- 1. Chapter 19 - Additional Assurance Services: Historical
Financial InformationChapter 19 Additional Assurance Services:
Historical Financial InformationTrue / False Questions1. An audit
opinion on cash basis financial statements is an example of a
special report.True False2. The balance sheet for an individual may
be titled a Statement of Financial Condition.True False3. The
auditors should take exception to assets presented at their
estimate current values inpersonal financial statements.True
False4. Personal financial statements may be compiled or reviewed,
but they should not beaudited.True False5. A compilation of
financial statement provides limited assurance regarding the
financialstatements.True False6. Compiled financial statements may
omit note disclosures.True False7. The auditors must issue a
compilation report if they prepare a clients financial
statementsand submit them to a client who intends to use them for
external purposes.True False 19-1
2. Chapter 19 - Additional Assurance Services: Historical
Financial Information8. In a compilation report on a prescribed
form, the accountants should take exception to alldepartures from
generally accepted accounting principles.True False9. Letters to
underwriters should not contain negative assurances.True False10.
When a U.S.-based organization prepares financial statements which
are for use in anothercountry, a U.S. report, modified to reflect
the accounting principles of the other country, maybe issued.True
FalseMultiple Choice Questions11. Which of the following is correct
relating to compiled financial statements when thirdparty reliance
upon those statements is anticipated?A. A compilation report must
be issued.B. Omission of note disclosures is unacceptable.C. A
written engagement letter is required.D. Each page of the financial
statements should have a restriction such as "Restricted
forManagements Use Only".12. Which communication option(s) may be
used when an accountant submits compiledfinancial statements to be
used only by management?A. Option AB. Option BC. Option CD. Option
D 19-2 3. Chapter 19 - Additional Assurance Services: Historical
Financial Information13. A compilation report is not required when
compiled financial statements are expected tobe used by:A.
Management only.B. Management and third parties.C. Third parties
only.D. A compilation report is required whenever financial
statements are compiled.14. It is the end of his clients first
quarter and Bill Smith, CPA is performing a compilation ofhis
clients interim financial statements. He has discovered that the
client does not wish topresent notes to the financial statements.
The appropriate CPA report includes:A. Qualified opinion ("subject
to" the omission of the notes).B. Compilation report with an
adverse opinion due to inadequate disclosure.C. Standard
compilation report.D. Compilation report with an indication that
all required disclosures under GAAP may not bepresented with the
statements.15. An accountants standard report issued after
compiling the financial statements of anonpublic entity should
state thatA. I am not aware of any material modifications that
should be made to the accompanyingfinancial statements.B. A
compilation consists principally of inquiries of company personnel
and analyticalprocedures.C. A compilation is limited to presenting
in the form of financial statements information thatis the
representation of management.D. A compilation is substantially less
in scope than an audit in accordance with GAAS, theobjective of
which is the expression of an opinion.16. Which of the following
procedures is usually the first step in reviewing the
financialstatements of a nonpublic entity?A. Make preliminary
judgments about risk and materiality to determine the scope and
natureof the procedures to be performed.B. Obtain a general
understanding of the entitys organization, its operating
characteristics,and its products or services.C. Assess the risk of
material misstatement arising from fraudulent financial reporting
and themisappropriation of assets.D. Perform a preliminary
assessment of the operating efficiency of the entitys internal
controlactivities. 19-3 4. Chapter 19 - Additional Assurance
Services: Historical Financial Information17. Which of the
following would be used on a review engagement?A. Examination of
board minutes.B. Confirmation of cash and accounts receivable.C.
Comparison of current-year to prior-year account balances.D.
Recalculation of depreciation expense.18. Which of the following is
correct concerning financial statements prepared in the
UnitedStates for use in another country?A. The auditor must follow
GAAP of both the United States and of the other country.B. The type
of audit report issued depends upon whether it is for use primarily
outside theUnited States.C. The audit must only follow US GAAP.D.
Auditors from the other country must be involved with the audit to
assure adequateperformance of that countrys standards.19. For a
CPA, a client imposed scope limitation during a review of financial
statements ismost likely to result in:A. Resignation from the
engagement.B. Issuance of a disclaimer of opinion.C. Issuance of an
adverse opinion.D. Only an explanatory paragraph added to report,
with no change in the assurance provided.20. Interim information of
public companies.A. Must be as comprehensive as that filed annually
with the Securities and ExchangeCommission.B. Must be reviewed by
CPAs before it is filed with the Securities and
ExchangeCommission.C. Must be reviewed continuously by CPAs using
continuous auditing techniques.D. Requires no accountant
association until it becomes a part of the companies
annualfinancial information. 19-4 5. Chapter 19 - Additional
Assurance Services: Historical Financial Information21. In which of
the following types of reports do the auditors express negative
assurance?A. Letters for underwriters.B. Reports on audits of
financial statements on a comprehensive basis other than
generallyaccepted accounting principles.C. Reports on audits of
specified accounts.D. Reports on condensed financial statements.22.
