Annual Accounting and Auditing Update and Review. Course #5410I/QAS5410I Exam Packet

Transcription

1 Annual Accounting and Auditing Update and Review Course #5410I/QAS5410I Exam Packet

2 ANNUAL ACCOUNTING AND AUDITING UPDATE AND REVIEW (COURSE #5410I/QAS5410I) COURSE DESCRIPTION This course brings you up-to-date with the latest changes in accounting and auditing pronouncements. It also addresses current developments in accounting and financial reporting, a compilation and review update, selected auditing developments, and more. Uses material entitled Annual Accounting and Auditing Update and Review. Prerequisite: None. Course level: Update. Course #5410I/QAS5410I 24 CPE hours. LEARNING ASSIGNMENTS and OBJECTIVES As a result of studying each assignment, you should be able to meet the objectives listed below each individual assignment. ASSIGNMENT SUBJECT 1 Subsequent Events (FASB ASC Topic 855) As Amended by ASU No : Subsequent Events Amendments to Certain Recognition and Disclosure Requirements Read the materials from Chapter 1 Complete the review questions and suggested solutions throughout Chapter 1 Answer the final exam questions 1 to 4 Objectives: To define the two types of subsequent events To identify events that trigger the subsequent event rules To identify non-recognition events ASSIGNMENT SUBJECT 2 Receivables (ASC Topic 310) ASU No : Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses Read the materials from Chapter 2 Complete the review questions and suggested solutions throughout Chapter 2 Answer the final exam questions 5 to 12 Objectives: To identify those instruments to which the new ASU disclosure apply To identify the twelve disclosures required by ASU To define financing receivable and other financial instruments To write a disclosure of the accounting policies for loans and trade receivables Exam Page -1

3 ASSIGNMENT SUBJECT 3 Plan Accounting Defined Contribution Pension Plans (Topic 962) ASU No : Reporting Loans to Participants by Defined Contribution Pension Plans: A Consensus of the FASB Emerging Issues Task Force Read the materials from Chapter 3 Complete the review questions and suggested solutions throughout Chapters 3 Answer the final exam questions 13 to 15 Objectives: To explain how loans to participants should be classified and measured by defined contribution pension benefit plans ASSIGNMENT SUBJECT 4 ASU and the Impairment of Long-Lived Assets, Goodwill, and Other Intangible Assets During the Economic Downturn Read the materials from Chapter 4 Complete the review questions and suggested solutions throughout Chapter 4 Answer the final exam questions 16 to 37 Objectives: To recall the impairment rules for four categories of assets including goodwill To review the changes to goodwill and tests for impairment of goodwill To review the types of assets which apply to impairments To identify the steps that are applied in testing and measuring an impairment of long-lived assets to be held and used To apply the rules of accounting for impairment of long-lived assets held for sale To review the disclosure and financial statement presentation of impaired assets and related losses ASSIGNMENT SUBJECT 5 Business Combinations (ASC Topic 805) ASU No Disclosure of Supplementary Pro Forma Information for Business Combinations Read the materials from Chapter 5 Complete the review questions and suggested solutions throughout Chapter 5 Answer the final exam questions 38 to 40 Objectives: To explain about the diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations To describe the changes made by ASU with respect to the presentation of pro forma revenue and earnings in a business combination To apply the expanded supplemental pro forma disclosures required by ASU Exam Page -2

4 ASSIGNMENT SUBJECT 6 Accounting and Tax Update on Uncertain Tax Positions: FIN 48: Accounting for Uncertainty in Income Tax (ASC 740), ASU and IRS Audits of Uncertain Tax Positions (Announcement ) Read the materials from Chapter 6 Complete the review questions and suggested solutions throughout Chapter 6 Answer the final exam questions 41 to 55 Objectives: To review the rules for uncertain tax positions found in FIN 48 (ASC 740) To identify the disclosures related to uncertain tax positions that ASU eliminates for nonpublic companies To describe how FIN 48 (ASC 740), related to uncertain tax positions, applies to pass-through entities To compare ways that entities previously accounted for tax positions To provide examples of various tax positions To apply the two-step approach to evaluating and recognizing a tax position To appropriately present an unrecognized tax benefit liability To compute the amount of interest expense recognized ASSIGNMENT SUBJECT 7 Current Developments: Accounting and Financial Reporting Read the materials from Chapter 7 Complete the review questions and suggested solutions throughout Chapter 7 Answer the final exam questions 56 to 80 Objectives: To list ways in which companies recognize revenue prematurely To recognize the changes proposed to lease accounting To identify FASB s codification To compare the arguments in favor of and against Big GAAP-Little GAAP and the Blue Ribbon Panel Report To compute the valuation allowance required for a deferred tax asset To discuss the impact that the Obama Patient Protection and Affordable Care Act has on deferred tax assets To recognize the changes made by selected Accounting Standards Updates (ASUs) issued through 2011 To discuss the conclusions reached by recently issued Technical Practice Aids Exam Page -3

