A5 - MCQ

Question 1

A ___________________ is defined by the US SEC as an issuer with a worldwide market value of outstanding common equity held by nonaffiliates of $700 million or more

A) large accelerated file
B) accelerated file
C) smaller reporting company file
D) affiliated company file

Answer 1

A) large accelerated file

> $700 million or more

Question 2

A ___________________ is defined by the US SEC as an issuer with a worldwide market value of outstanding common equity held by nonaffiliates of $75 million or more, but less than $700 million

A) large accelerated file
B) accelerated file
C) smaller reporting company file
D) affiliated company file

Answer 2

B) accelerated file

Between $75M - $699M

Question 3

A ___________________ is defined by the US SEC as an issuer as an entity with annual revenue of less than $100 million, are excluded from the definition of large accelerated/accelerated filers

A) large accelerated file
B) accelerated file
C) smaller reporting company file
D) affiliated company file

Answer 3

C) smaller reporting company file

Question 4

A ___________________ is used in selecting controls to test. Auditor evaluates overall risks at the financial statement level, considers controls at the entity level, and then focuses on accounts, disclosures, and assertions for which there is a reasonable possibility of material misstatement

A) overall risk approach
B) tone at the top approach
C) effective control approach
D) top-down approach

Answer 4

D) top-down approach

Question 5

In testing controls, note which tests are appropriate for evaluating design effectiveness, operating effectiveness, or both:

1) walk-throughs
2) inquiry
3) observation
4) inspection of documentation
5) recalculation
6) reperformance

Answer 5

1) walk-throughs - DESIGN
2) inquiry - DESIGN AND OPERATING
3) observation - DESIGN AND OPERATING
4) inspection of documentation - DESIGN AND OPERATING
5) recalculation - OPERATING
6) re-performance - OPERATING

Question 6

An audit of ICFR results in an opinion on internal control as of _________________(1)
An opinion on financial statement relates to __________________(2)

A) longer period of time, such as 1 year; point in time
B) point in time; longer period, such as 1 year
C) period of time; 6 months
D) shorter period of time; 30 days

Answer 6

B) point in time; longer period, such as 1 year

Question 7

In financial statement audit, communication of significant deficiencies and material weaknesses must be made ______________

An audit of internal control over financial reporting, communication of significant deficiencies and material weaknesses must be made ________________

A) by balance sheet date; within 45 days
B) by the report release date; within 60 days
C) within 60 days; by the report release date
D) as soon as it’s discovered; by the balance sheet date

Answer 7

C) within 60 days; by the report release date

Question 8

In a FS audit, the communication of control deficiencies for restricted use language should _________________
In an audit of ICFR, the communication of control deficiencies for restricted use language should ______________

A) not be included; be included
B) be included, be included
C) not be included; not be included
D) be included; not be included

Answer 8

B) be included, be included

Question 9

In an integrated audit of a nonissuer, which of the following is the responsibility of an auditor with regard to testing controls at a company with multiple business units?

A. Testing controls over all risks at business units that are material to the company’s consolidated financial statements.

B. Testing controls over only certain specific risks at all business units of the company.

C. Testing controls over all risks at all business units of the company.

D. Testing controls over specific risks at business units that are material to the company’s consolidated financial statements.

Answer 9

D. Testing controls over specific risks at business units that are material to the company’s consolidated financial statements

Question 10

Which of the following is the relevant authoritative literature for an audit of internal control of a nonissuer?

A. Statements on Auditing Standards
B. Statements on Standards for Attestation Engagements
C. PCAOB Auditing Standards
D. Statements on Standards for Accounting and Review Services

Answer 10

A. Statements on Auditing Standards - for audits of FS and ICFR of a nonissuer

___________________

B. SSAE - for attestation engagements
C. PCAOB - for issuers
D. SSARS - for unaudited FS or information of a nonissuer

Question 11

In an audit of an issuer:

I.Management must assess and report on internal control.
II.The auditor must assess and report on internal control.

A. Both I and II.
B. Either I or II.
C. II only.
D. I only.

Answer 11

A. Both I and II.

Both auditor and management assess and report on internal control

Question 12

In an audit of an issuer, the auditor must provide an opinion on which of the following?

I. The financial statements.
II. The audit committee’s oversight of financial reporting and internal control.
III. The effectiveness of internal control.

A. I, II, and III.
B. I and III only.
C. I and II only.
D. I only.

Answer 12

B. I and III only.

Question 13

Jackson is auditing the financial statements of Saffer Company, an issuer. Which of the following is true?

A. Saffer is required to obtain an audit of its internal control, but a professional other than Jackson may be hired for this purpose.

B. If Jackson provides an adverse opinion on the financial statements, an audit of Saffer’s internal control is not permitted.

C. Jackson is required to audit and report on Saffer’s internal control.

D. Jackson is not required to audit internal control, but should report any significant deficiencies or material weaknesses noted.

Answer 13

C. Jackson is required to audit and report on Saffer’s internal control

As an issuer, PCAOB standards require the same auditor to perform both the FS and effectiveness of internal control audit

Question 14

With respect to the expression of an opinion regarding whether a client maintained effective internal control over financial reporting:

A. The auditor of a nonissuer must express an opinion in every financial statement audit.
B. The auditor of a nonissuer may express an opinion as a result of a financial statement audit.
C. The auditor of a nonissuer must express an opinion whenever significant deficiencies or material weaknesses are noted.
D. The auditor of a nonissuer may express an opinion as a result of an audit engagement.

Answer 14

D. The auditor of a nonissuer may express an opinion as a result of an audit engagement

Question 15

Which of the following conditions is necessary for an auditor to accept an engagement to audit and report on a nonissuer’s internal control over financial reporting?

A. The auditor anticipates relying on the entity’s internal control in a financial statement audit.
B. Management presents its written assessment about the effectiveness of internal control.
C. The auditor is a continuing auditor who previously has audited the entity’s financial statements.
D. Management agrees not to present the auditor’s report in a general-use document to stockholders.

Answer 15

B. Management presents its written assessment about the effectiveness of internal control

Question 16

Which of the following is an appropriate response when an auditor does not receive a written representation letter from management during the integrated audit of a nonissuer acknowledging responsibility for establishing and maintaining effective internal control?

A. Either withdrawal from the engagement or disclaimer of opinion.
B. Disclaimer of opinion only.
C. Withdrawal from the engagement only.
D. Neither withdrawal from the engagement or disclaimer of opinion; the auditor can issue an opinion since the client is a nonissuer.

Answer 16

A. Either withdrawal from the engagement or disclaimer of opinion

Question 17

According to the Sarbanes-Oxley Act of 2002, a chief executive officer must certify each of the following, except:

A. The financial expertise of the audit committee.
B. The management internal control report.
C. The annual financial report.
D. The quarterly financial report.

Answer 17

A. The financial expertise of the audit committee

Expertise of the audit committee is typically verified by entity’s board

Question 18

A firm is engaged to perform an integrated audit of an issuer. In this case, the auditor should design testing of controls to accomplish the objectives of both audits simultaneously, resulting in an assessment of:

A. Inherent risk for the financial statement audit and an opinion on internal control over financial reporting for the internal control audit.

B. Control risk for the financial statement audit and an opinion on internal control over financial reporting for the internal control audit.

C. Inherent risk for the financial statement audit and limited assurance on internal control over financial reporting for the internal control audit.

D. Control risk for the financial statement audit and limited assurance on internal control over financial reporting for the internal control audit.

Answer 18

B. Control risk for the financial statement audit and an opinion on internal control over financial reporting for the internal control audit

Control risk is assessed by the auditor during risk assessment process

Question 19

If a service auditor is unable to obtain a written assertion from the service organization’s management regarding its system and the suitability of the design and operating effectiveness of controls, it would be most appropriate for the auditor to:

A. Increase the substantive testing of the service organization’s controls.
B. Withdraw from the engagement unless prohibited by law.
C. Report management’s action in the auditor’s communication to those charged with governance.
D. Assess a higher level of detection risk for the engagement.

Answer 19

B. Withdraw from the engagement unless prohibited by law

Question 20

When planning an audit of the effectiveness of the entity’s internal control in an integrated audit of a nonissuer, an auditor would be least likely to consider which of the following factors?

A. The extent of recent changes in the entity and its operations.
B. Preliminary judgments about the effectiveness of internal control.
C. The evaluation of the operating effectiveness of the controls.
D. The type of available evidential matter pertaining to the effectiveness of the entity’s internal control.

Answer 20

C. The evaluation of the operating effectiveness of the controls

Least of consideration because this occurs after the planning stage

Question 21

Which of the following would not be considered an entity-level control?

A. Period-end financial reporting controls.
B. Biannual distribution of the code of conduct via intranet.
C. Periodic comparison of actual assets with amounts shown in the accounting records.
D. Risk assessment process controls.

Answer 21

C. Periodic comparison of actual assets with amounts shown in the accounting records

This is a control activity related to existence of specific assets. NOT an entity level control

Question 22

Identify the correct order of steps for an auditor when applying a top-down approach to select controls to test in an integrated audit.

I. Evaluation of overall risks at the financial statement level.
II. Evaluation of accounts, disclosures, and assertions for which there is a reasonable possibility of material misstatement.
III. Consideration of controls at the entity level.

A. I, II, III
B. III, I, II
C. I, III, II
D. III, II, I

Answer 22

C. I, III, II

Risks at FS level, controls at entity level, then focus on accounts, disclosures and assertions

Question 23

Controls related to the control environment and the period-end financial reporting process are examples of:

A. Service organization controls
B. Assertion-level controls
C. Entity-level controls
D. Automated controls

Answer 23

C. Entity-level controls

Question 24

Each of the following statements is correct regarding how an auditor can obtain an understanding of the likely sources of potential misstatements in an integrated audit of a nonissuer, except:

A. An evaluation of the entity’s information technology risk and controls should be performed utilizing an approach other than the top-down approach.

B. Walkthroughs are frequently the most effective way of understanding sources of potential misstatements.

C. An understanding of how transactions are initiated, authorized, processed, and recorded should be achieved.

D. The controls that management has implemented to address potential sources of misstatements should be identified.

Answer 24

A. An evaluation of the entity’s information technology risk and controls should be performed utilizing an approach other than the top-down approach

Question 25

Each of the following types of controls is considered to be an entity-level control, except those: A. Relating to the control environment. B. Addressing policies over significant risk management practices. C. Regarding the company's annual stockholder meeting. D. Pertaining to the company's risk assessment process.

Answer 25

C. Regarding the company's annual stockholder meeting

Question 26

In the integrated audit of an issuer, which of the following would not be considered an entity-level control? A. Management's established controls to monitor results of operations. B. The outside auditor's assessment process of internal auditor competence and objectivity. C. The board of directors' controls to monitor the activities of the audit committee. D. The executive committee's process for assessing business risk.

Answer 26

B. The outside auditor's assessment process of internal auditor competence and objectivity

Question 27

The audit team of issuer Kape Krafts Inc. evaluated both qualitative and quantitative risk factors as part of audit planning. The audit team should evaluate risk factors for: A. Both an audit of financial statements and an audit of internal control. B. An audit of financial statements. C. An audit of internal control. D. Risk factors should be evaluated prior to accepting the engagement.

Answer 27

A. Both an audit of financial statements and an audit of internal control

Question 28

Which of the following is not an appropriate testing method when testing the operating effectiveness of controls during an integrated audit? A. Recalculation B. Reperformance C. Confirmation D. Inspection

Answer 28

C. Confirmation

Question 29

Identify the types of testing methods that are appropriate when testing the design effectiveness of controls in an integrated audit. Inquiry - YES / NO Observation - YES / NO Inspection - YES / NO Recalculation - YES / NO Reperformance - YES / NO

Answer 29

Inquiry - YES Observation - YES Inspection - YES Recalculation - NO [applies to operating effectiveness] Reperformance - NO [applies to operating effectiveness]

Question 30

Gold Payroll Co. provides extensive payroll services for Silver Corp. What should Silver's auditor consider when evaluating Gold's internal control system? A. Reports about Gold's controls placed in operation that are issued by Gold's auditor B. Silver's importance to Gold as a payroll services client C. The influence of the transactions with Silver on Gold's financial statements D. Nothing, because this relationship does not affect Silver's financial statements

Answer 30

A. Reports about Gold's controls placed in operation that are issued by Gold's auditor

Question 31

Management’s report on internal control included a statement that the cost of correcting a weakness noted by the auditors would exceed the benefits derived from implementing the correction. What is the appropriate response by the auditor? A. No response is required. B. The auditor should verify the accuracy of the cost-benefit statement. C. The auditor should express an opinion on the cost-benefit statement. D. The auditor should disclaim an opinion on the cost-benefit statement.

