NATURE AND SCOPE

Question 1

If a statement from the Statements on Standards for Attestation Engagements (SSAE) provides that a procedure or action is one that the practitioner “should consider,” then which of the following interpretations is correct?

Answer 1

The consideration of the procedure is presumptively required, whereas carrying out the procedure is not required.

Question 2

Which of the following services provides the least assurance regarding the fairness of financial statements?

Answer 2

Compilation

Question 3

Which of the following is the authoritative body designated to promulgate attestation standards?

Answer 3

Auditing Standards Board

Question 4

An objective of an engagement to review financial statements in accordance with the Statements on Standards for Accounting and Review Services (SSARS) is to:

Answer 4

obtain limited assurance that no material modifications should be made.

Question 5

Which of the following statements is true with regard to review services performed under the Statements on Standards for Accounting and Review Services?

Answer 5

In a review, an accountant will express limited assurance as to the applicable financial reporting framework on the financial statements.

Question 6

In performing an attestation engagement, a CPA typically:

Answer 6

expresses a conclusion about an assertion.

Question 7

Which of the following is true?

A compilation is an assurance engagement, as well as an attest engagement.

A review is an assurance engagement, as well as an attest engagement.

A review is an attest engagement, but not an assurance engagement.

A compilation is an assurance engagement, but not an attest engagement.

Answer 7

A review is an assurance engagement, as well as an attest engagement.

Question 8

A CPA is required to comply with the provisions of Statements on Standards for Accounting and Review Services when:

I. processing financial data for clients of other CPA firms
II. consulting on accounting matters.

Answer 8

Neither I nor II

Question 9

In auditing a not-for-profit entity that receives governmental financial assistance, the auditor has a responsibility to:

Answer 9

assess whether management has identified laws and regulations that have a direct and material effect on the entity’s financial statements.

Question 10

Which of the following statements is correct concerning both an engagement to compile and an engagement to review a nonpublic entity’s financial statements?

Answer 10

The accountant does not contemplate obtaining an understanding of internal control.

Question 11

The procedure, “The accountant should obtain an understanding of the entity’s internal control,” is:

Answer 11

not required for either a compilation or a review.

Question 12

The inability to complete which of the following activities most likely would prevent an accountant from accepting and completing an engagement for a review of financial statements performed in accordance with the Statements on Standards for Accounting and Review Services (SSARS)?

Answer 12

Performing inquiries and analytical procedures

Question 13

Which of the following procedures is an accountant required to perform before issuing a compilation report under Statements on Standards for Accounting and Review Services (SSARS)?

Answer 13

Read the financial statements and consider whether such financial statements appear to be free from obvious material errors.

Question 14

An accountant is required to comply with the provisions of the Statements on Standards for Accounting and Review Services (SSARS) when performing which of the following tasks?

Answer 14

Preparing financial statements of a nonissuer

Question 15

Generally accepted government auditing standards use which of the following terms to describe a professional requirement to comply with a standard or provide a special explanation for not doing so?

Answer 15

Presumptively mandatory requirement

Question 16

Which of the following procedures most likely would not be included in a review engagement of a nonpublic entity?

Answer 16

Assessing control risk

Question 17

Harris, CPA, has been asked to audit and report on the balance sheet of Fox Co., but not on the statements of income, retained earnings, or cash flows. Harris will have access to all information underlying the basic financial statements. Under these circumstances, Harris may:

Answer 17

accept the engagement because such engagements merely involve limited reporting objectives.

Question 18

An exception to the “percentage of coverage” rule in the OMB’s Uniform Guidance rules allows an auditor to reduce the scope of the audit when the entity is determined to be low risk. For an entity that meets the criteria for a low-risk entity, the percentage of federal expenditures covered by the audit can be reduced as low as:

Answer 18

20%.

Question 19

The objective of a Section 70, Preparation of Financial Statements, engagement in accordance with the Statements on Standards for Accounting and Review Services (SSARS) is:

Answer 19

to prepare the financial statements in accordance with an applicable financial reporting framework.

Question 20

The standard report issued by a CPA after reviewing the financial statements of a nonissuer in accordance with Statements on Standards for Accounting and Review Services (SSARS) should state that the CPA:

Answer 20

is not aware of any material modifications that should be made to the financial statements.

Question 21

In an audit of a nonprofit organization under the Uniform Guidance rules, an auditor must comply with all of the following, except:

Answer 21

correspond with all individuals or entities that have received or made use of the federal award funds and determine the appropriateness of such distributions.

Question 22

Generally accepted government auditing standards use which of the following terms to describe a professional requirement to comply with a standard or provide a special explanation for not doing so?

Answer 22

Obtaining a general understanding of the entity’s organization, its operating characteristics, and its assets, liabilities, revenues, and expenses

Question 23

In addition to the Statements on Standards for Accounting and Review Services (SSARS), which of the other following standards must also be complied with in an annual review of the financial statements of a nonissuer?

Answer 23

Code of Professional Conduct and Statements on Quality Control Standards

Question 24

Audit engagement team members should remain alert for evidence of noncompliance with which of the following relevant ethical requirements?

Answer 24

Performing professional responsibilities with the highest sense of integrity

Question 25

Which of the following statements is correct regarding a review engagement of a nonpublic company’s financial statements performed in accordance with the Statements on Standards for Accounting and Review Services (SSARS)?

Answer 25

A review provides an accountant with a basis for expressing limited assurance on the financial statements.

Question 26

Who of the following may be deemed to be “those charged with governance” who oversee the preparation and fair presentation of financial statements that may be subject to audit?

