The correct answer for each question is indicated by a .

1
INCORRECT A public accountant cannot express an opinion on future-oriented financial
information

True
A)

False
B)

Feedback: Although the public accountant cannot report on whether a
forecast will be achieved, he or she can provide an opinion on the suitability
of the assumptions, whether the forecast reflects such assumptions, as well
as the presentation and disclosure of the forecast and its compliance with
GAAP.

2 CORRECT
Review engagements are performed for clients who do not require an audit, but
still want a level of assurance for their financial statement users.

True
A)

False
B)

Feedback: Review engagements provide limited assurance for a lesser cost.

3
INCORRECT A compilation is a type of assurance engagement whereby the accountant
compiles financial statements based on information supplied by management.

True
A)

False
B)

Feedback: A compilation is not an assurance engagement – no
assurance is provided on the compiled information.

4
INCORRECT A projection differs from a forecast in that it includes assumptions that may not
be the most likely, in the auditor’s opinion.

True
A)

False
B)

Arens/Elder/Beasley

Feedback: A projection includes assumptions that may not be the most likely,
in management’s opinion.

5
INCORRECT In performing a review an accountant must comply with GAAS.

True
A)

False
B)

Feedback: Review accountants much comply with generally accepted review
standards GARS. In many ways GARS are very similar but not identical to
GAAS.

6 CORRECT
The standards set for a compilation engagement do not include a requirement
for the accountant to be independent.

True
A)

False
B)

Feedback: Under the current compilation standards there is no requirement
for the accountant to be independent.

7 CORRECT
A typical attest engagement involves three parties: a user or users; a party
responsible for making the assertion and a public accountant.

True
A)

False
B)

Feedback: The attest engagement does involve three parties. Typically the
responsible party is responsible for the assertion to the user and
acknowledges that responsibility to the public accountant.

8 CORRECT
Due to the terms of a rental agreement an audit of a store’s reported sales
figures is required. This is considered an examination of other financial
information other than financial statements.

True
A)

False
B)

Feedback: This is a common type of engagement for clients’ locations

Arens/Elder/Beasley

in a shopping mall. Often in a mall setting part of the store’s rent is
based upon a percentage its sales.

9
INCORRECT Auditors that specialize in embezzlement and money laundering investigation
typically will have their CBV specialization.

True
A)

False
B)

Feedback: A Certified Business Valuator (CBV) specialization focus is on
valuating businesses prior to sale or merger, estate valuations or property
valuations for martial breakdowns.

10
INCORRECT In conducting a review engagement, the accountant’s work includes
corroborative inquiry and discussion.

True
A)

False
B)

Feedback: A review engagement does not require the accountant to
corroborate inquiries of management.
The correct answer for each question is indicated by a .

1
INCORRECT When performing a compilation, the accountant notices that the client has failed
to record numerous expenses, including amortization of capital assets. What
should the accountant do?

The accountant has no responsibility to verify or examine the information in
any way. No further steps are required.
A)

The accountant must determine who the intended users of the information
are, and notify them of the omissions.
B)
Because the financial statements will otherwise be misleading, the
accountant should require that changes be made prior to issuing the Notice
C) to Reader.

The accountant should withdraw from the engagement and seek legal
advice.
D)

Feedback: p. 692

2
INCORRECT Ca Trust Services are an example of which of the following type of engagement?
Audit.

Arens/Elder/Beasley

C) Review. A) Arens/Elder/Beasley . C) Practitioner. reporting on the quality of care provided to the elderly person is an example of a(n) Assurance service. the public accountant is referred to in the review standards as a(n) Assurer. 700 3 CORRECT In an ElderCare engagement. A) Auditor. D) Feedback: p. A) Attest. B) Assurance. B) Monitoring service. C) Direct service. 687 5 INCORRECT Subject matter of an attest engagement could be any of the following except Internal controls. A) Consulting / facilitating service. B) Accountant. D) Feedback: p. D) Feedback: p. 700 4 INCORRECT When performing a review engagement.

698 8 INCORRECT Before signing and transmitting the letter of consent to the securities commission it is recommended by the handbook that all of the following procedures be performed except The reading of minutes of shareholder meetings. C) Compliance with regulations. B) Business performance measures. D) Feedback: p. the public accountant should Perform a review of the interim financial statements. D) Feedback: p. C) The auditor agrees with management’s assertion that the forecast will be achieved. C) Undertake limited procedures for the “stub period”. 696 7 INCORRECT AuG-6 provides guidance if future-oriented financial information is included in a prospectus and must have an audit report attached. Financial forecasts. D) Feedback: p. A) Perform a compilation of the interim financial statements. 700 6 CORRECT Before issuing a comfort letter. B) The forecast complies with GAAP in regards to its presentation and disclosure. The public accountant reports on all of the following except Management’s assumptions are suitably supported and consistent with the plans of the entity. A) The forecast reflects accurately the assumptions made in preparing the forecast. B) Perform an audit of the interim financial statements. Arens/Elder/Beasley .

A) Limited assurance. D) Feedback: p. B) The reading of internal financial statements relating to the period since the year-end. D) Feedback: p. 687-688 The correct answer for each question is indicated by a . C) Absolute assurance. C) Obtaining a representation letter from management. 690 10 CORRECT When conducting a review. B) Performing analytical procedures. A) Obtaining a new management representation letter. B) Reasonable assurance. 696 9 INCORRECT A Notice to Reader report provides the financial users No assurance. A) Obtaining a general knowledge of the entity's business. 1 CORRECT Assurance services are independent professional services that improve the quality of information or its: Arens/Elder/Beasley . C) The reading of the minutes of the board of directors meetings. the accountant's work includes all of the following except Obtaining an understanding of internal control. D) Feedback: p.

B) Reliability statement. A) Attestation Standards. D) 2 INCORRECT The primary standards for attestation services other than historical financial statements are the: Accounting and Review Services. B) Reliability. C) Sufficiency. A) Profitability. C) Field Standards of Professional Conduct. D) 4 INCORRECT Which of the following is a basic type of attestation engagement? Arens/Elder/Beasley . A) Control criterion. Context. C) Suitable criteria. D) 3 CORRECT A practitioner performing an attestation engagement may ordinarily report upon the subject matter or a(n): Assertion about the subject matter. B) Generally Accepted Auditing Standards.

A) Subject matter contains a departure from the criteria. D) 7 INCORRECT Which of the following is not an attestation form of report? Arens/Elder/Beasley . B) Company faces a going concern uncertainty. Certified agreed-upon review process A) Taxation advisory B) Examination C) Suitable criterion D) 5 INCORRECT What type of an attestation engagement is similar in assurance provided to an audit of historical financial statements? Assessment A) Detailed review B) Evaluation C) Examination D) 6 INCORRECT The circumstance most likely to make it impossible for a practitioner to issue a review report is when the: Criteria are only available to specified users. C) Scope of the engagement has been significantly limited.

but it must be based on historical events. Agreed-upon procedures A) Assembly B) Examination C) Review D) 8 CORRECT A report for an agreed-upon procedure ordinarily includes: A summary of findings. C) Unlimited assurance. A) An opinion. D) 10 CORRECT When an accountant issues an examination report on a financial forecast. not the subject matter itself. B) The CPA's report is on management's assertion. C) The subject matter of an attest engagement may take many forms. the report ordinarily should: Arens/Elder/Beasley . D) 9 INCORRECT Which of the following is most accurate relating to attest engagements? The engagement must be performed in accordance with both the generally accepted auditing standards and the attestation standards. B) Negative assurance. A) Criteria only available to certain users result in CPA's report that is restricted to those specified parties.

in all material respects. the required elements of the rules and regulations adopted by the SEC. B) Security. State that the forecast is presented in conformity with guidelines established by the AICPA. D) 11 INCORRECT Which of the following is not an objective of a practitioner's examination of management's discussion and analysis? Report on whether the presentation includes. B) Report on whether the historical financial amounts included in the presentation have been accurately derived. A) Offline Privacy. in all material respects. 12 INCORRECT A CPA's report relating to a Trust Services engagement is most likely to provide assurance on: Complementarity. D) The correct answer for each question is indicated by a . determinations. C) Trusteeship. A) Provide an explanation of the differences between an examination and an audit. estimates and assumptions provide a reasonable basis for the disclosures contained in D) the MD&A. C) Disclaim an opinion on whether the assumptions provide a reasonable basis for the projection. Report on whether the underlying information. B) State that the accountant is responsible for events and circumstances not to exceed one year after the report's date. from the C) company's financial statements. A) Report on whether the presentation is in conformity with rules and regulations adopted the SEC. 1 CORRECT Assurance services are independent professional services that improve the Arens/Elder/Beasley .

