A6 - MCQ

Question 1

__________________ standard is issued by AICPA, and they provide guidelines for CPA’s performing engagement on unaudited financial statements for non public companies, including engagements like preparation, compilation, and review services

A) Generally Accepted Government Auditing Standards (GAGAS)
B) Statements on Auditing Standards (SAS)
C) Statements on Standards for Attestation Engagements (SSAE)
D) Statements on Standards for Accounting and Review Services (SSARS)

Answer 1

D) Statements on Standards for Accounting and Review Services (SSARS)

Question 2

What kind of service is described with what’s mentioned below in facts?

-prepare FS in accordance with specified financial reporting framework
-no audit or review procedures
-provides no assurance
-considered non-attest service
-does not require determination of whether accountant is independent of entity

A) compilation
B) preparation
C) review
D) agreed upon procedures

Answer 2

B) preparation

Question 3

What kind of service is described with what’s mentioned below in facts?

-present in a form of FS information that is the representation of management without undertaking
-no audit or review services
-no assurance
-because a report is required, this is an attest engagement
-independence is not required, but determination of whether accountant is independent of entity is required

A) compilation
B) preparation
C) review
D) agreed upon procedures

Answer 3

A) compilation

Question 4

What kind of service is described with what’s mentioned below in facts?

-express limited (negative) assurance
-no material modifications to be made to FS in order for it to be in conformity with applicable framework
-based on inquiry and analytical procedures performed by CPA
-both assurance and attest engagement
-independence is required
-no opinions, instead, express conclusions

A) compilation
B) preparation
C) review
D) agreed upon procedures

Answer 4

C) review

Question 5

Note a YES or NO if Statements on Standards for Accounting and Review Services (SSARS) would apply

-preparing one-few adjusting or correcting entries YES / NO
-consulting on financial matters - YES / NO
-preparing tax returns - YES / NO
-rendering manual or automated bookkeeping or data processing services - YES / NO
-processing financial data for clients of other accounting firms - YES / NO
-preparing many adjusting or correcting entries - YES / NO
-reviews of interim financial information of non-issuers whose FS were audited - YES / NO

Answer 5

-preparing one-few adjusting or correcting entries NO
-consulting on financial matters - NO
-preparing tax returns - NO
-rendering manual or automated bookkeeping or data processing services - NO
-processing financial data for clients of other accounting firms - NO
-preparing many adjusting or correcting entries - YES [considered preparation of FS]
-reviews of interim financial information of non-issuers whose FS were audited - NO

Question 6

If management is unwilling to accept management related responsibilities for SSARS engagement, or if accountant has reason to believe that the information needed to perform is unavailable or unreliable or if they doubt managements integrity, what should the accountant do?

A) do not accept the engagement
B) express conclusion
C) express disclaimer of opinion
D) accept the engagement, and express adverse opinion

Answer 6

A) do not accept the engagement

Question 7

If preliminary understanding of the engagement circumstances indicates that ethical requirements regarding quality management cannot be satisfied, the accountant should

A) do not accept the engagement
B) express conclusion
C) express disclaimer of opinion
D) accept the engagement, and express adverse opinion

Answer 7

A) do not accept the engagement

Question 8

For subsequent events, if the auditor receives evidence/information about subsequent events that require adjustment/disclosure in FS, and if the accountant determines that the subsequent event is not adequately accounted for in the FS or not disclosed in the notes

A) do not accept the engagement
B) express conclusion
C) express disclaimer of opinion
D) express qualified or adverse opinion

Answer 8

D) express qualified or adverse opinion

Treated as departure from GAAP or applicable financial reporting framework

Question 9

An accountant is most likely required to follow Statements on Standards for Accounting and Review Services (SSARS) when the accountant has:

A. Proposed correcting journal entries to be recorded by the client that change client-prepared financial statements.

B. Provided a client with a financial statement format that does not include dollar amounts, to be used by the client in preparing financial statements.

C. Typed client-prepared financial statements, without modification, as an accommodation to the client.

D. Used the information in a general ledger to prepare financial statements outside of an accounting software system.

Answer 9

D. Used the information in a general ledger to prepare financial statements outside of an accounting software system

SSARS standard will be applied for ACCOUNTANT PREPARING, COMPILATION, AND REVIEWS ON FS

Question 10

When an accountant performs more than one level of service (for example, a compilation and a review, or a compilation and an audit) concerning the financial statements of a nonissuer, the accountant generally should issue the report that is appropriate for:

A. The lowest level of service rendered.
B. A review engagement.
C. A compilation engagement.
D. The highest level of service rendered.

Answer 10

D. The highest level of service rendered

Question 11

A compilation of financial statements in accordance with Statements on Standards for Accounting and Review Services is limited to presenting:

A. Accounting data that conform with a special purpose framework other than GAAP.
B. Unaudited financial statements that omit substantially all required GAAP disclosures.
C. Supplementary financial information that has been subjected to inquiry and analytical procedures.
D. Information in the form of financial statements that is the representation of management.

Answer 11

D. Information in the form of financial statements that is the representation of management

Question 12

An accountant has compiled the financial statements of a nonissuer but declines to issue a compilation report. This is an example of:

A. An appropriate reporting decision, if the accountant is not independent with respect to the nonpublic entity.
B. An inappropriate reporting decision, because SSARS require that a report be issued when an accountant has compiled financial statements.
C. An appropriate reporting decision, if the compiled financial statements are not expected to be used by a third party.
D. An appropriate reporting decision, as long as the financial statements are prepared in conformity with GAAP.

Answer 12

B. An inappropriate reporting decision, because SSARS require that a report be issued when an accountant has compiled financial statements

This is one of the characteristics of compilation. Compiled FS must be accompanied by compilation report under SSARS

Question 13

North Co., a privately-held entity, asked its tax accountant, King, a CPA in public practice, to prepare North’s interim financial statements to be presented alongside North Co.’s tax return. King should not prepare these financial statements to North unless, as a minimum, King complies with the provisions of:

A. Statements on Standards for Accounting and Review Services.
B. Statements on Standards for Attestation Engagements.
C. Statements on Standards for Consulting Services.
D. Statements on Standards for Unaudited Financial Services.

Answer 13

A. Statements on Standards for Accounting and Review Services

Since the interim FS is being prepared and presented alongside the tax return, SSARS would apply here. Usually, if interim financial information are reviewed of nonissuers whose annual financial statements are audited, SSARS would NOT apply, and SAS would then be applied instead

Question 14

Statements on Standards for Accounting and Review Services establish standards and procedures for which of the following engagements?

A. Proposing adjustments to the books of account for a partnership.
B. Reviewing interim financial data required to be filed with the SEC.
C. Preparing standard monthly journal entries.
D. Compiling an individual’s personal financial statement to be used to obtain a mortgage.

Answer 14

D. Compiling an individual’s personal financial statement to be used to obtain a mortgage

Compiling personal FS = SSARS apply
Preparing personal FS = SSARS does not apply

Question 15

An accountant is required to comply with the provisions of Statements on Standards for Accounting and Review Services (SSARS) when:

Compiling financial statements generated through the use of computer software - YES / NO
Drafting financial statement notes for the client - YES / NO

Answer 15

Compiling financial statements generated through the use of computer software - YES
Drafting financial statement notes for the client - NO [No drafting]

SSARS includes preparing, compiling or reviewing financial statements

Question 16

The authoritative body designated to promulgate standards concerning an accountant’s association with unaudited financial statements of an entity that is not required to file financial statements with an agency regulating the issuance of the entity’s securities is the:

A. Financial Accounting Standards Board.
B. Auditing Standards Board.
C. Accounting and Review Services Committee.
D. General Accounting Office.

Answer 16

C. Accounting and Review Services Committee

Question 17

An accountant performing a compilation or review of the financial statements of a nonissuer should:

A. Not depart from Statements on Auditing Standards.
B. Exercise professional judgment in applying SSARS, since they are considered recommendations as opposed to standards.
C. Never depart from SSARS guidelines.
D. Be able to justify departures from SSARS.

Answer 17

D. Be able to justify departures from SSARS

SSARS is a professional standard. An accountant may depart from these guidelines, but if so, they should be prepared to justify such departures

Question 18

A CPA is required to comply with the provisions of Statements on Standards for Accounting and Review Services when:

Proposing correcting journal entries to the financial statements - YES / NO
Preparing standard monthly journal entries - YES / NO

Answer 18

Proposing correcting journal entries to the financial statements - NO
Preparing standard monthly journal entries - NO

In this question, the amount of entries is not mentioned. If you see this, SSARS will NOT apply!

However, if the accountant prepares MANY journal entries, SSARS will apply! Because this is indicative of FS being prepared

Question 19

An accountant is required to comply with the provisions of Statements on Standards for Accounting and Review Services when:

I. Reproducing client-prepared financial statements without modification, as an accommodation to a client.
II. Preparing standard monthly journal entries for depreciation and expiration of prepaid expenses.

A. Neither I nor II.
B. II only.
C. Both I and II.
D. I only.

Answer 19

A. Neither I nor II.

SSARS = PREPARING, COMPILING, OR REVIEWING FS
NO to both. Reproducing client prepared FS is NOT PREPARING. And Preparing JE is a bookkeeping service, so NOT SSARS

Question 20

Which of the following accounting services may an accountant perform without being required to comply with Statements on Standards for Accounting and Review Services?

I. Preparing a working trial balance.
II. Preparing standard monthly journal entries.

A. Both I and II.
B. I only.
C. II only.
D. Neither I nor II.

Answer 20

A. Both I and II.

Accountant can prepare WTB and standard monthly JEs without complying to SSARS, only as long as the performance does not carry forward into preparation of the financial statements

Question 21

Which of the following factors most likely would cause an accountant not to accept an engagement to compile the financial statements of a nonissuer?

A. A lack of segregation of duties in the entity’s accounting and payroll departments.

B. Management’s acknowledgement that the financial statements will be included in a written personal financial plan.

C. Indications that reports of asset misappropriation are not investigated by management.

D. The entity’s intention to omit from the financial statements substantially all of the disclosures required by GAAP.

Answer 21

C. Indications that reports of asset misappropriation are not investigated by management

Question 22

An accountant is reviewing the financial statements of a nonpublic entity in accordance with Statements on Standards for Accounting and Review Services (SSARS). The accountant most likely would perform which of the following procedures?

A. Send bank account confirmations.
B. Obtain an understanding of the internal control structure.
C. Perform limited tests of controls.
D. Make inquiries about subsequent events.

Answer 22

D. Make inquiries about subsequent events

Question 23

An accountant compiles unaudited financial statements that are not expected to be used by a third party. The accountant may decline to issue a compilation report provided:

I. Each page of the financial statements is clearly marked to restrict its use. - YES / NO
II. A written engagement letter is used to document the understanding with the client. - YES / NO
III. A written representation letter is obtained from the client’s management. - YES / NO

Answer 23

I. Each page of the financial statements is clearly marked to restrict its use. - NO
II. A written engagement letter is used to document the understanding with the client. - NO
III. A written representation letter is obtained from the client’s management. - NO

SSARS requires compiled FS to be accompanied by compilation report, even if FS are not expected to be used by 3rd party

Question 24

Kell engaged March, CPA, to prepare to Kell a written personal financial plan containing unaudited personal financial statements. March anticipates omitting certain disclosures required by GAAP because the engagement’s sole purpose is to assist Kell in developing a personal financial plan. March is:

A. Required to follow SSARS if the omitted disclosures required by GAAP are material.

B. Required to follow SSARS if the financial statements will be presented in comparative form with those of the prior period.

C. Not required to follow SSARS because preparing written personal financial plans are excluded from SSARS requirements.

D. Not required to follow SSARS if Kell agrees the financial statements will not be disclosed to a non-CPA financial planner.

Answer 24

C. Not required to follow SSARS because preparing written personal financial plans are excluded from SSARS requirements

When an accountant prepares personal financial statements solely for inclusion of a written personal financial plan, SSARS DOES NOT APPLY

Question 25

Name the instances where accountants would either follow SSARS, or not follow SSARS - YES or NO -preparation engagements when engaged to prepare FS -prepare FS and performing audit, review or compilation of those FS -prepare FS and submission to taxing authorities -prepare FS and inclusion in writing personal financial plans prepared by accountant -prepare FS and in conjunction with litigation services that involve pending/threatening legal proceedings -prepare FS and in conjunction with business valuation services

Answer 25

-preparation engagements when engaged to prepare FS - YES -prepare FS and performing audit, review or compilation of those FS - NO -prepare FS and submission to taxing authorities - NO -prepare FS and inclusion in writing personal financial plans prepared by accountant - NO -prepare FS and in conjunction with litigation services that involve pending/threatening legal proceedings - NO -prepare FS and in conjunction with business valuation services - NO

Question 26

When establishing an understanding with management and those charged with governance, regarding the services to be performed for the preparation engagement of the FS, the understanding should include agreement of management that each page of the FS will include a statement indicating that _______________ assurance is provided on the financial statements A) positive B) negative or limited C) no D) reasonable

Answer 26

C) no assurance If no agreement, auditor can issue a disclaimer of opinion to establish that no assurance is provided on FS

Question 27

When preparing a nonissuer's financial statements, an accountant would be least likely to: A. Advise management on alternative accounting policies that are significant to the financial statements. B. Assist management in making judgments for impairment expense. C. Perform control testing around the cash disbursement process. D. Omit substantially all of the disclosures required by generally accepted accounting principles.