5 ASSIGNMENT SUBJECT 8 Compilation and Review Update Read the materials from Chapter 8 Complete the review questions and suggested solutions throughout Chapter 8 Answer the final exam questions 81 to 105 Objectives: To identify the extensive changes made by SSARS No. 19 and 20 To describe how the new lack of independence disclosure rules apply to compilation engagements To define the new term review evidence To discuss the new documentation requirements for compilation and review engagements ASSIGNMENT SUBJECT 9 Recently Issued Auditing Standards and Other Auditing Developments Read the materials from Chapter 9 Complete the review questions and suggested solutions throughout Chapter 9 Answer the final exam questions 106 to 120 Objectives: To read SASs with an understanding of the professional requirements imposed on auditors; To discuss the audit requirements for a compliance audit To apply the compliance requirements for different types of supplementary information found in SAS No To read the changes made by SAS No. 121 to interim financial information To identify the changes made by SSAE No. 16 to reports issued by service auditors To discuss how Dodd-Frank impacts accountants and auditors To explain the general requirements of newly issued PCAOB AS 8-15 ASSIGNMENT 10 Complete the Answer Sheet and Course Evaluation and mail to PES for credit NOTICE This course and test have been adapted from materials and information contained in the materials entitled Annual Accounting and Auditing Update and Review and any supplemental material provided. This course is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional advice and assumes no liability whatsoever in connection with its use. Since laws are constantly changing, and are subject to differing interpretations, we urge you to do additional research and consult appropriate experts before relying on the information contained in this course to render professional advice. Professional Education Services, LP 2011 Program publication date 5/5/11 Exam Page -4

6 ANNUAL ACCOUNTING AND AUDITING UPDATE AND REVIEW (COURSE #5410I/QAS5410I) EXAM OUTLINE COURSE EXPIRATION DATE: Per AICPA and NASBA standards, this course must be completed within one year from the date of purchase. TEST FORMAT: The following final exam, consisting of 120 true/false and/or multiple choice questions, is based specifically on the material included in this course. The answer sheet must be completed and returned to PES for CPE certification. You will find the answer sheet at the back of this exam packet so that you may easily remove it and use it while taking your test. LICENSE RENEWAL INFORMATION: The Annual Accounting and Auditing Update and Review course (#5410I/QAS5410I) qualifies for 24 CPE hours. PROCESSING: Your exam will be graded promptly. You must score 70% or better to pass. When you pass, your certificate of completion will be mailed. If you do not pass, we will give you a courtesy call to inform you of this and then another answer sheet will be sent to you free of charge. GRADING OPTIONS: Please choose only one of the following. There is no additional charge for any of these grading options. Make sure to fill out your answer sheet completely prior to submitting it. ONLINE GRADING Visit our website at Login to your account (if you are a first-time user you must set up a new user account). Go to the MY CPE tab and click the My CPE Exams in Progress folder. If your exam is not already located in this folder, click Add Exam Previously Purchased and follow the instructions. MAIL Your exam will be graded and your certificate of completion mailed to you the same day we receive it. Your certificate will be dated according to the postmark date; therefore, you do not need to overnight your exam. Please mail your answer sheet to: Professional Education Services, LP 4208 Douglas Blvd., Ste 50 Granite Bay, CA FAX Your exam will be graded and you will be contacted either via phone or fax with your results within 4 business hours of receipt. A copy of your graded exam and certificate of completion will be mailed to you the same day we receive it. Your certificate will be dated according to the fax date. If you choose to fax your exam, please do not mail it. Your fax will serve as the original. Please refer to the attached answer sheet for further instructions on fax grading. Fax number (916) Thank you for using Professional Education Services. We appreciate your business!! Exam Page -5

7 ANNUAL ACCOUNTING AND AUDITING UPDATE AND REVIEW (COURSE #5410I/QAS5410I) FINAL EXAM The following questions are either true or false and/or multiple choice. Please indicate your choice on the enclosed Answer Sheet. 1. Subsequent event involves financial statements that are issued or are: a) ready to be issue b) available to be issued c) considered for issue d) expected to be issued 2. Financial statements are considered issued when: a) they are completed and signed off by a reviewing partner b) a draft copy is issuable to the management of the entity c) they are widely distributed to shareholders d) they are mailed or sent electronically to management and/or the board of directors 3. Which of the following would be considered a subsequent event. An event or transaction occurs: a) before the balance sheet date and before financial statements are issued b) after the balance sheet date and after financial statements are issued c) after the balance sheet date and before the financial statements are issued d) before the balance sheet date and after the financial statements are issued 4. Which of the following entities must evaluate subsequent events through the date that the financial statements are issued. An entity that: a) is a closely held entity b) is a conduit bond obligor for conduit debt securities traded in a public market c) issues private placement investments d) is a non-sec filer 5. Examples of credit quality indicators include all of the following except: a) risk rate b) credit-rating-agency ratings c) an entity s internal credit risk grades d) loan-to-value ratios 6. A financing receivable has two characteristics, one of which is: a) a contractual right to receive money on flexible dates b) it is not recognized as an asset in the entity s statement of financial position c) a contractual right to receive money on demand d) it is presented as an asset in the notes to financial statements 7. Which of the following is an example of a portfolio segment: a) initial measurement attribute (for example, amortized cost or purchased credit impaired) b) risk characteristics of the financing receivable c) an entity s method for monitoring and assessing credit risk d) industry sector of the borrower 8. Which of the entities is not subject to ASU No : a) factoring arrangements made by a public entity b) factoring arrangements made by a nonpublic entity c) mortgage banking activities d) loan syndications 9. An entity is required to disclose its policy for charging off uncollectible trade accounts receivable that have two characteristics one of which is that they have a contractual maturity of: a) five years or more b) one year or less c) three years or more d) more than ten years Exam Page -6