A) Profitability. B) Reliability. D) 3 CORRECT A practitioner performing an attestation engagement may ordinarily report upon the subject matter or a(n): Assertion about the subject matter. C) Field Standards of Professional Conduct. A) Control criterion. C) Suitable criteria. D) 4 INCORRECT Which of the following is a basic type of attestation engagement? Arens/Elder/Beasley . A) Attestation Standards. B) Generally Accepted Auditing Standards. B) Reliability statement. D) 2 INCORRECT The primary standards for attestation services other than historical financial statements are the: Accounting and Review Services. C) Sufficiency. quality of information or its: Context.

D) 7 INCORRECT Which of the following is not an attestation form of report? Arens/Elder/Beasley . C) Scope of the engagement has been significantly limited. B) Company faces a going concern uncertainty. Certified agreed-upon review process A) Taxation advisory B) Examination C) Suitable criterion D) 5 INCORRECT What type of an attestation engagement is similar in assurance provided to an audit of historical financial statements? Assessment A) Detailed review B) Evaluation C) Examination D) 6 INCORRECT The circumstance most likely to make it impossible for a practitioner to issue a review report is when the: Criteria are only available to specified users. A) Subject matter contains a departure from the criteria.

Agreed-upon procedures A) Assembly B) Examination C) Review D) 8 CORRECT A report for an agreed-upon procedure ordinarily includes: A summary of findings. C) Unlimited assurance. A) Criteria only available to certain users result in CPA's report that is restricted to those specified parties. not the subject matter itself. the report ordinarily should: Arens/Elder/Beasley . D) 10 CORRECT When an accountant issues an examination report on a financial forecast. D) 9 INCORRECT Which of the following is most accurate relating to attest engagements? The engagement must be performed in accordance with both the generally accepted auditing standards and the attestation standards. B) Negative assurance. B) The CPA's report is on management's assertion. A) An opinion. C) The subject matter of an attest engagement may take many forms. but it must be based on historical events.

State that the forecast is presented in conformity with guidelines established by the AICPA. D) The correct answer for each question is indicated by a . C) Trusteeship. from the C) company's financial statements. determinations. C) Disclaim an opinion on whether the assumptions provide a reasonable basis for the projection. A) Provide an explanation of the differences between an examination and an audit. 12 INCORRECT A CPA's report relating to a Trust Services engagement is most likely to provide assurance on: Complementarity. estimates and assumptions provide a reasonable basis for the disclosures contained in D) the MD&A. B) Security. A) Offline Privacy. D) 11 INCORRECT Which of the following is not an objective of a practitioner's examination of management's discussion and analysis? Report on whether the presentation includes. B) State that the accountant is responsible for events and circumstances not to exceed one year after the report's date. in all material respects. A) Report on whether the presentation is in conformity with rules and regulations adopted the SEC. Report on whether the underlying information. the required elements of the rules and regulations adopted by the SEC. 1 Nonaudit clients sometime engage public accounting firms to perform a specified Arens/Elder/Beasley . B) Report on whether the historical financial amounts included in the presentation have been accurately derived. in all material respects.

private companies and organizations may request that public accounting firms attest to the effectiveness of their internal controls. A) Management's evaluation of control is based on reasonable criteria. Several conditions must be met before a public accounting firm can undertake such an engagement. C) Compliance audit. C) Management presents a written assertion about the effectiveness of its internal control. B) Materiality is difficult to measure in a compliance audit. D) Feedback: Incorrect. 2 INCORRECT Even though Sarbanes-Oxley only applies to publicly traded companies. 3 INCORRECT Which of the following statements is true concerning a compliance audit? Compliance audits are only performed by governmental auditors. There is no service provided to that is named Individual Account engagement. C) A report on compliance can only include negative assurance. D) Arens/Elder/Beasley . This type of engagement is called a(n) Individual account engagement. A) Risks such as inherent risk. D) Feedback: Incorrect. A) Agreed-upon procedures engagement. B) Assurance service. and detection risk are not appropriate in the planning and performance of a compliance audit. Which of the following is NOTone of the necessary conditions? Management accepts responsibility for the effectiveness of its internal control. control risk.INCORRECT set of audit procedures rather than a complete audit of the financial statements taken as a whole. B) Management's evaluation of control is be supported by an internal audit review. This condition is required.

A) The accountant needs to obtain sufficient knowledge of the entity's business and industry before undertaking an engagement on interim financial B) information. C) A statement that the financial statements have not been audited or reviewed. 5 INCORRECT A compilation report should include all of the following except A statement that the compilation has been performed in accordance with Statement of Standards for Accounting and Review Services. B) Performing analytical procedures and determining compliance with laws and regulations. performing analytical procedures. Arens/Elder/Beasley . 6 INCORRECT Which of the following statements is true concerning interim financial information? An audit of interim financial information is required for SEC companies. public accountants also provide compliance audits to their clients. and obtaining a management representation letter. A) Conducting inquiry of management and documenting internal controls. C) Conducting inquiry of management. While governmental auditors do perform compliance audits as a major part of their assurance responsibilities. D) Feedback: Incorrect. Reviews require conducting inquiry of management. D) Feedback: Incorrect. and obtaining a management representation letter. An accountant may not report on financial information presented separately from audited financial statements. performing analytical procedures. This statement is included in the compilation report. 4 INCORRECT A review of unaudited financial states consists of Conducting internal control evaluation and obtaining a management representation letter. A) A statement that the financial statements are the representation of management. C) Interim financial information may not be included as part of a note to the audited financial statements. B) A statement that adequate disclosure has been made concerning accounting policy and practice. Feedback: Incorrect.

D) Feedback: Correct. "Reports on Application of Requirements of an Appropriate Financial Reporting Framework". A written report on hypothetical transactions is prohibited. 9 INCORRECT The AICPA Special Committee on Assurance Services (SCAS) identified eight mega trends that can affect a CPA's business. D) Feedback: Incorrect. B) Arens/Elder/Beasley . A review is normally performed of interim financial information. B) A statement that the entity's management is responsible for proper accounting treatment in consultation with its own auditors. Which of the following is not one of these mega trends identified by the SCAS? Information technology. D) Feedback: Incorrect. 7 CORRECT According to AU 915. B) Outsourcer. A) Demands for transparency. C) Profit center. A) Service organization. C) A statement that the report is for the sole use of specified parties. The correct term is service organization. A) Identification of the entity requesting the information. 8 INCORRECT A business that executes or records transactions on behalf of a client is called a(n) Third-party provider. which of the following is NOT allowed when writing a report in response to a request for consultation regarding the application of requirements of an appropriate financial reporting framework? Providing a written report on a hypothetical transaction.

B) Review. C) All of the above were identified as mega trends. A sentence that identifies the special purpose framework must be included in the auditor's report The correct answer for each question is indicated by a . Information technology was identified as a mega trend. You need to hire an accountant to prepare your quarterly financial statements and you want a report to be issued on those financial statements. 10 INCORRECT Which of the following would not be included in an auditor's report on financial statements prepared under a special purpose framework? A sentence that identifies the special purpose framework. C) All of the above would be included in the report. A) Referral to the special purpose framework in the opinion sentence. 1 INCORRECT You own Wobble Inc.. B) A statement that the financial statements were prepared in accordance with accounting principles generally accepted in the United States of America. Which of the following is most likely to be a greater concern on this audit than on an audit of a corporation? Arens/Elder/Beasley . The service most likely to be appropriate for you is a(n): Audit. A) Compilation. D) Feedback: Incorrect. D) 2 INCORRECT A politician has asked an accounting firm to audit his personal financial statements with regard to his public disclosures. C) Special report. New social structures. which manufactures wooden tables. D) Feedback: Incorrect.

