chapter 20 additional assurance services: other … · web viewchapter 20 additional assurance...

Chapter 20 - Additional Assurance Services: Other Information

Chapter 20Additional Assurance Services: Other Information

True / False Questions

1. Assurance services improve the quality of information or its context for decision makers. True False

2. Attestation services are similar, but go beyond assurance services in scope of procedures and reporting. True False

3. Independence is required for the performance of all assurance services. True False

4. Practitioners may report on either an assertion about the subject matter, or on the subject matter for most attestation engagements. True False

5. Attestation risk, like audit risk consists of three components--inherent risk, control risk, and substantiation risk. True False

6. The attestation standards prohibit the examination of prospective financial statements. True False

7. A practitioner may be engaged to perform a review of management's discussion and analysis for an annual or an interim period. True False

20-1


8. A WebTrust seal assures consumers that they will be satisfied with their purchases. True False

9. Trust Services are a part of the AICPA's vision that increased trust in annual historical financial statements is necessary. True False

10. SysTrust engagements relate only to database systems. True False

Multiple Choice Questions

11. Which of the following is least likely to be included in an agreed-upon procedures attestation engagement report? A. The specified party takes responsibility for the sufficiency of procedures.B. Use of the report is restricted.C. Limited assurance on the information presented.D. A summary of procedures performed.

12. Conditions exist that result in a material deviation from the criteria against which the subject matter was evaluated during an examination performed following the attestation standards. The CPA's conclusion may be on:

A. Option AB. Option BC. Option CD. Option D

20-2


13. Suitable criteria in an attestation engagement may be available:


14. When performing an attestation examination engagement, which of the following is not always required? A. Assertion.B. Practitioner independence.C. Subject matter.D. Suitable criteria.

15. Which of the following engagements is most likely to consider availability, security, integrity, and maintainability of a company's computer systems? A. Internal control over financial reporting.B. Trust Services.C. Website Asssociate.D. Financial statement audit.

16. Which of the following are Trust Services principles?


20-3


17. Which of the following is the least likely to be considered subject matter of an attestation engagement? A. Assertion.B. Behavior.C. Historical event.D. Systems and processes.

18. Arel, CPA, was engaged by a group of royalty recipients to apply agreed-upon procedures to financial data supplied by Modit Co. regarding Modit's written assertion about its compliance with contractual requirements to pay royalties. Arel's report on these agreed-upon procedures should contain a (an). A. Disclaimer of opinion about the fair presentation of Modit's financial statements.B. List of the procedures performed (or reference thereto) and Arel's findings.C. Opinion about the effectiveness of Modit's internal control activities concerning royalty payments.D. Acknowledgment that the sufficiency of the procedures is solely Arel's responsibility.

19. Assurance services performed for decision makers may address the:


20. Which of the following is not necessarily an attest engagement? A. An elder care engagement.B. A WebTrust engagement.C. An examination of internal control over financial reporting for a nonpublic company.D. A review of management's discussion and analysis.

20-4


21. Which of the following are required on all attestation engagements?


22. Which of the following is notcurrently an acceptable form of association with prospective financial statements? A. Compilation.B. Review.C. Agreed-upon procedures.D. Examination.

23. When a practitioner examines projected financial statements, the practitioner's report should include a separate paragraph that: A. Describes the limitations on the usefulness of the presentation.B. Provides an explanation of the differences between an examination and a review.C. States that the accountant is responsible for events and circumstances for a period not exceeding one year after the report's date.D. Disclaims an opinion on whether the assumptions provide a reasonable basis for the projection.

24. Which of the following is correct relating to an engagement to apply agreed-upon procedures to prospective financial statements? A. Use of the report is restricted to the specified users.B. Such engagements are permissible for forecasts but not for projections.C. Responsibility for the adequacy of the procedures performed is taken by the practitioner.D. Such engagements are not permissible under the professional standards.

20-5


25. When a financial forecast fails to disclose a significant assumption used to prepare that forecast, which of the following reports become appropriate?


26. When reporting upon a review engagements on an entity's management discussion and analysis, the report is ordinarily: A. A general use report.B. A restricted use report.C. Required to include a disclaimer of opinion.D. Included with the entity's report on internal control over financial reporting.

