Deck 21: Assurance, Attestation, and Internal Auditing Services

Question 1

Which of the following procedures is not included in a review engagement of a nonpublic entity?

A)Inquiries of management.
B)Inquiries regarding significant events subsequent to the balance sheet date.
C)Any procedures designed to identify relationships among data that appear to be unusual.
D)A study and evaluation of internal control.

Answer 1

D

Question 2

Assurance services are independent professional services that improve the quality of information specifically for internal decision makers.

Answer 2

False

Question 3

Limited assurance is provided in a review engagement.

Answer 3

True

Question 4

Examples of attest engagements include examination, review, and agreed-upon procedures engagements.

Question 5

The practitioner's objective in an engagement to audit an entity's internal control is to assess management's assessment of the effectiveness of internal controls.

Question 6

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 problem, the CPA should:

A)disclose the departure in a separate paragraph of the report.
B)issue an adverse opinion.
C)attach a footnote explaining the effects of the departure.
D)issue a compilation report.

Question 7

The purpose of an attestation engagement is to provide users of information with an opinion, conclusion, or findings regarding the reliability of subject matter or an assertion about the subject matter, as measured against suitable and available criteria.

Question 8

Given one or more hypothetical assumptions, a responsible party may prepare, to the best of his knowledge and belief, an entity's expected financial position, results of operations, and changes in cash flows. Such prospective financial statements are known as:

A)pro forma financial statements.
B)financial projections.
C)partial presentations.
D)financial forecasts.

Question 9

Auditing standards do not allow private companies to have an audit of internal control over financial reporting integrated with the audit of their financial statements.

Question 10

Reasonable assurance is provided in:

A)an audit engagement.
B)a compilation engagement.
C)a review engagement.
D)none of the items listed.

Question 11

Under the attestation standards, a practitioner can either examine or perform agreed-upon procedures on prospective financial information.

Question 12

Absolute assurance is provided in:

A)an audit engagement.
B)a compilation engagement.
C)a review engagement.
D)none of the items listed.

Question 13

Limited assurance is provided in:

A)an audit engagement.
B)a compilation engagement.
C)a review engagement.
D)none of the items listed.

Question 14

In performing an attestation engagement, a CPA typically:

A)supplies litigation support services.
B)assesses control risk at a low level.
C)expresses a conclusion about an assertion.
D)provides management consulting advice.

Question 15

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.

Question 16

Prospective financial statements may be prepared for:

A)only general use.
B)only limited use.
C)only internal use.
D)general, limited, and internal use.

Question 17

Electronic commerce is an example of a category of assurance services.

Question 18

An examination of a financial forecast is a professional service that involves:

A)compiling or assembling a financial forecast that is based on management's assumptions.
B)limiting the distribution of the accountant's report to management and the board of directors.
C)assuming responsibility to update management on key events for one year after the report's date.
D)evaluating whether the computations of prospective amounts are mathematically accurate and assumptions are internally consistent.

Question 19

Accepting an engagement to examine an entity's financial projections would most likely be appropriate if distribution of the projections were limited to:

A)the general public on the entity's website.
B)potential stockholders who request a prospectus or a registration statement.
C)a bank with which the entity is negotiating for a loan.
D)all stockholders of record as of the report date.

Question 20

Which of the following are prospective financial statements upon which an accountant may appropriately report for general use?

A)Pro forma financial statements.
B)Financial projections.
C)Partial presentations.
D)Financial forecasts.

Question 21

The party responsible for assumptions identified in the preparation of prospective financial statements is usually:

A)a third-party lending institution.
B)the entity's management.
C)the reporting accountant.
D)the entity's independent auditor.

Question 22

In an examination of prospective financial statements, which of the following would not require a revision of prospective financial information?

A)Mathematical errors.
B)Unreasonable or internally inconsistent assumptions.
C)Inappropriate or incomplete presentation.
D)All of the items listed may require a revision of prospective financial information.

Question 23

The report in a review engagement provides:

A)limited assurance.
B)positive assurance.
C)an opinion.
D)a summary of findings.

Question 24

Which of the following statements is not true concerning assurance services?

A)The growth in assurance services has been driven by users' demands for those services.
B)Assurance services focus on improving the quality of information or its context, for decision makers.
C)Unlike audit and attestation engagements, an engagement to perform assurance services does not require the CPA to consider information reliability.
D)Auditing and attestation services can be viewed as subsets of assurance services since there is overlap in their objectives.

