Question

51. In which of the following engagements is a CPA required to inquire of management about their knowledge of any fraud or suspected fraud involving management or others where the fraud could materially affect the financial statements?

            a. Audit

            b. Review

            c. Compilation

            d. All of the above

            e. “a” and “b”

52. A compilation is

            a. Limited to presenting in the form of financial statements information that is the representation of management, without undertaking to obtain or provide any assurance that there are material modifications that should be made to the financial statements.

            b. An engagement to assist management in presenting financial information in the form of financial statements without undertaking to obtain or provide any assurance that there are material modifications that should be made to the financial statements.

            c. Either “a” or “b”

            d. Neither “a” or “b”

53. If a client requests that the accountant change the engagement from an audit or a review to a compilation, he or she may do so if:

            a. The client provides reasonable justification for doing so.

            b. The additional effort and cost required to complete the higher level of service is substantial.

            c. Both “a” and “b”

            d. Neither “a” or “b” because the accountant should never change to a lower level of service once a higher level of service has begun.

54. Which of the following levels of service may be applied to prospective financial statements?

            a. Application of agreed- upon procedures

            b. Examination

            c. Compilation

            d. All of the above

            e. None of the above

T/F

55. An accountant may compile a nonpublic entity’s financial statements that omit substantially all of the disclosures and the statements of cash flows required by U.S. GAAP only if the omission is (1) clearly indicated in the accountant’s report and (2) not undertaken with the intention of misleading the financial statement uses.

Answer 1

51(E) In a Audit Engagement as well as Review Engagement,CPA is required to inquire of management about their knowledge of any fraud or suspected fraud involving management or others where the fraud could materially affect the financial statements

52(C) In a compilation engagement, the objective is to assist management in presenting financial information in the form of financial statements without undertaking to provide any assurance that there are no material modifications that should be made to the financial statements so they will conform to the acceptable financial reporting framework.Compilation can also include presenting in the form of financial statements information that is the representation of management, without undertaking to obtain or provide any assurance that there are material modifications that should be made to the financial statements.

53(A) The auditor shall not agree to a change in the terms of the engagement where there is no reasonable justification for doing so. A change in circumstances that affects the entity’s requirements, or a misunderstanding concerning the nature of the service originally requested, is ordinarily considered to be a reasonable basis for requesting a change in the engagement.High cost and effort is not a reasonable basis.

54(D)On Prospective financial statement the following levels of service can be applied:

• Application of agreed- upon procedures
• Examination
• Compilation

55(TRUE) An accountant may compile a nonpublic entity’s financial statements that omit substantially all of the disclosures and the statements of cash flows required by U.S. GAAP only if the omission is clearly indicated in the accountant’s report and not undertaken with the intention of misleading the financial statement uses.