27. When management presents a written assertion on internal control effectiveness, it evaluates the company's internal control using reasonable criteria for internal control, referred to as. A. Control environment criteria.B. Tone criteria.C. Control criteriaD. Integrated criteria.

28. When compared to the consideration of internal control for purposes of an audit, an examination of management's assertion about the effectiveness of an entity's internal control for a nonpublic company may be expected to require a(n): A. Increased scope of tests of balances.B. Increased scope of tests of controls.C. Greater reliance upon analytical procedures.D. Increased emphasis on fairness of future presentation.

20-6


29. Which of the following is least likely to result in modification of an opinion on management's assertion about the effectiveness of an entity's internal control? A. Significant circumstance imposed scope limitations.B. Significant management imposed scope limitations.C. Reportable conditions that are not also material weaknesses in internal controlD. Material weaknesses in internal control.

30. Providing assurance using a series of reports provided simultaneously or shortly after the related information is released is referred to as: A. Continuous auditing.B. Serial auditing.C. Systems reliability auditing.D. Simultaneity auditing.

31. The organization established to identify, develop and communicate new assurance service opportunities is the: A. Assurance Services Executive Committee.B. Attestation Standards board.C. Auditing Standards Board.D. Counsel of Executives.

32. Many new services assurance services are performed in accordance with Statements on A. Standards for Attestation Services.B. Generally Accepted Assurance Standards.C. Auditing Standards.D. Accounting for other Assurance Services.

20-7


33. Independence is required when performing:


34. A practitioner's unqualified opinion based upon an examination may ordinarily be on:


35. Which attest engagement aligns most directly with a financial statement audit in terms of assurance provided? A. Agreed-upon procedures.B. Evaluation.C. Examination.D. Review.

36. The WebTrust engagement relates most directly to A. Financial statements maintained on the Internet.B. Health care facilities.C. Risk assurance procedures.D. Electronic commerce systems.

20-8


37. Under the attestation standards, in which of the following circumstances is a review report least likely to be issued? A. Criteria are agreed-upon or only available to specified users.B. Established criteria exist, but other criteria are used.C. The subject matter departs from the criteria.D. A significant limitation on the scope of the engagement has occurred.

38. To accept an engagement to examine a client's MD&A for annual financial statements, the practitioners ordinarily must have: A. Audited the most recent financial statement period to which the MD&A applies.B. Determined that the client reports to the Securities and Exchange Commission.C. Performed a detailed analysis of the client's controls over decision making.D. Reviewed the quarterly MD&A information.

39. A CPA who wishes to perform a WebTrust engagement need not: A. Agree to adhere to the WebTrust professional standards.B. Participate in a quality assurance program.C. Pass an examination on WebTrust principles and criteria.D. Take continuing education courses on the WebTrust program.

40. The five principles of a reliable system considered in a Trust Services engagement include, availability, security, processing integrity, online privacy, and: A. ControlB. Confidentiality.C. Relevance.D. Reliability.

41. When a CPA is associated with a forecast, all of the following should be disclosed except the: A. Sources of information.B. Character of the work performed by the CPA.C. Major assumptions in the preparation of the forecast.D. Probability of achieving estimates.

20-9


42. Which of the following is a prospective financial statement for general use upon which a practitioner may appropriately report? A. Financial projection.B. Partial presentation.C. Pro forma financial statement.D. Financial forecast.

43. The party responsible for assumptions identified in the preparation of prospective financial statements is usually: A. A third-party lending institution.B. The client's management.C. The reporting accountant.D. The client's independent auditor.

44. Given one or more hypothetical assumptions, a responsible party may prepare an entity's expected financial position, results of operations, and changes in financial position. Such prospective financial statements are known as: A. Pro forma financial statements.B. Financial projections.C. Partial Presentation.D. Financial forecasts.

45. Accepting an engagement to examine an entity's financial projection most likely would be appropriate if the projection were to be distributed to: A. All employees who work for the entity.B. Potential stockholders who request a prospectus or a registration statement.C. A bank with which the entity is negotiating for a loan.D. All stockholders of record as of the report date.