Answer 31

D. The auditor should disclaim an opinion on the cost-benefit statement After auditor reads the additional information to ensure there are no material inconsistencies with management’s report, they can express a disclaimer of opinion

Question 32

How do the scope, procedures, and purpose of tests of controls in an audit of the internal control of a nonissuer compare to those for obtaining an understanding of internal control and assessing control risk as part of a financial statement audit of a nonissuer? Scope - SIMILAR / DIFFERENT Procedures - SIMILAR / DIFFERENT Purpose - SIMILAR / DIFFERENT

Answer 32

Scope - DIFFERENT Procedures - DIFFERENT Purpose - DIFFERENT FOR AUDIT OF AN ENTITY’S INTERNAL CONTROL, SCOPE AND PROCEDURES ARE MORE EXTENSIVE AND PURPOSE IS DIRECTED TOWARD INTERNAL CONTROL REPORT

Question 33

In the integrated audit of a nonissuer, in order to obtain evidence to form an opinion on the effectiveness of internal control over financial reporting, an auditor will perform each of the following procedures, except: A. Reviewing tests of controls performed during the financial statement audit. B. Reviewing reports issued during the year by the internal audit department. C. Reviewing misstatements detected during the financial statement audit. D. Reviewing matters related to the entity's capital structure.

Answer 33

D. Reviewing matters related to the entity's capital structure

Question 34

Which of the following is not a role of the risk assessment in an integrated audit of a nonissuer? A. Determining significant accounts and relevant assertions. B. Selecting controls to test. C. Concluding on the effectiveness of a given control. D. Determining evidence necessary to conclude on the effectiveness of a given control.

Answer 34

C. Concluding on the effectiveness of a given control This step occurs after the risk assessment process

Question 35

Which of the following is not a difference between a financial statement audit and an audit of internal control for nonissuers? A. An opinion on financial statements is over a period of time, and an opinion of internal control is at a point in time. B. An auditor’s consideration of internal control in a financial statement audit is more limited than that of an auditor engaged to examine the effectiveness of internal control. C. In a financial statement audit, communication of significant deficiencies must be made by the report release date, whereas in an audit of internal control, the communication must be made within 60 days of the report release date. D. In a financial statement audit, communication of significant deficiencies should include restricted use language. In an audit of internal control, no restriction on the use of the report is required.

Answer 35

C. In a financial statement audit, communication of significant deficiencies must be made by the report release date, whereas in an audit of internal control, the communication must be made within 60 days of the report release date FS - communication must be made within 60 days of the report release date ICFR - communication must be made by the report release date

Question 36

For communication of deficiencies in internal control for a nonissuer, you have the following: -communicate to management in writing -communicate to be made within 60 days of report release date What pillar of deficiency fits best with above? A) control deficiency B) significant deficiency C) immaterial weakness D) material weakness

Answer 36

A) control deficiency No need to communicate with TCWG

Question 37

For communication of deficiencies in internal control for a nonissuer, you have the following: -communicate to management in writing -communicate to those charged with governance -communicate to be made by report release date What pillar of deficiency fits best with above? A) control deficiency B) significant deficiency C) immaterial weakness D) material weakness

Answer 37

B) significant deficiency D) material weakness

Question 38

For communication of deficiencies in internal control for an issuer, you have the following: -communicate to management in writing + inform audit committee of the communication -communicate to be made prior to the issuance of the auditors report What pillar of deficiency fits best with above? A) control deficiency B) significant deficiency C) immaterial weakness D) material weakness

Answer 38

A) control deficiency

Question 39

For communication of deficiencies in internal control for an issuer, you have the following: -communicate to management in writing + inform audit committee of the communication -communicate to the audit committee, in writing -communicate to be made prior to the issuance of the auditors report What pillar of deficiency fits best with above? A) control deficiency B) significant deficiency C) immaterial weakness D) material weakness

Answer 39

B) significant deficiency D) material weakness

Question 40

The presence of a material weakness in internal control results in ________________ opinion. The auditors report should include a paragraph with ________________ section A) disclaimer of opinion; Basis for opinion B) unmodified opinion; Basis for opinion C) adverse opinion: Basis for Adverse opinion D) withdrawal; Basis for opinion

Answer 40

C) adverse opinion: Basis for Adverse opinion If there was ONE material weakness, means that ICFR is NOT EFFECTIVE This applies for both non-issuers and issuers

Question 41

Which of the following best describes the responsibility of the auditor with respect to significant deficiencies and material weaknesses in an audit of an issuer? SD = significant deficiencies MW = material weakness Must be Communicated to Management and the Audit Committee - SD only / MW only / SD and MW Results in an Adverse Opinion of the Effectiveness of Internal Control - SD only / MW only / SD and MW

Answer 41

Must be Communicated to Management and the Audit Committee - SD and MW Results in an Adverse Opinion of the Effectiveness of Internal Control - MW only [only material weaknesses trigger adverse opinion]

Question 42

The auditor is required to communicate each of the following items to those charged with governance, except: A. The auditor's responsibilities to complete the audit in accordance with generally accepted auditing standards. B. An overview of the planned scope and timing of the audit. C. All control deficiencies detected during the course of the audit. D. Any significant findings from the audit.

Answer 42

C. All control deficiencies detected during the course of the audit

Question 43

According to the PCAOB, each of the following statements is true with respect to the auditor's responsibility to communicate material weaknesses in internal control over financial reporting, except: A. All such weaknesses must be communicated prior to the issuance of the auditor's report on internal control over financial reporting. B. All such weaknesses must be communicated in writing to all stockholders. C. All such weaknesses must be communicated in writing to management. D. All such weaknesses must be communicated in writing to the audit committee.

Answer 43

B. All such weaknesses must be communicated in writing to all stockholders

Question 44

Which of the following best describes an auditor’s responsibility with respect to communicating internal control deficiencies of issuers? A. The auditor is not required to communicate control deficiencies or significant deficiencies to management or the audit committee, but must communicate material weaknesses to both management and the audit committee. B. The auditor is not required to communicate control deficiencies to management or the audit committee unless they constitute a significant deficiency or a material weakness. C. The auditor is required to communicate all deficiencies in internal control to management, and deficiencies that constitute a significant deficiency or a material weakness to management and the audit committee. D. The auditor is required to communicate all deficiencies in internal control to management, deficiencies that constitute a significant deficiency to the audit committee, and deficiencies that constitute a material weakness to the full board of directors.

Answer 44

C. The auditor is required to communicate all deficiencies in internal control to management, and deficiencies that constitute a significant deficiency or a material weakness to management and the audit committee

Question 45

In reporting on a nonissuer's internal control over financial reporting, an auditor should include a paragraph that describes the: A. Documentary evidence regarding the control environment factors. B. Inherent limitations of any internal control. C. Changes in internal control since the prior report. D. Potential benefits from the practitioner's suggested improvements.

Answer 45

B. Inherent limitations of any internal control

Question 46

If management fails to provide a written representation letter acknowledging its responsibility for the effectiveness of internal control, the auditor should: A) disclaimer of opinion B) unmodified opinion C) adverse opinion D) withdraw from engagement

Answer 46

A) disclaimer of opinion D) withdraw

Question 47

In which case might an auditor of an issuer render a qualified opinion on internal control? I. When there is a scope limitation. II. When there is a material weakness in internal control. A. I only. B. II only. C. Both I and II. D. Neither I nor II.

Answer 47

D. Neither I nor II. Scope limitation = disclaimer or withdraw Material weakness = adverse

Question 48

In an integrated audit of a nonissuer, if an auditor concludes that a material weakness exists as of the date specified in management’s assessment, the auditor should take which of the following actions? A. Communicate, in writing, to the entity’s outside legal counsel that the material weakness exists. B. Issue an adverse opinion. C. Obtain written representations from management relating to such matters. D. Disclaim an opinion.

Answer 48

B. Issue an adverse opinion

Question 49

An auditor is conducting an issuer's integrated audit and identifies a material weakness during the audit of management's assessment of the effectiveness of internal control over financial reporting. Which of the following is correct? A. The related financial statements cannot be considered fairly stated. B. The company's internal control over financial reporting cannot be considered effective. C. Management's assessment must now be considered indicative of fraudulent reporting. D. The audit team must now perform tests of controls at all risk levels.

Answer 49

B. The company's internal control over financial reporting cannot be considered effective

Question 50

Management of Eva Industries, an issuer as defined under the Sarbanes-Oxley Act, believes it has eliminated a material weakness previously noted in its assessment of internal control, and has hired Henna and Company, CPAs, to attest to the improvements in internal control. Which of the following is true of this engagement? A. It is required by generally accepted auditing standards. B. It is only required if Eva Industries elects to have an audit in accordance with PCAOB standards. C. Eva's management must provide a written report to accompany Henna and Company's report. D. It is required by PCAOB standards.

Answer 50

C. Eva's management must provide a written report to accompany Henna and Company's report This engagement is voluntary, and it is not required by auditing or PCAOB rules Management written report is essential because it provides context and responsibility

Question 51

_______________ established by the AICPA provide information addressing attestation services for the following subject matters: Agreed upon procedures, financial forecasts, compliance, management discussion and analysis (MD&A), and reporting on controls at a service organization A) Generally Accepted Auditing Standards (GAAS) B) Statement on Standards for Accounting and Review Services (SSARS) C) Statement on Auditing Standards (SAS) D) Statement on Standards for Attestation Engagements (SSAE)

Answer 51

D) Statement on Standards for Attestation Engagements (SSAE)

Question 52

Scope restrictions: restrictions on the scope of an examination engagement may result in A) unmodified opinion B) adverse opinion C) qualified opinion D) disclaimer of opinion / withdraw

Answer 52

C) qualified opinion D) disclaimer of opinion / withdraw

Question 53

Scope restrictions: restrictions on the scope of a review engagement that prevents necessary procedures from being performed may result in A) disclaimer of opinion B) adverse opinion C) qualified opinion D) withdraw

Answer 53

D) withdraw Incomplete review preventing us from issuing a report

Question 54

Which examination/review engagement type applies to below: -positive opinion (reasonable) -high level of assurance -procedures include: search, verify, inquire, analysis -different party measures/evaluates the underlying subject matter against criteria -provides assertion about the outcome of the measurement or evaluation -practitioner expresses opinion whether underlying subject matter is in accordance with criteria or assertion A) Review (limited assurance) B) Direct examination engagement C) Assertion-based examination engagements D) Statements on Auditing standards (SAS)

Answer 54

C) Assertion-based examination engagements

Question 55

Which examination/review engagement type applies to below: -practitioner (CPA) obtains reasonable assurance (positive) by measuring/evaluating the underlying subject matter against criteria -performing other procedures to obtain appropriate evidence to express opinion that conveys results -no assertion -responsible party required to acknowledge the underlying subject matter A) Review (limited assurance) B) Direct examination engagement C) Assertion-based examination engagements D) Statements on Auditing standards (SAS)

Answer 55

B) Direct examination engagement

Question 56

Which examination/review engagement type applies to below: -conclusion -limited assurance / negative -obtain sufficient appropriate evidence about party’s engagement or evaluation of underlying subject matter against criteria [information versus standards] -express conclusion whether any material modifications should be made to subject matter information -be in accordance with criteria or assertion for it to be fairly stated A) Review (limited assurance) B) Direct examination engagement C) Assertion-based examination engagements D) Statements on Auditing standards (SAS)

Answer 56

Review (limited assurance)

Question 57

For review (limited assurance), based on evidence obtained, conclusions may be ________/__________. The practitioner should ______________ if there’s a scope limitation A) qualified or disclaimer of opinion; perform additional test B) qualified or adverse [modified]; withdraw C) unqualified or unqualified with EOM; withdraw D) unqualified or qualified: perform additional test

Answer 57

B) qualified or adverse [modified]; withdraw

Question 58

For the report itself, what would be the title and whom would establish how the attestation reports are conducted? Title _____________________ A) Auditor’s Examination Report B) Report of Independent Public Accounting Firm C) Independent Accountant’s Report D) Report of Independent Registered Public Accounting Firm Our examination/review was conducted in accordance with attestation standards established by ______________ 1) GAAP 2) AICPA 3) IFRS 4) GAAS

Answer 58

C) Independent Accountant’s Report 2) AICPA

Question 59

For written assertion in an assertion-based examination engagement, if the client is the responsible party, failure to provide written assertion consistutes a scope limitation. What is the practitioner required to do? A) express unmodified opinion B) express modified opinion C) express disclaimer of opinion D) withdraw from engagement when possible under law/regulation

Answer 59

D) withdraw from engagement when possible under law/regulation

Question 60

For written assertion in an assertion-based examination engagement, if the client is the responsible party, failure to provide written assertion consistutes a scope limitation. What is the practitioner required to do? Suppose withdrawal is not allowed. A) express unmodified opinion B) express modified opinion C) express disclaimer of opinion D) withdraw from engagement when possible under law/regulation

Answer 60

C) express disclaimer of opinion

Question 61

For written assertion in a review examination engagement, if the client is the responsible party, failure to provide written assertion consistutes a scope limitation. What is the practitioner required to do? A) express unmodified opinion B) express modified opinion C) express disclaimer of opinion D) withdraw from engagement when possible under law/regulation

Answer 61

D) withdraw from engagement when possible under law/regulation Scope limitation is incomplete

Question 62

For written assertion in a review examination engagement, if the client is the responsible party, failure to provide written assertion consistutes a scope limitation. What is the practitioner required to do? Suppose withdrawal is not allowed. A) express unmodified opinion B) modify the report and restrict use C) express disclaimer of opinion D) withdraw from engagement when possible under law/regulation

Answer 62

B) modify the report and restrict use Practitioner may still report on the subject matter

Question 63

For written assertion in an agreed-upon procedures engagement, if the client is the responsible party, failure to provide written assertion consistutes a scope limitation. What is the practitioner required to do? A) express unmodified opinion B) modify the report C) express disclaimer of opinion D) withdraw from engagement when possible under law/regulation

Answer 63

B) modify the report

Question 64

For written assertion, if the client is not the responsible party, failure to provide written assertion consistutes a scope limitation. What is the practitioner required to do? A) express unmodified opinion B) disclose refusal in the report (modify) and restrict its use C) express disclaimer of opinion D) withdraw from engagement when possible under law/regulation

Answer 64

B) disclose refusal in the report (modify) and restrict its use Report may still be issued, as long as procedures are performed and sufficient evidence is obtained

Question 65

A CPA is required to comply with the provisions of Statements on Standards for Attestation Engagements (SSAE) when engaged to: A. Audit financial statements that the client prepared for use in another country. B. Provide the client with a financial statement format that does not include dollar amounts. C. Review management's discussion and analysis (MD&A) prepared pursuant to rules and regulations adopted by the SEC. D. Report on financial statements that the CPA generated through the use of computer software.

