13) An agreed-upon procedures engagement is one in which
A) the CPA and management agree that procedures will be applied to all accounts and
circumstances.
B) the CPA and management agree that procedures will not be applied to all accounts and
circumstances.
C) the CPA, the responsible party making the assertions, and the specific persons who are the
intended users of the CPA’s report agree to all the procedures the CPA will perform.
D) the CPA, the responsible party making the assertions, and the specific persons who are the
intended users of the CPA’s report agree that the CPA will apply his judgment to determine the
procedures to be performed.
14) When a CPA performs an examination engagement under the attestation standards, the
amount of evidence gathered is ________ and the level of assurance is ________.
A) extensive; varying
B) significant; high
C) extensive; high
D) significant; moderate
15) When performing an attestation engagement, a CPA is required to adhere to the Statements
on Standards for Attestation Engagements. Describe below the Standards of Field Work for
attestation engagements.
16) Statements on Standards for Attestation Engagements (SSAEs ) are issued by the Auditing
Standards Board of the AICPA.
17) Auditors of the financial statements of public companies must follow the guidelines in the
SSAEs.
18) The use of positive assurance is appropriate in a review attestation report.
19) Of the three types of attestation engagements, examination engagements provide a higher
level of assurance than agreed-upon procedures engagements but less than review engagements.
20) Examination attestation engagements result in a conclusion that is in a positive form,
whereas review attestation engagements result in a conclusion in the form of a negative
assurance.
25.4 Learning Objective 25-4
1) Which of the following services is performed under the attestation standards?
A)
WebTrust
SysTrust
Yes
Yes
B)
WebTrust
SysTrust
No
No
C)
WebTrust
SysTrust
Yes
No
D)
WebTrust
SysTrust
No
Yes
2) The WebTrust service requires that a CPA update its testing of the e-commerce aspects of an
entity’s website at least every
A) ninety days.
B) month.
C) six months.
D) twelve months.
3) In a WebTrust attestation engagement the client engages a CPA to provide what level of
assurance that the company’s website complies with Trust Services principles?
A) absolute
B) reasonable
C) limited
D) moderate
4) The service auditor’s Type 2 report contains
A) an opinion on the reasonableness of the financial statements.
B) the two opinions about the description and suitability of the design of controls that are issued
in a Type 1 report plus an additional opinion about the operating effectiveness of controls
throughout the period.
C) an opinion only on the operating effectiveness of the controls.
D) an opinion on the service company’s website.
5) What type of SOC report is intended to meet the needs of entities that use service
organizations and their auditors, who are responsible for understanding internal controls over
financial reporting at service organizations?
A) SOC 1 report
B) SOC 2 report
C) SOC 3 report
D) none of the above
6) What type of SOC report is intended to meet the needs of a broad range of users who need
information and assurance about controls at s service organization that affect the security,
availability, and processing integrity of the systems the service organization uses to process
users’ data and the confidentiality and privacy of the information processed by these systems?
A) SOC 1 report
B) SOC 2 report
C) SOC 3 report
D) none of the above
7) Which of the following is not one of the five Trust Services principles?
A) security
B) confidentiality
C) completeness
D) availability
8) Who developed the WebTrust service? Briefly explain this service.
9) Briefly describe each of the five Trust Services principles.
10) WebTrust services are performed under the direction of the SSARS.
11) The AICPA has discontinued the SysTrust seal program.
12) There are five Trust Service principles, including security and viability.
13) SOC 3 reports are prepared using the Trust Services principles.
14) The guidance for service auditors has been moved to the attestation standards.
15) In a Type 2 engagement, the service auditor performs tests of the operating effectiveness of
the controls, but does not have to perform any of the procedures performed in a Type 1
engagement.
25.5 Learning Objective 25-5
1) As a CPA you have been asked to examine an entity’s financial projections. Acceptance of the
engagement would be appropriate if distribution is limited to
A) stockholders of record as of the date of the report.
B) potential investors and creditors by posting on the company’s website.
C) general public by posting on the company’s website.
D) a financial institution for which the company is negotiating a loan.
2) Which of the following is a type of prospective financial statement as defined by the AICPA
attestation standards?
A)
Forecasts
Projections
Earnings estimates
No
No
Yes
B)
Forecasts
Projections
Earnings estimates
No
Yes
No
C)
Forecasts
Projections
Earnings estimates
Yes
Yes
No
D)
Forecasts
Projections
Earnings estimates
Yes
No
Yes
3) Which are prospective financial statements that present an entity’s expected financial position,
results of operations, and cash flows, to the best of the responsible party’s knowledge and belief?
A)
Forecasts
Projections
Yes
Yes
B)
Forecasts
Projections
No
No
C)
Forecasts
Projections
Yes
No
D)
Forecasts
Projections
No
Yes
4) Which are prospective financial statements that present an entity’s financial position, results of
operations, and cash flows, to the best of the responsible party’s knowledge and belief, given one
or more hypothetical assumptions?
