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Chapter 19 - Additional Assurance Services: Historical Financial Information

Chapter 19 Additional Assurance Services: Historical Financial Information

True / False Questions

1.

An audit opinion on cash basis financial statements is an example of an opinion on

financial statements that follow a special purpose financial reporting framework.

 

True False

2.

The balance sheet for an individual may be titled a Statement of Financial Condition.

True

False

3.

The auditors should take exception to assets presented at their estimated current values in

personal financial statements.

 

True False

4.

Personal financial statements may be compiled or reviewed, but they should not be

audited.

True

False

5.

A compilation of financial statement provides limited assurance regarding the financial

statements.

True

False

6.

Compiled financial statements may omit note disclosures.

True

False

7.

The auditors must issue a compilation report if they prepare a client's financial statements

and submit them to a client who intends to use them for external purposes.

True False

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 8. The auditors should not accept an engagement to issue a compilation report on financial

information presented in a prescribed form.

True False

  • 9. Letters to underwriters should not contain negative assurances.

True

False

10. When a U.S.-based organization prepares financial statements which are for use in another country, a U.S. report, modified to reflect the accounting principles of the other country, may be issued. True False

Multiple Choice Questions

11. Which of the following is correct relating to compiled financial statements when third party reliance upon those statements is anticipated?

  • A. A compilation report must be issued.

  • B. Omission of note disclosures is unacceptable.

  • C. A written engagement letter is required.

  • D. Each page of the financial statements should have a restriction such as "Restricted for

Management's Use Only".

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 12. Which communication option(s) may be used when an accountant submits compiled

financial statements to be used only by management?

Chapter 19 - Additional Assurance Services: Historical Financial Information 12. Which communication option(s) may be used
  • A. Option A

  • B. Option B

  • C. Option C

  • D. Option D

    • 13. A compilation report is not required when compiled financial statements are expected to

be used by:

  • A. Management only.

  • B. Management and third parties.

  • C. Third parties only.

  • D. A compilation report is required whenever financial statements are compiled.

    • 14. It is the end of the client's first quarter and Bill Smith, CPA has been engaged to perform a

compilation and to issue a compilation report on the financial statements. The client does not wish to present notes to the financial statements. The appropriate report includes:

  • A. Qualified opinion ("subject to" the omission of the notes).

  • B. Compilation report with an adverse opinion due to inadequate disclosure.

  • C. Standard compilation report.

  • D. Compilation report with an indication that all required disclosures under GAAP may not be

presented with the statements.

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 15. An accountant's standard report issued after compiling the financial statements of a

nonpublic entity should state that:

  • A. I am not aware of any material modifications that should be made to the accompanying

financial statements.

  • B. A compilation consists principally of inquiries of company personnel and analytical

procedures.

  • C. A compilation is limited to presenting in the form of financial statements information that

is the representation of management.

  • D. A compilation is substantially less in scope than an audit in accordance with GAAS, the

objective of which is the expression of an opinion.

  • 16. Which of the following procedures is usually the first step in reviewing the financial

statements of a nonpublic entity?

  • A. Make preliminary judgments about risk and materiality to determine the scope and nature

of the procedures to be performed.

  • B. Obtain a general understanding of the entity's organization, its operating characteristics,

and its products or services.

  • C. Assess the risk of material misstatement arising from fraudulent financial reporting and the

misappropriation of assets.

  • D. Perform a preliminary assessment of the operating efficiency of the entity's internal control

activities.

  • 17. Which of the following would be used on a review engagement?

  • A. Examination of board minutes.

  • B. Confirmation of cash and accounts receivable.

  • C. Comparison of current-year to prior-year account balances.

  • D. Recalculation of depreciation expense.

    • 18. Which of the following is correct concerning financial statements prepared in the United

States for use in another country?

  • A. The auditor must follow GAAP of both the United States and of the other country.

  • B. The type of audit report issued depends upon whether it is for use primarily outside the

United States.

  • C. The audit must only follow US GAAP.

  • D. Auditors from the other country must be involved with the audit to assure adequate

performance of that country's standards.

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Chapter 19 - Additional Assurance Services: Historical Financial Information

19. For a CPA, a client imposed scope limitation during a review of financial statements is most likely to result in:

  • A. Resignation from the engagement.

  • B. Issuance of a disclaimer of opinion.

  • C. Issuance of an adverse opinion.

  • D. Only an explanatory paragraph added to report, with no change in the assurance provided.

    • 20. Interim information of public companies:

A.

Must be as comprehensive as that filed annually with the Securities and Exchange

Commission.

B.

Must be reviewed by CPAs before it is filed with the Securities and Exchange

Commission.

C.

Must be reviewed continuously by CPAs using continuous auditing techniques.

D.

Requires no accountant association until it becomes a part of the companies' annual

financial information.

  • 21. In which of the following types of reports do the auditors express negative assurance?

    • A. Letters for underwriters.

    • B. Reports on audits of financial statements on a basis other than generally accepted

accounting principles.

  • C. Reports on audits of specified accounts.

  • D. Reports on summary financial statements.

    • 22. An assertion that is particularly difficult to audit with respect to personal financial

statements is:

A.

Existence.

B.

Rights.

C.

Completeness.

D.

Legality.

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 23. In which of the following types of reports do accountants provide no explicit assurance?

    • A. Compilations.

    • B. Reviews.

    • C. Examinations.

    • D. Audits.

      • 24. Which of the following types of services is most likely to result in a report whose use is

restricted to specified parties?

  • A. Compilations.

  • B. Reviews.

  • C. Agreed-upon procedures.

  • D. Audits.

    • 25. Which of the following does not result in a modification of a compilation report?

      • A. A lack of independence on the part of the auditors.

      • B. A departure from generally accepted accounting principles.

      • C. A lack of adequate disclosure in the financial statements.

      • D. A lack of consistent application of generally accepted accounting principles.

        • 26. A practitioner's report on agreed-upon procedures that is in the form of procedures and

findings should contain:

A.

Negative assurance that the procedures did not necessarily disclose all reportable

conditions.

B.

An acknowledgment of the practitioner's responsibility for the sufficiency of the

procedures.