Answer 65

C. Review management's discussion and analysis (MD&A) prepared pursuant to rules and regulations adopted by the SEC

Question 66

Negative assurance may be expressed when an accountant is requested to report on the: A. Audit of historical financial statements. B. Compilation of prospective financial statements. C. Compliance with the provisions of the Foreign Corrupt Practices Act. D. Results of performing a review of management's assertion.

Answer 66

D. Results of performing a review of management's assertion Reviews have limited or negative assurance tied with the engagement For Attest service, NO HISTORICAL FS, NO COMPILATION, NO TAX RETURNS, and NO REFERENCE TO GAAP

Question 67

Which of the following standards should a CPA firm apply in a review of pro forma financial information? A. Statements on Standards for Accounting and Review Services. B. Statements on Standards for Attestation Engagements. C. Generally accepted auditing standards. D. Statements on Standards for Consulting Services.

Answer 67

B. Statements on Standards for Attestation Engagements

Question 68

Which of the following is a conceptual similarity between generally accepted auditing standards and the attestation standards? A. The requirement that the CPA be independent is included in both sets of standards. B. Both sets of standards require the CPA to report on the adequacy of disclosure in the financial statements. C. All of the standards in generally accepted auditing standards are included in the attestation standards. D. Both sets of standards are applicable to engagements regarding financial forecasts and projections.

Answer 68

A. The requirement that the CPA be independent is included in both sets of standards

Question 69

A CPA in public practice is required to comply with the provisions of the Statements on Standards for Attestation Engagements (SSAE) when: Testifying as an expert witness in accounting and auditing matters given stipulated facts - YES / NO Compiling a client's financial projection that presents a hypothetical course of action - YES / NO

Answer 69

Testifying as an expert witness in accounting and auditing matters given stipulated facts - NO [advocating for a client DOES NOT APPLY for SSAE] Compiling a client's financial projection that presents a hypothetical course of action - NO [compilation of FS projections DOES NOT APPLY for SSAE]

Question 70

Which of the following professional services would be considered an attestation engagement? A. Providing financial analysis, planning, and capital acquisition services as a part-time, in-house controller. B. Examining the income statement and balance sheet for one year in the future based on client expectations and predictions. C. Advocating on behalf of a client about trust tax matters under review by the Internal Revenue Service. D. Advising management in the selection of a computer system to meet business needs.

Answer 70

B. Examining the income statement and balance sheet for one year in the future based on client expectations and predictions For Attest, think EXAMINE, REVIEW or AGREED UPON PROCEDURES on subject matter NO TO ADVOCACY SERVICES, NO TO CONSULTING SERVICES

Question 71

Which of the following statements best serves as management's assertion of consistency in an MD&A presentation? A. Information included in the presentation is properly classified and described. B. Descriptions of transactions are included to understand financial condition. C. Nonfinancial data have been accurately derived from related records. D. Reported transactions took place during a given period.

Answer 71

C. Nonfinancial data have been accurately derived from related records MD&A = management discussion & analysis

Question 72

Which of the following statements best serves as management's assertion of presentation and disclosure in an MD&A presentation? A. Information included in the presentation is properly classified and described. B. Descriptions of transactions are included to understand financial condition. C. Nonfinancial data have been accurately derived from related records. D. Reported transactions took place during a given period.

Answer 72

A. Information included in the presentation is properly classified and described

Question 73

Which of the following statements best serves as management's assertion of completeness in an MD&A presentation? A. Information included in the presentation is properly classified and described. B. Descriptions of transactions are included to understand financial condition. C. Nonfinancial data have been accurately derived from related records. D. Reported transactions took place during a given period.

Answer 73

B. Descriptions of transactions are included to understand financial condition

Question 74

Which of the following statements best serves as management's assertion of occurrence in an MD&A presentation? A. Information included in the presentation is properly classified and described. B. Descriptions of transactions are included to understand financial condition. C. Nonfinancial data have been accurately derived from related records. D. Reported transactions took place during a given period.

Answer 74

D. Reported transactions took place during a given period

Question 75

A CPA is required to comply with the provisions of Statements on Standards for Attestation Engagements when engaged to: A. Provide assurance on investment performance statistics prepared by an investment company on established criteria. B. Compile financial statements in conformity with a comprehensive basis of accounting other than GAAP. C. Issue a letter for an underwriter, also known as a comfort letter, to a broker or dealer of securities. D. Communicate with an audit committee regarding management's consultations with another CPA.

Answer 75

A. Provide assurance on investment performance statistics prepared by an investment company on established criteria

Question 76

A CPA is required to comply with the provisions of Statements on Standards for Accounting and Review Services when engaged to: A. Provide assurance on investment performance statistics prepared by an investment company on established criteria. B. Compile financial statements in conformity with a comprehensive basis of accounting other than GAAP. C. Issue a letter for an underwriter, also known as a comfort letter, to a broker or dealer of securities. D. Communicate with an audit committee regarding management's consultations with another CPA.

Answer 76

B. Compile financial statements in conformity with a comprehensive basis of accounting other than GAAP

Question 77

A CPA is required to comply with the provisions of Statements on Auditing Standards when engaged to: A. Provide assurance on investment performance statistics prepared by an investment company on established criteria. B. Compile financial statements in conformity with a comprehensive basis of accounting other than GAAP. C. Issue a letter for an underwriter, also known as a comfort letter, to a broker or dealer of securities. D. Communicate with an audit committee regarding management's consultations with another CPA.

Answer 77

C. Issue a letter for an underwriter, also known as a comfort letter, to a broker or dealer of securities

Question 78

A CPA is required to comply with the provisions of Statements on Auditing Standards and PCAOB Auditing Standards when engaged to: A. Provide assurance on investment performance statistics prepared by an investment company on established criteria. B. Compile financial statements in conformity with a comprehensive basis of accounting other than GAAP. C. Issue a letter for an underwriter, also known as a comfort letter, to a broker or dealer of securities. D. Communicate with an audit committee regarding management's consultations with another CPA.

Answer 78

D. Communicate with an audit committee regarding management's consultations with another CPA

Question 79

A practitioner is engaged to express an opinion on management's assertion that the square footage of a warehouse offered for sale is 150,000 square feet. The practitioner should refer to which of the following sources for professional guidance? A. Statements on Standards for Attestation Engagements. B. Statements on Auditing Standards. C. Statements on Standards for Consulting Services. D. Statements on Standards for Accounting and Review Services.

Answer 79

A. Statements on Standards for Attestation Engagements

Question 80

Which of the following would not be considered an attest engagement subject to attestation standards? A. An engagement to review the financial statements of a nonpublic company. B. An engagement to examine management's assertion about a subject matter. C. An engagement to review pro forma financial statements. D. An engagement to examine a financial forecast.

Answer 80

A. An engagement to review the financial statements of a nonpublic company Review of a non public company’s FS is conducted under SSARS instead (Statements on Standards for Accounting and Review Services

Question 81

Which of the following is a conceptual difference between the attestation standards and generally accepted auditing standards (GAAS)? A. The attestation standards do not permit an attest engagement to be part of a business acquisition study or a feasibility study. B. The attestation standards provide a framework for the attest function beyond historical financial statements. C. GAAS allows the auditor to use another auditor's work while attestation standards do not allow the use of another practitioner's work. D. The requirement that the practitioner be independent is omitted from the attestation standards.

Answer 81

B. The attestation standards provide a framework for the attest function beyond historical financial statements

Question 82

In an attest engagement, use of the accountant's report should be restricted to specified parties in all of the following situations, except: A. When the criteria used to evaluate the subject matter are appropriate for only a limited number of parties. B. When performing an assertion-based examination, the engaging party is not the responsible party, and a written assertion has not been provided. C. When reporting on an examination of a financial projection. D. When reporting on an assertion about the subject matter instead of reporting directly on the subject matter.

Answer 82

D. When reporting on an assertion about the subject matter instead of reporting directly on the subject matter

Question 83

A practitioner reporting on pro forma financial information does not possess an understanding of the client's business and the industry in which the client operates. The practitioner should take which of the following actions? A. Refer a substantial portion of the audit to another CPA who will act as the principal practitioner. B. Review industry trade journals. C. Issue a disclaimer, because the scope of work was not sufficient to express an opinion. D. Perform ratio analysis of the financial data of comparable prior periods.

Answer 83

B. Review industry trade journals If one does not have the knowledge, find a way to obtain the appropriate knowledge before commencing the engagement

Question 84

An auditor of a local government obtained reasonable assurance by obtaining sufficient, appropriate evidence about the measurement of a financial subject matter against relevant criteria. The auditor then drew reasonable conclusions to develop an opinion about whether the subject matter is in accordance with the criteria and is fairly stated in all material respects. According to GAGAS, the nature of this engagement best qualifies it as which of the following? A. An examination B. A review C. A financial audit D. An agreed-upon procedure

Answer 84

A. An examination Reasonable assurance = EXAMINATION Limited (negative) assurance = REVIEW

Question 85

Which of the following qualifies as a prospective financial statement? [forward looking and based on projections] A) completely expired financials B) pro-forma financials C) partially expired financials D) partial presentations

Answer 85

C) partially expired financials Financial forecasts and projections are two types of prospective financial statements

Question 87

The party responsible for the prospective financial statements is the _________________ A) those charged with governance B) management of the company C) board of directors D) practitioner, CPA

Answer 87

B) management of the company

Question 88

_______________ use means the statements issued will be used by parties not negotiating directly with the responsible party (issuing company). Only financial forecast is appropriate for this type of use. A) reasonable use B) restricted use C) limited use D) general use

Answer 88

D) general use

Question 89

________________ use means that the financial statements will only be used by the responsible party alone or by parties negotiating directly with the responsible party (issuing company). Both financial forecast and financial projections are appropriate for this type of use A) reasonable use B) restricted use C) limited use D) general use

Answer 89

C) limited use

Question 90

With the facts stated below, which engagement fits best with the engagement type described? -Statement on Standards for Accounting and Review services (SSARS) guidance -Agree on engagement terms [prep of historical FS] -Understand entity’s financial reporting framework [prep of historical FS] -Prepare FS [prep of historical FS] -Include legend on each page [prep of historical FS] A) preparation engagement B) compilation engagement C) examination engagement D) agreed upon procedures engagement

Answer 90

A) preparation engagement

Question 91

With the facts stated below, which engagement fits best with the engagement type described? -Statement on Standards for Accounting and Review services (SSARS) guidance -Purpose: proper assembling of financial data based on responsible party assumptions -No assurance of any kind. Promulgated by AICPA -Read prospective FS with summaries of significant assumptions -Practitioner not required to gather supporting evidence, but be aware of obvious inappropriate assumptions -Independence is not required, lack of independence should be disclosed. Permitted to disclose reasons A) preparation engagement B) compilation engagement C) examination engagement D) agreed upon procedures engagement

Answer 91

B) compilation engagement

Question 92

With the facts stated below, which engagement fits best with the engagement type described? -More substantial in scope and responsibility than compilation or AUP engagement -Purpose: express opinion on conformity with AICPA guidelines and assumptions providing reasonable basis -Independence is required -Sufficient evidence must be obtained in order to express an opinion -Express opinion on prospective financial statement based on examination A) preparation engagement B) compilation engagement C) examination engagement D) agreed upon procedures engagement

Answer 92

C) examination engagement

Question 93

With the facts stated below, which engagement fits best with the engagement type described? -I.AM.SURE I - Independence A - Agreement of parties M - Measurability and consistency S - Sufficiency of procedures U - Use of the report to be general or restricted R - Responsibility of subject matter E - Engagement to perform agreed upon procedures A) preparation engagement B) compilation engagement C) examination engagement D) agreed upon procedures engagement

Answer 93

D) agreed upon procedures engagement

Question 94

If the following issues are presented, note the kind of modified opinion that would be expressed for each: 1. AICPA presentation guidelines are not followed 2. Significant assumptions not disclosed 3. Basis not reasonable 4. Scope limitation

Answer 94

1. AICPA presentation guidelines are not followed - QUALIFIED “EXCEPT FOR…” OR ADVERSE 2. Significant assumptions not disclosed - ADVERSE 3. Basis not reasonable - ADVERSE 4. Scope limitation - DISCLAIMER

Question 95

Mill, CPA, was engaged by a group of royalty recipients to apply agreed-upon procedures to financial data supplied by Modern Co. regarding Modern's written assertion about its compliance with contractual requirements to pay royalties. Mill's report on these agreed-upon procedures should contain a (an): A. Acknowledgment that the sufficiency of the procedures is solely Mill's responsibility. B. Disclaimer of opinion about the fair presentation of Modern's financial statements. C. Opinion about the effectiveness of Modern's internal control activities concerning royalty payments. D. List of the procedures performed (or reference thereto) and Mill's findings.

