4. Forming Conclusions and Reporting

Question 1

An accountant performed a review engagement of the financial statements of a nonissuer oil and gas refinery. Which of the following would be included in the accountant’s documentation?

Answer 1

A memo on a discussion with the CFO regarding a suspected kiting scheme.

Question 2

When performing a compliance audit, the auditor’s report on compliance should NOT include

Answer 2

A statement that the compliance audit provides a legal determination of the entity’s compliance

Question 3

Under the Single Audit Act, materiality is

Answer 3

Determined separately for each major federal financial assistance program

Question 4

Helpful Co., a nonprofit entity, prepared its financial statements in accordance with an accounting basis prescribed by a regulatory agency solely for filing with that agency. Green audited the financial statements in accordance with GAAS and concluded that the financial statements were fairly presented. Green should issue an audit report

Answer 4

With an unmodified opinion and with an other-matter paragraph.
A report on special purpose financial statements as per GAAS would include an opinion paragraph, an emphasis-of-matter paragraph (which refers to the footnote that discloses the special purpose framework used to prepare the financial statements), and an other-matter paragraph (which restricts the use of the report).

Question 5

The existence of audit risk is recognized in the auditor’s standard report for a public company by the statement(s) that

Answer 5

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement

Question 6

An accountant performing a non-issuer’s review engagement is considering the appropriateness of a client’s balance for accrued wages. The accountant should perform each of the following procedures, except

Answer 6

Testing the process used by management to determine the balance.

Review engagements do not require testing of processes used by management to determine balances.

Question 7

Which of the following procedures is ordinarily performed by an accountant during an engagement to com­pile financial statements?

Answer 7

Consider whether the financial statements appear to be appropriate in form and free from obvious material errors.

Question 8

An auditor notes significant deficiencies in a financial statement audit conducted in accordance with Government Auditing Standards. In reporting on internal control, the auditor should state that

Answer 8

The auditor obtained an understanding of the design of relevant policies and procedures, and determined whether they have been placed in operation.

Question 9

When an entity is required or permitted to disclose segment information in the financial statements

Answer 9

The auditor’s responsibility regarding the presentation and disclosure of segment information is in relation to the financial statements as a whole

Question 10

Park, CPA, was engaged to audit the financial statements of Tech Co., a new client and a publicly-traded company, for the year ended December 31, Year 1. Park obtained sufficient audit evidence for all of Tech’s financial statement items except Tech’s opening inventory. Due to inadequate financial records, Park could not verify Tech’s January 1, Year 1, inventory balances. Park’s opinion on Tech’s Year 1 financial statements most likely will be

Answer 10

Balance Sheet-Unqualified (ending inventory is fine)

Income Statement-Disclaimer (COGS is affected)

Question 11

While conducting an audit in accordance with Government Auditing Standards (the Yellow Book), an auditor determines that fraud has been committed in one of the client’s government contracts. The auditor reports the fraud to the client’s audit committee, which takes no action to report the fraud to appropriate parties. To which of the following entities is the auditor required to report this situation?

Answer 11

The counterparty to the contract

Question 12

When engaged to report on supplemental information that accompanies a public company’s financial statements that is required by a regulatory authority that prescribes a lower materiality level than the one used for the audit of the financial statements, the auditor should

Answer 12

Use the regulatory authority’s level in planning and performing the audit procedures for the supplemental information

Question 13

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

Answer 13

Compilation does not include evaluation of the support of the assumptions underlying the forecast.