C.

A statement of restrictions on the use of the report.

D.

A disclaimer of opinion on the entity's financial statements.

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 27. Which of the following statements is correct with respect to an audit report issued for

financial statements to be used primarily outside of the United States?

  • A. The report should follow the U.S. format, modified as appropriate.

  • B. The report should follow the format of the other country.

  • C. The report may follow either the U.S. format, modified as appropriate, or may follow the

format of the other country.

  • D. The report should follow the attestation examination report format.

    • 28. A "comfort letter" to an investment banking firm will normally not:

      • A. Express negative assurance.

      • B. Be included with the registration statement for the securities.

      • C. Include the CPA's opinion as to whether the audited financial statements comply in all

material respects with applicable requirements of the related securities acts.

  • D. Include a statement as to the auditors' independence.

    • 29. When the auditors have performed an audit and are asked to report on the client's

compliance with aspects of contractual agreements, which of the following is correct?

  • A. They may do so and provide reasonable assurance as to compliance.

  • B. They may do so and provide negative assurance as to compliance.

  • C. They only may do so when details of the contracts have been audited.

  • D. They may not do so.

    • 30. Which of the following is accurate relating to audit reports on tax basis financial

statements?

  • A. No emphasis of matter paragraph is included in the audit report.

  • B. Use of the report need not be restricted.

  • C. The purpose of the financial statements should be described in the audit report.

  • D. Only reports with modified opinions are appropriate.

    • 31. Which of the following requires modification of a review report?

      • A. A change in accounting principles.

      • B. A substantial doubt about a company's ability to continue as a going concern.

      • C. A departure from generally accepted accounting principles.

      • D. A change in an accounting estimate.

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 32. Which of the following is correct when a company is issuing summary financial

statements developed from audited financial statements?

  • A. Such summary statements should always have a CPA's report associated with them when

audited financial statements exist.

  • B. The CPA may issue a report on whether the summary information is fairly stated in all

material respects in relation to the basic financial statements.

  • C. The CPA should perform a compilation and review of the summary financial statements.

  • D. The CPA who has audited the financial statements who is asked to report on the summary

statements should decline the engagement because the summary statements do not include all

disclosures necessary under generally accepted accounting principles.

  • 33. Financial statements that are developed from and summarize the overall information

presented in audited financial statements are referred to as:

  • A. Agreed-upon procedure financial statements.

  • B. Compiled financial statements.

  • C. Summary financial statements.

  • D. Reviewed financial statements.

    • 34. Which of the following is not an example of financial statements that use a special

purpose financial reporting framework?

  • A. Of a partnership which follows accounting practices used to file its tax return.

  • B. Prepared for limited purposes such as relating to a contract a company has entered into.

  • C. Of an organization that has limited the scope of the auditor's examination.

  • D. Of an organization that follows procedures of a regulatory agency that oversees the

company and its operations.

  • 35. Whenever a report filed on a printed form designed by authorities, call upon the

independent auditors to make an assertion that the auditors believe is not justified, the

auditors should:

  • A. Submit a short-form report with explanations.

  • B. Reword the form or attach a separate report.

  • C. Submit the form with questionable items clearly omitted.

  • D. Withdraw from the engagement.

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 36. During a review of the financial statements of a non-public entity, the CPA finds that the

financial statements contain a material departure from generally accepted accounting principles. If management refuses to correct the financial statement presentations, the CPA should:

  • A. Disclose the departure in a separate paragraph of the report.

  • B. Issue an adverse opinion.

  • C. Attach a note explaining the effects of the departure.

  • D. Issue a compilation report.

    • 37. The accountants' compilation report should be dated as of the date of:

      • A. Completion of fieldwork.

      • B. Completion of the compilation.

      • C. Transmittal of the compilation report.

      • D. The latest subsequent event referred to in the notes to the financial statements.

        • 38. A modification of the CPA's report on a review of the interim financial statements of a

publicly-held company would be necessitated by which of the following?

  • A. An uncertainty.

  • B. Lack of consistency.

  • C. Reference to another accountant.

  • D. Inadequate disclosure.

    • 39. A CPA should not normally refer to which one of the following subjects in a "comfort

letter" to underwriters?

  • A. The independence of the CPA.

  • B. Changes in financial-statement items during a period subsequent to the date and period of

the latest financial statements in the registration statement.

  • C. Unaudited financial statements and schedules in the registration statement.

  • D. Management's determination of line of business classifications.

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 40. Inquiry and analytical procedures ordinarily performed during a review of a nonpublic

entity's financial statements include:

  • A. Analytical procedures designed to identify reportable conditions related to internal control.

  • B. Inquiries concerning actions taken at meetings of the stockholders and the board of

directors.

  • C. Analytical procedures designed to test the accounting records by obtaining corroborating

evidential matter.

  • D. Inquiries of knowledgeable outside parties such as the client's attorneys and bankers.

    • 41. Which of the following would not be included in a CPA's report based upon a review of

the financial statements of a nonpublic entity?

  • A. A statement that the review was in accordance with generally accepted auditing standards.

  • B. A statement that all information included in the financial statements are the representations

of management.

  • C. A statement describing the nature of the procedures performed.

  • D. A statement describing the auditor's conclusions based upon the results of the review.

    • 42. The objective of a review of interim financial information is to provide the accountant

with a basis for reporting whether:

A.

A reasonable basis exists for expressing an updated opinion regarding the financial

statements that were previously audited.

B.

Material modifications should be made to conform with generally accepted accounting

principles.

C.

The financial statements are presented fairly in accordance with standards of interim

reporting.

D.

The financial statements are presented fairly in accordance with generally accepted

accounting principles.

  • 43. If the auditor believes that financial statements prepared on the entity's income tax basis

are not suitably titled, the auditor should:

  • A. Issue a disclaimer of opinion.

  • B. Explain in the notes to the financial statements the terminology used.

  • C. Issue a compilation report.

  • D. Modify the auditor's report to disclose any reservations.

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 44. An auditor's report on financial statements prepared in accordance with a special purpose

financial reporting framework of accounting other than generally accepted accounting

principles should include all of the following except:

A.