D) 5 CORRECT Which of the following would be most likely to be used in a review engagement? Arens/Elder/Beasley . it results in no accountant's report. C) Management is responsible for the financial statements. D) 4 INCORRECT Which of the following statements should not be included in an accountant's standard report based on the compilation of a client's financial statements? The compilation was performed in accordance with standards established by the AICPA. A) Completeness. The basis of accounting used. B) Presentation. A) Ordinarily. A) The accountant does not express an opinion on the financial statements. D) 3 INCORRECT Which of the following is correct about an accountant's engagement to prepare financial statements for a client? It results in an accountant's report with only limited assurance. B) The accountant expresses only limited assurance on the financial statements. C) Rights and obligations. B) It should not be performed when the accountant lacks independence. C) Those financial statements must include note disclosures.

C) An audit. A) Confirmation of accounts receivable. A) A compilation. D) 6 INCORRECT Which of the following represents the highest to lowest level of assurance provided by auditors in the performance of engagements? An audit. Comparison of the total of current year equipment to the prior year total. C) Positive. B) Observation of the counting of inventory. D) 7 CORRECT What type of assurance is provided by an auditor in conjunction with a review? Limited. a compilation. an audit. a review. C) Testing of the cutoff of year-end payables through vouching transactions. B) A review. D) 8 INCORRECT Which of the following is not a special purpose financial reporting framework? Arens/Elder/Beasley . a compilation. B) None. a compilation. a review. A) Neutral. a review. an audit.

in all material respects. A) Contractual basis. in all material respects. B) GAAP basis. C) State whether the summary financial statements are fairly presented. D) Arens/Elder/Beasley . B) Review. If X and Y are asked to issue a report to accompany the summary financial statements it is most likely that the report would: Be identical to the report on the consolidated statements. C) Tax. in relation to the consolidated financial statements. A) Include an adverse opinion. The financial statements have been audited by X & Y CPAs who issued a standard unmodified report. X & Y believes that the summary financial statements are fairly stated. D) 10 INCORRECT A client wants to include a set of summary financial statements on a trifold card which is sent to all prospective customers who have requested information on its new cell phone. B) Be issued in accordance with the specified elements reporting requirements. A) Consulting. D) 9 INCORRECT Independence is required in which of the following types of CPA engagements? Compilation. in relation to the consolidated financial statements. Cash basis. C) Regulatory basis.

11
INCORRECT A comfort letter is typically sent to whom and for what reason?

Banks when a company is applying for a loan.
A)

The Board of Directors of a company on the internal control.
B)

The underwriters of a company's securities to assist them in their
reasonable investigation of a registration statement.
C)

Company management indication the types of procedures performed during
the audit and general findings.
D)

12
INCORRECT Audit reports on financial statements prepared following which of the following
bases are most likely to include a restriction on use (i.e., include an alert to
users as to the intended use or purpose of the report)?

Cash basis.
A)

Contractual basis.
B)

GAAP basis.
C)

Tax Basis.
D)
The correct answer for each question is indicated by a .

1
INCORRECT Which of the following services would be considered an assurance engagement?

Compilation of financial statements from an entity’s accounting records.
A)

Providing information systems advice to a former audit client.
B)

Reporting on compliance with a university’s accreditation requirements.
C)

Providing advice on the structure of the internal audit function for an entity
whose external audit is performed by another firm.
D)

Arens/Elder/Beasley

2
INCORRECT Unlike auditing standards, the assurance standards do not contain a requirement
that auditors obtain

Independence of mind and in appearance
A)

Sufficient appropriate evidence to support the conclusion expressed in their
report.
B)

Adequate background and knowledge in the subject matter being examined.
C)

Reasonable assurance about the subject matter as the only appropriate
level of assurance.
D)

3
INCORRECT A practitioner’s engaged to express his or her opinion on a management’s report
on the effectiveness of the company’s internal control is an example of which of
the following types of engagements?

Audit engagement.
A)

Assurance engagement.
B)

Review engagement.
C)

Agreed-upon procedure engagement.
D)

4
INCORRECT Which of the following professional services would be considered an attest
engagement?

A management consulting engagement to provide IT advice to a client.
A)

An engagement to report on compliance with statutory requirements.
B)

An income tax engagement to prepare the tax return.
C)

Compilation of financial statements from a client’s accounting records.
D)

Arens/Elder/Beasley

5
INCORRECT The practitioner provides absolute assurance to the user in the performance of

An assurance engagement.
A)

A review engagement.
B)

An audit engagement.
C)

None of the above.
D)

6
INCORRECT When conducting a review, the practitioner’s work would generally not include
which of the following procedures?

Performing analytical procedures.
A)

Obtaining a general understanding of the entity’s methods and policies
related to the capitalization of assets.
B)

Obtaining a representation letter from management.
C)

Observing the year-end inventory count and subsequent testing of inventory
counts.
D)

7
INCORRECT A review engagement will typically

Require the practitioner to obtain an understanding of the entity’s internal
control.
A)

Result in a statement of limited assurance about the fair presentation of the
financial information.
B)

Result in an explicit opinion about whether the financial information is
presented fairly.
C)

Include only the gathering of financial data for the primary purpose of
preparing the financial information with the related notes.
D)

Arens/Elder/Beasley

The practitioner does not express an opinion or any other form of assurance on the financial statements. D) 10 CORRECT Which of the following statements is correct concerning both an engagement to compile and an engagement to review an entity’s financial statements? The practitioner is not required to obtain an understanding of internal control.8 INCORRECT The standard report issued by a practitioner after reviewing the financial statements of an entity states that A review includes evaluating the appropriateness of the reasonableness of accounting estimates made by management. D) 9 INCORRECT Financial statements of an entity that have been reviewed by an practitioner should be accompanied by a report stating that The scope of the inquiry and the analytical procedures performed by the accountant have not been restricted. the objective of which is to present financial statements that are free of material misstatements. A) All information included in the financial statements is the representation of the management of the entity. B) A review includes examining. on a test basis. D) Arens/Elder/Beasley . in all material C) respects. evidence supporting the amounts and disclosures in the financial statements. B) The practitioner expresses no assurance on the financial statements. C) A review is greater in scope than a compilation. on a test basis. evidence supporting the amounts and disclosures in the financial statements. B) Nothing has come to the practitioner’s attention that causes he or her to believe that the financial statements do not present fairly. C) The practitioner should obtain a written management representation letter. A) A review includes examining. A) The practitioner must be independent of mind and in appearance.

D) Arens/Elder/Beasley . the practitioner is required to possess a general knowledge of the entity’s accounting principles and practices. B) Internal control structure in place. A) Understand the accounting principles and practices of the entity’s industry. A) Risk factors associated with potential non-compliance with laws. an accountant should Review agreements with financial institutions for restrictions on cash balances. C) Senior management team [as a group]. B) Inquire of key personnel concerning related parties and subsequent events. C) None of the above are required for a compilation. This requirement will most likely include obtaining an understanding of the Qualifications of the accounting department personnel. D) 12 INCORRECT When compiling the financial statements of a non-public entity. B) Controller. A) Chief financial officer [CFO]. D) 13 CORRECT The objectivity of an internal audit function will most likely be enhanced if the director of the IA department reports to the entity’s Those charged with governance.11 CORRECT When engaged to compile the financial statements. C) Perform ratio analyses of the financial data of comparable prior periods.

