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Module A
Other Public Accounting Services
True / False Questions

1. Auditing standards apply to work on all audited financial statements
and on unaudited financial statements of public and nonpublic
companies.
True
False
2. In a review services engagement, an accountant performs some limited

procedures to achieve a moderate level of assurance.
True
False
3. A review service provides a basis for expressing an opinion on financial

statements.
True
False
4. CPA SysTrust provides assurance that a Web site meets certain criteria.
True
False
5. A compilation report cannot be issued by an accountant who is not

independent.
True
False
6. When a new accountant is performing the current-year service, the

accountant cannot update the predecessors' report.
True
False
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any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
7. When an accountant compiles prescribed forms, the compilation report

always must call attention to GAAP departures and disclosure
deficiencies.
True
False
8. An accountant associated with personal financial statements would

need to give the standard compilation report disclaimer.
True
False
9. Enhanced business reporting (EBR) focuses on improving business

reporting by developing a voluntary framework for presentation and
disclosure of value drivers.
True
False
10 For a compliance attestation engagement, the auditor accepts

. responsibility for compliance.
True
False
11 An accountant may report on interim information presented separately

. from audited financial statements.
True
False
12 Companies that are not subject to SEC regulations can choose to

. present financial information in accordance with a special purpose
framework other than GAAP.
True
False
13 Attestation reports on internal control effectiveness are required to be

. issued for all nonissuers.
True
False
14 The user auditor can rely on special purpose reports on internal control
. of a service organization in connection with the evaluation of the client
organization.
True
False
15 Management does not have to accept responsibility for the

. effectiveness of its internal control in order for an accountant to
conduct an examination of a client's internal control.
True
False
Multiple Choice Questions

16 The AICPA Assurance Services Executive Committee identified five
. megatrends that can affect public accounting firms' business. Which of
the following is not one of the megatrends it identified?
A.
Information technology.
B. The shift from the industrial age to the knowledge age.
C.
Globalization.
D. Merging of corporations creating fewer audit opportunities.
17 Assurance services are defined as independent professional services
. that
A. Establish criteria for effective measurement of business activity.

B. Improve the quality of information or its context for decision makers.
C. Attest to the adequacy of controls over business operations.
D. Develop efficient and effective accounting systems to ensure
compliance with accounting standards and policy.
18 Many individuals are apprehensive about using the Internet to purchase

. items. This apprehension mainly arises from users' concerns about
A. The reliability of computer technology.

B. The time delays in Internet purchases.
C. A lack of security for information transmitted over the Internet.
D. The lack of CPA involvement in Internet company financial
information.
19 The phrase trust services refers to
.
A.
B.
C.
D.
WebTrust and SysTrust Services.

XBRL and SysTrust Services.
WebTrust and XBRL Services.
All AICPA designated assurance services.
20 Which of the following is not a principle of trust service engagements?

.
A.
Security from unauthorized use.
B. Availability of the system, products, or services.
C.
Proficiency in preparing transactions.
D.
Confidentiality of information.
21 What is the appropriate name for an assurance service provided by a
. CPA regarding a client's commercial Internet site with reference to the
principles of privacy, security, processing integrity, availability, and
confidentiality?
A.
B.
C.
D.
WebTrust.
SysTrust.
XBRL.
WebSecure.
22 Extensible Business Reporting Language (XBRL) provides a computer. readable identifying tag for each individual item of data. The
advantages of XBRL include all of the following except that it
A. Increases the speed of handling of financial data.

B.
Reduces the chance of error.
C. Improves the full disclosure of financial information.
D. Permits automatic checking of information.
23 Enhanced business reporting (EBR) focuses on improving business
. reporting by developing a voluntary framework for presentation and
disclosure of value drivers and nonfinancial measures of performance.
The advantages of EBR include all of the following except
A. More efficient and effective regulatory process.

B. Reduced financing costs for companies.
C.
Better allocation of capital by investors
D. Better footnote disclosure in the companies' SEC filings.
24 Attestation engagements include
.
A.
Only examinations.
B. Examinations and assurance services.
C. Examinations, reviews, and agreed-upon procedures.
D. Examinations, reviews, compilations, agreed-upon procedures and
assurance services.
25 The accountant's standard report for a compilation service would not

. include a statement that
A. A compilation service has been performed in accordance with

standards established by the AICPA.
B. Financial statement information is the representation of the owners
of the business.
C. Compilation service consists primarily of inquiries of company
personnel and analytical procedures applied to financial data.
D. Financial statements have not been audited or reviewed and the
accountant does not express an opinion or any other form of
assurance.
26 Shelly's Bank has loaned money to Pete's Auto Supply. The loan is
. collateralized by inventory. The loan also requires a CPA to observe
Pete's count of the inventory and trace sampled items to the vendor
invoices in order to determine that the value of inventory is not
misstated. This service would be
A.
B.
C.
D.
An assurance service engagement.

An attestation engagement.
A review engagement.
A compilation engagement.
27 The reporting standards for an attestation are different from those of an

. audit because attestation standards require
A.
The report to include an opinion.
B. The report to identify the subject matter of the assertion being
reported on.
C. The report requires a statement that the presentation is not in
accordance with GAAP.
D. The report requires a disclosure of the procedures performed during
the attestation.
28 Attestation engagements may be more difficult than financial

. statement audits when
A. The establishment of suitable measurement criteria is difficult.

B. Internal controls are difficult to assess.
C. When management may not understand the underlying assumptions
of the attestation.
D. When the report may be submitted to individuals with insufficient
knowledge of the nature of an attestation engagement.
29 In an agreed-upon procedures engagement, an accountant must
.
A. Follow the attestation standard related to internal control.
B. Follow the attestation standard related to evidential matter.
C. Include negative assurance explicitly in the report.
D.
Perform all of the above.
30 A responsible party for information to subject to an attestation
. engagement would not include
A.
The client's controller.
B.
The independent accountant.
C. The client's vice president of marketing.
D. A client employee named in a contract or regulation as being
responsible for the information.
31 Which of the following procedures would not be performed in a review
. of financial statements of a nonpublic company?
A. Inquire about the accounting system and bookkeeping procedures.

B. Perform analytical procedures to identify relationships and individual
items that appear to be unusual.
C. Obtain an attorney's letter regarding litigation and unasserted
claims.
D. Study the financial statements for indications that they conform to
generally accepted accounting principles.
32 ABC Company prepares financial statements showing the last two

. years, years X and Y (Year X is the year prior to year Y). The auditor
performed an audit of year X and a review of year Y. The auditor may
A. Report on the year Y review and reissue the year X audit report.
B. Provide only the report concerning the year Y review.
C. Reissue the year X audit report with an explanatory paragraph
disclosing that only a review was performed on year Y.
D. Notify the client that prior-year audited financial statements cannot
be presented when the current-year statements have not been
audited.
33 In an agreed-upon procedures engagement, an accountant
.
A. Follows all of the fundamental principles of GAAS.
B. Restricts the report to specified users.
C. Includes negative assurance in the report.
D.
Gives a qualified audit report.
34 Which of the following procedures should an accountant perform during
. an engagement to review the financial statements of a nonpublic
entity?
A. Communicate reportable conditions discovered during the

assessment of control risk.
B. Obtain a client representation letter from members of management.
C. Send bank confirmation letters to the entity's financial institutions.
D. Examine cash disbursements in the subsequent period for
unrecorded liabilities.
35 When an accountant is engaged to compile a nonpublic entity's

. financial statements that omit substantially all disclosures required by
GAAP, the accountant should indicate in the compilation report that the
financial statements
A. Might influence users' conclusions about the business if the

disclosures were included.
B. Are prepared in conformity with a comprehensive basis of accounting
other than GAAP.
C. Are not compiled in accordance with Statements on Standards for
Accounting and Review Services.
D. Are special purpose financial statements not comparable to those of
prior periods.
36 Which of the following procedures ordinarily should be applied when an
. independent accountant conducts a review of interim financial
information of a publicly held entity?
A. Verify changes in key account balances.

B. Read the minutes of the board of directors' meetings.
C.
Inspect the open purchase order file.
D. Perform cutoff tests for cash receipts and disbursements.
37 An auditor's special report on financial statements prepared in
. conformity with the cash basis of accounting should include a separate
explanatory paragraph before the opinion paragraph that
A. Justifies the reasons for departing from generally accepted

principles.
B. States whether the financial statements are fairly presented in
conformity with a special purpose framework.
C. Refers to the note to the financial statements that describes the
special purpose framework.
D. Explains how the results of operations differ from financial
statements prepared in conformity with generally accepted
accounting principles.
38 Which of the following best describes an engagement to report on an

. entity's internal control over financial reporting for a nonpublic
company?
A. An attestation engagement to examine and report on management's

written assertions about the effectiveness of its internal control
structure.
B. An audit engagement to render an opinion on the entity's internal
control structure.
C. A prospective engagement to project for a period of time not to
exceed one year and report on the expected benefits of the entity's
internal control structure.
D. A consulting engagement to provide constructive advice to the entity
on its internal control structure.
39 Delta Life Insurance Co. prepares its financial statements on an
. accounting basis insurance companies use pursuant to the rules of a
state insurance commission. Wall, CPA, is Delta's auditor. If Wall
discovers that the statements are not suitably titled, Wall should
A. Disclose any reservations in an explanatory paragraph and qualify

the opinion.
B. Apply to the state insurance commission for an advisory opinion.
C. Issue a special statutory basis report that clearly disclaims any
opinion.
D. Explain in the notes to the financial statements the terminology
used.
40 When providing limited assurance that the reviewed financial

. statements of a nonpublic entity require no material modifications to be
in accordance with generally accepted accounting principles, the
accountant should
A. Assess the risk that a material misstatement could occur in a

financial statement assertion.
B. Confirm with the entity's lawyer that material loss contingencies are
disclosed.
C. Understand the accounting principles of the industry in which the
entity operates.
D. Develop audit plans to determine whether the entity's financial
statements are fairly presented.
41 Which of the following procedures does an accountant ordinarily
. perform in a compilation engagement of a nonpublic entity?
A. Reading the financial statements to consider whether they are free of

obvious mistakes in the application of accounting principles.
B. Obtaining written representations from management indicating that
the compiled financial statements will not be used to obtain credit.
C. Making inquiries of management concerning actions taken at
meetings of the stockholders and the board of directors.
D. Applying analytical procedures designed to corroborate
management's assertions that are embodied in the financial
statement components.
42 In reporting on a nonpublic entity's internal control over financial
. reporting, an accountant should include a paragraph that describes the
A. Documentary evidence regarding the control environment factors.

