Chapter 19 Additional Assurance Services Historical Financial Inf

Chapter 19 - Additional Assurance Services: Historical Financial Information
Chapter 19
Additional Assurance Services: Historical Financial Information
True / False Questions
1. An audit opinion on cash basis financial statements is an example of a special report.

True False
2. The balance sheet for an individual may be titled a Statement of Financial Condition.
True False
3. The auditors should take exception to assets presented at their estimate current values in
personal financial statements.
True False
4. Personal financial statements may be compiled or reviewed, but they should not be
audited.
True False
5. A compilation of financial statement provides limited assurance regarding the financial

statements.
True False
6. Compiled financial statements may omit note disclosures.

True False
7. The auditors must issue a compilation report if they prepare a client's financial statements
and submit them to a client who intends to use them for external purposes.
True False
19-1
8. In a compilation report on a prescribed form, the accountants should take exception to all
departures from generally accepted accounting principles.
True False
9. Letters to underwriters should not contain negative assurances.

True False
10. When a U.S.-based organization prepares financial statements which are for use in another
country, a U.S. report, modified to reflect the accounting principles of the other country, may
be issued.
True False
Multiple Choice Questions
11. Which of the following is correct relating to compiled financial statements when third
party reliance upon those statements is anticipated?
A. A compilation report must be issued.
B. Omission of note disclosures is unacceptable.
C. A written engagement letter is required.
D. Each page of the financial statements should have a restriction such as "Restricted for
Management's Use Only".
12. Which communication option(s) may be used when an accountant submits compiled
financial statements to be used only by management?
A. Option A
B. Option B
C. Option C
D. Option D
19-2
13. A compilation report is not required when compiled financial statements are expected to
be used by:
A. Management only.
B. Management and third parties.
C. Third parties only.
D. A compilation report is required whenever financial statements are compiled.
14. It is the end of his client's first quarter and Bill Smith, CPA is performing a compilation of
his client's interim financial statements. He has discovered that the client does not wish to
present notes to the financial statements. The appropriate CPA report includes:
A. Qualified opinion ("subject to" the omission of the notes).
B. Compilation report with an adverse opinion due to inadequate disclosure.
C. Standard compilation report.
D. Compilation report with an indication that all required disclosures under GAAP may not be
presented with the statements.
15. An accountant's standard report issued after compiling the financial statements of a
nonpublic entity should state that
A. I am not aware of any material modifications that should be made to the accompanying
financial statements.
B. A compilation consists principally of inquiries of company personnel and analytical
procedures.
C. A compilation is limited to presenting in the form of financial statements information that
is the representation of management.
D. A compilation is substantially less in scope than an audit in accordance with GAAS, the
objective of which is the expression of an opinion.
16. Which of the following procedures is usually the first step in reviewing the financial
statements of a nonpublic entity?
A. Make preliminary judgments about risk and materiality to determine the scope and nature
of the procedures to be performed.
B. Obtain a general understanding of the entity's organization, its operating characteristics,
and its products or services.
C. Assess the risk of material misstatement arising from fraudulent financial reporting and the
misappropriation of assets.
D. Perform a preliminary assessment of the operating efficiency of the entity's internal control
activities.
19-3
17. Which of the following would be used on a review engagement?

A. Examination of board minutes.
B. Confirmation of cash and accounts receivable.
C. Comparison of current-year to prior-year account balances.
D. Recalculation of depreciation expense.
18. Which of the following is correct concerning financial statements prepared in the United
States for use in another country?
A. The auditor must follow GAAP of both the United States and of the other country.
B. The type of audit report issued depends upon whether it is for use primarily outside the
United States.
C. The audit must only follow US GAAP.
D. Auditors from the other country must be involved with the audit to assure adequate
performance of that country's standards.
19. For a CPA, a client imposed scope limitation during a review of financial statements is
most likely to result in:
A. Resignation from the engagement.
B. Issuance of a disclaimer of opinion.
C. Issuance of an adverse opinion.
D. Only an explanatory paragraph added to report, with no change in the assurance provided.
20. Interim information of public companies.

