Question 1

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

Accepted Answer

Agreed-upon procedures engagements are most likely to result in a report that is restricted to specified parties. In these types of engagements, the CPA performs procedures that are agreed upon by the specified parties and reports the findings to them only. This type of engagement does not provide a conclusion or opinion on the subject matter, unlike audits or reviews. Compilations do not require a report, but if a report is issued, it is intended for general use. Reviews and audits both result in reports that provide assurance to users, which are not limited to specific parties.

Question 2

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

When financial statements are primarily used outside of the United States, the audit report may follow either the U.S. format, modified as appropriate, or may follow the format of the other country. This will depend on the requirements of the country in which the statements will be used. However, it is important to note that even if the format is different, the report should still contain all the required elements of a standard audit report.

Question 3

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

Accepted Answer

Negative assurance is typically provided in letters for underwriters, where auditors state that nothing came to their attention that would indicate material modifications are necessary.

Question 4

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

Accepted Answer

A comfort letter is a letter from the issuer's independent auditors to the underwriters of a new securities issue containing information about the procedures followed in the audit of the issuer's financial statements. The letter provides comfort to the underwriters that the financial information contained in the registration statement is reliable. However, it is not typically included in the registration statement for the securities (choice B). A comfort letter may express negative assurance (choice A), stating that nothing has come to the auditor's attention that causes the auditors to believe that the financial statements are not presented fairly, in all material respects. The letter may also include a statement about the auditors' independence (choice D), and it may include a statement about whether the audited financial statements comply in all material respects with applicable requirements of the related securities acts (choice C).

Question 5

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 document issued by a CPA to provide assurance and assistance to underwriters during a securities offering. The letter typically covers various aspects related to the financial statements of the issuer, such as their accuracy and completeness. However, a CPA should not refer to management's determination of line of business classifications in this letter, as this is a subjective matter that falls outside the scope of the CPA's expertise and responsibility. Instead, the CPA should focus on providing objective and factual information related to the financial statements and disclosures. Choices A, B, and C are all legitimate subjects that may be covered in a comfort letter, depending on the circumstances.

Question 6

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

Accepted Answer

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 known as an attestation report on summary financial statements. Option A is incorrect because a CPA's report is not always required, but it can be requested. Option C is incorrect because compilation and review services are not applicable to summary financial statements. Option D is incorrect because the CPA can provide the report on the summary statements with appropriate disclosures.

Question 7

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 is the best approach in this situation. This allows the auditors to clearly indicate their concerns while still providing the required information on the printed form. Submitting a short-form report or omitting questionable items would not satisfy the reporting requirements, and withdrawing from the engagement may not be necessary or appropriate in this situation.

Question 8

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 and summarize the overall information presented in audited financial statements. Agreed-upon procedure financial statements, compiled financial statements, and reviewed financial statements are all types of financial statements that are prepared and presented differently from audited financial statements.

Question 9

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

Accepted Answer

Inquiries concerning actions taken at meetings of the stockholders and the board of directors are part of the review process to understand significant decisions and their potential impact on the financial statements.

Question 10

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

Accepted Answer

Completeness of personal financial statements is difficult to audit as individuals may not disclose all their assets, liabilities, income or expenses. This can be due to intentional hiding of information or simply lack of knowledge about what should be included in the statement. Therefore, it's difficult for auditors to verify whether the statements are complete or not.

Question 11

Which of the following requires modification of a review report?

Accepted Answer

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

Question 12

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 13

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 14

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 15

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 16

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 17

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

Accepted Answer

A special purpose financial reporting framework is used for specific needs, such as tax reporting or regulatory compliance. Limiting the scope of an auditor's examination does not constitute a special purpose framework; it relates to the audit process, not the financial reporting framework itself.

Question 18

Which of the following types of association requires that accountants provide a report with no explicit assurance?

Accepted Answer

Compilations require that accountants prepare financial statements, but they do not provide any assurance or opinion on the accuracy of the statements. Therefore, the report given by accountants for compilations does not contain any explicit assurance. Reviews and audits both require accountants to provide some level of assurance on the financial statements, while financial statement preparation does not necessarily require accountants to provide any additional report.

Question 19

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

Accepted Answer

The accountants' compilation report should be dated as of the completion of compilation procedures, which is the point at which the accountant has obtained sufficient evidence to support the conclusion that the financial statements are free from material misstatement. This ensures that the report is contemporaneous with the financial statements and accurately reflects the accountant's work. The other options (completion of fieldwork, transmittal of the report, and the latest subsequent event) may not necessarily coincide with the completion of compilation procedures and may result in a report that is not current or accurate.

Question 20

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

Inadequate disclosure would necessitate a modification of the CPA's report because it affects the fairness and completeness of the financial statements, which is a fundamental requirement for a proper review report.

Quiz 19: Additional Assurance Services: Historical Financial Information