Answer 27

C. Perform control testing around the cash disbursement process During the preparation engagement, there is NO need to test controls or perform substantive testing procedures

Question 28

Which of the following engagements is considered a non-attest engagement? A. Preparation B. Review C. Compilation D. Audit

Answer 28

A. Preparation Because preparation engagements DO NOT involve attestation or assurance, which makes them non-attest engagements. CPA prepares financial statements based on information provided by management. Simply help on putting the numbers together

Question 29

Which of the following engagements is considered an attest engagement? A. Preparation B. Review C. Compilation D. Audit

Answer 29

B. Review - because it provides limited (negative) assurance by inquiry and analytical procedures. No opinion expressed. Instead, a conclusion is given. C. Compilation - because CPA assists in presenting financial information, and CPA is presenting FS that is representation of management and also providing a report along with it D. Audit - because auditor provides high level of assurance (reasonable) and issues an opinion on FS

Question 30

Preparation engagements should be performed in accordance with: A. Statements on Standards for Attestation Engagements B. Statements on Standards for Preparation and Compilation Services C. Statements on Standards for Accounting and Review Services D. Statements on Auditing Standards

Answer 30

C. Statements on Standards for Accounting and Review Services

Question 31

Audit engagements for nonissuers should be performed in accordance with: A. Statements on Standards for Attestation Engagements B. Statements on Standards for Preparation and Compilation Services C. Statements on Standards for Accounting and Review Services D. Statements on Auditing Standards

Answer 31

D. Statements on Auditing Standards

Question 32

A CPA is considering whether to accept an engagement to prepare financial statements for a new client. Which of the following statements is correct regarding the independence of the CPA? A. The CPA is not required to make a determination of whether the CPA is independent of the client. B. The CPA should be independent of the client. C. The CPA should obtain management's understanding regarding the benefits of an accountant being independent of a client. D. The CPA is required to disclose in the engagement report any relationships with the client's personnel.

Answer 32

A. The CPA is not required to make a determination of whether the CPA is independent of the client

Question 33

For an engagement to prepare financial statements, which of the following items should be identified in the engagement letter as management's responsibility? A. The preparation of financial statement disclosures. B. The accuracy of significant judgments to be used in the preparation of the financial statements. C. The inclusion of the financial reporting framework description on the face of the financial statements. D. The determination of the level of assurance over the financial statements.

Answer 33

B. The accuracy of significant judgments to be used in the preparation of the financial statements.

Question 34

Each page of the financial statements in a preparation engagement should include: A. A statement referring the user to see the independent accountant's preparation report. B. A statement indicating that no assurance is provided. C. A statement indicating that the financial statements were prepared in accordance with Statements on Standards for Accounting and Review Services. D. The accountant's firm name.

Answer 34

B. A statement indicating that no assurance is provided

Question 35

In a preparation engagement, if an accountant is unable to include a statement indicating that "no assurance is provided" on each page of the financial statements, then the auditor should: I. Issue a disclaimer that makes clear that no assurance is provided on the financial statements. II. Perform a compilation engagement. III. Withdraw from the engagement. A. II only. B. Both I and III. C. I only. D. Either I, II, or III.

Answer 35

D. Either I, II, or III

Question 36

Which of the following actions is required when an accountant is engaged to prepare an entity's financial statements in accordance with a special purpose framework? A. Indicating in the engagement letter the expected form and content of the accountant's report that conforms with the special purpose framework B. Including a statement in the engagement letter that the engagement can be relied on to identify financial statement misstatements C. Including a description of the applicable financial reporting framework on the face of the financial statements D. Verifying the completeness of the financial information provided by management

Answer 36

C. Including a description of the applicable financial reporting framework on the face of the financial statements

Question 37

Which of the following most likely would be included in an accountant's documentation of a preparation of a client's financial statements? A. The results of analytical procedures B. Engagement letter C. Accounts receivable confirmations D. Management representation letter

Answer 37

B. Engagement letter

Question 38

When an accountant is engaged to prepare financial statements, each of the following requirements applies, except: A. The agreed-upon terms of the engagement should include identification of the applicable financial framework to be used. B. The engagement documentation should include the engagement letter and a copy of the prepared financial statements. C. The accountant should include a statement on each page of the financial statements indicating that no assurance is provided. D. The accountant should verify the completeness of information provided by management for the financial statements.

Answer 38

D. The accountant should verify the completeness of information provided by management for the financial statements This is NOT required because management takes responsibility for completeness of information. This is not a requirement, but they are open to make inquiries about the information offered by the client

Question 39

Which of the following situations precludes an accountant from preparing financial statements that omit substantially all disclosures required by the selected financial reporting framework? A. The accountant is not independent. B. The entity's management has directed the accountant to omit the accountant's name from each page of the financial statements. C. The accountant becomes aware that the omission was undertaken with the intention of misleading users of the financial statements. D. The entity's management has given the accountant permission to disclose the omission in the financial statements.

Answer 39

C. The accountant becomes aware that the omission was undertaken with the intention of misleading users of the financial statements

Question 40

For FS that may be inaccurate or incomplete, accountants are NOT required to make inquiries or perform other procedures to verify/corroborate/review information supplied by client. If they discover that information is not correct, AND the client refuses to provide such information, the accountant should A) withdraw from compilation B) express adverse opinion C) express unmodified opinion D) ignore and move on with the engagement

Answer 40

A) withdraw from compilation

Question 41

Compiled financial statements that omit GAAP disclosures are acceptable if: 1) FS are otherwise in conformity with GAAP 2) FS would not be misleading to users 3) Compilation report warns the user of missing disclosures A) 3 only B) 1 and 2 only C) 1, 2, and 3 D) 2 and 3 only

Answer 41

C) 1, 2, and 3

Question 42

Name two differences between compilation versus preparation engagements

Answer 42

1) Compilations require a report while preparation engagements do not require a report 2) Compilations require the consideration of independence, while preparation engagements do not

Question 43

Which of the following procedures is ordinarily performed by an accountant in a compilation engagement of a nonissuer? A. Reading the financial statements to consider whether they are free of obvious mistakes in the application of accounting principles. B. Making inquiries of management concerning actions taken at meetings of the stockholders and the board of directors. C. Obtaining written representations from management indicating that the compiled financial statements will not be used to obtain credit. D. Applying analytical procedures designed to corroborate management's assertions that are embodied in the financial statement components.

Answer 43

A. Reading the financial statements to consider whether they are free of obvious mistakes in the application of accounting principles

Question 44

Financial statements of a nonissuer compiled without audit or review by an accountant should be accompanied by a report stating that: A. The scope of the accountant's procedures has not been restricted in testing the financial information that is the representation of management. B. The accountant evaluated the appropriateness of the accounting principles used and the reasonableness of significant accounting estimates made by management. C. The accountant has not audited or reviewed the financial statements. D. A compilation primarily includes applying analytical procedures to management's financial data and making inquiries of company management.

Answer 44

C. The accountant has not audited or reviewed the financial statements

Question 45

Compiled financial statements should be accompanied by a report stating that: A. The accountant is not required to perform any procedures to verify the accuracy or completeness of information provided by management. B. A compilation is substantially less in scope than a review or an audit in accordance with generally accepted auditing standards. C. The accountant has compiled the financial statements in accordance with standards established by the Auditing Standards Board. D. The accountant does not express an opinion but expresses only limited assurance on the compiled financial statements.

Answer 45

A. The accountant is not required to perform any procedures to verify the accuracy or completeness of information provided by management Although this is not required of an auditor to do, this STILL MUST BE EXPLICITLY included in compilation report

Question 46

Which of the following circumstances would generally require an accountant to decline to perform a compilation of financial statements under Statements on Standards for Accounting and Review Services? A. The accountant had no prior experience with similar organizations within the industry. B. A substantial portion of generally accepted accounting principles disclosures was omitted. C. The accountant was not able to come to an understanding with representatives of the organization for services to be performed. D. There was a lack of independence between the accountant and client.

Answer 46

C. The accountant was not able to come to an understanding with representatives of the organization for services to be performed

Question 47

Which of the following procedures is an accountant required to perform before issuing a compilation report under Statements on Standards for Accounting and Review Services (SSARS)? A. Review account balances for material changes subsequent to the year end. B. Read the financial statements and consider whether such financial statements appear to be free from obvious material errors. C. Obtain a letter supporting management representations in the financial statements. D. Make inquiries of third parties regarding liabilities that appear in the financial statements.

Answer 47

B. Read the financial statements and consider whether such financial statements appear to be free from obvious material errors

Question 48

An accountant who is performing a compilation engagement of a nonissuer should: A. Restrict the distribution of the compilation report. B. Be independent. C. Verify the accuracy of the information provided by management. D. Obtain an understanding of the applicable financial reporting framework.

Answer 48

D. Obtain an understanding of the applicable financial reporting framework

Question 49

An accountant was asked by a potential client to perform a compilation of its financial statements. The accountant is not familiar with the industry in which the client operates. In this situation, which of the following actions is the accountant most likely to take? A. Request that management engage an independent industry expert to consult with the accountant. B. Accept the engagement and obtain an adequate level of knowledge about the industry. C. Decline the engagement. D. Postpone accepting the engagement until the accountant has obtained an adequate level of knowledge about the industry.

Answer 49

B. Accept the engagement and obtain an adequate level of knowledge about the industry

Question 50

During the compilation of a client's financial statements, an accountant comes to believe that the financial statements are materially misstated. The accountant should: A. Obtain the additional or revised information needed to correct the financial statements. B. Perform no additional procedures. C. Limit any investigation of the potential misstatements to inquiries of the client. D. Allow the client to decide whether modifications are needed to properly present the financial statements.

Answer 50

A. Obtain the additional or revised information needed to correct the financial statements

Question 51

An accountant performing a compilation for a nonissuer believes that the financial statements might be materially misstated. The client refuses to provide additional or revised information. How should the accountant respond? A. By issuing an adverse report on the compilation. B. By withdrawing from the compilation engagement. C. By issuing a compilation report that is qualified for a scope limitation. D. By requesting that the engagement be changed from a compilation to a review or audit.

Answer 51

B. By withdrawing from the compilation engagement

Question 52

When an accountant compiles projected financial statements, the accountant's report should include a separate paragraph that: A. Expresses limited assurance that the actual results may be within the projection's range. B. Describes the differences between a projection and a forecast. C. Describes the limitations on the projection's usefulness. D. Identifies the accounting principles used by management.

Answer 52

C. Describes the limitations on the projection's usefulness

Question 53

Compiled financial statements should be accompanied by an accountant's report stating that: A. The accountant is not aware of any material modifications that should be made to the financial statements to conform with GAAP. B. The accountant conducted the compilation in accordance with Statements on Standards for Accounting and Review Services. C. A compilation includes assessing the accounting principles used and significant management estimates, as well as evaluating the overall financial statement presentation. D. A compilation is substantially less in scope than an audit in accordance with GAAS, the objective of which is the expression of an opinion.

Answer 53

B. The accountant conducted the compilation in accordance with Statements on Standards for Accounting and Review Services

Question 54

How does an accountant make the following representations when issuing the standard report for the compilation of a nonissuer's financial statements? The financial statements have not been audited - IMPLICITLY / EXPLICITLY The accountant does not express an opinion - IMPLICITLY / EXPLICITLY

Answer 54

The financial statements have not been audited - EXPLICITLY The accountant does not express an opinion - EXPLICITLY

Question 55

An accountant compiles the financial statements of a nonissuer and issues the standard compilation report. Although not specifically stated in this report, it is implied that: A. Substantially all disclosures required by GAAP are included in the financial statements. B. The financial statements should not be used to obtain credit. C. The compilation is limited to presenting information that is the representation of management. D. The accountant has not audited or reviewed the financial statements.

Answer 55

A. Substantially all disclosures required by GAAP are included in the financial statements

Question 56

During an engagement to compile the financial statements of a nonissuer, an accountant becomes aware that management had stated land at appraised value and that, if GAAP had been followed, both the land account and stockholders' equity would have been decreased by $1 million, a material amount. The accountant decides to modify the standard compilation report because management will not revise the financial statements. Under these circumstances, the accountant should: A. Add a separate paragraph to the accountant's report that restricts the distribution of the financial statements to "internal use only." B. Add a separate paragraph to the accountant's report that discloses the departure from GAAP and its effects on the financial statements. C. Issue either an adverse opinion or a qualified opinion, depending on materiality, because of the departure from GAAP. D. Add a separate paragraph to the accountant's report that explains the underlying purpose of recording assets at historical cost.

Answer 56

B. Add a separate paragraph to the accountant's report that discloses the departure from GAAP and its effects on the financial statements

Question 57

An accountant has been engaged to compile a nonissuer's financial statements that contain several misapplications of accounting principles and unreasonable accounting estimates. Management is unwilling to revise the financial statements, and the accountant believes that modification of the standard compilation report is not adequate to communicate the deficiencies. Under these circumstances, the accountant should: A. Inform management that the engagement can proceed only if distribution of the accountant's compilation report is restricted to internal use. B. Determine the effects of the deficiencies and add a separate paragraph to the compilation report that describes the deficiencies and their effects. C. Withdraw from the compilation engagement and provide no further services concerning these financial statements. D. Disclaim an opinion on the financial statements and advise the board of directors that the financial statements should not be relied upon.

Answer 57

C. Withdraw from the compilation engagement and provide no further services concerning these financial statements

Question 58

Which of the following engagements may an accountant or practitioner perform when there is a lack of independence? A. Agreed-upon procedures. B. Examination. C. Compilation. D. Review.

Answer 58

C. Compilation Although independence is not required, a determination of whether the accountant is independent of the entity is required

Question 59

If an accountant compiles financial statements for an entity and a member of the engagement team has a direct financial interest in the entity, then the accountant should: A. Indicate the accountant's lack of independence in a final paragraph of the compilation report. B. Issue a report for the preparation of client financial statements. C. Include a statement on each page of the financial statements that the accountant is not independent. D. Disclose in the notes to the financial statements a description of the reason the accountant's independence is impaired.

Answer 59

A. Indicate the accountant's lack of independence in a final paragraph of the compilation report

Question 60

If requested to perform a compilation engagement for a nonissuer in which an accountant has an immaterial direct financial interest, the accountant is: A. Not independent and, therefore, may issue a compilation report, but may not issue a review report. B. Independent because the financial interest in the nonissuer is immaterial. C. Not independent and, therefore, may not issue a compilation report. D. Not independent and, therefore, may not be associated with the financial statements.

Answer 60

A. Not independent and, therefore, may issue a compilation report, but may not issue a review report

Question 61

Which of the following procedures would an accountant least likely perform during an engagement to review the financial statements of a nonissuer? A. Inquiring of management about actions taken at the board of directors' meetings. B. Comparing the financial statements with anticipated results in budgets and forecasts. C. Studying the relationships of financial statement elements expected to conform to predictable patterns. D. Observing the safeguards over access to and use of assets and records.