Reference to the note to the financial statements that describes the basis of preparation of

the financial statements.

B.

Disclosure that the audit was performed in accordance with generally accepted auditing

standards.

C.

An opinion as to whether the basis of accounting used is appropriate under the

circumstances.

D.

An opinion as to whether the financial statements are presented fairly in conformity with

the basis of accounting described.

  • 45. When an auditor reports on financial statements prepared on an entity's income tax basis,

the auditor's report should:

  • A. Disclose that the income tax basis is a basis of accounting other than generally accepted

accounting principles.

  • B. Disclaim an opinion on whether the statements were examined in accordance with

generally accepted auditing standards.

  • C. Not express an opinion on whether the statements are presented in conformity with the

basis of accounting used.

  • D. Include an explanation of how the results of operations differ from the cash receipts and

disbursements basis of accounting.

  • 46. An auditor's report would be designated as a report on financial statements following a

special purpose financial reporting framework for financial statements when they are:

  • A. For an interim period and are subjected to a review.

  • B. Unaudited and are prepared from a client's accounting records.

  • C. Prepared in accordance with a regulatory basis of accounting other than generally accepted

accounting principles.

  • D. Purported to be in accordance with generally accepted accounting principles but do not

include a presentation of the statement of cash flows.

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 47. The underwriter of a securities offering may request that an auditor perform specified

procedures and supply certain assurances concerning unaudited information contained in a

registration statement. The auditor's response to such a request is commonly called a:

  • A. Report under federal security statutes.

  • B. Comfort letter.

  • C. Review of interim financial information.

  • D. Compilation report for underwriters.

    • 48. Comfort letters are ordinarily signed by the:

      • A. Client.

      • B. Client's lawyer.

      • C. Independent auditor.

      • D. Internal auditor.

        • 49. Which of the following circumstances requires modification of the accountant's report on

a review of interim financial information of publicly held entity?

Chapter 19 - Additional Assurance Services: Historical Financial Information 47. The underwriter of a securities offering
  • A. Option A

  • B. Option B

  • C. Option C

  • D. Option D

    • 50. If compiled financial statements presented in conformity with the cash receipts and

disbursements basis of accounting do not disclose the basis of accounting used, the

accountant should:

  • A. Disclose the basis in the notes to the financial statements.

  • B. Clearly label each page "Unaudited."

  • C. Disclose the basis of accounting in the accountant's report.

  • D. Recompile the financial statements using generally accepted accounting principles.

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 51. An auditor is reporting on cash basis financial statements. These statements are best

referred to in his opinion by which of the following descriptions?

  • A. Financial position and results of operation arising from cash transactions.

  • B. Assets and liabilities arising from cash transactions, and revenue collected and expenses

paid.

  • C. Balance sheet and income statement resulting from cash transactions.

  • D. Cash balance sheet and the source and application of funds.

    • 52. Which of the following should not be included in an accountant's standard report based

upon the compilation of an entity's financial statements?

  • A. A statement that a compilation is limited to presenting in the form of financial statements

information that is the representation of management.

  • B. A statement that the compilation was performed in accordance with standards established

by the American Institute of CPAs.

  • C. A statement that the accountant has not audited or reviewed the financial statements.

  • D. A statement that the accountant does not express an opinion but expresses only limited

assurance on the financial statements.

  • 53. Each page of the financial statements compiled by an accountant should include a

reference such as:

  • A. See accompanying accountant's notes.

  • B. Unaudited, see accountant's disclaimer.

  • C. See accountant's compilation report.

  • D. Subject to compilation restrictions.

    • 54. During a review of the financial statements of a nonpublic entity, the CPA finds that the

financial statements contain a material departure from generally accepted accounting

principles. If management refuses to correct the financial statement presentations, the CPA should:

  • A. Disclose the departure in a separate paragraph of the report.

  • B. Issue an adverse opinion.

  • C. Attach a note explaining the effects of the departure.

  • D. Issue a compilation report.

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 55. Which of the following is an auditor least likely to inquire about when performing a

review of a nonpublic company?

  • A. Significant transactions near the end of the period.

  • B. Communications with regulatory agencies.

  • C. That financial statements are prepared in conformity with a special basis of accounting.

  • D. Questions that have arisen in applying review procedures.

    • 56. When performing a review of a nonpublic company, the auditors must obtain in a

representation letter acknowledgement of management for its responsibility for each of the

following except:

  • A. Responsibility for identifying illegal acts committed by employees.

  • B. Responsibility for the financial statements conforming with generally accepted accounting

principles.

  • C. Responsibility to prevent and detect fraud.

  • D. Knowledge of any actual or suspected fraud that is material.

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Chapter 19 - Additional Assurance Services: Historical Financial Information

Essay Questions

57. Items a through j present various phrases or characteristics that may apply to audits, reviews, and compilations. Place an X in the cell if the phrase or characteristic applies to the listed service:

Chapter 19 - Additional Assurance Services: Historical Financial Information Essay Questions 57. Items a through j

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 58. The financial statements of nonpublic companies may be compiled or reviewed by the

CPAs.

  • a. Describe a compilation of financial statements.

  • b. Describe a review of financial statements.

  • c. Describe three procedures that are performed in the review of a nonpublic company's financial statements.

    • 59. One may envision a continuum of assurance ranging from absolute assurance to no

assurance. In between may be reasonable assurance, limited assurance, and a summary of

findings with no other assurance.

  • a. What level of assurance is provided in the CPA's report by each of the following types of engagements?

Examinations Audits Review Agreed-upon procedures Compilations

  • b. What type of assurance is provided on financial statements prepared following a special

purpose basis of accounting other than generally accepted accounting principles?

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Chapter 19 - Additional Assurance Services: Historical Financial Information

Chapter 19 Additional Assurance Services: Historical Financial Information

Answer Key

True / False Questions

  • 1. An audit opinion on cash basis financial statements is an example of an opinion on

financial statements that follow a special purpose financial reporting framework.

TRUE

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-02 Identify the types of special-purpose financial reporting frameworks and the nature of the audit reports issued. Topic: Auditing Financial Statements—Other Than GAAP

  • 2. The balance sheet for an individual may be titled a Statement of Financial Condition.

