Question 1

As part of the review engagement for a small manufacturing company, which of the following would be a typical review procedure for the sales cycle?

Accepted Answer

A)  review of internal controls over the granting of credit 
B)  examination of sales documents to ensure credit approval is documented 
C)  recalculation of the taxes and extensions on a sample of invoices 
D)  comparison of sales and gross profit to the prior year 
A)  review of internal controls over the granting of credit 
B)  examination of sales documents to ensure credit approval is documented 
C)  recalculation of the taxes and extensions on a sample of invoices 
D)  comparison of sales and gross profit to the prior year

Question 2

Define "assurance engagements."

Accepted Answer

An assurance engagement is "an engagemen

Question 3

What is the title of a compilation report?

Accepted Answer

A)  Opinion 
B)  Criteria Schedule 
C)  Engagement Report 
D)  Notice to Reader 
A)  Opinion 
B)  Criteria Schedule 
C)  Engagement Report 
D)  Notice to Reader

Question 4

Four different engagements that the auditor can complete are compilation, bookkeeping, audit, and review. Rank these engagements with respect to the level of assurance provided from highest assurance level to lowest assurance level.

Accepted Answer

A)  audit, review, compilation, bookkeeping 
B)  audit, compilation, review, bookkeeping 
C)  review, audit, compilation, bookkeeping 
D)  review, audit, bookkeeping, compilation 
A)  audit, review, compilation, bookkeeping 
B)  audit, compilation, review, bookkeeping 
C)  review, audit, compilation, bookkeeping 
D)  review, audit, bookkeeping, compilation

Question 5

Identify the reporting standards for compilation engagements.

Accepted Answer

•state that the public accountant compil

Question 6

Sean Clem has done a review engagement and prepared the tax return for your web design business for the last five years. The books and records have always been well organized, although year-end adjusting entries have been required. You do some of the accounting yourself and the rest of the accounting records are handled by your spouse, who is also an employee of the business.
This year, you would like to expand your business to provide ISP (internet service provider) services to your clients. This would involve purchasing additional computer equipment and software. You are also considering hiring an additional employee (you currently have three), and you are looking at obtaining a loan for $100 000 from the bank. The bank says that you should have your records audited, but you are not sure what this will mean.
Required:
What would Sean say to you about the differences between an audit and a review?

Accepted Answer

•An audit has a higher degree of assuran

Question 7

Leon Levy, a partner at the audit firm where you work, asked you to work on the audit of the balance sheet of Geminy Corp. Geminy is not a public company and has not been required to have audited financial statements in the past. This year, due to a new bank loan, its bank requested that audited financial statements be provided. Who are the primary users in this assurance engagement?

Accepted Answer

A)  Leon Levy 
B)  the bank 
C)  management of Geminy Corp 
D)  shareholders of Geminy Corp 
A)  Leon Levy 
B)  the bank 
C)  management of Geminy Corp 
D)  shareholders of Geminy Corp

Question 8

When conducting a review engagement, how is materiality calculated?

Accepted Answer

A)  materiality is not calculated as a lower level of assurance is being provided 
B)  the concept of significance is used, rather than the concept of materiality 
C)  always as a percentage of net income before income taxes 
D)  in the same manner as an audit engagement 
A)  materiality is not calculated as a lower level of assurance is being provided 
B)  the concept of significance is used, rather than the concept of materiality 
C)  always as a percentage of net income before income taxes 
D)  in the same manner as an audit engagement

Question 9

For the conduct of an assurance engagement, the practitioner is required to identify or develop criteria to evaluate the subject matter. Identify some characteristics of suitable criteria.

Accepted Answer

A)  relevance, reliability, neutrality, understandability, completeness 
B)  reliability, accuracy, neutrality, timeliness 
C)  understandability, completeness, timeliness, free from bias 
D)  completeness, timeliness, free from bias, competent 
A)  relevance, reliability, neutrality, understandability, completeness 
B)  reliability, accuracy, neutrality, timeliness 
C)  understandability, completeness, timeliness, free from bias 
D)  completeness, timeliness, free from bias, competent

Question 10

With respect to working on an engagement to examine a financial forecast or projection included in a prospectus or other public offering document, the public accountant and the client should agree upon

Accepted Answer

A)  allocation of the responsibility of creating the assumptions to the public accountant. 
B)  the period of time to be covered. 
C)  delegation of forecast preparation to the public accountant. 
D)  the fact that the forecast may not be prepared in accordance with standards. 
A)  allocation of the responsibility of creating the assumptions to the public accountant. 
B)  the period of time to be covered. 
C)  delegation of forecast preparation to the public accountant. 
D)  the fact that the forecast may not be prepared in accordance with standards.

