and the support underlying management's assumptions.

Question 32

Which of the following should not be included in an accountant's standard report based upon the compilation of an entity's financial statements?

A) A statement that a compilation is limited to presenting, in the form of financial statements, information that is the representation of management.
B) A statement that the compilation was performed in accordance with standards established by the American Institute of CPAs.
C) A statement that the accountant has not audited or reviewed the financial statements.
D) A statement that the accountant does not express an opinion but expresses only limited assurance on the financial statements.

Question 33

Reasonable assurance is provided in

A) An audit engagement.
B) A compilation engagement.
C) A review engagement.
D) None of the above.

Question 34

Compilation reports may include

A) Compilations when the accountant is not independent.
B) Compilations with full disclosure.
C) Compilations that omits substantially all disclosures.
D) Any of the above.

Question 35

Limited assurance is provided in

A) An audit engagement.
B) A compilation engagement.
C) A review engagement.
D) None of the above.

Question 36

The report in a review engagement provides

A) Limited assurance.
B) Positive assurance.
C) An opinion.
D) A summary of findings.

Question 37

Before issuing a report on the compilation of financial statements of a nonpublic entity,the accountant should

A) Apply analytical procedures to selected financial data to discover any material misstatements.
B) Corroborate at least a sample of the assertions management has embodied in the financial statements.
C) Inquire of the client's personnel whether the financial statements omit substantially all disclosures.
D) Read the financial statements to consider whether the financial statements are free from obvious material errors.

Question 38

Compilations provide which of the following types of assurance about the fair presentation of financial statements?

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

Question 39

Accepting an engagement to examine an entity's financial projections would most likely be appropriate if distribution of the projections were limited to

A) The general public on the entity's website.
B) Potential stockholders who request a prospectus or a registration statement.
C) A bank with which the entity is negotiating for a loan.
D) All stockholders of record as of the report date.

Question 40

Which of the following is not a main goal of the internal auditing profession?

A) Add value to an organization's operations.
B) Help an organization to accomplish its objectives.
C) Provide reliable information to external users.
D) Improve the effectiveness of risk management of an organization.

Question 41

Which of the following would be considered a part of a consulting services (non-assurance)engagement?
I)Expressing a conclusion about the reliability of a client's financial statements.
II)Reviewing and commenting on a client-prepared business plan.

A) I only.
B) II only.
C) Both I and II.
D) Neither I nor II.

Question 42

Which of the following procedures is usually included in a review engagement of a nonpublic entity?

A) The confirmation of accounts receivable.
B) A study and evaluation of internal control.
C) An inquiry concerning subsequent events.
D) The observation of physical inventory counts.

Question 43

Before performing a compilation of the financial statements of a nonpublic entity,an accountant should

A) Perform a thorough study and evaluation of the internal control system.
B) Complete a series of inquiries concerning the entity's procedures for recording, classifying, and summarizing transactions.
C) Design working papers intended to provide sufficient competent evidential matter to afford a reasonable basis for a compilation opinion.
D) Obtain an understanding of the accounting principles and practices of the industry in which the entity operates.

Question 44

Inquiry and analytical procedures ordinarily performed during a review of a nonpublic entity's financial statements include

A) Analytical procedures designed to identify material weaknesses in internal control.
B) Inquiries concerning actions taken at meetings of the stockholders and the board of directors.
C) Analytical procedures designed to test the accounting records by obtaining corroborating evidential matter.
D) Inquiries of knowledgeable outside parties such as the client's attorneys and bankers.

Question 45

Accepting an engagement to compile a financial projection for a public company most likely would be inappropriate if the projection were to be distributed to

A) A bank with which the entity is negotiating for a loan.
B) A labor union with which the entity is negotiating a contract.
C) The principal stockholder, to the exclusion of the other stockholders.
D) All stockholders of record as of the report date.

Question 46

An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided that

A) Distribution of the report is restricted to the specified users involved.
B) The prospective financial statements also are examined.
C) Responsibility for the adequacy of the procedures performed is taken by the accountant.
D) Negative assurance is expressed on the prospective financial statements taken as a whole.

Question 47

Independence is required

A) Under GAAS but not attestation standards.
B) Under both GAAS and attestation standards.
C) Under attestation standards but not GAAS.
D) Is preferred but not required under both GAAS and attestation standards.

Question 48

The party responsible for assumptions identified in the preparation of prospective financial statements is usually

A) A third-party lending institution.
B) The client's management.
C) The reporting accountant.
D) The client's independent auditor.

Question 49

An entity engaged a CPA to determine whether the client's websites meet defined criteria for standard business practices and controls over transaction integrity and information protection.In performing this engagement,the CPA should comply with the provisions of

A) Statements on Assurance Standards.
B) Statements on Standards for Attestation Engagements.
C) Statements on Standards for Management Consulting Services.
D) Statements on Auditing Standards.

Question 50

Which of the following statements best describes the guidance developed by the AICPA related to WebTrust services?

