A5 - Becker Wrong Answers Flashcards
What is the difference between an SSAE-review and an SSAE-examination?
An SSAE-examination provides a reasonable (positive assurance) opinion, which is like the standard audit opinion.
Future info (projections)
The SSAE-review gives a limited (negative assurance) conclusion, which is NOT an opinion. The conclusion is basically ‘we did NOT find anything wrong (negative assurance).
An examination of a financial forecast is a professional service that involves:
A. Assuming responsibility to update management on key events for one year after the report's date. B. Limiting the distribution of the accountant's report to management and the board of directors. C. Evaluating the preparation of a financial forecast and the support underlying management's assumptions. D. Compiling or assembling a financial forecast that is based on management's assumptions.
Choice “C” is correct. An examination of a financial forecast is a professional service that involves:
- Evaluating the preparation of the prospective financial statements,
- Evaluating the support underlying the assumptions,
- Evaluating the presentation of the prospective financial statements in conformity with AICPA guidelines, and
- Issuing an examination report.
Choice “A” is incorrect. The accountant’s standard report specifically states that the accountant assumes no responsibility to update the report for events and circumstances occurring after the date of the report.
Choice “B” is incorrect. A financial forecast may be issued for general use.
Choice “D” is incorrect. Compiling or assembling a financial forecast based on management’s assumptions is part of a compilation engagement, not an examination engagement.
When an accountant compiles projected financial statements, the accountant’s report should include a statement that:
A. Evaluates the hypothetical assumptions used to prepare the projection. B. Describes the limitations on the usefulness of the projection. C. Expresses limited assurance that the results will be within the projected range. D. Disclaims any form of assurance on the historical financial statements.
Choice “B” is correct. A compilation of a financial projection report describes the limitations on the usefulness of the projection by including a caveat that the prospective results may not be achieved.
Choice “A” is incorrect. An examination, not a compilation, of a financial projection evaluates the hypothetical assumptions used to prepare the projection.
Choice “C” is incorrect. No assurance is provided in a compilation of projected financial statements.
Choice “D” is incorrect. A compilation of a financial projection report disclaims any assurance on the projected, not historical, financial statements.
When a service organization is part of an entity’s internal control, an auditor performing an integrated audit should:
A. Test the entity’s relevant controls over the activities of the service organization. B. Obtain an understanding of all controls related to the service organization. C. Reference the service auditor’s report in the auditor’s report on internal control. D. Perform substantive procedures at the service organization.
Choice “A” is correct. When a service organization is part of an entity’s internal control, an auditor should test the entity’s relevant controls over the activities of the service organization to obtain evidence that controls are operating effectively.
Choice “B” is incorrect. When a service organization is part of an entity’s internal control, an auditor should obtain an understanding of relevant controls, not necessarily all controls.
Choice “C” is incorrect. No reference should be made to the service auditor’s report in the auditor’s report on internal control.
Choice “D” is incorrect. When a service organization is part of an entity’s internal control, an auditor should perform tests of controls at the service organization to obtain evidence that controls are operating effectively.
An accountant’s report on a review of pro forma financial information should include a:
A. Reference to the financial statements from which the historical financial information is derived. B. Caveat that it is uncertain whether the transaction or event reflected in the pro forma financial information will ever occur. C. Disclaimer of opinion on the financial statements from which the pro forma financial information is derived. D. Statement that the entity's internal control was not relied on in the review.
Choice “A” is correct. The accountant’s report on a review of pro forma financial information should include a reference to the financial statements from which the historical information is derived and a statement as to whether such financial statements were audited or reviewed.
Choice “B” is incorrect. The report on a review of pro forma financial information would include an explanation of the objective and limitations of the information, but would not discuss the uncertainty surrounding occurrence of the transaction or event.
Choice “C” is incorrect. If the auditor has audited the financial statements from which the pro forma financial information is derived, an opinion on those statements may be expressed.
Choice “D” is incorrect. No statement on the entity’s internal control is necessary.
Auditors conducting an audit in accordance with the Single Audit Act use a risk-based approach designed to:
A. Reduce audit risk by providing an equal opportunity for all grants to be tested. B. Reduce audit risk by providing an equal opportunity for all expended federal dollars to be tested. C. Focus the audit on grants related to large federal programs. D. Focus the audit on high-risk programs.