Question 25

Which of the following is not a main goal of the internal auditing profession?

A)Add value to an organization's operations.
B)Help an organization to accomplish its objectives.
C)Provide reliable information to external users.
D)Improve the effectiveness of risk management of an organization.

Question 26

Which of the following statements is true regarding the performance of an assurance service on information systems reliability by a CPA?

A)The CPA is not permitted to provide any other services for the entity if he or she is to perform the service.
B)The service will require the CPA to apply all of the attestation and auditing standards.
C)The service provides information regarding whether the information system provides reliable information for internal operating decisions.
D)Performing the service will not require the collection of evidence.

Question 27

Which of the following would be considered a part of a consulting services (non-assurance)engagement? I. Expressing a conclusion about the reliability of an entity's financial statements.
II) Reviewing and commenting on a client-prepared business plan.

A)I only.
B)II only.
C)Both I and II.
D)Neither I nor II.

Question 28

May an accountant plan and perform an engagement to compile or review the financial statements of a not-for-profit entity if the accountant is unfamiliar with the specialized industry accounting principles?

A)Only a compilation could be performed without the specialized knowledge.
B)Only a review could be performed without the specialized knowledge.
C)Both a compilation and a review could be performed without the specialized knowledge.
D)Neither a compilation nor a review could be performed without the specialized knowledge.

Question 29

The report of a CPA on a review of the financial statements of a nonpublic entity should not include a statement that:

A)management is responsible for the preparation and fair presentation of the financials in accordance with GAAP.
B)the review was performed in accordance with generally accepted auditing standards.
C)the CPA is not aware of any material modifications that should be made to the financial statements in order for them to be in conformity with generally accepted accounting principles.
D)a review consists principally of inquiries of company personnel and analytical procedures applied to financial data.

Question 30

Inquiry of the entity's personnel and analytical procedures are the primary bases for the issuance of a(n):

A)compilation report on financial statements for a nonpublic company in its first year of operations.
B)auditor's report on financial statements supplemented with price-level information.
C)review report on comparative financial statements for a nonpublic company in its second year of operations.
D)management advisory report prepared at the request of the entity's audit committee.

Question 31

An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided that:

A)distribution of the report is restricted to the specified users involved.
B)the prospective financial statements also are examined.
C)responsibility for the adequacy of the procedures performed is taken by the accountant.
D)negative assurance is expressed on the prospective financial statements taken as a whole.

Question 32

Accepting an engagement to compile a financial projection for a public company most likely would be inappropriate if the projection were to be distributed to:

A)a bank with which the entity is negotiating for a loan.
B)a labor union with which the entity is negotiating a contract.
C)the principal stockholder, to the exclusion of the other stockholders.
D)all stockholders of record as of the report date.

Question 33

The International Professional Practices Framework developed by the IIA includes all of the following types of guidance, except:

A)International Standards for the Professional Practice of Internal Auditing.
B)Interpretations of Standards.
C)Code of Ethics.
D)Implementation Guidance.

Question 34

Blue Co., a privately-held entity, asked its tax accountant, Cook, a CPA in public practice, to reproduce Blue's internally-prepared interim financial statements on Cook's computer when Cook prepared Blue's quarterly tax return. Cook should not submit these financial statements to Blue unless, at a minimum, Cook complies with the provisions of:

A)statements on Responsibilities in Tax Practice.
B)statements on Standards for Accounting and Review Services.
C)statements on Responsibilities in Unaudited Financial Services.
D)statements on Standards for Attestation Engagements.

Question 35

Compilation reports may include:

A)compilations when the accountant is not independent.
B)compilations with full disclosure.
C)compilations that omits substantially all disclosures.
D)any of the items listed.

Question 36

Independence is:

A)required for financial statement audits but not for assurance services.
B)required for both financial statement audits and assurance services.
C)required for assurance services but not financial statement audits.
D)preferred but not required for financial statement audits and assurance services.

Question 37

Prior to commencing the compilation of financial statements of a nonpublic entity, the accountant should:

A)perform analytical procedures sufficient to determine whether fluctuations among account balances appear reasonable.
B)complete the preliminary phase of the study and evaluation of the entity's internal control.
C)verify that the financial information supplied by the entity agrees with the books of original entry and supporting documentation.
D)acquire a knowledge of any specialized accounting principles and practices used in the entity's industry.