An assertion that is particularly difficult to audit with respect
to personal financialstatements is:A. Existence.B. Rights.C.
Completeness.D. Legality.23. In which of the following types of
reports do accountants provide no explicit assurance?A.
Compilations.B. Reviews.C. Examinations.D. Audits.24. Which of the
following types of services is most likely to result in a
restricted use report?A. Compilations.B. Reviews.C. Agreed-upon
procedures.D. Audits.25. A practitioners report on agreed-upon
procedures that is in the form of procedures andfindings should
containA. Negative assurance that the procedures did not
necessarily disclose all reportableconditions.B. An acknowledgment
of the practitioners responsibility for the sufficiency of
theprocedures.C. A statement of restrictions on the use of the
report.D. A disclaimer of opinion on the entitys financial
statements. 19-5 6. Chapter 19 - Additional Assurance Services:
Historical Financial Information26. Which of the following
statements is correct with respect to an audit report issued
forfinancial statements to be used primarily outside of the United
States?A. The report should follow the U.S. format, modified as
appropriate.B. The report should follow the format of the other
country.C. The report may follow either the U.S. format, modified
as appropriate, or may follow theformat of the other country.D. The
report should follow the attestation examination report format.27.
A "comfort letter" to an investment banking firm will normally
not:A. Express negative assurance.B. Be included with the
registration statement for the securities.C. Include the CPAs
opinion as to whether the audited financial statements comply in
allmaterial respects with applicable requirements of the related
securities acts.D. Include a statement as to the auditors
independence.28. When the auditors are associated with the
financial statements of a public company, buthave not audited the
financial statements, they should:A. Issue a compilation report.B.
Issue a disclaimer of opinion.C. Issue a qualified opinion.D. Not
issue any report.29. Which of the following is an appropriate form
of report for auditors who have audited thefinancial statements of
a company when they are not independent?A. A simple disclaimer of
opinion.B. A disclaimer of opinion, with an indication of the lack
of independence.C. An audit opinion.D. A qualified audit
opinion.30. Which of the following does not result in a
modification of a compilation report?A. A lack of independence on
the part of the auditors.B. A departure from generally accepted
accounting principles.C. A lack of adequate disclosure in the
financial statements.D. A lack of consistent application of
generally accepted accounting principles. 19-6 7. Chapter 19 -
Additional Assurance Services: Historical Financial Information31.
Which of the following requires modification of a review report:A.
A change in accounting principles.B. A substantial doubt about a
companys ability to continue as a going concern.C. A departure from
generally accepted accounting principles.D. A change in an
accounting estimate.32. Which of the following is correct when a
company is issuing condensed financialstatements developed from
audited financial statements?A. Such condensed statements should
always have a CPAs report associated with them whenaudited
financial statements exist.B. The CPA may issue a report on whether
the condensed information is fairly stated in allmaterial respects
in relation to the basic financial statements.C. The CPA should
perform a compilation and review of the condensed financial
statements.D. The CPA who has audited the financial statements who
is asked to report on the condensedstatements should decline the
engagement because the condensed statements do not includeall
disclosures necessary under generally accepted accounting
principles.33. Financial statements that are developed from and
summarize the overall informationpresented in audited financial
statements are referred to asA. Agreed-upon procedure financial
statements.B. Compiled financial statements.C. Condensed financial
statements.D. Reviewed financial statements.34. The term "special
reports" may include all of the following except reports on
financialstatements:A. Of a partnership which follows accounting
practices used to file its tax return.B. Prepared for limited
purposes such as a report that relates to certain aspects of
financialstatements.C. Of an organization that has limited the
scope of the auditors examination.D. Of an organization which
maintains its accounts and prepares its statements on a cash
orother comprehensive basis of accounting which is materially at
variance with accountingpractices customarily followed in preparing
accrual-basis statements. 19-7 8. Chapter 19 - Additional Assurance
Services: Historical Financial Information35. Whenever special
reports, filed on a printed form designed by authorities, call upon
theindependent auditors to make an assertion that the auditors
believe is notjustified, the auditorsshould:A. Submit a short-form
report with explanations.B. Reword the form or attach a separate
report.C. Submit the form with questionable items clearly
omitted.D. Withdraw from the engagement.36. During a review of the
financial statements of a non-public entity, the CPA finds that
thefinancial statements contain a material departure from generally
accepted accountingprinciples. If management refuses to correct the
financial statement presentations, the CPAshould:A. Disclose the
departure in a separate paragraph of the report.B. Issue an adverse
opinion.C. Attach a note explaining the effects of the departure.D.
Issue a compilation report.37. The accountants compilation report
should be dated as of the date of:A. Completion of fieldwork.B.