Answer 95

D. List of the procedures performed (or reference thereto) and Mill's findings

Question 96

Accepting an engagement to examine an entity's financial projection most likely would be appropriate if the projection were to be distributed to: A. A bank with which the entity is negotiating for a loan. B. All employees who work for the entity. C. All stockholders of record as of the report date. D. Potential stockholders who request a prospectus or a registration statement.

Answer 96

A. A bank with which the entity is negotiating for a loan Financial projection is limited use to the public. Also based on hypothetical assumptions “what if” Forecasting is appropriate for general use

Question 97

When a CPA examines a client's projected financial statements, the CPA's report should: A. Include the CPA's opinion on the client's ability to continue as a going concern. B. Refer to the CPA's auditor's report on the historical financial statements. C. State that the CPA performed procedures to evaluate management's assumptions. D. Explain the principal differences between historical and projected financial statements.

Answer 97

C. State that the CPA performed procedures to evaluate management's assumptions “…included such procedures as we considered necessary to evaluate both the assumptions used by management and the preparation and presentation of the projection."

Question 98

How is an agreed-upon procedures engagement best characterized? A. An engagement for which a client requested a practitioner to issue a report of findings based on specific procedures performed on a subject matter B. An inquiry into circumstances surrounding an allegation or incident C. An engagement that covers slightly less than a full audit D. An examination of information that results in the practitioner expressing negative assurance on the subject matter

Answer 98

A. An engagement for which a client requested a practitioner to issue a report of findings based on specific procedures performed on a subject matter

Question 99

If an auditor of a nonissuer concludes that reasonable justification exists to change an audit engagement to an agreed-upon procedures engagement, then the report should: A. Refer to the original audit engagement only if requested by management and approved by those charged with governance. B. Generally not include a reference to the original audit engagement but include an explanatory paragraph discussing the change requested by management. C. Refer to the original engagement only if the work performed to the date of the change was not sufficient to complete the revised engagement. D. Not include a reference to the original audit engagement but may include a reference to procedures that have been performed.

Answer 99

D. Not include a reference to the original audit engagement but may include a reference to procedures that have been performed

Question 100

Which of the following statements is least likely to be included in a practitioner's report on agreed-upon procedures? A. The practitioner is required to be independent. B. The report has provided limited assurance. C. The subject matter is the responsibility of the responsible party. D. The adequacy of the procedures performed was acknowledged by the engaging party.

Answer 100

B. The report has provided limited assurance Corrected response: Agreed upon procedures provide NO ASSURANCE

Question 101

When preparing a report for an agreed-upon procedures engagement, a practitioner should consider whether: A. The results of the procedures applied provide sufficient evidence to support the practitioner's conclusions regarding the subject matter. B. The procedures performed by the practitioner were in accordance with GAAS. C. The procedures performed by the practitioner were sufficient for the purpose for which the report has been requested. D. Matters came to the practitioner's attention that significantly contradict the subject matter referred to in the report.

Answer 101

D. Matters came to the practitioner's attention that significantly contradict the subject matter referred to in the report.

Question 102

Which of the following characteristics of prospective financial statements would require the practitioner to include in a report on the prospective financial statements a paragraph that restricts the use and distribution of the report? A. They contain a range of forecasted results. B. They are prepared by a practitioner who lacks independence. C. They are considered a financial forecast. D. They are considered a financial projection.

Answer 102

D. They are considered a financial projection

Question 103

Prospective financial statements in an attestation engagement for a nonissuer should not: A. Reflect anticipated changes in the company's operations. B. Incorporate opinions from the company's legal counsel. C. Include the impact of qualitative factors. D. Be expected to be as precise as historical information..

Answer 103

D. Be expected to be as precise as historical information

Question 104

Which of the following procedures should an accountant perform during an engagement to compile prospective financial statements? A. Compare the prospective financial statements with the entity's historical results for the prior year. B. Make inquiries about the accounting principles used in the preparation of the prospective financial statements. C. Make inquiries prior to the date of the report about possible future transactions that may impact the forecast once the report is issued. D. Test the entity's internal controls to determine if adequate controls exist so that financial projections can be reasonably achieved.

Answer 104

B. Make inquiries about the accounting principles used in the preparation of the prospective financial statements

Question 105

Accepting an engagement to compile a financial projection most likely would be inappropriate if the projection is to be distributed to: A. Potential stockholders in an offering statement. B. A financial institution in a loan application. C. A state or federal regulatory agency. D. The entity's principal stockholder, to the exclusion of the other stockholders.

Answer 105

A. Potential stockholders in an offering statement Financial projections are for limited use only - only be used by responsible party alone

Question 106

An accountant's compilation report on a financial forecast should include a statement that: A. There will usually be differences between the forecasted and actual results. B. The hypothetical assumptions used in the forecast are reasonable in the circumstances. C. The forecast should be read only in conjunction with the audited historical financial statements. D. The accountant expresses only limited assurance on the forecasted statements and their assumptions.

Answer 106

A. There will usually be differences between the forecasted and actual results

Question 107

An accountant's compilation report on a financial projection that does not contain a range should include a statement that: A. The projection is limited to presenting, in the form of financial statements, information that is the accountant's representation. B. The accountant's responsibility to update the report for future events and circumstances is limited to one year. C. The compilation includes an evaluation of the support for the assumptions underlying the projection. D. There will usually be differences between the projected and actual results because events and circumstances frequently do not occur as expected.

Answer 107

D. There will usually be differences between the projected and actual results because events and circumstances frequently do not occur as expected

Question 108

An accountant's standard report on a compilation of a projection should not include a statement that: A. There will usually be differences between the projected and actual results. B. The accountant has no responsibility to update the report for future events and circumstances. C. The hypothetical assumptions used in the projection are reasonable in the circumstances. D. The compilation was performed in accordance with Statements on Standards for Accounting and Review Services.

Answer 108

C. The hypothetical assumptions used in the projection are reasonable in the circumstances

Question 109

When an accountant compiles a financial forecast, the accountant's report should include a(an): A. Disclaimer of opinion on the reliability of the entity's internal controls. B. Statement that the accountant's responsibility to update the report is limited to one year. C. Caveat that the prospective results of the financial forecast may not be achieved. D. Explanation of the differences between a financial forecast and a financial projection.

Answer 109

C. Caveat that the prospective results of the financial forecast may not be achieved

Question 110

When an accountant compiles projected financial statements, the accountant's report should include a statement that: A. Describes the limitations on the projection's usefulness. B. Documents the assessment of the risk of material misstatement due to fraud. C. Expresses limited assurance that the actual results may be within the projected range. D. Explains the difference between a compilation and a review.

Answer 110

A. Describes the limitations on the projection's usefulness

Question 111

A nonissuer engaged a practitioner to perform agreed-upon procedures on specified matters. The date of the practitioner's report would ordinarily be determined by the occurrence of which of the following events? A. The receipt of the signed engagement letter from the client. B. The completion of the agreed-upon procedures. C. The client's review and approval of the contents of a draft report. D. The delivery of the final report to the client.

Answer 111

B. The completion of the agreed-upon procedures

Question 112

An accountant who accepts an engagement to compile a financial projection most likely would make the client aware that the: A. Accountant's responsibility to update the projection for future events and circumstances is limited to one year. B. Engagement does not include an evaluation of the support for the assumptions underlying the projection. C. Projection omits all hypothetical assumptions and presents the most likely future financial position. D. Projection may not be included in a document with audited historical financial statements.

Answer 112

B. Engagement does not include an evaluation of the support for the assumptions underlying the projection

Question 113

When an accountant compiles projected financial statements, the accountant's report should include a statement that: A. Expresses limited assurance that the results will be within the projected range. B. Describes the limitations on the usefulness of the projection. C. Disclaims any form of assurance on the historical financial statements. D. Evaluates the hypothetical assumptions used to prepare the projection.

Answer 113

B. Describes the limitations on the usefulness of the projection

Question 114

Prospective financial information presented in the format of historical financial statements that omit either gross profit or net income is deemed to be a: A. Partial presentation. B. Projected balance sheet. C. Financial projection. D. Financial forecast.

Answer 114

A. Partial presentation

Question 115

An accountant's report on a review of pro forma financial information should include a: A. Caveat that it is uncertain whether the transaction or event reflected in the pro forma financial information will ever occur. B. Reference to the financial statements from which the historical financial information is derived. C. Disclaimer of opinion on the financial statements from which the pro forma financial information is derived. D. Statement that the entity's internal control was not relied on in the review.

Answer 115

B. Reference to the financial statements from which the historical financial information is derived

Question 116

An accountant has been engaged to examine pro forma adjustments that show the effects on previously audited historical financial statements due to a proposed disposition of a significant portion of an entity's business. Other than the procedures previously applied to the historical financial statements, the accountant is required to: Reevaluate the entity’s internal control over financial reporting - YES / NO Determine that the computations of the pro forma adjustments are mathematically correct - YES / NO

Answer 116

Reevaluate the entity’s internal control over financial reporting - NO Determine that the computations of the pro forma adjustments are mathematically correct - YES

Question 117

In which of the following engagements would a practitioner provide limited assurance about the possible significant effects on the historical financial statements if a change in capitalization had occurred at an earlier date? A. A review of pro forma financial information. B. An examination of management's discussion and analysis. C. A compilation of a financial projection. D. An audit of condensed interim financial information.

Answer 117

A. A review of pro forma financial information

Question 118

Service organizations often have an auditor perform an attestation ________________ engagement to report on the control of the service organization that are relevant to the user’s system of internal control over financial reporting or are relevant to the security and confidentiality of the information processed by the service organization A) preparation engagement B) compilation engagement C) examination engagement D) agreed upon procedures engagement

Answer 118

C) examination engagement

Question 119

Name and match the specific parties involved in the following example Choices A) user entity / user organization B) user auditor C) service organization D) service auditor 1) ABC Firm audits 2) Party Solutions. Party Solutions uses 3) Quick Payroll to process its payroll transactions. 4) XYZ Firm audits Quick Payroll…

Answer 119

1) ABC Firm - user auditor 2) Party Solutions - user entity / user organization 3) Quick Payroll - service organization 4) XYZ Firm - service auditor

Question 120

The procedures below are tailored for which of the following party? -assess suitability of the criteria -obtain understating of service organization system -obtain evidence regarding management’s description -obtain evidence regarding design of controls -obtain evidence regarding operating effectiveness of controls (Type 2 only) -obtain written representations from management -consider subsequent events A) user entity / user organization B) user auditor C) service organization D) service auditor

Answer 120

D) service auditor

Question 122

-Report on controls relevant to user entities Internal control over financial reporting -issued by service auditor -used by user entity and user auditor -evaluate impact that certain relevant controls at service organization have on the financial statements of the user entity -restricted to the management of the service organization, user entity and user auditor SOC 1 or SOC 2?

Answer 122

SOC 1 - Internal control over Financial reporting

Question 123

-Report on controls relevant to security, availability, processing integrity, confidentiality or privacy -issued by service auditor -give assurance to broad range of users -controls in place relevant to one or more of the Trust Services Criteria of security, availability, processing integrity, confidentiality, and privacy SOC 1 or SOC 2?

Answer 123

SOC 2 - Trust Services Criteria

Question 125

What is a difference between Type 1 and Type 2 SOC report?