8 10. Which of the following must provide a disclosure that includes an analysis of the age of the recorded investment in financing receivables at the end of the reporting period that are past due: a) loans acquired with deteriorated credit quality b) receivables measured at fair value c) receivables measured at lower of cost or fair value d) loans acquired with high credit quality 11. Which of the following is true: a) a class of financing receivables is typically a further breakdown of a portfolio segment b) a portfolio is typically a further breakdown of a segment of financing receivables c) an element is typically a further breakdown of a class of financing receivables d) a component is typically a further breakdown of a portfolio segment of financing receivables 12. Examples of factors that an entity should consider in determining the appropriate level of its internal reporting as a basis for disclosure, include all of the following except: a) categorization of borrowers b) type of financing receivable c) geographic distribution d) relative size of each class of factors 13. Under current practice before the applicability of ASU , how are most participant loans carried on the balance sheet: a) at their unpaid principal balance plus any accrued, but unpaid interest b) at fair value plus any accrued interest c) at lower of cost or market value, net of accrued interest d) at discounted cash flow, including accrued interest 14. Under the amendments in ASU , how should participant loans be classified on the balance sheet for defined contribution pension plans: a) as a note receivable b) as an investment c) as a trade receivable d) as a deferred asset 15. Which of the following is true as it relates to participant loans under ASU : a) the fair value disclosures required for investments are required for participant loans b) the fair value disclosures required for investments are not required for participant loans c) some of the fair value disclosures required for investments apply to participant loans d) the ASU is silent as to whether investment disclosures apply to participant loans 16. Under GAAP, the test for impairment of goodwill is performed at level. a) entity b) reporting unit c) consolidated entity d) individual asset and liability 17. Which of the following would be an event or circumstance that may warrant an entity performing an interim goodwill impairment test: a) loss of a key employee b) completion of a significant acquisition c) unusual increase in revenue from period to period d) change in the physical location of the entity s primary operating location Exam Page -7

9 18. GAAP indicates that two or more components of an operating segment shall be aggregated and considered one single reporting unit if the components have similar economic characteristics. Which of the following is not an area in which components may have similar economic characteristics: a) the nature of the products and services b) the methods used to distribute their products or provide their services c) the format of the accounting system used d) the type or class of customer for their products and services 19. When assets and liabilities are assigned to a reporting unit, it may also include assets and liabilities typically considered: a) corporate items b) subsidiary items c) assets and liabilities eliminated in consolidation d) soft assets and liabilities 20. Fill in the blank with the correct answer: Total purchase price assigned to a reporting unit Less: Purchase price allocated to assets and liabilities Equals: a) intangible assets with indefinite lives assigned to the reporting unit b) negative goodwill credited to the reporting unit c) goodwill assigned to that reporting unit d) fair value of assets and liabilities assigned to the reporting unit 21. Company X has goodwill and is performing its annual test for impairment. The carrying amount of its reporting unit is less than zero. Fair value of the reporting unit is less than the carrying value of the unit. Which of the following is true: a) X has no potential impairment b) X has a potential impairment c) regardless of whether X has a potential impairment, the second step of measuring the impairment is required d) more data is needed to reach a conclusion as to whether there is a potential impairment 22. Which of the following is the formula used to perform the second step, to measure the impairment loss: a. Fair value of the reporting unit Less: Fair value of assigned assets and liabilities (excluding goodwill) Equals: Implied goodwill value- reporting unit Implied goodwill value- reporting unit Less: Carrying value of goodwill- reporting unit Equals: Impairment loss b. Fair value of the reporting unit Less: Carrying value of assigned assets and liabilities Equals: Computed goodwill value- reporting unit Computed goodwill value- reporting unit Less: Carrying value of goodwill- reporting unit Equals: Impairment loss c. Fair value of the reporting unit Less: Carrying value of reporting unit Equals: Implied goodwill value- reporting unit Implied goodwill value- reporting unit Less: Fair value of goodwill- reporting unit Equals: Impairment loss d. Fair value of individual assets and liabilities Less: Carrying value of individual assets and liabilities Equals: Computed goodwill value Computed goodwill value Less: Fair value of goodwill Equals: Impairment loss 23. In what market does a reporting entity sell the asset or transfer the liability with the greatest volume and level of activity for the asset or liability: a) beneficial market b) most advantageous market c) primary market d) principal market Exam Page -8