14 CORRECT Which of the following is a service least likely provided by the internal audit function? Audit of financial statements. D) 15 INCORRECT Which of the following is not one of the Principles in the IIA Code of Ethics? Integrity. C) Competency. D) Arens/Elder/Beasley . A) Proficiency and due professional care. C) Managing the internal audit function. D) 16 INCORRECT Which of the following is a performance standard from the International Standards for the Professional Practice of Internal Auditing? Purpose. B) Independence and objectivity. C) Evaluation of risks and controls. B) Due Professional Care. B) Compliance reviews. authority and responsibility. A) Objectivity. A) Operational auditing.

independence. and integrity. D) 19 CORRECT The four principles of the IIA Code of Ethics are Confidentiality. D) 18 INCORRECT Which of the following is not one of the general areas of the IIA’s International Standards for the Professional Practice of Internal Auditing? Performance standards. objectivity. A) CGAP. A) Implementation standards.17 INCORRECT The general accreditation granted by the Institute of Internal Auditors is known as the CFE. confidentiality. C) Attribute standards. independence. D) Arens/Elder/Beasley . A) Objectivity. C) CIA. competency. compliance. C) Integrity. B) Honesty. and due diligence. independence. and competency. integrity. and compliance. B) Ethical standards. B) CFSA.

a Correct Answer: responsible party. Correct Answer: Arens/Elder/Beasley . Your Answer: A multi-party relationship involving a practitioner. Physical characteristics. Correct Answer: Subject matter and subject matter information of an assurance engagement can take all the following forms EXCEPT: 4. Which of the following is one of the basic elements required to be included in the assurance report according to International Standards on Assurance 3. Evidence. and the intended users. Your Answer: Litigation planning. those in charge of governance. Compilation engagement. Your Answer: Summarisation of work performed. Engagements 3000? Identification of the criteria. Your Answer: Which of the following is not one of five elements exhibited by all assurance engagements? 2. Which of the following is not one of the major categories of auditors’ services? 1.

Your Answer: A responsible party does each of the following except: 9. Engages the practitioner. Related services engagements do not result in an Correct Answer: opinion. Prospective financial information. What is the type of assurance engagement that has as its subject matter non-historical financial information? 5. Your Answer: How does the related services framework differ from the assurance framework? 7. Related services enhance the degree of confidence Your Answer: intended users can have. Your Answer: Selects the audit procedures. Which of the following is not true about the subject matter of an assurance engagement? 8. Statement of positive assurance. Correct Answer: Arens/Elder/Beasley . Your Answer: The report on a review of financial statements should contain all of the following basic elements except: 6. It could be International Financial Reporting Standards.

. Correct Answer: In a limited assurance engagement. The Code of Professional Ethics. Your Answer: Auditing. matters arising during the audit. Your Answer: The measure of the quantity of evidence. knowledge and experience. Correct Answer: The auditor is required to prepare audit documentation sufficient to enable an experienced auditor. . within the context provided by __________________. accounting and ethical standards. to 14 understand the _______________ in reaching conclusions on significant . the practitioner: 12 Expresses the conclusion in the negative form. Your Answer: Sufficiency of evidence is: 11 The measure of the quality of evidence. appropriate in the circumstances of the audit engagement. Arens/Elder/Beasley . International acceptance. having no previous connection with the audit. in 13 making informed decisions about the courses of action that are . The characteristics for assessing whether criteria are suitable are all the following except: 10 . Your Answer: Professional judgement is the application of relevant training.

being alert . The IESBA Code of Ethics for Professional Accountants and Your Answer: International Standards on Quality Control (ISQCs). and a critical assessment of audit evidence. Correct Answer: The subject matter. such as: 17 . All of the above. and subject matter information. The interviews conducted with employees and Your Answer: management. Your Answer: to conditions which may indicate possible misstatement due to error or fraud. Your Answer: What standards are practitioners who perform assurance engagements governed by no matter what type of assurance audit they are performing? 18 . All of the above. ISQC 1: 16 Gives the requirements designed to enable the firm to . of an assurance engagement can take many forms. Correct Answer: Professional scepticism is: 15 An attitude that includes a questioning mind. Arens/Elder/Beasley . Your Answer: meet the objective of quality control. Significant professional judgements made.

whether the forecast reflects such assumptions. 3 INCORRECT A compilation is a type of assurance engagement whereby the accountant compiles financial statements based on information supplied by management. Your Answer: Public relations. Human resources. 1 INCORRECT A public accountant cannot express an opinion on future-oriented financial information True A) False B) Feedback: Although the public accountant cannot report on whether a forecast will be achieved. Correct Answer: The correct answer for each question is indicated by a . maintain. he or she can provide an opinion on the suitability of the assumptions. document and communicate to their personnel a system of quality control that includes policies and 20 procedures that address each of the following elements except: . An assurance report: 19 Provides a written report containing a conclusion that . True A) False B) Feedback: Review engagements provide limited assurance for a lesser cost. The audit firm must establish. 2 CORRECT Review engagements are performed for clients who do not require an audit. but still want a level of assurance for their financial statement users. Your Answer: conveys the assurance obtained about the subject matter information. as well as the presentation and disclosure of the forecast and its compliance with GAAP. Arens/Elder/Beasley .

7 CORRECT A typical attest engagement involves three parties: a user or users. in the auditor’s opinion. 4 INCORRECT A projection differs from a forecast in that it includes assumptions that may not be the most likely. in management&#146. In many ways GARS are very similar but not identical to GAAS. True A) False B) Feedback: Review accountants much comply with generally accepted review standards GARS. True A) False B) Feedback: Under the current compilation standards there is no requirement for the accountant to be independent. True A) False B) Feedback: A projection includes assumptions that may not be the most likely.s opinion. True A) Arens/Elder/Beasley . a party responsible for making the assertion and a public accountant. True A) False B) Feedback: A compilation is not an assurance engagement &#150. 5 INCORRECT In performing a review an accountant must comply with GAAS. no assurance is provided on the compiled information. 6 CORRECT The standards set for a compilation engagement do not include a requirement for the accountant to be independent.

8 CORRECT Due to the terms of a rental agreement an audit of a store’s reported sales figures is required. Typically the responsible party is responsible for the assertion to the user and acknowledges that responsibility to the public accountant. estate valuations or property valuations for martial breakdowns. 9 INCORRECT Auditors that specialize in embezzlement and money laundering investigation typically will have their CBV specialization. True A) False B) Feedback: A review engagement does not require the accountant to corroborate inquiries of management. locations in a shopping mall. False B) Feedback: The attest engagement does involve three parties. reports on 1 Arens/Elder/Beasley . the accountant’s work includes corroborative inquiry and discussion. True A) False B) Feedback: A Certified Business Valuator (CBV) specialization focus is on valuating businesses prior to sale or merger. This is considered an examination of other financial information other than financial statements. INCORREC For non-public companies not subject to the standards of the PCAOB. True A) False B) Feedback: This is a common type of engagement for clients&#146. 10 INCORRECT In conducting a review engagement. The correct answer for each question is indicated by a . Often in a mall setting part of the store&#146.s rent is based upon a percentage its sales.

D) Direct services. In a CPA PrimePlus™ engagement. C) Monitoring services. Arens/Elder/Beasley . diaries. INCORREC In an attest engagement. C) Assurance. the CPA is referred to as a(n) 3 T A) Attester. B) Consulting/facilitating services. their report should 4 CORRECT include a separate paragraph that: A)Describes the limitations on the usefulness of the presented statements. B) Auditor. C) Public accountant. T internal control are an example of which of the following types of engagements? A) Audit. B)States that the CPA firm is responsible for the opinion presented for only a specified amount of time. 2 CORRECT or other evidence to support that the services contracted have been provided appropriately is an example of A) Assurance services. D) Special reports. visiting the client and inspecting logs. B) Attest. D) Practitioner. When a CPA firm examines projected financial statements.