B. Changes in the entity's internal control since the prior report.
C. Potential benefits from the accountant's suggested improvements.
D.
Inherent limitations of internal control.
43 Compiled financial statements of a nonpublic entity 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 assessed the accounting principles used and
significant estimates made by management.
C. The accountant does not express an opinion or any other form of
assurance on the financial statements.
D. A compilation consists primarily of inquiries of entity personnel and
analytical procedures applied to financial data.
44 Hamell Corporation is making a presentation to a prospective investor.
. The presentation includes a projection showing that the company's
sales will be between $25,000,000 and $27,000,000 within the next
three years. Hamell believes the information will be better received if
its CPA provides an attestation report on the projection. In order to
provide such a report, the CPA must do all of the following except
A. Obtain knowledge about the client's business.

B. Evaluate the assumptions used in preparing the projection.
C. Confirm expected sales with customers.
D. Identify key factors affecting the information.
45 Hamell Corporation is making a presentation to a perspective investor.
. The presentation includes a projection showing that the company's
sales will be between $25,000,000 and $27,000,000 within the next
three years. Hamell believes the information will be better received if
its CPA provides an attestation report on the projection. The CPA should
ensure that proper disclosure is made to indicate that
A. The $27,000,000 estimate is a best-case scenario.

B. The range of the projection is appropriate given the circumstances.
C. The range does not indicate a best- and worst-case scenario.
D. Projections are limited in their information content due to
uncontrollable changes in the business environment.
46 Which of the following is not a condition that must be met before an

. accountant can conduct an engagement concerning a nonpublic
entity's internal control over financial reporting?
A. Management accepts responsibility for the effectiveness of its

internal control.
B. Management has appropriately documented the internal controls.
C. Management's evaluation of control can be supported by sufficient
evidence.
D. Management presents a written assertion about the effectiveness of
its internal control.
47 Which of the following steps is not required in performing a compliance
. attestation engagement?
A.
Assess planning materiality.
B.
Assess inherent risk.
C. Confirm restrictions with applicable third parties.
D.
Consider subsequent events.
48 An accountant's report includes the phrase "We are not aware." This
. phrase indicates that
A.
An attestation was not performed.
B. Management had not established sufficient criteria for an opinion to
be issued.
C. The auditor is providing negative assurance.
D.
A disclaimer of opinion is presented.
49 The procedures used in a review engagement are

.
A. Physical examination, reperformance, and obtaining a management
representation letter.
B. Analytical procedures, reperformance, and obtaining a management
C. Analytical procedures, inquiry, and obtaining a management
D. Physical examination, inquiry, and obtaining a management
50 In a compilation engagement, the accountant
.
A. Provides reasonable assurance that no material misstatements exist.
B. Provides assurance that no material misstatement came to her or his
attention.
C. Provides a list of procedures performed and results found.
D.
Does not express an opinion.
51 In a compilation engagement,
.
A. All appropriate disclosures must be presented.
B. Managers or owners may choose to omit all footnote disclosures.
C. Financial statements must be presented in prescribed forms.
D. An auditor provides only negative assurance.
52 To perform a review of interim financial information, the auditor must
.
A. Have audited or be in the process of auditing the entity's latest
financial statements.
B. Tested the entity's internal controls to determine that financial
information is reliable.
C. Sent confirmation to third parties concerning significant related-party
transactions.
D. Established sufficient criteria to form an opinion on the fair
presentation of the financial information.
53 When interim financial information is presented as supplementary

. information accompanying audited financial statements, the auditor
should refer to the information
A.
In all cases.
B. When it has not been labeled as "unaudited."
C. When it is material to the financial statement users.
D. When the information has been reviewed rather than audited.
54 Other comprehensive basis of accounting (OCBOA) includes all of the
. following except
A. Statements that conform to a regulatory agency.

B.
Statements prepared on a tax basis.
C. Statements that conform to accounting principles that are generally
accepted.
D. Statements prepared on a cash basis.
55 Which of the following account titles would not be appropriate for a
. company that prepared its financial statements using the tax basis of
accounting?
A.
Balance Sheet.
B. Statement of Assets, Liabilities, and Owner's Equity.
C.
Statement of Revenue and Expenses.
D. Statement of Change in Partners' Capital Accounts.
56 When a company uses a service organization to prepare its payroll, the
. company's auditors
A. Have no obligation concerning the internal controls at the service

organization.
B. Need to understand the internal controls over the transaction
regardless of the location of the control.
C. Must audit the internal controls at the service organization.
D. Should include the audit report of the service company's auditors
with their auditors' report.
57 Auditors can gain sufficient understanding of the internal controls at a

. service organization by
A. Reviewing the contract with the service organization.

B. Making an inquiry with management of the service organization.
C. Reviewing a report on internal controls provided by the service
organization's auditors.
D. Sending a confirmation concerning internal controls to the service
58 Reports on an entity's internal control over financial reporting
.
A. Is required for all companies whether they report to the SEC or not.
B. Is optional for all companies whether they report to the SEC or not.
C. Is required by the PCAOB for large public companies and may be
performed by a CPA for nonpublic companies.
D. Is limited to inquiry and analytical procedures for reports for non-SEC
companies.
59 During a review engagement, which of the following is not a required
. inquiry of management?
A. The accounting principles and practices used.

B. Significant transactions occurring near the end of the reporting
period.
C. Status of uncorrected misstatements identified in previous
engagements.
D. The changes made to internal controls during the period under
review.
60 During a review, the auditor is required to obtain written

. representations from management. Which of the following is not one of
the required elements of the representation?
A. Management's responsibility for the fair presentation of the financial

statements.
B. Management's belief that it has answered all inquiries fully and
truthfully.
C. Management has made all adjustments identified during the review.
D. Management has disclosed information about subsequent events.
61 AR 90 requires adequate documentation for a review engagement.
. Which items are required to be documented?
A. Analytical procedures, yes; management representations, no;

understanding of internal controls, no.
B. Analytical procedures, no; management representations, yes;
C. Analytical procedures, yes; management representations, yes;
D. Analytical procedures, yes; management representations, yes;
understanding of internal controls, yes.
62 At a minimum to comply with PCAOB AS 5, an auditor of a public
. company that has material transactions processed by a service
organization would have to request from the service organization
A.
B.
C.
D.
A description of its internal controls.

A type one service auditors' report.
A type two service auditors' report.
A service organization control (SOC) 3 report.
63 An auditor who is requested to provide a report on application of

. requirements of an appropriate financial reporting framework may not
A. Issue an opinion on the accounting treatment of a hypothetical

transaction.
B. Discuss the requirements with the client's current auditors.
C. Limit the report to the sole use of specified parties.
D. State that differences in facts, circumstances, or assumptions might
change the conclusion.
64 A report on sustainability as defined by the AICPA might include all of
. the following except
A.
B.
C.
D.
Economic viability.
Social responsibility.
Environmental responsibility.
Internal control over financial reporting.
65 Services in connection with unaudited historical cost financial

. statements is conducted by
A.
B.
C.
D.
International accounting firms only.

Regional and local public accounting firms.
Local CPAs only.
All public accounting firms.
66 The official Statements on Standards for Accounting and Review

. Services are applicable to practice with
A. Audited financial statements of public companies.

B. Unaudited financial statements of public companies.
C. Unaudited financial statements of nonissuers.
D. Audited financial statements of nonissuers.
67 Which of the following is a general standard of generally accepted

. attestation standards but is not a fundamental auditing principle?
A.
B.
C.
D.
Appropriate competence and capability.

Adequate knowledge in the subject matter.
Independence.
Due care.
68 The performance of an attestation engagement on prospective financial

. information does not require which of the following?
A. If the basis of the prospective financial information is different than

the financial statements, a reconciliation of the two must be
provided.
B. Management must disclose all significant assumptions used in
generating the prospective financial information.
C. Management must disclose significant accounting policies and
procedures used in generating the prospective financial information.
D. Management must disclose the probability of obtaining the results
included in the prospective financial information.
69 To perform an attestation engagement on prospective information or
. pro forma information, accountants must do all of the following except
A. Obtain knowledge about the entity's business and accounting

principles.
B. Understand the internal controls used in the processes that
generated the information.
C. Obtain an understanding of the process through which the
information was developed.
D. Evaluate the assumptions used to prepare the information.
70 If a nonissuer wants an accountant to perform an examination of its

. internal controls, the accountant should follow
A. PCAOB AS 5, "An Audit of Internal Control over Financial Reporting

That Is Integrated with an Audit of Financial Statements."
B. AICPA AT 501, "An Examination of an Entity's Internal Control over
Financial Reporting That Is Integrated with an Audit of Its Financial
Statements."
C. AICPA AU315, "Understanding the Entity and Its Environment and
Assessing the Risks of Material Misstatement."
D. FASB Concepts Statement No.1, "Objectives of Financial Reporting by
Business Enterprises."
71 A review service engagement involving unaudited financial statements
. involves
A. More work than a compilation and an audit.

B. Less work than an audit but more work than a compilation.
C. Less work than a compilation but more work than an audit.
D. More work than an audit but less work than a compilation.
72 When accountants are not independent, which of the following reports
. can nevertheless be issued?
A.
Compilation report.
B.
Standard unqualified audit report.
C.
Examination report on a forecast.
D. Examination of internal control over financial reporting.
73 For a compliance engagement, three conditions must be met. Which of

. the following is not one of the three conditions?
A. Management accepts responsibility for compliance.

B. Management's evaluation of compliance is capable of evaluation and
is measured against reasonable criteria.
C. Sufficient evidence is available to support management's evaluation.
D. Management provides a report attesting to the satisfactory
compliance.
74 Accountants are permitted to express "negative assurance" in which of
. the following reports?
A.
B.
C.
D.
Standard unqualified audit report on audited financial statements.