10 24. What level of the valuation hierarchy is made up of observable market inputs that reflect quoted prices for identical assets or liabilities in active markets the reporting entity has the ability to access at the measurement date: a) Level 1 b) Level 2 c) Level 3 d) Level Which of the following is an example of a shortcut (rule-of-thumb) approach that can be used to determine the fair value of a manufacturer: a) earnings multiple b) revenue multiple c) capitalization of excess earnings d) present value of expected cash flows 26. Examples of intangible assets that might have indefinite lives include all of the following except: a) taxi medallions b) franchises c) airport routes d) patents 27. Which of the following is true as it relates to impairment losses on intangible assets with indefinite lives: The reversal of previously recognized impairment losses is: a) permitted b) required c) prohibited d) recommended, but not required 28. An example of events and changes in circumstances that might warrant a test of impairment of long-lived tangible assets is: a) a significant adverse change in legal factors b) a current-period operating profit or positive cash flow c) a significant increase in the market price of a long-lived asset d) a forecast that demonstrates significant growth and continued profitability 29. Which of the following is not an example of situations in which joint cash flows may be evident: a) operations joined by one contract b) networking equipment used throughout several operations c) one product line that acts as a loss leader for another more profitable product line d) two separate legal entities with one common owner 30. In performing an impairment test under ASC 360 (formerly FASB No. 144), GAAP requires that the test be performed at the level at which an asset or asset group generates cash flows. a) highest b) lowest c) closest d) smallest 31. Company X has a single tangible asset that does not generate cash flows by itself and it appears that the fair value is less than the carrying value. Which of the following is true: a) the asset should be written down for the impairment b) the asset should not be written down but should be tested as part of an overall test of all assets and liabilities of Company X c) the asset is exempt from being tested under GAAP d) the special roll-over rule applies to this individual asset 32. Which of the following methods for cash flow estimation is based on the sum of probabilityweighted amounts in a range of possible estimated amounts: a) traditional approach b) expected approach c) discounted approach d) multiple-outcomes approach Exam Page -9

11 33. The is the principal long-lived tangible asset being depreciated or intangible asset being amortized that is the most significant component asset from which the asset group derives its cash-flow-generating capacity. a) traditional asset b) major asset c) primary asset d) key asset 34. In performing an impairment test on long-lived tangible assets, the estimate of cash flows computation is based on the of the asset or asset group at the date it is tested. a) future service potential b) existing service potential c) random service potential d) predictive service potential 35. In applying the impairment rules to real estate, which of the following is true: The rules are actually: a) easier to implement because future cash flows are more definable b) easier to implement because future cash flows are very volatile c) far more complex because fair value is more discernable to obtain d) far more complex because costs are fixed 36. How is an intangible asset with a finite useful life amortized: a) it is not amortized b) amortized over 15 years, the same as the tax life c) it is amortized over its useful life d) amortized over the same number of years as the underlying tangible assets that created the intangible asset 37. How should an impairment loss be presented on the income statement: a) as part of other comprehensive income b) as part of income from continuing operations c) as part of discontinued operations, net of the tax effect d) as part of cost of goods sold 38. ASU applies to which of the following entities and organizations: a) public entities b) public and non-public entities c) all entities other than not-for-profit organizations d) all entities 39. Assume a public company does not issue comparative financial statements and is involved in a business combination in the current year 20X2. Which of the following pro forma information should be disclosed for revenue and earnings: a) pro forma revenue and earnings for the current period as though the acquisition date had occurred on January 1, 20X2 b) pro forma revenue and earnings retroactive to the beginning of the previous period, January 1, 20X1 c) revenue and earnings on a pro forma basis for both 20X2 and 20X1 (parenthetically) d) no pro forma information is required for revenue and earnings 40. Which of the following entities must include disclosures of pro forma revenue and earnings under ASU : a) a not-for-profit organization that is nonpublic and has a business combination in the current year b) a not-for-profit organization that is public but does not have a business combination in the current year c) a not-for-profit organization that is public that has a business combination in the current year d) a not-for-profit organization that is nonpublic and does not have a business combination in the current year 41. Which of the following taxes does FIN 48 apply to: a) foreign income tax b) franchise tax c) sales and use taxes d) personal property taxes Exam Page -10

