r Answer D is correct because the SSARS requirements do not apply to either the processing of financial data for clients of other CPA firms or to consulting on accounting matters. See AR 100 for these and additional services to which the SSARS do not apply. 54. Statements on Standards for Accounting and Review Services establish standards and procedures for which of the following engagements? a) Assisting in adjusting the books of account for a partnership. b) Reviewing interim financial data required to be filed with the SEC. ) Processing financial data for clients of other accounting firms. d) Compiling an individual’s personal financial statement to be used to obtain a mortgage. Answer D is correct. The SSARS apply when a CPA either compiles or reviews the financial statements of a nonpublic entity. 55. Blue Co. , a privately held entity, asked its tax accountant, Cook, a CPA in public practice, to reproduce Blue’s internally prepared interim financial statements on Cook’s microcomputer when Cook prepared Blue’s quarterly tax return. Cook should not submit these financial statements to Blue unless, as a minimum, Cook complies with the provisions of a) Statements on responsibilities in Tax Practice. b) Statements on Standards for Accounting and Review Services. c) Statements on Responsibilities in Unaudited Financial Services. d) Statements on Standards for Attestation Engagements. Answer B is correct because Statements on Standards for Accounting and Review Services apply (AR 100) and require that the CPA who wishes to submit such financial statements to a client must, at a minimum, meet the compilation requirements. 56. A CPA should not submit unaudited financial statements of a nonpublic company to a client or others unless, as a minimum, the CPA complies with the provisions applicable to a) Compilation engagements. b) Review engagements. c) Statements on auditing standards. d) Attestation standards. Answer A is correct. An accountant should not submit such information unless he has, at a minimum, complied with the provisions applicable to a compilation engagement. . 57. An accountant who is not independent of a client is precluded from issuing a a) Compilation report on historical financial statements. ) Compilation report on prospective financial statements. c) Special report on compliance with contractual agreements. d) Report on consulting services. Answer C is correct because providing special reports is an attestation service and therefore requires the accountant to be independent. 58. Which of the following replies does not include a portion of the “Special Committee on Assurance Services” definition of assurance services? a) A consulting service. b) Improve the quality of information. c) Improve the context of information. d) For decision makers. Answer A is correct because the Special Committee on Assurance Services, also referred to as the Elliott Committee, defined assurance services as independent professional services -not “a consulting service”-that improve the quality of information, or its context, for decision makers. 59. In connection with the element of inspection, a CPA firm’s system of quality control should ordinarily provide for the maintenance of a) A file of minutes of staff meetings. b) Undated personnel files. c) Documentation to demonstrate compliance with its policies and procedures. ) Documentation to demonstrate compliance with peer review directives. Answer C is correct. The requirement is to determine what inspection, an element of quality control, should include. Answer C is the most accurate because it provides for maintenance of documentation of the various quality control policies and procedures. Thus, it is all encompassing. Answers A, B, and D, while desirable, relate to more specific areas and are thus less complete than C. 60. Which of the following is not an element of quality control for a CPA firm? a) Independence, integrity and objectivity. ) Acceptance and continuance of clients and engagements. c) Engagement supervision. d) Monitoring. Answer C is correct. Engagement supervision is not an element of quality control. The five elements of quality control are (1) independence, integrity, and objectivity, (2) personnel management, (3) acceptance and continuance of clients and engagements, (4) engagement performance, and (5) monitoring. 61. As guidance for measuring the quality of the performance of an auditor, the auditor should refer to a) Statements of the Financial Accounting Standards Board. ) Generally accepted auditing standards. c) Interpretations of the Statements on Auditing Standards. d) Statements on Quality Control Standards. Answer B is correct because auditors are responsible for compliance with generally accepted auditing standards and comparison of their performance against these standards is appropriate. 62. A basic objective of a CPA firm is to provide professional services to conform with professional standards. Reasonable assurance of achieving this basic objective is provided through a) Continuing professional education. ) A system of quality control. c) Compliance with generally accepted reporting standards. d) A system of peer review. Answer B is correct because a system of quality control is necessary to provide a CPA firm with reasonable assurance that it is conforming to generally accepted auditing standards. 