Question 1

Which of the following statements is correct with respect to an audit report issued for financial statements to be used primarily outside of the United States?

Accepted Answer

If financial statements are to be used primarily outside the United States, the auditor should follow the reporting requirements of the other country or countries, as necessary. The auditor may choose to follow either the U.S. format or the format of the foreign country, as appropriate. However, the auditor should always comply with the International Standards on Auditing (ISAs) when issuing an audit report for financial statements to be used primarily outside the United States.

Question 2

Whenever a report filed on a printed form designed by authorities,call upon the independent auditors to make an assertion that the auditors believe is not justified,the auditors should:

Accepted Answer

Rewording the form or attaching a separate report would be the best option as it allows the auditors to provide an explanation for their assertion while still using the form provided by the authorities. Simply omitting the questionable items or submitting a short-form report may not provide enough information to the authorities or the intended users of the report. Withdrawing from the engagement should only be considered as a last resort if the auditors are unable to resolve the issue with the authorities.

Question 3

The accountants' compilation report should be dated as of the date of:

Accepted Answer

The accountant's compilation report should be dated as of the date of completion of the compilation. This ensures that the report is based on the compiled financial statements and disclosures as of that date.

Question 4

In which of the following types of reports do accountants provide no explicit assurance?

Accepted Answer

In a compilation report, accountants provide no explicit assurance, only compiling and presenting the financial information provided to them by the client. Reviews, examinations, and audits all involve varying degrees of assurance provided by the accountant.

Question 5

An assertion that is particularly difficult to audit with respect to personal financial statements is:

Accepted Answer

Completeness is particularly difficult to audit in personal financial statements because it involves ensuring that all assets, liabilities, and transactions have been included. Unlike existence or rights, which can often be verified through direct observation or inspection of documents, completeness requires the auditor to search for items that may not be directly observable or documented, making it a more challenging assertion to verify.

Question 6

Which of the following does not result in a modification of a compilation report?

Accepted Answer

The answer of Which of the following does not result...

Question 7

A CPA should not normally refer to which one of the following subjects in a "comfort letter" to underwriters?

Accepted Answer

A comfort letter is a letter from an independent auditor or CPA that is provided to a potential investor or underwriter of securities. It provides some level of comfort about the financial information contained in a registration statement. In a comfort letter, a CPA should not refer to management's determination of line of business classifications because this is a subjective matter and not within the scope of the auditor's expertise. The other options, A, B, and C, are all appropriate subjects for a comfort letter. The independence of the CPA is an important consideration, changes in financial-statement items after the date of the latest financial statements affect the accuracy of the financial information, and the inclusion of unaudited financial statements and schedules in the registration statement requires disclosure and explanation.

Question 8

In which of the following types of reports do the auditors express negative assurance?

Accepted Answer

The answer of In which of the following types of...

Question 9

Which of the following types of services is most likely to result in a report whose use is restricted to specified parties?

Accepted Answer

Agreed-upon procedures engagements usually result in a report that is restricted to specific parties who agreed on the procedures to be performed. This report is not intended for general distribution. The other services (compilations, reviews, audits) may result in a report that can be distributed to a wider audience.

Question 10

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

Accepted Answer

The answer of A practitioner's report on agreed-upon procedures that...

Question 11

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

Accepted Answer

The answer of Inquiry and analytical procedures ordinarily performed during...

Question 12

Which of the following requires modification of a review report:

Accepted Answer

The answer of Which of the following requires modification of...

Question 13

A modification of the CPA's report on a review of the interim financial statements of a publicly-held company would be necessitated by which of the following?

Accepted Answer

The answer of A modification of the CPA's report on...

Question 14

A "comfort letter" to an investment banking firm will normally not:

Accepted Answer

A comfort letter is typically issued by a CPA to provide limited assurance to the underwriters of a securities offering that the financial information included in the registration statement complies with applicable accounting requirements. The letter is not included with the registration statement, as it is typically drafted after the statement has been filed. The letter will generally not express negative assurance, but rather will provide a level of comfort to the underwriters that the financial information is accurate. The letter may provide an opinion on whether the financial statements comply in all material respects with the related securities acts, but it will not provide an opinion on the quality of the securities being offered. Finally, the comfort letter will include a statement as to the auditors' independence.

Question 15

When the auditors have performed an audit and are asked to report on the client's compliance with aspects of contractual agreements,which of the following is correct?

Accepted Answer

Auditors can report on a client's compliance with aspects of contractual agreements by providing negative assurance. Negative assurance means the auditor is not aware of any material modifications that should be made to the statements for them to be in conformity with the terms of the agreement. This is less strong than reasonable assurance, which involves more extensive procedures and is not typically provided in the context of compliance with specific contractual agreements.

Question 16

Which of the following is correct when a company is issuing summary financial statements developed from audited financial statements?

Accepted Answer

When a company is issuing summary financial statements developed from audited financial statements, the CPA may issue a report on whether the summary information is fairly stated in all material respects in relation to the basic financial statements. This report is referred to as a "report on summary financial statements." Option A is incorrect because not all summary statements may need a CPA's report. Option C is incorrect because a compilation or review is not necessary if the CPA is issuing a report on the summary financial statements. Option D is incorrect because the CPA may still issue a report on the summary financial statements, even if all disclosures are not included, as long as the report discloses the limitations of the summary financial statements.

Question 17

Which of the following is accurate relating to audit reports on tax basis financial statements?

Accepted Answer

The answer of Which of the following is accurate relating...

Question 18

During a review of the financial statements of a non-public entity,the CPA finds that the financial statements contain a material departure from generally accepted accounting principles.If management refuses to correct the financial statement presentations,the CPA should:

Accepted Answer

The answer of During a review of the financial statements...

Question 19

Which of the following is not an example of financial statements that use a special purpose financial reporting framework?

Accepted Answer

The limitation of the scope of the auditor's examination does not relate to the financial reporting framework used, but rather to the audit process itself.

Question 20

Financial statements that are developed from and summarize the overall information presented in audited financial statements are referred to as

Accepted Answer

Summary financial statements are developed from audited financial statements and provide an overview or summary of the information presented in the audited financial statements. They are typically used for presentation to investors, creditors, or other external parties who want a quick overview of a company's financial position, performance, and cash flows. Agreed-upon procedure, compiled, and reviewed financial statements are all different types of financial statements that are prepared under different levels of responsibility and assurance by the CPA firm.

Quiz 19: Additional Assurance Services: Historical Financial Information