Question 1

One may envision a continuum of assurance ranging from absolute assurance to no assurance.In between may be reasonable assurance,limited assurance,and a summary of findings with no other assurance.
a.What level of assurance is provided in the CPA's report by each of the following types of engagements?
• Examinations
• Audits
• Review
• Agreed-upon procedures
• Compilations
b.What type of assurance is provided on financial statements prepared following a special purpose basis of accounting other than generally accepted accounting principles?

Accepted Answer

The answer of One may envision a continuum of assurance...

Question 2

The objective of a review of interim financial information is to provide the accountant with a basis for reporting whether:

Accepted Answer

The objective of a review of interim financial information is to determine whether material modifications should be made for the financial statements to conform with generally accepted accounting principles (GAAP). This ensures that the interim financial reports provide accurate and reliable information to users.

Question 3

When performing a review of a nonpublic company,the auditors must obtain in a representation letter acknowledgement of management for its responsibility for reach of the following except:

Accepted Answer

While management has a responsibility to prevent and detect fraud, they are not responsible for identifying illegal acts committed by employees. This responsibility falls to the auditors during their review. Therefore, option A is the correct answer.

Question 4

If compiled financial statements presented in conformity with the cash receipts and disbursements basis of accounting do not disclose the basis of accounting used,the accountant should:

Accepted Answer

The accountant should disclose the basis of accounting in the accountant's report to ensure that users of the financial statements are aware of the basis on which the financial statements have been prepared. This is important for proper understanding and interpretation of the financial information presented.

Question 5

Which of the following should not be included in an accountant's standard report based upon the compilation of an entity's financial statements?

Accepted Answer

A compilation report does not provide any assurance, so the accountant should not state that they express limited assurance.

Question 6

Which of the following circumstances requires modification of the accountant's report on a review of interim financial information of publicly held entity? $\begin{array}{c}
&\text{Inconsistent Accounting}\\ & \text{Principle Application}&\text{Inadequate Disclosure}\
\text { A) } & \text { Yes } & \text { Yes } \
\text { B) } & \text { Yes } & \text { No } \
\text { C) } & \text { No } & \text { Yes } \
\text { D) } & \text { No } & \text { No }
\end{array}$

Accepted Answer

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

Question 7

When an auditor reports on financial statements prepared on an entity's income tax basis,the auditor's report should:

Accepted Answer

When financial statements are prepared on an entity's income tax basis, the auditor's report should disclose that the income tax basis is a basis of accounting other than generally accepted accounting principles. This is required in order to avoid any confusion regarding the basis used for preparing the financial statements.

Question 8

The financial statements of nonpublic companies may be compiled or reviewed by the CPAs.
a.Describe a compilation of financial statements.
b.Describe a review of financial statements.
c.Describe three procedures that are performed in the review of a nonpublic company's financial statements.

Accepted Answer

The answer of The financial statements of nonpublic companies may...

Question 9

An auditor is reporting on cash basis financial statements.These statements are best referred to in his opinion by which of the following descriptions?

Accepted Answer

Choice B is correct because it accurately describes the elements of financial statements prepared on a cash basis. In cash basis accounting, the focus is on tracking the cash that comes into and goes out of the business. Therefore, the financial statements would reflect assets and liabilities that arise directly from cash transactions, as well as revenue collected (cash inflows) and expenses paid (cash outflows). Choices A, C, and D do not fully capture the essence of cash basis financial statements as described in B.

Question 10

Comfort letters are ordinarily signed by the:

Accepted Answer

Comfort letters are typically signed by the independent auditor. They are used to provide assurance to third parties regarding financial information or the application of certain accounting principles.

