Look Out Prospectives
Relative to prospective financial statements, a practitioner may accept an engagement to
A. Only an Examination
B. Both a Review and Examination
C. Only a Review
D. Neither a Review not an Examination
A. Only an Examination
In an attestation review engagement, each of the following items should be included in the presentation of pro forma financial statements except
A. The significant assumptions used in developing the pro forma information.
B. The source of the historical information on which the pro forma information is based.
C. An indication that the pro forma information is not necessarily indicative of results.
D. All direct and indirect effects attributed to the related transaction.
D. All direct and indirect effects attributed to the related transaction.
In an assertion-based examination compliance attestation engagement,
A. The practitioner provides limited assurance.
B. The practitioner may accept an engagement to examine the effectiveness of internal control over compliance only if an assertion about internal control is provided to the practitioner by the client.
C. The result is a legal determination of an entity’s compliance with specified requirements.
D. The practitioner should accept responsibility for the entity’s compliance with the specified requirements.
B. The practitioner may accept an engagement to examine the effectiveness of internal control over compliance only if an assertion about internal control is provided to the practitioner by the client.
Which of the following statements best serves as management’s assertion of consistency in an MD&A presentation?
A. Information included in the presentation is properly classified and described.
B. Nonfinancial data have been accurately derived from related records.
C. Reported transactions took place during a given period.
D. Descriptions of transactions are included to understand financial condition.
B. Nonfinancial data have been accurately derived from related records.
A practitioner may accept an engagement to apply agreed-upon procedures to prospective financial statements provided that
A. Use of the report is restricted to the specified parties.
B. The prospective financial statements also are examined.
C. Responsibility for the sufficiency of the procedures performed is taken by the practitioner.
D. Limited assurance is expressed on the prospective financial statements taken as a whole.
A. Use of the report is restricted to the specified parties.
An accountant has been engaged to examine pro forma adjustments that show the effects on previously audited historical financial statements due to a proposed disposition of a significant portion of an entity’s business. Other than the procedures previously applied to the historical financial statements, the accountant is required to
A. Both Reevaluate the entity’s internal control over
financial reporting and Determine that the computations of the pro forma adjustments are mathematically correct
B. Only Reevaluate the entity’s internal control over
financial reporting
C. Only Determine that the computations of the pro forma adjustments are mathematically correct
D. Neither Reevaluate the entity’s internal control over financial reporting nor Determine that the computations of the pro forma adjustments are mathematically correct
A.YesYesB.YesNoC.NoYesD.NoNo
C. Only Determine that the computations of the pro forma adjustments are mathematically correct
According to AT-C 315, Compliance Attestation, a practitioner may examine compliance with specified requirements. For this purpose, AT-C 205, Assertion-Based Examination Engagements, states that, to obtain reasonable assurance, the practitioner should obtain sufficient appropriate evidence to limit attestation risk to an appropriately low level. According to AT-C 105, Concepts Common to All Attestation Engagements, attestation risk is
A. The susceptibility of the subject matter to material misstatement without regard to related controls.
B. The risk that material misstatement of the subject matter will not be timely prevented, or detected and corrected, by the appropriate party’s internal control.
C. The risk that the practitioner may express an inappropriate opinion or conclusion on a materially misstated underlying subject matter or assertion.
D. The risk that the practitioner’s procedures will not detect a material misstatement.
C. The risk that the practitioner may express an inappropriate opinion or conclusion on a materially misstated underlying subject matter or assertion.
In accordance with AT-C 395, Management’s Discussion and Analysis, the presentation of an MD&A is a written assertion that
A. May be examined but not reviewed.
B. May be examined or reviewed.
C. A practitioner may attest to only if the entity is an issuer.
D. A practitioner may attest to only if the entity is a nonissuer.
B. May be examined or reviewed.
A financial forecast is prospective information based on
A. Conditions expected to exist and actions expected to be taken.
B. Management’s expectations, given certain hypothetical assumptions.
C. Historical information revised for certain future conditions.
D. Pro forma financial information.
A. Conditions expected to exist and actions expected to be taken.
Which of the following standards should a CPA firm apply in a review of pro forma financial information?
A. Statements on Standards for Attestation Engagements.
B. Statements on Standards for Consulting Services.
C. Statements on Standards for Accounting and Review Services.
D. Generally accepted auditing standards.
A. Statements on Standards for Attestation Engagements.
A practitioner’s report on agreed-upon procedures related to an entity’s compliance with specified requirements should contain
A. A statement of restrictions on the use of the report.
B. An opinion about whether management complied with the specified requirements.
C. Negative assurance that control risk has not been assessed.
D. An acknowledgment of responsibility for the sufficiency of the procedures.
A. A statement of restrictions on the use of the report.
In an engagement to examine management’s discussion and analysis (MD&A), which of the following best defines control risk?