TRUE

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 19-05 Explain the special considerations involved in auditing personal financial statements. Topic: Additional GAAS Audits

  • 3. The auditors should take exception to assets presented at their estimated current values in

personal financial statements.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 19-05 Explain the special considerations involved in auditing personal financial statements. Topic: Additional GAAS Audits

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Chapter 19 - Additional Assurance Services: Historical Financial Information

4.

Personal financial statements may be compiled or reviewed, but they should not be

audited.

FALSE

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Bloom's: Remember Difficulty: Easy Learning Objective: 19-05 Explain the special considerations involved in auditing personal financial statements. Topic: Additional GAAS Audits

5.

A compilation of financial statement provides limited assurance regarding the financial

statements.

FALSE

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-08 Explain the accountant's responsibilities when performing a compilation of financial statements. Topic: Compilations of Historical Financial Statements

6.

Compiled financial statements may omit note disclosures.

TRUE

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-08 Explain the accountant's responsibilities when performing a compilation of financial statements. Topic: Compilations of Historical Financial Statements

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 7. The auditors must issue a compilation report if they prepare a client's financial statements

and submit them to a client who intends to use them for external purposes.

TRUE

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Apply Difficulty: Hard Learning Objective: 19-08 Explain the accountant's responsibilities when performing a compilation of financial statements. Topic: Compilations of Historical Financial Statements

  • 8. The auditors should not accept an engagement to issue a compilation report on financial

information presented in a prescribed form.

FALSE

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Remember Difficulty: Easy Learning Objective: 19-08 Explain the accountant's responsibilities when performing a compilation of financial statements. Topic: Compilations of Historical Financial Statements

  • 9. Letters to underwriters should not contain negative assurances.

FALSE

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-01 Discuss additional audit-based services; including reporting on compliance with contractual agreements; letters for underwriters; and summary financial statements. Topic: Audit-Based Services—Assurance on Additional Information

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Chapter 19 - Additional Assurance Services: Historical Financial Information

10. When a U.S.-based organization prepares financial statements which are for use in another

country, a U.S. report, modified to reflect the accounting principles of the other country, may be issued.

TRUE

AACSB: Analytic AACSB: Communication AICPA BB: Global AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-03 Describe the auditors' responsibilities when auditing financial statements that use a generally accepted financial reporting framework of another country. Topic: Auditing Financial Statements—Other Than GAAP

Multiple Choice Questions

11. Which of the following is correct relating to compiled financial statements when third party reliance upon those statements is anticipated?

  • A. A compilation report must be issued.

  • B. Omission of note disclosures is unacceptable.

  • C. A written engagement letter is required.

  • D. Each page of the financial statements should have a restriction such as "Restricted for

Management's Use Only".

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-08 Explain the accountant's responsibilities when performing a compilation of financial statements. Topic: Compilations of Historical Financial Statements

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Chapter 19 - Additional Assurance Services: Historical Financial Information

12. Which communication option(s) may be used when an accountant submits compiled financial statements to be used only by management?

Chapter 19 - Additional Assurance Services: Historical Financial Information 12. Which communication option(s) may be used
  • A. Option A

  • B. Option B

  • C. Option C

  • D. Option D

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Apply Difficulty: Hard Learning Objective: 19-08 Explain the accountant's responsibilities when performing a compilation of financial statements. Topic: Compilations of Historical Financial Statements

13. A compilation report is not required when compiled financial statements are expected to be used by:

  • A. Management only.

  • B. Management and third parties.

  • C. Third parties only.

  • D. A compilation report is required whenever financial statements are compiled.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-08 Explain the accountant's responsibilities when performing a compilation of financial statements. Topic: Compilations of Historical Financial Statements

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 14. It is the end of the client's first quarter and Bill Smith, CPA has been engaged to perform a

compilation and to issue a compilation report on the financial statements. The client does not

wish to present notes to the financial statements. The appropriate report includes:

  • A. Qualified opinion ("subject to" the omission of the notes).

  • B. Compilation report with an adverse opinion due to inadequate disclosure.

  • C. Standard compilation report.

  • D. Compilation report with an indication that all required disclosures under GAAP may not be

presented with the statements.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-08 Explain the accountant's responsibilities when performing a compilation of financial statements. Topic: Compilations of Historical Financial Statements

  • 15. An accountant's standard report issued after compiling the financial statements of a

nonpublic entity should state that:

  • A. I am not aware of any material modifications that should be made to the accompanying

financial statements.

  • B. A compilation consists principally of inquiries of company personnel and analytical

procedures.

  • C. A compilation is limited to presenting in the form of financial statements information that

is the representation of management.

  • D. A compilation is substantially less in scope than an audit in accordance with GAAS, the

objective of which is the expression of an opinion.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-08 Explain the accountant's responsibilities when performing a compilation of financial statements. Source: AICPA Topic: Compilations of Historical Financial Statements

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 16. Which of the following procedures is usually the first step in reviewing the financial

statements of a nonpublic entity?

  • A. Make preliminary judgments about risk and materiality to determine the scope and nature

of the procedures to be performed.

  • B. Obtain a general understanding of the entity's organization, its operating characteristics,

and its products or services.

  • C. Assess the risk of material misstatement arising from fraudulent financial reporting and the

misappropriation of assets.

  • D. Perform a preliminary assessment of the operating efficiency of the entity's internal control

activities.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Apply Difficulty: Hard Learning Objective: 19-06 Describe the nature of financial statement reviews conducted under Statements on Standards for Accounting and Review Services. Source: AICPA Topic: Reviews of Historical Financial Statements

  • 17. Which of the following would be used on a review engagement?

  • A. Examination of board minutes.

  • B. Confirmation of cash and accounts receivable.

  • C. Comparison of current-year to prior-year account balances.

  • D. Recalculation of depreciation expense.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-06 Describe the nature of financial statement reviews conducted under Statements on Standards for Accounting and Review Services. Source: AICPA Topic: Reviews of Historical Financial Statements

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 18. Which of the following is correct concerning financial statements prepared in the United

States for use in another country?