A. Must be as comprehensive as that filed annually with the Securities and Exchange
Commission.
B. Must be reviewed by CPAs before it is filed with the Securities and Exchange
Commission.
C. Must be reviewed continuously by CPAs using continuous auditing techniques.
D. Requires no accountant association until it becomes a part of the companies' annual
financial information.
19-4
21. In which of the following types of reports do the auditors express negative assurance?
A. Letters for underwriters.
B. Reports on audits of financial statements on a comprehensive basis other than generally
accepted accounting principles.
C. Reports on audits of specified accounts.
D. Reports on condensed financial statements.
22. An assertion that is particularly difficult to audit with respect to personal financial
statements is:
A. Existence.
B. Rights.
C. Completeness.
D. Legality.
23. In which of the following types of reports do accountants provide no explicit assurance?
A. Compilations.
B. Reviews.
C. Examinations.
D. Audits.
24. Which of the following types of services is most likely to result in a restricted use report?
A. Compilations.
B. Reviews.
C. Agreed-upon procedures.
D. Audits.
25. A practitioner's report on agreed-upon procedures that is in the form of procedures and
findings should contain
A. Negative assurance that the procedures did not necessarily disclose all reportable
conditions.
B. An acknowledgment of the practitioner's responsibility for the sufficiency of the
procedures.
C. A statement of restrictions on the use of the report.
D. A disclaimer of opinion on the entity's financial statements.
19-5
26. Which of the following statements is correct with respect to an audit report issued for
financial statements to be used primarily outside of the United States?
A. The report should follow the U.S. format, modified as appropriate.
B. The report should follow the format of the other country.
C. The report may follow either the U.S. format, modified as appropriate, or may follow the
format of the other country.
D. The report should follow the attestation examination report format.
27. A "comfort letter" to an investment banking firm will normally not:

A. Express negative assurance.
B. Be included with the registration statement for the securities.
C. Include the CPA's opinion as to whether the audited financial statements comply in all
material respects with applicable requirements of the related securities acts.
D. Include a statement as to the auditors' independence.
28. When the auditors are associated with the financial statements of a public company, but
have not audited the financial statements, they should:
A. Issue a compilation report.
B. Issue a disclaimer of opinion.
C. Issue a qualified opinion.
D. Not issue any report.
29. Which of the following is an appropriate form of report for auditors who have audited the
financial statements of a company when they are not independent?
A. A simple disclaimer of opinion.
B. A disclaimer of opinion, with an indication of the lack of independence.
C. An audit opinion.
D. A qualified audit opinion.
30. Which of the following does not result in a modification of a compilation report?
A. A lack of independence on the part of the auditors.
B. A departure from generally accepted accounting principles.
C. A lack of adequate disclosure in the financial statements.
D. A lack of consistent application of generally accepted accounting principles.
19-6
31. Which of the following requires modification of a review report:

A. A change in accounting principles.
B. A substantial doubt about a company's ability to continue as a going concern.
C. A departure from generally accepted accounting principles.
D. A change in an accounting estimate.
32. Which of the following is correct when a company is issuing condensed financial
statements developed from audited financial statements?
A. Such condensed statements should always have a CPA's report associated with them when
audited financial statements exist.
B. The CPA may issue a report on whether the condensed information is fairly stated in all
material respects in relation to the basic financial statements.
C. The CPA should perform a compilation and review of the condensed financial statements.
D. The CPA who has audited the financial statements who is asked to report on the condensed
statements should decline the engagement because the condensed statements do not include
all disclosures necessary under generally accepted accounting principles.
33. Financial statements that are developed from and summarize the overall information
presented in audited financial statements are referred to as
A. Agreed-upon procedure financial statements.
B. Compiled financial statements.
C. Condensed financial statements.
D. Reviewed financial statements.
34. The term "special reports" may include all of the following except reports on financial
statements:
A. Of a partnership which follows accounting practices used to file its tax return.
B. Prepared for limited purposes such as a report that relates to certain aspects of financial
statements.
C. Of an organization that has limited the scope of the auditor's examination.
D. Of an organization which maintains its accounts and prepares its statements on a cash or
other comprehensive basis of accounting which is materially at variance with accounting
practices customarily followed in preparing accrual-basis statements.
19-7
35. Whenever special reports, filed on a printed form designed by authorities, call upon the
independent auditors to make an assertion that the auditors believe is notjustified, the auditors
should:
A. Submit a short-form report with explanations.
B. Reword the form or attach a separate report.
C. Submit the form with questionable items clearly omitted.
D. Withdraw from the engagement.
36. During a review of the financial statements of a non-public entity, the CPA finds that the
financial statements contain a material departure from generally accepted accounting
principles. If management refuses to correct the financial statement presentations, the CPA
should:
A. Disclose the departure in a separate paragraph of the report.
B. Issue an adverse opinion.
C. Attach a note explaining the effects of the departure.
D. Issue a compilation report.
37. The accountants' compilation report should be dated as of the date of:
A. Completion of fieldwork.
B. Completion of the compilation.
C. Transmittal of the compilation report.
D. The latest subsequent event referred to in the notes to the financial statements.
38. A modification of the CPA's report on a review of the interim financial statements of a
publicly-held company would be necessitated by which of the following?
A. An uncertainty.
B. Lack of consistency.
C. Reference to another accountant.
D. Inadequate disclosure.
19-8
39. A CPA should not normally refer to which one of the following subjects in a "comfort
letter" to underwriters?
A. The independence of the CPA.
B. Changes in financial-statement items during a period subsequent to the date and period of
the latest financial statements in the registration statement.
C. Unaudited financial statements and schedules in the registration statement.
D. Management's determination of line of business classifications.
40. Inquiry and analytical procedures ordinarily performed during a review of a nonpublic
entity's financial statements include:
A. Analytical procedures designed to identify reportable conditions related to internal control.
B. Inquiries concerning actions taken at meetings of the stockholders and the board of
directors.
C. Analytical procedures designed to test the accounting records by obtaining corroborating
evidential matter.
D. Inquiries of knowledgeable outside parties such as the client's attorneys and bankers.
41. Which of the following would not be included in a CPA's report based upon a review of
the financial statements of a nonpublic entity?
A. A statement that the review was in accordance with generally accepted auditing standards.
B. A statement that all information included in the financial statements are the representations
of management.
C. A statement describing the nature of the procedures performed.
D. A statement describing the auditor's conclusions based upon the results of the review.
42. The objective of a review of interim financial information is to provide the accountant
with a basis for reporting whether:
A. A reasonable basis exists for expressing an updated opinion regarding the financial
statements that were previously audited.
B. Material modifications should be made to conform with generally accepted accounting
principles.
C. The financial statements are presented fairly in accordance with standards of interim
reporting.
D. The financial statements are presented fairly in accordance with generally accepted
accounting principles.
19-9
43. If the auditor believes that financial statements prepared on the entity's income tax basis
are not suitably titled, the auditor should:
A. Issue a disclaimer of opinion.
B. Explain in the notes to the financial statements the terminology used.
C. Issue a compilation report.
D. Modify the auditor's report to disclose any reservations.
44. An auditor's report on financial statements prepared in accordance with a comprehensive

basis of accounting other than generally accepted accounting principles should include all of
the following except:
A. Reference to the note to the financial statements that describes the basis of preparation of
the financial statements.
B. Disclosure that the audit was performed in accordance with generally accepted auditing
standards.
C. An opinion as to whether the basis of accounting used is appropriate under the
circumstances.
D. An opinion as to whether the financial statements are presented fairly in conformity with
the basis of accounting described.
45. When an auditor reports on financial statements prepared on an entity's income tax basis,
the auditor's report should:
A. Disclose that the income tax basis is a comprehensive basis of accounting other than
generally accepted accounting principles.
B. Disclaim an opinion on whether the statements were examined in accordance with
generally accepted auditing standards.
C. Not express an opinion on whether the statements are presented in conformity with the
comprehensive basis of accounting used.
D. Include an explanation of how the results of operations differ from the cash receipts and
disbursements basis of accounting.
19-10
46. An auditor's report would be designated as a special report when it is issued in connection
with financial statements that are:
A. For an interim period and are subjected to a review.
B. Unaudited and are prepared from a client's accounting records.
C. Prepared in accordance with a comprehensive basis of accounting other than generally
D. Purported to be in accordance with generally accepted accounting principles but do not
include a presentation of the statement of cash flows.
47. The underwriter of a securities offering may request that an auditor perform specified
procedures and supply certain assurances concerning unaudited information contained in a
registration statement. The auditor's response to such a request is commonly called a:
A. Report under federal security statutes.
B. Comfort letter.
C. Review of interim financial information.
D. Compilation report for underwriters.
48. Comfort letters are ordinarily signed by the:

A. Client.
B. Client's lawyer.
C. Independent auditor.
D. Internal auditor.
49. Which of the following circumstances requires modification of the accountant's report on
a review of interim financial information of publicly held entity?
A. Option A
B. Option B
C. Option C
D. Option D
19-11
50. If compiled financial statements presented in conformity with the cash receipts and
disbursements basis of accounting do not disclose the basis of accounting used, the
accountant should:
A. Disclose the basis in the notes to the financial statements.
B. Clearly label each page "Unaudited."
C. Disclose the basis of accounting in the accountant's report.
D. Recompile the financial statements using generally accepted accounting principles.
51. An auditor is reporting on cash basis financial statements. These statements are best
referred to in his opinion by which of the following descriptions?
A. Financial position and results of operation arising from cash transactions.
B. Assets and liabilities arising from cash transactions, and revenue collected and expenses
paid.
C. Balance sheet and income statement resulting from cash transactions.
D. Cash balance sheet and the source and application of funds.
52. Which of the following should not be included in an accountant's standard report based
upon the compilation of an entity's financial statements?
A. A statement that a compilation is limited to presenting in the form of financial statements
information that is the representation of management.
B. A statement that the compilation was performed in accordance with standards established
by the American Institute of CPAs.
C. A statement that the accountant has not audited or reviewed the financial statements.
D. A statement that the accountant does not express an opinion but expresses only limited
assurance on the financial statements.
53. Each page of the financial statements compiled by an accountant should include a
reference such as:
A. See accompanying accountant's notes.
B. Unaudited, see accountant's disclaimer.
C. See accountant's compilation report.
D. Subject to compilation restrictions.
19-12
54. During a review of the financial statements of a nonpublic entity, the CPA finds that the
should:
55. Which of the following is an auditor least likely to inquire about when performing a
review of a nonpublic company?
A. Significant transactions near the end of the period.
B. Communications with regulatory agencies.
C. That financial statements are prepared in conformity with a special basis of accounting.
D. Questions that have arisen in applying review procedures.
56. When performing a review of a nonpublic company, the auditors must obtain in a
representation letter acknowledgement of management for its responsibility for reach of the
following except:
A. Responsibility for identifying illegal acts committed by employees.
B. Responsibility for the financial statements conforming with generally accepted accounting
principles.
C. Responsibility to prevent and detect fraud.
D. Knowledge of any actual or suspected fraud that is material.
19-13
Essay Questions
57. The financial statements of nonpublic companies may be compiled or reviewed by the
CPAs.
a. Describe a compilation of financial statements.
b. Describe a review of financial statements.
c. Describe three procedures that are performed in the review of a nonpublic company's
58. One may envisions a continuum of assurance ranging from absolute assurance to no
assurance. In between may be reasonable assurance, limited assurance, and a summary of
findings with no other assurance.
a. What level of assurance is provided in the CPA's report by each of the following types of
engagements?
Examinations
Audits
Review
Agreed-upon procedures
Compilations
b. What type of assurance is provided on financial statements prepared following a
comprehensive basis of accounting other than generally accepted accounting principles?
19-14
59. Items a through j present various phrases or characteristics that may apply to audits,
reviews, and compilations. Place check mark in the cell if the phrase or characteristic applies
to the listed service:
19-15
Chapter 19 Additional Assurance Services: Historical Financial Information

Answer Key
True / False Questions
1. An audit opinion on cash basis financial statements is an example of a special report.

TRUE
Difficulty: Easy
2. The balance sheet for an individual may be titled a Statement of Financial Condition.
TRUE
Difficulty: Medium
3. The auditors should take exception to assets presented at their estimate current values in
personal financial statements.
FALSE
Difficulty: Medium
4. Personal financial statements may be compiled or reviewed, but they should not be
audited.
FALSE
Difficulty: Easy
19-16
5. A compilation of financial statement provides limited assurance regarding the financial

statements.
FALSE
Difficulty: Medium
6. Compiled financial statements may omit note disclosures.

TRUE
Difficulty: Medium
7. The auditors must issue a compilation report if they prepare a client's financial statements
and submit them to a client who intends to use them for external purposes.
TRUE
Difficulty: Hard
8. In a compilation report on a prescribed form, the accountants should take exception to all
departures from generally accepted accounting principles.
FALSE
Difficulty: Medium
9. Letters to underwriters should not contain negative assurances.