46. When an accountant compiles a financial forecast, the accountant's report should include a(an) A. Explanation of the differences between a financial forecast and a financial projection.B. Caveat that the prospective results of the financial forecast may not be achieved.C. Statement that the accountant's responsibility to update the report is limited to one year.D. Disclaimer of opinion on the reliability of the entity's internal controls.

20-10


Essay Questions

47. The Warren Corporation wants to enhance the market value of its stock by including in its annual report a financial forecast for the next year. They also would like to have their auditors examine the forecast. a. Define a financial forecast.b. Is an examination of a financial forecast similar in scope to a review of financial statements? Explain.

48. Practitioners may be engaged to attest to an entity's internal control over financial reporting. a. Comment on the accuracy of this statement: Accountants may be engaged to examine, review, or perform agreed-upon procedures on an entity's internal control over financial reporting.b. Describe the nature of the four paragraphs included in an accountant's examination report on internal control over financial reporting.c. Describe two circumstances in which practitioners would issue an examination report that is other than the unqualified standards report on internal control.

20-11


Chapter 20 Additional Assurance Services: Other Information Answer Key

True / False Questions

1. Assurance services improve the quality of information or its context for decision makers. TRUE

Difficulty: Easy

2. Attestation services are similar, but go beyond assurance services in scope of procedures and reporting. FALSE

Difficulty: Medium

3. Independence is required for the performance of all assurance services. TRUE

Difficulty: Medium

4. Practitioners may report on either an assertion about the subject matter, or on the subject matter for most attestation engagements. TRUE

Difficulty: Medium

5. Attestation risk, like audit risk consists of three components--inherent risk, control risk, and substantiation risk. FALSE

Difficulty: Medium

20-12


6. The attestation standards prohibit the examination of prospective financial statements. FALSE

Difficulty: Medium

7. A practitioner may be engaged to perform a review of management's discussion and analysis for an annual or an interim period. TRUE

Difficulty: Medium

8. A WebTrust seal assures consumers that they will be satisfied with their purchases. FALSE

Difficulty: Easy

9. Trust Services are a part of the AICPA's vision that increased trust in annual historical financial statements is necessary. FALSE

Difficulty: Medium

10. SysTrust engagements relate only to database systems. FALSE

Difficulty: Medium

Multiple Choice Questions

20-13


11. Which of the following is least likely to be included in an agreed-upon procedures attestation engagement report? A. The specified party takes responsibility for the sufficiency of procedures.B. Use of the report is restricted.C. Limited assurance on the information presented.D. A summary of procedures performed.

Difficulty: Medium

12. Conditions exist that result in a material deviation from the criteria against which the subject matter was evaluated during an examination performed following the attestation standards. The CPA's conclusion may be on:


Difficulty: Medium

13. Suitable criteria in an attestation engagement may be available:


Difficulty: Hard

20-14


14. When performing an attestation examination engagement, which of the following is not always required? A. Assertion.B. Practitioner independence.C. Subject matter.D. Suitable criteria.

Difficulty: Hard

15. Which of the following engagements is most likely to consider availability, security, integrity, and maintainability of a company's computer systems? A. Internal control over financial reporting.B. Trust Services.C. Website Asssociate.D. Financial statement audit.

Difficulty: Medium

16. Which of the following are Trust Services principles?


Difficulty: Hard

20-15


17. Which of the following is the least likely to be considered subject matter of an attestation engagement? A. Assertion.B. Behavior.C. Historical event.D. Systems and processes.

Difficulty: Medium

18. Arel, CPA, was engaged by a group of royalty recipients to apply agreed-upon procedures to financial data supplied by Modit Co. regarding Modit's written assertion about its compliance with contractual requirements to pay royalties. Arel's report on these agreed-upon procedures should contain a (an). A. Disclaimer of opinion about the fair presentation of Modit's financial statements.B. List of the procedures performed (or reference thereto) and Arel's findings.C. Opinion about the effectiveness of Modit's internal control activities concerning royalty payments.D. Acknowledgment that the sufficiency of the procedures is solely Arel's responsibility.

Difficulty: Medium

19. Assurance services performed for decision makers may address the:


Difficulty: Medium

20-16


20. Which of the following is not necessarily an attest engagement? A. An elder care engagement.B. A WebTrust engagement.C. An examination of internal control over financial reporting for a nonpublic company.D. A review of management's discussion and analysis.