Answer 125

Type 1 - reports on DESIGN AND IMPLEMENTATION of a service organizations identified controls. NO ASSURANCE ON OPERATING EFFECTIVENESS of the controls. In opinion section: -fairly presents design and implementation -suitably designed as of specified date Type 2 - reports on DESIGN, IMPLEMENTATIONS, AND OPERATING EFFECTIVENESS of a service organizations controls. In opinion section: -fairly presents design and implementation, suitably designed, and operated effectively

Question 126

This report aids the user auditor in obtaining understanding of controls. This is provided when test of the operating effectiveness of the service organizations controls were not performed, and therefore, does not provide user auditor with basis for reducing the assessment of control risk below maximum A) SOC 1, Type 1 report B) SOC 1, Type 2 report C) SOC 2, Type 1 report D) SOC 2, Type 2 report

Answer 126

A) SOC 1, Type 1 report

Question 127

This report provides the user auditor with assurance about the design, implementation, and operating effectiveness of the service organizations internal controls, and therefore may provide evidence that would allow a reduction in the assessed level of control risk for areas of the entity’s accounting that are affected by service organization A) SOC 1, Type 1 report B) SOC 1, Type 2 report C) SOC 2, Type 1 report D) SOC 2, Type 2 report

Answer 127

B) SOC 1, Type 2 report

Question 128

The user auditor should issue a ________________ opinion or ________________ if the auditor is unable to obtain sufficient appropriate audit evidence regarding the services provided by a service organization relevant to the audit A) unmodified opinion B) qualified opinion / disclaimer C) qualified opinion / adverse D) withdrawal

Answer 128

B) qualified opinion / disclaimer

Question 129

The user auditor ___(SHOULD / SHOULD NOT)___ make reference to the report of the service auditor in an unmodified opinion issued by the user auditor

Answer 129

SHOULD NOT - only if there’s an unmodified opinion

Question 130

User auditor is ____PERMITTED / NOT PERMITTED____ to make reference to the work of the service auditor in the user auditors report to explain a modification of the user auditor’s opinion

Answer 130

PERMITTED - only to explain modification to opinion

Question 131

When a user auditor plans to use a SOC 1® Type 2 report as audit evidence to reduce the assessed level of control risk for areas of the user entity's accounting affected by the service organization, the user auditor should be satisfied regarding all of the following except: A. The service auditor is both competent and independent. B. Any relevant complementary controls have been designed and implemented and operating effectiveness has been evaluated. C. The tests of controls performed by the service auditor are relevant to the assertions in the user entityʹs financial statements. D. The reperformance of the tests of controls by the user auditor over the service organizationʹs controls to verify the same conclusions as the service auditor.

Answer 131

D. The reperformance of the tests of controls by the user auditor over the service organizationʹs controls to verify the same conclusions as the service auditor SOC 1, type 2 report can be relied on without reperformance by user auditor

Question 132

When a service organization provides services that affect the initiation, execution, processing, or reporting of a user company's transactions, those services are: A. Considered to be part of the user company's control activities. B. Considered to be part of the user company's information system. C. Not considered to be part of the user company's internal control. D. Considered to be part of the user company's control environment.

Answer 132

B. Considered to be part of the user company's information system

Question 133

What is a service auditor's responsibility, if any, with regard to other information presented in a document containing management's description of its system and the service auditor's report? A. To obtain supporting documentation for the other information. B. To read the other information in order to identify material inconsistencies or misstatements. C. The auditor has no responsibility with regard to the other information presented. D. To ensure that the format of the other information is consistent with industry practice.

Answer 133

B. To read the other information in order to identify material inconsistencies or misstatements

Question 134

Quick Service Center processes the payroll for a variety of clients, including James Industries. Adams, CPA, is Quick's auditor, while Robinson, CPA, is the auditor for James Industries. Which of the following is not required of Adams? A. Making inquiries regarding the professional reputation of Robinson, CPA. B. Issuing a report that describes the scope and nature of the procedures performed. C. Inquiring of management regarding subsequent events that might significantly affect user organizations such as James Industries. D. Obtaining a letter of representation from the management of Quick Service Center.

Answer 134

A. Making inquiries regarding the professional reputation of Robinson, CPA Instead, user auditor [Robinson] would make inquiries about service auditor [Adams]

Question 135

Which of the following is an appropriate use of a service auditor's report on a service organization's internal controls? A. A user auditor may use the service auditor's report as a part of the financial statement audit. B. A service auditor's report is issued to illustrate the division of responsibility for the audit of the financial statements. C. A user auditor cannot rely on the service auditor's report as part of the financial statement audit. D. A user auditor should make reference to the service auditor's report as a basis, in part, for an opinion on the user organization's financial statements.

Answer 135

A. A user auditor may use the service auditor's report as a part of the financial statement audit

Question 136

Which of the following statements correctly states the difference between SOC 1® and SOC 2® reports regarding internal controls at a service organization? A. The use of a SOC 1® report is restricted but the use of a SOC 2® report is not. B. A SOC 1® report is a report on the internal controls related to one or more of the Trust Services Criteria and a SOC 2® report is a report on internal controls over financial reporting at a service organization. C. A SOC 1® report never tests the operating effectiveness of internal controls; a SOC 2® report always includes the tests over the operating effectiveness of internal controls. D. A SOC 1® report is a report on the internal controls over financial reporting at a service organization and a SOC 2® report is a report on internal controls related to one or more of the Trust Services Criteria.

Answer 136

D. A SOC 1® report is a report on the internal controls over financial reporting at a service organization and a SOC 2® report is a report on internal controls related to one or more of the Trust Services Criteria

Question 137

Which of the following procedures should a user auditor include in the audit plan to create the most efficient audit when an audit client uses a service organization for several processes? A. Pass on planning procedures over the processes impacted by the service organization and instead refer to the work of the service auditor in the audit opinion. B. Review the service auditor's SOC 1® report. C. Audit the service organization's controls, assess risk, and prepare the audit plan. D. Audit the service organization's controls to test the work of the service auditor.

Answer 137

B. Review the service auditor's SOC 1® report.

Question 138

A service organization provides processing services for a client's sales orders. Which of the following information is relevant when gathering data for the report on the service organization's internal controls? A. The client's sales manager reviews accounts receivable balances. B. The service organization's system calculates accounts receivable balances. C. Credit limits are established and updated by the client's credit department. D. The client's data entry clerk used the sales manager's password to make unauthorized changes to customer prices.

Answer 138

B. The service organization's system calculates accounts receivable balances The concern is on service organization’s system, not on the clients controls

Question 139

Gem, CPA, is the auditor of the financial statements of Simple Inc. Simple Inc uses Arrow LLC, a third-party service provider, to house Simple's lease information and generate lease-related journal entries on its behalf. In performing the audit planning for the engagement, which of the following reports related to Arrow LLC would be most useful to Gem as a form of audit evidence in reducing the assessed risk of material misstatement? A. SOC 2® Type 2 report B. SOC 2® Type 1 report C. SOC 1® Type 1 report D. SOC 1® Type 2 report

Answer 139

D. SOC 1® Type 2 report This SOC and report type provides user auditor with assurance about design implementation and operating effectiveness of internal controls

Question 140

Computer Services Company (CSC) processes payroll transactions for schools. Drake, CPA, is engaged to provide a SOC 1® Type 1 report. CSC's internal controls are relevant to the schools' internal control, so Drake's report will be useful in providing the schools' independent auditors with information necessary to plan their audits. Drake's report should contain: A. A paragraph indicating the basis for the user auditor to reduce the assessment of control risk below maximum for areas of the entity's accounting that are affected by the service organization. B. Drake's description of the service organization's system, with an acknowledgement by management of the accuracy of Drake's description. C. Management's description of the service organization's system. D. Drake's opinion on the operating effectiveness of the service center's internal controls.

Answer 140

C. Management's description of the service organization's system

Question 141

Dunn, CPA, is auditing the financial statements of Taft Co. Taft uses Quick Service Center (QSC) to process its payroll. Price, CPA, is expressing an opinion solely on the design and implementation of the controls in place at QSC regarding the processing of its customers' payroll transactions. Price's report should contain a (an): A. Opinion on the operating effectiveness of QSC's internal controls. B. Statement that Dunn may assess control risk based on Price's report. C. Assertion that Price assumes no responsibility to determine whether QSC's controls are suitably designed. D. Description of the scope and nature of Price's procedures.

Answer 141

D. Description of the scope and nature of Price's procedures

Question 142

Payroll Data Co. (PDC) processes payroll transactions for a retailer. Cook, CPA, is engaged to express an opinion on the description of PDC's system and the suitability of the design of PDC's internal controls placed in operation as of a specific date. These controls are relevant to the retailer's internal control, so Cook's report may be useful in providing the retailer's independent auditor with information necessary to plan a financial statement audit. Cook's report should: A. State whether PDC's controls were suitably designed to achieve the retailer's objectives. B. Disclose Cook's assessed level of control risk for PDC. C. Contain a disclaimer of opinion on the operating effectiveness of PDC's controls. D. Identify PDC's controls relevant to specific financial statement assertions.

Answer 142

C. Contain a disclaimer of opinion on the operating effectiveness of PDC's controls Because since this is a Type 1 report, there will be NO testing on operating effectiveness. Since that cannot be done, auditor should disclaimer opinion on operating effectiveness

Question 143

Obtaining a SOC 1® Type 2 report would assist the user auditor in all of the following ways except: A. Allowing the reduction in the assessed control risk below maximum for controls related to areas of accounting impacted by the service organization. B. Allowing the user auditor to pass on any substantive testing over balances related to the areas of accounting impacted by the service organization. C. Aiding the user auditor in obtaining a better understanding of the controls related to areas of accounting impacted by the service organization. D. Providing the user auditor with assurance of the operating effectiveness of controls related to areas of accounting impacted by the service organization.

Answer 143

B. Allowing the user auditor to pass on any substantive testing over balances related to the areas of accounting impacted by the service organization

Question 144

A user auditor of a nonissuer should perform which of the following procedures to obtain audit evidence related to the operating effectiveness of a service organization's controls when the risk assessment includes an expectation that the controls are operating effectively? A. Performing substantive tests at the service organization. B. Obtaining and reading a Type 2 report, if available. C. Obtaining the user organization's representation regarding the effectiveness of the service organization's controls. D. Obtaining and reading a Type 1 report, if available.

Answer 144

B. Obtaining and reading a Type 2 report, if available

Question 145

An auditor is auditing a mutual fund company that uses a transfer agent to handle accounting for shareholders. Which of the following actions by the auditor would be most efficient for obtaining information about the transfer agent's internal controls? A. Review a report on the design, implementation, and effectiveness of the transfer agent's internal controls produced by the agent's own auditor. B. Perform an audit on the internal control function of the agent. C. Perform tests of controls on a sample of the audited firm's transactions through the agent. D. Review prior-year workpapers to determine whether the number of transactions processed by the agent has materially increased.

Answer 145

A. Review a report on the design, implementation, and effectiveness of the transfer agent's internal controls produced by the agent's own auditor This is equivalent to SOC 1, Type 2 report

Question 146

An audit client has substantial assets held in a trust that is managed by the trust department of a bank. Which of the following actions by the auditor is the most efficient way to obtain information about the trust department’s internal controls in order to determine if a reduction in the assessed level of control risk in the areas impacted by the trust department's controls is appropriate? A. Perform tests of controls on a sample of the client’s transactions with the trust department. B. Rely on a SOC 1® Type 1 report from the auditor of the trust department. C. Ask management of the trust department to complete a questionnaire about internal controls and provide flowcharts for related processes. D. Rely on a SOC 1® Type 2 report from the auditor of the trust department.

Answer 146

D. Rely on a SOC 1® Type 2 report from the auditor of the trust department

Question 147

Which of the following is a requirement for accepting an attestation engagement to report on the controls at a service organization? A. The service auditor has the competence and capability to perform the engagement. B. Management agrees that the service auditor will be responsible for documenting the controls. C. The description of the controls is completed prior to the signing of the engagement letter. D. The suitability of the evaluation criteria is reviewed by a third party.

Answer 147

A. The service auditor has the competence and capability to perform the engagement

Question 148

A nonissuer uses a service organization whose services are part of the nonissuer's system of internal control. In the integrated audit, how does an auditor evaluate whether the service auditor's report on controls provides sufficient appropriate evidence to support an opinion on internal controls over financial reporting? A. By performing a background check of the service auditor. B. By assessing the results of the tests of controls and the service auditor's opinion on the operating effectiveness of the controls. C. By inquiring of the service auditor's reputation only from the company's outside attorney. D. By observing the service auditor to determine the level of knowledge about the entity under audit during the first week of the audit fieldwork.

Answer 148

B. By assessing the results of the tests of controls and the service auditor's opinion on the operating effectiveness of the controls

Question 149

Green, CPA, is auditing the financial statements of Ajax Co. Ajax uses the DP Service Center to process its payroll. DP's service auditor is Blue, CPA, who recently issued a SOC 1® report on DP's internal controls. In considering whether Blue's report is satisfactory for Green's purposes, Green should: A. Perform tests of controls at the DP Service Center. B. Review the audit programs followed by Blue. C. Assess control risk at the maximum level. D. Make inquiries concerning Blue's competence.

Answer 149

D. Make inquiries concerning Blue's competence User auditor (Green) would make inquiries on service auditor (Blue) competence

Question 150

A client uses a service organization to process its payroll. Which of the following statements is correct regarding the user auditor's use of the service auditor's report on internal controls placed in operation? A. The client's auditor can use the service auditor's report to jointly determine the materiality level. B. The service auditor's report should be referred to in the report of the client's auditor. C. The client's auditor can use the service auditor's report without inquiring about the service auditor's reputation. D. The client's auditor can use the service auditor's report in its assessment of the client's internal controls.