Compilation report on unaudited financial statements.
Review report on unaudited financial statements.
Adverse opinion report on audited financial statements.
75 Which of the following conditions must be met before an accountant

. can conduct an examination of an entity's internal control?
A. Management presents its assertion about the effectiveness of its

internal control in a written report.
B. Management represents that there are no internal control
deficiencies.
C. The accountant represents that he or she has not conducted an audit
of the financial statements.
D. The accountant has designed a significant portion of the internal
controls.
76 When interim financial information is presented in a footnote to annual

. financial statements, the standard audit report on the annual financial
statements should
A. Not mention the interim information unless there is an exception that

the auditors need to include in the report.
B. Contain an audit opinion paragraph that specifically mentions the
interim financial information if it is not in conformity with the GAAP.
C. Contain an extra paragraph that gives negative assurance on the
interim information if it has been reviewed.
D. Contain an extra explanatory paragraph if the interim information
note is labeled "Unaudited."
77 During a review of a nonissuer's financial statements, accountants are
. required to make certain inquiries of management. Which of the
following inquiries is not required by the SSARS?
A. The basis for the preparation of financial statements.

B.
Internal control deficiencies.
C. Significant transactions occurring near the end of the reporting
period.
D.
Material subsequent events.
78 According to auditing standards, financial statements presented on a
. special purpose should not
A. Contain a note describing the special purpose framework.

B. Describe in general how the special purpose framework differs from
C. Be accompanied by an audit report that gives an unqualified opinion
with reference to the special purpose framework.
D. Contain a note with a quantified dollar reconciliation of the assets
based on the special purpose framework with the assets based on
79 To be useful, an audit of a service organization's controls should cover a

. minimum of:
A.
B.
C.
D.
Three months.
Six months.
A year.
The user entity's fiscal period.
80 In providing assurance services to clients, public accounting firms are

. building on their reputations for
A.
B.
C.
D.
Knowledge and integrity.

Objectivity and integrity.
Independence and due professional care.
Professionalism and trust.
81 The AICPA Special Committee on Assurance Services identified five

. global "mega trends" that can affect a CPA's business. Which of the
following is not one of these mega trends?
A.
B.
C.
D.
The decreasing supply of natural resources.

New social structures.
Demands for transparency.
82 An assurance service is defined as a service that

.
A. Provides auditing services to nonfinancial information.
B. Reviews unaudited financial information.
C. Improves the quality of information for decision makers.
D. Reduces the risk in management decision making.
83 B Harper is surfing the Internet and finds a great pair of rollerblades at

. a really low price. He has never heard of the company and is concerned
that the product he ordered may not be the product he receives. Harper
may be more willing to place an order with this company if
A. The website displays the WebTrust seal.

B. The company provides its annual report and the report of the
independent auditors on its website.
C. The company provides a money-back guarantee.
D. Only a partial payment is required prior to receiving the product.
84 Which of the following is not a principle of Trust Services?
.
A.
B.
C.
D.
Security.
Authentication.
Privacy.
Confidentiality.
85 An accountant's review of unaudited financial statements would not

. include
A.
Performing analytical procedures.
B.
Confirming accounts receivable.
C. Inquiring about the accounting system and bookkeeping procedures.
D. Reading the financial statements for indications that they conform to
GAAP.
86 An accountant should reissue (not update) the prior year's report when
.
A. The accountant is a successor accountant performing a compilation
and a compilation report was issued in the prior year.
B. The accountant is a successor accountant performing a compilation,
and a review report was issued in the prior year.
C. The accountant issued a review report in the prior year and is
performing a compilation in the current year.
D. The accountant issued a compilation report in the prior year and is
performing a review in the current year.
87 When an accountant compiles a prescribed form and the financial

. statements contain a departure from the information specified by the
prescribed form, the accountant should
A.
Withdraw from the engagement.
B.
Issue an adverse opinion.
C. Ignore the departure because the financial statements do not purport
to be in accordance with GAAP.
D. Disclose the departure in the body of the accountant's report.
88 When an accountant is associated with a financial statement as part of
. a personal financial planning engagement, the accountant's report
should include a statement that
A. We have not audited, reviewed, or compiled the statement.

B. These financial statements are not designed for those who are not
informed about such differences.
C. We do not express an opinion or any other form of assurance on
them.
D. We are not aware of any material modifications that should be made.
89 Which of the following is not a condition that must be met for an
. internal control examination?

internal control.
B. Management must base its evaluation of internal control on
evidence.
D. Management presents a written assertion about the effectiveness of
its internal control.
90 An accountant's standard internal control report for nonissuers is

. governed by
A. The Statements on Auditing Standards.

B. The Statements on Standards for Accounting and Review Services.
C. The Statements on Standards for Attestation Engagements.
D.
The COSO report.
91 The accountant's standard report for a review service would not include
. a statement that
A. A review service was performed in accordance with AICPA generally

accepted auditing standards.
B. All information included in the representation of the management of
the business.
C. A review consists primarily of making inquiries and performing
analytical procedures.
D. The accountant is not aware of any material modifications that
should be made to make this financial statement conform to
92 An accountant could not issue compiled financial statements that would
. include a report
A. Mentioning that the management has elected to omit substantively

all footnote disclosures, and if they were included they might
influence users' conclusions about the business.
B. Attesting to the overall fairness of the financial statements.
C. Stating that the accountant is not independent.
D. Stating that the objective of a compilation is to assist management in
presenting financial information.
93 The combination of prior-year/current-year order of lower level of

. service would not include
A.
B.
C.
D.
Review followed by compilation.

Audit followed by compilation.
Compilation followed by review.
Audit followed by review.
Fill in the Blank Questions

94 Review work on unaudited financial statements consists primarily of
. conducting ____________________________, performing
____________________, and obtaining a management representation
letter.
________________________________________
95 Each page of the financial statements of a review service should be
. marked " __________________________________."
________________________________________
96 Assurance services are _______________________________ professional
. services that improve the _____________________________ of information,
or its ____________________________, for decision makers.
________________________________________
97 The combination of prior-year/current-year order of the same or higher
. level of service would include a compilation followed by
____________________________, a _____________________________ followed by
review, and a review followed by a ____________________________.
________________________________________
98 When the current-year service is being performed by a new accountant,

. the _____________________________ can be asked to
___________________________ the prior report.
________________________________________
99 Industry trade associations and regulatory agencies often use
. __________________________________ to specify the
____________________________ and _____________________________ of
accounting information required for special purposes.
________________________________________
100 A __________________________________ is based on expected conditions
.
and courses of action.
________________________________________
101 The ______________ requires the presentation of interim information
.
outside the basic financial statements.
________________________________________
102 The review of interim financial information _________________________ a
.
complete assessment of internal control risk.
________________________________________
103 Engagements to perform ______________ - ______________ procedures are
.
not considered audits because they have a
______________________________.
________________________________________
104 In a compilation engagement, the accountant explicitly states that
.
__________________ and _________________ are expressed.
________________________________________
105 In ____________________________ engagements, justifiable departures

.
from official pronouncements are treated the same as they are in
____________________________.
________________________________________
Short Answer Questions
106 This question is related to other public accounting services and

.
reports. For each statement, description, or phrase (1-5), indicate the
related type of engagement or report (A-F).
A. Reviews of unaudited financial statements of a nonissuer
B. Compilations of financial statements
C. Reviews of unaudited interim financial statements of a public
company
D. Reports on financial statements prepared according to a special
purpose framework.
E. Reports on compliance with contractual agreements or regulatory
requirements.
F. Reports on elements, accounts, or items of a financial statement
____ 1. The information should conform to the accounting principles in
ASC 270, "Interim Financial Reporting."
____ 2. "In our opinion, the schedule of accounts receivable referred to
above presents fairly, in all material respects."
____ 3. They are limited to presenting in the form of financial
statements information that is the representation of management.
____ 4. As described in Note 2, these financial statements were
prepared on the cash receipts and disbursements basis of accounting.
____ 5. They present a reasonable basis for expressing limited
assurance that no material modifications should be made to the
statements.
107 This question is related to other public accounting services and

.
A. Reports on elements, accounts, or items of a financial statement
B. Reports on compliance with contractual agreements or regulatory
requirements
C. Reports on the agreed-upon procedures
D. Reports on internal control
E. Reviews of unaudited financial statements of a nonissuer
F. Compilations of financial statements
____ 1. Management issues a separate report containing assertions.
____ 2. "In our opinion, the schedule of inventory referred to above
presents fairly, in all material respects
____ 3. They are substantially less in scope than an audit in accordance
with generally accepted auditing standards.
____ 4. They are examinations or agreed-upon procedures about
conforming to the rules and regulations of a regulatory agency.
____ 5. The reports identify specific users and describe the procedures
specified by the users in detail.
108 For each term listed below (items 1-5) select the correct term (items A.
F).
A. Attestation
B. Assurance service
C. Compilation
D. Trust service
E. Review service
F. Service organization
____ 1. An engagement in which a practitioner provides limited
assurance about financial information.
____ 2. A situation in which the practitioner assists in assembling
financial information.
____ 3. An activity that results in a report on the subject matter or a
claim about subject matter that is the responsibility of another party.
____ 4. An entity that provides a service to another company regarding
the processing of transactions or information.
____ 5. Professional service aimed at improving the quality of
information both financial and nonfinancial for decision makers.
109 Complete the key words, names, and phrases in the following
.
accountant's report on a review of financial statements (balance sheet
and statements of income, comprehensive income, retained earnings,
and cash flows) of a nonissuer.
We have ___________ the accompanying _____________ of Dandy
Company as of December 31, 2012 and 2011, and the
_____________________________________ ___________________________. A
review includes primarily applying ________ _____________ to
management's ______________ and making ________________ __________.
A review is substantially ____________________ than an audit, the
objective of which is the ___________________ regarding the financial
statements ___________________. Accordingly, we
_____________________________.
_______________ is responsible for the ____________________________ of
the financial statements ______________________________________________
and for designing, implementing, and __________________________
relevant to the preparation and fair presentation of the financial
statements.
Our responsibility is to ___________________ in accordance with
____________ _____________________________________ issued by the
American Institute of Certified Public Accountants. Those standards
_________________________ to obtain _______________ that there are
_____________________ that should be made to the financial statements.
We believe that the ___________________ provide a ___________________
for our report.
Based on our review, we are ________ of any ________________ that
should be made to the accompanying financial statements in order for
them to be in ____________ ________________________________.
Essay Questions
110 Review work on unaudited financial statements consists primarily of
.
conducting inquiries, performing analytical procedures, and obtaining
a management representation letter. List the typical procedures
accountants would perform on a review engagement.
111 G. Wilson is on the board of directors of a small manufacturing

