2015 FASB, SSARS and SAS Review - Final Exam

Transcription

1 2015 FASB, SSARS and SAS Review - Final Exam Print Page 120 Questions 1. Examples of recognition of revenue prematurely include all of the following except: Channel stuffing Improper use of the percentage completion method Reporting revenue when significant services have not been performed Reporting revenue when the goods are shipped and title passes 2. 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: Delivery has occurred Persuasive evidence of an arrangement exists The sale has been collected in cash The seller's price to the buyer is fixed and determinable 3. Which of the following is a step in applying the revenue standard: Deliver the goods or services Collect the consideration Determine the transaction price Recognize revenue once the contract is signed 4. Under the revenue standard, in identifying a contract with a customer, a contract modification would be accounted for as a separate contract if the modification results on certain conditions being satisfied. One is that the promised goods or services are. Similar Distinct Separable Interchangeable 5. Company D has variable revenue from a contract. Because D has consideration in a contract that is variable, to estimate the transaction price, which of the following is an acceptable method D can use: Discounted cash flow method The expected value Weight-average index Probability-weight approach found in FAC No Company Z has several performance obligations and wants to allocate the transaction price to each obligation under the new revenue standard. In order to make the allocation, which piece of information should Z obtain for each performance obligation: Standalone price Fair value Replacement cost

2 Discounted price 7. In accordance with the revenue standard, revenue would be recognized under two approaches, one of which is. Over time As cash is collected similar to the installment sales method When the transaction is complete and collectibility is reasonably assured Using the completed contract method or cost recovery method 8. A company sells a product and allows its customers the right to return the product. To account for the transfer of the product with the right to return, which of the following should the company recognize: A refund receivable A deferred credit A refund liability A credit to equity 9. Company X sells a product and receives a fee. X wants to determine whether it should record the transaction gross (as a principal) or net (as an agent). Which of the following is a factor that would suggest that X is an agent: Another party is primarily responsible for fulfilling the contract X has inventory risk X has discretion in establishing the price X is exposed to credit risk 10. Company X has certain incremental costs associated with obtaining a contract. One such cost consists of sales commissions that will be recognized over two years. Under the revenue standard, how should X account for the commissions: Expense the commissions as period costs Recognize the commissions as an asset Net the cost against the revenue and present it on a net basis on the income statement Record it as a receivable and present it net of an allowance account 11. Company Z has general and administrative costs that are not explicitly chargeable to a customer contract. Under ASU , How should these costs be accounted for: Expensed when incurred Capitalized and amortized against revenue Pro rated with a portion capitalized and a portion expensed Netted against contract revenue 12. With respect to a contract under ASU , an entity shall present any unconditional rights to consideration separately as a : Liability Deferred credit Receivable Contra- equity account

3 13. Under existing GAAP prior to the effective date of ASU , which of following is an element of a development stage entity: Its planned principal operations have not commenced Operations representing at least 25% of total operations have commenced Significant revenue is being generated The business has at least two years of activity as an operating entity 14. One of the changes made by ASU is that the definition of development stage entity is: Eliminated from GAAP Replaced by another term Modified to be more comprehensive Expanded 15. Company X was a development stage entity in 20X1 and is no longer such an entity in 20X2. Under existing GAAP prior to the effective date of ASU , which of the following is a disclosure X should include in its 20X2 financial statements: None. Once X is no longer a development stage entity, no disclosures about it are required Must disclose in 20X2 that in prior years X had been in the development stage Must disclose a forecast of future sales and operations once X is out of development stage d Must disclose the cumulative losses incurred since inception of operations 16. is defined as an underlying event or transaction that would not reasonably be expected to recur in the foreseeable future, taking into account the environment in which the entity operates: Infrequency of occurrence Unusual nature Not likely to occur Not probable 17. Company X is trying to shift a loss to discontinued operations. By making the shift in loss, which of the following is a key measurement that X can increase that could drive X's stock price or value: Operating income Revenue Net income Cost of goods sold 18. One reason why a company might be motivated to shift a loss from continuing operations to discontinued operation is that. There is no settling up in the future for past earnings management The effect of the shift reverses in a future period Net income increases Disclosures are reduced 19. Which of the following is a reason noted by the author as to why there has been an expansion in classification shifting to discontinued operations:

4 The SEC and FASB have not been paying attention FASB No. 144 (now ASC 360) broadened the definition of discontinued operations The SEC issued a directive authorizing a large percentage of operating expenses to be allocated to discontinued operations There have been numerous calamities in recent years that qualify for discontinued operations treatment 20. One of the criticisms of the current definition of discontinued operations noted by investors is that it has resulted in which of the following: There has been a lack of disposals of small groups of assets classified as discontinued operations Not enough disposals of property transactions have been classified as continued operations Too many disposals of single transactions have been classified as discontinued operations Too many traditional revenue transactions have been classified as part of discontinued operations 21. Company X has numerous disposals and is trying to sort out which of them qualifies for discontinued operations classification under ASU Which of the following activities represents an activity that is excluded from discontinued operations under ASU : Goodwill Servicing assets Oil and gas properties accounted for using the full-cost method Deferred tax assets 22. In order for a disposal to qualify as a discontinued operations under ASU , the disposal must : Be material to the operations of the entity Have a major effect on an entity's operations Be an integral part of the business Be easily severable from the operations 23. Company Z has numerous operations all over the world. A disposal of which of the following would not likely be considered a strategic shift in Z's operations for purposes of meeting the discontinued operations definition: Sale of a single building Sale of a major group of retail stores in New England Sale of a major retail product line Sale of 85% of an equity method investment 24. How should the results of operations and any gain or loss related to discontinued operations be presented on the income statement: Net of applicable income taxes, but not benefit Net of applicable income taxes or benefit Gross without allocation of income taxes or benefit With income taxes allocated to the results of operations but not any allocation of income taxes to the gain or loss

5 25. If an entity has a discontinued operation that is classified as held for sale, how should the assets and liabilities of that transaction be classified on the balance sheet: Shall be combined with other assets and liabilities Shall be presented separately in the asset and liability sections Shall be commingled on the balance sheet with separate breakouts in the notes Shall be netted into one single line item called 'net held for sale assets' 26. Company X classifies certain assets and liabilities as held for sale. How should those assets and liabilities be measured once the classification to held for sale is made: Amortized cost Fair value Lower of carrying amount or fair value less costs to sell Net realizable value 27. Which of the following is an example of a transaction type that the FASB has eliminated from extraordinary treatment over the past decade: Sale of fixed assets Gain on sale of certain utility equipment Tax benefit of a net operating loss carryforward Recoveries from previous trade receivable writeoffs 28. Which of the following is a change made to the extraordinary item rules by ASU : Transactions are no longer classified as extraordinary on the income statement The rules to qualify a transaction for extraordinary treatment are more stringent FASB has liberalize the extraordinary item rules so that more transactions qualify for extraordinary item treatment ASU establishes a new sub-classification for extraordinary items 29. Company P has a material transaction that P considers to meet the infrequency of occurrence criterion. How should P present the transaction on the income statement under ASU : As part of extraordinary items, net of the applicable income tax or benefit As part of cost of goods sold As a separate item through retained earnings As a separate component of income from continued operations 30. In implementing ASU , which of the following are the choices an entity may use: Apply the ASU prospectively only Apply the ASU retrospectively only Apply the ASU either prospectively or retrospectively Neither prospective nor retrospective treatment would be appropriate 31. Which of the following would be an example of financial statements available to be issued under ASU :

6 Financial statements are complete in a GAAP format but have not been approved for issuance Financial statements are in an abbreviated non-gaap format and have been approved for issuance Financial statements are complete in a GAAP format and have been approved for issuance Financial statements are in an abbreviated non-gaap format and have not been approved for issuance 32. In accordance with the FASB's ASU related to going concern, management's evaluation of going concern runs for what period of time: One year Six months A reasonable period of time that is not quantified Eighteen months 33. Which of the following is the term that is used to measure 'substantial doubt' in managements' assessment of going concern: More likely than not Probable Reasonably possible Remote 34. Company X is in financial trouble and may have a going concern problem. Management has substantial doubt of X's ability to continue as a going concern. Management is seeking plans to mitigate the substantial doubt. Which of the following is an example of a plan management may implement to mitigate substantial doubt about going concern: The ability to purchase an asset Ability to repay all debt outstanding Availability and terms of new debt financing Plan to pay dividends to shareholders 35. Eli Walton is an auditor who is considering issuing a going-concern report on an audit client. Based on a study, which of the following is likely to be true with respect to Eli issuing a going-concern report: By issuing a going-concern report, there is a higher likelihood that Eli will be named in a class action lawsuit By issuing a going-concern report, Eli is not likely to deter investors from filing class action lawsuits against Eli If Eli issues a going-concern audit report, it increases the likelihood that management will switch auditors in the next year A going-concern report is likely to save the company from going out of business 36. Which of the following entities is permitted to elect the accounting alternative under ASU with respect to identifiable intangible assets: A private company An SEC registrant A non-profit entity A pension plan

