A-6 Accounting and Review Service Engagements, Interim Review, and Ethics and Professional Responsibilities

Question 1

M1 SSARS

List the 3 types of services that will require SARS and the level of independence.

Answer 1

1. Preparation (No independence require)
2. Compilation (Independence required if not independent disclose on the report)
3. Review (Independence require)

Question 2

M1 SSARS

When an account performs more than one level of service (i.e compilation and a review or a compilation and an audit) related to the FS of a non issuer what is the type of report issued?

Answer 2

The accountant should issue the report for the highest level of service rendered.

Question 3

M1 SSARS

What type of service would require the auditor to perform inquiries and analytical procedures?

Answer 3

A review under SSARS.

Question 4

M1 SSARS

What type of services would not require to comply with SSARS?

Answer 4

1. Preparation or proposing journal entries
2. Calculating depreciation or preparing standard monthly journal entries.
3. Preparing journal entries of expiration of prepaid expenses.
4. Drafting FS notes for the client
5. Reproduce client prepared financial statements.
6. Preparing a working trial balance

Question 5

M1 SSARS

Who is the authoritative body designated to promulgate standards for SSARS?

Answer 5

The accounting and Review Service Comittee

Question 6

M1 SSARS

In which type of services SSARS is not required?

Answer 6

1. Preparation of PERSONAL FINANCIAL STATEMENTS
2. Preparation of FS solely for submission to taxing authorities.
3. Preparation of FS in conjunction with litigation services
4. Preparation of FS with business valuation services

Question 7

M1 SSARS

In a review or FS the auditor what procedures are required and not required from the accountant?

Answer 7

Procedures required
1. Makes inquiries with management
2. Perform Analytical procedures

Procedures not required:
1. Obtain an understanding of internal controls.
2. Test of operating effectiveness of controls or
3. Perform Test of details.

Question 8

M2 Preparation engagements

What are the typical activities that an account would do in a preparation of FS?

Answer 8

1. Assist management in the preparation of FS even if these omit GAAP disclosures.
2. Assist management in making judgement for impairment expenses
3. Advise management in accounting policies

Question 9

M2 Preparation engagements

In a preparation of FS under SSARS is the account required to be independent?

Answer 9

No independence required is need it because the accountant is not issuing a report.

Question 10

M2 Preparation engagements

In a preparation of FS what is management responsibility?

Answer 10

Management is responsible for the accuracy and completeness of the accounting records and significant judgements provided to the accountant in the preparation of the FS.

Question 11

M2 Preparation engagements

When engaged to prepare FS what should each page of the financial statement include?

Answer 11

1. Each page of the FS should include a statement that indicates that no assurance is provided or
2. Issue a disclaimer on the FS that makes it clear that no assurance is provided in the FS.

Question 12

M2 Preparation engagements

What are the actions that an account can do if management decides not to include in each page on the FS a statement that “No assurance is provided”?

Answer 12

1. Issue a disclaimer on the FS to make it clear that no assurance is provided.
2. Perform a compilation engagement
3. Withdraw from the engagement

Question 13

M2 Preparation engagements

What are the documents that the account would need to document as evidence of the preparation of FS?

Answer 13

1. Engagement letter
2. Copy of the financial statements prepared by the accountant.

Question 14

M3 Compilation Engagements

What would a compilation of financial statements be used for?

Answer 14

Compiled financial statements may be used to obtain a loan from a bank

Question 15

M3 Compilation Engagements

What statement should the compilation report include in the report?

Answer 15

1. That the FS have not been audited or reviewed.
2. The accountant is not required to perform any procedures to verify the accuracy or completeness of the information provided.

Question 16

M3 Compilation Engagements

When will an accountant will usually decline a compilation engagement?

Answer 16

When the accountant can not come to an understanding of the services to be performed.

Question 17

M3 Compilation Engagements

What is 1 procedure an account must performed before issuing a compilation report?

Answer 17

Read the FS for obvious material errors or obvious mistakes on the application of accounting principles.

Question 18

M3 Compilation Engagements

What are the activities that are not required by the accountant to be performed in a compilation engagement of FS?

Answer 18

The accountant is not required to:
1. Makes inquiries or
2. Performed procedures to corroborate the information

Question 19

M3 Compilation Engagements

When there is a material error in a compilation of FS engagement and the client refuses to revised the information what should the account do?

Answer 19

1.The accountant should withdraw from the engagement.

Question 20

M3 Compilation Engagements

In a compilation report what is explicitly stated in the report?