63. Which of the following types of services is most directly designed to improve the quality of information, or its context, for decision makers? a) Assurance services b) Attestation services c) Audit services d) Consulting services Answer A is correct because the Special Committee on Assurance Services (the Elliott Committee), defined assurance services as independent professional services that improve quality of information, or its context, for decision makers. The Elliott Committee defined assurance services as: “Independent professional services that improve the quality of information, or its context, for decision makers. ” Assurance services include all attestation (including audit) services, plus a variety of other services which will be developed in the future; note, however, that tax and consulting services are not considered assurance services. 4. In performing an attestation engagement, a CPA typically a) Supplies litigation support services. b) Assesses control risk at a low level. c) Expresses a conclusion about the assertion on the subject matter. d) Provides management consulting advice. Answer C is correct because, when performing an attest engagement, a CPA expresses a conclusion about the assertion on the subject matter. 65. Which of the following professional services would be considered an attest engagement? a) A management consulting engagement to provide computerized advice to a client. ) An engagement to report on compliance with statutory requirements. c) An income tax engagement to prepared tax returns. d) The compilation of financial statements from a client’s accounting records. Answer B is correct because a report on compliance with statutory requirements might be structured as an attest engagement in which the required “written assertion” relates to such compliance. 66. The technical standards that apply to consulting services engagements require the practitioner to do all of the following except a) Maintain independence from the client. ) Give support for and clearly identify an estimates any quantifiable results that are based on estimates. c) Obtain an understanding concerning the nature, scope, and limitations of the consulting advisory services engagement to be performed. d) Take no position which might impair the practitioner’s objectivity. Answer A is correct because independence is not required. 67. A CPA firm’s personnel partner periodically studies the CPA firm’s personnel advancement experience to ascertain whether individuals increased degrees of responsibility. This is evidence of the CPA firm’s adherence to prescribed standards of a) Quality control. b) Due professional care. c) Supervision and review. d) Fieldwork. Answer A is correct because the seventh quality control standard requires that a firm establish policies and procedures pertaining to personnel advancement. 68. Williams & Co. , a large international CPA firm, is to have an “external peer review. ” The peer review will most likely be performed by a) Employees and partners of William Co. who are not associated with the particular audit being reviewed. ) Audit review staff of the Securities and Exchange Commission. c) Audit review staff of the Philippine Institute of Certified Public Accountant. d) Employees and partners of another CPA firm. . Answer C is incorrect because the Philippine Institute of Certified Public Accountants does not have an audit review staff available for peer reviews. 69. The objective of quality control mandates that a public accounting firm should establish policies and procedures for professional development which provide reasonable assurance that all entry-level personnel a) Prepared working papers which are standardized in form and content. ) Have the knowledge required to enable them to fulfill responsibilities assigned. c) Will advance within the organization. d) Develop specialties in specific areas of public accounting. Answer B is correct because one of the quality control considerations for a firm of independent auditors is that the policies and procedures for professional development should be established to provide reasonable assurance that personnel have the knowledge required to enable them to fulfill responsibilities assigned. 0. A CPA establishes quality control policies and procedures for deciding whether to accept a new client or continue to perform services for a current client. The primary purpose for establishing such policies and procedures is a) To enable the auditor to attest to the integrity or reliability of a client. b) To comply with the quality control standards established by regulatory bodies. c) To minimize the likelihood of association with clients whose management lacks integrity. ) To lessen the exposure to litigation resulting from failure to detect irregularities in client financial statements. Answer C is correct because policies and procedures should be established for deciding whether to accept or continue a client in order to minimize the likelihood of association with clients whose management lacks integrity. 