Question 1

An accountant's compilation report on a financial forecast should include a statement that the:

Accepted Answer

Choice "A" is correct. An accountant's compilation report on a financial forecast should include a statement that the compilation does not include evaluation of the support of the assumptions underlying the forecast. (An examination of the financial forecast would include evaluation of the support). Choice "B" is incorrect. An accountant does not give any form of assurance related to hypothetical assumptions, which are not used in financial forecasts anyway. (Hypothetical assumptions are used in financial projections). Choice "C" is incorrect. No mention of the range of assumptions selected is made in the compilation report. Choice "D" is incorrect. A compilation is limited to presenting, in the form of a forecast, information that is management's representation.

Question 2

Which of the following statements concerning prospective financial statements is correct?

Accepted Answer

Choice "C" is correct. Any type of prospective financial statements (financial forecasts and financial projections) would normally be appropriate for limited use. Choice "A" is incorrect. Both financial forecasts and financial projections are appropriate for limited use. Choice "B" is incorrect. Financial projections are appropriate for limited use only - not for general use. Choice "D" is incorrect. Normally financial projections are not appropriate for general use, but financial forecasts are.

Question 3

Which of the following is a professional engagement that a CPA may perform to provide assurance on a system's reliability?

Accepted Answer

Choice "D" is correct. A SysTrust engagement is an attest engagement that provides assurance on the reliability of any defined electronic system. Choice "A" is incorrect. There is no professional engagement by this name. Choice "B" is incorrect. There is no professional engagement by this name. Choice "C" is incorrect. There is no professional engagement by this name.

Question 4

A CPA is engaged to examine management's assertion that the entity's schedule of investment returns is presented in accordance with specific criteria. In performing this engagement, the CPA should comply with the provisions of:

Accepted Answer

Choice "D" is correct. Statements on Standards for Attestation Engagements apply to engagements in which a practitioner is engaged to issue or does issue an examination, a review, or an agreed-upon procedures report on subject matter, or on an assertion about the subject matter, which is the responsibility of another party. An engagement to examine management's assertion that the entity's schedule of investment returns is presented in accordance with specific criteria would fall within this scope. Choice "A" is incorrect. Statements on Standards for Accounting and Review Services apply to engagements involving the unaudited financial statements of a nonissuer. An engagement to examine management's assertion that the entity's schedule of investment returns is presented in accordance with specific criteria does not fall within this scope. Choice "B" is incorrect. Statements on Auditing Standards apply to audits of financial statements. An engagement to examine management's assertion that the entity's schedule of investment returns is presented in accordance with specific criteria does not fall within this scope. Choice "C" is incorrect. Statements on Standards for Consulting Services apply to a broad range of consulting services. An engagement to examine management's assertion that the entity's schedule of investment returns is presented in accordance with specific criteria is not a consulting service.

Question 5

When an accountant examines a financial forecast that fails to disclose several significant assumptions used to prepare the forecast, the accountant should describe the assumptions in the accountant's report and issue a (an):

Accepted Answer

Choice "D" is correct. When an accountant examines a financial forecast that fails to disclose significant assumptions used to prepare the forecast, the accountant should issue an adverse opinion. Choice "A" is incorrect. A qualified opinion might be appropriate when AICPA presentation guidelines are not followed, but would not be used when "several significant assumptions used to prepare the forecast" are not disclosed. Choice "B" is incorrect. "Subject to" is not acceptable wording for an accountant's report. Choice "C" is incorrect. An unqualified opinion is not acceptable when significant assumptions are not disclosed.

Question 6

An entity engaged a CPA to determine whether the client's web sites meet defined criteria for standard business practices and controls over transaction integrity and information protection. In performing this engagement, the CPA should comply with the provisions of:

Accepted Answer

Choice "B" is correct. A WebTrust engagement is an attestation engagement in which the CPA determines whether the client's web site meets defined criteria relating to transaction integrity, information protection, and disclosure of business practices. Attestation engagements should be performed in accordance with Statements on Standards for Attestation Engagements (SSAEs). Choice "A" is incorrect. Statements on Assurance Standards is a distracter. Choice "C" is incorrect. Consulting services provided by CPAs range from advice on accounting-related matters to a wide range of services involving diverse technical disciplines. Consulting services performed by CPAs should be performed in accordance with Statements on Standards for Consulting Services (SSCSs). Choice "D" is incorrect. Audits (generally of financial statements) performed by CPAs should be performed in accordance with Statements on Auditing Standards (SASs).