Answer 20

1. The FS have not been audited
2. The accountant does not express an opinion

Question 21

M3 Compilation Engagements

In a compilation report what is implicitly stated in the report?

Answer 21

1. Substantially all disclosures required by GAAP are included in the FS.

Question 22

M3 Compilation Engagements

How should a material departure from GAAP be reported on the compilation report if Management refuses to revised the financial statements?

Answer 22

1. If the modification to the report is sufficient to disclose the departure from GAAP the accountant should modify the compilation report by adding a separate paragraph that disclosed the departure from GAAP
2. If its in adequate or insufficient to disclose the accountant should withdraw from the engagement.

Question 23

M3 Compilation Engagements

In a compilation engagement If the accountant lacks independence where in the report would the accountant disclosed the lack of independence

Answer 23

1. The lack of independence must be disclosed in the final paragraph of the accountant’s report.

Question 24

M3 Compilation Engagements

When an accountant has a material or immaterial direct financial interest how should this be treated in a compilation report?

Answer 24

The accountant must disclosed in the final paragraph of the report that the accountant is not independent regardless of whether the direct financial interest is material or not.

Question 25

M4 Review Engagement What type of assurance should the report on audited financial statements of a nonissuer?

Answer 25

Limited assurance should be provided in a review of financial statements by stating " We performed procedures to obtain limited assurance that there are no material modifications that should be made to the financial statements.

Question 27

M4 Review Engagement What are the activities that an accountant that is conducting a review must performed.

Answer 27

1. Perform inquiry with management 1a. Inquiry management about events subsequent to the date of the financial statement that would have material effect on the FS. 1b. Make inquiries about the unusual or complex situations 1c. Male inquiries about the entitys ability to continue as a going concern. 2. Performed analytical procedures.

Question 28

M4 Review Engagement The standard report on a review would state?

Answer 28

1. A review applying analytical procedures to management financial data and makin inquiries of company management. 2. Statement indicating performed procedures to obtain limited assurance that there are no material modifications that should be made to the financial statements. 3. Statement that indicates that a review is substantially less in scope than an audit.

Question 29

M4 Review Engagement What is the first step that an accounts must performed before beginning a review ?

Answer 29

1. Obtain an understanding of the entity, its operation (procedures for recording and summarizing transactions) characteristics, and its products or services. NOTE THE ACCOUNTANT IS NOT REQUIRED TO OBTAIN AN UNDERSTANDING OF INTERNAL CONTROL OR ASSESS CONTROL RISK AND OR TEST OPERATING EFFECTIVENESS OF CONTROLS.

Question 30

M4 Review Engagement What statement should be included in each page of the reviewed financial statements ?

Answer 30

Each page of the financial statement should include a statement "See independent Accountant's Review Report"

Question 31

M4 Review Engagement What are the 8 review requirements (ULIARCPA) that the accountant needs to perform?

Answer 31

1. Understanding with the client should be established through an engagement letter. 2. Learn and obtain sufficient knowledge of the entity's business and operations 3. Inquiries should be addresses to management 4. Analytical procedures should be performed 5. Review other procedures that should be performed 6. Client representation letter should be obtained form management. (Must or otherwise withdraw from the engagement) 7. Professional judgement should be sued to evaluate results 8. Accountant should communicate results.

Question 32

M5 Review Reports What type of conclusion can the auditor provide in a review report?

Answer 32

1. Unmodified conclusion 2. Qualified conclusion (Material but not pervasive) 3. Adverse conclusion (Material and pervasive)

Question 33

M5 Review Reports How should an accountant report on comparative financial statements where in one year their is an audit and the other year there is a review.

Answer 33

The auditor should indicate that no procedures were performed after the date of the report for the year that was audited.

Question 34

M5 Review Reports When will an accountant modify the standard review report?

Answer 34

When there is a departure from GAAP. Is not required to assess internal control or perform testing of controls.

Question 35

M5 Review Reports When an accountant needs to communicate on the review report a matter that is not presented in the FS the report should include a paragraph of?

Answer 35

1. An accountant should add an other matter paragraph to communicate a matter that is not presented in the Financial statements. Note that an emphasis of matter paragraph would be adequate to include in the report when a matter has BEEN PRESENTED OR DISCLOSED IN THE FINANCIAL STATEMENTS. Other matter = Matter not presented FS Emphasis of matter = Matter presented in the FS

Question 36

M5 Review Reports Who does not have responsibility to control the distribution of restricted use review reports?

Answer 36

The accountant has no responsibility for controlling the client's distribution of restricted-use reports.