A) The Trust Services principles require the CPA to focus exclusively on the financial information presented on a website.
B) Once earned, the WebTrust seal can remain on a website until the entity controlling the site informs the CPA that the information on the site has changed.
C) In performing a WebTrust assurance engagement, a CPA does not have to consider auditing or attestation standards.
D) The Trust Services principles provide a broad set of criteria that guide practitioners in testing and evaluating websites.

Question 51

Blue Co.,a privately-held entity,asked its tax accountant,Cook,a CPA in public practice,to reproduce Blue's internally-prepared interim financial statements on Cook's computer when Cook prepared Blue's quarterly tax return.Cook should not submit these financial statements to Blue unless,at a minimum,Cook complies with the provisions of

A) Statements on Responsibilities in Tax Practice.
B) Statements on Standards for Accounting and Review Services.
C) Statements on Responsibilities in Unaudited Financial Services.
D) Statements on Standards for Attestation Engagements.

Question 52

Which of the following should be included in an accountant's standard report based upon the review of a nonpublic entity's financial statements?

A) A statement that the review was performed in accordance with generally accepted review standards.
B) A statement that a review consists principally of inquiries and analytical procedures.
C) A statement that the accountant is independent with respect to the entity.
D) A statement that a review is substantially greater in scope than a compilation.

Question 53

An accountant's compilation report on a financial forecast should include a statement that the

A) Compilation does not include evaluation of the assumptions underlying the forecast.
B) Hypothetical assumptions used in the forecast are reasonable.
C) Range of assumptions selected is one in which one end of the range is less likely to occur than the other.
D) Prospective statements are limited to presenting, in the form of a forecast, information that is the accountant's representation.

Question 54

During a review of financial statements of a nonpublic entity,the CPA would be least likely to

A) Perform analytical procedures designed to identify relationships that appear to be unusual.
B) Obtain written confirmation from banks regarding loans to the entity.
C) Obtain reports from other accountants who reviewed a portion of the total entity.
D) Read the financial statements and consider their conformance with generally accepted accounting principles.

Question 55

Which of the following statements is not true concerning assurance services?

A) The growth in assurance services has been driven in part by users' demands for more relevant information.
B) Assurance services focus on improving the quality of information or its context, for decision makers.
C) Unlike audit and attestation engagements, an engagement to perform assurance services does not require the CPA to consider information reliability.
D) Auditing and attestation services can be viewed as subsets of assurance services since there is overlap in their objectives.

Question 56

When an accountant is not independent of a client and is requested to perform a compilation of the client's financial statements,the accountant

A) Is precluded from accepting the engagement.
B) May accept the engagement and need not disclose the lack of independence.
C) May accept the engagement and should disclose the lack of independence, but need not indicate the reason for the lack of independence.
D) May accept the engagement and should disclose both the lack of independence and the reason for the lack of independence.

Question 57

When third party use of prospective financial statements is expected,an accountant may not accept an engagement to

A) Perform a review.
B) Perform a compilation.
C) Perform an examination.
D) Apply agreed-upon procedures.

Question 58

Snow,CPA,was engaged by Master Co.,a privately-held company,to examine and report on management's written assertion about the effectiveness of Master's internal control over financial reporting.Snow's report should state that

A) Because of inherent limitations of any internal controls, errors or fraud may occur and not be detected.
B) Management's assertion is based on criteria established by the American Institute of Certified Public Accountants.
C) The results of Snow's tests will form the basis for Snow's opinion on the fairness of Master's financial statements in conformity with GAAP.
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 59

Which of the following statements is true regarding the performance of an assurance service on information systems reliability by a CPA?

A) The CPA is not permitted to provide any other services for the client if he or she is to perform the service.
B) The service will require the CPA to apply all of the attestation and auditing standards.
C) The service provides information regarding whether the information system provides reliable information for internal operating decisions.
D) Performing the service will not require the collection of evidence.

Question 60

Responding to a question such as "What would happen if....." is an attribute of which of the following types of engagements?

A) Financial projection.
B) Financial forecast.
C) Financial forecast and financial projection.
D) Review.

Question 61

During a review of the financial statements of a nonpublic entity,an accountant becomes aware of inadequate disclosure that is material to the financial statements.If management refuses to correct the financial statement presentations,the accountant should

A) Issue an adverse opinion.
B) Issue an "except for" qualified opinion.
C) Disclose this departure from generally accepted accounting principles in a separate paragraph of the report.
D) Express only limited assurance on the financial statement presentations.

Question 62

Statements on Standards for Accounting and Review Services (SSARS)require an accountant to report when the accountant has

A) Typed client-prepared financial statements, without modification, as an accommodation to the client.
B) Provided a client with a financial statement format that does not include dollar amounts, to be used by the client in preparing financial statements.
C) Proposed correcting journal entries to be recorded by the client that change client-prepared financial statements.
D) Generated, through the use of computer software, financial statements prepared in accordance with a comprehensive basis of accounting other than GAAP.