Completion of the compilation.C. Transmittal of the compilation
report.D. The latest subsequent event referred to in the notes to
the financial statements.38. A modification of the CPAs report on a
review of the interim financial statements of apublicly-held
company would be necessitated by which of the following?A. An
uncertainty.B. Lack of consistency.C. Reference to another
accountant.D. Inadequate disclosure. 19-8 9. Chapter 19 -
Additional Assurance Services: Historical Financial Information39.
A CPA should not normally refer to which one of the following
subjects in a "comfortletter" to underwriters?A. The independence
of the CPA.B. Changes in financial-statement items during a period
subsequent to the date and period ofthe latest financial statements
in the registration statement.C. Unaudited financial statements and
schedules in the registration statement.D. Managements
determination of line of business classifications.40. Inquiry and
analytical procedures ordinarily performed during a review of a
nonpublicentitys financial statements include:A. Analytical
procedures designed to identify reportable conditions related to
internal control.B. Inquiries concerning actions taken at meetings
of the stockholders and the board ofdirectors.C. Analytical
procedures designed to test the accounting records by obtaining
corroboratingevidential matter.D. Inquiries of knowledgeable
outside parties such as the clients attorneys and bankers.41. Which
of the following would not be included in a CPAs report based upon
a review ofthe financial statements of a nonpublic entity?A. A
statement that the review was in accordance with generally accepted
auditing standards.B. A statement that all information included in
the financial statements are the representationsof management.C. A
statement describing the nature of the procedures performed.D. A
statement describing the auditors conclusions based upon the
results of the review.42. The objective of a review of interim
financial information is to provide the accountantwith a basis for
reporting whether:A. A reasonable basis exists for expressing an
updated opinion regarding the financialstatements that were
previously audited.B. Material modifications should be made to
conform with generally accepted accountingprinciples.C. The
financial statements are presented fairly in accordance with
standards of interimreporting.D. The financial statements are
presented fairly in accordance with generally acceptedaccounting
principles. 19-9 10. Chapter 19 - Additional Assurance Services:
Historical Financial Information43. If the auditor believes that
financial statements prepared on the entitys income tax basisare
not suitably titled, the auditor should:A. Issue a disclaimer of
opinion.B. Explain in the notes to the financial statements the
terminology used.C. Issue a compilation report.D. Modify the
auditors report to disclose any reservations.44. An auditors report
on financial statements prepared in accordance with a
comprehensivebasis of accounting other than generally accepted
accounting principles should include all ofthe following except:A.
Reference to the note to the financial statements that describes
the basis of preparation ofthe financial statements.B. Disclosure
that the audit was performed in accordance with generally accepted
auditingstandards.C. An opinion as to whether the basis of
accounting used is appropriate under thecircumstances.D. An opinion
as to whether the financial statements are presented fairly in
conformity withthe basis of accounting described.45. When an
auditor reports on financial statements prepared on an entitys
income tax basis,the auditors report should:A. Disclose that the
income tax basis is a comprehensive basis of accounting other
thangenerally accepted accounting principles.B. Disclaim an opinion
on whether the statements were examined in accordance withgenerally
accepted auditing standards.C. Not express an opinion on whether
the statements are presented in conformity with thecomprehensive
basis of accounting used.D. Include an explanation of how the
results of operations differ from the cash receipts
anddisbursements basis of accounting.19-10 11. Chapter 19 -
Additional Assurance Services: Historical Financial Information46.
An auditors report would be designated as a special report when it
is issued in connectionwith financial statements that are:A. For an
interim period and are subjected to a review.B. Unaudited and are
prepared from a clients accounting records.C. Prepared in
accordance with a comprehensive basis of accounting other than
generallyaccepted accounting principles.D. Purported to be in
accordance with generally accepted accounting principles but do
notinclude a presentation of the statement of cash flows.47. The
underwriter of a securities offering may request that an auditor
perform specifiedprocedures and supply certain assurances
concerning unaudited information contained in aregistration
statement. The auditors response to such a request is commonly
called a:A. Report under federal security statutes.B. Comfort
letter.C. Review of interim financial information.D. Compilation
report for underwriters.48. Comfort letters are ordinarily signed
by the:A. Client.B. Clients lawyer.C. Independent auditor.D.
Internal auditor.49. Which of the following circumstances requires
modification of the accountants report ona review of interim
financial information of publicly held entity?A. Option AB. Option
BC. Option CD. Option D19-11 12. Chapter 19 - Additional Assurance
Services: Historical Financial Information50. If compiled financial
statements presented in conformity with the cash receipts
anddisbursements basis of accounting do not disclose the basis of
accounting used, theaccountant should:A. Disclose the basis in the
notes to the financial statements.B. Clearly label each page
"Unaudited."C. Disclose the basis of accounting in the accountants
report.D. Recompile the financial statements using generally
accepted accounting principles.51. An auditor is reporting on cash
basis financial statements. These statements are bestreferred to in
his opinion by which of the following descriptions?A. Financial
position and results of operation arising from cash transactions.B.