FALSE
Difficulty: Medium
19-17
10. When a U.S.-based organization prepares financial statements which are for use in another
country, a U.S. report, modified to reflect the accounting principles of the other country, may
be issued.
TRUE
Difficulty: Medium
Multiple Choice Questions
11. Which of the following is correct relating to compiled financial statements when third
party reliance upon those statements is anticipated?
A. A compilation report must be issued.
B. Omission of note disclosures is unacceptable.
C. A written engagement letter is required.
D. Each page of the financial statements should have a restriction such as "Restricted for
Management's Use Only".
Difficulty: Medium
12. Which communication option(s) may be used when an accountant submits compiled
financial statements to be used only by management?
A. Option A
B. Option B
C. Option C
D. Option D
Difficulty: Hard
19-18
13. A compilation report is not required when compiled financial statements are expected to
be used by:
A. Management only.
B. Management and third parties.
C. Third parties only.
D. A compilation report is required whenever financial statements are compiled.
Difficulty: Medium
14. It is the end of his client's first quarter and Bill Smith, CPA is performing a compilation of
his client's interim financial statements. He has discovered that the client does not wish to
present notes to the financial statements. The appropriate CPA report includes:
A. Qualified opinion ("subject to" the omission of the notes).
B. Compilation report with an adverse opinion due to inadequate disclosure.
C. Standard compilation report.
D. Compilation report with an indication that all required disclosures under GAAP may not be
presented with the statements.
Difficulty: Medium
15. An accountant's standard report issued after compiling the financial statements of a
nonpublic entity should state that
A. I am not aware of any material modifications that should be made to the accompanying
B. A compilation consists principally of inquiries of company personnel and analytical
procedures.
C. A compilation is limited to presenting in the form of financial statements information that
is the representation of management.
D. A compilation is substantially less in scope than an audit in accordance with GAAS, the
objective of which is the expression of an opinion.
Difficulty: Medium
Source: AICPA
19-19
16. Which of the following procedures is usually the first step in reviewing the financial
statements of a nonpublic entity?
A. Make preliminary judgments about risk and materiality to determine the scope and nature
of the procedures to be performed.
B. Obtain a general understanding of the entity's organization, its operating characteristics,
and its products or services.
C. Assess the risk of material misstatement arising from fraudulent financial reporting and the
misappropriation of assets.
D. Perform a preliminary assessment of the operating efficiency of the entity's internal control
activities.
Difficulty: Hard
Source: AICPA
17. Which of the following would be used on a review engagement?

A. Examination of board minutes.
B. Confirmation of cash and accounts receivable.
C. Comparison of current-year to prior-year account balances.
D. Recalculation of depreciation expense.
Difficulty: Easy
Source: AICPA
18. Which of the following is correct concerning financial statements prepared in the United
States for use in another country?
A. The auditor must follow GAAP of both the United States and of the other country.
B. The type of audit report issued depends upon whether it is for use primarily outside the
United States.
C. The audit must only follow US GAAP.
D. Auditors from the other country must be involved with the audit to assure adequate
performance of that country's standards.
Difficulty: Medium
19-20
19. For a CPA, a client imposed scope limitation during a review of financial statements is
most likely to result in:
A. Resignation from the engagement.
B. Issuance of a disclaimer of opinion.
C. Issuance of an adverse opinion.
D. Only an explanatory paragraph added to report, with no change in the assurance provided.
Difficulty: Hard
20. Interim information of public companies.

A. Must be as comprehensive as that filed annually with the Securities and Exchange
Commission.
B. Must be reviewed by CPAs before it is filed with the Securities and Exchange
Commission.
C. Must be reviewed continuously by CPAs using continuous auditing techniques.
D. Requires no accountant association until it becomes a part of the companies' annual
financial information.
Difficulty: Medium
21. In which of the following types of reports do the auditors express negative assurance?
A. Letters for underwriters.
B. Reports on audits of financial statements on a comprehensive basis other than generally
C. Reports on audits of specified accounts.
D. Reports on condensed financial statements.
Difficulty: Hard
22. An assertion that is particularly difficult to audit with respect to personal financial
statements is:
A. Existence.
B. Rights.
C. Completeness.
D. Legality.
Difficulty: Medium
19-21
23. In which of the following types of reports do accountants provide no explicit assurance?
A. Compilations.
B. Reviews.
C. Examinations.
D. Audits.
Difficulty: Easy
24. Which of the following types of services is most likely to result in a restricted use report?
A. Compilations.
B. Reviews.
C. Agreed-upon procedures.
D. Audits.
Difficulty: Medium
25. A practitioner's report on agreed-upon procedures that is in the form of procedures and
findings should contain
A. Negative assurance that the procedures did not necessarily disclose all reportable
conditions.
B. An acknowledgment of the practitioner's responsibility for the sufficiency of the
procedures.
C. A statement of restrictions on the use of the report.
D. A disclaimer of opinion on the entity's financial statements.
Difficulty: Medium
Source: AICPA
26. Which of the following statements is correct with respect to an audit report issued for
financial statements to be used primarily outside of the United States?
A. The report should follow the U.S. format, modified as appropriate.
B. The report should follow the format of the other country.
C. The report may follow either the U.S. format, modified as appropriate, or may follow the
format of the other country.
D. The report should follow the attestation examination report format.
Difficulty: Medium
19-22
27. A "comfort letter" to an investment banking firm will normally not:

A. Express negative assurance.
B. Be included with the registration statement for the securities.
C. Include the CPA's opinion as to whether the audited financial statements comply in all
material respects with applicable requirements of the related securities acts.
D. Include a statement as to the auditors' independence.
Difficulty: Medium
28. When the auditors are associated with the financial statements of a public company, but
have not audited the financial statements, they should:
A. Issue a compilation report.
B. Issue a disclaimer of opinion.
C. Issue a qualified opinion.
D. Not issue any report.
Difficulty: Hard
29. Which of the following is an appropriate form of report for auditors who have audited the
financial statements of a company when they are not independent?
A. A simple disclaimer of opinion.
B. A disclaimer of opinion, with an indication of the lack of independence.
C. An audit opinion.
D. A qualified audit opinion.
Difficulty: Medium
30. Which of the following does not result in a modification of a compilation report?
A. A lack of independence on the part of the auditors.
B. A departure from generally accepted accounting principles.
C. A lack of adequate disclosure in the financial statements.
D. A lack of consistent application of generally accepted accounting principles.
Difficulty: Hard
19-23
31. Which of the following requires modification of a review report:

A. A change in accounting principles.
B. A substantial doubt about a company's ability to continue as a going concern.
C. A departure from generally accepted accounting principles.
D. A change in an accounting estimate.
Difficulty: Hard
32. Which of the following is correct when a company is issuing condensed financial
statements developed from audited financial statements?
A. Such condensed statements should always have a CPA's report associated with them when
audited financial statements exist.
B. The CPA may issue a report on whether the condensed information is fairly stated in all
material respects in relation to the basic financial statements.
C. The CPA should perform a compilation and review of the condensed financial statements.
D. The CPA who has audited the financial statements who is asked to report on the condensed
statements should decline the engagement because the condensed statements do not include
all disclosures necessary under generally accepted accounting principles.
Difficulty: Hard
33. Financial statements that are developed from and summarize the overall information
presented in audited financial statements are referred to as
A. Agreed-upon procedure financial statements.
B. Compiled financial statements.
C. Condensed financial statements.
D. Reviewed financial statements.
Difficulty: Medium
19-24
34. The term "special reports" may include all of the following except reports on financial
statements:
A. Of a partnership which follows accounting practices used to file its tax return.
B. Prepared for limited purposes such as a report that relates to certain aspects of financial
statements.
C. Of an organization that has limited the scope of the auditor's examination.
D. Of an organization which maintains its accounts and prepares its statements on a cash or
other comprehensive basis of accounting which is materially at variance with accounting
practices customarily followed in preparing accrual-basis statements.
Difficulty: Hard
Source: AICPA
35. Whenever special reports, filed on a printed form designed by authorities, call upon the
independent auditors to make an assertion that the auditors believe is notjustified, the auditors
should:
A. Submit a short-form report with explanations.
B. Reword the form or attach a separate report.
C. Submit the form with questionable items clearly omitted.
D. Withdraw from the engagement.
Difficulty: Medium
Source: AICPA
36. During a review of the financial statements of a non-public entity, the CPA finds that the
should:
Difficulty: Medium
Source: AICPA
19-25
37. The accountants' compilation report should be dated as of the date of:
A. Completion of fieldwork.
B. Completion of the compilation.
C. Transmittal of the compilation report.
D. The latest subsequent event referred to in the notes to the financial statements.
Difficulty: Medium
Source: AICPA
38. A modification of the CPA's report on a review of the interim financial statements of a
publicly-held company would be necessitated by which of the following?
A. An uncertainty.
B. Lack of consistency.
C. Reference to another accountant.
D. Inadequate disclosure.
Difficulty: Medium
Source: AICPA
39. A CPA should not normally refer to which one of the following subjects in a "comfort
letter" to underwriters?
A. The independence of the CPA.
B. Changes in financial-statement items during a period subsequent to the date and period of
the latest financial statements in the registration statement.
C. Unaudited financial statements and schedules in the registration statement.
D. Management's determination of line of business classifications.
Difficulty: Hard
Source: AICPA
19-26
40. Inquiry and analytical procedures ordinarily performed during a review of a nonpublic
entity's financial statements include:
A. Analytical procedures designed to identify reportable conditions related to internal control.
B. Inquiries concerning actions taken at meetings of the stockholders and the board of
directors.
C. Analytical procedures designed to test the accounting records by obtaining corroborating
evidential matter.
D. Inquiries of knowledgeable outside parties such as the client's attorneys and bankers.
Difficulty: Medium
Source: AICPA
41. Which of the following would not be included in a CPA's report based upon a review of
the financial statements of a nonpublic entity?
A. A statement that the review was in accordance with generally accepted auditing standards.
B. A statement that all information included in the financial statements are the representations
of management.
C. A statement describing the nature of the procedures performed.
D. A statement describing the auditor's conclusions based upon the results of the review.
Difficulty: Medium
Source: AICPA
42. The objective of a review of interim financial information is to provide the accountant
with a basis for reporting whether:
A. A reasonable basis exists for expressing an updated opinion regarding the financial
statements that were previously audited.
B. Material modifications should be made to conform with generally accepted accounting
principles.
C. The financial statements are presented fairly in accordance with standards of interim
reporting.
D. The financial statements are presented fairly in accordance with generally accepted
accounting principles.
Difficulty: Medium
Source: AICPA
19-27
43. If the auditor believes that financial statements prepared on the entity's income tax basis
are not suitably titled, the auditor should:
A. Issue a disclaimer of opinion.
B. Explain in the notes to the financial statements the terminology used.
C. Issue a compilation report.
D. Modify the auditor's report to disclose any reservations.
Difficulty: Easy
Source: AICPA
44. An auditor's report on financial statements prepared in accordance with a comprehensive