Question 63

In providing PrimePlus services,a CPA is likely to perform all of the following functions except:

A) Observe and report on the quality of care provided to older individuals.
B) Directly receive income and pay bills and provide an accounting for these transactions.
C) Directly evaluate the quality of health care services provided by physicians and other medical caregivers.
D) Perform assurance-related procedures by inspecting logs or other evidence to support that contracted services have been provided.

Question 64

Which of the following procedures is more likely to be performed in a review engagement of a nonpublic entity than in a compilation engagement?

A) Gaining an understanding of the entity's business transactions.
B) Making a preliminary assessment of control risk.
C) Obtaining a representation letter from the chief executive officer.
D) Assisting the entity in adjusting the accounting records.

Question 65

The type of report issued under a PrimePlus assurance engagement is likely which of the following?

A) Unqualified.
B) Assurance.
C) Audit.
D) Agreed-upon procedures.

Question 66

Which of the following is not an attestation standard?

A) Sufficient evidence shall be obtained to provide a reasonable basis for the conclusion that is expressed in the report.
B) The report shall identify the subject matter or assertion being reported on and state the character of the engagement.
C) The work shall be adequately planned and assistants, if any, shall be properly supervised.
D) A sufficient understanding of internal controls shall be obtained to plan the engagement.

Question 67

When an accountant compiles a nonpublic entity's financial statements that omit substantially all disclosures required by generally accepted accounting principles,the accountant should indicate in the compilation report that the financial statements are

A) Restricted for internal use only by the entity's management.
B) Not to be given to financial institutions for the purpose of obtaining credit.
C) Compiled in conformity with a comprehensive basis of accounting other than generally accepted accounting principles.
D) Not designed for those who are uninformed about the omitted disclosures.

Question 68

An attestation report should state that the use of the report is restricted to specified parties under all of the following circumstances except when:

A) The criteria used to evaluate the subject matter are available only to specified parties.
B) The report is an attest engagement to apply agreed-upon procedures.
C) A written assertion on the subject matter of the report has not been provided by the responsible party.
D) All of the above are circumstances that would dictate that the use of the report is restricted to specific parties.

Question 69

Which of the following procedures is not usually performed by the accountant during a review engagement of a nonpublic entity?

A) Inquiry about actions taken at meetings of the board of directors that may affect the financial statements.
B) Issuance of a report stating that the review was performed in accordance with standards established by the AICPA.
C) Reading of the financial statements to determine if they conform with generally accepted accounting principles.
D) Communication of any material weaknesses discovered during the consideration of internal control.

Question 70

Trust Service principles cover

A) Hardware design.
B) Confidentiality.
C) Software design.
D) Physical protection of computer systems.

Question 71

Statements on Standards for Accounting and Review Services establish standards and procedures for which of the following engagements?

A) Assisting in adjusting the books of account for a partnership.
B) Examining prospective financial statements.
C) Processing financial data for clients of other accounting firms.
D) Compiling an individual's personal financial statement to be used to obtain a mortgage.

Question 72

Direct services offered under PrimePlus include all of the following except:

A) Accounting for the client's income.
B) Providing assurances about the quality of care.
C) Supervising the client's investments.
D) Arranging for payment of care.

Question 73

A compilation of prospective financial statements involves all of the following except:

A) Performing analytical procedures.
B) Assembling the statements based on the responsible party's assumptions.
C) Issuing a compilation report.
D) Considering whether the statements appear to be not obviously inappropriate.

Question 74

IIA Standards include

A) Practice advisories.
B) Code of Ethics.
C) Interpretations.
D) Both A and B.

Question 75

The expectation that an internal auditor does not accept gifts that may impair judgment is based on the principle of

A) Integrity.
B) Objectivity.
C) Confidentiality.
D) Competency.

Question 76

According to the Code of Professional Conduct,what response is appropriate when an accountant,who is not independent,performs a compilation of financial statements?

A) The accountant should indicate in the last sentence of the report that he/she is not independent.
B) The accountant should withdraw from the engagement.
C) The accountant should express a disclaimer opinion on the compilation.
D) The accountant should express an adverse opinion on the compilation.

Question 77

In a review engagement,the accountant must make all of the following inquiries except those to:

A) Identify subsequent events having a material effect on the statements.
B) Understand internal controls.
C) Identify actions taken at stockholders' meetings.
D) Ascertain whether statements are in accordance with GAAP.

Question 78

Which of the following is not an aspect of the assurances provided by a CPA WebTrust report?

A) Product or service quality.
B) System availability.
C) Confidentiality.
D) Processing integrity.

Question 79

An accountant is required to comply with the provisions of Statements on Standards for Accounting and Review Services when
I)Typing client-prepared financial statements,without modification,as an accommodation to a client.
II)Preparing standard monthly journal entries for depreciation and expiration of prepaid expenses.

A) I only.
B) II only.
C) Both I and II.
D) Neither I nor II.

Question 80

Which of the following would an accountant not need to know when conducting a compilation?

A) The accounting principles and practices of the industry in which the entity operates.
B) A general understanding of the nature of the entity's business transactions and the form of its accounting records.
C) The accounting basis on which the financial statements are to be presented.
D) The accountant would need to know all of the above when conducting a compilation.