12 42. To what tax position(s) does FASB Interpretation No. 48 apply: a) all tax positions accounted for under ASC 740 (formerly FASB No. 109) b) tax positions resulting in a permanent reduction in income taxes payable c) the characterization of income or a decision to exclude reporting taxable income in a tax return d) the decision not to file a tax return 43. Which of the following is true as it relates to taxes and an S corporation: a) an S corporation pays a corporate level tax for a built-in gain under IRC Section 1374 b) shareholders, and not the S corporation, pay the tax on the LIFO recapture under IRC Section 1363 c) there are no instances in which an S corporation pays a corporate level tax d) shareholders pay the excess passive income tax under IRC Section Which of the following is true as it relates to taxexempt entities: a) because a tax-exempt entity pays no tax, it has no tax positions b) a tax-exempt entity can pay a tax but has no tax positions c) a tax exempt entity pays no tax but still may have tax positions d) a tax exempt entity can pay a tax and may have tax positions 45. What is the first step in the FASB Interpretation No. 48 s approach to evaluating and recognizing a tax position: a) determine amounts and probabilities of ultimate settlement outcomes b) determine the unrecognized tax benefit c) fulfill the more-likely-than-not limit d) measure the tax position s tax benefit 46. All of the following are sources that present practical advantages of taking certain tax positions, except: a) case law b) legislation and statutes c) past practices of the entity based on the results from prior IRS audits d) precedents of the taxing authority 47. Which of the following is a factor that an entity should consider in determining the unit of account to be used for an individual tax position: a) manner in which the entity prepares and supports its tax return b) the relationship among the assets c) the type of assets that created the tax position d) whether there is a net asset or liability that creates the position 48. According to the FASB, when considering income tax systems, what are secondary: a) enforcement powers b) principles of compliance c) reporting requirements d) self-assessment requirements 49. Changes in recognition, derecognition and measurement that develop from subsequent changes in judgment should result from: a) a new evaluation by the same management b) a new interpretation of the same information c) new information being evaluated d) none of the above 50. When should an entity recognize the benefit of a tax position: a) when it is effectively settled b) after three years from issuing the financial statements c) after the tax position has been reviewed or examined by a taxing authority d) whether there is a shift in the probability threshold below 50 percent 51. How long should interest and penalties associated with tax positions be accrued and recorded as expense: a) until the more-likely-than-not recognition threshold is no longer met b) until the statute of limitations for examining and challenging the tax position has expired c) until the date on which the taxing authority starts its examination of the tax position d) until the tax benefit of the tax position is not recognized Exam Page -11

13 52. Facts: An entity has been accruing interest and penalties associated with a tax position taken for federal income tax purposes. On February 1, 20X5, the tax matter is effectively settled with the IRS and no tax, interest or penalties are assessed by the IRS. What should be done with the accrued interest and penalties: a) accrued interest and penalties should be reversed off to expense b) accrued interest and penalties should be reversed off with a corresponding credit to other comprehensive income in equity c) accrued interest and penalties should remain on the balance sheet for three (3) years after the settlement date d) accrued interest and penalties should not be accrued in the first place 53. There are three disclosures under FIN 48 that all companies must include regardless of whether there is any unrecognized liability adjustments. Those disclosures include all of the following except: a) the Company s policy is to record interest expense and penalties assessed by taxing authorities in operating expenses b) the total amounts of interest and penalties recognized in the statement of operations and the total amounts of interest and penalties recognized in the statement of financial position assessed by taxing authorities c) a description of tax years that remain open subject to examination by major tax jurisdictions d) a definition of a tax position using standard language found in FIN Which of the following thresholds has the IRS adopted for evaluating uncertain tax positions: a) substantial authority b) more likely than not c) reasonably possible d) probable 55. Which of the following is a way in which a company can eliminate the applicability of FIN 48, including the related disclosure requirements: a) issue OCBOA financial statements b) include a GAAP departure in the report c) switch to S corporation status d) use the special one-time GAAP selected disclosures method 56. In accordance with the FASB s financial statement presentation project, all items of income and expense recognized in the statement of comprehensive income would be segregated into: a) net income and other comprehensive income b) operating and non-operating income c) pre-tax and after-tax income d) controlling and non-controlling interests 57. Under the proposed financial statement presentation project, where would transactions related to lease obligations be presented in the statement of cash flows: a) operating activities b) operating finance activities subcategory c) investing activities d) debt subcategory 58. Which of the following has the FASB voted to eliminate under its financial statement presentation project: a) cash equivalents b) short-term notes payable c) available-for-sale securities d) trading securities 59. Implications of a drastic change in the format of financial statements would include all of the following except: a) tax return M-1 reconciliation would differ b) contract formulas for bonuses would have to be rewritten c) the cost would be significant d) the use of the term cash equivalents would remain Exam Page -12

