M6-Reporting on Compliance

Question 1

A report on compliance governed by Statements on Standards for Attestation Engagements would include an opinion on whether the entity compiled, in all material respects, with the applicable compliance requirements. (true or false)

Answer 1

true

Question 2

Tests of the operating effectiveness of controls may be required if any one of the following exist:

Answer 2

1. the risk assessment includes an explanation of the operating effectiveness of controls over compliance,
2. Substantive procedures do not provide enough evidence to support a conclusion, or
3. Tests of controls are required by the applicable governmental audit requirements.

Question 3

As risk of material noncompliance increases, detection risk of noncompliance should decrease to reach a desired level of overall audit risk of noncompliance. This concept is identical to the relationship between risk of material misstatement and detection risk. (true or false)

Answer 3

true

Question 4

In an examination of an entity’s compliance with specified requirements, the auditor should assess attestation risk, which is composed of control risk, inherent risk, and detection risk. For purposes of a compliance examination, control risk represents the risk that material noncompliance will not be prevented or detected on a timely basis by the entity’s controls. (true or false)

Answer 4

true

Question 5

Compliance attestation standards apply for an examination of a client’s compliance with specified requirements, such as debt covenants associated with a bank loan. In addition, examination engagements fall under attestation standards. (true or false)

Answer 5

true