Question 7

In performing an attest engagement, a CPA typically:

Accepted Answer

Choice "C" is correct. In performing an attest engagement, a CPA typically issues a report on subject matter (or on an assertion about subject matter) that is the responsibility of another party. Choice "A" is incorrect. Supplying litigation support services is not an attest engagement because the CPA is not reporting on subject matter (or an assertion about subject matter) that is the responsibility of another party. Choice "B" is incorrect. An attest engagement may include a report on internal control; however, the assessed level of control risk may or may not be at a low level. Choice "D" is incorrect. Management consulting advice is not considered to be an attest engagement because the CPA is not reporting on subject matter (or on an assertion about subject matter) that is the responsibility of another party.

Question 8

Prospective financial information presented in the format of historical financial statements that omit either gross profit or net income is deemed to be a:

Accepted Answer

Choice "A" is correct. "Partial presentations" are presentations of prospective financial information which would not ordinarily be appropriate for general use because they omit one or more of these essential elements: (a) sales or gross revenue, (b) gross profit or cost of sales, (c) unusual or infrequently occurring items, (d) provision for income taxes, (e) discontinued operations or extraordinary items, (f) income from continuing operations, (g) net income, (h) earnings per share, and (i) significant changes in financial position. Choices "B", "C", and "D" are incorrect. Projected balance sheets, financial forecasts and financial projections are forms of prospective financial statements.

Question 9

When an accountant examines projected financial statements, the accountant's report should include a separate paragraph that:

Accepted Answer

Choice "A," is correct. T,he accountant's standard report on an examination of projected financial statements should include a caveat that the projected results may not be achieved. T,his is included in a separate paragraph that describes the limitations on the usefulness of the presentation: "...there will usually be differences between the forecasted and actual results... [that] may be material." C,hoice "B," is incorrect. T,he accountant's report on the examination of projected financial statements would not include an of the differences between an examination and an audit. C,hoice "C," is incorrect. A, statement is included which specifically states that the accountant assumes no responsibility to update the report for events and circumstances occurring after the date of the report. C,hoice "D," is incorrect. T,he accountant does express an opinion that "the underlying assumptions provide a reasonable basis for management's forecast."

Question 10

An attest engagement is one in which a CPA is engaged to:

Accepted Answer

Choice "A" is correct. An attest engagement is one in which a CPA is engaged to issue an examination, a review, or an agreed-upon procedures report on subject matter, or on an assertion about subject matter, that is the responsibility of another party. Choice "B" is incorrect. Providing tax advice or preparing a tax return based upon financial information the CPA has not audited or reviewed does not require the CPA to "attest" to anything. Choice "C" is incorrect. Testifying as an expert witness in accounting, auditing, or tax matters given certain stipulated facts is not considered to be an attestation engagement. Choice "D" is incorrect. Assembling the financial statements of a nonissuer based on the assumptions of the entity's management without expressing any assurance is a compilation engagement that falls under SSARS and no attestation is provided.

Question 11

A practitioner's report on agreed-upon procedures that is in the form of procedures and findings should contain:

Accepted Answer

Choice "C" is correct. A practitioner's report on agreed-upon procedures that is in the form of procedures and findings should contain a statement of restrictions on the use of the report. Choice "A" is incorrect. Agreed-upon procedures engagements do not provide assurance of any sort. Choice "B" is incorrect. The responsible party (not the practitioner) is responsible for the sufficiency of the procedures. Choice "D" is incorrect. The subject matter of an agreed-upon procedures engagement varies, and may be unrelated to the financial statements.

Question 12

Which of the following activities would most likely be considered an attestation engagement?

Accepted Answer

Choice "B" is correct. Attest engagements may result in reports related to compliance with laws and regulations. Choices "A", "C", and "D" are incorrect. Attestation engagements specifically exclude consulting services, advocacy services, and return preparation.

Question 13

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

Accepted Answer

Choice "A" is correct. An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided that certain conditions are met, including that the use of the report be restricted to the specified parties. Choice "B" is incorrect. There is no requirement that the prospective financial statements be examined. In fact, the practitioner's report on the application of agreed-upon procedures states that the auditor did not perform an examination. Choice "C" is incorrect. The specified parties must understand that they take responsibility for the sufficiency of the attest procedures. Choice "D" is incorrect. No assurance is expressed in an agreed-upon procedures engagement.

