AUD Becker 2

Question 1

Harris, CPA has been asked to audit and report on the balance sheet of Fox Co, but not on statements of income, retained earnings, or cash flow. This will not be done in conjunction with an audit of the complete set of financials. Harris may:

Answer 1

Accept the engagement because such engagements merely involve special considerations in application of US GAAS.

Question 2

Delta Life Insurance Co prepares its financial statements on an accounting basis insurance companies use pursuant to the rules of a state insurance commission. If Wall, CPA, Delta’s auditor, discovers that the statements are not suitable titled, Wall should:

Answer 2

Disclose any reservations in a basis for modification paragraph and qualify the opinion.

Question 3

In the standard report on summary financial statements that are derived from a public entity’s audited financial statements, a CPA should indicate that the

Answer 3

CPA has audited and expressed an opinion on the complete financial statements.

Question 4

What type of assurance is provided by special reports?

Answer 4

A positive opinion may be rendered in some types of special reports.

Question 5

An entity prepares it’s financial statements on its income tax basis. A descriptions of how that basis differs from GAAP should be included in the

Answer 5

Notes to the financial statements

Question 6

When unaudited financial statements are presented in comparative form with audited financial statements in a document filed with the SEC, such statements should be

1) Marked as “unaudited”
2) Withheld until audit or referred to in auditors report

Answer 6

1) Marked as “unaudited” YES

2) Withheld until audit or referred to in auditors report NO

Question 7

Compiled financial statements should be accompanied by an accountants report stating that

Answer 7

The accountant conducted the compilation in accordance with Statements on Standards for Accounting and Review Services OR The objective of a compilation is to assist management in presenting financial information in the form of financial statements

Question 8

What would NOT be included in a review engagement of a nonissuer?

Answer 8

Assessing control risk

Question 9

An accountant compiles financial statements not expected to be used by a 3rd party. The accountant may decline to issue a compilation report provided

1) Each page of FS clearly marked to restrict use
2) Written engagement letter used to document understanding
3) Written representation letter obtained

Answer 9

1) Each page of FS clearly marked to restrict use YES
2) Written engagement letter used to document understanding YES
3) Written representation letter obtained NO

Question 10

An accountant may compile a nonissuers financial statements that omit all disclosures required by GAAP if the omission is

1) Clearly indicated in accountant report
2) Non undertaken with intention of misleading financial statement users

Answer 10

1) Clearly indicated in accountant report YES

2) Non undertaken with intention of misleading financial statement users YES

Question 11

During an engagement to review the financial statements of a nonissuer, an accountant becomes aware of a material departure from GAAP. If the accountant modifies the report, he should

Answer 11

Disclose the departure from GAAP in a separate paragraph of the report.

Question 12

What representation does an accountant make implicitly when issuing the standard report for compilation of a nonissuers financial statements

Answer 12

The accountant is independent with respect to the entity.

Question 13

What inquiry or analytical procedures are ordinarily performed in an engagement to review a nonissuers financial statements?

Answer 13

Inquiries concerning the entity’s procedures for recording and summarizing transactions.

Question 14

What is performed in a review engagement but not a compilation?

Answer 14

Obtaining a rep letter from CEO

Question 15

The standard report issued by an accountant after reviewing the financial statements of a non issuer should state that

Answer 15

A review includes primarily applying analytical procedures to managements financial data and making inquiries of company management

Question 16

Financial statements of a non-issuer that have been reviewed by an accountant should be accompanied by a report stating that

Answer 16

Management is responsible for the preparation and fair presentation of the financial statements

Question 17

Lawrence CPA is compiling the unaudited financial statements of DML products, a non-issuer. These financial statements are no expected to be used by a 3rd party. What is Lawrence least likely to perform in this engagement?

Answer 17

Evaluate the relationships of DML’s financial statement elements that would be expected to conform to a predictable pattern.

Question 18

An auditor who is conducting a review of the unaudited financial statements of a non-issuer would be required to

Answer 18

Obtain a management rep letter

Question 19

An accountants compilation report on the unaudited financial statements of a nonissuer should

Answer 19

Disclaim an opinion on the financial statements

Question 20

CPA determined an entity maintained accounts in OCBOA during review. The CPA would

Answer 20

Modify the review report to reflect the fact that the financial statements were presented in another comprehensive basis of accounting

Question 21

An accountant compiles the financial statements of a non-issuer and issues the standard compilation report. Although not specifically stated in this report, it is implied that

Answer 21

Substantially all disclosures required by GAAP are included in the financial statements

Question 22

As a successor accountant in a review and compilation, is it required to communicate with the predecessor accountant to obtain work papers?