Question 38

When an accountant is not independent of an entity and is requested to perform a compilation of the entity's financial statements, the accountant:

A)is precluded from accepting the engagement.
B)may accept the engagement and need not disclose the lack of independence.
C)may accept the engagement, should disclose the lack of independence, and may indicate the reason for the lack of independence.
D)may accept the engagement and must disclose both the lack of independence and the reason for the lack of independence.

Question 39

Compilations provide which of the following types of assurance about the fair presentation of financial statements?

A)No assurance.
B)Negative assurance.
C)Limited assurance.
D)Reasonable assurance.

Question 40

Responding to a question such as "What would happen if..." is an attribute of which of the following types of engagements?

A)Financial projection.
B)Financial forecast.
C)Financial forecast and financial projection.
D)Review.

Question 41

Before performing a compilation of the financial statements of a nonpublic entity, an accountant should:

A)perform a thorough study and evaluation of the internal control system.
B)complete a series of inquiries concerning the entity's procedures for recording, classifying, and summarizing transactions.
C)design working papers intended to provide sufficient competent evidential matter to afford a reasonable basis for a compilation opinion.
D)obtain an understanding of the accounting principles and practices of the industry in which the entity operates.

Question 42

Which of the following should be included in an accountant's standard report based upon the review of a nonpublic entity's financial statements?

A)A statement that the review was performed in accordance with generally accepted audit standards.
B)A statement that a review consists principally of inquiries and analytical procedures.
C)A statement that the review includes a study and evaluation of the internal controls of the entity.
D)A statement that a review is substantially greater in scope than a compilation.

Question 43

During a review of financial statements of a nonpublic entity, the CPA would be least likely to:

A)perform analytical procedures designed to identify relationships that appear to be unusual.
B)obtain written confirmation from banks regarding loans to the entity.
C)obtain reports from other accountants who reviewed a portion of the total entity.
D)read the financial statements and consider their conformance with generally accepted accounting principles.

Question 44

IIA Standards include:

A)attribute standards.
B)performance standards.
C)interpretations.
D)both attribute standards and performance standards.

Question 45

During a review of the financial statements of a nonpublic entity, an accountant becomes aware of inadequate disclosure that is material to the financial statements. If management refuses to correct the financial statement presentations, the accountant should:

A)issue an adverse opinion.
B)issue an "except for" qualified opinion.
C)disclose this departure from generally accepted accounting principles in a separate paragraph of the report.
D)express only limited assurance on the financial statement presentations.

Question 46

The expectation that an internal auditor does not accept gifts that may impair judgment is based on the code of ethics principle of:

A)integrity.
B)objectivity.
C)confidentiality.
D)competency.

Question 47

Which of the following procedures is not usually performed by the accountant during a review engagement of a nonpublic entity?

A)Inquiry about actions taken at meetings of the board of directors that may affect the financial statements.
B)Issuance of a report stating that the review was performed in accordance with standards established by the AICPA.
C)Reading of the financial statements to determine if they conform with generally accepted accounting principles.
D)Communication of any material weaknesses discovered during the consideration of internal control.

Question 48

In a review engagement, the accountant must make all of the following inquiries except those to:

A)Identify subsequent events having a material effect on the statements.
B)Understand internal controls.
C)Identify actions taken at stockholders' meetings.
D)Ascertain whether statements are in accordance with GAAP.

Question 49

Inquiry and analytical procedures ordinarily performed during a review of a nonpublic entity's financial statements include:

A)analytical procedures designed to identify material weaknesses in 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 entity's attorneys and bankers.

Question 50

Statements on Standards for Accounting and Review Services establish standards and procedures for which of the following engagements?

A)Assisting in adjusting the books of account for a partnership.
B)Examining prospective financial statements.
C)Processing financial data for clients of other accounting firms.
D)Compiling an individual's personal financial statement to be used to obtain a mortgage.

Question 51

Statements on Standards for Accounting and Review Services (SSARS)require an accountant to report when the accountant has:

A)typed client-prepared financial statements, without modification, as an accommodation to the client.
B)provided an entity with a financial statement format that does not include dollar amounts, to be used by the entity in preparing financial statements.
C)proposed correcting journal entries to be recorded by the client that change client-prepared financial statements.
D)generated financial statements prepared in accordance with a special purpose framework other than GAAP.