.
company, Smith Plastics, Inc. Wilson holds a CPA certificate and is a
member of the AICPA. The president of the company, J. Smith, has
asked Wilson to prepare financial statements for the company to be
submitted to Sixth First Bank as part of a loan request. Smith tells
Wilson that the bank would like a review or an audit but would settle
for a compilation from a CPA and would like Wilson to do the
compilation.
Required:
Discuss under what conditions, if any, Wilson would be allowed to
prepare a compilation of the financial statements of Smith Plastics,
Inc.
112 D. Prima, CPA, was engaged to review the unaudited financial

.
statements of Rooster Restaurants, Inc., a nonpublic company. During
her review, Prima found that Rooster had not capitalized leases as
required by GAAP. The result was so material that Prima modified the
standard review report to state that "the financial statements are not
in conformity with GAAP."
Required:
Discuss whether Prima 's report is in accordance with professional
standards. If not, what should she have done under the
circumstances? Explain.
113 Public accounting firms have consistently looked for additional services
.
that might increase their profitability. To that end, CPAs can provide
value to clients with assurance services.
Required:
Discuss each of the following topics.
A. Describe two of the services identified by the AICPA.
B. Why would the public prefer to have a public accounting firm as a
provider of these services?
C. What are the possible negative consequences for public accounting
firms if they provide services outside the realm of traditional
accounting services?
114 Big Ben's Toy (BBT) Company has recently outsourced its payroll
.
operation to Mary's Payroll Service (MPS). MPS receives the changes to
the payroll database (hirings, firings, rate increases, etc.) and the
number of hours worked for all hourly employees. MPS calculates the
payroll and sends BBT printed payroll checks and a payroll register.
BBT then transfers an appropriate amount into its payroll bank account
and distributes the checks. MPS also provides a list of payments to be
made to third parties (IRS, insurance, pension plan, etc.). Accounts
payable uses the list of third-party payments to make appropriate
payments.
You have been hired to perform an audit of BBT Company. During your
opening meeting with BBT management, you state that your audit
plan includes inquiries of MPS and a review of the AT 801 report on
internal controls at MPS. BBT's management is confused and states
that BBT should not have to pay you to review controls at another
organization.
Prepare a brief explanation for BBT's management as to why it is
necessary to review the controls at MPS and the importance of this
review to BBT Company.
Module A Other Public Accounting Services Answer Key
True / False Questions

1.
Auditing standards apply to work on all audited financial statements

and on unaudited financial statements of public and nonpublic
companies.
FALSE
Reference: Question also in study guide
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: A-01 Explain and provide examples of attestation engagements.
Topic: Attestation Engagements
2.
In a review services engagement, an accountant performs some

limited procedures to achieve a moderate level of assurance.
TRUE
AACSB: Communication
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Understand
Learning Objective: A-02 Describe reviews and compilations of unaudited financial statements and prepare
appropriate reports given specific factual circumstances.
Topic: Unaudited Financial Statements: Reviews and Compilations
3.
A review service provides a basis for expressing an opinion on

FALSE
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Understand
4.
CPA SysTrust provides assurance that a Web site meets certain

criteria.
FALSE
AACSB: Analytic
AICPA BB: Industry
Blooms: Understand
Learning Objective: A-05 Explain and provide examples of assurance services engagements.
Topic: Assurance Services
5.
A compilation report cannot be issued by an accountant who is not

independent.
FALSE
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Understand
6.
When a new accountant is performing the current-year service, the

accountant cannot update the predecessors' report.
TRUE
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Understand
7.
When an accountant compiles prescribed forms, the compilation

report always must call attention to GAAP departures and disclosure
deficiencies.
FALSE
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Understand
8.
An accountant associated with personal financial statements would

need to give the standard compilation report disclaimer.
FALSE
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Understand
9.
Enhanced business reporting (EBR) focuses on improving business

disclosure of value drivers.
TRUE
AACSB: Analytic
AICPA BB: Industry
Blooms: Understand
10.
For a compliance attestation engagement, the auditor accepts

responsibility for compliance.
FALSE
AACSB: Analytic
AICPA BB: Industry
Blooms: Understand

11.
An accountant may report on interim information presented

separately from audited financial statements.
TRUE
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Understand
Learning Objective: A-03 Explain auditors' responsibilities related to reporting on interim financial information.
Topic: Responsibilities Related to Reporting on Interim Financial Information
12.
Companies that are not subject to SEC regulations can choose to

present financial information in accordance with a special purpose
framework other than GAAP.
TRUE
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Understand
Learning Objective: A-04 Define; explain; and give examples of other special reports provided by auditors;
including specified elements of financial statements; special purpose frameworks and application of
requirements of appropriate financial reporting frameworks.
Topic: Other Topics: Special and Restricted-Use Reports
13.
Attestation reports on internal control effectiveness are required to

be issued for all nonissuers.
FALSE
AACSB: Analytic
AICPA BB: Industry
Blooms: Understand
14.
The user auditor can rely on special purpose reports on internal

control of a service organization in connection with the evaluation of
the client organization.
TRUE
AACSB: Analytic
AICPA BB: Industry
Blooms: Understand
15.
Management does not have to accept responsibility for the

effectiveness of its internal control in order for an accountant to
conduct an examination of a client's internal control.
FALSE
AACSB: Analytic
AICPA BB: Industry
Blooms: Understand
Multiple Choice Questions

16.
The AICPA Assurance Services Executive Committee identified five

megatrends that can affect public accounting firms' business. Which
of the following is not one of the megatrends it identified?
A.
B. The shift from the industrial age to the knowledge age.
C.
Globalization.
D. Merging of corporations creating fewer audit opportunities.
AACSB: Analytic
AICPA BB: Marketing
AICPA FN: Risk Analysis
Blooms: Remember
Source: Original
17.
Assurance services are defined as independent professional services

that
A. Establish criteria for effective measurement of business activity.

B. Improve the quality of information or its context for decision
makers.
C. Attest to the adequacy of controls over business operations.
D. Develop efficient and effective accounting systems to ensure
compliance with accounting standards and policy.
AACSB: Analytic
AICPA BB: Marketing
Blooms: Remember
Difficulty: 1 Easy
Source: Original
18.
Many individuals are apprehensive about using the Internet to

purchase items. This apprehension mainly arises from users'
concerns about
A. The reliability of computer technology.

B. The time delays in Internet purchases.
C. A lack of security for information transmitted over the Internet.
D. The lack of CPA involvement in Internet company financial
information.
AACSB: Analytic
AICPA BB: Marketing
Blooms: Remember
Source: Original
19.
The phrase trust services refers to
A.
B.
C.
D.
WebTrust and SysTrust Services.

XBRL and SysTrust Services.
WebTrust and XBRL Services.
All AICPA designated assurance services.
AACSB: Analytic
AICPA BB: Marketing
AICPA FN: Research
Blooms: Remember
Source: Original
20.
Which of the following is not a principle of trust service

engagements?
A.
Security from unauthorized use.
B. Availability of the system, products, or services.
C. Proficiency in preparing transactions.
D.
Confidentiality of information.
AACSB: Analytic
AICPA BB: Marketing
Blooms: Apply
Source: Original
21.
What is the appropriate name for an assurance service provided by a

CPA regarding a client's commercial Internet site with reference to
the principles of privacy, security, processing integrity, availability,
and confidentiality?
A.
B.
C.
D.
WebTrust.
SysTrust.
XBRL.
WebSecure.
AACSB: Analytic
AICPA BB: Marketing
Blooms: Apply
Source: AICPA
22.
Extensible Business Reporting Language (XBRL) provides a computerreadable identifying tag for each individual item of data. The
advantages of XBRL include all of the following except that it
A. Increases the speed of handling of financial data.

B.
Reduces the chance of error.
C. Improves the full disclosure of financial information.
D. Permits automatic checking of information.
AACSB: Analytic
AICPA BB: Marketing
Blooms: Apply
Source: Original
23.
Enhanced business reporting (EBR) focuses on improving business

disclosure of value drivers and nonfinancial measures of
performance. The advantages of EBR include all of the following
except
A. More efficient and effective regulatory process.

B. Reduced financing costs for companies.
C. Better allocation of capital by investors
D. Better footnote disclosure in the companies' SEC filings.
AACSB: Analytic
AICPA BB: Marketing
Blooms: Apply
Difficulty: 1 Easy
Source: Original
24.
Attestation engagements include
A.
Only examinations.
B. Examinations and assurance services.
C. Examinations, reviews, and agreed-upon procedures.
D. Examinations, reviews, compilations, agreed-upon procedures and
assurance services.
AACSB: Analytic
AICPA BB: Marketing
AICPA FN: Research
Blooms: Apply
Source: Original
Topic: Attestation
25.
The accountant's standard report for a compilation service would not

include a statement that
A. A compilation service has been performed in accordance with

B. Financial statement information is the representation of the owners
of the business.
C. Compilation service consists primarily of inquiries of company
personnel and analytical procedures applied to financial data.
D. Financial statements have not been audited or reviewed and the
accountant does not express an opinion or any other form of
assurance.
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
Source: Original
Topic: Review
26.
Shelly's Bank has loaned money to Pete's Auto Supply. The loan is
collateralized by inventory. The loan also requires a CPA to observe
Pete's count of the inventory and trace sampled items to the vendor
invoices in order to determine that the value of inventory is not
misstated. This service would be
A.
B.
C.
D.
An assurance service engagement.

An attestation engagement.
A review engagement.
A compilation engagement.
AACSB: Analytic
AICPA BB: Marketing
AICPA FN: Research
Blooms: Apply
Source: Original
Topic: Attestation
27.
The reporting standards for an attestation are different from those of

an audit because attestation standards require
A.
The report to include an opinion.
B. The report to identify the subject matter of the assertion being
reported on.
C. The report requires a statement that the presentation is not in
D. The report requires a disclosure of the procedures performed
during the attestation.
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
Source: Original
Topic: Attestation
28.
Attestation engagements may be more difficult than financial

statement audits when
A. The establishment of suitable measurement criteria is difficult.

