Auditing and Assurance Services, 16e (Arens/Elder/Beasley)
Chapter 25 Other Assurance Services
25.1 Learning Objective 25-1
1) The standards for preparation, compilation, and review engagements of financial statements
are the
A) AICPA’s Code of Professional Conduct.
B) Statements on Auditing Standards (SASs).
C) Statements of Standards on Attestation Engagements (SSAEs).
D) Statements on Standards for Accounting and Review Services (SSARS).
2) Two of the types of services provided in connection with the Statements on Standards for
Accounting and Review Services are
A) audit and examination services.
B) compilation and review services.
C) examination and review services.
D) management advisory services and compilations.
3) Practitioners who perform preparation, compilation, or review engagements are referred to in
the Statements on Standards for Accounting and Review Services (SSARS) standards as
A) bookkeepers.
B) accountants.
C) auditors.
D) CPAs.
4) Compilation reports may be of all except which of the following types?
A) compilation with limited independence
B) compilation with full disclosure
C) compilation without independence
D) compilation that omits substantially all disclosures
5) A CPA firm can issue a compilation report
A) only if the partners are independent.
B) only if all the partners and the staff in the office performing the engagement are independent.
C) if the partners have no material or direct immaterial interest in client.
D) even if it is not independent.
6) Which of the following would not be included in a CPA’s report based upon a review of the
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 is the representation of
management
C) a statement that the review primarily consists of analytical procedures and inquiries
D) a statement that the accountant has conducted a review
7) The statement that “We are not aware of any material modifications that should be made to the
accompanying financial statements” expresses which of the following?
A) disclaimer of an opinion
B) negative assurance
C) negative confirmation
D) shared opinion
8) For compilations, an accountant does which of the following?
A)
Obtain an understanding
of internal control.
Perform tests of
controls.
Perform tests of
transactions.
Yes
Yes
No
B)
Obtain an understanding
of internal control.
Perform tests of
controls.
Perform tests of
transactions.
Yes
No
Yes
C)
Obtain an understanding
of internal control.
Perform tests of
controls.
Perform tests of
transactions.
No
Yes
Yes
D)
Obtain an understanding
of internal control.
Perform tests of
controls.
Perform tests of
transactions.
No
No
No
9) The concept of limited assurance is provided for in which of the following engagements?
A) audit
B) review
C) compilation
D) agreed-upon procedures
10) Evidence for a review engagement consists primarily of
A)
Inquiries
Analytical procedures
Tests of details
No
Yes
No
B)
Inquiries
Analytical procedures
Tests of details
Yes
Yes
No
C)
Inquiries
Analytical procedures
Tests of details
No
No
Yes
D)
Inquiries
Analytical procedures
Tests of details
Yes
No
Yes
11) When the accountant has performed a review and has determined that no material changes to
the financial statements are needed, the first paragraph of the review report
A) expresses positive assurance about the financial statements.
B) notes the accountant’s responsibility to conduct the review.
C) identifies the entity and the period of financial statements subject to the review.
D) specifies that management is responsible for the financial statements.
12) The highest level of assurance is provided for in which one of the following engagements?
A) review
B) compilation
C) audit
D) preparation service
13) You are preparing to issue a report on the compilation of financial statements for a nonpublic
company. Prior to issuing the report you should
A) read the financial statements to determine if they are free from obvious material errors.
B) perform analytical procedures to determine if they are free from material misstatements.
C) perform tests of balances on selected accounts to determine if they are free from material
misstatements.
D) perform limited control tests to determine if there are any material misstatements.
14) Which of the following statements is true regarding review and audit services?
A) A review requires more substantive evidence than an audit.
B) An audit requires less evidence related to internal control than a review.
C) A review requires less evidence than an audit.
D) None of the above statements is true.
15) An accountant who reviews the financial statements of a nonpublic entity should issue a
report stating that a review
A) is substantially equivalent in scope to an audit.
B) is substantially more in scope than a compilation.
C) is substantially less in scope than an audit.
D) provides only minimal assurance that the financial statements are fairly presented.
16) An accountant has accepted an engagement in which the audit procedures of inquiry and
analytical procedures will be employed. These procedures will form the basis for issuance of
A) a compilation report.
B) an audit report on supplemental information issued by the client.
C) a management advisory report requested by the audit committee.
D) a review report on financial statements for a nonpublic company.