Question 11

Items a through j present various phrases or characteristics that may apply to audits,reviews,and compilations.Place an X in the cell if the phrase or characteristic applies to the listed service:
 \[\begin{array} { | c | l | l | l | l | } 
\hline \text { Part } & \text { Phrase or characteristic } & \text { Audit } & \text { Review } & \begin{array} { c } 
\text { Compi- } \
\text { lation }
\end{array} \
\hline \text { a. } & \text { Independence is required } & & & \
\hline \text { b. } & \text { Report provides reasonable assurance } & & & \
\hline \text { c. } & \text { Report provides negative assurance. } & & & \
\hline \text { d. } & \begin{array} { l } 
\text { Consists primarily of inquiries and analytical } \
\text { procedures. }
\end{array} & & & \
\hline \text { e. } & \begin{array} { l } 
\text { Only performed on financial statements of } \
\text { nonpublic companies }
\end{array} & & & \
\hline \text { f. } & \begin{array} { l } 
\text { Report states that the financial statements are } \
\text { the responsibility (or representation) of the } \
\text { company's management. }
\end{array} & & & \
\hline \text { g. } & \text { Report provides no explicit assurance } & & & \
\hline \text { h. } & \text { Requires performance of analytical procedures. } & & & \
\hline \text { i. } & \begin{array} { l } 
\text { Report states that financial statements were } \
\text { prepared on a basis consistent with the } \
\text { preceding year. }
\end{array} & & & \
\hline \text { j. } & \begin{array} { l } 
\text { Requires a report modification for substantial } \
\text { doubt about going concern status. }
\end{array} & & & \
\hline
\end{array}\]

Accepted Answer

The answer of Items a through j present various phrases...

Question 12

An auditor's report would be designated as a report on financial statements following a special purpose financial reporting framework for financial statements when they are:

Accepted Answer

When financial statements are prepared in accordance with a non-GAAP regulatory basis of accounting, the auditor's report would be designated as a report on financial statements following a special purpose financial reporting framework for financial statements. This is because the auditor is not opining on the financial statements' conformance with GAAP, but rather with the specific regulatory basis of accounting chosen by the entity.

Question 13

The underwriter of a securities offering may request that an auditor perform specified procedures and supply certain assurances concerning unaudited information contained in a registration statement.The auditor's response to such a request is commonly called a:

Accepted Answer

A request from an underwriter for an auditor to perform specified procedures and supply certain assurances concerning unaudited information contained in a registration statement is commonly referred to as a comfort letter.

Question 14

An auditor's report on financial statements prepared in accordance with a special purpose financial reporting framework of accounting other than generally accepted accounting principles should include all of the following except:

Accepted Answer

An auditor's report on financial statements prepared according to a special purpose framework does not typically include an opinion on whether the basis of accounting used is appropriate under the circumstances. The auditor's role is to report on the fair presentation of the financial statements based on the applied basis of accounting, not to evaluate the appropriateness of the chosen accounting framework.

Question 15

If the auditor believes that financial statements prepared on the entity's income tax basis are not suitably titled,the auditor should:

Accepted Answer

The auditor should modify the auditor's report to disclose any reservations regarding the suitability of the title of the financial statements. This allows the auditor to communicate their concerns while still providing an opinion on the financial statements.

Question 16

Which of the following is an auditor least likely to inquire about when performing a review of a nonpublic company?

Accepted Answer

The answer of Which of the following is an auditor...

Question 17

Each page of the financial statements compiled by an accountant should include a reference such as:

Accepted Answer

Including a reference to the accountant's compilation report is the best choice as it provides the reader with information about who compiled the financial statements and what procedures were used in the compilation process.

Question 18

During a review of the financial statements of a nonpublic 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 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 by a CPA based on the review of financial statements of a nonpublic entity would not include a statement that the review was in accordance with generally accepted auditing standards (GAAS) as a review engagement does not require the auditor to comply with GAAS. Instead, it requires them to comply with the standards laid out in the Statements on Standards for Accounting and Review Services (SSARS) as this is the authoritative body of standards for review engagements.

Quiz 19: Additional Assurance Services: Historical Financial Information