B. Internal controls are difficult to assess.
C. When management may not understand the underlying
assumptions of the attestation.
D. When the report may be submitted to individuals with insufficient
knowledge of the nature of an attestation engagement.
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Difficulty: 3 Hard
Source: Original
Topic: Attestation
29.
In an agreed-upon procedures engagement, an accountant must
A. Follow the attestation standard related to internal control.

B. Follow the attestation standard related to evidential matter.
C. Include negative assurance explicitly in the report.
D.
Perform all of the above.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 3 Hard
Source: Original
Topic: Attestation
30.
A responsible party for information to subject to an attestation

engagement would not include
A.
The client's controller.
B.
The independent accountant.
C. The client's vice president of marketing.
D. A client employee named in a contract or regulation as being
responsible for the information.
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Apply
Difficulty: 3 Hard
Source: Original
Topic: Attestation
31.
Which of the following procedures would not be performed in a

review of financial statements of a nonpublic company?
A. Inquire about the accounting system and bookkeeping procedures.

B. Perform analytical procedures to identify relationships and
individual items that appear to be unusual.
C. Obtain an attorney's letter regarding litigation and unasserted
claims.
D. Study the financial statements for indications that they conform to
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Source: Original
Topic: Review
32.
ABC Company prepares financial statements showing the last two

years, years X and Y (Year X is the year prior to year Y). The auditor
performed an audit of year X and a review of year Y. The auditor may
A. Report on the year Y review and reissue the year X audit report.
B. Provide only the report concerning the year Y review.
C. Reissue the year X audit report with an explanatory paragraph
disclosing that only a review was performed on year Y.
D. Notify the client that prior-year audited financial statements
cannot be presented when the current-year statements have not
been audited.
AICPA BB: Legal
Blooms: Apply
Source: Original
Topic: Review
33.
In an agreed-upon procedures engagement, an accountant
A. Follows all of the fundamental principles of GAAS.

B. Restricts the report to specified users.
C. Includes negative assurance in the report.
D.
Gives a qualified audit report.
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Source: Original
Topic: Attestation
34.
Which of the following procedures should an accountant perform

during an engagement to review the financial statements of a
nonpublic entity?
A. Communicate reportable conditions discovered during the

assessment of control risk.
B. Obtain a client representation letter from members of
management.
C. Send bank confirmation letters to the entity's financial institutions.
D. Examine cash disbursements in the subsequent period for
unrecorded liabilities.
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Source: AICPA
Topic: Review
35.
When an accountant is engaged to compile a nonpublic entity's

financial statements that omit substantially all disclosures required
by GAAP, the accountant should indicate in the compilation report
that the financial statements
A. Might influence users' conclusions about the business if the

disclosures were included.
B. Are prepared in conformity with a comprehensive basis of
accounting other than GAAP.
C. Are not compiled in accordance with Statements on Standards for
Accounting and Review Services.
D. Are special purpose financial statements not comparable to those
of prior periods.
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Source: AICPA
Topic: Compilation
36.
Which of the following procedures ordinarily should be applied when

an independent accountant conducts a review of interim financial
information of a publicly held entity?
A. Verify changes in key account balances.

B. Read the minutes of the board of directors' meetings.
C.
Inspect the open purchase order file.
D. Perform cutoff tests for cash receipts and disbursements.
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Difficulty: 1 Easy
Source: AICPA
Topic: Interim Statements
37.
An auditor's special report on financial statements prepared in

conformity with the cash basis of accounting should include a
separate explanatory paragraph before the opinion paragraph that
A. Justifies the reasons for departing from generally accepted

principles.
B. States whether the financial statements are fairly presented in
conformity with a special purpose framework.
C. Refers to the note to the financial statements that describes the
special purpose framework.
D. Explains how the results of operations differ from financial
statements prepared in conformity with generally accepted
AICPA BB: Legal
Blooms: Apply
Source: AICPA
Topic: Special Purpose Frameworks
38.
Which of the following best describes an engagement to report on an

entity's internal control over financial reporting for a nonpublic
company?
A. An attestation engagement to examine and report on

management's written assertions about the effectiveness of its
internal control structure.
B. An audit engagement to render an opinion on the entity's internal
control structure.
C. A prospective engagement to project for a period of time not to
exceed one year and report on the expected benefits of the
entity's internal control structure.
D. A consulting engagement to provide constructive advice to the
entity on its internal control structure.
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Source: AICPA
Topic: Attestation
39.
Delta Life Insurance Co. prepares its financial statements on an

accounting basis insurance companies use pursuant to the rules of a
state insurance commission. Wall, CPA, is Delta's auditor. If Wall
discovers that the statements are not suitably titled, Wall should
A. Disclose any reservations in an explanatory paragraph and qualify

the opinion.
B. Apply to the state insurance commission for an advisory opinion.
C. Issue a special statutory basis report that clearly disclaims any
opinion.
D. Explain in the notes to the financial statements the terminology
used.
AICPA BB: Legal
Blooms: Apply
Source: AICPA
40.
When providing limited assurance that the reviewed financial

statements of a nonpublic entity require no material modifications to
be in accordance with generally accepted accounting principles, the
accountant should
A. Assess the risk that a material misstatement could occur in a

financial statement assertion.
B. Confirm with the entity's lawyer that material loss contingencies
are disclosed.
C. Understand the accounting principles of the industry in which the
entity operates.
D. Develop audit plans to determine whether the entity's financial
statements are fairly presented.
AACSB: Analytic
AICPA BB: Legal

Blooms: Apply
Difficulty: 3 Hard
Source: AICPA
Topic: Review
41.
Which of the following procedures does an accountant ordinarily

perform in a compilation engagement of a nonpublic entity?
A. Reading the financial statements to consider whether they are free

of obvious mistakes in the application of accounting principles.
B. Obtaining written representations from management indicating
that the compiled financial statements will not be used to obtain
credit.
C. Making inquiries of management concerning actions taken at
meetings of the stockholders and the board of directors.
D. Applying analytical procedures designed to corroborate
management's assertions that are embodied in the financial
statement components.
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Difficulty: 1 Easy
Source: AICPA
Topic: Compilation
42.
In reporting on a nonpublic entity's internal control over financial

reporting, an accountant should include a paragraph that describes
the
A. Documentary evidence regarding the control environment factors.

B. Changes in the entity's internal control since the prior report.
C. Potential benefits from the accountant's suggested improvements.
D. Inherent limitations of internal control.
AICPA BB: Legal
Blooms: Apply
Source: AICPA
Topic: Attestation
43.
Compiled financial statements of a nonpublic entity 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 assessed the accounting principles used and
significant estimates made by management.
C. The accountant does not express an opinion or any other form of
assurance on the financial statements.
D. A compilation consists primarily of inquiries of entity personnel and
analytical procedures applied to financial data.
AICPA BB: Legal
Blooms: Apply
Difficulty: 1 Easy
Source: AICPA
Topic: Compilation
44.
Hamell Corporation is making a presentation to a prospective

investor. The presentation includes a projection showing that the
company's sales will be between $25,000,000 and $27,000,000
within the next three years. Hamell believes the information will be
better received if its CPA provides an attestation report on the
projection. In order to provide such a report, the CPA must do all of
the following except
A. Obtain knowledge about the client's business.

B. Evaluate the assumptions used in preparing the projection.
C. Confirm expected sales with customers.
D. Identify key factors affecting the information.
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Source: Original
Topic: Attestation
45.
Hamell Corporation is making a presentation to a perspective

investor. The presentation includes a projection showing that the
company's sales will be between $25,000,000 and $27,000,000
within the next three years. Hamell believes the information will be
better received if its CPA provides an attestation report on the
projection. The CPA should ensure that proper disclosure is made to
indicate that
A. The $27,000,000 estimate is a best-case scenario.

B. The range of the projection is appropriate given the
circumstances.
C. The range does not indicate a best- and worst-case scenario.
D. Projections are limited in their information content due to
uncontrollable changes in the business environment.
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Source: Original
Topic: Attestation
46.
Which of the following is not a condition that must be met before an

accountant can conduct an engagement concerning a nonpublic
entity's internal control over financial reporting?

internal control.
B. Management has appropriately documented the internal controls.
evidence.
D. Management presents a written assertion about the effectiveness
of its internal control.
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Source: Original
Topic: Attestation
47.
Which of the following steps is not required in performing a

compliance attestation engagement?
A.
Assess planning materiality.
B.
Assess inherent risk.
C. Confirm restrictions with applicable third parties.
D.
Consider subsequent events.
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Source: Original
Topic: Compilation
48.
An accountant's report includes the phrase "We are not aware."

This phrase indicates that
A.
An attestation was not performed.
B. Management had not established sufficient criteria for an opinion
to be issued.
C. The auditor is providing negative assurance.
D.
A disclaimer of opinion is presented.
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Source: Original
Topic: Review
49.
The procedures used in a review engagement are
A. Physical examination, reperformance, and obtaining a

management representation letter.
B. Analytical procedures, reperformance, and obtaining a
management representation letter.
C. Analytical procedures, inquiry, and obtaining a management
D. Physical examination, inquiry, and obtaining a management
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Source: Original
Topic: Review
50.
In a compilation engagement, the accountant
A. Provides reasonable assurance that no material misstatements

exist.
B. Provides assurance that no material misstatement came to her or
his attention.
C. Provides a list of procedures performed and results found.
D.
Does not express an opinion.
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Source: Original
Topic: Compilation
51.
In a compilation engagement,
A.
B.
C.
D.
All appropriate disclosures must be presented.

Managers or owners may choose to omit all footnote disclosures.
Financial statements must be presented in prescribed forms.
An auditor provides only negative assurance.
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Source: Original
Topic: Compilation
52.
To perform a review of interim financial information, the auditor must
A. Have audited or be in the process of auditing the entity's latest

B. Tested the entity's internal controls to determine that financial
information is reliable.
C. Sent confirmation to third parties concerning significant relatedparty transactions.
D. Established sufficient criteria to form an opinion on the fair
presentation of the financial information.
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Source: Original
53.
When interim financial information is presented as supplementary

information accompanying audited financial statements, the auditor
should refer to the information
A.
In all cases.
B. When it has not been labeled as "unaudited."
C. When it is material to the financial statement users.
D. When the information has been reviewed rather than audited.
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Difficulty: 3 Hard
Source: Original
54.
Other comprehensive basis of accounting (OCBOA) includes all of the

following except
A. Statements that conform to a regulatory agency.