14 60. Examples of recognition of revenue prematurely include all of the following except: a) channel stuffing b) improper use of the percentage completion method c) reporting revenue when significant services have not been performed d) reporting revenue when the goods are shipped and title passes 61. SAB No. 101 concludes that revenue should not be recognized until it is realized. Realization occurs when four criteria have been met that include all of the following except: a) delivery has occurred b) persuasive evidence of an arrangement exists c) the sale has been collected in cash d) the seller s price to the buyer is fixed and determinable 62. Which of the following is a step in applying the proposed revenue standard: a) deliver the goods or services b) collect the consideration c) determine the transaction price d) recognize revenue once the contract is signed 63. One key change under the proposed lease standard is: a) operating leases, but not capital leases, would be brought onto the balance sheet b) capital leases, but not operating leases, would be brought onto the balance sheet c) no leases would be capitalized d) most existing operating leases would be brought onto the balance sheet 64. Under the proposed lease standard, which of the following is true: a) an asset is recognized representing the sum of the lease payments over the lease term b) an asset is not recognized c) an asset is recognized representing its right to use the leased asset for the lease term d) an asset is recognized only if four criteria are met 65. Under the proposed lease standard, the lessee recognizes the liability at the present value of the lease payments discounted at: a) the lessor s borrowing rate b) the lessee s incremental borrowing rate c) the interest rate for similar obligations in the market d) 110% of the applicable federal rate 66. Under the proposed lease standard, which of the following is true: a) lease terms are likely to shorten and decrease the amount of the lease obligation b) lease terms are likely to get longer and reduce the amount of the lease obligation c) lease terms are likely to shorten and increase the amount of the lease asset recorded d) lease terms are likely to get longer and reduce the amount of the lease asset recorded 67. The proposed lease standard would likely result in which of the following occurring for existing operating leases: a) total lease expense for tax purposes would be greater than total GAAP expense b) total GAAP expense would be greater than lease expense for tax purposes c) GAAP and tax expense would be identical d) there would be no change in the total expense for GAAP or tax purposes from current practice 68. One potential impact from the proposed lease standard would be that EBITDA: a) favorable impact because interest would decrease while rental expense would increase b) unfavorable impact because depreciation would increase while rental expense would decrease c) favorable impact as interest and depreciation expense would increase while rental expense would decrease d) unfavorable impact because interest, depreciation and rental expense would all increase Exam Page -13

15 69. With respect to the FASB ASC, under which area would one find the Topic 808, Collaborative Arrangements: a) presentation b) industry c) general principles d) broad transactions 70. Which of the following is not one of the areas within the general structure of the ASC: a) general principles b) presentation c) disclosure d) industry 71. Which of the following is the system used for the FASB ASC in presenting a Topic, Subtopic and Section: a) XXX-YY-ZZ b) XX-YYY-Z c) X-Y-Z d) XXX-YYY-ZZZ 72. Which of the following is an advantage of the recommended Blue Ribbon model: a) it has lower education and training costs than other models b) it would reduce funding requirements c) the new model may speed up the pace of standard-setting activities d) the model could make engagements in due process efficient and less confusing for stakeholders 73. A valuation account is needed against a deferred income tax asset if it is that there will not be enough future taxable income during the NOL carryforward period to utilize the unused NOL. a) probable b) more likely than not c) reasonably possible d) highly probable 74. ASC 740 states that a deferred tax liability that relates to cannot be used as a source of future income to absorb a deferred income tax asset. a) goodwill b) equipment c) accrued vacation pay d) allowance for bad debts 75. In estimating future taxable income that will absorb deferred tax assets, such estimated future taxable income: a) should exclude any taxable income from reversal of existing deferred income tax liabilities b) should be limited to income estimated over the first five years in the carryforward period c) should include taxable income from reversal of existing deferred income tax assets d) should include all estimated future taxable income that will be generated in the foreseeable future 76. At December 31, 20X4, Company Y has a deferred tax asset due to an unused NOL carryforward. Y has had cumulative losses in years 20X2, 20X3 and 20X4. There are no deferred income tax liabilities at December 31, 20X4. In assessing whether the company will have sufficient future taxable income to absorb the deferred tax asset, how should the three years of cumulative losses be considered: a) the losses should be disregarded in making the assessment b) the losses should be considered strong negative evidence in making the assessment c) the direction of the losses is more important than the number of years of losses d) there must be at least five years of cumulative losses to be considered in making the assessment Exam Page -14