Question 37

M5 Review Reports How should an accountant report going concern issued that have been alleviated by management and properly disclosed?

Answer 37

The accounts need not to modify the review report, but may decide to emphasize the issue in the report in the emphasis of matter paragraph.

Question 38

M5 Review Reports How should an accountant report going concern issued that have NOT been alleviated by management?

Answer 38

The accountant is required to include a separate section in the review report with the heading "Substantial Doubt an Entity's Ability to Continue as a Going Concern".

Question 39

M5 Review Reports When an accountant issues a report 2 different reports prior year a review and current year a compilation. How should the accountant report on the comparative financial statements?

Answer 39

1. Issue the compilation report with an extra paragraph describing the responsibility assumed for the prior period statements and include a statement that no review procedures were performed after the date of the review report. 2. Issue 2 separate reports, a compilation report for the currne year and a review report for the prior year. 3. Issued a combined report, including both full reports and a statement that no review procedures were performed after the date of the review report.

Question 40

M5 Review Reports What is the first step a predecessor account must performed when reissuing a compilation or review report?

Answer 40

1. The predecessor accountant is required to compare the prior year's financial statements with those of the current year.

Question 41

M5 Review Reports When unaudited financial statements are presented with audited financial statements the accountant should ?

Answer 41

1. Request that prior period unaudited financial statements be reissued to accompany the current period report or 2. The report of the current period should include as a separate paragraph a description of the responsibility assumed for the prior period's financial statements.

Question 42

M5 Review Reports When an accountant unaudited financial statements are presented in comparative for with Audited financial statements for filing to the SEC the statements should include what?

Answer 42

1. The statements are unaudited 2. Make no reference to the auditors report.

Question 43

M5 Review Reports In comparative financial statements where there is 2 different levels of reports (review/audit ) the accountant should include an additional paragraph to indicate:

Answer 43

1. The prior period statement were audited 2. The date of the previous report 3. The opinions expressed, and, if there is other than unmodified opinion the reason for the modification. 4. No auditing procedures have been performed since the previous report date.

Question 44

M6 Interim Reviews What are the professional standards that an accountant must follow for an interim review of quarterly financial statements of publicly held company?

Answer 44

PCAOB Standards

Question 45

M6 Interim Reviews What are the required procedures an accountant must performed in a review of interim FS of a publicly held company?

Answer 45

1. Compare disaggregated revenue data for current and comparable prior periods (Analytical procedures) 2. Reconcile the interim FS with accounting records 3. Inquiry of management about its knowledge of fraud or suspected fraud.

Question 46

M6 Interim Reviews What is the objective of a review of interim FS of an issuer?

Answer 46

1. To provide an accountant with the basis for reporting whether material modifications should be made to conform with GAAP.

Question 47

M6 Interim Reviews What are the procedures an account must do in a interim review?

Answer 47

1. Perform inquiries of management 2. Perform analytical procedures

Question 48

M6 Interim Reviews What are the stages of procedures the an account must follow in a interim review

Answer 48

1. Inquiry of management 2. Obtain and understanding of the entity environment, its system of internal control and applicable financial framework. 3. Perform analytical procedures.

Question 49

M6 Interim Reviews What are the main difference between a review of a non issuer an issuer?

Answer 49

1. Issuers requires evaluation of internal control while non issuers does not. 2. Issuers requires communication with predecessor auditor while non issuer does not. 3. Issuers applies PACABO standard and non issuer SSARS. 4. Issuers includes reference to professional standards in the basis for review section, while non issuers reference to professional standards in the accountant's responsibility. There is no basis for review results section under SSARS.

Question 50

M6 Interim Reviews When an interim review is presented in a registration statement the prospectus should include a statement clarifying?

Answer 50

The accountant review report is not a part of the registration statement within the meaning of security act of 1933.

Question 51

M6 Interim Reviews An accountant may issue a review report on one financial statement as long as?

Answer 51

There is no restriction on the scope of inquiry and analytical procedures.

Question 52

M7 The AICPA Code of Professional Conduct What are examples of acts that CPA is prohibited from doing?

Answer 52

1. Accepting commissions for recommending a product to the CPA's client when it Audits them or their is a review. 2. Retaining client records after the client has demanded its return. Note that only Client prepared records are the property of the client and must be returned. Anything that is Auditor prepared the auditor it is the auditors works.

Question 53

M7 The AICPA Code of Professional Conduct When a CPA is not in public practice what is the principle it would need to follow.

Answer 53

1. The CPA must always show objectivity regardless if its in public or non public practice. However, the CPA may not be independent only when he is not in public practice servicing clients.