D) Compilation when the accountant is not independent. D)Disclaims an opinion on whether the assumptions listed provide a reasonable basis for the projection. INCORREC Compilation reports can be in any of the following forms except: 7 T A) Compilation with full disclosure. D) Risk assessment. C) Providing information systems advice to a former audit client. B) Compilation that omits substantially all disclosures. C) Estate planning. C)Provides an explanation of the difference between an audit and an examination. D)Reporting on compliance with a university's accreditation requirements. B) Systems reliability & e-commerce. INCORREC Which of the following is not considered a type of assurance service currently 5 T provided by CPA firms? A) Healthcare. INCORREC Which of the following services would be considered an attest engagement? 6 T A)Compilation of financial statements from a client's accounting records. C) Compilation with partial assurance. B) A tax engagement to prepare state and federal tax returns. Arens/Elder/Beasley .

B)Obtaining a general understanding of the entity's compensation methods. B) Risk factors associated with potential illegal acts. the accountant's work includes would not include 8 CORRECT which of the following procedures? A) Confirming accounts receivable. D) Obtaining a representation letter from management. When engaged to compile the financials of a non-public entity. The objectivity of an internal audit department will most likely be enhanced if it 1 CORRECT reports to the client's: 0 A) Audit committee B) Chief Financial Officer [CFO] C) Controller D) Senior Management Team [as a group] Arens/Elder/Beasley . the CPA is required to possess a level of knowledge of the entity's accounting principles and 9 CORRECT practices. When conducting a review. This requirement will most likely include obtaining an understanding of the: A) Qualifications of the accounting department personnel. D) None of the above. C) Performing analytical procedures. C) Internal control structure in place.

Statements on Standards for Attestation Engagements are established by the: easy a. Chapter 25 Multiple-Choice Questions 1. Accounting and Review Services Committee. Statements of Standards on Attestation Engagements (SSAEs). d. c. Auditing Standards Board. C)To determine the extent of reliance the internal auditors can place on the controls in the process of evaluating the financial statements. d b. 1 INCORREC Which of the following is generally considered one of the main reasons why internal auditors evaluate the effectiveness of their company's internal control T 1 structure? A)To determine whether all risks and exposures of the company have been either reduced or eliminated. c. D)To reduce the amount of detailed testing for their external auditors. examination and review services. Because the same CPA firm does both the annual audit and the public Arens/Elder/Beasley . d. B)To determine whether the established internal controls are functioning as intended by management. The two types of services provided in connection with the Statements on Standards for Accounting and Review Services are: easy a. compilation and review services. b b. d. c b. Securities and Exchange Commission. Statements on Auditing Standards (SASs). The standards which govern the CPA’s association with unaudited financial statements of private companies are the: easy a. management advisory services and compilations. 4. AICPA’s Code of Professional Conduct. audit and examination services. Public Company Accounting Oversight Board. 3. c. 2. Statements on Standards for Accounting and Review Services (SSARS).

bookkeepers b. 6. Arens/Elder/Beasley . positive d. 8. d. auditors d. CPAs 5. c a. Practitioners who perform reviews and compilations are referred to in the SSARS standards as: easy a. d. accountants. review c b. An examination results in a conclusion that represents _______ assurance. limited assurance c b. accountants c. Compilation without independence. Compilation with full disclosure c. A(n) _______ results in a conclusion that represents positive assurance. compilation c. only if the partners are independent. Compilation with limited independence. Compilation that omits substantially all disclosures. b b. Compilation reports may be of all but which of the following types? easy a. bookkeepers.easy company interim financial statement review. unequivocal 9. easy a. c. a b. easy a. agreed upon procedure engagement 7. CPAs. examination d. A CPA firm can issue a compilation report: easy a. negative c. they are referred to as _______. auditors.

Disclaimer of an opinion. The distribution of which of the following types of reports is unrestricted? easy a. b. d. Reviews and agreed-upon procedures c. even if it is not independent. Examinations and reviews a b. d. 10. Examinations and agreed-upon procedures d. and agreed-upon procedures 13. A statement describing the principal procedures performed. Shared opinion. only if all the partners and the staff in the office performing the engagement are independent. b. Negative confirmation. Arens/Elder/Beasley . b b. c. A compilation of the financial statements. An audit of the financial statements. d. Negative assurance. 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? easy a. reviews. d. Examinations. A statement that all information included in the financial statements is the representation of management. 11. c. 12. if the partners have no material or direct immaterial interest in client.d b. A statement that the review was in accordance with generally accepted a auditing standards. c. A statement describing the auditor’s conclusions based upon the results of the review. c. Preparing a corporation’s annual tax returns. The statement that “Nothing came to our attention which would indicate that these statements are not fairly presented” expresses which of the easy following? b a. A review of the financial statements. Which of the following meets the attestation standards’ definition of an examination? easy a.

d b. qualified opinion. Reports on agreed-upon procedures are intended to be distributed: medium a. Yes No Yes c. Prospective financial statements. c. to only the involved parties. who would have the requisite knowledge about those procedures but not the level of assurance resulting from them. 16. c. d. review report. No Yes Yes d. Yes Yes No b. special report. d. controls. d internal control. 17. c. b. who would have the requisite knowledge about those procedures and the level of assurance resulting from them. Pro forma financial information. For reviews. Standards have been developed for all of the above. Specific attestation standards have been developed in all but which of the following areas? medium a. disclaimer of opinion.14. only to the stockholders of the client. an accountant does which of the following? easy Obtain an Perform Perform tests of understanding of tests of transactions. An auditor who conducts an examination in accordance with generally accepted auditing standards and concludes that the financial statements are easy fairly presented in accordance with a comprehensive basis of accounting b other than GAAP. No No No 15. Compliance with laws and regulations. a. d. a b. should issue a: a. Arens/Elder/Beasley . to only the involved parties. to any party to whom the client wishes.

Agreed-upon procedures 21. No No Yes Arens/Elder/Beasley . Distribution of which of the following types of reports is limited? medium a. Review without positive assurance. Reviews without CPA independence. Agreed-upon procedures d. In which type of report would you read the following statement: “We believe that our examination provides a reasonable basis for our opinion. a b. 22. Review c. Make inquiries of management. Examination 20. Evidence for a review engagement consists primarily of: medium a Inquiries Analytical Tests of details procedures a. d. c. d.18. Audit c b. Which of the following forms of review are permissible under SSARS? medium a. a b.”? medium a. Obtain knowledge of the accounting principles and practices of the client’s industry. Audit c. Review c b. Examination d. Yes Yes No c. Review on financial statements that omit substantially all disclosures. c. Obtain knowledge of the client. Tests of internal controls. No Yes No b. Review without limited procedures. Which of the following is not an area of emphasis in a review conducted under the SSARS? medium a. 19.

ninety days. c. (Public) The quarterly reports submitted to the SEC by the client: medium a. 10-Q report. d. c. 8-K report. (Public) The Securities and Exchange Commission requires quarterly financial information as a part of the: medium a. d. 10-K report. Yes Yes b. 25. Reports on debt compliance and similar engagements may be issued as a separate report or as part of a report that expresses the auditor’s opinion on Arens/Elder/Beasley . The WebTrust service requires that a CPA update its testing of the e- commerce aspects of a entity’s Web site at least every: medium a. but the CPA firm which does the year-end audit must be identified. d. Yes No d. 27. twelve months. d b. b b. but the CPA firm does not have to be identified. have to be audited. c. auditor’s report. Which of the following services is performed under the attestation standards? medium a WebTrust SysTrust a. d. do not have to be audited. have to be audited and the CPA firm must be identified. No No c. do not have to be audited. 26. No Yes 24. but the CPA firm which does the year-end audit must review the quarterly statements before they are submitted to the SEC. six months. Yes No Yes 23. month. d b.