B.
Statements prepared on a tax basis.
C. Statements that conform to accounting principles that are
generally accepted.
D. Statements prepared on a cash basis.
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Source: Original
55.
Which of the following account titles would not be appropriate for a

company that prepared its financial statements using the tax basis of
accounting?
A.
Balance Sheet.
B. Statement of Assets, Liabilities, and Owner's Equity.
C. Statement of Revenue and Expenses.
D. Statement of Change in Partners' Capital Accounts.
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Difficulty: 1 Easy
Source: Original
56.
When a company uses a service organization to prepare its payroll,

the company's auditors
A. Have no obligation concerning the internal controls at the service

organization.
B. Need to understand the internal controls over the transaction
regardless of the location of the control.
C. Must audit the internal controls at the service organization.
D. Should include the audit report of the service company's auditors
with their auditors' report.
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Source: Original
Topic: Attestation
57.
Auditors can gain sufficient understanding of the internal controls at

a service organization by
A. Reviewing the contract with the service organization.

B. Making an inquiry with management of the service organization.
C. Reviewing a report on internal controls provided by the service
D. Sending a confirmation concerning internal controls to the service
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Source: Original
Topic: Attestation
58.
Reports on an entity's internal control over financial reporting
A. Is required for all companies whether they report to the SEC or

not.
B. Is optional for all companies whether they report to the SEC or not.
C. Is required by the PCAOB for large public companies and may be
performed by a CPA for nonpublic companies.
D. Is limited to inquiry and analytical procedures for reports for nonSEC companies.
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Remember
Difficulty: 1 Easy
Source: Original
Topic: Attestation
59.
During a review engagement, which of the following is not a required

inquiry of management?
A. The accounting principles and practices used.

B. Significant transactions occurring near the end of the reporting
period.
C. Status of uncorrected misstatements identified in previous
engagements.
D. The changes made to internal controls during the period under
review.
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Difficulty: 3 Hard
Source: Original
Topic: Review
60.
During a review, the auditor is required to obtain written

representations from management. Which of the following is not one
of the required elements of the representation?
A. Management's responsibility for the fair presentation of the

B. Management's belief that it has answered all inquiries fully and
truthfully.
C. Management has made all adjustments identified during the
review.
D. Management has disclosed information about subsequent events.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 3 Hard
Source: Original
Topic: Review
61.
AR 90 requires adequate documentation for a review engagement.

Which items are required to be documented?
A. Analytical procedures, yes; management representations, no;

B. Analytical procedures, no; management representations, yes;
C. Analytical procedures, yes; management representations, yes;
D. Analytical procedures, yes; management representations, yes;
understanding of internal controls, yes.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 3 Hard
Source: Original
Topic: Review
62.
At a minimum to comply with PCAOB AS 5, an auditor of a public

company that has material transactions processed by a service
organization would have to request from the service organization
A.
A description of its internal controls.
B.
A type one service auditors' report.
C.
A type two service auditors' report.
D. A service organization control (SOC) 3 report.
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Source: Original
Topic: Attestation
63.
An auditor who is requested to provide a report on application of

requirements of an appropriate financial reporting framework may
not
A. Issue an opinion on the accounting treatment of a hypothetical

transaction.
B. Discuss the requirements with the client's current auditors.
C. Limit the report to the sole use of specified parties.
D. State that differences in facts, circumstances, or assumptions
might change the conclusion.
AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Source: Original
Topic: Application of Financial Reporting Framework
64.
A report on sustainability as defined by the AICPA might include all of

the following except
A.
B.
C.
D.
Economic viability.
Social responsibility.
Environmental responsibility.
Internal control over financial reporting.
AACSB: Analytic
AICPA BB: Marketing
Blooms: Remember
Source: Original
65.
Services in connection with unaudited historical cost financial

statements is conducted by
A.
B.
C.
D.
International accounting firms only.

Regional and local public accounting firms.
Local CPAs only.
All public accounting firms.
Reference: Question also found in textbook

AACSB: Analytic
AICPA BB: Marketing
AICPA FN: Research
Blooms: Apply
Difficulty: 1 Easy
Source: Original
Topic: Review and Compilation
66.
The official Statements on Standards for Accounting and Review

Services are applicable to practice with
A. Audited financial statements of public companies.

B. Unaudited financial statements of public companies.
C. Unaudited financial statements of nonissuers.
D. Audited financial statements of nonissuers.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Source: Original
67.
Which of the following is a general standard of generally accepted

attestation standards but is not a fundamental auditing principle?
A.
B.
C.
D.
Appropriate competence and capability.

Adequate knowledge in the subject matter.
Independence.
Due care.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Source: Original
Topic: Attestation
68.
The performance of an attestation engagement on prospective

financial information does not require which of the following?
A. If the basis of the prospective financial information is different than

the financial statements, a reconciliation of the two must be
provided.
B. Management must disclose all significant assumptions used in
generating the prospective financial information.
C. Management must disclose significant accounting policies and
procedures used in generating the prospective financial
information.
D. Management must disclose the probability of obtaining the results
included in the prospective financial information.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 1 Easy
Source: Original
Topic: Attestation
69.
To perform an attestation engagement on prospective information or

pro forma information, accountants must do all of the following
except
A. Obtain knowledge about the entity's business and accounting

principles.
B. Understand the internal controls used in the processes that
generated the information.
C. Obtain an understanding of the process through which the
information was developed.
D. Evaluate the assumptions used to prepare the information.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Source: Original
Topic: Attestation
70.
If a nonissuer wants an accountant to perform an examination of its

internal controls, the accountant should follow
A. PCAOB AS 5, "An Audit of Internal Control over Financial Reporting

That Is Integrated with an Audit of Financial Statements."
B. AICPA AT 501, "An Examination of an Entity's Internal Control over
Financial Reporting That Is Integrated with an Audit of Its Financial
Statements."
C. AICPA AU315, "Understanding the Entity and Its Environment and
Assessing the Risks of Material Misstatement."
D. FASB Concepts Statement No.1, "Objectives of Financial Reporting
by Business Enterprises."
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 1 Easy
Source: Original
Topic: Attestation
71.
A review service engagement involving unaudited financial

statements involves
A. More work than a compilation and an audit.

B. Less work than an audit but more work than a compilation.
C. Less work than a compilation but more work than an audit.
D. More work than an audit but less work than a compilation.
AACSB: Analytic
AICPA BB: Resource Management
Blooms: Apply
Difficulty: 1 Easy
Source: Original
Topic: Review
72.
When accountants are not independent, which of the following

reports can nevertheless be issued?
A.
Compilation report.
B.
Standard unqualified audit report.
C.
Examination report on a forecast.
D. Examination of internal control over financial reporting.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Apply
Difficulty: 1 Easy
Source: Original
Topic: Compilation
73.
For a compliance engagement, three conditions must be met. Which

of the following is not one of the three conditions?
A. Management accepts responsibility for compliance.

B. Management's evaluation of compliance is capable of evaluation
and is measured against reasonable criteria.
C. Sufficient evidence is available to support management's
evaluation.
D. Management provides a report attesting to the satisfactory
compliance.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Source: Original
Topic: Attestation
74.
Accountants are permitted to express "negative assurance" in which

of the following reports?
A.
B.
C.
D.
Standard unqualified audit report on audited financial statements.

Compilation report on unaudited financial statements.
Review report on unaudited financial statements.
Adverse opinion report on audited financial statements.

AACSB: Analytic
AICPA BB: Legal
Blooms: Apply
Source: Original
Topic: Review
75.
Which of the following conditions must be met before an accountant

can conduct an examination of an entity's internal control?
A. Management presents its assertion about the effectiveness of its

internal control in a written report.
B. Management represents that there are no internal control
deficiencies.
C. The accountant represents that he or she has not conducted an
audit of the financial statements.
D. The accountant has designed a significant portion of the internal
controls.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Source: Original
Topic: Attestation
76.
When interim financial information is presented in a footnote to

annual financial statements, the standard audit report on the annual
financial statements should
A. Not mention the interim information unless there is an exception

that the auditors need to include in the report.
B. Contain an audit opinion paragraph that specifically mentions the
interim financial information if it is not in conformity with the GAAP.
C. Contain an extra paragraph that gives negative assurance on the
interim information if it has been reviewed.
D. Contain an extra explanatory paragraph if the interim information
note is labeled "Unaudited."
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Apply
Source: Original
77.
During a review of a nonissuer's financial statements, accountants

are required to make certain inquiries of management. Which of the
following inquiries is not required by the SSARS?
A. The basis for the preparation of financial statements.

B.
Internal control deficiencies.
C. Significant transactions occurring near the end of the reporting
period.
D.
Material subsequent events.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Source: Original
Topic: Review
78.
According to auditing standards, financial statements presented on a

special purpose should not
A. Contain a note describing the special purpose framework.

B. Describe in general how the special purpose framework differs
from generally accepted accounting principles.
C. Be accompanied by an audit report that gives an unqualified
opinion with reference to the special purpose framework.
D. Contain a note with a quantified dollar reconciliation of the assets
based on the special purpose framework with the assets based on
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research

Blooms: Apply
Difficulty: 3 Hard
Source: Original
79.
To be useful, an audit of a service organization's controls should

cover a minimum of:
A.
B.
C.
D.
Three months.
Six months.
A year.
The user entity's fiscal period.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Source: Original
Topic: Attestation
80.
In providing assurance services to clients, public accounting firms are

building on their reputations for
A.
B.
C.
D.
Knowledge and integrity.

Objectivity and integrity.
Independence and due professional care.
Professionalism and trust.

AACSB: Ethics
AICPA BB: Marketing
AICPA FN: Research
Blooms: Apply
Source: Original
81.
The AICPA Special Committee on Assurance Services identified five

global "mega trends" that can affect a CPA's business. Which of the
following is not one of these mega trends?
A.
B.
C.
D.
The decreasing supply of natural resources.