  • A. The auditor must follow GAAP of both the United States and of the other country.

  • B. The type of audit report issued depends upon whether it is for use primarily outside the

United States.

  • C. The audit must only follow US GAAP.

  • D. Auditors from the other country must be involved with the audit to assure adequate

performance of that country's standards.

AACSB: Analytic AACSB: Communication AICPA BB: Global AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-03 Describe the auditors' responsibilities when auditing financial statements that use a generally accepted financial reporting framework of another country. Topic: Auditing Financial Statements—Other Than GAAP

  • 19. For a CPA, a client imposed scope limitation during a review of financial statements is

most likely to result in:

  • A. Resignation from the engagement.

  • B. Issuance of a disclaimer of opinion.

  • C. Issuance of an adverse opinion.

  • D. Only an explanatory paragraph added to report, with no change in the assurance provided.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Apply Difficulty: Hard Learning Objective: 19-04 Discuss audits of single financial statements and specifi c accounts or items of a financial statement. Topic: Additional GAAS Audits

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 20. Interim information of public companies:

A.

Must be as comprehensive as that filed annually with the Securities and Exchange

Commission.

B.

Must be reviewed by CPAs before it is filed with the Securities and Exchange

Commission.

C.

Must be reviewed continuously by CPAs using continuous auditing techniques.

D.

Requires no accountant association until it becomes a part of the companies' annual

financial information.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-07 Discuss how reviews performed under Statements on Standards for Accounting and Review Services differ from those erformed under the Statements on Auditing Standards. Topic: Reviews of Historical Financial Statements

21.

In which of the following types of reports do the auditors express negative assurance?

A.

Letters for underwriters.

B.

Reports on audits of financial statements on a basis other than generally accepted

accounting principles.

C.

Reports on audits of specified accounts.

D.

Reports on summary financial statements.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Apply Difficulty: Hard Learning Objective: 19-01 Discuss additional audit-based services; including reporting on compliance with contractual agreements; letters for underwriters; and summary financial statements. Topic: Audit-Based Services—Assurance on Additional Information

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 22. An assertion that is particularly difficult to audit with respect to personal financial

 

statements is:

A.

Existence.

B.

Rights.

C.

Completeness.

D.

Legality.

AACSB: Analytic AICPA BB: Industry AICPA FN: Measurement Bloom's: Understand Difficulty: Medium Learning Objective: 19-05 Explain the special considerations involved in auditing personal financial statements. Topic: Additional GAAS Audits

23.

In which of the following types of reports do accountants provide no explicit assurance?

A.

Compilations.

B.

Reviews.

C.

Examinations.

D.

Audits.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Remember Difficulty: Easy Learning Objective: 19-06 Describe the nature of financial statement reviews conducted under Statements on Standards for Accounting and Review Services. Topic: Reviews of Historical Financial Statements

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 24. Which of the following types of services is most likely to result in a report whose use is

restricted to specified parties?

  • A. Compilations.

  • B. Reviews.

C.

Agreed-upon procedures.

  • D. Audits.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-04 Discuss audits of single financial statements and specifi c accounts or items of a financial statement. Topic: Additional GAAS Audits

  • 25. Which of the following does not result in a modification of a compilation report?

    • A. A lack of independence on the part of the auditors.

    • B. A departure from generally accepted accounting principles.

    • C. A lack of adequate disclosure in the financial statements.

    • D. A lack of consistent application of generally accepted accounting principles.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Apply Difficulty: Hard Learning Objective: 19-08 Explain the accountant's responsibilities when performing a compilation of financial statements. Topic: Compilations of Historical Financial Statements

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 26. A practitioner's report on agreed-upon procedures that is in the form of procedures and

findings should contain:

A.

Negative assurance that the procedures did not necessarily disclose all reportable

conditions.

B.

An acknowledgment of the practitioner's responsibility for the sufficiency of the

procedures.

C.

A statement of restrictions on the use of the report.

D.

A disclaimer of opinion on the entity's financial statements.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-04 Discuss audits of single financial statements and specifi c accounts or items of a financial statement. Source: AICPA Topic: Additional GAAS Audits

27.

Which of the following statements is correct with respect to an audit report issued for

financial statements to be used primarily outside of the United States?

A.

The report should follow the U.S. format, modified as appropriate.

B.

The report should follow the format of the other country.

C.

The report may follow either the U.S. format, modified as appropriate, or may follow the

format of the other country.

D.

The report should follow the attestation examination report format.

AACSB: Analytic AACSB: Communication AICPA BB: Global AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-03 Describe the auditors' responsibilities when auditing financial statements that use a generally accepted financial reporting framework of another country. Topic: Auditing Financial Statements—Other Than GAAP

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 28. A "comfort letter" to an investment banking firm will normally not:

    • A. Express negative assurance.

    • B. Be included with the registration statement for the securities.

    • C. Include the CPA's opinion as to whether the audited financial statements comply in all

material respects with applicable requirements of the related securities acts.

  • D. Include a statement as to the auditors' independence.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-01 Discuss additional audit-based services; including reporting on compliance with contractual agreements; letters for underwriters; and summary financial statements. Topic: Audit-Based Services—Assurance on Additional Information

  • 29. When the auditors have performed an audit and are asked to report on the client's

compliance with aspects of contractual agreements, which of the following is correct?

  • A. They may do so and provide reasonable assurance as to compliance.

  • B. They may do so and provide negative assurance as to compliance.

  • C. They only may do so when details of the contracts have been audited.

  • D. They may not do so.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Apply Difficulty: Hard Learning Objective: 19-04 Discuss audits of single financial statements and specifi c accounts or items of a financial statement. Topic: Additional GAAS Audits

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 30. Which of the following is accurate relating to audit reports on tax basis financial

statements?

  • A. No emphasis of matter paragraph is included in the audit report.

  • B. Use of the report need not be restricted.

  • C. The purpose of the financial statements should be described in the audit report.

  • D. Only reports with modified opinions are appropriate.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-02 Identify the types of special-purpose financial reporting frameworks and the nature of the audit reports issued. Topic: Auditing Financial Statements—Other Than GAAP

  • 31. Which of the following requires modification of a review report?