Answer 61

D. Observing the safeguards over access to and use of assets and records Choice D is related to evaluation of internal control, which is something NOT done for review REVIEW - procedures to be done are inquiry, analytical procedures

Question 62

Under which of the following circumstances would an accountant most likely conclude that it is necessary to withdraw from an engagement to review a nonissuer's financial statements? A. The entity requests the accountant to report only on the balance sheet and not on the other financial statements. B. The entity prepares its financial statements on the income tax basis of accounting. C. The entity declines to provide the accountant with a signed representation letter. D. The entity does not have reasonable justification for making a change in accounting principle.

Answer 62

C. The entity declines to provide the accountant with a signed representation letter With the chance of an accountant not issuing a report and withdrawing from an engagement, think of what would have the review to be incomplete

Question 63

Financial statements of a nonissuer that have been reviewed by an accountant should be accompanied by a report stating that a review: A. Includes examining, on a test basis, information that is the representation of management. B. Provides only limited assurance that the financial statements are fairly presented. C. Does not contemplate obtaining corroborating evidential matter or applying certain other procedures ordinarily performed during an audit. D. Is substantially less in scope than an audit.

Answer 63

D. Is substantially less in scope than an audit.

Question 64

An accountant's report on a review of the unaudited financial statements of a nonissuer: A. May be issued despite the accountant's lack of independence, as long as the situation is properly disclosed within the report. B. Need not be issued if the financial statements are not expected to be used by third parties. C. Should provide limited assurance on the financial statements. D. Should be based on the accountant's inquiry, analytical review procedures, and corroboration of key account balances.

Answer 64

C. Should provide limited assurance on the financial statements Limited assurance that there are no material modifications that should be made to the FS

Question 65

If requested to perform a review engagement for a nonissuer in which an accountant has an immaterial direct financial interest, the accountant is: A. Not independent and, therefore, may not be associated with the financial statements. B. Not independent and, therefore, may not issue a review report. C. Not independent and, therefore, may issue a review report, but may not issue an auditor's opinion. D. Independent because the financial interest is immaterial and, therefore, may issue a review report.

Answer 65

B. Not independent and, therefore, may not issue a review report Any DIRECT type of interest, independence WILL BE IMPAIRED

Question 66

The inability to complete which of the following activities most likely would prevent an accountant from accepting and completing an engagement for a review of financial statements performed in accordance with Statements on Standards for Accounting and Review Services? A. Performing inquiries and analytical procedures. B. Having previous experience in the client's industry. C. Obtaining an understanding of internal control to assess control risk. D. Performing tests of details of major account balances.

Answer 66

A. Performing inquiries and analytical procedures Choice A with inquiries and analytical procedures is the bread and butter to review engagements under SSARS

Question 67

In an engagement to review the financial statements of a nonissuer, the accountant most likely would perform which of the following procedures? A. Analysis of inventory turnover. B. Vouching of inventory purchase transactions. C. Evaluation of internal control over inventory. D. Physical inspection of inventory.

Answer 67

A. Analysis of inventory turnover

Question 68

The standard report issued by an accountant after reviewing the financial statements of a nonissuer should state that: A. The accountant did not obtain an understanding of the entity's internal control or assess control risk. B. The accountant does not express an opinion or any other form of assurance on the financial statements. C. A review includes primarily applying analytical procedures to management's financial data and making inquiries of company management. D. A review is limited to presenting in the form of financial statements information that is the representation of management.

Answer 68

C. A review includes primarily applying analytical procedures to management's financial data and making inquiries of company management

Question 69

An accountant has been engaged to review a nonissuer's financial statements that contain several departures from GAAP. If the financial statements are not revised and modification of the standard review report is not adequate to indicate the deficiencies, the accountant should: A. Inform management that the engagement can proceed only if the accountant's report is restricted to internal use. B. Issue a modified review report provided the entity agrees that the financial statements will not be used to obtain credit. C. Withdraw from the engagement and provide no further services concerning these financial statements. D. Determine the effects of the departures from GAAP and issue a special report on the financial statements.

Answer 69

C. Withdraw from the engagement and provide no further services concerning these financial statements

Question 70

Before performing a review of a nonissuer's financial statements, an accountant should: A. Complete a series of inquiries concerning the entity's procedures for recording, classifying, and summarizing transactions. B. Obtain a sufficient level of knowledge of the accounting principles and practices of the industry in which the entity operates. C. Apply analytical procedures to provide limited assurance that no material modifications should be made to the financial statements. D. Inquire whether management has omitted substantially all of the disclosures required by generally accepted accounting principles.

Answer 70

B. Obtain a sufficient level of knowledge of the accounting principles and practices of the industry in which the entity operates This must be done BEFORE! Choice A, C and D are done DURING REVIEW engagement

Question 71

Which of the following procedures is usually the first step in reviewing the financial statements of a nonissuer? A. Perform a preliminary assessment of the operating efficiency of the entity's internal control activities. B. Obtain a general understanding of the entity's organization, its operating characteristics, and its products or services. C. Make preliminary judgments about risk and materiality to determine the scope and nature of the procedures to be performed. D. Assess the risk of material misstatement arising from fraudulent financial reporting and the misappropriation of assets.

Answer 71

B. Obtain a general understanding of the entity's organization, its operating characteristics, and its products or services

Question 72

Which of the following statements is true regarding an engagement to prepare a review report on the annual financial statements of a nonpublic company? A. The accountant is required to corroborate management's responses regarding the entity's ability to continue as a going concern with other evidence. B. The successor accountant must contact the predecessor accountant to gain access to the predecessor accountant's documentation. C. The accountant should make inquiries about events subsequent to the date of the financial statements that would have a material effect on the financial statements. D. The accountant should obtain an understanding of internal control.

Answer 72

C. The accountant should make inquiries about events subsequent to the date of the financial statements that would have a material effect on the financial statements

Question 73

Which of the following inquiry or analytical procedures ordinarily is performed in an engagement to review a nonissuer's financial statements? A. Inquiries concerning the entity's procedures for recording and summarizing transactions. B. Inquiries of the entity's attorney concerning contingent liabilities. C. Analytical procedures designed to test the accounting records by obtaining corroborating evidential matter. D. Analytical procedures designed to test management's assertions regarding continued existence.

Answer 73

A. Inquiries concerning the entity's procedures for recording and summarizing transactions

Question 74

Which of the following procedures regarding notes payable would an accountant most likely perform during a nonissuer’s review engagement? A. Confirming the year-end outstanding note payable balance with the lender. B. Documenting control procedures for payment calculations of the notes’ principal and interest. C. Examining records indicating proper authorization of the notes payable. D. Making inquiries of management regarding maturities, interest rate, and collateral.

Answer 74

D. Making inquiries of management regarding maturities, interest rate, and collateral

Question 75

What type of analytical procedure would an auditor most likely use in developing relationships among balance sheet accounts when reviewing the financial statements of a nonissuer? A. Regression analysis. B. Risk analysis. C. Trend analysis. D. Ratio analysis.

Answer 75

D. Ratio analysis

Question 76

When conducting a review engagement of a nonissuer, each of the following is considered an analytical procedure, except a comparison of the current-year's financial information to: A. Industry benchmarks. B. Financial statements of a comparable prior period. C. Expectations developed by the accountant. D. Supporting documentation.

Answer 76

D. Supporting documentation

Question 77

Which of the following is true about management representations obtained during an engagement to review the financial statements of a nonissuer? A. Written representations with respect to prior periods should not be provided by the current management if they were not present during those periods. B. Written representations from the current management are required for all periods being reported on. C. Written representations should be addressed to members of management whom the accountant believes are responsible for and knowledgeable about the matters covered in the representation letter. D. Written representations need not include information concerning subsequent events.

Answer 77

B. Written representations from the current management are required for all periods being reported on

Question 78

Each page of a nonissuer's financial statements reviewed by an accountant should include the following reference: A. Reviewed, No Accountant's Assurance Expressed. B. Reviewed, No Material Modifications Required. C. See Independent Accountant's Review Report. D. See Accompanying Accountant's Footnotes.

Answer 78

C. See Independent Accountant's Review Report

Question 79

An accountant who is conducting a review of the unaudited financial statements of a nonissuer in accordance with Statements on Standards for Accounting and Review Services would be required to: A. Communicate with the predecessor auditor regarding acceptance of the engagement and matters of continuing accounting significance. B. Obtain a management representation letter. C. Determine, based on inquiry and analytical review procedures, whether the financial statements are presented fairly in all material respects. D. Obtain a general understanding of the client's business and internal control.

Answer 79

B. Obtain a management representation letter

Question 80

When limited assurance has been obtained that nothing has come to the auditors attention that causes the accountant to believe that the FS are not prepared, in material respects, in accordance with the applicable financial reporting framework, auditor should express A) unmodified opinion B) unmodified conclusion C) modified conclusion D) adverse conclusion

Answer 80

B) unmodified conclusion

Question 81

When the accountant determines, based on the procedures performed and the review evidence obtained, that the financial statements are materially misstated (material, but not pervasive) A) unmodified opinion B) unmodified conclusion C) qualified conclusion D) adverse conclusion

Answer 81

C) qualified conclusion ”. The paragraph first will be “Basis for Qualified Conclusion”. Followed by Conclusion section will have heading “Qualified Conclusion”

Question 82

When the accountant determines, based on the procedures performed and the review evidence obtained, that the financial statements are materially misstated (material and pervasive) A) unmodified opinion B) unmodified conclusion C) qualified conclusion D) adverse conclusion

Answer 82

D) adverse conclusion ”. The paragraph first will be “Basis for Adverse Conclusion”. Followed by Conclusion section will have heading “Adverse Conclusion”

Question 83

If after considering conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern and management’s plans, if the going concern is alleviated: A) include emphasis of matter paragraph, NOT REQUIRED B) express modified opinion C) perform additional audit procedures to confirm D) add separate section “Substantial doubt about the entity’s ability to continue as a going concern”

Answer 83

A) include emphasis of matter paragraph, NOT REQUIRED

Question 84

If after considering conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern and management’s plans, if the going concern remains: A) include emphasis of matter paragraph, NOT REQUIRED B) express modified opinion C) perform additional audit procedures to confirm D) add separate section “Substantial doubt about the entity’s ability to continue as a going concern”

Answer 84

D) add separate section “Substantial doubt about the entity’s ability to continue as a going concern”

Question 86

If after considering conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern and management’s plans, if the entity’s disclosures are inadequate: A) include emphasis of matter paragraph, NOT REQUIRED B) express modified / adverse conclusion C) perform additional audit procedures to confirm D) add separate section “Substantial doubt about the entity’s ability to continue as a going concern”

Answer 86

B) express modified / adverse conclusion

Question 87

When predecessors accountants are asked to reissue their prior report (audit, review or compilation) they should A) send it out for review through the audit committee B) ignore the request C) read the new FS and obtain a representation letter from the new accountant D) reissue the new FS

Answer 87

C) read the new FS and obtain a representation letter from the new accountant

Question 88

During an engagement to review the financial statements of a nonissuer, an accountant becomes aware that several leases that should be capitalized are not capitalized. The accountant considers these leases to be material but not pervasive to the financial statements. The accountant decides to modify the standard review report because management will not capitalize the leases. Under these circumstances, the accountant should: A. Express no assurance of any kind on the entity's financial statements. B. Issue an unmodified conclusion and disclose the departure from GAAP in a separate paragraph of the accountant's report. C. Emphasize that the financial statements are for limited use only. D. Issue a qualified conclusion because the financial statements are materially misstated.

Answer 88

D. Issue a qualified conclusion because the financial statements are materially misstated Material, but not pervasive to the FS = qualified opinion

Question 89

Gole, CPA, is engaged to review the Year 2 financial statements of North Co., a nonissuer. Previously, Gole audited North's Year 1 financial statements and expressed an unmodified opinion. Gole decides to include a separate paragraph in the Year 2 review report because North plans to present comparative financial statements for Year 2 and Year 1. This separate paragraph should indicate that: A. The Year 2 review report is intended solely for the information of management and the board of directors. B. There are justifiable reasons for changing the level of service from an audit to a review. C. The Year 1 auditor's report may no longer be relied on. D. No auditing procedures were performed after the date of the Year 1 auditor's report.

Answer 89

D. No auditing procedures were performed after the date of the Year 1 auditor's report

Question 90

In reviewing the financial statements of a nonissuer, an accountant is required to modify the standard review report for which of the following matters? Inability to assess the risk of material misstatement due to fraud - YES / NO Discovery of significant deficiencies in the design of the entity's internal control - YES / NO

Answer 90

Inability to assess the risk of material misstatement due to fraud - NO Discovery of significant deficiencies in the design of the entity's internal control - NO Only time modifications can be made on review report is if there’s a departure from GAAP

Question 91

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

Answer 91

C. Include a qualified or adverse conclusion on the financial statements in the review report

Question 92

If an accountant is performing a review engagement for a nonissuer and considers it necessary to communicate a matter that is not presented in the financial statements, then the accountant should include this information in which of the following paragraphs in the review report? A. The introductory paragraph. B. The other-matter paragraph. C. The opinion paragraph. D. The emphasis-of-matter paragraph.

Answer 92

B. The other-matter paragraph Other matter paragraph are for matters that are NOT already presented in the FS

Question 93

Which of the following paragraphs should be included in an accountant's review report on a nonissuer's financial statements prepared using the tax basis of accounting? A. A known departure from GAAP paragraph B. An emphasis-of-matter paragraph C. A restriction alert paragraph D. An other-matter paragraph

Answer 93

B. An emphasis-of-matter paragraph

Question 94

During a review of financial statements, an accountant decides to emphasize a matter in the review report. Which of the following is an example of a matter that the accountant would most likely want to emphasize? A. The entity has had significant transactions with related parties. B. The IRS has notified the entity that it intends to audit income tax returns for prior years. C. Other entities in the same industry have recently changed from LIFO to FIFO. D. The entity has had significant tax expenses as a result of a new tax law.