Answer 150

D. The client's auditor can use the service auditor's report in its assessment of the client's internal controls

Question 151

The kind of assurance to be issued when an auditor is asked to issue a report on client’s compliance with contractual agreements OR regulatory requirements in connection with a FS audit. This is in a form of a statement that nothing came to the auditor’s attention that caused them to believe that the entity failed to comply with specified aspects of the contractual agreement or regulatory requirement A) positive assurance B) negative assurance C) general assurance D) reasonable assurance

Answer 151

B) negative assurance

Question 152

Match the type of engagement with the Accounting Standard, then with the Assurance provided Type of engagement -Examination -Compliance report in connection with audited FS -Agreed upon procedures Standards -Standard Auditing Standards (SAS) -Statement on Standards for Attestation Engagements (SSAE) -Statement on Standards for Accounting and Review Services (SSAR) Assurance provided -Positive assurance -Negative assurance -No assurance

Answer 152

-Examination > SSAE > and Reasonable assurance -Compliance report in connection with audited FS > SAS > Negative assurance -Agreed upon procedures > SSAE > No assurance

Question 153

When an auditor is asked to issue a report on a client's compliance with contractual agreements or regulatory requirements in connection with a financial statement audit, which of the following statements is true? A. The auditor must have expressed an unmodified opinion on the financial statements and may only issue negative assurance on compliance. B. The auditor must have audited the client's financial statements and may only issue negative assurance on compliance. C. The auditor must have audited the client's financial statements and may only issue reasonable assurance on compliance. D. The auditor may only issue negative assurance on compliance and an audit of the client's financial statements is not required.

Answer 153

B. The auditor must have audited the client's financial statements and may only issue negative assurance on compliance

Question 154

Which of the following factors is an auditor least likely to consider when reporting on compliance with aspects of contractual agreement in connection with audited financial statements in accordance with Statements on Auditing Standards? A. The appropriate opinion to render in the report on compliance with aspects of the contractual agreement. B. Whether the applicable covenants have been subjected to audit procedures as part of the financial statement audit. C. The users of the auditor's report on compliance. D. The opinion rendered on the audited financial statements.

Answer 154

A. The appropriate opinion to render in the report on compliance with aspects of the contractual agreement Negative assurance, not an opinion, may be rendered when auditor is reporting on compliance

Question 155

When an auditor reports on compliance with contractual agreements in a separate report in connection with an audit of financial statements of a nonissuer, the report should include a: A. Statement that the audit was directed primarily toward obtaining knowledge regarding compliance. B.Reference to the specific date on which sufficient documentation regarding compliance was obtained. C. Reference to specific covenants of the contractual agreements. D. Statement that no financial statement audit was performed.

Answer 155

C. Reference to specific covenants of the contractual agreements Doing so is required in cashes or noncompliance

Question 156

When an auditor reports on a nonissuer's compliance with aspects of contractual agreements in a report separate from the audit report on the financial statements, the report should include a statement that: A. The audit was directed primarily toward obtaining knowledge regarding compliance. B. Instances of noncompliance have been disclosed to those charged with governance. C. The report is being provided in connection with the audit of the financial statements. D. Includes interpretations made by the auditors relating to the contractual agreements.

Answer 156

C. The report is being provided in connection with the audit of the financial statements

Question 157

The objective of a practitioner's examination procedures applied to an entity's compliance with specified requirements is to: A. Provide negative assurance on compliance with contractual agreements or regulatory requirements. B. Present specific findings to assist users in evaluating an entity's compliance with specified requirements. C. Express an opinion on an entity's compliance (or related assertion), based on specified criteria. D. Provide recommendations to management on controls related to compliance with contractual agreements or regulatory requirements.

Answer 157

C. Express an opinion on an entity's compliance (or related assertion), based on specified criteria When you see EXAMINATION, THINK AUDIT, THEN EXPRESS OPINION

Question 158

In an examination of an entity's compliance with specified requirements, a practitioner is expected to perform all of the following except: A. Obtain oral representations from management regarding compliance with the specified requirements. B. Prepare reports and required documentation. C. Determine if supplementary audit requirements exist. D. Perform a risk assessment and design responses to such assessment.

Answer 158

A. Obtain oral representations from management regarding compliance with the specified requirements Representations from writing MUST be in WRITING!!!

Question 159

A practitioner has examined a client's compliance with debt covenants associated with a bank loan and is ready to issue a report. Which of the following standards apply to the report? A. Internal control standards. B. Compliance attestation standards. C. Agreed-upon procedures standards. D. Auditing standards of field work.

Answer 159

B. Compliance attestation standards Compliance attestation standards apply for examination of client’s compliance with specified requirements

Question 160

Which of the following is a correct statement about a practitioner who is engaged to examine an entity's compliance with requirements of specific rules in accordance with Statements on Standards for Attestation Engagements? A. A practitioner should assess control risk. B. The practitioner does not need to be independent for this engagement but should disclose lack of independence. C. The practitioner's consideration of materiality should be the same as the consideration in the audit of financial statement performed in accordance with generally accepted auditing standards. D. The practitioner should design the examination to detect intentional material noncompliance, but does not need to design the examination to detect unintentional material noncompliance.

Answer 160

A. A practitioner should assess control risk During an examination of entity;s compliance, risk assessment should be done on control risk

Question 161

In an examination of an entity's compliance with specified requirements, the practitioner must document which of the following? A. Recommendations to management on controls over compliance with specified requirements. B. The assessed risk of material noncompliance including procedures performed and documentation of internal controls. C. A statement that the practitioner provides absolute assurance that no material noncompliance exists. D. The rationale for materiality levels expressed in quantifiable monetary terms.

Answer 161

B. The assessed risk of material noncompliance including procedures performed and documentation of internal controls

Question 162

An auditor conducting a compliance audit will design and perform additional audit procedures in response to the assessed risk of material noncompliance. These procedures will include tests of controls if: A. The auditor has determined a deficiency in the design of internal control over compliance. B. Tests of controls are required by the governmental audit requirement. C. The auditor's expectation of the operating effectiveness of controls over compliance is otherwise unknown. D. The auditor has been engaged to perform an organization-wide audit.

Answer 162

B. Tests of controls are required by the governmental audit requirement

Question 163

In an examination of an entity’s compliance, a practitioner’s materiality is affected by 1. Nature of compliance requirements [may or may not be quantifiable in monetary terms] 2. Nature and frequency of noncompliance identified with appropriate consideration of sampling risk 3. Qualitative considerations, including needs and expectations of report’s users A) 2 and 3 only B) 1, 2 and 3 C) 1 and 3 only D) 1 only

Answer 163

B) 1, 2 and 3

Question 164

The following details represents the standard: -audits of nonissuers -issued by AICPA’s Auditing Standards Board in form of Statements on Auditing Standards (SAS) -applicable to all audits A) IFRS B) GAGAS C) GAAP D) GAAS

Answer 164

D) GAAS

Question 165

The following details represents the standard: -organized as foundations and ethical principles, general standards, standards for financial audits and attestation engagements, and fieldwork and reporting standards for performance audits -standards for audits of gov’t organizations, programs, activities and functions -Also known as “Yellow Book” A) IFRS B) GAGAS C) GAAP D) GAAS

Answer 165

B) GAGAS

Question 166

Which of the following statements is a standard applicable to financial statement audits in accordance with Government Auditing Standards? A. An auditor should report on the scope of the auditor's testing of internal controls. B. An auditor should briefly describe in the auditor's report the method of statistical sampling used in performing tests of controls and substantive tests. C. An auditor should determine the extent to which the entity's programs achieve the desired level of results. D. An auditor should assess whether the entity has reportable measures of economy and efficiency that are valid and reliable.

Answer 166

A. An auditor should report on the scope of the auditor's testing of internal controls “In planning and performing our audit of the FS, we considered the internal control over financial reporting to determine audit procedures that are appropriate in the circumstances for the purpose of expressing opinion on FS

Question 167

Which of the following statements is a standard applicable to performance audits in accordance with Government Auditing Standards? A. An auditor should report on the scope of the auditor's testing of internal controls. B. An auditor should briefly describe in the auditor's report the method of statistical sampling used in performing tests of controls and substantive tests. C. An auditor should determine the extent to which the entity's programs achieve the desired level of results. D. An auditor should assess whether the entity has reportable measures of economy and efficiency that are valid and reliable.

Answer 167

B. An auditor should briefly describe in the auditor's report the method of statistical sampling used in performing tests of controls and substantive tests OR D. An auditor should assess whether the entity has reportable measures of economy and efficiency that are valid and reliable

Question 168

Which of the following statements is a standard applicable to program audits in accordance with Government Auditing Standards? A. An auditor should report on the scope of the auditor's testing of internal controls. B. An auditor should briefly describe in the auditor's report the method of statistical sampling used in performing tests of controls and substantive tests. C. An auditor should determine the extent to which the entity's programs achieve the desired level of results. D. An auditor should assess whether the entity has reportable measures of economy and efficiency that are valid and reliable.

Answer 168

C. An auditor should determine the extent to which the entity's programs achieve the desired level of results

Question 169

Government Auditing Standards published by the Government Accountability Office: A. Only apply to audits of governments. B. Only apply to audits of federal financial assistance programs operated by state and local governments. C. Only apply to audits of governments receiving federal financial assistance. D. Primarily apply to audits of federal financial assistance and government organizations.

Answer 169

D. Primarily apply to audits of federal financial assistance and government organizations GAS standards would also apply to non-profit organizations or other organizations

Question 170

Generally accepted government auditing standards use which of the following terms to describe a professional requirement to comply with a standard or provide a special explanation for not doing so? A. Unconditional requirement. B. Explanatory requirement. C. Presumptively mandatory requirement. D. Conditional requirement.

Answer 170

C. Presumptively mandatory requirement Requirement must be followed in all cases where requirement is relevant. GAGAS standards uses the term “should” to describe presumptively mandatory items

Question 171

When performing an audit of a government entity under generally accepted government auditing standards, an auditor: A. May use a specialist with required professional skills, if needed, at the auditor's discretion. B. Makes decisions to ensure that statements are not materially misstated. C. Is primarily responsible to the director of the Government Accountability Office. D. May use the information obtained in any way the auditor deems appropriate.

Answer 171

A. May use a specialist with required professional skills, if needed, at the auditor's discretion Since the use of specialist is permitted under GAAS, GAGAS may follow the same need for one

Question 172

In performing an audit in accordance with Generally Accepted Government Auditing Standards (the "Yellow Book"), the auditor: A. Accepts shared responsibility with Federal Inspectors General, who are equally responsible for compliance evaluation, control, and reporting. B. Accepts equal reporting responsibilities with that accepted under GAAS audits, since compliance evaluation and reporting have implied financial statement implications and require expanded treatment as a material contingency. C. Accepts greater reporting responsibilities than accepted under a GAAS audit, since the auditor must report on compliance with laws, rules, and regulations, violations of which may affect financial statement amounts, and on the organization's internal control over financial reporting. D. Accepts less responsibility in conducting fieldwork than is accepted in a GAAS audit, since the specific requirements of the Generally Accepted Government Auditing Standards reduce required professional judgment.

Answer 172

C. Accepts greater reporting responsibilities than accepted under a GAAS audit, since the auditor must report on compliance with laws, rules, and regulations, violations of which may affect financial statement amounts, and on the organization's internal control over financial reporting Reporting responsibilities under GAGAS are expanded beyond what is initially incorporated from GAAS

Question 173

Government Auditing Standards published by the United States Government Accountability Office define standards associated with the following types of engagements: A. Audits, reviews, and compilations. B. Financial audits, attest engagements, and program-specific audits. C. Financial audits, single audits, and program specific audits. D. Financial audits, attest engagements, and performance audits.

Answer 173

D. Financial audits, attest engagements, and performance audits

Question 174

An auditor should establish with the management of a governmental entity an understanding of each of the following matters, except: A. The limitations of the engagement. B. The objectives of the engagement. C. The responsibilities of entity management. D. The inherent limitations of internal control.

Answer 174

D. The inherent limitations of internal control

Question 175

The auditor's objectives in a compliance audit of a governmental entity include: A. Limiting auditing procedures and audit exposure to the standards described by GAAS and GAGAS. B. Minimizing control risk of noncompliance. C. Providing negative assurance regarding a legal determination of compliance. D. Forming an opinion on whether the government complied in all material respects with applicable compliance requirements.

Answer 175

D. Forming an opinion on whether the government complied in all material respects with applicable compliance requirements After doing this, then reporting at the level specified by the governmental audit requirement

Question 176

After performing a compliance audit of an entity that received federal funds, what conclusion would the auditor draw if the entity does not have adequate documentation to support $5 million in operating expenses paid from federal program funds? A. The entity submitted unauthorized invoices for expenses. B. The entity spent $5 million in operating expenses that were not approved. C. The entity spent $5 million of government funds for services that were not required. D. Questioned costs of $5 million for operating expenses have been identified.

Answer 176

D. Questioned costs of $5 million for operating expenses have been identified This questioned costs of $5M would appear on schedule of findings and questioned costs for federal awards

Question 177

An auditor who identifies a potential fraud that is significant within the context of the audit under generally accepted government auditing standards would most appropriately respond first in which of the following manners? A. Extend audit procedures as necessary to determine whether fraud has occurred. B. Communicate the potential fraud directly to management. C. Refer investigation of the potential fraud to the party with oversight responsibility. D. Recommend a separate engagement to determine whether fraud has occurred.

Answer 177

A. Extend audit procedures as necessary to determine whether fraud has occurred This is the first step. Second step is choice B - to communicate to management

Question 178

The auditor's report on compliance and internal control over financial reporting designed to meet the requirements of Government Auditing Standards (the Yellow Book), should include: I. The scope of the auditor's testing of internal controls. II. Uncorrected misstatements that were determined by management to be immaterial. A. I only. B. II only. C. Neither I nor II. D. Both I and II.