basis of accounting other than generally accepted accounting principles should include all of
the following except:
A. Reference to the note to the financial statements that describes the basis of preparation of
the financial statements.
B. Disclosure that the audit was performed in accordance with generally accepted auditing
standards.
C. An opinion as to whether the basis of accounting used is appropriate under the
circumstances.
D. An opinion as to whether the financial statements are presented fairly in conformity with
the basis of accounting described.
Difficulty: Medium
Source: AICPA
45. When an auditor reports on financial statements prepared on an entity's income tax basis,
the auditor's report should:
A. Disclose that the income tax basis is a comprehensive basis of accounting other than
generally accepted accounting principles.
B. Disclaim an opinion on whether the statements were examined in accordance with
generally accepted auditing standards.
C. Not express an opinion on whether the statements are presented in conformity with the
comprehensive basis of accounting used.
D. Include an explanation of how the results of operations differ from the cash receipts and
disbursements basis of accounting.
Difficulty: Medium
Source: AICPA
19-28
46. An auditor's report would be designated as a special report when it is issued in connection
with financial statements that are:
A. For an interim period and are subjected to a review.
B. Unaudited and are prepared from a client's accounting records.
C. Prepared in accordance with a comprehensive basis of accounting other than generally
D. Purported to be in accordance with generally accepted accounting principles but do not
include a presentation of the statement of cash flows.
Difficulty: Medium
Source: AICPA
47. The underwriter of a securities offering may request that an auditor perform specified
procedures and supply certain assurances concerning unaudited information contained in a
registration statement. The auditor's response to such a request is commonly called a:
A. Report under federal security statutes.
B. Comfort letter.
C. Review of interim financial information.
D. Compilation report for underwriters.
Difficulty: Easy
Source: AICPA
48. Comfort letters are ordinarily signed by the:

A. Client.
B. Client's lawyer.
C. Independent auditor.
D. Internal auditor.
Difficulty: Easy
Source: AICPA
19-29
49. Which of the following circumstances requires modification of the accountant's report on
a review of interim financial information of publicly held entity?
A. Option A
B. Option B
C. Option C
D. Option D
Difficulty: Hard
Source: AICPA
50. If compiled financial statements presented in conformity with the cash receipts and
disbursements basis of accounting do not disclose the basis of accounting used, the
accountant should:
A. Disclose the basis in the notes to the financial statements.
B. Clearly label each page "Unaudited."
C. Disclose the basis of accounting in the accountant's report.
D. Recompile the financial statements using generally accepted accounting principles.
Difficulty: Hard
Source: AICPA
51. An auditor is reporting on cash basis financial statements. These statements are best
referred to in his opinion by which of the following descriptions?
A. Financial position and results of operation arising from cash transactions.
B. Assets and liabilities arising from cash transactions, and revenue collected and expenses
paid.
C. Balance sheet and income statement resulting from cash transactions.
D. Cash balance sheet and the source and application of funds.
Difficulty: Medium
Source: AICPA
19-30
52. Which of the following should not be included in an accountant's standard report based
upon the compilation of an entity's financial statements?
A. A statement that a compilation is limited to presenting in the form of financial statements
information that is the representation of management.
B. A statement that the compilation was performed in accordance with standards established
by the American Institute of CPAs.
C. A statement that the accountant has not audited or reviewed the financial statements.
D. A statement that the accountant does not express an opinion but expresses only limited
assurance on the financial statements.
Difficulty: Hard
Source: AICPA
53. Each page of the financial statements compiled by an accountant should include a
reference such as:
A. See accompanying accountant's notes.
B. Unaudited, see accountant's disclaimer.
C. See accountant's compilation report.
D. Subject to compilation restrictions.
Difficulty: Easy
Source: AICPA
54. During a review of the financial statements of a nonpublic entity, the CPA finds that the
should:
Difficulty: Hard
Source: AICPA
19-31
55. Which of the following is an auditor least likely to inquire about when performing a
review of a nonpublic company?
A. Significant transactions near the end of the period.
B. Communications with regulatory agencies.
C. That financial statements are prepared in conformity with a special basis of accounting.
D. Questions that have arisen in applying review procedures.
Difficulty: Medium
56. When performing a review of a nonpublic company, the auditors must obtain in a
representation letter acknowledgement of management for its responsibility for reach of the
following except:
A. Responsibility for identifying illegal acts committed by employees.
B. Responsibility for the financial statements conforming with generally accepted accounting
principles.
C. Responsibility to prevent and detect fraud.
D. Knowledge of any actual or suspected fraud that is material.
Difficulty: Hard
Essay Questions
19-32
57. The financial statements of nonpublic companies may be compiled or reviewed by the
CPAs.
a. Describe a compilation of financial statements.
b. Describe a review of financial statements.
c. Describe three procedures that are performed in the review of a nonpublic company's
a. A compilation is limited to taking the representations of management and putting them in
the form of financial statements.
b. A review of financial statements involves the performance of inquiry and analytical
procedures to provide the accountants with a reasonable basis for expressing limited
assurance that the financial statements are in accordance with generally accepted accounting
principles.
c. Procedures performed in the review of financial statements include (only three required):
Inquiries of officers and other executives.
Analytical procedures applied to financial data by reference to prior financial data, budgets,
and other operating data.
Inquiries concerning actions taken in meetings of stockholders, board of directors, and
committees of the board.
Additional procedures if the accountants become aware that the information may be
incorrect, incomplete, or otherwise unsatisfactory.
Difficulty: Medium
19-33
58. One may envisions a continuum of assurance ranging from absolute assurance to no
assurance. In between may be reasonable assurance, limited assurance, and a summary of
findings with no other assurance.
a. What level of assurance is provided in the CPA's report by each of the following types of
engagements?
Examinations
Audits
Review
Agreed-upon procedures
Compilations
b. What type of assurance is provided on financial statements prepared following a
comprehensive basis of accounting other than generally accepted accounting principles?
a. Assurance provided:
Examinations--reasonable assurance
Audits--reasonable assurance
Review--limited assurance
Agreed-upon procedures--summary of findings
Compilations--no assurance
b. The assurance provided is dependent upon the nature of the service provided. With
financial statements the options (and assurance) possible are audit (reasonable assurance),
review (limited assurance), and compilations (no assurance). Additionally, agreed-upon
procedures could be applied to various elements, accounts or items of the financial statements
(a summary of findings would be provided).
Difficulty: Hard
19-34
59. Items a through j present various phrases or characteristics that may apply to audits,
reviews, and compilations. Place check mark in the cell if the phrase or characteristic applies
to the listed service:
19-35
19-36

Chapter 19 Additional Assurance Services Historical Financial Inf

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Chapter 19 - Additional Assurance Services: Historical Financial Information

1. An audit opinion on cash basis financial statements is an example of a special report.

5. A compilation of financial statement provides limited assurance regarding the financial

6. Compiled financial statements may omit note disclosures.