Other Services and Reports

Question 1

A regulatory basis of accounting is considered a?

Answer 1

A regulatory basis of accounting is considered a SPECIAL PURPOSE FRAMEWORK. An auditor may accept an engagement to report on financial statements prepared in accordance with a special purpose framework, and will ONLY be required to issue a DISCLAIMER if there is a SCOPE LIMITATION preventing the auditor from obtaining sufficient appropriate audit evidence, or a QUALIFIED OPINION if there is either a DEPARTURE from the framework or an UNCERTAINTY that the auditor was UNABLE to resolve.

Question 2

A financial projection provides?

Answer 2

A financial projection provides an INDICATION of the results that might be obtained in the case of the occurrence, or nonoccurrence, of a specific event or circumstance, such as the OBTAINING of a BANK LOAN, the ACQUISITION of an ASSET, ENTERING into a CONTRACTUAL RELATIONSHIPS, passage of a law, or some other event. Due to the potentially confusing nature of a projection, an accountant would want to make certain that its distribution is LIMITED to those who are likely to understand the assumptions made in its preparation, such as a bank with which the entity is negotiating for a loan.

Question 3

Testifying as an expert witness is?

Answer 3

Testifying as an expert witness is serving as a form of CONSULTANT and is subject to STANDARD for CONSULTING SERVICES. A compilation of prospective financial statements is an ATTEST engagement subject to SSAE.

Question 4

An auditor is required to?

Answer 4

An auditor is required to be INDEPENDENT to perform an audit and the auditor’s report is required to have the word INDEPENDENT in the title. An OCBOA is an ACCOUNTING FRAMEWORK, not a set of auditing standards.

Question 5

The three different types of attestation engagements in connection with PROSPECTIVE financial statements?

Answer 5

The THREE different types of attestation engagements that an accountant may undertake in connection with PROSPECTIVE financial statements are AGREED-UPON PROCEDURES, EXAMINATIONS, and COMPILATIONS. A REVIEW of prospective financial statements is NOT allowed.

Question 6

An engagement to examine an assertion that a schedule is presented in accordance with certain criteria is considered a?

Answer 6

An engagement to examine an assertion that a schedule is presented in accordance with certain criteria is considered a CONSULTING ENGAGEMENT, an ATTESTATION ENGAGEMENT subject to SSAE.

Question 7

Financial audits under Government Auditing Standards (the Yellow Book)?

Answer 7

Unlike GAAS, reports under GAS (Government Auditing Standards) REQUIRE the auditor to report on the results of TEST OF CONTROLS. The auditor does NOT provide POSITIVE ASSURANCE about the EFFECTIVENESS of controls, including segregation of duties, but DOES REPORT on DEFICIENCIES. The auditor also does not provide negative assurance, including that no evidence of override was discovered.

Question 8

Under Government Auditing Standards (the Yellow Book)?

Answer 8

In a Yellow Book audit, an auditor MAY, but IS NOT REQUIRED to, provide RECOMMENDATIONS to improve operations. The auditor is REQUIRED, however, to report on the TESTS PERFORMED to determine COMPLIANCE with laws and regulations.

Question 9

Should an accountant provide assurance in a compilation?

Answer 9

It is NOT APPROPRIATE for the accountant to provide ASSURANCE in a compilation. An indication that the assumptions used are REASONABLE is a FORM of ASSURANCE and should NOT be included. The accountant will want users to be ALERT to the fact that actual RESULTS are likely to DIFFER from FORECAST. The accountant would also want users to understand the LIMITED NATURE of the accountant’s ASSOCIATION with the financial statements including that a compilation is LIMITED IN SCOPE, and that the accountant is NOT RESPONSIBLE for UPDATING the report as events and circumstances occur or change.

Question 10

Generally Accepted Government Auditing Standards inability to support significant transactions would ?

Answer 10

Under GENERALLY ACCEPTED GOVERNMENT AUDITING STANDARDS the INABILITY of a client to provide documentation to support a SIGNIFICANT TRANSACTIONS would be an indication of a heightened RISK OF FRAUD. There are numerous reasons, some legitimate, that may prevent a client from being able to produce documentation, including the simple human error of misfiling. As a result, the auditor will NOT assume fraudulent activity, including misappropriation of assets, or abusive activity.

Question 11

An auditor should not knowingly be associated with information that contains?

Answer 11

An auditor should not knowingly be associated with information that contains a MATERIAL DEPARTURE WITHOUT INFORMING users of that departure. When other information is NOT consistent with information in the audited financial statements, and if it is assumed that the financial statements are FAIRLY PRESENTED, the conclusion MUST BE that the other information is NOT, which SHOULD BE reflected in the report. It does not matter if the other information is in the audited financial statements if it is in a document that contains them as the auditor WILL BE considered ASSOCIATED.

Question 12

When financial statements are prepared under an applicable financial reporting framework other than GAAP, an OCBOA?

Answer 12

When financial statements are prepared under an APPLICABLE FINANCIAL REPORTING FRAMEWORK other than GAAP, an OCBOA, the TITLES of the financial statements would INDICATED the BASIS by STATING it, such as “Statement of income – REGULATORY BASIS” or by using titles that CLEARLY describe what would be included in the statement. Titles like “Statement of operations”, Income statement”, and “Statement of activities” do not indicate the basis of accounting and may be confused with financial statements prepared in conformity with GAAP.

