Question 1

SOC 3 reports are prepared using the Trust Services principles.

Accepted Answer

SOC 3 reports are prepared using the Trust Services principles which are established by the AICPA (American Institute of Certified Public Accountants) to evaluate and report on the security, availability, processing integrity, confidentiality, and privacy of an organization's systems and processes.

Question 2

Which of the following statements regarding prospective financial statements is most correct?

Accepted Answer

CPAs are not attesting to the accuracy of the prospective financial statements, as they are based on assumptions and projections which may or may not turn out to be true. Instead, CPAs may provide limited assurance by reviewing the reasonableness of the assumptions and calculations used to develop the statements.

Question 3

In a Type 2 engagement,the service auditor performs tests of the operating effectiveness of the controls,but does not have to perform any of the procedures performed in a Type 1 engagement.

Accepted Answer

In a Type 2 engagement, the service auditor performs tests of the operating effectiveness of the controls and also has to perform the same procedures performed in a Type 1 engagement, which includes examining the design and implementation of the controls.

Question 4

Attestation standards allow a CPA to perform all but which of the following services for a forecast or projection?

Accepted Answer

The answer of Attestation standards allow a CPA to perform...

Question 5

The guidance for service auditors has been moved to the attestation standards.

Accepted Answer

The guidance for service auditors was indeed moved to the attestation standards by the AICPA in 2016. This included the Statement on Standards for Attestation Engagements (SSAE) No. 18, which replaced SSAE No. 16 and provided updated guidance for service auditors performing SOC 1 engagements.

Question 6

Which are prospective financial statements that present an entity's financial position,results of operations,and cash flows,to the best of the responsible party's knowledge and belief,given one or more hypothetical assumptions?

Accepted Answer

The answer of Which are prospective financial statements that present...

Question 7

Current professional standards prohibit accountants from performing engagements to review forecasts or projections.

Accepted Answer

The answer of Current professional standards prohibit accountants from performing...

Question 8

Which of the following is not an element of the examination of prospective financial statements?

Accepted Answer

Understanding internal controls is not an element of the examination of prospective financial statements. The other options (evaluating the preparation of the prospective financial statements, evaluating the support underlying the assumptions, and issuing an examination report) are all key elements of the engagement.

Question 9

The examination of prospective financial statements contains four elements that comprise the examination.List the four elements below.

Accepted Answer

The answer of The examination of prospective financial statements contains...

Question 10

In an examination engagement for prospective financial statements,the CPA obtains satisfaction as to the completeness and reasonableness of all the assumptions.

Accepted Answer

In an examination engagement for prospective financial statements, the CPA is responsible for obtaining reasonable assurance about whether the prospective financial statements, including the underlying assumptions, are free from material misstatement, whether due to fraud or error. This involves evaluating the completeness and reasonableness of all the assumptions used in preparing the prospective financial statements.

Question 11

What is the best reason that standards prohibit accepting an engagement on a projection for general use?

Accepted Answer

Projections are based on hypothetical assumptions that may not be well understood by the users of the financial statements. Accepting an engagement on a projection for general use could be misleading if the underlying assumptions are not clearly disclosed and explained. Therefore, standards prohibit CPAs from issuing reports on projections for general use.

Question 12

Considerable guidance is provided by the AICPA Guide for Prospective Financial Statements which includes criteria against which an attestation engagement can be compared.

Accepted Answer

The AICPA Guide for Prospective Financial Statements provides criteria against which an attestation engagement can be compared.

Question 13

Professional standards prohibit which one of the following types of engagements for prospective financial statements from being undertaken?

Accepted Answer

The answer of Professional standards prohibit which one of the...

Question 14

Which of the following is a type of prospective financial statement as defined by the AICPA attestation standards?

Accepted Answer

The answer of Which of the following is a type...

Question 15

Which are prospective financial statements that present an entity's expected financial position,results of operations,and cash flows,to the best of the responsible party's knowledge and belief?

Accepted Answer

The answer of Which are prospective financial statements that present...

Question 16

Define forecast and projection.

Accepted Answer

The answer of Define forecast and projection....

Question 17

General use statements are prepared for use by

Accepted Answer

General use statements are prepared for use by any third party, meaning they are not restricted to specific individuals or entities and can be used by anyone who obtains them.

Question 18

There are five Trust Service principles,including security and viability.

Accepted Answer

The five Trust Service principles are security, availability, processing integrity, confidentiality, and privacy. Viability is not one of them.

Question 19

Which of the following statements is not correct?

Accepted Answer

Projections are typically provided for limited use because they are more speculative and involve assumptions about future trends and events that may not come to pass. Forecasts, on the other hand, are typically provided for both general and limited use depending on the specific context and purposes of the forecast.

Question 20

As a CPA you have been asked to examine an entity's financial projections.Acceptance of the engagement would be appropriate if distribution is limited to

Accepted Answer

The financial projections are being examined for a specific purpose of negotiating a loan with a financial institution. Therefore, it would be appropriate to distribute the report only to the financial institution involved in negotiating the loan. It would not be appropriate to distribute the report to stockholders, potential investors, creditors, or the general public unless there is a specific need or legal requirement to do so.

Quiz 25: Other Assurance Services