Q&A Hero

Q: Negotiations occur only at the topmost hierarchical levels in the business world.

Q: When an accountant is not independent of an entity and is requested to perform a compilation of the entity'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 entity's management. C. the reporting accountant. D. the entity'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 an entity'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 entity'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 entity 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 other items listed 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 items listed.

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 entity'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 entity'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 items listed.

Q: Absolute assurance is provided in A. an audit engagement. B. a compilation engagement. C. a review engagement. D. none of the items listed.

Q: Limited assurance is provided in A. an audit engagement. B. a compilation engagement. C. a review engagement. D. none of the items listed.

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. only general use. B. only limited use. C. only internal use. D. general, limited and internal use.

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 listed 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: Match the Trust Services Principle with its proper definition. Availability Personal information is collected, used, retained, and disclosed in conformity with the commitments in the entity's privacy notice and with criteria set forth in Generally Accepted Privacy Principles issued by the AICPA/CICA. Processing integrity System processing is complete, accurate, timely, and authorized. Confidentiality The system is available for operation and use as committed or agreed. Security Information designated as private is protected as committed or agreed. Online Privacy The system is protected against unauthorized access (both physical and logical).

Q: The practitioner must exercise due professional care in the planning and performance of the engagement. The auditor must state in the auditor's report whether the financial statements are presented in accordance with generally accepted accounting principles (GAAP). 3

Q: Match the attestation standard with the generally accepted auditing standard that is most similar in nature. The practitioner must state all of the practitioner's significant reservations about the engagement, the subject matter and, if applicable, the assertion related thereto in the report. The auditor must have adequate technical training and proficiency to perform the audit. The practitioner must adequately plan the work and must properly supervise any assistants. The auditor must exercise due professional care in the performance of the audit and the preparation of the report. The practitioner must state the practitioner's conclusion about the subject matter or the assertion in relation to the criteria against which the subject matter was evaluated in the report. The auditor must either express an opinion regarding the financial statements, taken as a whole, or state that an opinion cannot be expressed, in the auditor's report. The practitioner must have adequate technical training and proficiency in the attest function. The auditor must adequately plan the work and must properly supervise any assistants. The practitioner must exercise due professional care in the planning and performance of the engagement. The auditor must state in the auditor's report whether the financial statements are presented in accordance with generally accepted accounting principles (GAAP).

Q: Explain each of the three PrimePlus Services typically offered by practitioners.

Q: How has the advancement in technology led to the creation of the Trust Services?

Q: Internal auditors fall into two primary categories-assurance services and consulting services. Briefly explain these two categories in relation to internal auditors.

Q: As with most professionals, internal auditors must follow guidelines promoting ethical conduct. The IIA Code of Ethics is important for internal auditors because the reliability of their work depends on a reputation for a high level of personal integrity. The Code of Ethics consists of four main principles of ethical conduct and some associated rules that underpin the expected conduct of IIA members. List the four main principles of the Code of Ethics and explain each.

Q: To bridge the gap between a changing business environment and the guidance that was then available, the IIA developed a Professional Practices Framework. This framework consists of two broad categories of guidance. List these categories of guidance and what they include.

Q: In your own words, describe how the Institute of Internal Auditors (IIA) defines internal auditing?

Q: An agreed-upon procedures engagement is significantly more limited in scope than an examination. An accountant may perform an agreed-upon procedures attestation engagement for prospective financial statements provided that attestation standards are complied with and ten criteria are met. Identify five of the ten criteria below.

Q: For an auditor to examine management's assertions about the effectiveness of internal control in an attestation engagement, three conditions are necessary. Briefly explain them.

Q: An entity's WebTrust seal is managed by A. the CPA who performed the service. B. the AICPA. C. a third-party service organization. D. the entity receiving the seal.

Q: This concept, while used by both internal and external auditors, is typically assessed quite differently for each. A. Competence. B. Objectivity. C. Integrity. D. Materiality.