Difficulty: Hard

21. Which of the following are required on all attestation engagements?


Difficulty: Medium

22. Which of the following is notcurrently an acceptable form of association with prospective financial statements? A. Compilation.B. Review.C. Agreed-upon procedures.D. Examination.

Difficulty: Medium

20-17


23. When a practitioner examines projected financial statements, the practitioner's report should include a separate paragraph that: A. Describes the limitations on the usefulness of the presentation.B. Provides an explanation of the differences between an examination and a review.C. States that the accountant is responsible for events and circumstances for a period not exceeding one year after the report's date.D. Disclaims an opinion on whether the assumptions provide a reasonable basis for the projection.

Difficulty: Hard

24. Which of the following is correct relating to an engagement to apply agreed-upon procedures to prospective financial statements? A. Use of the report is restricted to the specified users.B. Such engagements are permissible for forecasts but not for projections.C. Responsibility for the adequacy of the procedures performed is taken by the practitioner.D. Such engagements are not permissible under the professional standards.

Difficulty: Medium

25. When a financial forecast fails to disclose a significant assumption used to prepare that forecast, which of the following reports become appropriate?


Difficulty: Hard

20-18


26. When reporting upon a review engagements on an entity's management discussion and analysis, the report is ordinarily: A. A general use report.B. A restricted use report.C. Required to include a disclaimer of opinion.D. Included with the entity's report on internal control over financial reporting.

Difficulty: Medium

27. When management presents a written assertion on internal control effectiveness, it evaluates the company's internal control using reasonable criteria for internal control, referred to as. A. Control environment criteria.B. Tone criteria.C. Control criteriaD. Integrated criteria.

Difficulty: Easy

28. When compared to the consideration of internal control for purposes of an audit, an examination of management's assertion about the effectiveness of an entity's internal control for a nonpublic company may be expected to require a(n): A. Increased scope of tests of balances.B. Increased scope of tests of controls.C. Greater reliance upon analytical procedures.D. Increased emphasis on fairness of future presentation.

Difficulty: Hard

29. Which of the following is least likely to result in modification of an opinion on management's assertion about the effectiveness of an entity's internal control? A. Significant circumstance imposed scope limitations.B. Significant management imposed scope limitations.C. Reportable conditions that are not also material weaknesses in internal controlD. Material weaknesses in internal control.

Difficulty: Hard

20-19


30. Providing assurance using a series of reports provided simultaneously or shortly after the related information is released is referred to as: A. Continuous auditing.B. Serial auditing.C. Systems reliability auditing.D. Simultaneity auditing.

Difficulty: Easy

31. The organization established to identify, develop and communicate new assurance service opportunities is the: A. Assurance Services Executive Committee.B. Attestation Standards board.C. Auditing Standards Board.D. Counsel of Executives.

Difficulty: Medium

32. Many new services assurance services are performed in accordance with Statements on A. Standards for Attestation Services.B. Generally Accepted Assurance Standards.C. Auditing Standards.D. Accounting for other Assurance Services.

Difficulty: Medium

20-20


33. Independence is required when performing:


Difficulty: Medium

34. A practitioner's unqualified opinion based upon an examination may ordinarily be on:


Difficulty: Medium

35. Which attest engagement aligns most directly with a financial statement audit in terms of assurance provided? A. Agreed-upon procedures.B. Evaluation.C. Examination.D. Review.

Difficulty: Easy

20-21


36. The WebTrust engagement relates most directly to A. Financial statements maintained on the Internet.B. Health care facilities.C. Risk assurance procedures.D. Electronic commerce systems.

Difficulty: EasySource: AICPA

37. Under the attestation standards, in which of the following circumstances is a review report least likely to be issued? A. Criteria are agreed-upon or only available to specified users.B. Established criteria exist, but other criteria are used.C. The subject matter departs from the criteria.D. A significant limitation on the scope of the engagement has occurred.

Difficulty: Hard

38. To accept an engagement to examine a client's MD&A for annual financial statements, the practitioners ordinarily must have: A. Audited the most recent financial statement period to which the MD&A applies.B. Determined that the client reports to the Securities and Exchange Commission.C. Performed a detailed analysis of the client's controls over decision making.D. Reviewed the quarterly MD&A information.