Choice “D” is correct. The risk-based approach of the Single Audit Act is designed to focus the auditor’s tests of federal financial assistance on the programs with the highest risk.
Choice “A” is incorrect. The risk-based approach is not an extension of random sampling concepts and is not designed to provide each grant with an equal opportunity of being selected.
Choice “B” is incorrect. The risk-based approach is not an extension of random sampling or PPS sampling concepts and is not designed to provide each Federal dollar expended with an equal opportunity of being selected for testing.
Choice “C” is incorrect. The risk-based approach does not focus the auditor on larger (“Type A”) programs. Although the segregation of programs into larger (“Type A”) and smaller (“Type B”) programs gives the auditor a basis for determining coverage and evaluating risk, the focus is on the risk, not the size of the program.
A CPA was engaged to calculate the rate of return on a specified investment according to an agreed- upon formula and verify that the resultant percentage agrees to the percentage in an identified schedule. The CPA’s report on these agreed-upon procedures should contain:
A. An opinion about the fairness of the agreed-upon procedures. B. A separate paragraph describing the effectiveness of the internal controls. C. A disclaimer of opinion on the fair presentation of the financial statements. D. A disclaimer of responsibility for the sufficiency of those procedures.
Choice “D” is correct. A report on agreed-upon procedures should include a disclaimer of responsibility for the sufficiency of the procedures.
Choice “A” is incorrect. A report on agreed-upon procedures should be in the form of procedures and findings. An opinion is not provided.
Choice “B” is incorrect. A report on agreed-upon procedures should not include a separate paragraph describing the effectiveness of internal controls. The subject matter of the report is the rate of return on a specified investment.
Choice “C” is incorrect. A report on agreed-upon procedures should include a disclaimer of opinion on the subject matter (rate of return on a specified investment). In addition, the term “fair presentation” does not appear in an agreed-upon procedure report.
During an integrated audit, management’s written representation letter should provide all of the following, except:
A. A statement that there were no significant changes to internal control before the as-of date of the report. B. An affirmation that management did not rely on the auditor’s procedures as the basis for its assessment. C. A statement that management has performed an evaluation on the effectiveness of the entity’s internal control. D. A description of key employee fraud.
Choice “A” is correct. Management’s written representation letter should state whether there were any significant changes to internal control after the as-of date of the report, not before the as-of date of the report.
Choice “B” is incorrect. Management’s written representation letter should affirm that management did not rely on the auditor’s procedures as the basis of its assessment.
Choice “C” is incorrect. Management’s written representation letter should state that management has performed an evaluation on the effectiveness of the entity’s internal control.
Choice “D” is incorrect. Management’s written representation letter should describe fraud resulting in material misstatement or fraud involving senior management or key employees.
In an integrated audit of a nonissuer, an auditor should issue an adverse opinion on the effectiveness of an entity’s internal control in which of the following situations?
A. The financial statements are misstated. B. The auditor was asked by the client to provide the report to another practitioner. C. A material weakness exists. D. The entity may not continue as a going concern.
Choice “C” is correct. An auditor should issue an adverse opinion on the effectiveness of internal control when a material weakness exists.
Choice “A” is incorrect. An auditor should issue a qualified or adverse opinion on the financial statements when the financial statements are misstated.
Choice “B” is incorrect. The client’s request to provide the report to another practitioner would not affect an auditor’s opinion.
Choice “D” is incorrect. Going concern affects the auditor’s report on the financial statements, not the auditor’s report on the effectiveness of an entity’s internal control.
When an auditor reports on compliance with contractual agreements in a separate report in connection with an audit of financial statements of a nonissuer, the report should include a:
A. Statement that no financial statement audit was performed. B. Statement that the audit was directed primarily toward obtaining knowledge regarding compliance. C. Reference to the specific date on which sufficient documentation regarding compliance was obtained. D. Reference to specific covenants of the contractual agreements.
Choice “D” is correct. If the auditor issues a report on compliance with contractual agreements in connection with the audit of financial statements, the report should include a reference to the specific covenants of the contractual agreements. This is required in cases of compliance or noncompliance.