A. The risk that an assertion within the MD&A will lead to a material misstatement.
B. The risk of detecting misstatements that are material to the MD&A presentation taken as a whole.
C. The risk that the practitioner will not uncover a material misstatement within an MD&A assertion.
D. The risk that material misstatements in the MD&A presentation will not be prevented in a timely manner.
D. The risk that material misstatements in the MD&A presentation will not be prevented in a timely manner.
Which of the following items should be included in prospective financial statements issued in an attestation engagement performed in accordance with Statements on Standards for Attestation Engagements?
A. All significant assertions used to prepare the financial statements.
B. All significant assumptions used to prepare the financial statements.
C. Pro forma financial statements for the past 2 years.
D. Historical financial statements for the past 3 years.
B. All significant assumptions used to prepare the financial statements.
Pro forma financial information (PFFI)
A. Should be presented with a statement that the results are indicative of those that would have been attained had an event actually occurred earlier.
B. May be audited or reviewed if the related historical statements have been reviewed.
C. Presents what the effects on historical financial data might have been if a consummated transaction had occurred earlier.
D. Must be separated from the historical statements, and the respective reports may not be combined.
C. Presents what the effects on historical financial data might have been if a consummated transaction had occurred earlier.
Practitioner was engaged by a group of pension recipients to apply agreed-upon procedures to financial data supplied by Pension regarding Pension’s written assertion about its compliance with contractual requirements to pay benefits. The report on these agreed-upon procedures should contain a(n)
A. Disclaimer of opinion about the fair presentation of Employer’s financial statements.
B. List of the procedures performed (or reference to them) and Practitioner’s findings.
C. Opinion about the effectiveness of Employer’s internal control over pension payments.
D. Acknowledgment that the sufficiency of the procedures is solely Practitioner’s responsibility.
B. List of the procedures performed (or reference to them) and Practitioner’s findings.
AT-C 395, Management’s Discussion and Analysis, provides guidance for an engagement regarding management’s discussion and analysis (MD&A) prepared under the rules and regulations adopted by the SEC. A practitioner
A. Must have audited the entity’s financial statements for the latest period to which MD&A relates if the service provided is an examination.
B. May review but not apply agreed-upon procedures to MD&A.
C. May perform services regarding MD&A of an issuer but not a nonissuer.
D. May not express an opinion on MD&A.
A. Must have audited the entity’s financial statements for the latest period to which MD&A relates if the service provided is an examination.
In which of the following situations will a practitioner disclaim an opinion on an examination of prospective financial statements?
A. The prospective financial statements depart from AICPA presentation guidelines.
B. The practitioner was not able to perform certain procedures deemed necessary.
C. The prospective financial statements fail to disclose significant assumptions.
D. The significant assumptions do not provide a reasonable basis for the statements.
B. The practitioner was not able to perform certain procedures deemed necessary.
A practitioner examining pro forma financial information (PFFI) does not possess an understanding of the client’s business and the industry in which the client operates. The practitioner should take which of the following actions?
A. Issue a disclaimer, because the scope of work was not sufficient to express an opinion.
B. Review industry trade journals.
C. Refer a substantial portion of the audit to another CPA who will act as the principal practitioner.
D. Perform ratio analysis of the financial data of comparable prior periods.
B. Review industry trade journals.
A practitioner may accept an agreed-upon procedures compliance attestation engagement if the
A. Specified parties agree to the procedures to be applied and the practitioner takes responsibility for the sufficiency of such procedures.
B. Specified parties agree to the procedures to be applied and take responsibility for the sufficiency of such procedures.
C. Practitioner has the necessary competence to make a legal determination about compliance.
D. Engaging party establishes materiality limits.
B. Specified parties agree to the procedures to be applied and take responsibility for the sufficiency of such procedures.
One of the practitioner’s objectives in an examination of a management’s discussion and analysis (MD&A) presentation is to
A. Express an opinion as to whether the historical financial amounts are fairly presented, in all material respects, in accordance with GAAP.
B. Express an opinion as to whether the underlying assumptions provide a reasonable basis for the disclosures.
C. Report whether any information came to his or her attention indicating that the elements required by the SEC are not included.
D. Report whether any information came to his or her attention indicating that the underlying information and estimates of the entity do not provide a reasonable basis for the disclosures.
B. Express an opinion as to whether the underlying assumptions provide a reasonable basis for the disclosures.