Q&A Hero

Q: Which of the following procedures is not usually performed by the accountant during a review engagement of a nonpublic entity? A. Inquiry about actions taken at meetings of the board of directors that may affect the financial statements. B. Issuance of a report stating that the review was performed in accordance with standards established by the AICPA. C. Reading of the financial statements to determine if they conform with generally accepted accounting principles. D. Communication of any material weaknesses discovered during the consideration of internal control.

Q: In a review engagement, the accountant must make all of the following inquiries except those to: A. Identify subsequent events having a material effect on the statements. B. Understand internal controls. C. Identify actions taken at stockholders' meetings. D. Ascertain whether statements are in accordance with GAAP.

Q: A compilation of prospective financial statements involves all of the following except: A. Performing analytical procedures. B. Assembling the statements based on the responsible party's assumptions. C. Issuing a compilation report. D. Considering whether the statements appear to be not obviously inappropriate.

Q: An accountant is required to comply with the provisions of Statements on Standards for Accounting and Review Services when I. Typing client-prepared financial statements, without modification, as an accommodation to a client. II. Preparing standard monthly journal entries for depreciation and expiration of prepaid expenses. A. I only. B. II only. C. Both I and II. D. Neither I nor II.

Q: IIA Standards include A. Practice advisories. B. Code of Ethics. C. Interpretations. D. Both A and B.

Q: Statements on Standards for Accounting and Review Services establish standards and procedures for which of the following engagements? A. Assisting in adjusting the books of account for a partnership. B. Examining prospective financial statements. C. Processing financial data for clients of other accounting firms. D. Compiling an individual's personal financial statement to be used to obtain a mortgage.

Q: During a review of the financial statements of a nonpublic entity, an accountant becomes aware of inadequate disclosure that is material to the financial statements. If management refuses to correct the financial statement presentations, the accountant should A. Issue an adverse opinion. B. Issue an "except for" qualified opinion. C. Disclose this departure from generally accepted accounting principles in a separate paragraph of the report. D. Express only limited assurance on the financial statement presentations.

Q: Inquiry and analytical procedures ordinarily performed during a review of a nonpublic entity's financial statements include A. Analytical procedures designed to identify material weaknesses in internal control. B. Inquiries concerning actions taken at meetings of the stockholders and the board of directors. C. Analytical procedures designed to test the accounting records by obtaining corroborating evidential matter. D. Inquiries of knowledgeable outside parties such as the client's attorneys and bankers.

Q: Which of the following procedures is usually included in a review engagement of a nonpublic entity? A. The confirmation of accounts receivable. B. A study and evaluation of internal control. C. An inquiry concerning subsequent events. D. The observation of physical inventory counts.

Q: Which of the following should be included in an accountant's standard report based upon the review of a nonpublic entity's financial statements? A. A statement that the review was performed in accordance with generally accepted review standards. B. A statement that a review consists principally of inquiries and analytical procedures. C. A statement that the accountant is independent with respect to the entity. D. A statement that a review is substantially greater in scope than a compilation.

Q: During a review of financial statements of a nonpublic entity, the CPA would be least likely to A. Perform analytical procedures designed to identify relationships that appear to be unusual. B. Obtain written confirmation from banks regarding loans to the entity. C. Obtain reports from other accountants who reviewed a portion of the total entity. D. Read the financial statements and consider their conformance with generally accepted accounting principles.

Q: Before performing a compilation of the financial statements of a nonpublic entity, an accountant should A. Perform a thorough study and evaluation of the internal control system. B. Complete a series of inquiries concerning the entity's procedures for recording, classifying, and summarizing transactions. C. Design working papers intended to provide sufficient competent evidential matter to afford a reasonable basis for a compilation opinion. D. Obtain an understanding of the accounting principles and practices of the industry in which the entity operates.

Q: When an accountant is not independent of a client and is requested to perform a compilation of the client's financial statements, the accountant A. Is precluded from accepting the engagement. B. May accept the engagement and need not disclose the lack of independence. C. May accept the engagement and should disclose the lack of independence, but need not indicate the reason for the lack of independence. D. May accept the engagement and should disclose both the lack of independence and the reason for the lack of independence.

Q: Responding to a question such as "What would happen if " is an attribute of which of the following types of engagements? A. Financial projection. B. Financial forecast. C. Financial forecast and financial projection. D. Review.

Q: An accountant's compilation report on a financial forecast should include a statement that the A. Compilation does not include evaluation of the assumptions underlying the forecast. B. Hypothetical assumptions used in the forecast are reasonable. C. Range of assumptions selected is one in which one end of the range is less likely to occur than the other. D. Prospective statements are limited to presenting, in the form of a forecast, information that is the accountant's representation.