generally accepted auditing standards apply to these engagements and a the reporting requirements differ. generally accepted auditing standards do not apply to these examinations and the reporting requirements differ also. 29. c. c. d. generally accepted auditing standards apply to these engagements and the reporting requirements are the same as well. b. Sufficient evidence is to be obtained. adding a paragraph between the introductory and scope paragraphs. Examinations. 30. Compilations. c. The examination is to be performed by a person having adequate technical training. An independence in mental attitude is to be maintained. adding an additional phrase or sentence within the opinion paragraph.medium the financial statements. 28. When this occurs: medium a. Reviews. b. The practitioner must obtain a sufficient understanding of the client’s internal control. d. b b. When they are issued as a part of the report on the financial statements. it is done by: b a. generally accepted auditing standards do not apply to this engagement and the reporting requirements remain the same for the CPA. adding a paragraph after the opinion paragraph. Which of the following types of engagement reports would provide positive assurance? Arens/Elder/Beasley . Auditors frequently audit statements that were prepared on a comprehensive basis of accounting other than GAAP. d. c. Which of the following is not one of the types of engagements and related forms of conclusions that are defined by the attestation standards? medium a. adding a middle paragraph before the opinion paragraph. Agreed-upon procedures. 31. Which of the following is not a standard contained in both the Statement on Standards for Attestation Engagements and the Statement on Auditing medium Standards? d a. d. b.

and cash flows. unrestricted d. to the best medium of the responsible party’s knowledge and belief? c a Forecasts Projections a. Which of the following is not one of the general types of prospective financial statements included in the attestation standards? medium d Forecasts Projections Earnings estimates a. 32. A review. An agreed-upon procedures engagement.medium a. and cash flows. Which are prospective financial statements that present an entity’s financial position. medium a. limited c. No Yes No c. Which are prospective financial statements that present an entity’s expected financial position. An examination. results of operations. Yes No Yes 33. directed 34. A compilation. Yes Yes No d. d. Yes No d. given one or more hypothetical assumptions? d Arens/Elder/Beasley . A report on an examination is _______ as to the distribution by the client after it is issued. restricted c b. No No c. No No Yes b. Yes Yes b. a b. No Yes 35. results of operations. to the best of the responsible medium party’s knowledge and belief. c.

An audit requires less evidence related to internal control than a review. General use statements are prepared for use by ________. medium b. regulators d. b. the auditor and management agree that procedures will not be applied to all accounts and c circumstances. Arens/Elder/Beasley . the auditor and management agree that procedures will be applied to all accounts and medium circumstances. 39. Securities and Exchange Commission. c c. medium a. An examination. b. An agreed-upon procedures engagement is one in which: a. a. A review requires more substantive evidence than an audit. No Yes 36. d. 37. None of the above statements is true. d.a Forecasts Projections a. b b. Statements on Accounting and Review Services are issued by the: a. is substantially equivalent in scope to an audit. any third party b c. Yes No d. Yes Yes b. Assurance provided by a review is substantially less than an audit. internal auditor. b. d d. c. An accountant who reviews the financial statements of a nonpublic entity should issue a report stating that a review: medium a. c. Professional standards prohibit one of the following types of engagements for prospective financial statements from being undertaken. A review requires less evidence than an audit. is substantially more in scope than a compilation. A review. Public Company Accounting Oversight Board. 41. 40. 38. the auditor and management or a 3rd party agree that the auditor will apply his or her judgment to determine procedures to be performed. known contractual parties medium b. the auditor and management or a third party agree that the engagement will be limited to certain specific procedures. No No c. An agreed-upon procedures engagement. A compilation. c. Auditing Standards Board. d. Accounting and Review Services Committee of the AICPA. Which of the following statements is true regarding these services? medium a.

b d. c . Include the unsupported disbursements in the statements since you are not expected to make an audit. Report of Independent Auditors. c. Notify the owners that some of the claimed disbursements are unsupported and withdraw if the situation is not satisfactorily resolved. the highest level of service rendered. c c. d. creditor financial institutions. Arens/Elder/Beasley . Obtain from the manager a written statement that you informed him of the missing invoices and include his assurance that the disbursements are proper. 42. Evaluating the support underlying the assumptions. Which of the following is not an element of examining a forecast? a. medium b. Which of the following procedures is not included in a review engagement of a nonpublic entity? medium a. medium b. 46. b. You are a CPA retained by the manager of a cooperative retirement village to do “write-up work. the Securities and Exchange Commission. you discover that there are no invoices to support a claim for a $25. The manager informs you that all the disbursements are proper. 48. c. d c. Reports on projections are not well understood by the general public. underwriters of securities. d.000 d disbursement. The CPA’s procedures would violate SSARS. is substantially less in scope than an audit. the lowest level of service rendered. Debt compliance letters are ordinarily addressed to: a. d. Why do standards prohibit accepting an engagement on a projection for general use? a. Report of Independent Registered Public Accounting Firm. 47. d. b. medium b.c c. Inquiries of management. c. Understanding internal controls.” You are expected to prepare unaudited financial statements with each page marked medium “unaudited” and accompanied by a disclaimer of opinion stating no audit was performed. a compilation engagement. Any procedures designed to identify relationships among data that appear to be unusual. Inquiries regarding events subsequent to the balance sheet date. a review engagement. Issuing an examination report. c d. medium the accountant generally should issue the report that is appropriate for: a. provides only limited assurance that the financial statements are fairly presented. Submit the expected statements but omit $25. 44. a compilation and a review. c. Evaluating the preparation of the prospective financial statements. d b.000 of unsupported disbursements. Report of Independent Public Accountants. Underlying hypothetical assumptions are difficult to interpret without obtaining additional c information. (Public) The title of a review report issued for a public company’s quarterly financial statements is titled with which of the following? medium a. or a compilation and an audit) concerning the financial statements of a nonpublic entity. 45. The CPA is not qualified to report on the use of GAAP in the projected financial statement. 43. d. In performing the work. When an accountant performs more than one level of service (for example. d. Report of Certified Public Accountant. b. the client’s audit committee. What should you do? a. A study and evaluation of internal control.

c. and that fact a must be disclosed in the report. b. a c . but that challenging fact must be disclosed in the report. should refuse the engagement because of a departure from generally accepted auditing standards. c. required to determine the effect of a departure if management has not done so. Under these circumstances. price-level basis financial statements. a feasibility study. compliance with a contractual agreement not related to the financial statements. and that fact need not be disclosed in the report. In a review service where the client has failed to follow GAAP. required to determine the effect of a departure if management has not done so. d. or reviewed on a limited basis. 52. a limited review of interim financial information. d. which apply to the financial statements taken as a whole. and the net effect of such omissions. d. In addition. 50. Non-accounting data included in a long-form report have been subjected to auditing procedures. the auditor: a. d. not covered by the opinion on the financial statements. the auditor’s report should state whether the non- accounting data are: b a. must restate the financial statements on an accrual basis and then render the standard (short-form) report. c.” as defined by Statements on Auditing Standards. One example of a “special report. 51. may accept the engagement but should disclaim an opinion because of an inability to apply the procedures considered necessary. medium the general nature of material items omitted. b. The auditor’s report should state this fact and should explain that the non-accounting data are medium presented for analysis purposes. within the framework of generally accepted auditing standards. not required to determine the effect of a departure if management has not done so. b. fairly stated in all material respects in relation to the basic financial statements taken as a whole. audited. b. responsibility for the adequacy of the procedures performed is taken by the accountant. b. negative assurance is expressed on the prospective financial statements taken as a whole. may not be associated with such statements which are not in accordance with generally a accepted accounting principles. 53. An auditor has been asked to report on the balance sheet of Kane Company but not on the other basic financial statements. may accept the engagement because such engagements merely involve limited reporting a objectives. must render a qualified report explaining the departure from generally accepted accounting principles in the opinion paragraph. An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided that: medium a. The auditor will have access to all information underlying the basic medium financial statements. 54. d. beyond the scope of the normal engagement and therefore. b c. should refuse the engagement because there is a client-imposed scope limitation. b. c. unaudited. d.49. distribution of the report is to be restricted to the specified users involved. the prospective financial statements are also examined. and that fact Arens/Elder/Beasley . A CPA who has been engaged to audit financial statements that were prepared on a cash basis: a. the accountant is: a. must ascertain that there is proper disclosure of the fact that the cash basis has been used. not required to determine the effect of a departure if management has not done so. is a report issued in connection with: challenging a.