    • A. A change in accounting principles.

    • B. A substantial doubt about a company's ability to continue as a going concern.

    • C. A departure from generally accepted accounting principles.

    • D. A change in an accounting estimate.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Apply Difficulty: Hard Learning Objective: 19-06 Describe the nature of financial statement reviews conducted under Statements on Standards for Accounting and Review Services. Topic: Reviews of Historical Financial Statements

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 32. Which of the following is correct when a company is issuing summary financial

statements developed from audited financial statements?

  • A. Such summary statements should always have a CPA's report associated with them when

audited financial statements exist.

  • B. The CPA may issue a report on whether the summary information is fairly stated in all

material respects in relation to the basic financial statements.

  • C. The CPA should perform a compilation and review of the summary financial statements.

  • D. The CPA who has audited the financial statements who is asked to report on the summary

statements should decline the engagement because the summary statements do not include all

disclosures necessary under generally accepted accounting principles.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Apply Difficulty: Hard Learning Objective: 19-01 Discuss additional audit-based services; including reporting on compliance with contractual agreements; letters for underwriters; and summary financial statements. Topic: Audit-Based Services—Assurance on Additional Information

  • 33. Financial statements that are developed from and summarize the overall information

presented in audited financial statements are referred to as:

  • A. Agreed-upon procedure financial statements.

  • B. Compiled financial statements.

  • C. Summary financial statements.

  • D. Reviewed financial statements.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-01 Discuss additional audit-based services; including reporting on compliance with contractual agreements; letters for underwriters; and summary financial statements. Topic: Audit-Based Services—Assurance on Additional Information

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 34. Which of the following is not an example of financial statements that use a special

purpose financial reporting framework?

  • A. Of a partnership which follows accounting practices used to file its tax return.

  • B. Prepared for limited purposes such as relating to a contract a company has entered into.

  • C. Of an organization that has limited the scope of the auditor's examination.

  • D. Of an organization that follows procedures of a regulatory agency that oversees the

company and its operations.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-02 Identify the types of special-purpose financial reporting frameworks and the nature of the audit reports issued. Source: AICPA Topic: Auditing Financial Statements—Other Than GAAP

  • 35. Whenever a report filed on a printed form designed by authorities, call upon the

independent auditors to make an assertion that the auditors believe is not justified, the auditors should:

  • A. Submit a short-form report with explanations.

  • B. Reword the form or attach a separate report.

  • C. Submit the form with questionable items clearly omitted.

  • D. Withdraw from the engagement.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-02 Identify the types of special-purpose financial reporting frameworks and the nature of the audit reports issued. Source: AICPA Topic: Auditing Financial Statements—Other Than GAAP

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 36. During a review of the financial statements of a non-public entity, the CPA finds that the

financial statements contain a material departure from generally accepted accounting principles. If management refuses to correct the financial statement presentations, the CPA should:

  • A. Disclose the departure in a separate paragraph of the report.

  • B. Issue an adverse opinion.

  • C. Attach a note explaining the effects of the departure.

  • D. Issue a compilation report.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-06 Describe the nature of financial statement reviews conducted under Statements on Standards for Accounting and Review Services. Source: AICPA Topic: Reviews of Historical Financial Statements

  • 37. The accountants' compilation report should be dated as of the date of:

    • A. Completion of fieldwork.

    • B. Completion of the compilation.

    • C. Transmittal of the compilation report.

    • D. The latest subsequent event referred to in the notes to the financial statements.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-06 Describe the nature of financial statement reviews conducted under Statements on Standards for Accounting and Review Services. Source: AICPA Topic: Reviews of Historical Financial Statements

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 38. A modification of the CPA's report on a review of the interim financial statements of a

publicly-held company would be necessitated by which of the following?

  • A. An uncertainty.

  • B. Lack of consistency.

  • C. Reference to another accountant.

  • D. Inadequate disclosure.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-07 Discuss how reviews performed under Statements on Standards for Accounting and Review Services differ from those erformed under the Statements on Auditing Standards. Source: AICPA Topic: Reviews of Historical Financial Statements

  • 39. A CPA should not normally refer to which one of the following subjects in a "comfort

letter" to underwriters?

  • A. The independence of the CPA.

  • B. Changes in financial-statement items during a period subsequent to the date and period of

the latest financial statements in the registration statement.

  • C. Unaudited financial statements and schedules in the registration statement.

  • D. Management's determination of line of business classifications.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Apply Difficulty: Hard Learning Objective: 19-01 Discuss additional audit-based services; including reporting on compliance with contractual agreements; letters for underwriters; and summary financial statements. Source: AICPA Topic: Audit-Based Services—Assurance on Additional Information

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 40. Inquiry and analytical procedures ordinarily performed during a review of a nonpublic

entity's financial statements include:

  • A. Analytical procedures designed to identify reportable conditions related to internal control.

  • B. Inquiries concerning actions taken at meetings of the stockholders and the board of

directors.

  • C. Analytical procedures designed to test the accounting records by obtaining corroborating

evidential matter.

  • D. Inquiries of knowledgeable outside parties such as the client's attorneys and bankers.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-06 Describe the nature of financial statement reviews conducted under Statements on Standards for Accounting and Review Services. Source: AICPA Topic: Reviews of Historical Financial Statements

  • 41. Which of the following would not be included in a CPA's report based upon a review of

the financial statements of a nonpublic entity?

  • A. A statement that the review was in accordance with generally accepted auditing standards.

  • B. A statement that all information included in the financial statements are the representations

of management.

  • C. A statement describing the nature of the procedures performed.

  • D. A statement describing the auditor's conclusions based upon the results of the review.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-06 Describe the nature of financial statement reviews conducted under Statements on Standards for Accounting and Review Services. Source: AICPA Topic: Reviews of Historical Financial Statements

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 42. The objective of a review of interim financial information is to provide the accountant

with a basis for reporting whether:

A.

A reasonable basis exists for expressing an updated opinion regarding the financial

statements that were previously audited.

B.

Material modifications should be made to conform with generally accepted accounting

principles.