Answer 178

A. I only Immaterial uncorrected misstatements are NOT included in auditors report on ICFR. This would only be mentioned to management. Noteworthy accomplishments of the program are also NOT included in report! In summary, the Yellow Book report supplements the standard GAAS audit report by including a detailed description of the scope of testing, findings on internal control and compliance, and clarifying the auditor’s and management’s responsibilities without providing an opinion on internal control or compliance effectiveness.

Question 179

When auditing an entity's financial statements in accordance with Government Auditing Standards (the Yellow Book), an auditor is required to report on: I. Recommendations for actions to improve operations. II. The scope of the auditor's tests of compliance with laws and regulations. A. II only. B. I only. C. Both I and II. D. Neither I nor II.

Answer 179

A. II only

Question 180

An auditor was engaged to conduct a performance audit of a governmental entity in accordance with Government Auditing Standards. These standards do not require, as part of this auditor's report: A. Indications or instances of illegal acts that could result in criminal prosecution discovered during the audit. B. A concurrent opinion on the financial statements taken as a whole. C. A statement of the audit objectives and a description of the audit scope. D. The pertinent views of the entity's responsible officials concerning the auditor's findings.

Answer 180

B. A concurrent opinion on the financial statements taken as a whole So, the only opinion required in a GAGAS audit report is on the financial statements themselves. Opinions on internal control or compliance are not required and are explicitly not given. While the auditor may perform a financial statement audit separately (which includes an opinion on the financial statements), the performance audit report itself does not include an opinion on the financial statements

Question 181

Which of the following is a documentation requirement that an auditor should follow when auditing in accordance with Government Auditing Standards? A. Audit documentation should contain sufficient information so that supplementary oral explanations are not required. B. Audit documentation should contain a caveat that all instances of material errors and fraud may not be identified. C. The auditor should obtain written representations from management acknowledging responsibility for correcting instances of fraud, abuse, and waste. D. The auditor should document the procedures that assure discovery of all illegal acts and contingent liabilities resulting from noncompliance

Answer 181

A. Audit documentation should contain sufficient information so that supplementary oral explanations are not required

Question 182

When auditing an entity's financial statements in accordance with Government Auditing Standards, an auditor should prepare a written report on the auditor's: A. Opinion on the entity's attainment of the goals and objectives specified by applicable laws and regulations. B. Field work and procedures that substantiated the auditor's specific findings and conclusions. C. Understanding of internal control and assessment of control risk. D. Identification of the causes of performance problems and recommendations for actions to improve operations.

Answer 182

C. Understanding of internal control and assessment of control risk Other notables for audit report: -the auditor would identify deficiencies, significant deficiencies, and material weaknesses in internal control over compliance -

Question 183

In performing a financial statement audit in accordance with Government Auditing Standards, an auditor is required to report on the entity's compliance with laws and regulations. This report should: A. State that the audit should be planned to obtain reasonable assurance about whether noncompliance could have a material effect on the entity's programs. B. Provide an opinion on overall compliance with laws and regulations. C. Provide negative assurance of the entity's legal compliance. D. Describe the laws and regulations that the entity must comply with.

Answer 183

A. State that the audit should be planned to obtain reasonable assurance about whether noncompliance could have a material effect on the entity's programs

Question 184

Government auditing standards require: A. A report on internal control, either orally or in writing. B. A written report on internal control only when there are reportable conditions. C. A written report on internal control only when there are reportable conditions that are significant enough to be material weaknesses. D. A written report on internal control in every audit.

Answer 184

D. A written report on internal control in every audit

Question 185

The GAO standards of reporting for governmental financial audits incorporate the AICPA standards of reporting and prescribe supplemental standards to satisfy the unique needs of governmental audits. Which of the following is a supplemental reporting standard for governmental financial audits? A. Any privileged or confidential information discovered should be reported to the organization that arranged for the audit. B. All changes in the audit program from the prior year should be reported to the entity's audit committee. C. Auditors should report the scope of their testing of compliance with laws and regulations and of internal controls. D. Material indications of illegal acts should be reported in a document distributed only to the entity's senior officials.

Answer 185

C. Auditors should report the scope of their testing of compliance with laws and regulations and of internal controls

Question 186

An enterprise engaged a CPA to audit its financial statements in accordance with Government Auditing Standards (the Yellow Book) because of the provisions of government grant funding agreements. Under these circumstances, the CPA is required to report on the enterprise's internal controls either in the report on the financial statements or in: A. A letter to the government funding agency. B. A separate report. C. The report on the performance audit. D. The notes to the financial statements

Answer 186

B. A separate report

Question 187

Reporting standards for financial audits under Government Auditing Standards (the Yellow Book) differ from reporting under generally accepted auditing standards in that Government Auditing Standards require the auditor to: A. Provide positive assurance that control activities regarding segregation of duties are consistent with the entity's control objectives. B. Provide negative assurance that the auditor discovered no evidence of intentional override of internal controls. C. Present the results of the auditor's tests of controls. D. Describe the scope of the auditor's principal substantive tests.

Answer 187

C. Present the results of the auditor's tests of controls The report on FS would describe the scope of the testing of compliance and ICFR, and present the results of those tests

Question 188

Compliance audit workpapers will include all of the following documentation, except: A. Risk assessment procedures performed including those related to gaining an understanding of the internal control over compliance. B. Materiality levels. C. Responses to the assessed risk of noncompliance including tests of compliance and tests of controls D. Final basis for the opinion on the effectiveness of internal control over compliance.

Answer 188

D. Final basis for the opinion on the effectiveness of internal control over compliance Auditor DOES NOT EXPRESS AN OPINION on effectiveness of ICOFR. Therefore, documentation of conclusions for an opinion would NOT be appropriate

Question 189

An independent auditor is issuing an audit report for a governmental entity and plans to issue separate reports on internal control over financial reporting and compliance with laws and regulations. The auditor should do which of the following? A. Issue the same opinion in each report. B. Obtain permission from the audit committee to issue separate reports. C. Report to the governing authority that separate reports will be issued. D. State in the audit report that separate reports will be issued.

Answer 189

D. State in the audit report that separate reports will be issued This would appear as paragraph “Other Reporting Required by Government Auditing Standards” in auditors report

Question 190

Which of the following is correct about reporting on compliance with laws and regulations in a financial audit under Government Auditing Standards (the Yellow Book)? A. Auditors are not required to report fraud, illegal acts, and other material noncompliance in the audit report. B. In some circumstances, auditors are required to report fraud and illegal acts directly to parties external to the audited entity. C. The auditor's key findings of the audit of the financial statements should be communicated in a separate report. D. The reporting standards in a governmental audit modify the auditor's responsibilities under generally accepted auditing standards.

Answer 190

B. In some circumstances, auditors are required to report fraud and illegal acts directly to parties external to the audited entity External parties can include grantors and inspectors generals

Question 191

For a performance audit in accordance with GAGAS, if certain pertinent information is excluded from the audit report due to the confidential or sensitive nature of the information, then the auditor should do which of the following? A. Remove all reference to the information from the retained audit documentation. B. Issue a qualified report. C. Disclose in the report that certain information has been omitted and the reasons that make the omission necessary. D. Issue a disclaimer.

Answer 191

C. Disclose in the report that certain information has been omitted and the reasons that make the omission necessary

Question 192

A report on internal control over compliance will include which of the following assertions? A. Identification of material weakness in the event an adverse opinion is expressed. B. A disclaimer of opinion on internal control over compliance. C. Disclaimer of opinion in the event that significant weaknesses are identified. D. An opinion as to whether internal controls were adequate to provide reasonable assurance that the organization would comply, in all material respects, with laws rules and regulations.

Answer 192

B. A disclaimer of opinion on internal control over compliance

Question 193

The auditors' purpose in establishing materiality levels in a compliance audit includes all of the following, except: A. Evaluate whether the entity has complied with applicable requirements. B. Establishing the basis for the opinion on effectiveness of internal control over compliance. C. Determining the nature, timing and extent of additional audit procedures. D. Determining the nature and extent of risk assessment procedures.

Answer 193

B. Establishing the basis for the opinion on effectiveness of internal control over compliance Auditor DOES NOT EXPRESS an opinion on effectiveness of internal control over compliance!

Question 194

An auditor most likely would be responsible for communicating significant deficiencies in the design of internal control: A. To specific legislative and regulatory bodies when reporting under Government Auditing Standards. B. To a court-appointed creditors' committee when the client is operating under Chapter 11 of the Federal Bankruptcy Code. C. To shareholders with significant influence (more than 20% equity ownership) when the signficant deficiencies (reportable conditions) are deemed to be material weaknesses. D. To the Securities and Exchange Commission when the client is a publicly-held entity.

Answer 194

A. To specific legislative and regulatory bodies when reporting under Government Auditing Standards

Question 195

In reporting on compliance with laws and regulations during a financial statement audit in accordance with Government Auditing Standards, an auditor should include in the auditor's report: A. The materiality criteria used by the auditor in considering whether instances of noncompliance were significant. B. An opinion on whether compliance with laws and regulations affected the entity's goals and objectives. C. A statement of assurance that all controls over fraud and illegal acts were tested. D. Material instances of fraud and illegal acts that were discovered.

Answer 195

D. Material instances of fraud and illegal acts that were discovered

Question 196

For financial statement audits, generally accepted government auditing standards (GAGAS) incorporate the Statements on Auditing Standards (SAS) that are issued by the AICPA. GAGAS prescribe additional standards on: Direct reporting of illegal acts - YES / NO Reporting on internal controls - YES / NO

Answer 196

Direct reporting of illegal acts - YES Reporting on internal controls - YES

Question 197

While conducting an audit in accordance with Government Auditing Standards (the Yellow Book), an auditor determines that fraud has been committed in one of the client's government contracts. The auditor reports the fraud to the client's audit committee, which takes no action to report the fraud to appropriate parties. To which of the following entities is the auditor required to report this situation? A. The Association of Certified Fraud Examiners. B. The client's board of directors. C. The client's CEO. D. The counterparty to the contract.

Answer 197

D. The counterparty to the contract This is the party that is contracting for, or requesting the audit

Question 198

For financial statement audits performed in accordance with generally accepted government auditing standards, auditors should report which of the following? A. All violations of private grant agreements, regardless of materiality. B. Significant changes in the entity's internal control policies. C. Significant deficiencies in internal control. D. Suspected noncompliance with provisions of laws, regulations, contracts, or grant agreements.

Answer 198

C. Significant deficiencies in internal control

Question 199

Because of the pervasive effects of laws and regulations on the financial statements of governmental units, an auditor should obtain written management representations acknowledging that management has: A. Employed internal auditors who can report their findings, opinions, and conclusions objectively without fear of political repercussion. B. Expressed both positive and negative assurance to the auditor that the entity complied with all laws and regulations. C. Implemented internal controls designed to detect all illegal acts. D. Responsibility for understanding and complying with compliance requirements.

Answer 199

D. Responsibility for understanding and complying with compliance requirements

Question 200

Management's written representation to the auditor in connection with a governmental audit would most likely include: A. A statement that management had identified and disclosed all material government programs to the auditor. B. Representation that all known noncompliance had been reported or negative assurance that other noncompliance likely does not exist. C. Negative assurance that the government has complied with compliance requirements. D. Identification of management's interpretation of compliance requirements that are subject to different interpretations.

Answer 200

D. Identification of management's interpretation of compliance requirements that are subject to different interpretations

Question 201

An auditor is preparing a report on internal control over financial reporting for a governmental entity. If the auditor identified significant deficiencies and material weaknesses in the entity's internal control over financial reporting, then the auditor should: A. Report as findings the significant deficiencies identified but not the material weaknesses. B. Report as findings the material weaknesses identified but not the significant weaknesses. C. Report as findings neither the significant deficiencies nor the material weaknesses identified. D. Report as findings both the significant deficiencies and the material weaknesses.

