All units - deck 1

Question 1

What types of engagements does Statements on Standards for Accounting and Review Services (SSARSs) apply to?

Answer 1

SSARSs apply to engagements to
1) prepare, compile, and review historical financial information of nonissuers.
2) certain prospective, pro forma, and other historical financial information.

Question 2

What types of engagements does Statements on Standards for Attestation Engagements (SSAEs)
apply to?

Answer 2

SSAEs primarily apply to engagements performed for nonissuers to
1) review, examine, and apply agreed-upon procedures to subject matter or an assertion about subject matter that is the responsibility of another party.
2) It also applies to:
(a) prospective financial information (financial forecasts and projections),
(b) pro forma financial information,
(c) compliance, and (d) controls at a service organization.

Question 3

What types of engagements does Generally accepted auditing standards (GAAS) apply to?

Answer 3

Generally accepted auditing standards apply to audit engagements.

Question 4

What types of engagements does Statements on Auditing Standards (SASs) apply to?

Answer 4

SASs apply to audits of financial statements of nonissuers.

Question 5

For which of the SSARS services will the practitioner issue a report?

Answer 5

Compilation and Review

Question 6

Which standards govern assurance-based engagement?

Answer 6

Assertion-based examination engagements fall under the guidelines of the Statements on Standards for Attestation Engagements (SSAEs) issued by the AICPA auditing standards board.

Question 7

What standards govern consulting services?

Answer 7

Statement on Standards for Consulting Services (SSCS) was issued by the AICPA Management Consulting Services Executive Committee.

Question 8

What are the types of services provided by CPAs?

Answer 8

1) Preparation - no assurance needed
2) Compilation - disclaimer of any assurance
3) Review - limited assurance
4) Examination or audit - positive assurance or opinion expressed
5) Agreed-upon procedures - results of procedurs, no assurance

Question 9

What are the(a) different pronouncements, (b) which services do they apply to and (c)who issues them?

Answer 9

1) Statement of Auditing Standards (SASs), issued by Auditing Standards Board. They apply to:
Audits of non-issuers financial statements.

2) Standards of Accounting & Review Services (SSARSs), issued by AICPA’s Accounting & Review Committee. They apply to unaudited statements or other unaudited info of a nonpublic entity
- preparations
- compilations and
- reviews of non-issuers financial statements

3) Statement on Standards of Attestation Engagements (SSAEs), issued by AICPA’s Auditing Standards Board or another AICPA designated body. They apply to:
- examinations
-reviews and
- agreed-upon-procedures engagements for subject matter other than traditional financial statements.

Question 10

What does “presumably mandatory requirement mean?”

Answer 10

The word “should” indicates a presumptively mandatory requirement.

Question 11

What does “unconditional requirement mean?”

Answer 11

The word “must” indicates an unconditional requirement.

Question 12

What are services that generally only involve the user and the CPA, whom the user pays?

Answer 12

Consulting services

Question 13

What are attestation services?

Answer 13

A written conclusion about a subject matter or a written assertion of another party.

Question 14

What are assurance and advisory services?

Answer 14

The definition of assurance and advisory services includes a provision that the CPA be independent of the client. Also, assurance services provide flexible levels of assurance.

Question 15

What is the objective of assurance and advisory services?

Answer 15

The objective of assurance and advisory services is better decision making.

Question 16

What is the objective of a consulting engagement?

Answer 16

In a consulting engagement, the CPA recommends actions to management based on their objectives in order to achieve better outcomes.

Question 17

What is the objective of assurance and advisory serives?

Answer 17

The objective of assurance and advisory services is better decision making.

Question 18

a) Why and b) when are substantive procedures performed?

Answer 18

They are performed to detect material misstatements at the relevant assertion level. They include tests of details and substantive analytical procedures.

b) They are performed after the auditor has obtained an understanding of the entity and its environment, including its internal control.

Question 19

When are analytical procedures required?

Answer 19

During audit planning.

Question 20

What are the contents of an audit plan?

Answer 20

It includes the nature, timing, and extent of procedures expected to reduce audit risk to an acceptably low level.

The audit plan includes (1) a description of risk assessment procedures; (2) a description of further audit procedures at the assertion level for material classes of transactions, account balances, and disclosures; and (3) other audit procedures required by GAAS or the PCAOB.

Question 21

How should audit plans be designed?

Answer 21

So that audit evidence gathered supports the auditor’s conclusions.

Question 22

If elasticity of a product is greater than 1, and what is the effect of a price increase on revenues and demand?

Answer 22

If elasticity of a product is greater than 1, then the demand of the product is elastic.

For products with elastic demands, as price increases, the percentage decrease in quantity demanded is larger than the percentage increase in price. Thus, total revenue decreases.

Question 23

What risks make up the risk of material misstatements?

Answer 23

Inherent risk and control risk

Question 24

What is audit risk?

Answer 24

Audit risk is a function of the Risk of Material Misstatements and Detection risk

Question 25

What is detection risk?

Answer 25

Detection risk is the risk that the procedures performed to reduce audit risk to an acceptably low level will not detect a misstatement that exists and could be material individually or combined with other misstatements.

Question 26

What is control risk?

Answer 26

Control risk, which is the risk that a misstatement due to error or fraud that could occur in an assertion and that could be material, individually or in combination with other misstatements, will not be prevented or detected on a timely basis by the company’s internal control.

Question 27

What is inherent risk?

Answer 27

Inherent risk is the risk posed by an error or omission in a financial statement due to a factor other than a failure of internal control.

Question 28

When does an auditor refer to the work of an external auditor’s specialist in the report?

Answer 28

The auditor refers to an auditor’s external specialist only if the reference is relevant to understanding a modified opinion (a modified opinion is a qualified opinion, adverse opinion, or a disclaimer of opinion).

Question 29

Which procedures are likely to be performed during a Review?

Answer 29

Inquiry and analytical procedures.

Question 30

A practitioner may perform an agreed-upon procedures engagement on prospective financial statements provided that which of the following is met?

Answer 30

1) The practitioner (auditor) is independent
2) The engaging party agrees to the procedures and takes responsibility for their sufficiency and
(3) The statements include a summary of significant assumptions.