Assets and liabilities arising from cash transactions, and revenue
collected and expensespaid.C. Balance sheet and income statement
resulting from cash transactions.D. Cash balance sheet and the
source and application of funds.52. Which of the following should
not be included in an accountants standard report basedupon the
compilation of an entitys financial statements?A. A statement that
a compilation is limited to presenting in the form of financial
statementsinformation that is the representation of management.B. A
statement that the compilation was performed in accordance with
standards establishedby the American Institute of CPAs.C. A
statement that the accountant has not audited or reviewed the
financial statements.D. A statement that the accountant does not
express an opinion but expresses only limitedassurance on the
financial statements.53. Each page of the financial statements
compiled by an accountant should include areference such as:A. See
accompanying accountants notes.B. Unaudited, see accountants
disclaimer.C. See accountants compilation report.D. Subject to
compilation restrictions.19-12 13. Chapter 19 - Additional
Assurance Services: Historical Financial Information54. During a
review of the financial statements of a nonpublic entity, the CPA
finds that thefinancial statements contain a material departure
from generally accepted accountingprinciples. If management refuses
to correct the financial statement presentations, the CPAshould:A.
Disclose the departure in a separate paragraph of the report.B.
Issue an adverse opinion.C. Attach a note explaining the effects of
the departure.D. Issue a compilation report.55. Which of the
following is an auditor least likely to inquire about when
performing areview of a nonpublic company?A. Significant
transactions near the end of the period.B. Communications with
regulatory agencies.C. That financial statements are prepared in
conformity with a special basis of accounting.D. Questions that
have arisen in applying review procedures.56. When performing a
review of a nonpublic company, the auditors must obtain in
arepresentation letter acknowledgement of management for its
responsibility for reach of thefollowing except:A. Responsibility
for identifying illegal acts committed by employees.B.
Responsibility for the financial statements conforming with
generally accepted accountingprinciples.C. Responsibility to
prevent and detect fraud.D. Knowledge of any actual or suspected
fraud that is material.19-13 14. Chapter 19 - Additional Assurance
Services: Historical Financial InformationEssay Questions57. The
financial statements of nonpublic companies may be compiled or
reviewed by theCPAs.a. Describe a compilation of financial
statements.b. Describe a review of financial statements.c. Describe
three procedures that are performed in the review of a nonpublic
companysfinancial statements.58. One may envisions a continuum of
assurance ranging from absolute assurance to noassurance. In
between may be reasonable assurance, limited assurance, and a
summary offindings with no other assurance.a. What level of
assurance is provided in the CPAs report by each of the following
types ofengagements? Examinations Audits Review Agreed-upon
procedures Compilationsb. What type of assurance is provided on
financial statements prepared following acomprehensive basis of
accounting other than generally accepted accounting
principles?19-14 15. Chapter 19 - Additional Assurance Services:
Historical Financial Information59. Items a through j present
various phrases or characteristics that may apply to
audits,reviews, and compilations. Place check mark in the cell if
the phrase or characteristic appliesto the listed service:19-15 16.
Chapter 19 - Additional Assurance Services: Historical Financial
InformationChapter 19 Additional Assurance Services: Historical
Financial InformationAnswer KeyTrue / False Questions1. An audit
opinion on cash basis financial statements is an example of a
special report.TRUEDifficulty: Easy2. The balance sheet for an
individual may be titled a Statement of Financial
Condition.TRUEDifficulty: Medium3. The auditors should take
exception to assets presented at their estimate current values
inpersonal financial statements.FALSEDifficulty: Medium4. Personal
financial statements may be compiled or reviewed, but they should
not beaudited.FALSEDifficulty: Easy19-16 17. Chapter 19 -
Additional Assurance Services: Historical Financial Information5. A
compilation of financial statement provides limited assurance
regarding the financialstatements.FALSEDifficulty: Medium6.
Compiled financial statements may omit note
disclosures.TRUEDifficulty: Medium7. The auditors must issue a
compilation report if they prepare a clients financial
statementsand submit them to a client who intends to use them for
external purposes.TRUEDifficulty: Hard8. In a compilation report on
a prescribed form, the accountants should take exception to
alldepartures from generally accepted accounting
principles.FALSEDifficulty: Medium9. Letters to underwriters should
not contain negative assurances.FALSEDifficulty: Medium19-17 18.
Chapter 19 - Additional Assurance Services: Historical Financial
Information10. When a U.S.-based organization prepares financial
statements which are for use in anothercountry, a U.S. report,
modified to reflect the accounting principles of the other country,
maybe issued.TRUEDifficulty: MediumMultiple Choice Questions11.