Q: The party responsible for assumptions identified in the preparation of prospective financial statements is usually A. A third-party lending institution. B. The client's management. C. The reporting accountant. D. The client's independent auditor.

Q: When third party use of prospective financial statements is expected, an accountant may not accept an engagement to A. Perform a review. B. Perform a compilation. C. Perform an examination. D. Apply agreed-upon procedures.

Q: Accepting an engagement to compile a financial projection for a public company most likely would be inappropriate if the projection were to be distributed to A. A bank with which the entity is negotiating for a loan. B. A labor union with which the entity is negotiating a contract. C. The principal stockholder, to the exclusion of the other stockholders. D. All stockholders of record as of the report date.

Q: An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided that A. Distribution of the report is restricted to the specified users involved. B. The prospective financial statements also are examined. C. Responsibility for the adequacy of the procedures performed is taken by the accountant. D. Negative assurance is expressed on the prospective financial statements taken as a whole.

Q: Snow, CPA, was engaged by Master Co., a privately-held company, to examine and report on management's written assertion about the effectiveness of Master's internal control over financial reporting. Snow's report should state that A. Because of inherent limitations of any internal controls, errors or fraud may occur and not be detected. B. Management's assertion is based on criteria established by the American Institute of Certified Public Accountants. C. The results of Snow's tests will form the basis for Snow's opinion on the fairness of Master's financial statements in conformity with GAAP. D. The purpose of the engagement is to enable Snow to plan an audit and determine the nature, timing, and extent of tests to be performed.

Q: Blue Co., a privately-held entity, asked its tax accountant, Cook, a CPA in public practice, to reproduce Blue's internally-prepared interim financial statements on Cook's computer when Cook prepared Blue's quarterly tax return. Cook should not submit these financial statements to Blue unless, at a minimum, Cook complies with the provisions of A. Statements on Responsibilities in Tax Practice. B. Statements on Standards for Accounting and Review Services. C. Statements on Responsibilities in Unaudited Financial Services. D. Statements on Standards for Attestation Engagements.

Q: Independence is required A. Under GAAS but not attestation standards. B. Under both GAAS and attestation standards. C. Under attestation standards but not GAAS. D. Is preferred but not required under both GAAS and attestation standards.

Q: Which of the following would be considered a part of a consulting services (non-assurance) engagement? I. Expressing a conclusion about the reliability of a client's financial statements. II. Reviewing and commenting on a client-prepared business plan. A. I only. B. II only. C. Both I and II. D. Neither I nor II.

Q: An entity engaged a CPA to determine whether the client's websites meet defined criteria for standard business practices and controls over transaction integrity and information protection. In performing this engagement, the CPA should comply with the provisions of A. Statements on Assurance Standards. B. Statements on Standards for Attestation Engagements. C. Statements on Standards for Management Consulting Services. D. Statements on Auditing Standards.

Q: Which of the following statements is not true concerning assurance services? A. The growth in assurance services has been driven in part by users' demands for more relevant information. B. Assurance services focus on improving the quality of information or its context, for decision makers. C. Unlike audit and attestation engagements, an engagement to perform assurance services does not require the CPA to consider information reliability. D. Auditing and attestation services can be viewed as subsets of assurance services since there is overlap in their objectives.

Q: Which of the following statements is true regarding the performance of an assurance service on information systems reliability by a CPA? A. The CPA is not permitted to provide any other services for the client if he or she is to perform the service. B. The service will require the CPA to apply all of the attestation and auditing standards. C. The service provides information regarding whether the information system provides reliable information for internal operating decisions. D. Performing the service will not require the collection of evidence.

Q: Which of the following statements best describes the guidance developed by the AICPA related to WebTrust services? A. The Trust Services principles require the CPA to focus exclusively on the financial information presented on a website. B. Once earned, the WebTrust seal can remain on a website until the entity controlling the site informs the CPA that the information on the site has changed. C. In performing a WebTrust assurance engagement, a CPA does not have to consider auditing or attestation standards. D. The Trust Services principles provide a broad set of criteria that guide practitioners in testing and evaluating websites.

Q: The International Professional Practices Framework developed by the IIA includes all of the following types of guidance, except: A. Standards. B. Interpretations of Standards. C. Practice advisories. D. Practice guides.

Q: Which of the following is not a main goal of the internal auditing profession? A. Add value to an organization's operations. B. Help an organization to accomplish its objectives. C. Provide reliable information to external users. D. Improve the effectiveness of risk management of an organization.

Q: Compilations provide which of the following types of assurance about the fair presentation of financial statements? A. No assurance. B. Negative assurance. C. Limited assurance. D. Reasonable assurance.