New social structures.
Demands for transparency.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 1 Easy
Source: Original
82.
An assurance service is defined as a service that
A. Provides auditing services to nonfinancial information.

B. Reviews unaudited financial information.
C. Improves the quality of information for decision makers.
D. Reduces the risk in management decision making.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 1 Easy
Source: Original
83.
B Harper is surfing the Internet and finds a great pair of rollerblades

at a really low price. He has never heard of the company and is
concerned that the product he ordered may not be the product he
receives. Harper may be more willing to place an order with this
company if
A. The website displays the WebTrust seal.

B. The company provides its annual report and the report of the
independent auditors on its website.
C. The company provides a money-back guarantee.
D. Only a partial payment is required prior to receiving the product.
AACSB: Analytic
AICPA BB: Marketing
Blooms: Apply
Source: Original
84.
Which of the following is not a principle of Trust Services?
A.
B.
C.
D.
Security.
Authentication.
Privacy.
Confidentiality.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Source: Original
85.
An accountant's review of unaudited financial statements would not

include
A.
Performing analytical procedures.
B.
Confirming accounts receivable.
C. Inquiring about the accounting system and bookkeeping
procedures.
D. Reading the financial statements for indications that they conform
to GAAP.
Reference: Question also found in study guide
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Source: Original
Topic: Review
86.
An accountant should reissue (not update) the prior year's report

when
A. The accountant is a successor accountant performing a

compilation and a compilation report was issued in the prior year.
B. The accountant is a successor accountant performing a
compilation, and a review report was issued in the prior year.
C. The accountant issued a review report in the prior year and is
performing a compilation in the current year.
D. The accountant issued a compilation report in the prior year and is
performing a review in the current year.
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Apply
Source: Original
87.
When an accountant compiles a prescribed form and the financial

statements contain a departure from the information specified by the
prescribed form, the accountant should
A.
Withdraw from the engagement.
B.
Issue an adverse opinion.
C. Ignore the departure because the financial statements do not
purport to be in accordance with GAAP.
D. Disclose the departure in the body of the accountant's report.
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Apply
Source: Original
Topic: Compilation
88.
When an accountant is associated with a financial statement as part

of a personal financial planning engagement, the accountant's report
should include a statement that
A. We have not audited, reviewed, or compiled the statement.

B. These financial statements are not designed for those who are not
informed about such differences.
C. We do not express an opinion or any other form of assurance on
them.
D. We are not aware of any material modifications that should be
made.
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Apply
Source: Original
Topic: Compilation
89.
Which of the following is not a condition that must be met for an

internal control examination?

internal control.
B. Management must base its evaluation of internal control on
evidence.
D. Management presents a written assertion about the effectiveness
of its internal control.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 3 Hard
Source: Original
Topic: Attestation
90.
An accountant's standard internal control report for nonissuers is

governed by
A. The Statements on Auditing Standards.

B. The Statements on Standards for Accounting and Review Services.
C. The Statements on Standards for Attestation Engagements.
D.
The COSO report.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 1 Easy

Source: Original
Topic: Attestation
91.
The accountant's standard report for a review service would not

include a statement that
A. A review service was performed in accordance with AICPA

generally accepted auditing standards.
B. All information included in the representation of the management
of the business.
C. A review consists primarily of making inquiries and performing
analytical procedures.
D. The accountant is not aware of any material modifications that
should be made to make this financial statement conform to
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Apply
Source: Original
Topic: Review
92.
An accountant could not issue compiled financial statements that

would include a report
A. Mentioning that the management has elected to omit

substantively all footnote disclosures, and if they were included
they might influence users' conclusions about the business.
B. Attesting to the overall fairness of the financial statements.
C. Stating that the accountant is not independent.
D. Stating that the objective of a compilation is to assist management
in presenting financial information.
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Apply
Difficulty: 1 Easy
Source: Original
Topic: Compilation
93.
The combination of prior-year/current-year order of lower level of

service would not include
A.
B.
C.
D.
Review followed by compilation.

Audit followed by compilation.
Compilation followed by review.
Audit followed by review.

AICPA BB: Legal
AICPA FN: Reporting
Blooms: Apply
Source: Original
Fill in the Blank Questions

94.
Review work on unaudited financial statements consists primarily of

conducting ____________________________, performing
____________________, and obtaining a management representation
letter.
inquiry; analytical procedures
95.
Each page of the financial statements of a review service should be

marked " __________________________________."
see accountant's review report
96.
Assurance services are _______________________________ professional

services that improve the _____________________________ of
information, or its ____________________________, for decision makers.
independent; quality; context
97.
The combination of prior-year/current-year order of the same or

higher level of service would include a compilation followed by
____________________________, a _____________________________ followed
by review, and a review followed by a ____________________________.
compilation or review or audit; compilation; review or audit
98.
When the current-year service is being performed by a new

accountant, the _____________________________ can be asked to
___________________________ the prior report.
predecessor; reissue
99.
Industry trade associations and regulatory agencies often use

__________________________________ to specify the
____________________________ and _____________________________ of
accounting information required for special purposes.
prescribed forms; content; measurement
100. A __________________________________ is based on expected conditions

and courses of action.
financial forecast
101. The ______________ requires the presentation of interim information
outside the basic financial statements.
SEC
102. The review of interim financial information _________________________ a

complete assessment of internal control risk.
does not require
103. Engagements to perform ______________ - ______________ procedures
are not considered audits because they have a
______________________________.
agreed upon; limited scope
104. In a compilation engagement, the accountant explicitly states that
__________________ and _________________ are expressed.
no opinion; no assurance
105. In ____________________________ engagements, justifiable departures
from official pronouncements are treated the same as they are in
____________________________.
review; audits
Short Answer Questions
106. This question is related to other public accounting services and

A. Reviews of unaudited financial statements of a nonissuer
B. Compilations of financial statements
C. Reviews of unaudited interim financial statements of a public
company
D. Reports on financial statements prepared according to a special
purpose framework.
E. Reports on compliance with contractual agreements or regulatory
requirements.
F. Reports on elements, accounts, or items of a financial statement
____ 1. The information should conform to the accounting principles in
ASC 270, "Interim Financial Reporting."
____ 2. "In our opinion, the schedule of accounts receivable referred
to above presents fairly, in all material respects."
____ 3. They are limited to presenting in the form of financial
statements information that is the representation of management.
____ 4. As described in Note 2, these financial statements were
prepared on the cash receipts and disbursements basis of
accounting.
____ 5. They present a reasonable basis for expressing limited
assurance that no material modifications should be made to the
statements.
1. C, 2. F, 3. B, 4. D, 5. A
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Apply
Source: Original
Topic: Other Reports
107. This question is related to other public accounting services and

A. Reports on elements, accounts, or items of a financial statement
B. Reports on compliance with contractual agreements or regulatory
requirements
C. Reports on the agreed-upon procedures
D. Reports on internal control
E. Reviews of unaudited financial statements of a nonissuer
F. Compilations of financial statements
____ 1. Management issues a separate report containing assertions.
____ 2. "In our opinion, the schedule of inventory referred to above
presents fairly, in all material respects
____ 3. They are substantially less in scope than an audit in
accordance with generally accepted auditing standards.
____ 4. They are examinations or agreed-upon procedures about
conforming to the rules and regulations of a regulatory agency.
____ 5. The reports identify specific users and describe the
procedures specified by the users in detail.
1. D, 2. A, 3. E, 4. B, 5. C
AICPA BB: Legal
AICPA FN: Reporting
Blooms: Apply
Source: Original
108. For each term listed below (items 1-5) select the correct term (items
A-F).
A. Attestation
B. Assurance service
C. Compilation
D. Trust service
E. Review service
F. Service organization
____ 1. An engagement in which a practitioner provides limited
assurance about financial information.
____ 2. A situation in which the practitioner assists in assembling
financial information.
____ 3. An activity that results in a report on the subject matter or a
claim about subject matter that is the responsibility of another party.
____ 4. An entity that provides a service to another company
regarding the processing of transactions or information.
____ 5. Professional service aimed at improving the quality of
information both financial and nonfinancial for decision makers.
1. E, 2. C, 3. A, 4. F, 5. B
AACSB: Analytic
AICPA BB: Marketing
AICPA FN: Research
Blooms: Apply
Source: Original
109. Complete the key words, names, and phrases in the following
accountant's report on a review of financial statements (balance
sheet and statements of income, comprehensive income, retained
earnings, and cash flows) of a nonissuer.
We have ___________ the accompanying _____________ of Dandy
Company as of December 31, 2012 and 2011, and the
_____________________________________ ___________________________. A
review includes primarily applying ________ _____________ to
management's ______________ and making ________________ __________.
A review is substantially ____________________ than an audit, the
objective of which is the ___________________ regarding the financial
statements ___________________. Accordingly, we
_____________________________.
_______________ is responsible for the ____________________________ of
the financial statements
______________________________________________ and for designing,
implementing, and __________________________ relevant to the
preparation and fair presentation of the financial statements.
Our responsibility is to ___________________ in accordance with
____________ _____________________________________ issued by the
American Institute of Certified Public Accountants. Those standards
_________________________ to obtain _______________ that there are
_____________________ that should be made to the financial
statements. We believe that the ___________________ provide a
___________________ for our report.
Based on our review, we are ________ of any ________________ that
should be made to the accompanying financial statements in order
for them to be in ____________ ________________________________.
We have reviewed the accompanying balance sheet of Dandy

Company as of December 31, 2012 and 2011, and the related
statements of income, comprehensive income, retained earnings,
and cash flows. A review includes primarily applying analytical
procedures to management's financial data and making inquiries of
company management. A review is substantially less in scope than

an audit, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we
do not express such an opinion.
Management is responsible for the preparation and fair presentation
of the financial statements in accordance with generally accepted
accounting principles and for designing, implementing, and
maintaining internal control relevant to the preparation and fair
presentation of the financial statements.
Our responsibility is to conduct the review in accordance with
Statements on Standards for Accounting and Review Services issued
by the American Institute of Certified Public Accountants. Those
standards require us to perform procedures to obtain limited
assurance that there are no material modifications that should be
made to the financial statements. We believe that the results of our
procedures provide a reasonable basis for our report.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial statements in
order for them to be in conformity with generally accepted
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 3 Hard
appropriate reports given specific factual circumstances.Feedback: Reference: Question also found in study
guide
Source: Original
Essay Questions
110. Review work on unaudited financial statements consists primarily of

conducting inquiries, performing analytical procedures, and obtaining
a management representation letter. List the typical procedures
accountants would perform on a review engagement.
The typical review procedures would include