Question 13

Financial Projection provides?

Answer 13

Since a financial projection provides the client’s PERCEPTION of results that would be anticipated IF certain conditions exist or decisions are made, the report WOULD BE LIMITED to OR RESTRICT the use and DISTRIBUTION to those who UNDERSTAND the conditions or decisions that are the subject of the projections.

Question 14

Pro Forma Financial information?

Answer 14

ATTESTATION STANDARDS allow for COMPILATIONS, REVIEWS, and EXAMINATION of pro forma financial information; in addition, an AGREED-UPON PROCEDURES ENGAGEMENT may be performed in relation to pro forma financial information, and in all AGREED-UPON PROCEDURES ENGAGEMENTS the practitioner MUST provide a REPORT stating the procedures MAY NOT be SUFFICIENT for the purpose intended.

Question 15

Pro forma financial statements?

Answer 15

Pro forma financial statements are intended to show how RESULTS of operations and financial position would DIFFER if a particular event HAD or HAD NOT occurred or a particular decision HAD or HAD NOT been made, and is based on HISTORICAL, NOT PROSPECTIVE information.

Question 16

When engaged to audit an entity’s compliance with requirements governing a major federal financial assistance program?

Answer 16

When engaged to audit an entity’s compliance with requirements governing a major federal financial assistance program, identification of incidents of NONCOMPLIANCE are COMPARABLE to identification of DEPARTURES from GAAP in an audit of an entity’s compliance with GAAP. Depending on the SEVERITY of the noncompliance, the auditor will issue either a QUALIFIED opinion, if material but NOT necessarily PERVASIVE, or an ADVERSE opinion of PERVASIVE as well.

Question 17

Statement of revenues collected and expenses paid would?

Answer 17

The title “Statement of revenues collected and expenses paid” CLEARLY indicates what is included in the financial statement and would be APPROPRIATE for a statement prepared under an OCBOA such as the cash basis. Titles like “Income statement”, “Statement of operations”, and “Statement of cash flows” would be confused with statements prepared in conformity with GAAP.

Question 18

A presumptively mandatory requirement is?

Answer 18

A presumptively mandatory requirement is one that is expected to be COMPLIED WITH in ALL circumstances to which it applies. In RARE CIRCUMSTANCES, however, the auditor MAY DEPART from a PRESUMPTIVELY MANDATORY requirement if the required procedure would be INEFFECTIVE, in which case the auditor is REQUIRED to DOCUMENT how an ALTERNATIVE procedure was able to achieve the objective of the presumptively mandatory requirement.

Question 19

A compilation report on projected financial statements will?

Answer 19

A compilation report on PROJECTED FINANCIAL STATEMENTS will IDENTIFY the statements, indicate that they were compiled in accordance with ATTESTATION STANDARDS, indicate that a compilation is LIMITED IN SCOPE, and that prospective RESULTS MAY NOT BE ACHIEVED.

Question 20

A financial forecast vs a financial projection?

Answer 20

A financial FORECAST is a PROJECTED financial statement that is based on the PAST PERFORMANCE of the entity and is appropriate for GENERAL USE. A financial PROJECTION involves certain ASSUMPTIONS, PROJECTING the possible OUTCOME of certain FUTURE transactions or events. A report on a PROJECTION should be LIMITED to those with an UNDERSTANDING of the transactions or events. A pro forma financial statement represents a RESTATEMENT of HISTORICAL information showing the POSSIBLE EFFECTS that might have occurred IF a transaction or event that MAY or MAY NOT have actually occurred had occurred EARLIER. Users should also be LIMITED to those with an understanding.

Question 21

Generally Accepted Government Auditing Standards (GAGAS) requires?

Answer 21

GAGAS requires the REPORT to include information about the auditor’s knowledge that FRAUD or NONCOMPLIANCE (illegal acts) have occurred or are likely to have occurred as well as on DEFICIENCIES in INTERNAL CONTROL.

Question 22

The subjects covered in a comfort letter?

Answer 22

The subjects covered in a comfort letter: the INDEPENDENCE of the accountant, an OPINION as to whether the audited financial statements and schedules included in the registration statement COMPLY with the requirements of the act of 1933, NEGATIVE ASSURANCE on UNAUDITED INTERIM financial and CAPSULE INFORMATION, and NEGATIVE ASSURANCE as to whether certain NON-FINANCIAL STATEMENT INFORMATION included in the registration statement COMPLIES as to FORM in ALL MATERIAL RESPECTS with regulation S-K. When financial information has not been subjected to audit procedures, the auditor MAY NOT provide either POSITIVE ASSURANCE or a LIMITED OPINION. An accountant’s association with prospective financial statements is not a component of a comfort letter.

Question 23

Applying Agreed-Upon Procedures?

Answer 23

Distribution of a report on applying AGREED-UPON PROCEDURES to prospective financial would be LIMITED to those who are in position to understand the AGREED-UPON PROCEDURES, referred to as SPECIFIED USERS. The engagement is performed in accordance with ATTESTATION STANDARDS.