Question 11

Why is it important for the review engagement report to state that the review is not an audit?

Accepted Answer

A)  to make sure that the public accountant is not sued 
B)  to clarify that only review engagement procedures were used during the engagement 
C)  to make users aware that a review provides a lower level of assurance 
D)  so that the user does not ask any unnecessary questions about the engagement 
A)  to make sure that the public accountant is not sued 
B)  to clarify that only review engagement procedures were used during the engagement 
C)  to make users aware that a review provides a lower level of assurance 
D)  so that the user does not ask any unnecessary questions about the engagement

Question 12

Always Quick Manufacturing Limited is a small business that manufactures metal and plastic components for a variety of industries. The bulk of the business is in the computing industry, although it has occasional contracts for the automotive industry.
Jose, the owner, would like to expand the business so that he can bid on larger contracts. This requires an investment of about $500 000 to finance capital assets and about $300 000 for a working capital loan. Jose has financed the business himself to this point and has been given some alternatives by the bank.
The alternatives pertain to which assets are used as guarantees and whether Jose also guarantees the loans personally (as he has substantial personal assets). The bank also stated that if Jose personally guarantees the loan, the company will only require a review engagement, whereas if the loan is only secured by corporate assets, an audit of the company will be required.
Jose understands the differences among the guarantees but is not sure about the difference between a review and and audit engagement. Presently, the company financial statements are prepared using a compilation engagement.
Required:
Explain to Jose the difference between a review and an audit engagement in the context of his present compilation engagement.

Accepted Answer

The compilation engagement does not prov

Question 13

Before performing a review of an entity's financial statements, an accountant should

Accepted Answer

A)  complete a series of inquiries concerning the entity's procedures for recording, classifying, and summarizing transactions. 
B)  apply analytical procedures to provide limited assurance that no material modifications should be made to the financial statements. 
C)  obtain a sufficient level of knowledge of the accounting principles and practices of the industry in which the entity operates. 
D)  inquire whether management has omitted substantially all of the disclosures required by generally accepted accounting principles. 
A)  complete a series of inquiries concerning the entity's procedures for recording, classifying, and summarizing transactions. 
B)  apply analytical procedures to provide limited assurance that no material modifications should be made to the financial statements. 
C)  obtain a sufficient level of knowledge of the accounting principles and practices of the industry in which the entity operates. 
D)  inquire whether management has omitted substantially all of the disclosures required by generally accepted accounting principles.

Question 14

You have just signed off the audit report on the financial statements of your client. What type of engagement did you complete?

Accepted Answer

A)  review 
B)  direct reporting 
C)  attest and assurance 
D)  operational 
A)  review 
B)  direct reporting 
C)  attest and assurance 
D)  operational

Question 15

The fact that a client has a material accounting departure for failure to follow ASPE would require the accountant to disclose that fact in a separate reservation paragraph when the accountant is performing

Accepted Answer

A)  a compilation. 
B)  a review and an audit. 
C)  either a compilation or a review. 
D)  neither a compilation nor a review, only an audit. 
A)  a compilation. 
B)  a review and an audit. 
C)  either a compilation or a review. 
D)  neither a compilation nor a review, only an audit.

Question 16

A public accounting firm can issue a compilation report

Accepted Answer

A)  only if the partners are independent. 
B)  only if all the partners and the staff in the office performing the engagement are independent. 
C)  if the partners have no material or direct immaterial interest in client. 
D)  even if it is not independent. 
A)  only if the partners are independent. 
B)  only if all the partners and the staff in the office performing the engagement are independent. 
C)  if the partners have no material or direct immaterial interest in client. 
D)  even if it is not independent.

Question 17

When assessing the plausibility of the financial statements for a review engagement, the auditor will use which of the following criteria for auditing a small, privately held company?

Accepted Answer

A)  standards of efficiency and effectiveness 
B)  the audit objectives associated with the audit of financial statements 
C)  an acceptable reporting framework such as ASPE 
D)  an enterprise risk-management framework to help detect fraud 
A)  standards of efficiency and effectiveness 
B)  the audit objectives associated with the audit of financial statements 
C)  an acceptable reporting framework such as ASPE 
D)  an enterprise risk-management framework to help detect fraud

Question 18

The statement that "nothing came to our attention that would indicate that these statements are not fairly presented" expresses which of the following?

