Question 1

The income statement for an individual may be titled a Statement of Changes in Net Worth.

Accepted Answer

The income statement for an individual is not titled a Statement of Changes in Net Worth. The Statement of Changes in Net Worth is a financial statement that shows the changes in an individual's net worth over a period of time.

Question 2

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

Accepted Answer

Inquiries about significant subsequent events are required for a review engagement according to SSARS.

Answer: A and D
 Examination of board minutes is one of the procedures that a reviewer may perform in a review engagement to obtain knowledge of the entity’s business. Recalculation of depreciation expense may be an appropriate procedure depending on the nature and circumstances of the engagement. However, confirmation of cash and accounts receivable is not required for a review engagement according to SSARS.

Question 3

Which of the following is correct concerning a CPA firm's preparation of financial statements engagement?

Accepted Answer

In a preparation engagement, no accountant's report is issued with the financial statements, as the engagement is not an assurance service.

Question 4

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

Accepted Answer

The answer of For a CPA,a client imposed scope limitation...

Question 5

The auditors should not accept an engagement to issue a compilation report on financial information presented in a prescribed form.

Accepted Answer

Auditors can accept an engagement to issue a compilation report on financial information presented in a prescribed form as long as they comply with relevant professional standards and guidelines for such engagements.

Question 6

Accountants must issue a compilation report at the conclusion of a compilation unless they have withdrawn from the engagement.

Accepted Answer

According to the AICPA's SSARS No. 21, a compilation report must be issued at the conclusion of a compilation engagement, unless the accountant has withdrawn from the engagement before issuing such a report.

Question 7

Accountant prepared or compiled financial statements must include note disclosures.

Accepted Answer

The answer of Accountant prepared or compiled financial statements must...

Question 8

The auditors should take exception to assets presented at their estimated current values in personal financial statements.

Accepted Answer

The auditors should not take exception to assets presented at their estimated current values in personal financial statements. This is because personal financial statements are prepared on a historical cost basis and do not require estimates of current values. However, if the personal financial statements are presented on a fair value basis, the auditors may need to perform additional procedures to ensure that the values are reasonable and supported.

Question 9

Is independence required when an accountant is engaged to either prepare or compile a client's financial statements?  
$\begin{array} { c c c } 
&\quad\quad\quad  \text { Prepare } & \text { Compile } \\end{array}$ 
A- $\begin{array} { c c c }  \quad\quad\quad\text { Yes } &\quad\quad\quad\quad \text { Yes } \\end{array}$ 
B-  $\begin{array} { c c c }\quad\quad\quad \text { Yes } &\quad\quad\quad\quad \text {  No } \\end{array}$
C-  $\begin{array} { c c c } \quad\quad\quad\text {  No } & \quad\quad\quad\quad\text {Yes } \\end{array}$
D-   $\begin{array} { c c c }\quad\quad\quad \text { No } &\quad\quad\quad\quad \text {  No }
\end{array}$

Accepted Answer

Independence is not required for either preparing or compiling a client's financial statements. Preparing financial statements involves creating financial statements based on information provided by the client without providing assurance, and compiling financial statements involves assisting in presenting financial information in the form of financial statements without undertaking to express any assurance on them.

Question 10

It is the end of the client's first quarter and Bill Smith,CPA has been engaged to perform a compilation and to issue a compilation report on the financial statements.The client does not wish to present notes to the financial statements.The appropriate report includes:

Accepted Answer

A compilation report with an indication that all required disclosures under GAAP may not be presented is appropriate when notes to the financial statements are omitted, as the CPA is not providing assurance on the financial statements.

Question 11

An audit opinion on tax basis financial statements is an example of an opinion on financial statements that follow a special purpose financial reporting framework.

Accepted Answer

An audit opinion on tax basis financial statements is an example of a special purpose financial reporting framework, which is different from the generally accepted accounting principles (GAAP) used in regular financial statements. Therefore, the opinion on such financial statements would be considered as an opinion on financial statements that follow a special purpose financial reporting framework.

Question 12

Letters to underwriters should not contain negative assurances.

Accepted Answer

Letters to underwriters should contain negative assurances as they indicate the absence of certain risks or liabilities.

Question 13

Which of the following is correct relating to compiled financial statements?

Accepted Answer

A compilation report must be issued when compiled financial statements are prepared, as it provides a summary of the accountant's responsibilities and the nature of the engagement.

Question 14

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

Accepted Answer

It is common for financial statements prepared by a U.S.-based organization to be modified to reflect the accounting principles of another country when they are intended for use in that country. This modified report is known as an adjusted report or an international report. It may contain additional disclosures or adjustments to conform to the local accounting standards, but it is still based on the U.S. financial statements.

Question 15

An accountant's standard report issued after compiling the financial statements of a nonpublic entity should state that:

Accepted Answer

A compilation provides no assurance on the financial statements, which is the key characteristic distinguishing it from reviews (which provide limited assurance) and audits (which provide high assurance).

Question 16

Interim information of public companies:

Accepted Answer

Interim financial information of public companies must be reviewed by CPAs before it is filed with the Securities and Exchange Commission (SEC). This review is less extensive than an audit but ensures some level of verification and reliability of the information being reported.

Question 17

Which of the following procedures is usually the first step in reviewing the financial statements of a nonpublic entity?

Accepted Answer

Before reviewing the financial statements, the auditor should obtain a general understanding of the entity's organization, operating characteristics, products or services, and other relevant information. This helps the auditor identify the areas of significant risk and determine the scope and nature of the audit procedures to be performed. Therefore, choice (B) is typically the first step in reviewing the financial statements of a nonpublic entity. Choices (A), (C), and (D) are all important steps in the audit process but are typically performed after obtaining a general understanding of the entity.

Question 18

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

Accepted Answer

Personal financial statements can be audited, reviewed, or compiled depending on the level of assurance or verification needed. Auditing provides the highest level of assurance through an in-depth examination.

Question 19

A compilation of financial statements provides limited assurance.

Accepted Answer

A compilation of financial statements provides no assurance; it is a service where the accountant assists management in presenting financial information without expressing an opinion or assurance on the statements.

Question 20

Which of the following is correct concerning financial statements prepared in the United States for use in another country?

Accepted Answer

The type of audit report issued for financial statements prepared in the United States for use in another country depends upon whether it is for use primarily outside the United States. The auditor is not required to follow GAAP of both the United States and of the other country, nor is it required to only follow US GAAP. Involvement of auditors from the other country may be helpful but is not required.

Quiz 19: Additional Assurance Services: Historical Financial Information

The income statement for an individual may be titled a Statement of Changes in Net Worth.