Chapter 20 - Additional Assurance Services: Other Information Chapter 20 Additional Assurance Services: Other Information True / False Questions Assurance services improve the quality of information or its context for decision makers True False Attestation services are similar, but go beyond assurance services in scope of procedures and reporting True False Independence is required for the performance of all assurance services True False Practitioners may report on either an assertion about the subject matter, or on the subject matter for most attestation engagements True False Attestation risk, like audit risk consists of three components inherent risk, control risk, and substantiation risk True False The attestation standards prohibit the examination of prospective financial statements True False 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 Chapter 20 - Additional Assurance Services: Other Information A WebTrust seal assures consumers that they will be satisfied with their purchases True False 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 A B Option B C Option C D Option D 20-2 Chapter 20 - Additional Assurance Services: Other Information 13 Suitable criteria in an attestation engagement may be available: A Option A B Option B C Option C D Option D 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? A Option A B Option B C Option C D Option D 20-3 Chapter 20 - Additional Assurance Services: Other Information 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: A Option A B Option B C Option C D Option D 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 Chapter 20 - Additional Assurance Services: Other Information 21 Which of the following are required on all attestation engagements? A Option A B Option B C Option C D Option D 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 Chapter 20 - Additional Assurance Services: Other Information 25 When a financial forecast fails to disclose a significant assumption used to prepare that forecast, which of the following reports become appropriate? A Option A B Option B C Option C D Option D 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 criteria D 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 Chapter 20 - Additional Assurance Services: Other Information 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 control D 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 Chapter 20 - Additional Assurance Services: Other Information 33 Independence is required when performing: A Option A B Option B C Option C D Option D 34 A practitioner's unqualified opinion based upon an examination may ordinarily be on: A Option A B Option B C Option C D Option D 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 Chapter 20 - Additional Assurance Services: Other Information 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 Control B 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 Chapter 20 - Additional Assurance Services: Other Information 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 Chapter 20 - Additional Assurance Services: Other Information Chapter 20 Additional Assurance Services: Other Information Answer Key True / False Questions Assurance services improve the quality of information or its context for decision makers TRUE Difficulty: Easy Attestation services are similar, but go beyond assurance services in scope of procedures and reporting FALSE Difficulty: Medium Independence is required for the performance of all assurance services TRUE Difficulty: Medium Practitioners may report on either an assertion about the subject matter, or on the subject matter for most attestation engagements TRUE Difficulty: Medium Attestation risk, like audit risk consists of three components inherent risk, control risk, and substantiation risk FALSE Difficulty: Medium 20-12 Chapter 20 - Additional Assurance Services: Other Information The attestation standards prohibit the examination of prospective financial statements FALSE Difficulty: Medium 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 A WebTrust seal assures consumers that they will be satisfied with their purchases FALSE Difficulty: Easy 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 Chapter 20 - Additional Assurance Services: Other Information 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: A Option A B Option B C Option C D Option D Difficulty: Medium 13 Suitable criteria in an attestation engagement may be available: A Option A B Option B C Option C D Option D Difficulty: Hard 20-14 Chapter 20 - Additional Assurance Services: Other Information 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? A Option A B Option B C Option C D Option D Difficulty: Hard 20-15 Chapter 20 - Additional Assurance Services: Other Information 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: A Option A B Option B C Option C D Option D Difficulty: Medium 20-16 Chapter 20 - Additional Assurance Services: Other Information 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? A Option A B Option B C Option C D Option D 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 Chapter 20 - Additional Assurance Services: Other Information 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? A Option A B Option B C Option C D Option D Difficulty: Hard 20-18 Chapter 20 - Additional Assurance Services: Other Information 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 criteria D 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 control D Material weaknesses in internal control Difficulty: Hard 20-19 Chapter 20 - Additional Assurance Services: Other Information 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 Chapter 20 - Additional Assurance Services: Other Information 33 Independence is required when performing: A Option A B Option B C Option C D Option D Difficulty: Medium 34 A practitioner's unqualified opinion based upon an examination may ordinarily be on: A Option A B Option B C Option C D Option D 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 Chapter 20 - Additional Assurance Services: Other Information 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: Easy Source: 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 Chapter 20 - Additional Assurance Services: Other Information 40 The five principles of a reliable system considered in a Trust Services engagement include, availability, security, processing integrity, online privacy, and: A Control B 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: Medium Source: 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 Difficulty: Medium Source: AICPA 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: Easy Source: AICPA 20-23 Chapter 20 - Additional Assurance Services: Other Information 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 Difficulty: Medium Source: AICPA 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: Hard Source: 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 Difficulty: Medium Source: AICPA 20-24 Chapter 20 - Additional Assurance Services: Other Information 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 Chapter 20 - Additional Assurance Services: Other Information 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 ... that is other than the unqualified standards report on internal control 20- 11 Chapter 20 - Additional Assurance Services: Other Information Chapter 20 Additional Assurance Services: Other Information... 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 Chapter 20 - Additional. .. Standards C Auditing Standards D Accounting for other Assurance Services Difficulty: Medium 20- 20 Chapter 20 - Additional Assurance Services: Other Information 33 Independence is required when