the auditor would most likely: a. An auditor who was engaged to perform an examination of the financial statements of a nonpublic entity has been asked by the client to refrain from performing various audit challenging procedures and change the nature of the engagement to a review of the financial statements in accordance with standards established by the AICPA. Under these circumstances. Determining whether the client has properly restricted its business activities to the a requirements of an agreement. Before performing a review of a nonpublic entity’s financial statements. c. whereas limited use refers to use by third parties with which the responsible challenging party is negotiating directly. Forecasts can be provided for limited use. General use refers to use by any third party. c. view the request as an indication of a possible irregularity. Determining whether the proper limitations were maintained on dividends. complete the examination that was in progress. a d. The client’s request was made because the d cost to complete the examination was significant. honor the client’s request. separate paragraph that describes the limitations on the presentation’s usefulness. obtain a sufficient level of knowledge of the accounting principles and practices of the b industry in which the entity operates. AICPA auditing standards. complete a series of inquiries concerning the entity’s procedures for recording. Determining whether the accounting records were adequate for conducting an ordinary audit. an accountant should: a. d d. c. classifying. apply analytical procedures to provide limited assurance that no material modifications should be made to the financial statements. c. 61. qualify the auditor’s report and refer to the scope limitation. d. challenging b. The engagement and report on debt compliance letters should be limited to compliance matters that the auditor is qualified to evaluate. d. challenging b. 58. 56. Prospective financial statements are for general use or for limited use. c. AICPA accounting standards. d. 55. An accountant’s standard report on a compilation of a projection should not include a: a. AICPA attestation standards. AICPA review standards. challenging and summarizing transactions. c b. Which of the following statements is not correct? a. WebTrust engagements should be performed following guidance provided by the: a. working capital. Determining whether principal and interest payments were made when due. Projections can be provided for general use. statement that a compilation of a projection is limited in scope. disclaimer of responsibility to update the report for events occurring after the report’s date. and debt ratios. d. statement that the accountant expresses only limited assurance that the results may be achieved. b. 60. b. inquire whether management has omitted substantially all of the disclosures required by generally accepted accounting principles. b. Projections can be provided for limited use. 57. Which of the following engagements would be challenging inappropriate for the CPA to attempt to evaluate? a. Attestation standards allow a CPA to perform all but which of the following services for a forecast or projection? Arens/Elder/Beasley . 59. need not be disclosed in the report. c. Forecasts can be provided for general use.

Essay Questions 66. to the best of the responsible party’s knowledge and belief. easy Define forecast and projection. and cash flows.challenging a.” 65. The auditor’s best course of action with respect to “other financial information” included in an annual report containing the auditor’s report is to: challenging a.” b. 64. or items of financial statement. accounts. d. a c. challenging b. Agreed-upon procedures 62. The disclaimer should: challenging a. Compilation b. SAS b d. SSARS 63. SSAR challenging b. c d. clearly state the specific reasons for lack of independence. reports based upon a review engagement. Review b c. Negative assurance is not permissible in: a. b. c. read and consider the manner of presentation of the “other financial information. reports based on an audit of interim financial statements of a closely held business entity. and cash flows. reports relating to the results of agreed-upon procedures to one or more specified elements. letters required by security underwriters for data pertinent to SEC registration statements. consider whether the “other financial information” is accurate by performing a limited review. not mention any reason for the disclaimer other than that the CPA was unable to conduct the c examination in accordance with generally accepted auditing standards. obtain written representations from management as to the accuracy of the “other financial information. results of operations. c. Under what standards are WebTrust and SysTrust engagements performed? a. Examination d. to the best of the responsible party’s knowledge and belief. indicate in the auditor’s report that the “other financial information” is unaudited. SSAE c. results of operations. Projections are prospective financial statements that present an entity’s financial position. not describe the reason for lack of independence but should state specifically that the CPA is not independent. include a middle paragraph clearly describing the CPA’s association with the client and explaining why the CPA was unable to gather sufficient competent evidential matter to warrant the expression of an opinion. Arens/Elder/Beasley . given one or more hypothetical assumptions. d. Answer: Forecasts are prospective financial statements that present an entity’s expected financial position. A CPA who is not independent and is associated with financial statements should disclaim an opinion with respect to those financial statements.

A site that meets the Trust Service principles is eligible to display the WebTrust seal on its transaction or order page. A financial statement review conducted in compliance with SSARS emphasizes five activities. and the basis. one of which is to “perform analytical medium procedures. its accounting records and employees. What are SSAEs and who issues them? easy Answer: SSAEs are Statements on Standards for Attestation Engagements. They are issued by the Auditing Standards Board.  Make inquiries of management to determine whether the financial statements are fairly presented. Answer:  Obtain knowledge of the accounting principles and practices of the client’s industry. 70. 68. the client’s business transactions. 69. Who developed the WebTrust service? Briefly explain this service. In a WebTrust engagement.  The accountant is specifically required to obtain a letter of representation from members of management who are Arens/Elder/Beasley . What are SSARS and who issues them? easy Answer: SSARS are Statements on Standards for Accounting and Review Services.  Obtain knowledge of the client. that is understood.67. They are issued by the Accounting and Review Services Committee of the AICPA. easy Answer: WebTrust was developed jointly by the AICPA and the Canadian Institute of Chartered Accountants. and content of the financial statements. form.” State the other four. a client engages a CPA to provide reasonable assurance that the client’s Web site complies with certain Trust Services principles and criteria for one or more e-commerce activities.

72. accounts. Answer:  Compilation with full disclosure. the compilation report should include. If the accountant is not independent with respect to the client. Answer:  Other comprehensive basis of accounting. Under the modified cash basis. medium reviews. For example. a statement to that effect.  Compilation without independence. State four types of assurance services that fall within the auditing standards but are not audits.  Compilation that omits substantially all disclosures. as a separate last paragraph. the price-level basis of accounting could be applied to all material items in the financial statements. and the absence of disclosures is not. receipts and disbursements are recorded. Answer:  Cash or modified cash basis. With the cash basis. 73. This report is used when the financial statements include all disclosures required by generally accepted accounting principles.  Specified elements.  Basis used to comply with the requirements of a regulatory agency. there are no accruals.  Income tax basis. to the CPA’s knowledge. Auditors frequently audit statements prepared on bases other than GAAP. even though this is not in accordance with generally accepted accounting principles. knowledgeable about financial matters. or items. This type of report is used when the financial statements omit substantially all of the disclosures required by GAAP. such as recording fixed assets and depreciation. undertaken with the intent to mislead users.  A definite set of criteria having substantial support. 71. Arens/Elder/Beasley . The same measurement rules used for filing tax returns are often used for financial statement preparation.  Information accompanying basic financial statements. or compilations of financial statements in accordance with GAAP. Discuss each of the three types of compilation reports and the medium circumstances in which each should be used.  Debt compliance letters and similar reports. the cash basis is followed except for certain items. Discuss four medium commonly used bases other than GAAP.

disclosed. Processing integrity – system processing is complete. Answer: (students should list three of the five)  Detailed comparative statements supporting the control totals on the primary financial statements for accounts such as cost of goods sold. List three types of additional information commonly included in the additional information section. Briefly describe a SysTrust engagement. 4.  Supplementary information required by the Financial Accounting Standards Board or Securities and Exchange Commission. Online Privacy – personal information obtained as a result of e- commerce is collected.74. accurate.  Statistical data for past years in the form of ratios and trends. challenging Answer: The five Trust Services principles are: 1. 76. and retained as committed or agreed. operating expenses. Answer: Arens/Elder/Beasley .  Specific comments on the changes that have taken place in the statements. and authorized. 5. Availability – the system is available for operation and use as committed or agreed. clients request auditors to include additional information beyond the basis financial medium statements in the set of materials prepared for management or outside users. Confidentiality – information designated as confidential is protected as committed or agreed. used. Frequently. Draft a report that would be appropriate when an independent accountant has performed a challenging compilation of financial statements with disclosures in accordance with GAAP. The accountant then performs tests to determine whether those controls were operating effectively during a specified period. timely. 77. and miscellaneous assets. 75. 2. medium Answer: A SysTrust licensed accountant evaluates a company’s computer system using Trust Services principles and criteria and determines whether controls over the system exist. Security – the system is protected against unauthorized access (both physical and logical access). Briefly describe each of the five Trust Services principles.  A schedule of insurance coverage. 3. If the system meets the requirements of the Trust Services principles and criteria. an examination-level unqualified attestation report is issued under the AICPA attestation standards.