Answer 22

No

Question 23

A CPA has been hired to perform agreed-upon procedures for rents and royalties. Audit committee & management are responsible parties. Report for internal use. What are the required components for the report

Answer 23

1) A title including independent.
2) A statement that the procedures performed were those agreed to by the audit committee and management.
3) A list of the procedures performed and findings obtained.
4) Disclaimer of opinion on Statement of Royalties (no opinion)

Question 24

When an accountant is engaged to compile a non-issuer’s financial statement that omit all disclosures required by GAAP, the accountant should indicate in the compilation report that the financial statements are

Answer 24

Not designed for those who are uninformed about the omitted disclosures

Question 25

What is correct regarding compiled financial statements when 3rd party reliance is anticipated?

Answer 25

A compilation report must be issued.

Question 26

Which communication options may be used when an accountant submits compiled financial statements to be used only by management?

1) Compilation report
2) Written engagement letter

Answer 26

1) Compilation report YES

2) Written engagement letter YES

Question 27

What would an accountant investigate during a review of financial statements of a non-issuer if accounts receivable did not conform to a predictable pattern during the year?

Answer 27

Credit sales

Question 28

Financial statements of a non-issuer that have been reviewed by an accountant should be accompanied by a report stating that a review

Answer 28

consists principally of inquiries of company personnel and analytical procedures applied to financial data

Question 29

Financial statements of a non-issuer that have been reviewed by an accountant should be accompanied by a report stating that

Answer 29

All information included in the financial statements is representation of the management of the entity

Question 30

Silver CPA has been hired by a public company to conduct a review of its interim financial information. While performing review procedures, Silver becomes aware of a significant change in the control activities at one of Andrew’s branch. What might the CPA consider?

1) Making additional inquiries such as whether management has monitored the changes and considered whether they were operating as intended?
2) Employing analytical procedures with less precise expectation?

Answer 30

1) Making additional inquiries such as whether management has monitored the changes and considered whether they were operating as intended? YES
2) Employing analytical procedures with less precise expectation? NO

Question 31

Davidson CPA is performing a review under auditing standards of Gold’s interim financial information. As part of planning, Davidson reads the audit documentation from the preceding years annual audit. What is least likely to affect Davidson’s review?

Answer 31

Scope limitations that were overcome through acceptable alternative procedures.

Question 32

When planning a review of an audit client’s interim financial statements, what procedure should the accountant perform to update the accountants knowledge about the entity’s business and its internal control?

Answer 32

Consider the results of audit procedures performed with respect to the current year’s financial statements

Question 33

The quarterly data required by SEC Reg S-K have been omitted. What must be included in the report?

Answer 33

The company has NOT presented the selected quarterly data.

Question 34

What do letters for underwriters, commonly referred to as comfort letters, give?

Answer 34

Letters for underwriters typically give negative assurance on unaudited interim financial information

Question 35

What matters are usually covered in a typical comfort letter?

Answer 35

An opinion as the whether the audited financial statements comply in form with the accounting requirements of the SEC

Question 36

When issuing letters for underwriters, comfort letters, an accountant may provide negative assurance concerning

Answer 36

The conformity of the entity’s unaudited condensed interim financial information with GAAP.

Question 37

When a CPA examines a client’s projected financial statements, the CPA’s report should

Answer 37

State that the CPA performed procedures to evaluate management’s assumptions.

Question 38

In an attest engagement, use of the accountants report should be restricted to specified parties in situations EXCEPT

Answer 38

When reporting on an assertion about the subject matter instead of reporting directly on the subject matter.

Question 39

A CPA’s report on agreed upon procedures related to managements assertion about an entity’s compliance with specified requirements should contain

Answer 39

A statement on limitations of the use of the report

Question 40

An accountant’s standard report on a compilation of a projection should NOT include

Answer 40

Statement that the accountant expresses only limited assurance that the results may be achieved.

Question 41

Negative assurance may be expressed when an accountant is requested to report on the

Answer 41

results of performing a review on managements assertion

Question 42

What must be included in an practitioner’s report on the results of applying agreed-upon procedures

Answer 42

A list of the procedures performed as agreed to by the specified parties identified in the report.

Question 43

What is least likely to be included in an examination report related to a financial projection?

Answer 43

An indication that had the accountants performed additional procedures, other matters might have come to their attention that would have been reported.

Question 44

According to AICPA Statements on Standards for Attestation Engagements, a public accounting firm should establish quality control policies to provide assurance about ____________regarding agreed-upon procedures engagements

Answer 44

The practitioner is independent from the client and other specified parties

Question 45

What services can an accountant perform without being required to issue a compilation or review report under SSARS?

1) Working trial balance
2) Journal entries

Answer 45

1) Working trial balance YES

2) Journal entries YES