Which of the following is correct relating to compiled financial
statements when thirdparty reliance upon those statements is
anticipated?A. A compilation report must be issued.B. Omission of
note disclosures is unacceptable.C. A written engagement letter is
required.D. Each page of the financial statements should have a
restriction such as "Restricted forManagements Use
Only".Difficulty: Medium12. Which communication option(s) may be
used when an accountant submits compiledfinancial statements to be
used only by management?A. Option AB. Option BC. Option CD. Option
DDifficulty: Hard19-18 19. Chapter 19 - Additional Assurance
Services: Historical Financial Information13. A compilation report
is not required when compiled financial statements are expected
tobe used by:A. Management only.B. Management and third parties.C.
Third parties only.D. A compilation report is required whenever
financial statements are compiled.Difficulty: Medium14. It is the
end of his clients first quarter and Bill Smith, CPA is performing
a compilation ofhis clients interim financial statements. He has
discovered that the client does not wish topresent notes to the
financial statements. The appropriate CPA report includes:A.
Qualified opinion ("subject to" the omission of the notes).B.
Compilation report with an adverse opinion due to inadequate
disclosure.C. Standard compilation report.D. Compilation report
with an indication that all required disclosures under GAAP may not
bepresented with the statements.Difficulty: Medium15. An
accountants standard report issued after compiling the financial
statements of anonpublic entity should state thatA. I am not aware
of any material modifications that should be made to the
accompanyingfinancial statements.B. A compilation consists
principally of inquiries of company personnel and
analyticalprocedures.C. A compilation is limited to presenting in
the form of financial statements information thatis the
representation of management.D. A compilation is substantially less
in scope than an audit in accordance with GAAS, theobjective of
which is the expression of an opinion.Difficulty: MediumSource:
AICPA19-19 20. Chapter 19 - Additional Assurance Services:
Historical Financial Information16. Which of the following
procedures is usually the first step in reviewing the
financialstatements of a nonpublic entity?A. Make preliminary
judgments about risk and materiality to determine the scope and
natureof the procedures to be performed.B. Obtain a general
understanding of the entitys organization, its operating
characteristics,and its products or services.C. Assess the risk of
material misstatement arising from fraudulent financial reporting
and themisappropriation of assets.D. Perform a preliminary
assessment of the operating efficiency of the entitys internal
controlactivities.Difficulty: HardSource: AICPA17. Which of the
following would be used on a review engagement?A. Examination of
board minutes.B. Confirmation of cash and accounts receivable.C.
Comparison of current-year to prior-year account balances.D.
Recalculation of depreciation expense.Difficulty: EasySource:
AICPA18. Which of the following is correct concerning financial
statements prepared in the UnitedStates for use in another
country?A. The auditor must follow GAAP of both the United States
and of the other country.B. The type of audit report issued depends
upon whether it is for use primarily outside theUnited States.C.
The audit must only follow US GAAP.D. Auditors from the other
country must be involved with the audit to assure
adequateperformance of that countrys standards.Difficulty:
Medium19-20 21. Chapter 19 - Additional Assurance Services:
Historical Financial Information19. For a CPA, a client imposed
scope limitation during a review of financial statements ismost
likely to result in:A. Resignation from the engagement.B. Issuance
of a disclaimer of opinion.C. Issuance of an adverse opinion.D.
Only an explanatory paragraph added to report, with no change in
the assurance provided.Difficulty: Hard20. Interim information of
public companies.A. Must be as comprehensive as that filed annually
with the Securities and ExchangeCommission.B. Must be reviewed by
CPAs before it is filed with the Securities and
ExchangeCommission.C. Must be reviewed continuously by CPAs using
continuous auditing techniques.D. Requires no accountant
association until it becomes a part of the companies
annualfinancial information.Difficulty: Medium21. In which of the
following types of reports do the auditors express negative
assurance?A. Letters for underwriters.B. Reports on audits of
financial statements on a comprehensive basis other than
generallyaccepted accounting principles.C. Reports on audits of
specified accounts.D. Reports on condensed financial
statements.Difficulty: Hard22. An assertion that is particularly
difficult to audit with respect to personal financialstatements
is:A. Existence.B. Rights.C. Completeness.D. Legality.Difficulty:
Medium19-21 22. Chapter 19 - Additional Assurance Services:
Historical Financial Information23. In which of the following types
of reports do accountants provide no explicit assurance?A.
Compilations.B. Reviews.C. Examinations.D. Audits.Difficulty:
Easy24. Which of the following types of services is most likely to
result in a restricted use report?A. Compilations.B. Reviews.C.
Agreed-upon procedures.D. Audits.Difficulty: Medium25. A
practitioners report on agreed-upon procedures that is in the form
of procedures andfindings should containA. Negative assurance that
the procedures did not necessarily disclose all
reportableconditions.B. An acknowledgment of the practitioners
responsibility for the sufficiency of theprocedures.C. A statement
of restrictions on the use of the report.D. A disclaimer of opinion
on the entitys financial statements.Difficulty: MediumSource:
AICPA26. Which of the following statements is correct with respect
to an audit report issued forfinancial statements to be used
primarily outside of the United States?A. The report should follow
the U.S. format, modified as appropriate.B. The report should
follow the format of the other country.C. The report may follow
either the U.S. format, modified as appropriate, or may follow
theformat of the other country.D. The report should follow the
attestation examination report format.Difficulty: Medium19-22 23.