Answer 26

Corporate trustee, board of directors, audit committee, and/or executive management

Question 27

In auditing a not-for-profit entity that receives governmental financial assistance, the auditor has a responsibility to:

Answer 27

assess whether management has identified laws and regulations that have a direct and material effect on the entity’s financial statements.

Question 28

Under the OMB’s Uniform Guidance rules, when an entity uses funds from more than one federal program and the disbursements from the federal programs during the year exceed $750,000, then the entity:

Answer 28

must have a single audit.

Question 29

Which of the following cognizant agencies is most likely to be assigned to an auditee?

Answer 29

The federal agency that provides the most funding to the auditee

Question 30

A CPA was engaged to audit the financial statements of a municipality that received federal financial assistance and that required a single audit for compliance with the terms of the financial assistance. Which of the following guidelines should the CPA consider?

Answer 30

Generally accepted auditing standards and generally accepted government auditing standards

Question 31

If a statement from the Statements on Standards for Attestation Engagements (SSAE) provides that a procedure or action is one that the practitioner “should consider,” then which of the following interpretations is correct?

Answer 31

The consideration of the procedure is presumptively required, whereas carrying out the procedure is not required.

Question 32

A practitioner is engaged to express an opinion on management’s assertion that the square footage of a warehouse offered for sale is 150,000 square feet. The practitioner should refer to which of the following sources for professional guidance?

Answer 32

Statements on Standards for Attestation Engagements

Question 33

In performing an attestation engagement, a CPA typically:

Answer 33

expresses a conclusion about an assertion

Question 34

The standard compilation report includes which statement or phrase?

Answer 34

The objective of a compilation is to assist management in presenting financial information in the form of financial statements.

Question 35

AICPA members who perform compilation and review engagements are governed by all of the following except:

Answer 35

ARSCs.

Question 36

A CPA is engaged to examine management’s assertion that the entity’s schedule of investment returns is presented in accordance with specific criteria. In performing this engagement, the CPA should comply with the provisions of:

Answer 36

Statements on Standards for Attestation Engagements (SSAE).

Question 37

A CPA in public practice is required to comply with the provisions of the Statements on Standards for Accounting and Review Services (SSARS) when

Answer 37

neither advising a client regarding the selection of computer software nor advocating a client’s position before the IRS.

Question 38

Which of the following statements is correct concerning both an engagement to compile and an engagement to review a nonpublic entity’s financial statements?

Answer 38

The accountant should obtain a written management representation letter.

Question 39

The phrase “generally accepted accounting principles” is an accounting term that:

Answer 39

encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time.

Question 40

When performing a review of interim financial information, an accountant would typically do each of the following except:

Answer 40

test controls related to the preparation of annual financial information.

Question 41

The “responsible party” with respect to prospective financial statements is usually:

Answer 41

the entity’s management.

Question 42

Although the scope of audits of recipients of federal financial assistance in accordance with federal audit regulations varies, these audits generally have which of the following elements in common?

Answer 42

The auditor determines whether the federal financial assistance has been administered in accordance with applicable laws and regulations.

Question 43

Which of the following is the authoritative body designated to promulgate attestation standards?

Answer 43

Auditing Standards Board

Question 44

North Co., a privately held entity, asked its tax accountant, King, a CPA in public practice, to review and generate North’s interim financial statements on King’s microcomputer when King prepared North’s quarterly tax return. King should not submit these financial statements to North unless, as a minimum, King complies with the provisions of:

Answer 44

Statements on Standards for Accounting and Review Services

Question 45

Which of the following procedures most likely would not be included in a review engagement of a nonpublic entity?

Answer 45

A compilation report is only required whenever the accountant is engaged to subject the financial statements to compilation procedures.

Question 46

The scope of audits of recipients of federal financial assistance in accordance with federal audit regulations varies. Which of the following elements do these audits have in common?

Answer 46

The auditor is required to document an understanding of internal control established to ensure compliance with the applicable laws and regulations.

Question 47

In accordance with Office of Management and Budget audit requirements for audits of nonfederal entities expending federal awards, which of the following statements is accurate regarding federal awards expended?

Answer 47

Free rents received as part of an award to carry out a federal program are treated as federal funds expended.

Question 48

The regulatory body that has the primary authority to develop requirements for performing federal program compliance audits in accordance with the Single Audit Act is:

Answer 48

the Office of Management and Budget (OMB).

Question 49

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?

Answer 49

The specific procedures performed should be listed in the practitioner’s report to the audit committee.

Question 50

The procedure, “The accountant should obtain an understanding of the entity’s internal control,” is:

Answer 50

not required for either a compilation or a review.

Question 51

Which of the following is correct regarding a compilation of financial statements engagement in accordance with the Statements on Standards for Accounting and Review Services (SSARS)?

Answer 51

The accountant is not required to make inquiries nor perform procedures to corroborate the information provided by the client.

Question 52

Which of the following activities is an accountant not responsible for in review engagements performed in accordance with the Statements on Standards for Accounting and Review Services (SSARS)?

Answer 52

Developing an understanding of internal control

Question 53

When performing a financial statement audit of a nonpublic, nonprofit entity in conformance with generally accepted government auditing standards, which of the following best describes the standards that the independent auditor must comply with on the engagement?

Answer 53

Generally accepted government auditing standards and generally accepted auditing standards issued by the AICPA

Question 54

In an accountant’s review of interim financial information, the accountant typically performs each of the following except:

Answer 54

obtaining corroborating external evidence.