A)
Forecasts
Projections
Yes
Yes
B)
Forecasts
Projections
No
No
C)
Forecasts
Projections
Yes
No
D)
Forecasts
Projections
No
Yes
5) Professional standards prohibit which one of the following types of engagements for
prospective financial statements from being undertaken?
A) a compilation
B) a review
C) an examination
D) an agreed-upon procedures engagement
6) General use statements are prepared for use by
A) known contractual parties.
B) any third party.
C) regulators.
D) internal auditors.
7) Which of the following statements regarding prospective financial statements is most correct?
A) CPAs are not attesting to the accuracy of the prospective financial statements.
B) CPAs are attesting to the accuracy of the prospective financial statements.
C) CPAs are performing a review on the company’s assumptions and hypotheticals that underlie
the prospective financial statements.
D) CPAs are performing a review on the achievability of the prospective financial statements.
8) What is the best reason that standards prohibit accepting an engagement on a projection for
general use?
A) The CPA’s procedures would violate SSARS.
B) Reports on projections are not well understood by the general public.
C) Underlying hypothetical assumptions are difficult to interpret without obtaining additional
information.
D) The CPA is not qualified to report on the use of GAAP in the projected financial statement.
9) Which of the following is not an element of the examination of prospective financial
statements?
A) evaluating the preparation of the prospective financial statements
B) understanding internal controls
C) evaluating the support underlying the assumptions
D) issuing an examination report
10) Which of the following statements is not correct?
A) Forecasts can be provided for general use.
B) Forecasts can be provided for limited use.
C) Projections can be provided for general use.
D) Projections can be provided for limited use.
11) Attestation standards allow a CPA to perform all but which of the following services for a
forecast or projection?
A) compilation
B) review
C) examination
D) agreed-upon procedures
12) Define forecast and projection.
13) The examination of prospective financial statements contains four elements that comprise the
examination. List the four elements below.
14) In an examination engagement for prospective financial statements, the CPA obtains
satisfaction as to the completeness and reasonableness of all the assumptions.
15) Current professional standards prohibit accountants from performing engagements to review
forecasts or projections.
16) Considerable guidance is provided by the AICPA Guide for Prospective Financial
Statements which includes criteria against which an attestation engagement can be compared.
25.6 Learning Objective 25-6
1) Which of the following is not an accurate statement regarding agreed-upon procedures
engagements?
A) These engagements are also known as procedures and findings engagements.
B) A report for such an engagement describes the findings resulting from the procedures, but
cannot describe the procedures agreed upon.
C) All agreed-upon procedure engagements are now under the scope of attestation standards.
D) Agreed-upon procedures engagements appeal to CPAs because management, or a third-party
user, specifies the procedures they want done.
2) An agreed-upon procedures engagement cannot be undertaken for a federal government
agency.
1) One of the bases other than GAAP or IFRS is the Financial reporting framework for small-
and medium-sized businesses. This basis
A) has not yet been approved by the AICPA.
B) is the same as the income tax basis.
C) draws upon a blend of traditional accounting principles and accrual income tax methods of
accounting.
D) must be used by a business with sales under $1 million.
2) Clients occasionally enter into loan agreements that require them to provide the ________
with a report from a CPA about the existence or nonexistence of some condition.
A) underwriters of securities
B) audit committee
C) lender
D) Securities and Exchange Commission
3) When CPAs do audits for specified elements, accounts, or items,
A) materiality is defined in terms of the overall financial statements.
B) materiality is defined in terms of the elements, accounts, or items being audited.
C) auditors do not need to extend their audit efforts to include other elements, accounts, or items
that are interrelated with those being audited.
D) the authority for auditing specified elements, accounts, or items is in the review and
compilation standards.
4) A CPA who has been engaged to audit financial statements that were prepared on a cash basis
A) must ascertain that there is proper disclosure of the fact that the cash basis has been used.
B) may not be associated with such statements which are not in accordance with generally
accepted accounting principles.
C) must render a qualified report explaining the departure from generally accepted accounting
principles in the opinion paragraph.
D) must restate the financial statements on an accrual basis and then render the standard (short-
form) report.
5) The engagement and report on debt compliance letters should be limited to compliance
matters that the auditor is qualified to evaluate. Which of the following engagements would be
inappropriate for the CPA to attempt to evaluate?
A) determining whether the client has properly restricted its business activities to the
requirements of an agreement
B) determining whether principal and interest payments were made when due
C) determining whether the proper limitations were maintained on dividends, working capital,
and debt ratios
D) determining whether the accounting records were adequate for conducting an ordinary audit
6) State three types of assurance services that fall within the auditing standards but are not audits,
reviews, or compilations of financial statements in accordance with GAAP.
7) Auditors frequently audit statements prepared on bases other than GAAP. Discuss four
commonly used bases other than GAAP.
8) A primary concern in reporting on a comprehensive basis is to make sure that the statements
clearly indicate that they are prepared on a basis other than GAAP.
9) When issuing a debt compliance letter, the auditor’s opinion should be in the form of a
negative assurance.
10) Auditors should provide debt compliance letters only for clients for whom the auditor has
done an audit of the overall financial statements.