16 77. Which of the following is a change made by the Patient Protection and Affordable Care Act (PPACA): a) RDS subsidies received are now taxable when they were non-taxable b) employers can now claim a full tax deduction for the entire cost of providing prescription drug coverage c) a portion of the drug coverage expense that is offset by Medicare Part D subsidy is not deductible d) none of the drug coverage expense is deductible 78. If a parent deconsolidates a subsidiary and there is not a nonreciprocal transfer to owners, the parent should account for the transaction: a) by recognizing a gain or loss in net income b) by recognizing a gain or loss in other comprehensive income c) by treating the transaction under the nonmonetary transaction rules d) by recording any excess on the transaction as part of shareholders equity 79. Under ASU , an entity is required to provide fair value measurement disclosures for: a) each individual asset and liability b) each class of assets and liabilities c) each significant asset and liability d) each line item of assets and liabilities on the balance sheet 80. A certificate of deposit has an original maturity of 90 days or less. Where should be it presented on the balance sheet: a) as a cash and cash equivalent b) as a short-term investment c) as a separate category in the current asset section d) as a long-term asset if it is customary to roll over the CD from period to period 81. Which of the following is an example of an engagement in which an accountant issues a report designed to enhance the degree of confidence of third parties and management about the outcome: a) attest engagement b) assurance engagement c) compilation engagement d) compliance engagement 82. A review engagement is designed to obtain what level of service that there are no material modifications that should be made to the financial statements: a) high level of assurance b) moderate level of assurance c) limited assurance d) reasonable assurance 83. The term should is used to describe which degree of responsibility placed on an accountant: a) unconditional b) presumptively mandatory c) explanatory material d) recommended but not required 84. Which of the following is not a party to a compilation or review engagement: a) the responsible party b) the accountant c) intended users of the financial statements d) employees and third parties 85. Which of the following is not likely to be an example of a financial reporting framework: a) U.S. GAAP b) income tax basis of accounting c) IFRSs issued by the International Accounting Standards Board d) financial accounting standards established by a local organization not recognized for setting standards Exam Page -15

17 86. In a compilation engagement, an accountant is required to do all of the following except: a) have an understanding of the industry b) have knowledge of the client c) read the financial statements d) understand the entity s internal control 87. Which is the date that should be on a compilation report: a) date is the last day of field work b) date is the date on which inquiries and analytical procedures are completed c) date is the date of completion of the compilation d) date is the date on which the financial statements are released to the client 88. Which language should be used to label disclosures for U.S. GAAP, when an entity wishes to include disclosures about only a few matters in the form of notes to such financial statements: a) See Notes to Financial Statements b) Limited Disclosures Enclosed Under U.S. GAAP c) Selected Information Substantially All Disclosures Required by U.S. Generally Accepted Accounting Principles Are Not Included d) Disclosures Limited to Those Identified in the Report Under U.S. Generally Accepted Accounting Principles 89. An accountant lacks independence with respect to a compilation client. Which one of the following options is permitted to be followed by the accountant: 90. A general use compilation report is an accountant s report that: a) has limited restrictions b) is not restricted to specified parties c) is restricted to use for one or more specified third parties d) cannot be restricted under any circumstances 91. If, subsequent to performing a restricted use compilation engagement, the accountant is asked to add other parties as specified parties, which of the following should the accountant do: a) issue a new restricted report naming the additional parties b) obtain affirmative acknowledgment from the other parties c) do nothing because the accountant is not permitted to add other parties after the compilation is completed d) obtain an updated confirmation from each of the existing specified parties authorizing the accountant to add the additional parties 92. When financial statements are prepared in accordance with OCBOA, in order for the financial statements to be considered appropriate in form, how should disclosures be presented: a) disclosures required specifically for OCBOA financial statements b) disclosures identical to those required by GAAP c) disclosures similar to those required by GAAP d) selected, limited disclosures to those required by GAAP a) the accountant is not permitted to issue a compilation report b) the accountant is permitted to issue a compilation report but is not allowed to disclose the reason for the lack of independence c) the accountant is permitted to disclose the reason for the lack of independence in his or her compilation report d) the accountant is required to disclose the lack of independence in the notes to financial statements Exam Page -16

18 93. After the date of the accountant s compilation report, the accountant has: a) a responsibility to perform additional compilation procedures until the report is issued b) no obligation to perform other compilation procedures c) no obligation to perform other procedures unless new information comes to his or her attention d) a responsibility to perform additional compilation procedures up to 30 days from the date of the report 94. Reasons for changing the type of engagement from an audit or review to a compilation may include any of the following except: a) misunderstanding as to the nature of the type of engagement b) restriction on the scope of an audit or review c) change in the circumstances affecting the entity s requirement for an audit or review d) fraud assessment is not possible because a fraud has been committed by management 95. Which of the following is defined as information used by the accountant to provide a reasonable basis for the obtaining of limited assurance: a) review evidence b) review risk c) audit evidence d) fraud risk 96. In obtaining knowledge of a client for a review engagement, an accountant should obtain knowledge of all of the following except: a) client s business b) accounting principles used by the client c) entity s internal control d) accounting practices used by the client 97. In a review engagement, which of the following must an accountant perform as it relates to risk: The accountant must: a) understand and be aware of risk b) perform a risk assessment c) document control risk d) ignore risk 98. In performing analytical procedures, examples of sources of information for developing expectations include all of the following except: a) unadjusted prior period information b) anticipated results c) information regarding the industry d) relationships of financial information with nonfinancial information 99. Analytical procedures may be performed at which of the following levels: a) financial statement level only b) detailed account level only c) neither (a) or (b) d) both (a) and (b) 100. When an accountant is obtaining management representations for a review engagement and management was not present for a previous period, what kind of language can be included with the representations covering the previous period: a) to the best of my knowledge and belief b) not responsible for the following representations c) subject to limited knowledge d) based on limited information 101. The management representation letter for a review engagement should have which of the following dates: a) the date the client presents and signs the representation letter b) the date that field work is completed c) the date on which analytical procedures are completed d) the report date 102. Which of the following is an appropriate legend to place on each page of the financial statements reviewed by the accountant: a) See Report b) See Independent Accountant s Review Report c) See Auditor s Review Report d) See Accountant s Report Exam Page -17