Question 52

According to the Statements on Standards for Accounting and Review Services, what response is appropriate when an accountant, who is not independent, performs a compilation of financial statements?

A)The accountant should state in the report that he/she is not independent.
B)The accountant should withdraw from the engagement.
C)The accountant should express a disclaimer opinion on the compilation.
D)The accountant should express an adverse opinion on the compilation.

Question 53

An accountant is required to comply with the provisions of Statements on Standards for Accounting and Review Services when: I. Typing client-prepared financial statements, without modification, as an accommodation to a client.
II) Preparing standard monthly journal entries for depreciation and expiration of prepaid expenses.

A)I only.
B)II only.
C)Both I and II.
D)Neither I nor II.

Question 54

Which of the following represents the order from the least assurance to the most assurance provided for the types of services provided?

A)Review, compilation, audit.
B)Compilation, review, audit.
C)Audit, review, compilation.
D)Audit, compilation, review.

Question 55

When an accountant compiles a nonpublic entity's financial statements that omit substantially all disclosures required by generally accepted accounting principles, the accountant should indicate in the compilation report that the financial statements are:

A)restricted for internal use only by the entity's management.
B)not to be given to financial institutions for the purpose of obtaining credit.
C)compiled in conformity with a comprehensive basis of accounting other than generally accepted accounting principles.
D)not designed for those who are uninformed about the omitted disclosures.

Question 56

Which of the following procedures is usually included in a review engagement of a nonpublic entity?

A)The confirmation of accounts receivable.
B)A study and evaluation of internal control.
C)An inquiry concerning subsequent events.
D)The observation of physical inventory counts.

Question 57

Which of the following would an accountant not need to know when conducting a compilation?

A)The accounting principles and practices of the industry in which the entity operates.
B)A general understanding of the nature of the entity's business transactions and the form of its accounting records.
C)The accounting basis on which the financial statements are to be presented.
D)The accountant would need to know all of the other items listed when conducting a compilation.

Question 58

A CPA's report on agreed-upon procedures related to management's assertion about an entity's compliance with specified requirements should contain:

A)a statement of limitations on the use of the report.
B)an opinion about whether management's assertion is fairly stated.
C)negative assurance that control risk has not been assessed.
D)an acknowledgement of responsibility for the sufficiency of the procedures.

Question 59

Trust Service criteria cover:

A)hardware design.
B)confidentiality.
C)software design.
D)physical protection of computer systems.

Question 60

Which of the following procedures is more likely to be performed in a review engagement of a nonpublic entity than in a compilation engagement?

A)Gaining an understanding of the entity's business transactions.
B)Gaining an understanding of the accounting principles and practices in the industry.
C)Obtaining a representation letter from the chief executive officer.
D)Assisting the entity in adjusting the accounting records.

Question 61

As with most professionals, internal auditors must follow guidelines promoting ethical conduct. The IIA Code of Ethics is important for internal auditors because the reliability of their work depends on a reputation for a high level of personal integrity. The Code of Ethics consists of four main principles of ethical conduct and some associated rules that underpin the expected conduct of IIA members. List the four main principles of the Code of Ethics and explain each.

Question 62

Match the Trust Services Principle with its proper definition.

A)Personal information is collected, used, retained, and disclosed and disposed to meet the entity's objectives.
B)Information and systems are protected against unauthorized access, unauthorized disclosure of information, and damage to systems that could compromise the availability, integrity, confidentiality, and privacy of information or systems and affect the entity's ability to meet its objectives.
C)System processing is complete, valid, accurate, timely, and authorized to meet the entity's objectives.
D)Information designated as private is protected to meet the entity's objectives.
E)Information and systems are available for operation and use to meet the entity's objectives.
Availability

Question 63

An agreed-upon procedures engagement is significantly more limited in scope than an examination. An accountant may perform an agreed-upon procedures attestation engagement for prospective financial statements provided that attestation standards are complied with and eleven criteria are met. Identify five of the eleven criteria below.

Question 64

In your own words, describe how the Institute of Internal Auditors (IIA)defines internal auditing.

Question 65

When engaged to compile the financial statements of a nonpublic entity, an accountant is required to possess a level of knowledge of the entity's accounting principles and practices. This requirement most likely will include obtaining a general understanding of the:

A)stated qualifications of the entity's accounting personnel.
B)design of the entity's internal controls placed in operation.
C)risk factors relating to misstatements arising from illegal acts.
D)internal control awareness of the entity's senior management.