71. Within the context of quality control, a primary purpose of personnel management activities is to enable a CPA firm to provide personnel within the firm with a) Technical training that assures proficiency as an auditor. ) Professional education that is required in order to perform with due professional care. c) Knowledge required to fulfill assigned responsibilities to consulting engagements. d) Knowledge required in order to perform a peer review. Answer C is correct the quality control standards relate to a firm’s accounting and auditing practice. 72. A CPA in public practice must be independent in fact and appearance when providing which of the following services? |Preparation of a |Compilation of |Compilation of | | |tax return |financial forecast|personal financial| | | | |statements | |A |Yes |No |No | |B |No |Yes |Yes | |C |No |No |Yes | |D |No |No |No | Answer D is correct. An auditor need only be independent when providing attestation services. Preparing tax returns and compiling forecasts or financial statements are not considered attestation services, therefore the CPA need not be independent. 73. The first general standard requires that the examination of financial statements is to be performed by a person or persons having adequate technical training and a) Independence with respect to the financial statements and supplementary disclosure. b) Exercising professional care as judged by peer reviewers. ) Proficiency as an auditor which likely has been acquired from previous experience. d) Objectivity as an auditor as verified by proper supervision. Answer C is correct because the first general standard requires that the examination be performed by a person or persons having adequate technical training and proficiency as an auditor which has been achieved by formal education and by previous experience. 74. Rogers & Co. , CPAs, policies require that all members of the audit staff submit weekly time reports to the audit manager, who then prepares a weekly summary work report regarding variance from budget for Rogers’ review. This provides written evidence of Rogers & Co. ’s professional concern regarding compliance with which of the following generally accepted auditing standards? a) Quality control. b) Due professional care. c) Adequate review. d) Adequate planning. Answer D is correct because the weekly time reports are being used to meet the first standard of fieldwork. The work is to be adequately planned, and assistants, if any, are to be properly supervised. Thus, the budget is prepared during the planning stage of the audit and the analysis of variances from budget is used as a part of the supervision process. 75. The third general standard states that due care is to be exercised in the performance of the examination. This standard means that a CPA who undertakes an engagement assumes a duty to perform each audit a) As a professional possessing the degree of skill commonly possessed by other in the field. b) In conformity with generally accepted accounting principles. c) With reasonable diligence and without fault or error. d) To the satisfaction of government agencies and investors who rely upon the audit. Answer A is correct because the level of skill necessary is that commonly possessed by other professionals in the same employment. 6. The exercise of due professional care requires that an auditor a) Examine all available corroborating evidence. b) Critically review the judgment exercised at every level of supervision. c) Reduce control risk below minimum. d) Attain the proper balance of professional experience and formal education.. Answer B is correct because the exercise of due professional care (the third general standard) requires critical review at every level of supervision of the work done and the judgment exercised by those assisting in the audit. 77. When an accountant is not independent, the accountant is precluded from issuing a a) Compilation report. b) Review report. c) Management advisory report. d) Tax planning report. Answer B is correct because AR 100 requires the accountant who performs a review to be independent (because it is an attestation service). 78. If requested to perform a review engagement for a nonpublic entity in which an accountant has an immaterial direct financial interest, the accountant is a) Independent because the financial interest is immaterial and, therefore, may issue a review report. ) Not independent and, therefore, may not be associated with the financial statements. c) Not independent and, therefore, may not issue a review report. d) Not independent and, therefore, may issue a review report, but may not issue an auditor’s opinion. Answer C is correct. Reviews are a form of attestation service, and an accountant may not maintain independence when an immaterial direct financial interest is held in a client when performing attestation services. 79. The concept of materiality would be least important to an auditor when considering the a) Effects of a direct financial interest in the client upon the CPA’s independence. b) Decision whether to use positive confirmations of accounts receivable. c) Adequacy of disclosure of a client’s illegal act. d) Discovery of weakness in a client’s internal control structure. Answer A is correct because the auditor may not have any direct financial interest in a client, regardless of materiality.
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