Chapter 19 - Additional Assurance Services: Historical Financial
Information27. A "comfort letter" to an investment banking firm
will normally not:A. Express negative assurance.B. Be included with
the registration statement for the securities.C. Include the CPAs
opinion as to whether the audited financial statements comply in
allmaterial respects with applicable requirements of the related
securities acts.D. Include a statement as to the auditors
independence.Difficulty: Medium28. When the auditors are associated
with the financial statements of a public company, buthave not
audited the financial statements, they should:A. Issue a
compilation report.B. Issue a disclaimer of opinion.C. Issue a
qualified opinion.D. Not issue any report.Difficulty: Hard29. Which
of the following is an appropriate form of report for auditors who
have audited thefinancial statements of a company when they are not
independent?A. A simple disclaimer of opinion.B. A disclaimer of
opinion, with an indication of the lack of independence.C. An audit
opinion.D. A qualified audit opinion.Difficulty: Medium30. Which of
the following does not result in a modification of a compilation
report?A. A lack of independence on the part of the auditors.B. A
departure from generally accepted accounting principles.C. A lack
of adequate disclosure in the financial statements.D. A lack of
consistent application of generally accepted accounting
principles.Difficulty: Hard19-23 24. Chapter 19 - Additional
Assurance Services: Historical Financial Information31. Which of
the following requires modification of a review report:A. A change
in accounting principles.B. A substantial doubt about a companys
ability to continue as a going concern.C. A departure from
generally accepted accounting principles.D. A change in an
accounting estimate.Difficulty: Hard32. Which of the following is
correct when a company is issuing condensed financialstatements
developed from audited financial statements?A. Such condensed
statements should always have a CPAs report associated with them
whenaudited financial statements exist.B. The CPA may issue a
report on whether the condensed information is fairly stated in
allmaterial respects in relation to the basic financial
statements.C. The CPA should perform a compilation and review of
the condensed financial statements.D. The CPA who has audited the
financial statements who is asked to report on the
condensedstatements should decline the engagement because the
condensed statements do not includeall disclosures necessary under
generally accepted accounting principles.Difficulty: Hard33.
Financial statements that are developed from and summarize the
overall informationpresented in audited financial statements are
referred to asA. Agreed-upon procedure financial statements.B.
Compiled financial statements.C. Condensed financial statements.D.
Reviewed financial statements.Difficulty: Medium19-24 25. Chapter
19 - Additional Assurance Services: Historical Financial
Information34. The term "special reports" may include all of the
following except reports on financialstatements:A. Of a partnership
which follows accounting practices used to file its tax return.B.
Prepared for limited purposes such as a report that relates to
certain aspects of financialstatements.C. Of an organization that
has limited the scope of the auditors examination.D. Of an
organization which maintains its accounts and prepares its
statements on a cash orother comprehensive basis of accounting
which is materially at variance with accountingpractices
customarily followed in preparing accrual-basis
statements.Difficulty: HardSource: AICPA35. Whenever special
reports, filed on a printed form designed by authorities, call upon
theindependent auditors to make an assertion that the auditors
believe is notjustified, the auditorsshould:A. Submit a short-form
report with explanations.B. Reword the form or attach a separate
report.C. Submit the form with questionable items clearly
omitted.D. Withdraw from the engagement.Difficulty: MediumSource:
AICPA36. During a review of the financial statements of a
non-public entity, the CPA finds that thefinancial statements
contain a material departure from generally accepted
accountingprinciples. If management refuses to correct the
financial statement presentations, the CPAshould:A. Disclose the
departure in a separate paragraph of the report.B. Issue an adverse
opinion.C. Attach a note explaining the effects of the departure.D.
Issue a compilation report.Difficulty: MediumSource: AICPA19-25 26.
Chapter 19 - Additional Assurance Services: Historical Financial
Information37. The accountants compilation report should be dated
as of the date of:A. Completion of fieldwork.B. Completion of the
compilation.C. Transmittal of the compilation report.D. The latest
subsequent event referred to in the notes to the financial
statements.Difficulty: MediumSource: AICPA38. A modification of the
CPAs report on a review of the interim financial statements of
apublicly-held company would be necessitated by which of the
following?A. An uncertainty.B. Lack of consistency.C. Reference to
another accountant.D. Inadequate disclosure.Difficulty:
MediumSource: AICPA39. A CPA should not normally refer to which one
of the following subjects in a "comfortletter" to underwriters?A.