Answer 94

A. The entity has had significant transactions with related parties

Question 95

An entity engaged an accountant to review its financial statements in accordance with Statements on Standards for Accounting and Review Services. The accountant determined that the entity maintained its accounts on a comprehensive basis of accounting other than generally accepted accounting principles (GAAP). In this situation, the accountant most likely would have taken which of the following actions? A. Advised management to make the adjustments necessary for the account balances to conform with GAAP. B. Modified the review report to reflect the fact that the financial statements were presented on another comprehensive basis of accounting. C. Requested that management justify the use of the other comprehensive basis of accounting in the management representation letter. D. Withdrawn from the engagement because the entity has not been following GAAP.

Answer 95

B. Modified the review report to reflect the fact that the financial statements were presented on another comprehensive basis of accounting

Question 96

After the issuance of restricted-use review reports, what is an accountant's responsibility with regard to controlling the client's distribution of those reports? A. An accountant and the client share responsibility for controlling the client's distribution of restricted-use reports. B. An accountant is solely responsible for controlling a client's distribution of restricted-use reports. C. An accountant has no responsibility for controlling a client's distribution of restricted-use reports. D. An accountant is responsible for controlling a client's distribution of restricted-use reports only if this responsibility is expressly stated in the engagement letter.

Answer 96

C. An accountant has no responsibility for controlling a client's distribution of restricted-use reports

Question 97

Baker, CPA, was engaged to review the financial statements of Hall Company, a nonissuer. Evidence came to Baker's attention that indicated substantial doubt as to Hall's ability to continue as a going concern. Based on the review evidence obtained, Baker concludes that management's plans alleviate the substantial doubt. The principal conditions and events that caused the substantial doubt, management's evaluation of the significance of those events, and management's plans that alleviated that doubt have been fully disclosed in the notes to Hall's financial statements. Which of the following statements best describes Baker's reporting responsibility concerning this matter? A. Baker is not permitted to modify the accountant's review report. B. Baker is not required to modify the accountant's review report. C. Baker should express a qualified opinion in the accountant's review report. D. Baker should issue an accountant's compilation report instead of a review report.

Answer 97

B. Baker is not required to modify the accountant's review report.

Question 98

After considering an entity's negative trends and financial difficulties, an accountant engaged to review the financial statements has substantial doubt about the entity's ability to continue as a going concern. The accountant considered management's plans and determined that the substantial doubt about the entity's ability to continue as a going concern was alleviated and report disclosures were adequate. According to Statements on Standards for Accounting and Review Services, the accountant: A. May, but is not required to, include an emphasis-of-matter paragraph. B. Should withdraw from the engagement. C. Should modify the conclusions in the review report to be either qualified or adverse. D. Should include a separate section in the review report with the heading "Substantial Doubt About an Entity's Ability to Continue as a Going Concern."

Answer 98

A. May, but is not required to, include an emphasis-of-matter paragraph

Question 99

Hannah, CPA, has been engaged to compile the financial statements of Skippity Industries, a nonpublic company, for the Year 4. Hannah reviewed Skippity's Year 3 financial statements. Skippity has decided to present comparative financial statements including both the Year 3 and Year 4 financials. Which of the following are acceptable reporting options for Hannah? I.Issue a compilation report with an extra paragraph describing the responsibility assumed for the prior period statements and including a statement that no review procedures were performed after the date of the review report. II.Issue two separate reports, a compilation report for the current year and a review report for the prior year. III.Issue a combined report, including both full reports and a statement that no review procedures were performed after the date of the review report. A. All of the options are acceptable. B. None of the options are acceptable. The accountant should not report on the comparative financial statements at all, because reviewed financial statements are not comparable to compiled financial statements. C. Only options I and III are acceptable. D. Only option II is acceptable.

Answer 99

A. All of the options are acceptable

Question 100

Before reissuing a company's prior-year review report, an accountant becomes aware of information that may have a material effect on the prior-year's financial statements. Which of the following actions would be most appropriate for the accountant to take? A. Reissue the review report after obtaining management's assurance that the information does not affect the prior-year's financial statements. B. Reissue the review report without performing any additional procedures. C. Withdraw from the engagement and collect all outstanding fees. D. Make inquiries to determine how the information will affect the prior-year financial statements.

Answer 100

D. Make inquiries to determine how the information will affect the prior-year financial statements

Question 101

Before reissuing a compilation report on the financial statements of a nonissuer for the prior year, the predecessor accountant is required to: A. Compare the prior year's financial statements with those of the current year. B. Obtain an updated management representation letter from the entity's management. C. Review the successor accountant's working papers for matters affecting the prior year. D. Make inquiries of the entity's lawyers concerning continuing litigation.

Answer 101

A. Compare the prior year's financial statements with those of the current year

Question 102

Unaudited financial statements for the prior year presented in comparative form with audited financial statements for the current year should be clearly marked to indicate their status and I.The report on the prior period should be reissued to accompany the current period report. II.The report on the current period should include as a separate paragraph a description of the responsibility assumed for the prior period's financial statements. A. Either I or II. B. II only. C. I only. D. Both I and II.

Answer 102

A. Either I or II

Question 103

When unaudited financial statements are presented in comparative form with audited financial statements in a document filed with the Securities and Exchange Commission, such statements should be: Marked as "unaudited" - YES / NO Withheld until audited - YES / NO Referred to in the auditor's report - YES / NO

Answer 103

Marked as "unaudited" - YES Withheld until audited - NO Referred to in the auditor's report - NO

Question 104

A CPA is reporting on comparative financial statements of a nonissuer. The CPA audited the prior-year's financial statements and reviewed those of the current year in accordance with Statements on Standards for Accounting and Review Services (SSARS). The CPA has added a separate paragraph to the review report to describe the responsibility assumed for the prior-year's audited financial statements. This separate paragraph should indicate: A. That the audit report should no longer be relied on. B. That the CPA did not update the assessment of control risk. C. The type of opinion expressed previously. D. The reasons for the change from an audit to a review.

Answer 104

C. The type of opinion expressed previously

Question 105

Hart, CPA, is engaged to review the year 2 financial statements of Kell Co., a nonissuer. Previously, Hart audited Kell's year 1 financial statements and expressed a qualified opinion due to a scope limitation. Hart decides to include a separate paragraph in the year 2 review report because comparative financial statements are being presented for year 2 and year 1. This separate paragraph should indicate the: A. Consistency of application of accounting principles between year 2 and year 1. B. Substantive reasons for the prior-year's qualified opinion. C. Reason for changing the level of service from an audit to a review. D. Restriction on the distribution of the report for internal use only.

Answer 105

B. Substantive reasons for the prior-year's qualified opinion

Question 106

Under basis for Review for Interim Financial Statements for a nonissuer, how does the auditor conduct their review in accordance with? A) auditing standards of the PCAOB B) Statements on Standards for Accounting and Review Services (SSARS) promulgated by AICPA C) attestation standards established by the AICPA D) auditing standards generally accepted in the US (GAAS)

Answer 106

D) auditing standards generally accepted in the US (GAAS)

Question 107

Under basis for Review for Interim Financial Statements for an issuer, how does the auditor conduct their review in accordance with? A) auditing standards of the PCAOB B) Statements on Standards for Accounting and Review Services (SSARS) promulgated by AICPA C) attestation standards established by the AICPA D) auditing standards generally accepted in the US (GAAS)

Answer 107

A) auditing standards of the PCAOB

Question 108

When interim financial information included in a note to the FS is not marked “unaudited,” the auditor would: A) express unmodified opinion B) express adverse opinion C) express modified opinion D) disclaim an opinion on interim

Answer 108

D) disclaim an opinion on interim

Question 109

Green, CPA, is aware that Green's name is to be included in the annual report of National Company, a publicly held entity, because Green has audited the annual financial statements included therein. National's quarterly financial statements are also contained in the annual report. Green has not audited but has reviewed these interim financial statements. Green should request that: I.Green's name not be included in the annual report. II.The interim financial statements be marked as unaudited. A. Either I or II. B. Both I and II. C. II only. D. I only.

Answer 109

C. II only Because CPA has not audited the interim FS, CPA should required that the statements be marked as “unaudited” As long as the CPA completed their review, their name may be included in the annual report

Question 110

The annual financial statements of a publicly held company have been audited, and its interim financial statements have been reviewed. Which of the following is true about the application of professional standards to this review? A. Statements on Standards for Accounting and Review Services apply. B. PCAOB standards apply. C. Both PCAOB standards and SSARS apply. D. None of the other statements are true.

Answer 110

B. PCAOB standards apply.

Question 111

In which case would the accountant be least likely to perform a review of interim financial information under PCAOB standards? A. Selected quarterly financial data is included in an annual report. B. Quarterly reports are required to be filed with the SEC. C. The accountant is performing an initial audit of financial statements that include selected quarterly data. D. Quarterly financial data is included in the financial statements of a nonissuer.

Answer 111

D. Quarterly financial data is included in the financial statements of a nonissuer This choice would apply under SAS, since its for a nonissuer

Question 112

Which of the following is not a required procedure in an engagement to review the interim financial information of a publicly held entity? A. Obtaining corroborating evidence about the entity's ability to continue as a going concern. B. Obtaining evidence that the interim financial information reconciles with the accounting records. C. Inquiring of management about its knowledge of fraud or suspected fraud. D. Comparing disaggregated revenue data for the current interim period with that of comparable prior periods.

Answer 112

A. Obtaining corroborating evidence about the entity's ability to continue as a going concern

Question 113

The objective of a review of interim financial information of a public entity is to provide an accountant with a basis for reporting whether: A. A reasonable basis exists for expressing an updated opinion regarding the financial statements that were previously audited. B. The financial statements are presented fairly in accordance with generally accepted accounting principles. C. Material modifications should be made to conform with generally accepted accounting principles. D. The financial statements are presented fairly in accordance with standards of interim reporting.

Answer 113

C. Material modifications should be made to conform with generally accepted accounting principles Limited assurance would be under the objective of an interim review. No form of an opinion is expressed

Question 114

The objective of a review of interim financial information of a public entity is to provide the accountant with a basis for: A. Determining whether the prospective financial information is based on reasonable assumptions. B. Deciding whether to perform substantive audit procedures prior to the balance sheet date. C. Expressing a limited opinion that the financial information is presented in conformity with generally accepted accounting principles. D. Reporting whether material modifications should be made for such information to conform with generally accepted accounting principles.

Answer 114

D. Reporting whether material modifications should be made for such information to conform with generally accepted accounting principles

Question 115

When performing a review of interim financial information, an accountant would typically do each of the following, except: A. Test controls related to the preparation of annual financial information. B. Perform analytical procedures. C. Make inquiries of management. D. Consider the results from the latest audit.

Answer 115

A. Test controls related to the preparation of annual financial information Interim review consists of analytical procedures, gaining understanding of entity;s internal control and making inquiries about interim financial information

Question 116

Which of the following applies to an accountant conducting a review of interim financial information? A. The accountant must express an opinion on the financial statements taken as a whole. B. The accountant must maintain independence in mental attitude in all matters relating to the engagement. C. The accountant must obtain sufficient appropriate evidence by performing procedures to afford a reasonable basis for an opinion. D. The accountant must indicate in the report those circumstances in which generally accepted accounting principles have not been consistently observed in the current period in relation to the preceding period.

Answer 116

B. The accountant must maintain independence in mental attitude in all matters relating to the engagement

Question 117

When planning a review of an audit client's interim financial statements, which of the following procedures should the accountant perform to update the accountant's knowledge about the entity's business and its system of internal control? A. Consider the results of audit procedures performed with respect to the current-year's financial statements. B. Perform analytical procedures on selected accounts by comparing the interim amounts to the amounts for the previous audited fiscal year end. C. Inquire of the entity's outside legal counsel about the status of any previous pending litigation and any new litigation involving the entity. D. Select a sample of material revenue transactions occurring during the interim period and examine supporting documentation.

Answer 117

A. Consider the results of audit procedures performed with respect to the current-year's financial statements

Question 118

Which of the following statements would not normally be included in a representation letter for a review of interim financial information? A. We understand that a review consists principally of performing analytical procedures and making inquiries about the interim financial information. B. To the best of our knowledge and belief, no events have occurred subsequent to the balance sheet and through the date of this letter that would require adjustment to or disclosure in the interim financial information. C. We acknowledge our responsibility for the design and implementation of programs and controls to prevent and detect fraud. D. We have made available to you all financial records and related data.

Answer 118

A. We understand that a review consists principally of performing analytical procedures and making inquiries about the interim financial information This language would be more included in an engagement letter, not representation letter

Question 119

An auditor confirmed accounts receivable as of an interim date, and all confirmations were returned and appeared reasonable. Which of the following additional procedures most likely should be performed at year-end? A. Send confirmations for all new customer balances incurred from the interim date to year-end. B. Resend confirmations for any significant customer balances remaining at year-end. C. Review supporting documents for new large balances occurring after the interim date, and evaluate any significant changes in balances at year-end. D. Review cash collections subsequent to the interim date and the year-end.

Answer 119

C. Review supporting documents for new large balances occurring after the interim date, and evaluate any significant changes in balances at year-end This procedure is most appropriate to extend the interim conclusions to year end

Question 120

Which of the following is not a difference between a review of a public entity's interim financial information and a review of the unaudited financial statements of a nonissuer? A. The guidance for the former is provided by PCAOB standards whereas the latter is conducted in accordance with Statements on Standards for Accounting and Review Services. B. The former requires an evaluation of internal control while the latter does not. C. The former requires communication with the predecessor auditor while the latter does not. D. The former requires inquiry of the client's attorney regarding litigation, claims, and assessments, while the latter does not.

Answer 120

D. The former requires inquiry of the client's attorney regarding litigation, claims, and assessments, while the latter does not Neither type of review requires inquiry of the client’s attorney!

Question 121

Each of the following is normally performed while conducting a review of interim financial information, except: A. Obtaining litigation updates from external legal counsel. B. Comparing disaggregated revenue data. C. Making inquiries of financial management. D. Reading minutes of the meetings of the board of directors.

Answer 121

A. Obtaining litigation updates from external legal counsel

Question 122

Silver, CPA, has been hired by Andrews Co., a publicly held company, to conduct a review of its interim financial information. While performing review procedures, Silver becomes aware of a significant change in the control activities at one of Andrew's branch locations. Which of the following might Silver consider performing in response to this situation? I. Making additional inquiries, such as whether management has monitored the changes and considered whether they were operating as intended. II. Employing analytical procedures with a less precise expectation. A. Neither I nor II. B. II only. C. Both I and II. D. I only.