Question 54

M7 The AICPA Code of Professional Conduct What does the principle of due care rule?

Answer 54

1. Competence and Diligence Competence is gain through ethical standards Diligence is gain through professional responsibility

Question 55

M7 The AICPA Code of Professional Conduct How is independence impaired by a member of the auditor?

Answer 55

1. When a close family member holds a key position (audit sensitive) in an audit client. Close family is: Parent, Sibling or nondependent child.

Question 56

M7 The AICPA Code of Professional Conduct What characteristic would an automobile loan from a Client who is audited by the CPA needs to have in order not violate independence?

Answer 56

1. The loan has to granted at standard terms and 2. Needs to be collateralized by the automobile

Question 57

M7 The AICPA Code of Professional Conduct A former employee for a company that now the employee work as an auditor and audit the client may provide services and not violate independence if?

Answer 57

The services provided will cover the periods after the employee left his old job.

Question 58

M7 The AICPA Code of Professional Conduct Regarding Tax compliance services what are services permitted by the auditor that does not violate independence?

Answer 58

1. Signing and filing clients tax return after receiving authorization from the client.

Question 59

M7 The AICPA Code of Professional Conduct A CPA who is not in public practice must follow which principles?

Answer 59

1. Integrity and objectivity.

Question 60

M7 The AICPA Code of Professional Conduct When a Client owns the CPA professional audit services for more than one year what arrangement should be made first before commencing the current year audit?

Answer 60

The auditor should request that prior fees be paid in full before the audit report is issued.

Question 61

M7 The AICPA Code of Professional Conduct What would be valid reasons for a departure of GAAP?

Answer 61

1. New legislation 2. Evolution of a new form of business transactions.

Question 62

M7 The AICPA Code of Professional Conduct When will an auditor would be allowed to charge a contingent fee?

Answer 62

1. In a compilation service only if the report states that accountant is not independent. 2. If the contingent fees are fixed by courts or other public authorities.

Question 63

M7 The AICPA Code of Professional Conduct Which are the services that an accountant may not provide based on a contingent fee?

Answer 63

The accountant may not provide any of the services below, because it impairs independence. 1. Audit of FS 2. Review of client's FS 3. Examination of client's prospective FS.

Question 64

M7 The AICPA Code of Professional Conduct When would an auditor would be allowed to disclose confidential information of a Client?

Answer 64

1. When it needs comply with an arbitration proceeding or mandated by court. 2. When the auditor needs to reveal information to its lawyer or a professional liability insurance carrier after learning the auditor is getting sued by its Client.

Question 65

M7 The AICPA Code of Professional Conduct How should advertising and solicitation should be promoted to remain in compliance with Code of professional conduct?

Answer 65

1. Advertising and solicitation is allowed when is not in any manner false, misleading, or deceptive.

Question 66

M7 The AICPA Code of Professional Conduct According to the Code of Professional Conduct what would be consider a violation of the discreditable act rule?

Answer 66

1. Retaining client records after the client demands their return. 2. A CPA solicits recent uniform CPA examination questions without authorization of the CPA.

Question 67

M7 The AICPA Code of Professional Conduct What type of actions from a CPA would violate the integrity and objectivity rule principle?

Answer 67

1. CPA signing on documents that are false or misleading or 2. directs another CPA to do so.

Question 68

M8 Ethical and independence requirement part 1 Which acts will impair independence for a issuer but not for a nonissuer.

Answer 68

1. Lead Partner rotation. PCAOB requires lead and partner to rotate after 5 years, while AICPA code of professional conduct does not require partner rotation.

Question 69

M8 Ethical and independence requirement part 1 How often is the PCAOB is required to perform inspection to accounting firm?

Answer 69

1. Annually = if the firm audits > 100 issuers 2. 3 years = if the firm audits < 100 issuers

Question 70

M8 Ethical and independence requirement part 1 How is the PCAOB board comprised

Answer 70

2 CPAS and 3 Non CPA.

Question 71

M8 Ethical and independence requirement part 1 Before commencing works of a issuer the CPA firm must first register with?

Answer 71

PCAOB

Question 72

M8 Ethical and independence requirement part 1 What are examples of non audit services that will impair the accountant independence?

Answer 72

1. Providing legal services. 2. Provide expert opinion on litigations or regulatory investigations

Question 73

M8 Ethical and independence requirement part 1 What is SEC primarily focus on ?

Answer 73

1. Financial reporting issues impacted by the audit committee competence 2. Ethical behavior of senior officers 3. Adequacy of internal controls

Question 74

M8 Ethical and independence requirement part 1 Under the Sarbanes-Oxley Act the auditor must report to?