Question 14

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

Accepted Answer

Choice "d" is correct. An examination of a financial forecast is a professional service that involves: 1) evaluating the preparation of the prospective financial statements, 2) evaluating the support underlying the assumptions, 3) evaluating the presentation of the prospective financial statements in conformity with AICPA guidelines, and 4) issuing an examination report. Choice "a" is incorrect. Compiling or assembling a financial forecast based on management's assumptions is part of a compilation engagement, not an examination engagement. Choice "b" is incorrect. A financial forecast may be issued for general use. Choice "c" is incorrect. The accountant's standard report specifically states that the accountant assumes no responsibility to update the report for events and circumstances occurring after the date of the report.

Question 15

Comfort letters ordinarily are:

Accepted Answer

Choice "D" is correct. A comfort letter is a letter from the independent auditor to the named underwriter just before the registration of the client's securities. Choices "A", "B", and "C" are incorrect, based on the above Explanation.

Question 16

Which of the following professional services would be considered an attestation engagement?

Accepted Answer

Choice "D" is correct. Preparing future financial statements constitutes a compilation of prospective financial statements, which is considered to be an attestation service. Choices "A" and "C" are incorrect. Attestation engagements specifically exclude advocacy services and consulting services. Choice "B" is incorrect. Attest engagements include those in which a practitioner is engaged to issue or does issue an examination, a review, or an agreed-upon procedures report on subject matter, or on an assertion about the subject matter, that is the responsibility of another party, as well as engagements related to prospective financial statements. Performing the role of in-house controller part-time does not fit into any of these categories.

Question 17

An accountant's standard report on a compilation of a projection should not include a statement that:

Accepted Answer

Choice "B" is correct. An accountant's standard report on a compilation of a projection does not include a statement that the hypothetical assumptions used in the projection are reasonable in the circumstances. Choice "A" is incorrect. An accountant's standard report on a compilation of a projection does state that there will usually be differences between the forecasted and actual results. Choice "C" is incorrect. An accountant's standard report on a compilation of a projection does state that the accountant has no responsibility to update the report for future events and circumstances. Choice "D" is incorrect. An accountant's standard report on a compilation of a projection does state that the compilation of a projection is limited in scope ("A compilation is limited to presenting in the form of a projection information that is the representation of management and does not include evaluation of the support for the assumptions underlying the projection.")

Question 18

Negative assurance may be expressed when an accountant is requested to report on the:

Accepted Answer

Choice "C" is correct. Negative assurance may be expressed when an accountant is requested to report on the results of performing a review of management's assertion. Choice "A" is incorrect. No assurance is provided in a compilation of prospective financial statements. Choice "B" is incorrect. Whether an entity is in compliance with the provisions of the Foreign Corrupt Practices Act is a legal determination. An accountant may perform an examination or an agreed-upon procedures engagement with respect to such compliance but may not perform a review, and therefore would not express negative assurance. Choice "D" is incorrect. When reporting on an audit of historical financial statements, negative assurance is not an appropriate reporting option. The auditor must either express an opinion (positive assurance) or disclaim an opinion (no assurance).

Question 19

When an accountant compiles a financial forecast, the accountant's report should include a(an):

Accepted Answer

Choice "B," is correct. W,henever an accountant reports on prospective financial statements, the report should include a caveat that prospective results may not be achieved. C,hoice "A," is incorrect. A, compilation report on a financial forecast does not include an of the differences between a forecast and a projection. C,hoice "C," is incorrect. W,henever an accountant reports on prospective financial statements, the report should include a statement that the accountant assumes no responsibility to update the report for events and circumstances occurring after the date of the report. C,hoice "D," is incorrect. A, compilation report on a financial forecast does not include a disclaimer of opinion on the reliability of the entity's internal controls.

Question 20

When an accountant compiles projected financial statements, the accountant's report should include a separate paragraph that:

Accepted Answer

Choice "D" is correct. The accountant's report on compiled projected financial statements should include a separate paragraph that describes the limitations on the projection's usefulness. For example, the paragraph states that there will usually be differences between projected and actual results, and indicates that the accountant has no responsibility to update the report for events occurring after the date of the report. Choice "A" is incorrect. The accountant's report on compiled projected financial statements does not include an of the difference between a compilation and a review. Choice "B" is incorrect. The accountant's report on compiled projected financial statements does not document the assessment of the risk of material misstatement due to fraud. Choice "C" is incorrect. The accountant's report on compiled projected financial statements does not express limited assurance that the actual results may be within the projected range. In fact, it specifically states that no opinion or any other form of assurance is expressed, and that there usually will be differences between projected and actual results.

Exam 1: CPA Auditing and Attestation Exam