19 103. In a review engagement, when fraud or an illegal act involves, the accountant should consider resigning from the engagement. a) senior management b) the owner of the business c) lower level management d) any party within the organization 104. In accordance with Interpretation 101-3, an accountant must take certain actions to avoid impairing independence, which include all of the following except: a) the accountant may not perform management functions b) the client must agree to perform certain functions c) the accountant should establish and document in writing an understanding with the client d) the accountant must be designated as an individual that possesses skill and knowledge 105. Under TIS 9150, the term where applicable refers to which the accountant has not reported on: a) compiled financial statements intended for third party use b) reviewed financial statements not intended for third party use c) compiled financial statements not intended for third party use d) reviewed financial statements intended for third party use 106. Which of the following is considered other information under SAS No. 118: a) a press release b) information contained in analyst briefings c) employment data d) information contained on the entity s web site 107. Facts: An auditor is auditing a company that has other information in documents containing financial statements. Upon reading the other information, the auditor identifies a material inconsistency prior to the report release date. Management refuses to make the revision. Which one of the following does SAS No. 118 require the auditor to do: a) contact his or her lawyer b) modify the auditor s opinion c) discuss the matter with management d) discuss the matter with those in charge with governance 108. Facts: An auditor is auditing a company and issues an auditor s report on the company s financial statements and a report on supplementary information. The date of the auditor s report on the supplementary information should be: a) no earlier than the document release date b) no earlier than the date on which the auditor completed procedures required by the standard c) prior to the report date d) after the report date if procedures have not been completed 109. Required supplementary information is: a) part of the basic financial statements b) considered an essential part of the financial reporting c) important but not essential d) required to be disclosed in the notes to financial statements 110. Which of the following is not defined as a designated accounting standard setter: a) Financial Accounting Standards Board b) International Accounting Standards Board c) Federal Accounting Standards Advisory Board d) American Institute of Certified Public Accountants Exam Page -18

20 111. In accordance with SAS No. 121, when interim financial information is condensed, that condensed interim financial information accompanies the entity s: a) latest audited annual financial statements b) supplementary information c) most recent quarterly financial statements d) forecasted information 112. In a comparison with SAS No. 70, SSAE No. 16 does all of the following except: a) requires management to provide a written assertion b) requires the user auditor to perform new expansive procedures c) requires a risk analysis be performed d) expands the reporting requirements for use of subservice organizations 113. Which of the following is true: a) a Type 1 Report is as of a specific date while a Type 2 report opines on controls in effect during a period of time b) a Type 1 report is for a period of time while a Type 2 report is as of a specific date c) a Type 1 report is as of the beginning of the period while Type 2 is as of the end of the period d) both reports are as of a specific date 114. Under SSAE No. 16, which of the following must an auditor include in a Type 2 report that is not in a Type 1 report: a) description of tests of controls b) restricted use c) service auditor s responsibilities d) service organization s responsibilities 115. Under ASC , Company X discloses the date through which it evaluated subsequent events. Which of the following is true as it relates to X s auditor s responsibility for performing subsequent event procedures: a) the auditor is required to perform subsequent event procedures through the same date on which X performed it s subsequent event procedures b) the auditor is not required to perform subsequent event procedures because X is performing them c) the auditor is required to perform subsequent event procedures through the audit report date d) the auditor is not required to perform subsequent event procedures but must obtain a representation from management 116. Facts: Brother-sister corporations maintain their books and records on the basis of accounting used to file their individual federal income tax returns. For GAAP, the entity s file combined financial statements. Which of the following is correct: a) the auditor is precluded from reporting on the combined financial statements b) the auditor must report on the combined financial statements c) the auditor may report on the combined financial statements only if he or she also reports on the financial statements of each of the individual companies d) the auditor is not precluded from reporting on the combined financial statements 117. Section 953 of Dodd-Frank requires disclosure of which of the following: a) the annual total compensation of the lowest one third of all employees of an issuer b) the annual total compensation of the CEO of an issuer c) the annual total compensation of all employees of the issuer d) the annual total compensation of the CEO and all senior management of an issuer Exam Page -19