Question 66

Jones Retailing, a nonpublic entity, has asked Winters, CPA, to compile financial statements that omit substantially all disclosures required by generally accepted accounting principles. Winters may compile such financial statements, provided the:

A)reason for omitting the disclosures is explained in the engagement letter and acknowledged in the management representation letter.
B)financial statements are prepared on a comprehensive basis of accounting other than generally accepted accounting principles.
C)distribution of the financial statements is restricted to internal use only.
D)omission is not undertaken to mislead the users of the financial statements and is properly disclosed in the accountant's report.

Question 67

Match the Trust Services Principle with its proper definition.

A)Personal information is collected, used, retained, and disclosed and disposed to meet the entity's objectives.
B)Information and systems are protected against unauthorized access, unauthorized disclosure of information, and damage to systems that could compromise the availability, integrity, confidentiality, and privacy of information or systems and affect the entity's ability to meet its objectives.
C)System processing is complete, valid, accurate, timely, and authorized to meet the entity's objectives.
D)Information designated as private is protected to meet the entity's objectives.
E)Information and systems are available for operation and use to meet the entity's objectives.
Confidentiality

Question 68

Match the Trust Services Principle with its proper definition.

A)Personal information is collected, used, retained, and disclosed and disposed to meet the entity's objectives.
B)Information and systems are protected against unauthorized access, unauthorized disclosure of information, and damage to systems that could compromise the availability, integrity, confidentiality, and privacy of information or systems and affect the entity's ability to meet its objectives.
C)System processing is complete, valid, accurate, timely, and authorized to meet the entity's objectives.
D)Information designated as private is protected to meet the entity's objectives.
E)Information and systems are available for operation and use to meet the entity's objectives.
Processing integrity

Question 69

The IIA's professional guidance is organized into an International Professional Practices Framework. This framework consists of two broad categories of guidance. List these categories of guidance and what they include.

Question 70

Match the Trust Services Principle with its proper definition.

A)Personal information is collected, used, retained, and disclosed and disposed to meet the entity's objectives.
B)Information and systems are protected against unauthorized access, unauthorized disclosure of information, and damage to systems that could compromise the availability, integrity, confidentiality, and privacy of information or systems and affect the entity's ability to meet its objectives.
C)System processing is complete, valid, accurate, timely, and authorized to meet the entity's objectives.
D)Information designated as private is protected to meet the entity's objectives.
E)Information and systems are available for operation and use to meet the entity's objectives.
Security

Question 71

Match the Trust Services Principle with its proper definition.

A)Personal information is collected, used, retained, and disclosed and disposed to meet the entity's objectives.
B)Information and systems are protected against unauthorized access, unauthorized disclosure of information, and damage to systems that could compromise the availability, integrity, confidentiality, and privacy of information or systems and affect the entity's ability to meet its objectives.
C)System processing is complete, valid, accurate, timely, and authorized to meet the entity's objectives.
D)Information designated as private is protected to meet the entity's objectives.
E)Information and systems are available for operation and use to meet the entity's objectives.
Privacy

Question 72

How has the advancement in technology led to the creation of the Trust Services?

Question 73

Which set of standards was created by the AICPA to cover services relating to unaudited financial statements?

A)Standards on Selective Audits and Review Services (SSARS).
B)Statement on Auditing Standards (SAS).
C)Statements on Compilation and Review Standards (SCRS).
D)Statements on Standards for Accounting and Review Services (SSARS).

Question 74

This concept, while used by both internal and external auditors, is typically assessed quite differently for each.

A)Competence.
B)Objectivity.
C)Integrity.
D)Materiality.

Question 75

Internal auditors fall into two primary categories-assurance services and consulting services. Briefly explain these two categories in relation to internal auditors.

Question 76

During an engagement to review the financial statements of a nonpublic entity, an accountant becomes aware of a material departure from GAAP. If the accountant decides to modify the standard review report because management will not revise the financial statements, the accountant should:

A)express negative assurance on the accounting principles that do not conform with GAAP.
B)disclose the departure from GAAP in a separate paragraph of the report.
C)issue an adverse or an "except for" qualified opinion, depending on materiality.
D)express positive assurance on the accounting principles that conform with GAAP.