Q: When engaged to compile the financial statements of a nonpublic entity, an accountant is required to possess a level of knowledge of the entity's accounting principles and practices. This requirement most likely will include obtaining a general understanding of the A. stated qualifications of the entity's accounting personnel. B. design of the entity's internal controls placed in operation. C. risk factors relating to misstatements arising from illegal acts. D. internal control awareness of the entity's senior management.

Q: Which set of standards was created by the AICPA to cover services relating to unaudited financial statements? A. Standards on Selective Audits and Review Services (SSARS). B. Statement on Auditing Standards (SAS). C. Statements on Compilation and Review Standards (SCRS). D. Statements on Standards for Accounting and Review Services (SSARS).

Q: During an engagement to review the financial statements of a nonpublic entity, an accountant becomes aware of a material departure from GAAP. If the accountant decides to modify the standard review report because management will not revise the financial statements, the accountant should A. express negative assurance on the accounting principles that do not conform with GAAP. B. disclose the departure from GAAP in a separate paragraph of the report. C. issue an adverse or an "except for" qualified opinion, depending on materiality. D. express positive assurance on the accounting principles that conform with GAAP.

Q: Jones Retailing, a nonpublic entity, has asked Winters, CPA, to compile financial statements that omit substantially all disclosures required by generally accepted accounting principles. Winters may compile such financial statements, provided the A. reason for omitting the disclosures is explained in the engagement letter and acknowledged in the management representation letter. B. financial statements are prepared on a comprehensive basis of accounting other than generally accepted accounting principles. C. distribution of the financial statements is restricted to internal use only. D. omission is not undertaken to mislead the users of the financial statements and is properly disclosed in the accountant's report.

Q: Which of the following represents the order from the least assurance to the most assurance provided for the types of services provided? A. Review, compilation, audit. B. Compilation, review, audit. C. Audit, review, compilation. D. Audit, compilation, review.

Q: A CPA's report on agreed-upon procedures related to management's assertion about an entity's compliance with specified requirements should contain A. a statement of limitations on the use of the report. B. an opinion about whether management's assertion is fairly stated. C. negative assurance that control risk has not been assessed. D. an acknowledgement of responsibility for the sufficiency of the procedures.

Q: Statements on Standards for Accounting and Review Services (SSARS) require an accountant to report when the accountant has A. typed client-prepared financial statements, without modification, as an accommodation to the client. B. provided an entity with a financial statement format that does not include dollar amounts, to be used by the entity in preparing financial statements. C. proposed correcting journal entries to be recorded by the client that change client-prepared financial statements. D. generated, through the use of computer software, financial statements prepared in accordance with a comprehensive basis of accounting other than GAAP.

Q: Which of the following procedures is more likely to be performed in a review engagement of a nonpublic entity than in a compilation engagement? A. Gaining an understanding of the entity's business transactions. B. Making a preliminary assessment of control risk. C. Obtaining a representation letter from the chief executive officer. D. Assisting the entity in adjusting the accounting records.

Q: When an accountant compiles a nonpublic entity's financial statements that omit substantially all disclosures required by generally accepted accounting principles, the accountant should indicate in the compilation report that the financial statements are A. restricted for internal use only by the entity's management. B. not to be given to financial institutions for the purpose of obtaining credit. C. compiled in conformity with a comprehensive basis of accounting other than generally accepted accounting principles. D. not designed for those who are uninformed about the omitted disclosures.

Q: Which of the following would an accountant not need to know when conducting a compilation? A. The accounting principles and practices of the industry in which the entity operates. B. A general understanding of the nature of the entity's business transactions and the form of its accounting records. C. The accounting basis on which the financial statements are to be presented. D. The accountant would need to know all of the other items listed when conducting a compilation.

Q: According to the Code of Professional Conduct, what response is appropriate when an accountant, who is not independent, performs a compilation of financial statements? A. The accountant should indicate in the last sentence of the report that he/she is not independent. B. The accountant should withdraw from the engagement. C. The accountant should express a disclaimer opinion on the compilation. D. The accountant should express an adverse opinion on the compilation.