Question 1

The highest level of assurance is provided for in which one of the following engagements?

Accepted Answer

The highest level of assurance is provided in an audit engagement. In an audit, the auditor obtains sufficient evidence to express an opinion on the financial statements as a whole. This involves a thorough examination of the accounting records, including testing of transactions, balances, and disclosures. The objective is to provide reasonable assurance that the financial statements are free from material misstatement. A review engagement provides limited assurance, while a compilation engagement provides no assurance.

Question 2

For compilations, an accountant does which of the following?

Accepted Answer

D

Question 3

An accountant has accepted an engagement in which the audit procedures of inquiry and analytical procedures will be employed.These procedures will form the basis for issuance of:

Accepted Answer

The use of inquiry and analytical procedures is the minimum level of audit work required for a review engagement. Therefore, the accountant will issue a review report on financial statements for a nonpublic company. The other choices are not applicable since they require different levels of audit work or are not related to auditing at all.

Question 4

You are preparing to issue a report on the compilation of financial statements for a nonpublic company.Prior to issuing the report you should:

Accepted Answer

Before issuing the report on the compilation of financial statements for a nonpublic company, the accountant should read the financial statements to determine if they are free from obvious material errors. This is the basic step to review the financial statements and ensure that there are no obvious misstatements or errors in the financial statements. The other options such as performing analytical procedures, tests of balances, or limited control tests are typically performed in a review or audit engagement, but not necessary in a compilation engagement.

Question 5

When the accountant has performed a review and has determined that no material changes to the financial statements are needed, the first paragraph of the review report:

Accepted Answer

The answer of When the accountant has performed a review...

Question 6

Evidence for a review engagement consists primarily of:

Accepted Answer

Evidence for a review engagement mainly consists of inquiries of company personnel, analytical procedures, and other procedures as necessary to obtain limited assurance that there are no material modifications that should be made to the financial statements for them to be in accordance with the applicable financial reporting framework. Options A, C, and D are random characters and have no relevance to the question asked.

Question 7

A CPA firm can issue a compilation report:

Accepted Answer

A CPA firm can issue a compilation report even if it is not independent, as long as the lack of independence is disclosed in the compilation report. Independence is not a requirement for performing a compilation service, which is less in scope than audits or reviews and does not provide assurance on the financial statements.

Question 8

Compilation reports may be of all but which of the following types?

Accepted Answer

Compilation reports do not include a type called "Compilation with limited independence." The other options are valid types of compilation reports.

Question 9

One of the first steps that should be performed for a review of a nonpublic entity's financial statements is to:

Accepted Answer

Before conducting a review of a nonpublic entity's financial statements, it is important for the auditor to obtain knowledge of the accounting principles and practices specific to the industry in which the client operates. This knowledge will help the auditor to identify areas of potential risk and appropriately tailor the audit procedures performed. While reading the financial statements and applying analytical procedures are important steps in the review process, obtaining industry-specific knowledge is the first step that should be taken. Inquiring about management's disclosures, while important, may not be the first or most critical step in the review process.

Question 10

Assurance provided by a review is substantially less than an audit.Which of the following statements is true regarding these services?

Accepted Answer

A review provides limited assurance and requires less evidence than an audit, which provides reasonable assurance and requires more extensive testing of internal controls and substantive evidence. Therefore, option C is the correct answer. Option A is incorrect because an audit requires more substantive evidence than a review. Option B is incorrect because an audit requires more evidence related to internal controls than a review. Option D is incorrect because option C is true.

Question 11

An accountant who reviews the financial statements of a nonpublic entity should issue a report stating that a review:

Accepted Answer

A review is substantially less in scope than an audit, as it only provides limited assurance that the financial statements are fairly presented. A review involves performing analytical procedures and making inquiries of management, whereas an audit requires more extensive testing of transactions and balances. A compilation is the lowest level of service and does not involve any assurance, only organizing the financial information provided by management.

Question 12

All of the following are steps that should be performed in a review engagement except for:

Accepted Answer

While fraud risk assessment is required in both review and audit engagements, it is not a step that is performed specifically in a review engagement. The other choices (understanding ownership structure, reading financial statements, and performing analytical procedures) are all necessary steps in a review engagement.

Question 13

The standards which govern the CPA's association with unaudited financial statements of nonpublic companies are the:

Accepted Answer

The Statements on Standards for Accounting and Review Services (SSARS) govern the CPA's association with unaudited financial statements of nonpublic companies. The SSARS establish standards and procedures for performing and reporting on review and compilation engagements. The AICPA's Code of Professional Conduct applies to all services provided by CPAs, but it does not specifically address the standards for review or compilation engagements. The Statements on Auditing Standards (SASs) and Statements of Standards on Attestation Engagements (SSAEs) apply to audited and attestation engagements, respectively, but not to review or compilation engagements.

Question 14

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?

Accepted Answer

A review report is not required to state that the review was conducted in accordance with generally accepted auditing standards (GAAS). Instead, the report should state that the review was conducted in accordance with Statements on Standards for Accounting and Review Services (SSARS).

Question 15

The statement that "We are not aware of any material modifications that should be made to the accompanying financial statements" expresses which of the following?

Accepted Answer

The statement expressing that "We are not aware of any material modifications that should be made to the accompanying financial statements" is a form of negative assurance. This means that the auditor is providing limited assurance that no material modifications need to be made to the financial statements. This is commonly found in review engagements, where the auditor's scope of work is limited, and they are not providing an opinion on the financial statements.

Question 16

Practitioners who perform reviews and compilations are referred to in the SSARS standards as:

Accepted Answer

The term "practitioners" in the context of SSARS standards refers to accountants who perform reviews and compilations, not bookkeepers or auditors specifically. While some practitioners may also be CPAs, it is not a requirement to perform reviews and compilations under SSARS. Therefore, choice B, accountants, is the most appropriate answer.

Question 17

In a review service where the client has failed to follow applicable accounting standards, the accountant is:

Accepted Answer

In a review service, the accountant is not required to determine the effect of a departure from applicable accounting standards if management has not done so. However, it is important that this fact is disclosed in the accountant's report to ensure transparency and to inform the users of the financial statements about the limitation in the scope of the review.

Question 18

The two types of services provided in connection with the Statements on Standards for Accounting and Review Services are:

Accepted Answer

The two types of services provided in accordance with the Statements on Standards for Accounting and Review Services (SSARS) are compilation and review services. Compilation services entail presenting financial information in the form of financial statements based on management's representations without expressing any assurance, while review services involve performing analytical procedures and making inquiries to provide a limited level of assurance on the financial statements' plausibility. Audit and examination services involve a higher level of assurance and are governed by the Statements on Auditing Standards (SAS). Management advisory services are not covered under SSARS.

Question 19

Your accounting firm has accepted a compilation engagement from a client in which your firm is not independent.In that case you:

Accepted Answer

In a compilation engagement, an accounting firm can accept the engagement even if it is not independent, but it must disclose the lack of independence in the compilation report. Independence is not a requirement for compilation engagements under the standards set by accounting and auditing bodies, but disclosure of the lack of independence is required to ensure transparency and inform users of the financial statements.

Question 20

The concept of limited assurance is provided for in which of the following engagements?

Accepted Answer

A review engagement provides limited assurance, as opposed to an audit which provides reasonable assurance.

Quiz 25: Other Assurance Services