QUIZ 3 REV 5 - FINALS

A study and evaluation of internal control made in connection with an annual audit is usually not sufficient

to express an opinion on an entity's internal control because

• Weaknesses in the system may go unnoticed during the audit engagement.

• A study and evaluation of internal control is not necessarily made during an audit engagement.

• Only those controls of interest to the auditor are reviewed, tested, and evaluated.

• Internal controls can change each year.

Of the following statements, which one does not describe a distinction between the auditing standards and the attestation standards?

• Unlike the auditing standards, the attestation standards do not require the auditor to obtain an understanding of the client's internal control system.

• The attestation standards are broader in coverage than the auditing standards.

• In performing an attest engagement, the CPA need not be independent.

• In an attest engagement, unlike an audit, generally accepted accounting principles are not the standard used to measure the reasonableness of assertions.

A CPA may accept an engagement to apply agreed-upon procedures to prospective financial statements provided

• All parties have agreed on the procedures to be applied.

• The CPA has previously audited the entity for which the agreed-upon procedures are to be applied.

• Users have participated in establishing the nature and scope of the engagement, distribution of the report is limited to the users involved, and the prospective statements include a summary of significant assumptions.

• The set of agreed-upon procedures include, at a minimum, a study and evaluation of the existing internal control.

Which of the following is not a distinction between a compilation and a review?

• The CPA must be independent as a prerequisite to performing a review engagement, but need not be independent to perform a compilation.

• In conducting a review, the CPA must obtain an understanding of the client's internal control system; but this is not necessary for a compilation engagement.

• Analytical procedures are applied in a review engagement, but are not required in a compilation.

• A compilation offers no assurance, whereas a review provides limited assurance.

Which of the following statements best distinguishes a forecast from a projection?

• A forecast contains one or more hypotheticaL assumptions, whereas a projection reflects conditions expected to exist.

• A projection is appropriate for general distribution to third parties, whereas a forecast is more tentative and should be restricted to those parties with whom the client is negotiating directly.

• The CPA may review a financial forecast, but may only compile a projection.

• A forecast reflects conditions expected to exist, whereas a projection presents financial position, results of operations, and cash flows given one or more hypothetical assumptions.

An accountant who reviews the financial statements of a non-public entity should issue a report stating that a review

• Is substantially less in scope than an audit.

• Provides negative assurance that the internal control system is functioning as designed.

• Provides only limited assurance that the financial statements are fairly presented.

• Is substantially more in scope than a compilation.

Of the following statements, which one is not a precondition for performing attest services?

• The practitioner must be a certified public accountant.

• The practitioner must have adequate knowledge of the subject matter.

• There are reasonable measurement and disclosure criteria concerning the subject matter.

• The assertions are capable of reasonably consistent estimation or measurement using such criteria.

In which of the following reports should a CPA not express negative or limited assurance?

• A standard compilation report on financial statements of a non-public entity.

• A standard review report on financial statements of a non-public entity.

• A standard review report on interim financial statements of a public entity.

• A standard comfort letter on financial information included in a registration statement of a public entity.

Comfort letters are ordinarily signed by the

• Client.

• Client's lawyer.

• Independent auditor.

• Internal auditor.

The objective of a review of interim financial information is to provide the accountant with a basis for reporting whether

• A reasonable basis exists for expressing an updated opinion regarding the financial statements that were previously audited.

• Material modifications should be made to conform with generally accepted accounting principles.

• The financial statements are presented fairly in accordance with standards of interim reporting.

• The financial statements are presented fairly in accordance with generally accepted accounting principles.