Answer 122

D. I only If II mentioned analytical procedures with MORE precise expectation, that would also be chosen

Question 123

Davidson, CPA, is performing a review under auditing standards of Gold's interim financial information. As part of planning, Davidson reads the audit documentation from the preceding year's annual audit. Which of the following is least likely to affect Davidson's review? A. Scope limitations that were overcome through acceptable alternative procedures. B. Significant weaknesses in internal control. C. Identified risks of material misstatement due to fraud. D. A summary of both corrected and uncorrected misstatements.

Answer 123

A. Scope limitations that were overcome through acceptable alternative procedures

Question 124

A CPA concludes that the unaudited financial statements on which the CPA is disclaiming an opinion are not in conformity with generally accepted accounting principles (GAAP) because management has failed to capitalize leases. The CPA suggests appropriate revisions to the financial statements, but management refuses to accept the CPA's suggestions. Under these circumstances, the CPA ordinarily would: A. Express limited assurance that no other material modifications should be made to the financial statements. B. Restrict the distribution of the CPA's report to management and the entity's board of directors. C. Issue a qualified opinion or adverse opinion depending on the materiality of the departure from GAAP. D. Describe the nature of the departure from GAAP in the CPA's report and state the effects on the financial statements, if practicable.

Answer 124

D. Describe the nature of the departure from GAAP in the CPA's report and state the effects on the financial statements, if practicable NO opinion is expressed and no assurance is rendered for unaudited FS

Question 125

An independent accountant's report is based on a review of interim financial information. If this report is presented in a registration statement, a prospectus should include a statement clarifying that the: A. Accountant's review was performed in accordance with standards established by the Securities and Exchange Commission. B. Accountant obtained corroborating evidence to determine whether material modifications are needed for such information to conform with GAAP. C. Accountant assumes no responsibility to update the report for events and circumstances occurring after the date of the report. D. Accountant's review report is not a part of the registration statement within the meaning of the Securities Act of 1933.

Answer 125

D. Accountant's review report is not a part of the registration statement within the meaning of the Securities Act of 1933

Question 126

When an independent accountant's report based on a review of interim financial information is presented in a registration statement, a prospectus should include a statement about the accountant's involvement. This statement should clarify that the: A. Accountant's review report is not a "part" of the registration statement within the meaning of the Securities Act of 1933. B. Accountant's review was performed in accordance with standards established by the American Institute of CPAs. C. Accountant is not an "expert" within the meaning of the Securities Act of 1933. D. Accountant performed only limited auditing procedures on the interim financial statements.

Answer 126

A. Accountant's review report is not a "part" of the registration statement within the meaning of the Securities Act of 1933

Question 127

Moore, CPA, has been asked to issue a review report on the balance sheet of Dover Co., a nonissuer. Moore will not be reporting on Dover's statements of income, retained earnings, and cash flows. Moore may issue the review report provided the: A. Specialized accounting principles and practices of Dover's industry are disclosed. B. Balance sheet is not to be used to obtain credit or distributed to creditors. C. Scope of the inquiry and analytical procedures has not been restricted. D. Balance sheet is presented in a prescribed form of an industry trade association.

Answer 127

C. Scope of the inquiry and analytical procedures has not been restricted

Question 128

Which of the following statements is correct concerning both an engagement to compile and an engagement to review a nonissuer's financial statements performed in accordance with Statements on Standards for Accounting and Review Services (SSARS)? A. The accountant expresses no assurance on the financial statements. B. The accountant should obtain a written management representation letter. C. The accountant need not obtain an understanding of internal control. D. The accountant must be independent in fact and appearance.

Answer 128

C. The accountant need not obtain an understanding of internal control Compilation: -not required to obtain understanding of internal control -no assurance -does not obtain representation letter -not required to be independent, disclose lack of independence in report Review: -not required to obtain understanding of internal control -limited / negative assurance -obtains representation letter -must be independent

Question 129

Generally accepted government auditing standards specifically include all of the following ethics principles except: A. Serving the public interest. B. Fraud detection. C. Integrity. D. Proper use of government information.

Answer 129

B. Fraud detection All of the ethics principles are: -Serving the public interest -Integrity -Objectivity -Proper use of government information -Professional behavior

Question 130

The standard that an auditor should be independent of mind and appearance in providing audits is included in the Generally Accepted Government Auditing Standard ethics principle of: A. Objectivity. B. Professional behavior. C. Integrity. D. Serving the public interest.

Answer 130

A. Objectivity

Question 131

The standard the collective well-being of the community is included in the Generally Accepted Government Auditing Standard ethics principle of: A. Objectivity. B. Professional behavior. C. Integrity. D. Serving the public interest.

Answer 131

D. Serving the public interest

Question 132

The standard that includes the auditors conducting their work with an attitude that is objective, fact-based, nonpartisan, and no ideological with regard to entities and users of the report is included in the Generally Accepted Government Auditing Standard ethics principle of: A. Objectivity. B. Professional behavior. C. Integrity. D. Serving the public interest.

Answer 132

C. Integrity

Question 133

The standard that includes an auditors honest effort in the performance of professional services in accordance with the relevant technical and professional standards is included in the Generally Accepted Government Auditing Standard ethics principle of: A. Objectivity. B. Professional behavior. C. Integrity. D. Serving the public interest.

Answer 133

B. Professional behavior

Question 134

A government internal audit function is presumed to be free from organizational independence impairments for reporting internally when the head of the organization: A. Is not accountable to those charged with governance. B. Is removed from political pressures to conduct audits objectively, without fear of political reprisal. C. Is a line-manager of the unit under audit. D. Performs auditing procedures that are consistent with generally accepted accounting principles.

Answer 134

B. Is removed from political pressures to conduct audits objectively, without fear of political reprisal

Question 135

The Generally Accepted Government Auditing Standards Framework for Independence identifies an inappropriate influence on auditor judgment or behavior caused by a financial or other interest as a: A. Bias threat. B. Management participation threat. C. Self-review threat. D. Self-interest threat.

Answer 135

D. Self-interest threat

Question 136

The Generally Accepted Government Auditing Standards Framework for Independence identifies a threat that an auditor will, as a result of political, ideological, social, or other convictions, take a position that is not objective as a: A. Bias threat. B. Management participation threat. C. Self-review threat. D. Self-interest threat.

Answer 136

A. Bias threat

Question 137

The Generally Accepted Government Auditing Standards Framework for Independence identifies threat that results from an auditor’s taking on the role of management or otherwise performing management functions on behalf of the entity undergoing an audit. as a: A. Bias threat. B. Management participation threat. C. Self-review threat. D. Self-interest threat.

Answer 137

B. Management participation threat

Question 138

The Generally Accepted Government Auditing Standards Framework for Independence identifies a threat that an auditor or audit organization that has provided nonaudit services will not appropriately evaluate the results of previous judgments made or services performed as part of the nonaudit services when forming a judgment significant to an audit. as a: A. Bias threat. B. Management participation threat. C. Self-review threat. D. Self-interest threat.

Answer 138

C. Self-review threat

Question 139

Able & Co. is evaluating its independence relative to its audit of the City of Baker's self insurance fund using the conceptual framework for independence included in Government Auditing Standards. During the course of the review of the work performed, the audit partner notes that virtually no audit procedures were performed on an actuarial valuation of the fund's unpaid claims liabilities conducted by consultants from Able & Co's actuarial group. The actuarial valuation was performed as part of a separate nonaudit engagement. The unpaid claims are material to the fund. The situation above represents: A. No threat to independence. B. A self-review threat. C. A self-interest threat. D. A familiarity threat.

Answer 139

B. A self-review threat Organization has provided non audit services will not appropriately evaluate the results of the previous judgments made

Question 140

The auditor should determine whether providing a nonaudit service would create a threat to independence, either by itself or in aggregate with other nonaudit services provided, with respect to any audit it performs in accordance with Generally Accepted Government Auditing Standards. A critical component of this determination is: A. Consideration of management’s ability to effectively oversee the nonaudit service to be performed. B. Ability of outside auditors to independently review the nonaudit service. C. Ability to remove the auditor involved in the nonaudit service from the audit team. D. Ability of a professional staff member who was not a member of the audit team to review the work performed.

Answer 140

A. Consideration of management’s ability to effectively oversee the nonaudit service to be performed

Question 141

Which of the following services would constitute a management function under Government Auditing Standards, and result in the impairment of a CPA’s independence if performed by the CPA? A. Providing accounting opinions to a legislative body. B. Recommending internal control procedures. C. Providing methodologies, such as practice guides. D. Developing entity program policies.

Answer 141

D. Developing entity program policies Because CPA is acting in a management capacity

Question 142

Under government auditing standards, which of the following non-audit services does not impair independence when provided jointly with audit services? A. Supervising entity employees B. Authorizing an entity's transactions C. Conducting an executive search for the audited entity D. Providing training on new accounting pronouncements

Answer 142

D. Providing training on new accounting pronouncements Picking a service that DOES NOT involve leading or directing would not impair independence

Question 143

Carlisle & Company is auditing the Town of Dunderhead in accordance with Generally Accepted Government Auditing Standards (GAGAS) and has determined that no one on the city's staff is competent enough to maintain and close the accounting records of the city. Believing that he is performing a service for his client, the audit manager takes possession of the books and records, posts transactions, develops trial balances and produces audited financial statements in time to fully comply with statutory filing requirements. The audit manager has created a threat to independence identified by GAGAS that is defined as: A. Self-interest threat. B. Self-review threat. C. Familiarity threat. D. Management participation threat.

Answer 143

D. Management participation threat

Question 144

Safeguards to threats to independence identified by Generally Accepted Governmental Auditing Standards are generally not effective to mitigate: A. Undue influence threat. B. Management participation threat. C. Self-review threat. D. Self-interest threat.

Answer 144

B. Management participation threat If auditor were to assume management responsibilities for audited entity, the management threat created would be too significant that no safeguards could reduce the threat to acceptable level

Question 145

According to the U.S. Department of Labor, an auditor of an employee benefit plan would be considered independent if: A. The auditor is committed to acquire a material indirect financial interest in the plan sponsor. B. An actuary associated with the auditor's firm renders services to the plan. C. A member of the auditor's firm is an investment advisor to the plan. D. The auditor's firm maintains financial records for the plan.

Answer 145

B. An actuary associated with the auditor's firm renders services to the plan

Question 146

The controller of a small utility company has interviewed audit firms proposing to perform the annual audit of their employee benefit plan. According to the guidelines of the Department of Labor (DOL), the selected auditor must be: A. Independent of the utility company and not relying on its services. B. Included on the list of firms approved by the DOL. C. Independent for purposes of examining financial information required to be filed annually with the DOL. D. The firm that proposes the lowest fee for the work required.

Answer 146

C. Independent for purposes of examining financial information required to be filed annually with the DOL

Question 147

Which of the following will impair independence under the U.S. Department of Labor's independence rules for audits of employee benefit plans? A. The accountant is engaged to audit both the employee benefit plan and the financial statements of the plan sponsor. B. The auditor also serves as an investment advisor to the employee benefit plan. C. An actuary from the audit firm provides services to the employee benefit plan. D. A former employee of the benefit plan works for the audit firm but does not participate in the benefit plan audit.

Answer 147

B. The auditor also serves as an investment advisor to the employee benefit plan

Question 148

In which of the following situations would an auditor who is rendering an audit opinion on the financial statements of an employee benefit plan that will be filed with the Department of Labor be considered independent? A. A member of the auditor's firm was a voting trustee of the plan in a prior year but has since disassociated from the plan and did not participate in auditing the financial statements of the plan. B. The auditor's spouse has obtained an immaterial direct financial interest in the employee benefit plan. C. The auditor obtained a material indirect financial interest in the employee benefit plan. D. A member of the auditor's firm was an investment advisor to the employee benefit plan during the period of professional engagement but was not providing services as of the date of the opinion.

Answer 148

A. A member of the auditor's firm was a voting trustee of the plan in a prior year but has since disassociated from the plan and did not participate in auditing the financial statements of the plan

Question 149

For the services governed by AICPA [audits, special reports, compilations, reviews, and services performed on financial forecasts and projections, as well as attestation engagements], the principle ______________ applies to all services rendered; but the principle ________________ applies to attestation services only [audits, special reports, examinations, agreed upon procedures and reviews] A) independence; responsibilties B) public interest; objectivity C) integrity; due care D) objectivity; independence

Answer 149

D) objectivity; independence

Question 150

At what point is independence impaired?

Answer 150

Direct financial interest (regardless of materiality) -stock ownership -interest in partnership, and member is general partner -interest in trust when member is trustee Material indirect financial interest in attestation client -mutual fund that invests in attestation clients -financial interest in a company, and that company has interest in attestation client

Question 151

For confidential client information rule, a member shall NOT disclose confidential information without the consent of the client, EXCEPT: 1. Comply with validly issued subpoena or summons 2. As part of quality review of the member’s professional practices authorized by AICPA [request from state CPA society voluntary quality review panel] 3. Any inquiry by ethics division, trial board of AICPA, duly constituted investigative, disciplinary board of a state CPA society, or under authority of state statutes A) 1, 2, and 3 B) 2 only C) 2 and 3 only D) 1 and 3 only

Answer 151

A) 1, 2, and 3

Question 152

According to the standards of the profession, which of the following circumstances will prevent a CPA who is performing audit engagements from being independent? A. Acting as an honorary trustee for a not-for-profit organization client. B. Litigation with a client relating to billing for consulting services for which the amount is immaterial. C. Employment of the CPA's spouse as a client's internal auditor. D. Obtaining a collateralized automobile loan from a financial institution client.

Answer 152

C. Employment of the CPA's spouse as a client's internal auditor Including internal auditor, other audit sensitive positions are cashier, accounting supervisor, purchasing agents or inventory warehouse supervisor

Question 153

Which of the following actions by a CPA most likely violates the profession's ethical standards? A. Arranging with a financial institution to collect notes issued by a client in payment of fees due. B. Using a records-retention agency to store confidential client records. C. Retaining client records after the client has demanded their return. D. Compiling the financial statements of a client that employed the CPA's spouse as a bookkeeper.