Accepted Answer

A)  disclaimer of an opinion 
B)  negative assurance 
C)  negative confirmation 
D)  piecemeal opinion 
A)  disclaimer of an opinion 
B)  negative assurance 
C)  negative confirmation 
D)  piecemeal opinion

Question 19

The level of assurance that is provided by the public accountant on a compilation report is

Accepted Answer

A)  none. 
B)  low. 
C)  medium. 
D)  high. 
A)  none. 
B)  low. 
C)  medium. 
D)  high.

Question 20

Which of the following would be required in a compilation?

Accepted Answer

A)  an understanding between the client and the accountant for the services to be provided 
B)  a formal engagement letter signed by the client 
C)  management's acknowledgements for its responsibility with regards to the financial statements 
D)  a confirmation of the auditor's independence 
A)  an understanding between the client and the accountant for the services to be provided 
B)  a formal engagement letter signed by the client 
C)  management's acknowledgements for its responsibility with regards to the financial statements 
D)  a confirmation of the auditor's independence

As part of the review engagement for a small manufacturing company, which of the following would be a typical review procedure for the sales cycle?

Define "assurance engagements."

What is the title of a compilation report?

Four different engagements that the auditor can complete are compilation, bookkeeping, audit, and review. Rank these engagements with respect to the level of assurance provided from highest assurance level to lowest assurance level.

Identify the reporting standards for compilation engagements.

When conducting a review engagement, how is materiality calculated?

For the conduct of an assurance engagement, the practitioner is required to identify or develop criteria to evaluate the subject matter. Identify some characteristics of suitable criteria.

With respect to working on an engagement to examine a financial forecast or projection included in a prospectus or other public offering document, the public accountant and the client should agree upon

Why is it important for the review engagement report to state that the review is not an audit?

Before performing a review of an entity's financial statements, an accountant should

You have just signed off the audit report on the financial statements of your client. What type of engagement did you complete?

The fact that a client has a material accounting departure for failure to follow ASPE would require the accountant to disclose that fact in a separate reservation paragraph when the accountant is performing

A public accounting firm can issue a compilation report

When assessing the plausibility of the financial statements for a review engagement, the auditor will use which of the following criteria for auditing a small, privately held company?

The statement that "nothing came to our attention that would indicate that these statements are not fairly presented" expresses which of the following?

The level of assurance that is provided by the public accountant on a compilation report is

Which of the following would be required in a compilation?

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Audit Responsibilities and Objectives

Client Acceptance and Planning the Audit

Materiality and Risk

Internal Controls and Control Risk

Audit Evidence

Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Filters

Exam 20: Other Assurance and Nonassurance Services

As part of the review engagement for a small manufacturing company, which of the following would be a typical review procedure for the sales cycle?

Define "assurance engagements."

What is the title of a compilation report?

Four different engagements that the auditor can complete are compilation, bookkeeping, audit, and review. Rank these engagements with respect to the level of assurance provided from highest assurance level to lowest assurance level.

Identify the reporting standards for compilation engagements.

When conducting a review engagement, how is materiality calculated?

For the conduct of an assurance engagement, the practitioner is required to identify or develop criteria to evaluate the subject matter. Identify some characteristics of suitable criteria.

With respect to working on an engagement to examine a financial forecast or projection included in a prospectus or other public offering document, the public accountant and the client should agree upon

Why is it important for the review engagement report to state that the review is not an audit?

Before performing a review of an entity's financial statements, an accountant should

You have just signed off the audit report on the financial statements of your client. What type of engagement did you complete?

The fact that a client has a material accounting departure for failure to follow ASPE would require the accountant to disclose that fact in a separate reservation paragraph when the accountant is performing

A public accounting firm can issue a compilation report

When assessing the plausibility of the financial statements for a review engagement, the auditor will use which of the following criteria for auditing a small, privately held company?

The statement that "nothing came to our attention that would indicate that these statements are not fairly presented" expresses which of the following?

The level of assurance that is provided by the public accountant on a compilation report is

Which of the following would be required in a compilation?

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Legal Liability

Professional Judgment and Ethics

Audit Responsibilities and Objectives

Client Acceptance and Planning the Audit

Materiality and Risk

Internal Controls and Control Risk

Audit Evidence

Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Filters