The independence of the CPA.B. Changes in financial-statement items
during a period subsequent to the date and period ofthe latest
financial statements in the registration statement.C. Unaudited
financial statements and schedules in the registration statement.D.
Managements determination of line of business
classifications.Difficulty: HardSource: AICPA19-26 27. Chapter 19 -
Additional Assurance Services: Historical Financial Information40.
Inquiry and analytical procedures ordinarily performed during a
review of a nonpublicentitys financial statements include:A.
Analytical procedures designed to identify reportable conditions
related to internal control.B. Inquiries concerning actions taken
at meetings of the stockholders and the board ofdirectors.C.
Analytical procedures designed to test the accounting records by
obtaining corroboratingevidential matter.D. Inquiries of
knowledgeable outside parties such as the clients attorneys and
bankers.Difficulty: MediumSource: AICPA41. Which of the following
would not be included in a CPAs report based upon a review ofthe
financial statements of a nonpublic entity?A. A statement that the
review was in accordance with generally accepted auditing
standards.B. A statement that all information included in the
financial statements are the representationsof management.C. A
statement describing the nature of the procedures performed.D. A
statement describing the auditors conclusions based upon the
results of the review.Difficulty: MediumSource: AICPA42. The
objective of a review of interim financial information is to
provide the accountantwith a basis for reporting whether:A. A
reasonable basis exists for expressing an updated opinion regarding
the financialstatements that were previously audited.B. Material
modifications should be made to conform with generally accepted
accountingprinciples.C. The financial statements are presented
fairly in accordance with standards of interimreporting.D. The
financial statements are presented fairly in accordance with
generally acceptedaccounting principles.Difficulty: MediumSource:
AICPA19-27 28. Chapter 19 - Additional Assurance Services:
Historical Financial Information43. If the auditor believes that
financial statements prepared on the entitys income tax basisare
not suitably titled, the auditor should:A. Issue a disclaimer of
opinion.B. Explain in the notes to the financial statements the
terminology used.C. Issue a compilation report.D. Modify the
auditors report to disclose any reservations.Difficulty:
EasySource: AICPA44. An auditors report on financial statements
prepared in accordance with a comprehensivebasis of accounting
other than generally accepted accounting principles should include
all ofthe following except:A. Reference to the note to the
financial statements that describes the basis of preparation ofthe
financial statements.B. Disclosure that the audit was performed in
accordance with generally accepted auditingstandards.C. An opinion
as to whether the basis of accounting used is appropriate under
thecircumstances.D. An opinion as to whether the financial
statements are presented fairly in conformity withthe basis of
accounting described.Difficulty: MediumSource: AICPA45. When an
auditor reports on financial statements prepared on an entitys
income tax basis,the auditors report should:A. Disclose that the
income tax basis is a comprehensive basis of accounting other
thangenerally accepted accounting principles.B. Disclaim an opinion
on whether the statements were examined in accordance withgenerally
accepted auditing standards.C. Not express an opinion on whether
the statements are presented in conformity with thecomprehensive
basis of accounting used.D. Include an explanation of how the
results of operations differ from the cash receipts
anddisbursements basis of accounting.Difficulty: MediumSource:
AICPA19-28 29. Chapter 19 - Additional Assurance Services:
Historical Financial Information46. An auditors report would be
designated as a special report when it is issued in connectionwith
financial statements that are:A. For an interim period and are
subjected to a review.B. Unaudited and are prepared from a clients
accounting records.C. Prepared in accordance with a comprehensive
basis of accounting other than generallyaccepted accounting
principles.D. Purported to be in accordance with generally accepted
accounting principles but do notinclude a presentation of the
statement of cash flows.Difficulty: MediumSource: AICPA47. The
underwriter of a securities offering may request that an auditor
perform specifiedprocedures and supply certain assurances
concerning unaudited information contained in aregistration
statement. The auditors response to such a request is commonly
called a:A. Report under federal security statutes.B. Comfort
letter.C. Review of interim financial information.D. Compilation
report for underwriters.Difficulty: EasySource: AICPA48. Comfort
letters are ordinarily signed by the:A. Client.B. Clients lawyer.C.
Independent auditor.D. Internal auditor.Difficulty: EasySource:
AICPA19-29 30. Chapter 19 - Additional Assurance Services:
Historical Financial Information49. Which of the following
circumstances requires modification of the accountants report ona
review of interim financial information of publicly held entity?A.
Option AB. Option BC. Option CD. Option DDifficulty: HardSource:
AICPA50. If compiled financial statements presented in conformity
with the cash receipts anddisbursements basis of accounting do not
disclose the basis of accounting used, theaccountant should:A.
Disclose the basis in the notes to the financial statements.B.