1. Obtaining knowledge of the client's business.
2. Inquiring about the accounting system.
3. Inquiring about the preparation of the financial statements in
4. Inquiring about accounting principles and practices used.
5. Inquiring about significant transactions that occurred or were
recognized near the end of the reporting period.
6. Inquiring about the status of uncorrected misstatements identified
during previous engagements.
7. Inquiring about questions that have arisen during the engagement.
8. Inquiring about subsequent events.
9. Inquiring about significant journal entries or adjustments.
10. Inquiring about communications with regulatory agencies.
11. Performing analytical procedures to identify relationships and
individual items that appear to be unusual.
12. Reading the financial statements to determine whether they
conform to GAAP.
13. Inquiring of officers and directors on accounting matters.
14. Performing any procedures considered necessary.
15. Preparing working papers.
16. Obtaining a written representation letter.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Source: Original
111. G. Wilson is on the board of directors of a small manufacturing

company, Smith Plastics, Inc. Wilson holds a CPA certificate and is a
member of the AICPA. The president of the company, J. Smith, has
asked Wilson to prepare financial statements for the company to be
submitted to Sixth First Bank as part of a loan request. Smith tells
Wilson that the bank would like a review or an audit but would settle
for a compilation from a CPA and would like Wilson to do the
compilation.
Required:
Discuss under what conditions, if any, Wilson would be allowed to
prepare a compilation of the financial statements of Smith Plastics,
Inc.
Wilson is not independent of Smith Plastics since he is a director.

However, this does not prevent him from issuing a compilation report
if he follows the requirements of SSARS 1. A separate last paragraph
of the report should state: "I am not independent with respect to
Smith Plastics, Inc." The reason for the lack of independence may be
disclosed.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 1 Easy
Source: Original
112. D. Prima, CPA, was engaged to review the unaudited financial

statements of Rooster Restaurants, Inc., a nonpublic company. During
her review, Prima found that Rooster had not capitalized leases as
required by GAAP. The result was so material that Prima modified the
standard review report to state that "the financial statements are not
in conformity with GAAP."
Required:
Discuss whether Prima 's report is in accordance with professional
standards. If not, what should she have done under the
circumstances? Explain.
Prima's report is not in accordance with Statements for Accounting

and Review Services. Review engagements are not audits; therefore,
an adverse opinion cannot be given. Prima should have modified the
standard review report by adding an explanatory paragraph to
describe the known departure from GAAP. This exception would be
referred to with the negative assurance provided in the last
paragraph of the review report.
AICPA BB: Legal
AICPA FN: Research
Blooms: Apply
Difficulty: 3 Hard
Source: Original
113. Public accounting firms have consistently looked for additional

services that might increase their profitability. To that end, CPAs can
provide value to clients with assurance services.
Required:
Discuss each of the following topics.
A. Describe two of the services identified by the AICPA.
B. Why would the public prefer to have a public accounting firm as a
provider of these services?
C. What are the possible negative consequences for public
accounting firms if they provide services outside the realm of
traditional accounting services?
A. Students may choose any two of the following:

1. SysTrust service: An assurance service that reviews a client's
information system to provide assurance to business partners
concerning the security, privacy, confidentiality of information,
system availability and processing integrity.
2. WebTrust service: An assurance service designed to reduce the
concerns of Internet users regarding the existence of a company and
the reliability of key business information placed on the website.
3. XBRL service: XBRL provides a computer-readable identifying tag
for each individual item of data. For example, company net profit has
its own unique tag. The XBRL tag enables automated processing of
business information by computer software. As a result of XBRL,
computers can now treat XBRL data "intelligently": They can
recognize the information in an XBRL document, select it, analyze it,
store it, exchange it with other computers, and present it
automatically in a variety of ways for users. XBRL greatly increases
the speed of handling financial data, reduces the chance of error, and
permits automatic checking of information.
4. Enhanced business reporting (EBR) service: EBR focuses on
improving business reporting by developing an internationally
recognized, voluntary framework for presentation and disclosure of
value drivers, nonfinancial performance measures, and qualitative
information. Benefits would include improved allocation of capital by

investors, reduced financing costs of companies, more efficient and
effective regulatory processes, strengthened global competitiveness,
and enhanced stability in the capital markets.
B. The public might prefer to have these services provided by public
accounting firms because of their reputation for integrity and
objectivity. Often the public is skeptical of advice and
recommendations provided by other professionals, such as attorneys
and consultants, for example. This skepticism is often founded in the
belief that recommendations are based on an economic incentive to
sell a product or service that the professional represents. Public
accounting firms that perform an assurance service without
representing any particular product or service are acting as client
advocates and are seen as such by the public.
C. The accounting profession needs to be very careful regarding the
pursuit of revenues as a primary objective. First, CPAs have always
been viewed as specialists in financial and business information and
assurance regarding that information. As they begin to branch out
into information that might be perceived as outside their expertise,
the public may lose confidence in them. Second, if the profession
pursues revenues without maintaining the traditional values that
have been its cornerstone (i.e., independence and objectivity), the
profession's image and public trust may be damaged.
AACSB: Analytic
AICPA BB: Marketing
AICPA FN: Research
Blooms: Apply
Difficulty: 3 Hard
Source: Original
114. Big Ben's Toy (BBT) Company has recently outsourced its payroll
operation to Mary's Payroll Service (MPS). MPS receives the changes
to the payroll database (hirings, firings, rate increases, etc.) and the
number of hours worked for all hourly employees. MPS calculates the
payroll and sends BBT printed payroll checks and a payroll register.
BBT then transfers an appropriate amount into its payroll bank
account and distributes the checks. MPS also provides a list of
payments to be made to third parties (IRS, insurance, pension plan,
etc.). Accounts payable uses the list of third-party payments to make
appropriate payments.
You have been hired to perform an audit of BBT Company. During
your opening meeting with BBT management, you state that your
audit plan includes inquiries of MPS and a review of the AT 801 report
on internal controls at MPS. BBT's management is confused and
states that BBT should not have to pay you to review controls at
another organization.
Prepare a brief explanation for BBT's management as to why it is
necessary to review the controls at MPS and the importance of this
review to BBT Company.
The outsourcing of a significant portion of a business does not

alleviate the company from its responsibilities for that portion of the
business. Auditing standards require the auditor to gain an
understanding of internal controls over all material areas of financial
reporting, and in almost all cases, payroll is material. In addition, if
the company is required to report on internal controls in compliance
with PCAOB Standard No. 5 (AS 5), controls over third-party providers
of financial information would need to be included. Finally, if there
were a failure to meet regulatory requirements, such as improperly
calculating the tax liability, the appropriate regulatory body would
not take action against the third-party provider but against the
organization responsible for meeting these regulatory requirements.
AACSB: Analytic
AICPA BB: Critical Thinking
Blooms: Apply
Difficulty: 3 Hard
Source: Original
Topic: Attestation

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Module A

Other Public Accounting Services

True / False Questions

2. In a review services engagement, an accountant performs some limited

3. A review service provides a basis for expressing an opinion on financial

5. A compilation report cannot be issued by an accountant who is not

6. When a new accountant is performing the current-year service, the

7. When an accountant compiles prescribed forms, the compilation report

8. An accountant associated with personal financial statements would

9. Enhanced business reporting (EBR) focuses on improving business

10 For a compliance attestation engagement, the auditor accepts

11 An accountant may report on interim information presented separately

12 Companies that are not subject to SEC regulations can choose to

13 Attestation reports on internal control effectiveness are required to be

15 Management does not have to accept responsibility for the

Multiple Choice Questions

A. Establish criteria for effective measurement of business activity.

18 Many individuals are apprehensive about using the Internet to purchase

A. The reliability of computer technology.

WebTrust and SysTrust Services.

20 Which of the following is not a principle of trust service engagements?

A. Increases the speed of handling of financial data.

A. More efficient and effective regulatory process.

25 The accountant's standard report for a compilation service would not

A. A compilation service has been performed in accordance with

An assurance service engagement.

27 The reporting standards for an attestation are different from those of an

28 Attestation engagements may be more difficult than financial

A. The establishment of suitable measurement criteria is difficult.

A. Inquire about the accounting system and bookkeeping procedures.

32 ABC Company prepares financial statements showing the last two

A. Communicate reportable conditions discovered during the

35 When an accountant is engaged to compile a nonpublic entity's

A. Might influence users' conclusions about the business if the

A. Verify changes in key account balances.

A. Justifies the reasons for departing from generally accepted

38 Which of the following best describes an engagement to report on an

A. An attestation engagement to examine and report on management's

A. Disclose any reservations in an explanatory paragraph and qualify

40 When providing limited assurance that the reviewed financial

A. Assess the risk that a material misstatement could occur in a

A. Reading the financial statements to consider whether they are free of

A. Documentary evidence regarding the control environment factors.

43 Compiled financial statements of a nonpublic entity should be

A. The scope of the accountant's procedures has not been restricted in

A. Obtain knowledge about the client's business.

A. The $27,000,000 estimate is a best-case scenario.

46 Which of the following is not a condition that must be met before an

A. Management accepts responsibility for the effectiveness of its

49 The procedures used in a review engagement are

53 When interim financial information is presented as supplementary

A. Statements that conform to a regulatory agency.

A. Have no obligation concerning the internal controls at the service

57 Auditors can gain sufficient understanding of the internal controls at a

A. Reviewing the contract with the service organization.

A. The accounting principles and practices used.

60 During a review, the auditor is required to obtain written

A. Management's responsibility for the fair presentation of the financial

A. Analytical procedures, yes; management representations, no;

A description of its internal controls.

63 An auditor who is requested to provide a report on application of

A. Issue an opinion on the accounting treatment of a hypothetical

65 Services in connection with unaudited historical cost financial

International accounting firms only.