Answer 153

C. Retaining client records after the client has demanded their return

Question 154

According to the ethical standards of the profession, which of the following acts by a CPA is generally prohibited? A. Accepting a commission for recommending a product to an audit client. B. Purchasing a product from a third party and reselling it to a client. C. Writing a financial management newsletter promoted and sold by a publishing company. D. Accepting engagements obtained through the efforts of third parties.

Answer 154

A. Accepting a commission for recommending a product to an audit client Accepting a commission impairs independence and causes conflict of interest because the CPAs judgment could be influenced by personal financial gain

Question 155

Which of the following statements best explains why the CPA profession has found it essential to promulgate ethical standards and to establish means for ensuring their observance? A. Vigorous enforcement of an established code of ethics is the best way to prevent unscrupulous acts. B. Ethical standards that emphasize excellence in performance over material rewards establish a reputation for competence and character. C. A distinguishing mark of a profession is its acceptance of responsibility to the public. D. A requirement for a profession is to establish ethical standards that stress primary responsibility to clients and colleagues.

Answer 155

C. A distinguishing mark of a profession is its acceptance of responsibility to the public Their broad duty to society and to protect their public interest is the primary cause. Ethical standards exists because public relies on professions integrity and competence

Question 156

Which of the following reports may be issued only by an accountant who is independent of a client? A. Report on consulting services. B. Compilation report on historical financial statements. C. Standard report on an examination of a financial forecast. D. Compilation report on a financial projection.

Answer 156

C. Standard report on an examination of a financial forecast

Question 157

Which of the following reports may be issued only by an accountant who lacks independence of a client? A. Report on consulting services. B. Compilation report on historical financial statements. C. Standard report on an examination of a financial forecast. D. Compilation report on a financial projection.

Answer 157

B. Compilation report on historical financial statements D. Compilation report on a financial projection For Compilation reports, accountants CAN Lack independence, however, an explanation of the lack of independence must be disclosed

Question 158

Which of the following areas of professional responsibility should be observed by a CPA not in public practice? Objectivity - YES / NO Independence - YES / NO

Answer 158

Objectivity - YES [Always YES] Independence - NO [Even in public practice, auditor does NOT need to be independent]

Question 159

The principle of due care in the AICPA Code of Professional Conduct relates to which of the following professional requirements? A. Providing services with an unbiased, open mind B. Providing services with a sense of integrity C. Providing services without conflicts of interest D. Providing services with competence and diligence

Answer 159

D. Providing services with competence and diligence

Question 160

The principle of objectivity and independence in the AICPA Code of Professional Conduct relates to which of the following professional requirements? A. Providing services with an unbiased, open mind B. Providing services with a sense of integrity C. Providing services without conflicts of interest D. Providing services with competence and diligence

Answer 160

A. Providing services with an unbiased, open mind C. Providing services without conflicts of interest

Question 161

The principle of integrity in the AICPA Code of Professional Conduct relates to which of the following professional requirements? A. Providing services with an unbiased, open mind B. Providing services with a sense of integrity C. Providing services without conflicts of interest D. Providing services with competence and diligence

Answer 161

B. Providing services with a sense of integrity

Question 162

According to the standards of the profession, which of the following activities may be required in exercising due care? Consulting with experts - YES / NO Obtaining specialty accreditation - YES / NO

Answer 162

Consulting with experts - YES [Consult/referral when engagement exceeds CPA competence] Obtaining specialty accreditation - NO [Not required]

Question 163

To exercise due professional care an auditor should: A. Critically review the judgment exercised by those assisting in the audit. B. Attain the proper balance of professional experience and formal education. C. Design the audit to detect all instances of illegal acts. D. Examine all available corroborating evidence supporting management's assertions.

Answer 163

A. Critically review the judgment exercised by those assisting in the audit Due care: plan and supervise any professional activity for which they are responsible

Question 164

Under the ethical standards of the profession, which of the following investments in a client is not considered to be a direct financial interest? A. An investment held through a nonclient investment club. B. An investment held by the trustee of a trust. C. An investment held through a nonclient regulated mutual fund. D. An investment held in a blind trust.

Answer 164

C. An investment held through a nonclient regulated mutual fund Best answer is one where the member does not have control on which mutual fund stocks that’s being invested in

Question 165

According to the AICPA Code of Professional Conduct, which of the following is an individual or entity that is not considered to be a covered member? A. The managing partner of the firm, who is located in a different office B. The firm, including the firm's employee benefit plan C. A partner who works in the same office as the lead attest engagement partner D. A former senior auditor on the engagement, who currently works for a company that provides consulting services to the client

Answer 165

D. A former senior auditor on the engagement, who currently works for a company that provides consulting services to the client Not a covered member is someone who ceases to be an individual on engagement team and who is NOT in position to influence the engagement

Question 166

Under the ethical standards of the profession, which of the following situations involving nondependent members of an auditor's family is most likely to impair the auditor's independence? A. A sibling's loan to a director of a client. B. A first cousin's loan from a client. C. A parent's immaterial investment in a client. D. A spouse's employment with a client.

Answer 166

D. A spouse's employment with a client Independence rules extend to members spouses, dependent children and dependent relatives

Question 167

The Code of Professional Conduct, Independence Rule, does not consider which of the following circumstances to be a lack of independence: A. The auditor's brother-in-law's father is the controller of the client being audited. B. The auditor provides valuation and appraisal services to a client, the results of which are material to the client's financial statements. C. A financial institution client loans the auditor money to buy a car but does not collateralize the loan. D. The CPA firm's sole audit manager served as controller of the firm's audit client from the January Year 1 through to May, Year 6 when the manager began working with the CPA firm. The current audit period for this client is from April 1, Year 6 through to March 31, Year 7.

Answer 167

A. The auditor's brother-in-law's father is the controller of the client being audited Independence is impaired by member, members spouse, or dependents, or close family member who holds key position at client. Close relative is defined as parent, sibling or non dependent child However, in-laws are excluded from close relative definition. Therefore, independence is not impaired

Question 168

On June 1, Year 1, a CPA obtained a $100,000 personal loan from a financial institution client for whom the CPA provided compilation services. The loan was fully secured and considered material to the CPA's net worth. The CPA paid the loan in full on December 31, Year 1. On April 3, Year 2, the client asked the CPA to audit the client's financial statements for the year ended December 31, Year 2. Is the CPA considered independent with respect to the audit of the client's December 31, Year 2, financial statements? A. Yes, because the loan was fully secured. B. No, because the CPA had a loan with the client during the period of a professional engagement. C. No, because the CPA had a loan with the client during the period covered by the financial statements. D. Yes, because the CPA was not required to be independent at the time the loan was granted.

Answer 168

D. Yes, because the CPA was not required to be independent at the time the loan was granted Since it was a compilation, and the loan was paid off before the time of the audit engagement, independence is maintained

Question 169

According to the SEC, an auditor is not independent of its issuer audit client in which of the following situations? A. The auditor has an automobile loan at standard terms from the audit client that is collateralized by the automobile. B. The auditor's cousin has an insurance policy obtained from the issuer before it became an audit client. C. The auditor has an investment in an entity that has the ability to exercise significant influence over the audit client. D. The auditor's grandparent was in an accounting role at the audit client and ended employment before the period under audit began.

Answer 169

C. The auditor has an investment in an entity that has the ability to exercise significant influence over the audit client Having the ability to exercise significant influence over the audit client is a violation of independence rule

Question 170

Bingham, a CPA, has been asked to join a local bank's board of directors. In which of the following scenarios would such a position be acceptable for Bingham? A. One of Bingham's clients, who is struggling financially, is in the loan application process at the bank. B. One of Bingham's clients has several business loans outstanding with the bank. C. Several of Bingham's clients have savings accounts at the bank. D. Several of Bingham's clients are in negotiations with this and other banks for operating loans.

Answer 170

C. Several of Bingham's clients have savings accounts at the bank This choice makes the best sense. Choice A, B And D mention loan applications and outstanding loans. Transactions like this put a strain on threats for compliance, objectivity and independence

Question 171

On August 1, Year 1, the former controller of a company becomes an audit manager with a public accounting firm. The new audit manager had been employed at the company for the past 10 years, resigned from the position on July 15, Year 1, and completed disassociation from the company on September 1, Year 1. According to the AICPA Code of Professional Conduct, in which, if any, of the following attest engagements involving the company could this manager participate without affecting the accounting firm's independence? A. Because of the former position as controller of the company, the new audit manager cannot participate directly in any attest engagements involving the company B. A first-time audit for the public accounting firm, awarded October 15, Year 1, of the comparative financial statements covering January 1, Year 1, through December 31, Year 1, and January 1, Year 2, through December 31, Year 2 C. A repeat audit for the public accounting firm, awarded on August 15, Year 1, of financial statements covering August 1, Year 1, through July 31, Year 2 D. A first-time audit for the public accounting firm, awarded on September 15, Year 1, of financial statements covering November 1, Year 1, through October 31, Year 2

Answer 171

D. A first-time audit for the public accounting firm, awarded on September 15, Year 1, of financial statements covering November 1, Year 1, through October 31, Year 2 Manager may participate in audit after a period of their employment AND disassociation with the client. Those two dates of resignation and disassociation is July 15, Y1 and September 1, Y1. Since the new job starts September 15, Y1 and years of FS are after everything, they are in the clear

Question 172

A CPA audits the financial statements of a client. The CPA has also been asked to perform bookkeeping functions for the client. Under the AICPA Code of Professional Conduct, which of the following activities would impair the CPA's independence with respect to the client? A. The CPA posts adjusting journal entries prepared by management to the trial balance. B. The CPA prepares financial statements from a trial balance provided by management. C. The CPA records transactions in accordance with classifications determined by management. D. The CPA authorizes client transactions and reports them to management.

Answer 172

D. The CPA authorizes client transactions and reports them to management As long as the client was following managements orders and NOT using their own judgment or decisions on how to perform something, this would not impair independence. Choice A, B, and C mention tasks done by CPA, which were prepared/determined by management, which was NOT out of bounds from their bookkeeping functions

Question 173

Under the AICPA Code of Professional Conduct, which of the following tax compliance services performed for an attest client relating to the preparation of a tax return would impair a CPA's independence? A. Remitting a check payable to a tax authority signed by the client. B. Filing a client-approved tax return electronically. C. Making tax payments from a client's restricted account over which the CPA has signing authority and control. D. Signing and filing a client's tax return after receiving written authorization from a client employee who reviewed the return and is qualified to sign the return.

Answer 173

C. Making tax payments from a client's restricted account over which the CPA has signing authority and control Independence would not be impaired as long as CPA does not serve, or appear to serve as member of client’s management. Making payments and having signing authority and control over an account are duties of management

Question 174

An independent auditor must have which of the following? A. A background in many different disciplines. B. A pre-existing and well-informed point of view with respect to the audit. C. Technical training that is adequate to meet the requirements of a professional. D. Experience in taxation that is sufficient to comply with generally accepted auditing standards.

Answer 174

C. Technical training that is adequate to meet the requirements of a professional

Question 175

Burrow & Co., CPAs, have provided annual audit and tax compliance services to Mare Corp. for several years. Mare has been unable to pay Burrow in full for services Burrow rendered 19 months ago. Burrow is ready to begin fieldwork for the current year's audit. Under the ethical standards of the profession, which of the following arrangements will permit Burrow to begin the fieldwork on Mare's audit? A. Mare engages another firm to perform the fieldwork, and Burrow is limited to reviewing the workpapers and issuing the audit report. B. Mare commits to pay the past due fee in full before the audit report is issued. C. Mare gives Burrow an 18-month note payable for the full amount of the past due fees before Burrow begins the audit. D. Mare sets up a two-year payment plan with Burrow to settle the unpaid fee balance.

Answer 175

B. Mare commits to pay the past due fee in full before the audit report is issued Independence is impaired with respect to a client that is more than 1 year overdue on professional fees. Therefore, fees from prior work must be paid in full before insurance of an audit report

Question 176

A violation of the profession's ethical standards most likely would have occurred when a CPA: A. Made arrangements with a financial institution to collect notes issued by a client in payment of fees due for the current year's audit. B. Recommended a controller's position description with candidate specifications to an audit client. C. Purchased a CPA firm's practice of monthly write-ups for a percentage of fees to be received over a three-year period. D. Issued an unqualified opinion on the Year 2 financial statements when fees for the Year 1 audit were unpaid.

Answer 176

D. Issued an unqualified opinion on the Year 2 financial statements when fees for the Year 1 audit were unpaid

Question 177

Audit engagement team members should remain alert for evidence of noncompliance with which of the following relevant ethical requirements? A. Maintaining confidentiality of client information by not including it in the audit documentation. B. Maintaining a suspicious attitude, presuming that the client is dishonest until evidence proves otherwise. C. Performing audit procedures efficiently and within expected time budgets. D. Performing professional responsibilities with the highest sense of integrity.

Answer 177

D. Performing professional responsibilities with the highest sense of integrity

Question 178

According to the profession's ethical standards, which of the following events may justify a departure from U.S. GAAP. New legislation - YES / NO Evolution of a new form of business transaction - YES / NO

Answer 178

New legislation - YES Evolution of a new form of business transaction - YES

Question 179

Under which of the following circumstances may a CPA charge fees that are contingent upon finding a specific result? A. For a compilation if a third party will use the financial statement and disclosure is not made in the report. B. For an examination of prospective financial statements. C. For an audit or a review if agreed upon by both the CPA and the client. D. If fixed by courts, other public authorities, or in tax matters if based on the results of judicial proceedings.

Answer 179

D. If fixed by courts, other public authorities, or in tax matters if based on the results of judicial proceedings Another instance, is for compilation that includes a statement that the member is not independent. Or for seeking a private letter ruling or legal proceeding

Question 180

Which of the following best describes the effect of a contingent fee arrangement on the auditor’s independence? A. The contingent fee arrangement impairs independence unless approved by the client’s audit committee. B. The contingent fee arrangement does not impair independence unless more than half of the fee is subject to contingencies. C. The contingent fee arrangement impairs independence. D. The contingent fee arrangement does not impair independence if it is consistent with the registered public accounting firm’s quality control policies.