C.

The financial statements are presented fairly in accordance with standards of interim

reporting.

D.

The financial statements are presented fairly in accordance with generally accepted

accounting principles.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-07 Discuss how reviews performed under Statements on Standards for Accounting and Review Services differ from those erformed under the Statements on Auditing Standards. Source: AICPA Topic: Reviews of Historical Financial Statements

43.

If the auditor believes that financial statements prepared on the entity's income tax basis

are not suitably titled, the auditor should:

A.

Issue a disclaimer of opinion.

B.

Explain in the notes to the financial statements the terminology used.

C.

Issue a compilation report.

  • D. Modify the auditor's report to disclose any reservations.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Remember Difficulty: Easy Learning Objective: 19-02 Identify the types of special-purpose financial reporting frameworks and the nature of the audit reports issued. Source: AICPA Topic: Auditing Financial Statements—Other Than GAAP

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 44. An auditor's report on financial statements prepared in accordance with a special purpose

financial reporting framework of accounting other than generally accepted accounting

principles should include all of the following except:

A.

Reference to the note to the financial statements that describes the basis of preparation of

the financial statements.

B.

Disclosure that the audit was performed in accordance with generally accepted auditing

standards.

C.

An opinion as to whether the basis of accounting used is appropriate under the

circumstances.

D.

An opinion as to whether the financial statements are presented fairly in conformity with

the basis of accounting described.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-02 Identify the types of special-purpose financial reporting frameworks and the nature of the audit reports issued. Source: AICPA Topic: Auditing Financial Statements—Other Than GAAP

45.

When an auditor reports on financial statements prepared on an entity's income tax basis,

the auditor's report should:

A.

Disclose that the income tax basis is a basis of accounting other than generally accepted

accounting principles.

B.

Disclaim an opinion on whether the statements were examined in accordance with

generally accepted auditing standards.

C.

Not express an opinion on whether the statements are presented in conformity with the

basis of accounting used.

D.

Include an explanation of how the results of operations differ from the cash receipts and

disbursements basis of accounting.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-02 Identify the types of special-purpose financial reporting frameworks and the nature of the audit reports issued. Source: AICPA Topic: Auditing Financial Statements—Other Than GAAP

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 46. An auditor's report would be designated as a report on financial statements following a

special purpose financial reporting framework for financial statements when they are:

  • A. For an interim period and are subjected to a review.

  • B. Unaudited and are prepared from a client's accounting records.

  • C. Prepared in accordance with a regulatory basis of accounting other than generally accepted

accounting principles.

  • D. Purported to be in accordance with generally accepted accounting principles but do not

include a presentation of the statement of cash flows.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-02 Identify the types of special-purpose financial reporting frameworks and the nature of the audit reports issued. Source: AICPA Topic: Auditing Financial Statements—Other Than GAAP

  • 47. The underwriter of a securities offering may request that an auditor perform specified

procedures and supply certain assurances concerning unaudited information contained in a registration statement. The auditor's response to such a request is commonly called a:

  • A. Report under federal security statutes.

  • B. Comfort letter.

  • C. Review of interim financial information.

  • D. Compilation report for underwriters.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Remember Difficulty: Easy Learning Objective: 19-01 Discuss additional audit-based services; including reporting on compliance with contractual agreements; letters for underwriters; and summary financial statements. Source: AICPA Topic: Audit-Based Services—Assurance on Additional Information

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 48. Comfort letters are ordinarily signed by the:

  • A. Client.

  • B. Client's lawyer.

C.

Independent auditor.

  • D. Internal auditor.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Remember Difficulty: Easy Learning Objective: 19-01 Discuss additional audit-based services; including reporting on compliance with contractual agreements; letters for underwriters; and summary financial statements. Source: AICPA Topic: Audit-Based Services—Assurance on Additional Information

  • 49. Which of the following circumstances requires modification of the accountant's report on

a review of interim financial information of publicly held entity?

A. Option A B. Option B C. Option C D. Option D
A.
Option A
B.
Option B
C.
Option C
D.
Option D

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Apply Difficulty: Hard Learning Objective: 19-07 Discuss how reviews performed under Statements on Standards for Accounting and Review Services differ from those erformed under the Statements on Auditing Standards. Source: AICPA Topic: Reviews of Historical Financial Statements

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 50. If compiled financial statements presented in conformity with the cash receipts and

disbursements basis of accounting do not disclose the basis of accounting used, the

accountant should:

  • A. Disclose the basis in the notes to the financial statements.

  • B. Clearly label each page "Unaudited."

  • C. Disclose the basis of accounting in the accountant's report.

  • D. Recompile the financial statements using generally accepted accounting principles.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Apply Difficulty: Hard Learning Objective: 19-02 Identify the types of special-purpose financial reporting frameworks and the nature of the audit reports issued. Source: AICPA Topic: Auditing Financial Statements—Other Than GAAP

  • 51. An auditor is reporting on cash basis financial statements. These statements are best

referred to in his opinion by which of the following descriptions?

  • A. Financial position and results of operation arising from cash transactions.

  • B. Assets and liabilities arising from cash transactions, and revenue collected and expenses

paid.

  • C. Balance sheet and income statement resulting from cash transactions.

  • D. Cash balance sheet and the source and application of funds.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-02 Identify the types of special-purpose financial reporting frameworks and the nature of the audit reports issued. Source: AICPA Topic: Auditing Financial Statements—Other Than GAAP

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Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 52. Which of the following should not be included in an accountant's standard report based

upon the compilation of an entity's financial statements?

  • A. A statement that a compilation is limited to presenting in the form of financial statements

information that is the representation of management.

  • B. A statement that the compilation was performed in accordance with standards established

by the American Institute of CPAs.

  • C. A statement that the accountant has not audited or reviewed the financial statements.

  • D. A statement that the accountant does not express an opinion but expresses only limited

assurance on the financial statements.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Apply Difficulty: Hard Learning Objective: 19-06 Describe the nature of financial statement reviews conducted under Statements on Standards for Accounting and Review Services. Source: AICPA Topic: Reviews of Historical Financial Statements

  • 53. Each page of the financial statements compiled by an accountant should include a

reference such as:

  • A. See accompanying accountant's notes.