Clearly label each page "Unaudited."C. Disclose the basis of
accounting in the accountants report.D. Recompile the financial
statements using generally accepted accounting
principles.Difficulty: HardSource: AICPA51. An auditor is reporting
on cash basis financial statements. These statements are
bestreferred to in his opinion by which of the following
descriptions?A. Financial position and results of operation arising
from cash transactions.B. Assets and liabilities arising from cash
transactions, and revenue collected and expensespaid.C. Balance
sheet and income statement resulting from cash transactions.D. Cash
balance sheet and the source and application of funds.Difficulty:
MediumSource: AICPA19-30 31. Chapter 19 - Additional Assurance
Services: Historical Financial Information52. Which of the
following should not be included in an accountants standard report
basedupon the compilation of an entitys financial statements?A. A
statement that a compilation is limited to presenting in the form
of financial statementsinformation that is the representation of
management.B. A statement that the compilation was performed in
accordance with standards establishedby the American Institute of
CPAs.C. A statement that the accountant has not audited or reviewed
the financial statements.D. A statement that the accountant does
not express an opinion but expresses only limitedassurance on the
financial statements.Difficulty: HardSource: AICPA53. Each page of
the financial statements compiled by an accountant should include
areference such as:A. See accompanying accountants notes.B.
Unaudited, see accountants disclaimer.C. See accountants
compilation report.D. Subject to compilation
restrictions.Difficulty: EasySource: AICPA54. During a review of
the financial statements of a nonpublic entity, the CPA finds that
thefinancial statements contain a material departure from generally
accepted accountingprinciples. If management refuses to correct the
financial statement presentations, the CPAshould:A. Disclose the
departure in a separate paragraph of the report.B. Issue an adverse
opinion.C. Attach a note explaining the effects of the departure.D.
Issue a compilation report.Difficulty: HardSource: AICPA19-31 32.
Chapter 19 - Additional Assurance Services: Historical Financial
Information55. Which of the following is an auditor least likely to
inquire about when performing areview of a nonpublic company?A.
Significant transactions near the end of the period.B.
Communications with regulatory agencies.C. That financial
statements are prepared in conformity with a special basis of
accounting.D. Questions that have arisen in applying review
procedures.Difficulty: Medium56. When performing a review of a
nonpublic company, the auditors must obtain in arepresentation
letter acknowledgement of management for its responsibility for
reach of thefollowing except:A. Responsibility for identifying
illegal acts committed by employees.B. Responsibility for the
financial statements conforming with generally accepted
accountingprinciples.C. Responsibility to prevent and detect
fraud.D. Knowledge of any actual or suspected fraud that is
material.Difficulty: HardEssay Questions19-32 33. Chapter 19 -
Additional Assurance Services: Historical Financial Information57.
The financial statements of nonpublic companies may be compiled or
reviewed by theCPAs.a. Describe a compilation of financial
statements.b. Describe a review of financial statements.c. Describe
three procedures that are performed in the review of a nonpublic
companysfinancial statements.a. A compilation is limited to taking
the representations of management and putting them inthe form of
financial statements.b. A review of financial statements involves
the performance of inquiry and analyticalprocedures to provide the
accountants with a reasonable basis for expressing limitedassurance
that the financial statements are in accordance with generally
accepted accountingprinciples.c. Procedures performed in the review
of financial statements include (only three required): Inquiries of
officers and other executives. Analytical procedures applied to
financial data by reference to prior financial data, budgets,and
other operating data. Inquiries concerning actions taken in
meetings of stockholders, board of directors, andcommittees of the
board. Additional procedures if the accountants become aware that
the information may beincorrect, incomplete, or otherwise
unsatisfactory.Difficulty: Medium19-33 34. Chapter 19 - Additional
Assurance Services: Historical Financial Information58. One may
envisions a continuum of assurance ranging from absolute assurance
to noassurance. In between may be reasonable assurance, limited
assurance, and a summary offindings with no other assurance.a. What
level of assurance is provided in the CPAs report by each of the
following types ofengagements? Examinations Audits Review
Agreed-upon procedures Compilationsb. What type of assurance is
provided on financial statements prepared following acomprehensive
basis of accounting other than generally accepted accounting
principles?a. Assurance provided: Examinations--reasonable
assurance Audits--reasonable assurance Review--limited assurance
Agreed-upon procedures--summary of findings Compilations--no
assuranceb. The assurance provided is dependent upon the nature of
the service provided. Withfinancial statements the options (and
assurance) possible are audit (reasonable assurance),review
(limited assurance), and compilations (no assurance). Additionally,
agreed-uponprocedures could be applied to various elements,
accounts or items of the financial statements(a summary of findings
would be provided).Difficulty: Hard19-34 35. Chapter 19 -
Additional Assurance Services: Historical Financial Information59.
Items a through j present various phrases or characteristics that
may apply to audits,reviews, and compilations. Place check mark in
the cell if the phrase or characteristic appliesto the listed
service:19-35 36. Chapter 19 - Additional Assurance Services:
Historical Financial Information19-36