Answer 180

C. The contingent fee arrangement impairs independence

Question 181

In which of the following situations is there a violation of client confidentiality under the AICPA Code of Professional Conduct? A. A member discloses confidential client information to a court in connection with arbitration proceedings relating to the client. B. A member uses a records retention agency to store clients' records that contain confidential client information. C. A member whose practice is primarily bankruptcy discloses a client's name. D. A member discloses confidential client information to a professional liability insurance carrier after learning of a potential claim against the member.

Answer 181

C. A member whose practice is primarily bankruptcy discloses a client's name Confidential Client Information Rule states that it is permissible for a member to disclose the name of a client without the client's consent unless the disclosure of the client's name results in the release of confidential information

Question 182

According to the ethical standards of the profession, which of the following acts is generally prohibited? A. Issuing a modified report explaining a failure to follow a governmental regulatory agency's standards when conducting an attest service for a client. B. Accepting a contingent fee for representing a client in an examination of the client's federal tax return by an IRS agent. C. Retaining client records after an engagement is terminated prior to completion and the client has demanded their return. D. Revealing confidential client information during a quality review of a professional practice by a team from the state CPA society.

Answer 182

C. Retaining client records after an engagement is terminated prior to completion and the client has demanded their return

Question 183

According to the AICPA Code of Professional Conduct, which of the following records must a CPA return to the client when requested? A. The CPA's working papers consisting of analyses and schedules prepared by the client at the CPA's request. B. Client-provided records, even if fees are due to the CPA for the engagement and are unpaid. C. Client-provided records requested for a second time because the client misplaced the first set of records. D. Supporting records prepared by the CPA consisting of adjusting, closing, combining, or consolidating entries prior to the completion of the engagement.

Answer 183

B. Client-provided records, even if fees are due to the CPA for the engagement and are unpaid

Question 184

According to the AICPA Code of Professional Conduct, which of the following activities results in an act discreditable to the profession? A. A CPA who is engaged to perform a government audit neglects to follow certain government auditing requirements and discloses in the audit report the fact that such requirements were not followed and the reasons for it. B. A CPA signs a document containing immaterial false and misleading information, or permits or directs another CPA to do so. C. A CPA solicits recent Uniform CPA Examination questions without written authorization from the AICPA. D. A CPA fails to give a client copies of the CPA’s workpapers related to a completed and issued work product upon the client’s request because the client has not paid fees payable to the CPA for the work product.

Answer 184

C. A CPA solicits recent Uniform CPA Examination questions without written authorization from the AICPA

Question 185

Banister, a CPA, is approached by Wagner, a client. Wagner requests that Banister return the records provided to Banister by Wagner during an audit. Wagner still owes Banister the fees associated with the audit. According to the AICPA Code of Professional Conduct, what should Banister do? A. Banister should not return the records to Wagner without a court order. B. Banister should return the records to Wagner. C. Banister should return the records to Wagner only after the fee has been paid. D. Banister should not return the records to Wagner because the records now belong to Banister.

Answer 185

B. Banister should return the records to Wagner

Question 186

An auditor has a close personal friendship with the accounting manager of a local government. According to GAGAS, this relationship poses which type of threat to the auditor's independence? A.OPTION A. Bias B. Undue influence C. Self-interest D. Familiarity

Answer 186

D. Familiarity With familiarity - think long or close relationship with a client Wrong answers: Bias - threat that auditor will take position that is not objective as a result of political, idealogical, social Undue influence - subordinate their judgment to an individual associated with a client Self interest - threat that auditor could benefit financially or otherwise, from an interest in a relationship with client

Question 187

According to the standards of the profession, which of the following activities would most likely not impair a CPA's independence? A. Signing a client's checks in emergency situations. B. Providing extensive advisory services for a client. C. Contracting with a client to supervise the client's office personnel. D. Accepting a luxurious gift from a client.

Answer 187

B. Providing extensive advisory services for a client

Question 188

Under Sarbanes and Oxley Act 1, for PCAOB members, how many members, and which ratio is it for CPAs and non CPA’s? A) Three members must be CPA; two members cannot be CPA B) Four members must be CPA; one member cannot be CPA C) One member must be CPA; four members cannot be CPA D) Two members must be CPA; three members cannot be CPA

Answer 188

D) Two members must be CPA; three members cannot be CPA

Question 189

PCAOB must conduct annual inspections of registered public accounting firms that regularly provide audit reports for more than _________ issuers. Registered public accounting firms that provide audit reports of _______ or fewer must be inspected at least _______ every _________ years A) 200 issuers; 200 issuers; twice every year B) 100 issuers; 100 issuers; once every three years C) 150 issuers; 100 issuers; once every two years D) 100 issuers; 50 issuers; four times every three years

Answer 189

B) 100 issuers; 100 issuers; once every three years

Question 190

For each registered firm, audit documentation must be maintained for _______ years A) seven years B) five years C) ten years D) three years

Answer 190

A) seven years Criminal penalties will apply

Question 191

For audit partner requirements, the lead audit or coordinating partner and reviewing partner must rotate off the audit every _______ years. Under PCAOB, auditors of issuers must also disclose the name of the engagement partner A) seven years B) five years C) ten years D) three years

Answer 191

B) five years

Question 192

Disclosures of transactions involving management and principal stockholders are required for persons who generally have direct or indirect ownership of __________ % of any class of most any equity security A) more than 20 % B) less than 20 % C) more than 5 % D) more than 10 %

Answer 192

D) more than 10 %

Question 193

Individuals who alter, destroy, mutilate, conceal, cover up, falsify, or make false entry in any record, document or tangible object with the intent to impede, obstruct, or influence an investigation will be fined, imprisoned for not more than _______ years, or both A) 15 years, or both B) 20 years, or both C) 10 years, or both D) 5 years, or both

Answer 193

B) 20 years, or both

Question 194

Failure to retain all audit and review workpapers for a period of seven years from the end of the fiscal period in which the audit was conducted will result in a fine, imprisonment for not more than A) 15 years, or both B) 20 years, or both C) 10 years, or both D) 5 years, or both

Answer 194

C) 10 years, or both

Question 195

An individual who knowingly executes, or attempts to execute securities fraud will be fined, imprisoned not more than ________ A) 15 years, or both B) 20 years, or both C) 10 years, or both D) 25 years, or both

Answer 195

D) 25 years, or both

Question 196

Under the ethical standards of the profession in the United States, which of the following circumstances would impair independence in the audit of an issuer but would not impair independence in the audit of a nonissuer? A. The lead partner has worked on the audit engagement of a client for 10 years. B. The audit firm has an immaterial direct financial interest in the client. C. The firm performing the financial statement audit also designed and implemented the client's financial information system. D. The audit firm provided a loan to the client during the prior year.

Answer 196

A. The lead partner has worked on the audit engagement of a client for 10 years Lead partner for issuer is supposed to rotate off the engagement after five years

Question 197

At least how often should the PCAOB inspect a registered public accounting firm that regularly issues audit reports to 50 issuers? A. Annually. B. Every two years. C. Every three years. D. As requested by the firm.

Answer 197

C. Every three years Once every 3 years that issue 100 or fewer audit reports

Question 198

A CPA firm must do which of the following before it can participate in the preparation of an audit report of a company registered with the Securities and Exchange Commission (SEC)? A. Join the SEC Practice Section of the AICPA. B. Register with the Public Company Accounting Oversight Board. C. Register with the Financial Accounting Standards Board (FASB). D. Register with the SEC pursuant to the Securities Exchange Act of 1934.

Answer 198

B. Register with the Public Company Accounting Oversight Board

Question 199

The Public Company Accounting Oversight Board was established by which of the following? A. The International Accounting Standards Board. B. The Sarbanes-Oxley Act of 2002. C. The Financial Accounting Standards Board. D. The American Institute of Certified Public Accountants.

Answer 199

B. The Sarbanes-Oxley Act of 2002

Question 200

According to rules issued under the Sarbanes-Oxley Act, which of the following non-audit services is an accounting firm permitted to provide for an issuer audit client without impairing the accounting firm's independence? A. Providing legal services to the client in a foreign jurisdiction. B. Providing factual accounts in testimony explaining positions taken during the performance of any services provided to the client. C. Providing an expert opinion in order to advocate the client's position in a regulatory investigation. D. Providing an expert opinion in order to advocate the client's interest in litigation.

Answer 200

B. Providing factual accounts in testimony explaining positions taken during the performance of any services provided to the client

Question 201

The Sarbanes-Oxley Act of 2002 seeks to improve investor confidence by providing greater transparency for all of the following issues, except: A. Competency of audit committees. B. Compliance of senior officers with a code of ethics. C. Adequacy of internal controls. D. Means and methods for balancing risk and growth.

Answer 201

D. Means and methods for balancing risk and growth

Question 202

The Sarbanes-Oxley Act of 2002 provides that the accounting firm of an issuer reports directly to: A. Shareholders. B. Audit committee. C. Chief Financial Officer. D. Board of directors..

Answer 202

B. Audit committee Individuals who are independent of the audit process, and who are charged with engaging the auditor

Question 203

According to the Sarbanes-Oxley Act of 2002, the audit committee of an issuer is responsible for each of the following activities, except: A. The appointment, compensation, and oversight of the work of the registered public accounting firm employed by the company. B. Preapproving all audit and nonaudit services provided by the company's auditor. C. Establishing procedures for the receipt, retention, and treatment of complaints received by the company regarding accounting, internal control, and auditing matters. D. Evaluating and reporting on the effectiveness of the company's internal control over financial reporting.

Answer 203

D. Evaluating and reporting on the effectiveness of the company's internal control over financial reporting Instead of audit committee, this is the job of accounting firm employed by the company to perform audit

Question 204

Who is required to make special certification statements regarding the establishment of internal control systems on Form 10-K? A. The principal executive officer, but not the principal financial officer. B. Neither the principal financial officer nor the principal executive officer. C. The principal financial officer, but not the principal executive officer. D. Both the principal executive officer and the principal financial officer.

Answer 204

D. Both the principal executive officer and the principal financial officer

Question 205

Which of the following employees of an issuer is required to certify the company's financial reports filed with the SEC? A. Both the chief executive officer and the chief financial officer. B. The chief financial officer, but not the chief executive officer. C. Neither the chief executive officer nor the chief financial officer. D. The chief executive officer, but not the chief financial officer.

Answer 205

A. Both the chief executive officer and the chief financial officer

Question 206

According to the Sarbanes-Oxley Act of 2002, each of the following is a corporate responsibility requirement, except: A. The audit committee of the issuer must establish whistle-blowing mechanisms and procedures within the issuer. B. The audit committee of the issuer is directly responsible for the appointment, compensation, and oversight of the registered accounting firm. C. Each audit committee member of the issuer must be independent. D. The audit committee chairperson must certify that the quarterly report filed with the SEC fairly presents the financial condition and results of operations.

Answer 206

D. The audit committee chairperson must certify that the quarterly report filed with the SEC fairly presents the financial condition and results of operations Instead, corporate officials such as CEO and CFO must certify the quarterly reports filed with SEC

Question 207

The Sarbanes-Oxley Act of 2002 requires that the management report on internal control include all of the following, except: A. A statement that the auditor has attested and reported on management's evaluation of internal controls. B. A statement that there are no disagreements between management and the auditor as to the effectiveness of internal controls. C. A conclusion about the effectiveness of the company's internal controls. D. A statement of management's responsibilities for establishing and maintaining adequate internal controls.

Answer 207

B. A statement that there are no disagreements between management and the auditor as to the effectiveness of internal controls

Question 208

Under the Sarbanes-Oxley Act of 2002, which of the following statements is correct regarding an issuer's audit committee financial expert? A. The issuer's current outside CPA firm's audit partner must be the audit committee financial expert. B. If an issuer does not have an audit committee financial expert, the issuer must disclose the reason why the role is not filled. C. The issuer must fill the role with an individual who has experience in the issuer's industry. D. The audit committee financial expert must be the issuer's audit committee chairperson to enhance internal control.

Answer 208

B. If an issuer does not have an audit committee financial expert, the issuer must disclose the reason why the role is not filled

Question 209

According to the Sarbanes-Oxley Act of 2002, an issuer must disclose whether or not it has adopted a code of ethics for which of the following? A. The audit committee. B. The issuer's senior financial officers, but not for other employees of the issuer. C. All employees of the issuer. D. Audit staff.

Answer 209

B. The issuer's senior financial officers, but not for other employees of the issuer For Senior officers - CEO, CFO, controller,

Question 210

According to the Sarbanes-Oxley Act of 2002, anyone who knowingly alters, destroys, covers up, or makes a false entry in any record or document with the intent to obstruct or influence the investigation of any matter within the jurisdiction of any department or agency of the United States may be fined and/or imprisoned for up to: A. 5 years. B. 10 years. C. 15 years. D. 20 years.

Answer 210

D. 20 years.

Question 211

According to the Sarbanes-Oxley Act of 2002, a chief executive officer or chief financial officer who misrepresents the company's finances may be penalized by being: A. Fined and imprisoned. B. Imprisoned, but not fined. C. Fined, but not imprisoned. D. Removed from the corporate office and fined.

Answer 211

A. Fined and imprisoned

Question 212

A CPA in charge of the external audit of a nonissuer received an unexpected inheritance that includes 100 shares of the audit client's common stock. Which of the following actions should the CPA take to avoid violating independence rules? A. Resign from the audit firm. B. Sell or donate the stock within 30 days after receipt of ownership rights. C. Petition the AICPA for an independence exception from unforeseen circumstances. D. Decline to accept the inheritance.

Answer 212

B. Sell or donate the stock within 30 days after receipt of ownership rights

Question 213

The spouse of a covered member of an accounting firm is in a permitted employment situation at an attest client and participates in the client's employee stock ownership plan. According to the AICPA Code of Professional Conduct, which of the following actions is required of the spouse when beneficial financial interests are distributed? A. The spouse must hold the shares for a minimum of 30 days after the right to dispose is obtained. B. The spouse must not exercise any put option to require the employer to repurchase the beneficial financial interests until after 30 days from receipt. C. The spouse must serve as a trustee for the share-based compensation arrangement to receive put options as part of the compensation arrangement. D. The spouse must dispose of the shares as soon as practicable, but at most 30 days after the right to dispose is obtained.