  • B. Unaudited, see accountant's disclaimer.

  • C. See accountant's compilation report.

  • D. Subject to compilation restrictions.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Remember Difficulty: Easy Learning Objective: 19-08 Explain the accountant's responsibilities when performing a compilation of financial statements. Source: AICPA Topic: Compilations of Historical Financial Statements

19-41

Chapter 19 - Additional Assurance Services: Historical Financial Information

  • 54. During a review of the financial statements of a nonpublic entity, the CPA finds that the

financial statements contain a material departure from generally accepted accounting principles. If management refuses to correct the financial statement presentations, the CPA should:

  • A. Disclose the departure in a separate paragraph of the report.

  • B. Issue an adverse opinion.

  • C. Attach a note explaining the effects of the departure.

  • D. Issue a compilation report.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Apply Difficulty: Hard Learning Objective: 19-08 Explain the accountant's responsibilities when performing a compilation of financial statements. Source: AICPA Topic: Compilations of Historical Financial Statements

  • 55. Which of the following is an auditor least likely to inquire about when performing a

review of a nonpublic company?

  • A. Significant transactions near the end of the period.

  • B. Communications with regulatory agencies.

  • C. That financial statements are prepared in conformity with a special basis of accounting.

  • D. Questions that have arisen in applying review procedures.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-02 Identify the types of special-purpose financial reporting frameworks and the nature of the audit reports issued. Topic: Auditing Financial Statements—Other Than GAAP

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Chapter 19 - Additional Assurance Services: Historical Financial Information

56. When performing a review of a nonpublic company, the auditors must obtain in a representation letter acknowledgement of management for its responsibility for each of the following except:

  • A. Responsibility for identifying illegal acts committed by employees.

  • B. Responsibility for the financial statements conforming with generally accepted accounting

principles.

  • C. Responsibility to prevent and detect fraud.

  • D. Knowledge of any actual or suspected fraud that is material.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Apply Difficulty: Hard Learning Objective: 19-06 Describe the nature of financial statement reviews conducted under Statements on Standards for Accounting and Review Services. Topic: Reviews of Historical Financial Statements

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Chapter 19 - Additional Assurance Services: Historical Financial Information

Essay Questions

57. Items a through j present various phrases or characteristics that may apply to audits, reviews, and compilations. Place an X in the cell if the phrase or characteristic applies to the listed service:

Chapter 19 - Additional Assurance Services: Historical Financial Information Essay Questions 57. Items a through j

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Chapter 19 - Additional Assurance Services: Historical Financial Information

Chapter 19 - Additional Assurance Services: Historical Financial Information AACSB: Analytic AACSB: Communication AICPA BB: Industry

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Apply Difficulty: Hard Learning Objective: 19-06 Describe the nature of financial statement reviews conducted under Statements on Standards for Accounting and Review Services. Learning Objective: 19-08 Explain the accountant's responsibilities when performing a compilation of financial statements. Topic: Compilations of Historical Financial Statements Topic: Reviews of Historical Financial Statements

19-45

Chapter 19 - Additional Assurance Services: Historical Financial Information

58. The financial statements of nonpublic companies may be compiled or reviewed by the CPAs.

  • a. Describe a compilation of financial statements.

  • b. Describe a review of financial statements.

  • c. Describe three procedures that are performed in the review of a nonpublic company's financial statements.

  • a. A compilation is limited to taking the representations of management and putting them in

the form of financial statements. No explicit assurance is provided on the financial statements.

  • b. A review of financial statements involves the performance of inquiry and analytical

procedures to provide the accountants with a reasonable basis for expressing limited assurance that the financial statements are in accordance with generally accepted accounting principles.

  • c. Procedures performed in the review of financial statements include (only three required):

Inquiries of officers and other executives. Analytical procedures applied to financial data by reference to prior financial data, budgets, and other operating data. Inquiries concerning actions taken in meetings of stockholders, board of directors, and committees of the board. Additional procedures if the accountants become aware that the information may be incorrect, incomplete, or otherwise unsatisfactory.

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA FN: Measurement AICPA FN: Reporting Bloom's: Understand Difficulty: Medium Learning Objective: 19-08 Explain the accountant's responsibilities when performing a compilation of financial statements. Topic: Compilations of Historical Financial Statements

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59. One may envision a continuum of assurance ranging from absolute assurance to no assurance. In between may be reasonable assurance, limited assurance, and a summary of findings with no other assurance.

a. What level of assurance is provided in the CPA's report by each of the following types of engagements?

Examinations Audits Review Agreed-upon procedures Compilations

b. What type of assurance is provided on financial statements prepared following a special purpose basis of accounting other than generally accepted accounting principles?

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Chapter 19 - Additional Assurance Services: Historical Financial Information

a. Assurance provided:

Examinations--reasonable assurance Audits--reasonable assurance Review--limited assurance Agreed-upon procedures--summary of findings Compilations--no assurance

b. The assurance provided is dependent upon the nature of the service provided. With financial statements the options (and assurance) possible are audit (reasonable assurance), review (limited assurance), and compilations (no assurance). Additionally, agreed-upon procedures could be applied to various elements, accounts or items of the financial statements (a summary of findings would be provided).

AACSB: Analytic AACSB: Communication AICPA BB: Industry AICPA BB: Legal AICPA FN: Measurement AICPA FN: Reporting Bloom's: Apply Difficulty: Hard Learning Objective: 19-01 Discuss additional audit-based services; including reporting on compliance with contractual agreements; letters for underwriters; and summary financial statements. Learning Objective: 19-02 Identify the types of special-purpose financial reporting frameworks and the nature of the audit reports issued. Learning Objective: 19-06 Describe the nature of financial statement reviews conducted under Statements on Standards for Accounting and Review Services. Learning Objective: 19-08 Explain the accountant's responsibilities when performing a compilation of financial statements. Topic: Audit-Based Services—Assurance on Additional Information Topic: Auditing Financial Statements—Other Than GAAP Topic: Compilations of Historical Financial Statements Topic: Reviews of Historical Financial Statements

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