Choice “A” is incorrect. If an auditor reports on compliance with contractual agreements in a separate report, but that report is in connection with an audit of financial statements, the report indicates that a financial statement audit was performed.
Choice “B” is incorrect. If an auditor reports on compliance with contractual agreements in a separate report, but the report is in connection with an audit of financial statements, it is not correct to include a statement that the audit was directed primarily toward obtaining knowledge regarding compliance. The audit was performed in accordance with auditing standards for the purpose of expressing an opinion on the financial statements.
Choice “C” is incorrect. The report on compliance with contractual agreements is not required to include a specific date regarding when documentation regarding compliance was obtained. The report references the financial statement audit performed, which would have a corresponding audit report date.
A company engages a practitioner to assist the audit committee by performing specific procedures that were agreed to by the audit committee. Which of the following statements is correct regarding the procedures to be performed?
A. The practitioner has responsibility for the adequacy of the procedures to be performed. B. The procedures should be designed to allow the practitioner to provide negative assurance. C. The specific procedures performed should be listed in the practitioner's report to the audit committee. D. The practitioner should not involve the audit committee in determining what procedures are to be performed.
Choice “C” is correct. This question is describing an agreed-upon procedure engagement (“…performing specific procedures that were agreed to…”). An agreed-upon procedures report should include a list of the specific procedures performed.
Choice “A” is incorrect. The practitioner disclaims responsibility for the sufficiency of the procedures in an agreed-upon procedure engagement.
Choice “B” is incorrect. An agreed-upon procedures report does not provide an opinion or negative assurance.
Choice “D” is incorrect. The practitioner should involve the audit committee in determining what procedures are to be performed.
Jackson is auditing the financial statements of Saffer Company, an issuer. Which of the following is true?
A. Jackson is not required to audit internal control, but should report any significant deficiencies or material weaknesses noted. B. If Jackson provides an adverse opinion on the financial statements, an audit of Saffer’s internal control is not permitted. C. Saffer is required to obtain an audit of its internal control, but a professional other than Jackson may be hired for this purpose. D. Jackson is required to audit and report on Saffer’s internal control.
Choice “D” is correct. PCAOB Standards require Jackson to perform an integrated audit, which includes audits of both the financial statements and the effectiveness of internal control.
Choice “A” is incorrect. Jackson is required to perform an integrated audit, which includes an audit of internal control.
Choice “B” is incorrect. An audit of internal control is required, regardless of the type of opinion rendered on the financial statements.
Choice “C” is incorrect. PCAOB Standards require the same auditor to perform the audit of the financial statements and the audit on the effectiveness of internal control.
MCQ-14503
Application
When a user auditor plans to use a SOC 1® Type 2 report as audit evidence to reduce the assessed level of control risk for areas of the user entity’s accounting affected by the service organization, the user auditor should be satisfied regarding all of the following except:
A. The service auditor is both competent and independent. B. The reperformance of the tests of controls by the user auditor over the service organizationʹs controls to verify the same conclusions as the service auditor. C. The tests of controls performed by the service auditor are relevant to the assertions in the user entityʹs financial statements. D. Any relevant complementary controls have been designed and implemented and operating effectiveness has been evaluated.
Choice “B” is correct. The SOC 1® Type 2 report can be relied upon, without reperformance by the user auditor, if the evaluation of the report determines that the report is satisfactory for use by the user auditor.
Choice “A” is incorrect. In order to use a SOC 1® Type 2 report as audit evidence that the controls of the service organization are operating effectively and therefore reduce the assessed level of control risk for certain areas of the audit of the user entity, the user auditor must, among other things, obtain an understanding of the design and operating effectiveness of any relevant complementary controls.
Choice “C” is incorrect. In order to use a SOC 1® Type 2 report as audit evidence that the controls of the service organization are operating effectively and therefore reduce the assessed level of control risk for certain areas of the audit of the user entity, the user auditor must, among other things, ensure that the tests of controls performed by the service auditor are relevant to the assertions in the user entity’s financial statements.
Choice “D” is incorrect. In order to use a SOC 1® Type 2 report as audit evidence that the controls of the service organization are operating effectively and therefore reduce the assessed level of control risk for certain areas of the audit of the user entity, the user auditor must, among other things, ensure that the service auditor is both competent and independent.