Q: The report in a review engagement provides A. Limited assurance. B. Positive assurance. C. An opinion. D. A summary of findings.

Q: May an accountant plan and perform an engagement to compile or review the financial statements of a not-for-profit entity if the accountant is unfamiliar with the specialized industry accounting principles? A. Only a compilation could be performed without the specialized knowledge. B. Only a review could be performed without the specialized knowledge. C. Both a compilation and a review could be performed without the specialized knowledge. D. Neither a compilation nor a review could be performed without the specialized knowledge.

Q: In an examination of prospective financial statements, which of the following would not require a departure from the standard examination report? A. Scope limitation. B. Unreasonable assumptions. C. Departure from AICPA presentation guidelines. D. All of the above would require a departure from the standard examination report.

Q: Compilation reports may include A. Compilations when the accountant is not independent. B. Compilations with full disclosure. C. Compilations that omits substantially all disclosures. D. Any of the above.

Q: Prior to commencing the compilation of financial statements of a nonpublic entity, the accountant should A. Perform analytical procedures sufficient to determine whether fluctuations among account balances appear reasonable. B. Complete the preliminary phase of the study and evaluation of the entity's internal control. C. Verify that the financial information supplied by the entity agrees with the books of original entry and supporting documentation. D. Acquire a knowledge of any specialized accounting principles and practices used in the entity's industry.

Q: The report of a CPA on a review of the financial statements of a nonpublic entity should not include a statement that A. All information included in the financial statements is the representation of the entity's management. B. The review was performed in accordance with generally accepted auditing standards. C. The CPA is not aware of any material modifications that should be made to the financial statements in order for them to be in conformity with generally accepted accounting principles. D. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data.

Q: Inquiry of the entity's personnel and analytical procedures are the primary bases for the issuance of a(n) A. Compilation report on financial statements for a nonpublic company in its first year of operations. B. Auditor's report on financial statements supplemented with price-level information. C. Review report on comparative financial statements for a nonpublic company in its second year of operations. D. Management advisory report prepared at the request of the client's audit committee.

Q: Which of the following procedures is not included in a review engagement of a nonpublic entity? A. Inquiries of management. B. Inquiries regarding significant events subsequent to the balance sheet date. C. Any procedures designed to identify relationships among data that appear to be unusual. D. A study and evaluation of internal control.

Q: 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 problem, the CPA should A. Disclose the departure in a separate paragraph of the report. B. Issue an adverse opinion. C. Attach a footnote explaining the effects of the departure. D. Issue a compilation report.

Q: Before issuing a report on the compilation of financial statements of a nonpublic entity, the accountant should A. Apply analytical procedures to selected financial data to discover any material misstatements. B. Corroborate at least a sample of the assertions management has embodied in the financial statements. C. Inquire of the client's personnel whether the financial statements omit substantially all disclosures. D. Read the financial statements to consider whether the financial statements are free from obvious material errors.

Q: Which of the following should not be included in an accountant's standard report based upon the compilation of an entity's financial statements? A. A statement that a compilation is limited to presenting, in the form of financial statements, information that is the representation of management. B. A statement that the compilation was performed in accordance with standards established by the American Institute of CPAs. C. A statement that the accountant has not audited or reviewed the financial statements. D. A statement that the accountant does not express an opinion but expresses only limited assurance on the financial statements.

Q: Reasonable assurance is provided in A. An audit engagement. B. A compilation engagement. C. A review engagement. D. None of the above.

Q: Absolute assurance is provided in A. An audit engagement. B. A compilation engagement. C. A review engagement. D. None of the above.

Q: Limited assurance is provided in A. An audit engagement. B. A compilation engagement. C. A review engagement. D. None of the above.

Q: An accountant's standard report on a compilation of a projection should not include A. A statement that he or she does not express an opinion on the statements or assumptions. B. A statement that a compilation of a projection is limited in scope. C. A disclaimer of responsibility to update the report for events occurring after the report's date. D. A statement that the accountant expresses only limited assurance that the results may be achieved.

Q: An examination of a financial forecast is a professional service that involves A. Compiling or assembling a financial forecast that is based on management's assumptions. B. Limiting the distribution of the accountant's report to management and the board of directors. C. Assuming responsibility to update management on key events for one year after the report's date. D. Evaluating the preparation of a financial forecast and the support underlying management's assumptions.

Q: Accepting an engagement to examine an entity's financial projections would most likely be appropriate if distribution of the projections were limited to A. The general public on the entity's website. B. Potential stockholders who request a prospectus or a registration statement. C. A bank with which the entity is negotiating for a loan. D. All stockholders of record as of the report date.