17) All of the following are steps that should be performed in a review engagement except for
A) understand the company’s ownership structure.
B) read the company’s financial statements.
C) perform analytical procedures.
D) assess fraud risk.
18) In a review service where the client has failed to follow applicable accounting standards, the
accountant is
A) not required to determine the effect of a departure if management has not done so, but that
fact must be disclosed in the report.
B) required to determine the effect of a departure if management has not done so, and that fact
must be disclosed in the report.
C) not required to determine the effect of a departure if management has not done so, and that
fact need not be disclosed in the report.
D) required to determine the effect of a departure if management has not done so, and that fact
need not be disclosed in the report.
19) Your accounting firm has accepted a compilation engagement from a client in which your
firm is not independent. In that case you
A) may not accept the engagement.
B) may accept the engagement and disclose the lack of independence.
C) may accept the engagement and not disclose the lack of independence.
D) may accept the engagement and disclose the lack of independence and the reason for the lack
of independence.
20) One of the first steps that should be performed for a review of a nonpublic entity’s financial
statements is to
A) read the financial statements.
B) obtain knowledge of the accounting principles and practices of the client’s industry.
C) inquire whether management has omitted substantially all of the disclosures required by
applicable accounting standards.
D) apply analytical procedures to provide limited assurance that no material modifications
should be made to the financial statements.
21) Each page of the financial statements reviewed for a nonpublic entity should include the
reference
A) “These financial statements are unaudited.”
B) “We express no assurance on these financial statements.”
C) “See independent accountant’s review report.”
D) “See the audit opinion for the review procedures performed.”
22) The last paragraph of the accountant’s review report
A) details the responsibilities of management.
B) details the responsibilities of the accountant.
C) expresses limited assurance in the form of negative assurance.
D) lists the analytical procedures performed.
23) Which of the following is a correct statement regarding review, compilation, and preparation
services?
A) A written engagement letter is not needed for a review, compilation or preparation service.
B) The Statements on Standards for Accounting and Review Services (SSARS) clarity project
used international standards as the base standard when revising the SSARS.
C) CPAs must be independent of the client in a review service engagement and for an audit
engagement.
D) The amount of evidence accumulated in a review is minimal.
24) When performing a review service, auditors must make inquiries of management. Which of
the following inquiries are typically made of management?
A) Is each account on the financial statements prepared in conformity with accounting standards
and consistently applied?
B) What unusual or significant transactions occurred this year?
C) Do you have knowledge of an actual or suspected fraud?
D) All of the above are inquiries typically made of management.
25) In a preparation service engagement,
A) the CPA’s responsibilities are similar to those performed during a review.
B) the CPA does not provide any assurance of the financial statements.
C) the CPA must issue a preparation service engagement report.
D) the CPA must be independent.
26) A financial statement review conducted in compliance with Statements on Standards for
Accounting and Review Services (SSARS) requires the accountant to obtain evidence to express
negative assurance. One of these procedures is to “perform analytical procedures.” List three
other procedures the accountant must perform.
27) Discuss each of the three types of compilation reports and the circumstances in which each
should be used.
28) Draft a report that would be appropriate when an independent accountant has performed a
compilation of financial statements with disclosures in accordance with accounting principles
generally accepted in the United States of America.
29) Discuss the six Statements on Standards for Accounting and Review Services (SSARS)
requirements that must be met when an accountant is performing a compilation of financial
statements.
30) When performing a review service and the accountant becomes aware that fraud may have
occurred, the accountant must withdraw from the engagement.
31) If an auditor performs a compilation but lacks independence, an additional paragraph must
be added which states that: “We are not independent with respect to XYZ Company.”
32) Review reports are normally dated as of the client’s balance sheet date.
33) Statements on Standards for Accounting and Review Services (SSARS) are issued by the
SEC.
34) A nonaudit engagement in which the accountant undertakes to present, in the form of
financial statements, information that is the representation of management, without undertaking
to express any assurance on the statements is called a review engagement.
35) CPAs must be independent to issue a compilation report.
36) CPAs must be independent to issue a review report.
37) A financial statement review conducted in compliance with Statements on Standards for
Accounting and Review Services (SSARS) includes obtaining an understanding of internal
control.
38) Statements on Standards for Accounting and Review Services (SSARS) govern the CPA’s
association with unaudited financial statements of nonpublic companies.