we do not express such an opinion. if a report is to be issued. A compilation is limited to presenting in the form of financial statements information that is the representation of management. and cash flows for the year then ended. Arens/Elder/Beasley . A review consists principally of inquiries of company personnel and analytical procedures applied to financial data.  Know the client. 200X. the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Possess knowledge about the accounting principles and practices of the client’s industry. Accordingly. retained earnings. Based on our review. do not express an opinion or any other form of assurance on them. 79. We have compiled the accompanying balance sheet of XYZ Company as of December 31. and the related statements of income. It is substantially less in scope than an audit in accordance with generally accepted auditing standards. and the related statements of income. and cash flows for the year then ended. 78. and know the content of the financial statements (the knowledge can be less than that for a review). All information included in these financial statements is the representation of the management of XYZ Company. retained earnings. we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles. Answer: The preparer of the statements must:  Establish an understanding with the client about the type and limitations of the services to be provided and a description of the report. in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. accounting records. understand the nature of the client’s business transactions. We have not audited or reviewed the accompanying financial statements and. and employees. Answer: We have reviewed the accompanying balance sheet of XYZ Company as of December 31. Draft a report that would be appropriate when an accountant has made a proper review of the accounting records and the financial statements of a nonpublic entity and has concluded they challenging appear reasonable. Discuss the five SSARS requirements that must be met when an accountant is performing a challenging compilation of financial statements. 200X. accordingly. in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants.

or items. or items is similar challenging to the standard audit report of financial statements in accordance with GAAP. State each Arens/Elder/Beasley . If the omitted disclosures were included in the financial statements. do not express an opinion or any other form of assurance on them.  Read the compiled financial statements and be alert for any obvious omissions or errors in arithmetic and GAAP. and cash flows for the year then ended. and the related statements of income. We have not audited or reviewed the accompanying financial statements and. these financial statements are not designed for those who are not informed about such matters. do not express an opinion or any other form of assurance on them. We are not independent with respect to XYZ Company.  Make inquiries to determine whether the client’s information is satisfactory. accordingly. retained earnings. accounts. in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. Answer: We have compiled the accompanying balance sheet of XYZ Company as of December 31. but the accountant is not independent with respect to the client. 81. The format and contents of an audit report for specified elements. A compilation is limited to presenting in the form of financial statements information that is the representation of management. results of operations. 200X. in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. We have not audited or reviewed the accompanying financial statements and. Draft a report that would be appropriate when an independent accountant challenging has performed a compilation of financial statements which substantially omit all disclosures and the statement of cash flows required by GAAP. they might influence the user’s conclusions about the company’s financial position. retained earnings. accounts. A compilation is limited to presenting in the form of financial statements information that is the representation of management. Management has elected to omit substantially all of the disclosures and the statement of cash flows required by generally accepted accounting principles. it must also reflect four requirements for reporting on specified elements. 200X. and cash flows for the year then ended. However. accordingly. 80. Accordingly. Draft a report that would be appropriate when an accountant has performed a compilation of challenging financial statements with disclosures in accordance with GAAP. and the related statements of income. Answer: We have compiled the accompanying balance sheet of XYZ Company as of December 31. 82. and cash flows.

Other Objective Answer Format Questions 83. f 3. accounts. or items must be identified. Review financial statements prepared in accordance with GAAP Arens/Elder/Beasley . d 2. a paragraph that restricts the distribution of the report to those within the entity and the parties to the contract or agreement must be added. Standards of the Public Company Accounting Oversight Board b 1. Answer:  The specified elements. g 4. Attestation standards e. Compilation of financial statements prepared in accordance with GAAP for a nonpublic company. Auditing standards and governmental auditing standards d. of these four requirements.  If the specified element. Governmental auditing standards f. Operational auditing. Match the type of engagement (a-g) with the source of authoritative support for that engagement provided below (1-7). Attestation of forecasted financial statements. Accounting and review service standards c. or items are presented and the agreements specifying the basis must be described. account. Auditing standards b. or item is presented on a basis that is not in conformity with generally accepted accounting principles or another comprehensive basis of accounting.  The basis on which the specified elements.  The source of significant interpretations made by the client about the provisions of a relevant agreement must be indicated and described. No standards have been set for these engagements g. Sources may be used more than medium once (or not at all). accounts. a.

Audits of financial statements for a nonpublic entity prepared in accordance with GAAP. SSARS are issued by the SEC. True b. True b b. in the form of financial statements. False 87. a. True b b. for a public company. 84. Governmental auditing. A nonaudit engagement in which the accountant undertakes to present. CPAs must be independent to issue a compilation report. c 6. True b. a. or compilations of historical financial statements prepared in accordance with GAAP. False 86. Limited assurance engagements other than audits. True easy b. False b 85. a 7. A primary concern in reporting on a comprehensive basis is to make sure that the statements clearly indicate that they are prepared on a basis other easy than GAAP. easy a. SSAEs are issued by the PCAOB. Arens/Elder/Beasley . reviews. False 88. a a. a 5. Review reports are normally dated as of the client’s balance sheet date. without undertaking to express any assurance on the b statements is called a review engagement. information that is the representation of easy management. False 89. easy a.

Systrust services are performed under the direction of the SSAEs. When an auditor issues an opinion on additional information accompanying the financial statements. False b 97. False 92. a.easy b a. True b. False 90. a. When performing a review (SSARS review) of financial statements. WebTrust services are performed under the direction of the SSARS. a. the accountant is required to obtain a letter of representation from management. False b 95. False a 91. materiality is the same as that used in forming an opinion on the basic financial medium statements. a. True a b. True a b. True medium b. Statements on Standards for Accounting and Review Services (SSARS) govern the CPA’s association with unaudited financial statements of nonpublic (private) companies. True a b. False b 93. medium a. a. but not public medium companies. medium a. False 98. Arens/Elder/Beasley . True medium b. True medium b. CPAs must be independent to issue a review report. True easy b. a. The use of negative assurance is appropriate in audit reports. True b. A financial statement review conducted in compliance with SSARS includes obtaining an understanding of internal control. CPAs can issue a WebTrust opinion only on all five Trust Services principles. False 96. False a 94.

a a. A CPA firm can issue a compilation report even if it is not independent with respect to the client. False 102. False 101. False 100. medium a. False 103. medium a. When performing compilation services. Examination attestation engagements result in a conclusion that is in a positive form. or physical examinations. False a 104. the accountant ordinarily does not perform tests of the accounting records. examination engagements provide a higher level of assurance than agreed-upon procedures medium engagements but less than review engagements. True b. True b b. (Public) When performing a review of interim information for a public company. b a. When issuing a debt compliance letter. medium a. True Arens/Elder/Beasley . Of the three types of attestation engagements. whereas review attestation engagements result in a medium conclusion in the form of a negative assurance. False 105. True a b. the accountant is not required to obtain an understanding of the client’s internal control. True b b. True b. False 99. medium independent confirmations. the auditor’s opinion should be in the form of a negative assurance. medium a. The use of positive assurance is appropriate in review reports.medium a. a a. True a b. True b.

True b. The accountant’s report on the examination of prospective financial statements should include a caveat that the prospective results may not be achieved. False a 108. challenging a. False Arens/Elder/Beasley . True a b. Auditors should provide debt compliance letters only for clients for whom the auditor has done an audit of the overall financial statements. medium a. Current professional standards prohibit accountants from performing engagements to review forecasts or projections. False 106. True a b. b. medium a. False 107.