AT.21 Drill on Other Assurance Engagements and Related Services

The objective of a review engagement

Choices:

• Is to enable the auditor to express an opinion whether the financial statements are prepared in all material respects, in accordance with an identified financial reporting framework

• Is to enable the auditor to state whether, on the basis of procedures which do not provide all the evidence that would be required in an audit, anything has come to the auditor’s attention that causes the auditor to believe that the financial statements are not prepared in all material respects, in accordance with an identified financial reporting framework.

• Is to carry out those procedures of an audit nature to which the auditor and the entity and any appropriate third parties have agreed and to report on factual findings.

• Is to use accounting expertise as opposed to auditing expertise to collect, classify and summarize financial information.

Correct answer: Is to enable the auditor to state whether, on the basis of procedures which do not provide all the evidence that would be required in an audit, anything has come to the auditor’s attention that causes the auditor to believe that the financial statements are not prepared in all material respects, in accordance with an identified financial reporting framework.

Which of the following procedures would most likely be included in a review engagement of a nonpublic entity?

Choices:

• Preparing a bank transfer schedule.

• Inquiring about related-party transactions.

• Assessing internal control.

• Performing cutoff tests on sales and purchases transactions.

Correct answer: Inquiring about related-party transactions.

An auditor should not issue a report on

Choices:

• The achievability of forecasts.

• Internal control.

• Management performance.

• Quarterly financial information

Correct answer: The achievability of forecasts.

Which of the following procedures ordinarily should be applied when an independent accountant conducts a review of interim financial information of a publicly held entity?

Choices:

• Verify changes in key account balances.

• Read the minutes of the board of directors’ meetings.

• Inspect the open purchase order file.

• Perform cut-off tests for cash receipts and disbursements

Correct answer: Read the minutes of the board of directors’ meetings.

Review engagements are often used by:

Choices:

• Small, owner-managed companies

• mid-market public companies

• large public companies

• government agencies

Correct answer: Small, owner-managed companies

A CPA has been engaged to compile financial statements for a nonpublic client. Which of the following statements best describes this

engagement?

Choices:

The CPA must perform the basic accepted auditing procedures necessary to determine that the statements are in conformity with GAAP.

The CPA is performing an accounting service rather than an examination of financial statements.

The financial statements are representations of both management and the CPA.

The CPA may prepare the statements from the books but may not assist in adjusting and closing the books.

Correct answer: The CPA is performing an accounting service rather than an examination of financial statements

An accountant’s review report on interim financial information of a public entity is most likely to include a

Choices:

• Statement that the interim financial information was examined in accordance with standards of the Public Company Accounting Oversight Board.

• Statement that the interim financial information is the responsibility of the entity’s shareholders.

• Description of the procedures for a review.

• Statement that a review of interim financial information is less in scope than a compilation conducted in accordance with standards

Correct answer: Description of the procedures for a review

Which of the following provides a “notice to reader”?

Choices:

• A review engagement

• A compilation engagement

• Any assurance engagement

• An external audit

Correct answer: A compilation engagement

Accepting an engagement to examine an entity's financial projection most likely would be appropriate if the projection were to be distributed to

Choices:

• All employees who work for the entity.

• Potential stockholders who request a prospectus or a registration statement.

• A bank with which the entity is negotiating for a loan.

• All stockholders of record as of the report date

Correct answer: A bank with which the entity is negotiating for a loan.

Which of the following services performed by a CPA is an example of an assurance engagement that requires the CPA to be independent in

fact and appearance?

• Choices:

• Compilation of financial statements

• Review of financial statements

• Management consulting services

• Giving tax advice

Correct answer: Review of financial statements