39) When performing a review (SSARS review) of financial statements, the accountant is
required to obtain a letter of representation from management.
40) When performing compilation services, the accountant is not required to obtain an
understanding of the client’s internal control.
41) A CPA firm can issue a compilation report even if it is not independent with respect to the
client.
42) When performing a preparation service, the CPA must issue a report and must be
independent.
43) For a preparation service, each page of the financial statements, should indicate, at a
minimum, that “no assurance is provided” on the financial statements.
44) In a preparation service, if the financial statements are expected to be used by a third party,
the accountant must provide at least minimal assurance on the financial statements.
1) An interim review of the financial information for public companies is performed following
standards of the
A) American Institute of Certified Public Accountants (AICPA).
B) Public Company Accounting Oversight Board (PCAOB).
C) Securities and Exchange Commission (SEC).
D) Statements on Standards for Accounting and Review Services (SSARS).
2) The Securities and Exchange Commission requires quarterly financial information as a part of
the
A) 10-K report.
B) 10-Q report.
C) 8-K report.
D) auditor’s report.
3) The quarterly reports submitted to the SEC by the client
A) have to be audited and the CPA firm must be identified.
B) do not have to be audited, but the CPA firm which does the annual audit must be identified.
C) have to be audited, but the CPA firm does not have to be identified.
D) do not have to be audited, but the CPA firm which does the annual audit must review the
quarterly statements before they are submitted to the SEC.
4) When performing a review of interim information for a public company, the accountant
ordinarily does not perform tests of the accounting records, independent confirmations, or
physical examinations.
5) The auditor must obtain evidence that the interim financial information agrees or reconciles
with the accounting records for a public company interim review.
25.3 Learning Objective 25-3
1) Statements on Standards for Attestation Engagements are established by the
A) Securities and Exchange Commission.
B) Public Company Accounting Oversight Board.
C) Auditing Standards Board of the AICPA.
D) Accounting and Review Services Committee.
2) As a CPA, you have been engaged to perform an attestation engagement. You would typically
A) express a conclusion about an assertion.
B) provide management consulting services.
C) prepare financial forecasts to secure in preparation for receiving debt funding.
D) compile financial statements for the client.
3) Which of the following attestation engagements result in a conclusion that represents positive
assurance?
A) review
B) compilation
C) examination
D) agreed upon procedure engagement
4) A review results in a conclusion that represents ________ assurance.
A) limited assurance
B) negative
C) positive
D) unequivocal
5) The distribution of which of the following types of reports is unrestricted?
A) examinations and reviews
B) reviews and agreed-upon procedures
C) examinations and agreed-upon procedures
D) examinations, reviews, and agreed-upon procedures
6) Which of the following is a generally accepted attestation standard for fieldwork?
A) The practitioner must state in the report that the report is intended solely for the information
and use of specified parties.
B) The practitioner must state all of their significant reservations about the engagement.
C) The practitioner must adequately plan the work and must properly supervise any assistants.
D) The practitioner must exercise due professional care in the planning and performance of the
engagement and the preparation of the report.
7) Reports on agreed-upon procedures are intended to be distributed
A) to only the involved parties, who would have the requisite knowledge about those procedures
and the level of assurance resulting from them.
B) to only the involved parties, who would have the requisite knowledge about those procedures
but not the level of assurance resulting from them.
C) to any party to whom the client wishes.
D) only to the stockholders of the client.
8) Distribution of which of the following types of reports is limited?
A) audit
B) review
C) agreed-upon procedures
D) examination
9) Which of the following is an attestation standard under the standards of reporting?
A) The practitioner must have adequate technical training.
B) The practitioner must adequately plan the work.
C) The practitioner must evaluate internal controls.
D) The practitioner must identify the subject matter or assertion being reported on.
10) Which of the following is not a standard contained in both the Attestation Standards and
Generally Accepted Auditing Standards?
A) The examination is to be performed by a person having adequate technical training.
B) An independence in mental attitude is to be maintained.
C) Sufficient evidence is to be obtained.
D) The practitioner must obtain a sufficient understanding of the client’s internal control.
11) Which of the following is not one of the types of engagements and related forms of
conclusions that are defined by the attestation standards?
A) reviews
B) compilations
C) examinations
D) agreed-upon procedures
12) Which of the following types of engagement reports would provide positive assurance?
A) an examination
B) a review
C) an agreed-upon procedures engagement
D) a compilation