Difficulty: Hard

39. A CPA who wishes to perform a WebTrust engagement need not: A. Agree to adhere to the WebTrust professional standards.B. Participate in a quality assurance program.C. Pass an examination on WebTrust principles and criteria.D. Take continuing education courses on the WebTrust program.

Difficulty: Medium

20-22


40. The five principles of a reliable system considered in a Trust Services engagement include, availability, security, processing integrity, online privacy, and: A. ControlB. Confidentiality.C. Relevance.D. Reliability.

Difficulty: Medium

41. When a CPA is associated with a forecast, all of the following should be disclosed except the: A. Sources of information.B. Character of the work performed by the CPA.C. Major assumptions in the preparation of the forecast.D. Probability of achieving estimates.

Difficulty: MediumSource: AICPA

42. Which of the following is a prospective financial statement for general use upon which a practitioner may appropriately report? A. Financial projection.B. Partial presentation.C. Pro forma financial statement.D. Financial forecast.


43. The party responsible for assumptions identified in the preparation of prospective financial statements is usually: A. A third-party lending institution.B. The client's management.C. The reporting accountant.D. The client's independent auditor.

Difficulty: EasySource: AICPA

20-23


44. Given one or more hypothetical assumptions, a responsible party may prepare an entity's expected financial position, results of operations, and changes in financial position. Such prospective financial statements are known as: A. Pro forma financial statements.B. Financial projections.C. Partial Presentation.D. Financial forecasts.


45. Accepting an engagement to examine an entity's financial projection most likely would be appropriate if the projection were to be distributed to: A. All employees who work for the entity.B. Potential stockholders who request a prospectus or a registration statement.C. A bank with which the entity is negotiating for a loan.D. All stockholders of record as of the report date.

Difficulty: HardSource: AICPA

46. When an accountant compiles a financial forecast, the accountant's report should include a(an) A. Explanation of the differences between a financial forecast and a financial projection.B. Caveat that the prospective results of the financial forecast may not be achieved.C. Statement that the accountant's responsibility to update the report is limited to one year.D. Disclaimer of opinion on the reliability of the entity's internal controls.


20-24


Essay Questions

47. The Warren Corporation wants to enhance the market value of its stock by including in its annual report a financial forecast for the next year. They also would like to have their auditors examine the forecast. a. Define a financial forecast.b. Is an examination of a financial forecast similar in scope to a review of financial statements? Explain.

a. A financial forecast is "an estimate of the most probable financial position, results of operations, and changes in financial position for one or more future periods."b. No. An examination of a financial forecast involves an extensive examination of the assumptions underlying the forecast, to satisfy the CPAs that management has identified all key assumptions and that the assumptions are suitably supported.

Difficulty: Medium

20-25


48. Practitioners may be engaged to attest to an entity's internal control over financial reporting. a. Comment on the accuracy of this statement: Accountants may be engaged to examine, review, or perform agreed-upon procedures on an entity's internal control over financial reporting.b. Describe the nature of the four paragraphs included in an accountant's examination report on internal control over financial reporting.c. Describe two circumstances in which practitioners would issue an examination report that is other than the unqualified standards report on internal control.

a. A CPA may examine or perform agreed-upon procedures on an entity's internal control over financial reporting, but a review of this information is not allowed.b. A CPA's report on internal control contained the following four paragraphs: The first paragraph is an introductory paragraph that describes the assertion being examined. The second paragraph is a scope paragraph that describes the nature of an examination of an entity's internal control over financial reporting. The third paragraph describes the inherent limitations of internal control. The fourth paragraph expresses the CPA's opinion on management's assertion about internal control.c. Internal control reports are modified for the following reasons (only two required): A qualified report is issued when the scope of the accountant's procedures has been restricted. A disclaimer of opinion is issued when the scope of the accountant's procedures has been restricted by the client, or severely limited by the circumstances. An adverse report is issued when the accountants become aware of a material weakness that is not acknowledged in management's report. A modified report is issued when the accountants become aware of a material weakness that is acknowledged in management's report.

Difficulty: Medium

20-26

chapter 20 additional assurance services: other … · web viewchapter 20 additional assurance...

Documents