Q: Which of the following are prospective financial statements upon which an accountant may appropriately report for general use? A. Pro forma financial statements. B. Financial projections. C. Partial presentations. D. Financial forecasts.

Q: Given one or more hypothetical assumptions, a responsible party may prepare, to the best of his knowledge and belief, an entity's expected financial position, results of operations, and changes in cash flows. Such prospective financial statements are known as A. Pro forma financial statements. B. Financial projections. C. Partial presentations. D. Financial forecasts.

Q: Prospective financial statements may be prepared for A. General use. B. Limited use. C. Internal use. D. All of the above.

Q: For a practitioner to examine management's assertions about the effectiveness of internal controls, all of the following conditions are necessary except: A. Sufficient competent evidence can be developed to support the evaluation. B. The practitioner must have already concluded that the financial statements are fairly presented in accordance with the applicable accounting framework. C. The entity's management accepts responsibility for the effectiveness of its internal control. D. All of the conditions above are necessary.

Q: An accountant's report expressing an opinion on an entity's internal controls should state that A. Only those controls on which the accountant intends to rely for purposes of the financial statement audit were reviewed, tested, and evaluated. B. The establishment and maintenance of the internal controls is the responsibility of management. C. The study and evaluation of the internal controls was conducted in accordance with generally accepted auditing standards. D. Distribution of the report is restricted for use only by management and the board of directors.

Q: Which of the following conditions is necessary for a practitioner to accept an attest engagement to examine and report on an entity's internal control over financial reporting? A. The practitioner anticipates relying on the entity's internal control in a financial statement audit. B. Management accepts responsibility for the effectiveness of internal control. C. The practitioner is a continuing auditor who previously has audited the entity's financial statements. D. Management agrees not to present the practitioner's report in a general-use document to stockholders.

Q: Which of the following is a conceptual difference between the attestation standards and generally accepted auditing standards? A. The attestation standards provide a framework for the attest function beyond historical financial statements. B. The requirement that the practitioner be independent in mental attitude is omitted from the attestation standards. C. The attestation standards do not permit an attest engagement to be part of a business acquisition study or a feasibility study. D. None of the standards of fieldwork in generally accepted auditing standards are included in the attestation standards.

Q: In performing an attestation engagement, a CPA typically A. Supplies litigation support services. B. Assesses control risk at a low level. C. Expresses a conclusion about an assertion. D. Provides management consulting advice.

Q: Which of the following is the authoritative body designated to promulgate attestation standards for nonpublic entities? A. AICPA (Auditing Standards Board). B. Governmental Accounting Standards Board. C. Financial Accounting Standards Board. D. General Accounting Office.

Q: The public has turned to CPAs to provide assurance services primarily because A. The independence and objectivity of CPAs increase the public trust. B. There is a need to develop new revenue streams for accounting firms. C. Audits do not provide reliable information for decision makers. D. CPAs have been proactive in identifying new types of assurance services to market to customers.

Q: Attestation standards provide guidance for performing assurance services with respect to several types of engagements, including prospective financial statements.

Q: A practitioner is allowed to perform either of two types of attestation engagements for reporting on internal control: (1) examination or (2) review.

Q: Management and the external auditor are responsible for the effectiveness of the entity's internal control.

Q: The two standards of fieldwork for attestation engagements do not include the requirement that the CPA gain an understanding of internal control.

Q: Independence is one of the general standards for attestation engagements.

Q: Limited assurance is provided in a review engagement.

Q: Examples of attest engagements include examination, review, and agreed-upon procedures engagements.

Q: An attest service occurs when a practitioner is engaged to issue a report on subject matter that is the responsibility of another party.

Q: Electronic commerce is an example of a category of assurance services.

Q: Assurance services are independent professional services that improve the quality of information specifically for internal decision makers.

Q: What type of liability has the Private Securities Litigation Reform Act of 1995 created for cases filed under federal statutory law? How did this change from previous legislation? How has this impacted the cases against auditors and the way cases are now presented?

Q: One of the greatest sources of liability for auditors under the 1934 Act is Section 10(b) and the related Rule 10b-5 which states that it is unlawful for any person to defraud, make any untrue statement of a material fact, or engage in any act in connection with the purchase or sale of a security. Once a plaintiff has established that he or she can sue under Rule 10b-5, there are four elements that must be proven. List the four elements.

Q: Section 11 under the Securities Act of 1933 treats claims against auditors more favorably than common law. What two things does a plaintiff need to prove to have a case against the auditor of a company in which she purchased new investments? What does the auditor have to do to have the case dismissed?