Answer 74

Audit committee

Question 75

M8 Ethical and independence requirement part 1 What are the responsibilities of the audit committee?

Answer 75

1. Primary responsibility is the appointment, compensation, and oversight of the work from the registered PCAOB firm. 2. Pre-approving audit and non audit services 3. Establishing procedures for the receipt, retention, and treatment of complaints related to accounting, internal control and auditing matters. 4. Establish a whistle-blowing mechanism. 5. Ensure that there members are independent.

Question 76

M8 Ethical and independence requirement part 1 What are the responsibilities of the CEO and the CFO regarding certifications of filing?

Answer 76

1. Both must certified the company's annual and quarterly financial reports. 2. Both must certified the establishment of internal control system in the form 10K. 3.

Question 77

M8 Ethical and independence requirement part 1 What is management responsibility?

Answer 77

1. Establish an adequate internal control system 2. Conclusion about the effectiveness of the company's internal control.

Question 78

M8 Ethical and independence requirement part 1 What is the auditors responsibility?

Answer 78

1. Evaluating and reporting on the effectiveness of a company's internal controls. 2. Statement on the report indicating that there are no disagreements between management and the auditors on the effectiveness of internal control.

Question 79

M8 Ethical and independence requirement part 1 Within the audit committee one out of the 5 members must be?

Answer 79

1. Financial expert. If the position is not filled the audit committee must disclose the reason why the role is not filled.

Question 80

M8 Ethical and independence requirement part 1 According to Sarbanes Oxley Act of 2002 which members applies a code of ethics ?

Answer 80

1. Senior financial officers only (CEO and CFO).

Question 81

M8 Ethical and independence requirement part 1 Under the arbanes Oxley Act of 2002 what is the fine an accountant will pay for intentionally destroys documents to obstruct an investigation by a US agency ?

Answer 81

1. The accountant will be fine and/or imprisoned for up to 20 years.

Question 82

M8 Ethical and independence requirement part 1 Under the arbanes Oxley Act of 2002 a CEO or CFO who misrepresent the Company is penalized by?

Answer 82

1. by a fined and imprisonment

Question 83

M8 Ethical and independence requirement part 1 What is the time frame an auditor or its spouse can hold unsolicited investment interest.

Answer 83

The auditor or the spouse has 30 days after receiving ownership rights to dispose of the investment.

Question 84

M8 Ethical and independence requirement part 1 What is the maximum time (Cool off period) that an issuer needs to wait for hire an auditor who served in the audit team ?

Answer 84

1. One year preceding the commencement of the audit If the the role is a financial oversight role (CEO, CFO, Controller). 2. Within the year if the role is not a financial oversight role (Staff accountant)

Question 85

M8 Ethical and independence requirement part 1 What are permissible non-audit services for an issuer?

Answer 85

1. Tax compliance (Preparation of tax returns) 2. Providing comfort letters.

Question 86

M8 Ethical and independence requirement part 1 What are non permissible non-audit services for an issuer?

Answer 86

1. Providing tax services related to tax aggressive transactions. 2. Providing consultancy of tax services with a contingency fee arrangements. 3. Providing tax returns for individuals in a financial oversight role (CEO, CFO, Controller)

Question 87

M9 Ethical and independence requirement part 2 GAGAS address the main ethics principles of?

Answer 87

1. Serving the public interest 2. Acting of Integrity and objectivity 3. Proper use of government information 4. Proper use of resources 5. Professional behavior

Question 88

M9 Ethical and independence requirement part 2 Mention the main What are the standards of GAGAS.

Answer 88

1. Serving the public interest - Serves the collective well being of the community. 2. Integrity- Conduct the work with an attitude that is objective, fact based and non ideological. 3. Objectivity- Independence of mind and appearance 4. Professional behavior- Honest effort in the professional services.

Question 89

M9 Ethical and independence requirement part 2 What the 4 independence threats the accountant faces in an audit?

Answer 89

1. Self review threat- a thread of review your own work. (ie perform record keeping services and do an audit) 2. Self interest threat ( threat that a financial or other interest influence the auditors judgement behavior). 3. Familiarity threat- Threat that arises from the aspect of a personal relationship with management such as a long friendship, immediate close family member. 4. Management participation threat- Taking management responsibilities or perform management functions.

Question 90

M9 Ethical and independence requirement part 2 What are the permissible services an auditor can performed for an audit under GAGAS.

Answer 90

Provide audit and actuary services.