Answer 201

D. Report as findings both the significant deficiencies and the material weaknesses

Question 202

Audits of an entire organization that include additional audit procedures on specific programs are called ________________. These audits include a report on the FS of the whole organization and audit reports on the specific programs Audits of specific programs are called ________________, and do not include reports on the FS of the organization taken as a whole A) single audit; program-specific audits B) program-specific audits; single audit C) program-specific audits; government audits D) performance audits; examination audits

Answer 202

A) single audit; program-specific audits

Question 203

Auditor selection must be selected by ____________, using procurement standards established by federal guidelines. A) engagement partner B) auditee C) Uniform Grant guidance committee D) board of directors

Answer 203

B) auditee This ensures the appointment of an auditor possessing the necessary expertise through an open and competitive proposal process. Procurement standards preclude (prevent/make impossible) limitations on competition

Question 204

Audit report must be submitted within earlier of: 1) ___________ of receipt of auditors report OR 2) ___________ after the end of the audit period. Reports must be retained for 3) ____________ from the date of submission A) 45 calendar days; 3 months; 1 year B) 60 calendar days; 1 month; 2 years C) 15 calendar days; 5 months; 5 years D) 30 calendar days; 9 months; 3 years

Answer 204

D) 30 calendar days; 9 months; 3 years Audit report must be submitted within earlier of: 1) ___30 calendar days___ of receipt of auditors report OR 2) __9 months__ after the end of the audit period. Reports must be retained for 3) __3 years___ from the date of submission

Question 205

Because single audits require that the FS also be audited, the Uniform Grant Guidance requires two uses for GAAS and GAGAS for the following reports, except A) Financial Statement Report (GAAS) B) Single Audit Report C) GAGAS (Yellow book) D) IFRS

Answer 205

D) IFRS The remaining two reports that are issued are Financial Statement Report (GAAS) Single Audit Report GAGAS (Yellow book) SEFA Report Schedule of Findings and Questioned Costs

Question 206

For percentage of coverage: For low-risk auditees, the auditor must test _________ percent of the total federal awards expended For other auditees, the auditor must test _________ percent of the total federal awards expended A) 25% ; 5% B) 20% ; 40% C) 40% ; 20% D) 10% ; 50%

Answer 206

B) 20% ; 40%

Question 207

Although the scope of audits of recipients of federal financial assistance in accordance with federal audit regulations varies, these audits generally have which of the following elements in common? A. The auditor is to determine whether the federal financial assistance has been administered in accordance with applicable laws and regulations. B. The materiality levels are lower and are determined by the government entities that provided the federal financial assistance to the recipient. C. The auditor is required to express both positive and negative assurance that illegal acts that could have a material effect on the recipient's financial statements are disclosed to the inspector general. D. The auditor should obtain written management representations that the recipient's internal auditors will report their findings objectively.

Answer 207

A. The auditor is to determine whether the federal financial assistance has been administered in accordance with applicable laws and regulations

Question 208

An audit performed in accordance with 2 CFR 200 single audit will expand the auditor's responsibilities beyond generally accepted auditing standards. The auditor's expanded responsibilities include: A. Performance of additional procedures to test and report on achievement of program objectives. B. Performance of additional procedures to test and report on compliance with laws, rules, regulations and provisions of contracts or grant agreements that have a direct and material effect on major federal award programs. C. Performance of additional procedures to test for noncompliance with laws, rules and regulations targeted for review by the Office of the Inspector General. D. Performance of additional procedures to test and report on compliance with laws, rules, regulations and provisions of contracts or grant agreements that have any effect on federal award programs.

Answer 208

B. Performance of additional procedures to test and report on compliance with laws, rules, regulations and provisions of contracts or grant agreements that have a direct and material effect on major federal award programs

Question 209

In auditing a not-for-profit entity that receives governmental financial assistance, the auditor has a responsibility to: A. Render an opinion concerning the entity's continued eligibility for the governmental financial assistance. B. Notify the governmental agency providing the financial assistance that the audit is not designed to provide any assurance of detecting errors and fraud. C. Assess whether management has identified laws and regulations that have a direct and material effect on the entity's financial statements. D. Issue a separate report that describes the expected benefits and related costs of the auditor's suggested changes to the entity's internal control.

Answer 209

C. Assess whether management has identified laws and regulations that have a direct and material effect on the entity's financial statements

Question 210

The scope of audits of recipients of federal financial assistance in accordance with federal audit regulations varies. Which of the following elements do these audits have in common? A. The accounts should be 100% verified by substantive tests because certain statistical sampling applications are not permitted. B. The auditor is required to document an understanding of internal control established to provide reasonable assurance of compliance with the applicable laws and regulations. C. The materiality levels are higher and are determined by the government entities that provide the federal financial assistance to the recipients. D. The auditor is required to disclose all situations and transactions that could be indicative of fraud, abuse, and illegal acts to the federal inspector general.

Answer 210

B. The auditor is required to document an understanding of internal control established to provide reasonable assurance of compliance with the applicable laws and regulations

Question 211

In accordance with Office of Management and Budget audit requirements for audits of non-Federal entities expending Federal awards, which of the following statements is accurate regarding Federal awards expended? A. Donated surplus property cannot be valued at the assessed value provided by the federal agency. B. Food stamps cannot be valued at fair market value at the time of receipt. C. Government loans are classified as noncash assistance programs. D. Free rents received as part of an award to carry out a federal program are treated as federal funds expended.

Answer 211

D. Free rents received as part of an award to carry out a federal program are treated as federal funds expended Free rent is a form of federal assistance b/c it helps to carry out federal program without incurring cost. The free rent has value and it reduces entity’s expenses

Question 212

Richards & Duffy, certified public accountants, have been engaged to perform an audit of Sleepy Knoll Township in accordance with 2 CFR 200 single audit. In connection with that engagement, Richards & Duffy will determine major programs: A. By testing enough grants to achieve a single specific coverage percentage. B. By applying a risk-based approach. C. By applying only a specific dollar threshold, where all programs exceeding the threshold would be considered major. D. Using a list of programs included in the work plan of the Office of the Inspector General.

Answer 212

B. By applying a risk-based approach

Question 213

Auditors conducting an audit in accordance with the Single Audit Act use a risk-based approach designed to: A. Reduce audit risk by providing an equal opportunity for all expended federal dollars to be tested. B. Reduce audit risk by providing an equal opportunity for all grants to be tested. C. Focus the audit on high-risk programs. D. Focus the audit on grants related to large federal programs.

Answer 213

C. Focus the audit on high-risk programs

Question 214

In auditing compliance with requirements governing major federal financial assistance programs under the Single Audit Act, the auditor's consideration of materiality differs from materiality under generally accepted auditing standards. Under the Single Audit Act, materiality is: A. Calculated in relation to the financial statements taken as a whole. B. Ignored, because all account balances, regardless of size, are fully tested. C. Determined separately for each major federal financial assistance program. D. Decided in conjunction with the auditor's risk assessment.

Answer 214

C. Determined separately for each major federal financial assistance program

Question 215

A CPA is engaged to audit the financial statements of a local government that receives federal awards. The CPA will be required to perform a single audit for which of the following reasons? A. To provide reasonable assurance of detecting material misstatements resulting from noncompliance with provisions of contracts or grant agreements that have a direct and material effect on the determination of financial statement amounts B. To determine whether the entity complied with laws, regulations, and the provisions of contracts or grant agreements pertaining to federal awards that have a direct and material effect on each major program C. To provide reasonable assurance that the financial statements are free of material misstatements, whether caused by error or fraud D. To provide reasonable assurance that the financial statements are free of material misstatements resulting from violations of laws and regulations that have a direct and material effect on the determination of financial statement amounts

Answer 215

B. To determine whether the entity complied with laws, regulations, and the provisions of contracts or grant agreements pertaining to federal awards that have a direct and material effect on each major program

Question 216

Richards & Duffy, certified public accountants, have been engaged to perform a single audit of Sleepy Knoll Township, a local government receiving substantial federal financial assistance for community development and housing assistance. A single audit represents: A. An inception to date audit of only federal financial assistance programs over the course of the grant year specified by the grant award. B. An audit of the township's financial statements and the fair presentation of the revenues derived from federal financial assistance. C. An audit of annual activity of only federal financial assistance programs over the course of the town's fiscal year. D. An audit of the township's financial statements and of compliance with federal regulations relating to federal financial assistance as prescribed by the Single Audit Act and 2 CFR 200.

Answer 216

D. An audit of the township's financial statements and of compliance with federal regulations relating to federal financial assistance as prescribed by the Single Audit Act and 2 CFR 200

Question 217

Wolf is auditing an entity's compliance with requirements governing a major federal financial assistance program in accordance with Government Auditing Standards. Wolf detected noncompliance with requirements that have a material effect on the program. Wolf's report on compliance should express: A. An adverse or disclaimer of opinion. B. A qualified or adverse opinion. C. Reasonable assurance on the compliance tests. D. No assurance on the compliance tests.

Answer 217

B. A qualified or adverse opinion For Single Audit Act, which applies if entity spends more than 750k, the auditor WILL express an opinion on compliance If noncompliance is material, but not pervasive = QUALIFIED If noncompliance is material + pervasive = ADVERSE

Question 218

Which of the following cognizant agencies is most likely to be assigned to an auditee? A. The federal agency that is located within the auditee's region. B. An independent federal agency that does not provide funding to the auditee. C. The federal agency that provides the most funding to the auditee. D. A preselected federal agency whose sole purpose is to monitor single audits.

Answer 218

C. The federal agency that provides the most funding to the auditee The cognizant agency is the federal agency that provides the largest amount of direct funding because they have the greatest interest and oversight responsibility

Question 219

How does Title 2 of the Code of Federal Regulations (containing single audit requirements) define a subrecipient? A. As an individual who receives and expends federal awards received from a pass-through entity. B. As a nonfederal entity that provides a federal award to another entity to carry out a federal program. C. As a dealer, distributor, merchant, or other seller providing goods or services that are required for the conduct of a federal program. D. As a nonfederal entity that expends federal awards received from another entity to carry out a federal program.

Answer 219

D. As a nonfederal entity that expends federal awards received from another entity to carry out a federal program

Question 220

How does Title 2 of the Code of Federal Regulations (containing single audit requirements) define a recipient? A. As an individual who receives and expends federal awards received from a pass-through entity. B. As a nonfederal entity that provides a federal award to another entity to carry out a federal program. C. As a dealer, distributor, merchant, or other seller providing goods or services that are required for the conduct of a federal program. D. As a nonfederal entity that expends federal awards received from another entity to carry out a federal program.

Answer 220

A. As an individual who receives and expends federal awards received from a pass-through entity B. As a nonfederal entity that provides a federal award to another entity to carry out a federal program

Question 221

Which of the following engagements require the practitioner to be independent in order to issue a report, even though the report contains no assurance? A. Agreed-upon procedure B. Preparation C. Compilation D. Review

Answer 221

A. Agreed-upon procedure

Question 222

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

Answer 222

C. All stockholders of record as of the report date When compiling financial projections, projections are distributed to responsible parties [principal stock holder only] or 3rd parties [bank or labor union

Question 223

When preparing a report for an agreed-upon procedures engagement, a practitioner should consider whether: A. The procedures performed by the practitioner were in accordance with GAAS. B. The results of the procedures applied provide sufficient evidence to support the practitioner's conclusions regarding the subject matter. C. Matters came to the practitioner's attention that significantly contradict the subject matter referred to in the report. D. The procedures performed by the practitioner were sufficient for the purpose for which the report has been requested.

Answer 223

C. Matters came to the practitioner's attention that significantly contradict the subject matter referred to in the report

Question 224

In the integrated audit of an issuer, an auditor has identified entity-level controls that are important to the conclusion as to whether the company has effective internal control over financial reporting. Each of the following is an example of an entity-level control, except: A. Controls over the completeness of deposited cash. B. Controls over the period-end financial reporting process. C. The company's risk assessment process. D. Controls over management override.

Answer 224

A. Controls over the completeness of deposited cash

Question 225

Which of the following engagements require the practitioner to be independent in order to issue a report, even though the report contains no assurance? A. Agreed-upon procedure B. Preparation C. Compilation D. Review

Answer 225

A. Agreed-upon procedure

Question 226

Computer Services Company (CSC) processes payroll transactions for schools. Drake, CPA, is engaged to provide a SOC 1® Type 1 report. CSC's internal controls are relevant to the schools' internal control, so Drake's report will be useful in providing the schools' independent auditors with information necessary to plan their audits. Drake's report should contain: A. Management's description of the service organization's system. B. Drake's opinion on the operating effectiveness of the service center's internal controls. C. Drake's description of the service organization's system, with an acknowledgement by management of the accuracy of Drake's description. D. A paragraph indicating the basis for the user auditor to reduce the assessment of control risk below maximum for areas of the entity's accounting that are affected by the service organization.

Answer 226

A. Management's description of the service organization's system This answer choice would apply for SOC 1, Type 1 report

Question 227

Computer Services Company (CSC) processes payroll transactions for schools. Drake, CPA, is engaged to provide a SOC 1® Type 2 report. CSC's internal controls are relevant to the schools' internal control, so Drake's report will be useful in providing the schools' independent auditors with information necessary to plan their audits. Drake's report should contain: A. Management's description of the service organization's system. B. Drake's opinion on the operating effectiveness of the service center's internal controls. C. Drake's description of the service organization's system, with an acknowledgement by management of the accuracy of Drake's description. D. A paragraph indicating the basis for the user auditor to reduce the assessment of control risk below maximum for areas of the entity's accounting that are affected by the service organization.

Answer 227

B. Drake's opinion on the operating effectiveness of the service center's internal controls This answer choice would apply for SOC 1, Type 2 report

Question 228

When an accountant compiles a financial forecast, the accountant’s report should include: A. A statement restricting the use of the report. B. A statement that the accountant did not audit or review the financial statements nor was the accountant required to perform any procedures to verify the accuracy or completeness of information provided by management. C. A statement that the underlying assumptions are suitably supported and provide a reasonable basis for the forecast. D. A statement that the practitioner assumes no responsibility to update the report for events and circumstances occurring after the date of the report.

Answer 228

D. A statement that the practitioner assumes no responsibility to update the report for events and circumstances occurring after the date of the report