Answer 213

D. The spouse must dispose of the shares as soon as practicable, but at most 30 days after the right to dispose is obtained

Question 214

An issuer may hire an employee of a registered public accounting firm who served on the audit engagement team within the previous year for which of the following positions? A. CFO. B. Staff accountant. C. Controller. D. CEO.

Answer 214

B. Staff accountant CFO, Controller and CEO are prohibited from this if they had been member of the firm within the 1 year period preceding the commencement of audit procedures

Question 215

Which of the following statements is incorrect regarding the SEC's partner rotation rules? A. The lead and concurring partners are subject to a five-year time-out period. B. All audit partners must rotate off the audit engagement after five years. C. Other audit partners are subject to a two-year time-out period. D. Small firms may be exempted from the partner rotation requirement.

Answer 215

B. All audit partners must rotate off the audit engagement after five years Lead and concurring partners must rotate after 5 years, and other partners must rotate after 7 years

Question 216

An auditor may provide an issuer client any of the following non-audit services without impairing independence and without obtaining the preapproval of the audit committee, except: A. Non-audit services to perform financial information systems design and implementation. B. Services that the issuer did not recognize as non-audit services at the time of the engagement. C. Non-audit services with revenues in aggregate of less than 5% of the total revenues paid by the issuer to the auditor during the fiscal year in which the non-audit services are provided. D. Non-audit services that were promptly brought to the attention of, and approved by, the audit committee prior to the completion of the audit.

Answer 216

A. Non-audit services to perform financial information systems design and implementation

Question 217

Jackson & Company, CPAs, plan to audit the financial statements of Perigee Technologies, an issuer as defined under the Sarbanes-Oxley Act of 2002. Which of the following situations would impair Jackson's independence? A. Preparation of Perigee's routine annual tax return, where Jackson's fee will be calculated as a percentage of the tax refund obtained. B. An audit of Perigee's internal control is performed contemporaneously with the annual financial statement audit. C. Discovering that Lowe, the chief financial officer of Perigee, started his accounting career ten years earlier as a staff accountant for Jackson & Company, and continues to maintain ties with current partners at the firm. D. Provision of personal tax services to Johnson, the accounts payable manager of Perigee.

Answer 217

A. Preparation of Perigee's routine annual tax return, where Jackson's fee will be calculated as a percentage of the tax refund obtained Contingent fee arrangement impairs independence

Question 218

According to the SEC, which of the following best describes a non-audit service that, when jointly provided with the audit of an issuer, would result in the accountant's loss of independence? A. Preparing the client's tax returns based on information prepared by management. B. Preparing the client's footnote disclosure of significant accounting policies. C. Providing a comfort letter in regard to the client's meeting the debt covenant requirements. D. Issuing a report on management's assessment of the client's internal controls.

Answer 218

B. Preparing the client's footnote disclosure of significant accounting policies

Question 219

Which of the following are true regarding communication requirements an auditor must follow when providing tax services to an audit client who is an issuer under the Sarbanes-Oxley Act of 2002? I.The auditor must communicate to the audit committee, in writing, regarding the proposed tax services and related fees. II.The auditor must communicate to the audit committee, in writing, when the proposed tax services involve contingent fee arrangements. III.The auditor must discuss with the audit committee the potential effects of the proposed tax services on the firm's independence. A. I and II only. B. I, II, and III. C. II and III only. D. I and III only.

Answer 219

D. I and III only Services related to contingent fee, confidential tax transactions and creatinine aggressive tax transactions are prohibited!

Question 220

According to the PCAOB, which of the following tax services may be provided jointly with the audit of an issuer's financial statements without impairing independence? A. Preparing tax returns for an individual in a financial oversight reporting role during the audit period. B. Providing consultations under a contingency fee arrangement. C. Reviewing a proposed transaction and informing the client of the tax consequences. D. Planning and issuing an opinion in favor of the tax treatment of an aggressive tax position.

Answer 220

C. Reviewing a proposed transaction and informing the client of the tax consequences

Question 221

An issuer’s auditor is prohibited from providing tax services to which of the following individuals? A. The chair of the audit committee. B. The chair of the board of directors. C. The CFO of an affiliate of the issuer audited by another firm. D. The CEO.

Answer 221

D. The CEO Prohibited to provide tax services to corporate officers, audit client, immediate family members of corporate officers, [CEO, CFO and COO]

Question 222

An accountant agreed to perform a compilation of a company's financial statements under Statements of Standards for Accounting and Review Services (SSARS). During fieldwork, the accountant decided to perform some analytical procedures. Which of the following would the accountant do related to the compilation engagement? A. Issue an audit report because audit procedures were performed. B. Issue a compilation report even though review procedures were performed on the engagement. C. Withdraw from the engagement because review procedures were performed on a compilation engagement. D. Issue a review report because review procedures were performed.

Answer 222

B. Issue a compilation report even though review procedures were performed on the engagement A compilation report was issued because that’s what the accountant was initially engaged to do. They are not required, but they are free to perform other procedures to verify information from management [analytical procedures]

Question 223

When unaudited financial statements are presented in comparative form with audited financial statements in a document filed with the Securities and Exchange Commission, such statements should be: Marked as "unaudited" - YES / NO Withheld until audited - YES / NO Referred to in the auditor's report - YES / NO

Answer 223

Marked as "unaudited" - YES Withheld until audited - NO Referred to in the auditor's report - NO [ unaudited statements would not be referred in comparative audited FS]

Question 224

When compiling a nonissuer's financial statements, an accountant would be least likely to: A. Perform analytical procedures designed to identify relationships that appear to be unusual. B. Issue a compilation report on one or more, but not all, of the basic financial statements. C. Omit substantially all of the disclosures required by generally accepted accounting principles. D. Read the compiled financial statements and consider whether they appear to include adequate disclosure.

Answer 224

A. Perform analytical procedures designed to identify relationships that appear to be unusual Analytical procedures are usually done during a review engagement

Question 225

Which of the following correctly describes the appropriate title for a report on a nonissuer's financial statements? A. A compilation report should include the word "independent" in the title, but a review report need not include this word. B. Both a compilation report and a review report should include the word "independent" in the title. C. Neither the compilation report nor the review report is required to include the word "independent" in the title. D. A review report should include the word "independent" in the title and a compilation report does not contain a title.

Answer 225

D. A review report should include the word "independent" in the title and a compilation report does not contain a title

Question 226

Audit committee members of issuers are required, under the Sarbanes-Oxley Act of 2002, to maintain which of the following traits? A. Diligence B. Integrity C. Independence D. Proficiency

Answer 226

C. Independence To qualify as independent, audit committee members may not accept compensation from the issuer for consulting or advisory services and may not be an affiliated person of the issuer.

Question 227

The Code of Professional Conduct, Independence Rule, does not consider the following circumstances to be a lack of independence: A. A financial institution client loans the auditor money to buy a boat but does not collateralize the loan. B. The audited firm is privately held and the auditor provides valuation and appraisal services to an audit client, the results of which are material to the financial statements. C. The auditor's brother-in-law's father is the controller of the client being audited. D. The CPA firm's sole audit manager served as controller of the firm's audit client from the January, Year 1 through May, Year 5 when the manager began working with the CPA firm. The current audit period for this client is from April 1, Year 5 through March 31, Year 6.

Answer 227

C. The auditor's brother-in-law's father is the controller of the client being audited Independence would be impaired by a member, member’s spouse or dependent (immediate family), or close relative (parent, sibling or nondependent child) who holds a key position. This DOES NOT apply to in-laws

Question 228

The standard compilation report on the financial statements of a nonissuer that omit substantially all disclosures should: I. Include a paragraph disclosing such omissions. II. Include a disclaimer of opinion. III. State that if the omitted disclosures were included, they might influence the user's conclusions. A. I and III only. B. I only. C. III only. D. I, II, and III.

Answer 228

D. I, II, and III 1. Include a paragraph disclosing such omissions [this paragraph is necessary to alert the user that disclosures are missing, which are important for understanding the FS] 2. Include disclaimer of opinion [although compilation reports do not express an opinion or provide assurance, this statement is ALWAYS included in their report, which is: “Accordingly, we do not express an opinion, a conclusion, nor provide any assurance on these FS” This standard Language in all compilation reports is equivalent to a DISCLAIMER OF OPINION] 3. State that if the omitted disclosures were included, they might influence the users conclusions [This is a cautionary note to users of letting them know of how the omitted statements could affect their understanding on the FS]

Question 229

Which of the following is not a disallowed service for an SEC audit client of a registered public accounting firm under the Sarbanes-Oxley Act of 2002? A. Expert services unrelated to the audit B. All of the above are disallowed services C. Tax services preapproved by the audit committee D. Appraisal and valuation services

Answer 229

C. Tax services preapproved by the audit committee

Question 230

Which of the following reports may be issued only by an accountant who is independent of a client? A. Report on consulting services. B. Compilation report on a financial projection. C. Compilation report on historical financial statements. D. Standard report on an examination of a financial forecast.

Answer 230

D. Standard report on an examination of a financial forecast Examination engagement provides high level of assurance. Because accountant is expressing an opinion or conclusion on subject matter, independence is REQUIRED

Question 231

Which of the following should be the first step in reviewing the financial statements of a nonissuer? A. Comparing the financial statements with statements for comparable prior periods and with anticipated results. B. Applying analytical procedures designed to identify relationships and individual items that appear to be unusual. C. Obtaining a general understanding of the entity's organization, its operating characteristics, and its products or services. D. Completing a series of inquiries concerning the entity's procedures for recording, classifying, and summarizing transactions.

Answer 231

C. Obtaining a general understanding of the entity's organization, its operating characteristics, and its products or services This is the first and most crucial step with performing a review engagement of FS. This helps the accountant tailor subsequent review procedures effectively. Without knowing the business context, accountant may miss on key areas or misinterpret unusual items. Second step would be Choice D - complete series of inquiries

Question 232

Which of the following services provides the least assurance regarding the fairness of financial statements? A. Attestation. B. Compilation. C. Audit. D. Review.

Answer 232

B. Compilation Compilations DO NOT provide any assurance. Only thing it entails is the accountant assisting management in present financial information by compiling the data into FS format

Question 233

Which of the following services provides no assurance, but includes examinations and reviews regarding the fairness of financial statements? A. Attestation. B. Compilation. C. Audit. D. Review.

Answer 233

A. Attestation Although attestation services include agreed-upon procedures [no assurance] examinations and review provide some assurance, more than what is expected from compilation

Question 234

Which of the following services provides reasonable / positive assurance regarding the fairness of financial statements? A. Attestation. B. Compilation. C. Audit. D. Review.

Answer 234

C. Audit

Question 235

Which of the following services provides limited / negative assurance regarding the fairness of financial statements? A. Attestation. B. Compilation. C. Audit. D. Review.

Answer 235

D. Review

Question 236

Under the ethical standards of the profession, which of the following investments by a CPA in a corporate client is an indirect financial interest? A. An investment held through participation in an investment club. B. An investment held through a regulated mutual fund. C. An investment held in a client's retirement plan. D. An investment held in a blind trust.

Answer 236

B. An investment held through a regulated mutual fund Independence is impaired if CPA has direct financial interest with attestation client or material indirect financial interest with client. Investment through regulated fund is indirect because the CPA owns shares in the mutual fund, which turn owns stock in the client

Question 237

Under the ethical standards of the profession, which of the following investments by a CPA in a corporate client is a direct financial interest? A. An investment held through participation in an investment club. B. An investment held through a regulated mutual fund. C. An investment held in a client's retirement plan. D. An investment held in a blind trust.

Answer 237

A. An investment held through participation in an investment club [CPA has direct control or influence over investment decisions in the club] C. An investment held in a client's retirement plan. [CPA owns investment through the retirement plan] D. An investment held in a blind trust [The blind trust holds the investment in the client directly for the CPA’s benefit, so its considered direct]

Question 238

An accountant who is conducting a review of the unaudited financial statements of a nonissuer in accordance with Statements on Standards for Accounting and Review Services would be required to: A. Communicate with the predecessor auditor regarding acceptance of the engagement and matters of continuing accounting significance. B. Obtain a general understanding of the client's business and internal control. C. Obtain a management representation letter. D. Determine, based on inquiry and analytical review procedures, whether the financial statements are presented fairly in all material respects.

Answer 238

C. Obtain a management representation letter Under review engagement: -not required to communicate with predecessor auditor -not required to obtain understanding of business and internal control -perform inquiry and analytical review procedures -since there’s limited assurance, it is not required to determine whether FS is presented fairly in material respects

Question 239

Which of the following is a correct statement about the circumstances under which a CPA firm may or may not disclose the names of its clients without the clients' express permission? A. A CPA firm may disclose this information if the practice is limited to bankruptcy matters, so that prospective clients with similar concerns will be able to contact current clients. B. A CPA firm may disclose this information if the practice is limited to performing asset valuations in anticipation of mergers and acquisitions. C. A CPA firm may disclose this information unless disclosure would suggest that the client may be experiencing financial difficulties. D. A CPA firm may not disclose this information because the identity of its clients is confidential information.

Answer 239

C. A CPA firm may disclose this information unless disclosure would suggest that the client may be experiencing financial difficulties

Question 240

The standard that an auditor should put forth an honest effort in the performance of professional services in accordance with relevant technical and professional standards is included in the Generally Accepted Government Auditing Standard ethics principle of: A. Serving the public interest. B. Integrity. C. Professional behavior. D. Objectivity.

Answer 240

C. Professional behavior HONEST EFFORT in performance of professional services

Question 241

The concept of materiality would be least important to an auditor when considering the: A. Decision whether to use positive or negative confirmations of accounts receivable. B. Discovery of weaknesses in a client's internal control. C. Adequacy of disclosure of a client's illegal act. D. Effects of a direct financial interest in the client on the CPA's independence.

Answer 241

D. Effects of a direct financial interest in the client on the CPA's independence. Direct financial interest in a client impairs independence, even if its immaterial ***If it is indirect financial interest in a client, independence would NOT be impaired. This only applies if it is DIRECT