Q: The Sarbanes-Oxley Act of 2002 is considered the most sweeping securities law since the 1933 and 1934 Acts. Which item in the list below was not part of the Sarbanes-Oxley Act of 2002? A. Enhances prosecutorial tool available in fraud cases. B. Legislates new guidelines for ethics and integrity for public accounting firms. C. Expands statutory prohibitions against fraud and obstruction of justice. D. Increases authorized penalties for securities and financial fraud. E. Strengthens the legal protections accorded whistle-blowers.

Q: Ocean and Associates, CPAs, audited the financial statements of Drain Corporation. As a result of Ocean's negligence in conducting the audit, a material misstatement in the financial statements went undetected. Ocean was unaware of this fact. The financial statements and Ocean's unqualified opinion were included in a registration statement and prospectus for an initial public offering of stock by Drain. Sharp purchased shares in the offering. Sharp received a copy of the prospectus prior to the purchase but did not read it. The shares declined in value as a result of the misstatements in Drain's financial statements becoming known. Under which of the following acts is Sharp most likely to prevail in a lawsuit against Ocean? A. The Securities Exchange Act of 1934, the Securities Act of 1933, and the Sarbanes-Oxley Act of 2002 provide equal likelihoods of prevailing. B. The Securities Exchange Act of 1934. C. The Securities Act of 1933. D. The Sarbanes-Oxley Act of 2002.

Q: Under the liability provisions of Section 11 of the Securities Act of 1933, an auditor may help to establish the defense of due diligence if I. The auditor performed an additional review of the audited statements to ensure that the statements were accurate as of the effective date of a registration statement. II. The auditor complied with GAAS. A. I only. B. II only. C. Both I and II. D. Neither I nor II.

Q: Under the liability provisions of Section 11 of the Securities Act of 1933, a CPA may be liable to any purchaser of a security for certifying materially misstated financial statements that are included in the security's registration statement. Under Section 11, which of the following must be proven by a purchaser of the security? A. The CPA committed fraud and the purchaser relied on the financial statements. B. The purchaser relied on the financial statements, but not that the CPA committed fraud. C. The CPA committed fraud, but not that the purchaser relied on the financial statements. D. Neither that the CPA committed fraud, nor that the purchaser relied on the financial statements.

Q: Under the liability provisions of Section 11 of the Securities Act of 1933, a CPA may be liable to any purchaser of a security for certifying materially misstated financial statements that are included in the security's registration statement. Under Section 11, a CPA usually will not be liable to the purchaser A. If there is contributory negligence on the part of the purchaser. B. If the CPA can prove due diligence. C. Unless the purchaser can prove privity with the CPA. D. Unless the purchaser can prove scienter on the part of the CPA.

Q: In general, the third-party (primary) beneficiary rule as applied to a CPA's legal liability in conducting an audit is relevant to which of the following causes of action against a CPA? A. Fraud and constructive fraud, but not negligence. B. Fraud, but not constructive fraud or negligence. C. Constructive fraud and negligence, but not fraud. D. Negligence, but not fraud or constructive fraud.

Q: While conducting an audit, Larson Associates, CPAs, failed to detect material misstatements included in its client's financial statements. Larson's unqualified opinion was included with the financial statements in a registration statement and prospectus for a public offering of securities made by the client. Larson knew that its opinion and the financial statements would be used for this purpose. In suit by a purchaser against Larson for common-law fraud, Larson's best defense would be that A. Larson did not have actual or constructive knowledge of the misstatements and the auditor followed Generally Accepted Auditing Standards in the audit. B. Larson's client knew or should have known of the misstatements. C. Larson did not have actual knowledge that the purchaser was an intended beneficiary of the audit. D. Larson was not in privity of contract with its client.

Q: Which of the following is the best defense a CPA firm can assert in a suit for common law fraud based on its unqualified opinion on materially false financial statements? A. Contributory negligence on the part of the client. B. A disclaimer contained in the engagement letter. C. Lack of privity. D. Lack of scienter.

Q: When performing an audit, a CPA will most likely be considered negligent when the CPA fails to A. Detect all of a client's fraudulent activities. B. Include a negligence disclaimer in the client engagement letter. C. Warn a client of known internal control weaknesses. D. Warn a client's customers of embezzlement by the client's employees.

Q: The Foreign Corrupt Practices Act requires that A. Auditors engaged to examine the financial statements of public companies report all illegal payments to the SEC. B. Public companies establish independent audit committees to monitor the effectiveness of their system of internal control. C. U.S. firms doing business abroad report sizable payments to non-U.S. citizens to the Justice Department. D. Public companies devise and maintain an adequate system of internal control.