7 37. Company X elects the accounting alternative under ASU Which of the following is true: X is permitted to apply it to selected provisions of ASU X is required to delay implementation for at least two years after making the election X must apply it to all of the related recognition requirements upon election X must apply it to three special provisions within ASU with the remainder being optional 38. Company Z is a private entity that wishes to elect the accounting alternative with respect to goodwill under ASU : Under that alternative, how should Z account for goodwill: Amortize goodwill over a maximum of 10 years Not amortize it but test it annually for impairment Amortize goodwill over a maximum of 5 years and perform an annual impairment test Writeoff goodwill in the first year 39. Which of the following is a criterion of an identifiable intangible asset: Amortization criterion Separability criterion Impairment criterion Amortization criterion 40. Which of the following is an example of a customer-related intangible asset: Noncompete agreement Customer list Patent Trademark 41. Company P acquires 100 percent of the voting shares of Company S in a business combination. As a result of the transaction, P obtains control of S. In this transaction, S is a (an). Acquirer Acquiree Seller Buyer 42. Company X is an acquiree in a business combination in which the acquirer obtains control of the acquiree. In which of the following situations, are the pushdown accounting rules not available to X: If X is an SEC entity If X is a non-sec entity If X is not a business If X is a nonprofit entity 43. Company S is an acquiree in a business combination and wishes to elect to apply pushdown accounting. As of which of the following dates must S apply the pushdown accounting:

8 The acquisition date of the change-in-control event The date on which the financial statements are issued The date on which the financial statements are available to be issued The first date on which the acquiree and acquirer engaged in any financial transaction 44. Which of the following should an acquiree recognize in its separate financial statements if the acquiree elects to use pushdown accounting: Acquisition costs of the acquirer Acquisition-related liability which represents an obligation of the acquiree Liability of the acquirer for which the acquiree has no obligation The assets and liabilities of all related-party entities 45. Company S, an acquiree, is contemplating electing use of pushdown accounting for its separate financial statements. In making the decision, which of the following is an advantage that use of pushdown accounting might have to S: Net income is likely to be higher EBITDA is likely to be higher Net assets are likely to be higher Operating cash flow is likely to be higher 46. Under the variable interest entity (VIE) model for consolidations, a reporting entity has a controlling financial interest in a VIE when it has which one of the following: It has the power to direct the VIEs activities that are most significant It manages the overall operations of the VIE It represents more than 80% of the VIE's revenue The reporting entity has a significant loan due from the VI 47. Which of the following is a reason why a common owner might establish a lessor entity separate from a private company lessee: For estate planning purposes To simplify accounting and reduce accounting fees To strip the asset out of the primary entity To satisfy the lender 48. A private company lessee may elect an alternative not to apply the VIE guidance to a lessor entity if certain criteria are met, one of which is that the private company lessee and the lessor entity : Have a formal written lease agreement Have an inter-entity loan agreement Are under common control Are about to go public 49. FIN 46R states that an entity's equity is sufficient if the entity has demonstrated that it can obtain : Recourse financing of at least AA grade Non-recourse investment-grade financing An unsecured loan sufficient to fund its operations for at least 12 months A secured loan with or without a personal guarantee

9 50. Which of the following is not generally considered a variable interest that an operating company lessee might have in a real estate lessor (VIE): A guarantee of lessor's debt Collateral for the lessor's bank loan A direct loan from the lessee to the lessor A market-value lease 51. Which of the following is a type of guarantee of the lessor's debt, made by the owner, that is treated as a guarantee made by the operating company lessee: An indirect guarantee An explicit guarantee An implicit guarantee A completed guarantee 52. Which of the following entities can elect the accounting alternative under ASU : A public company A private company A non-profit company A pension plan 53. Facts: A grandfather owns 100% of the voting interest in a lessor and his grandson owns 100% of the voting interest in a lessee. Which of the following is true. The lessor and lessee being under common control: May qualify as Do not qualify as Do qualify as Are not permitted to qualify as 54. Per ASU , which of the following is not a leasing activity (including supporting leasing activities), assuming it relates to an asset leased by a private company lessee: An explicit guarantee Collateral provided An implicit guarantee A lease option 55. In applying Criterion 2 of ASU , the lease arrangement. Is limited to real estate Is not limited to real estate Is limited to personal property Cannot include the lease of intangible assets 56. In applying the Criterion 4 assessment of ASU , which of the following is true once the assessment is made: Criterion 4 is reassessed annually

10 The assessment is updated based on a series of triggering events that are identified within the ASU Criterion 4 is reassessed only if the lessor entity subsequently refinances or enters into any new obligation(s) that requires collateralization and/or a guarantee by the private company lessee The assessment must be updated continuously 57. ASU 's continuous assessment applies to which of the following criteria: First three criteria only First criterion only Second criterion only All four criteria 58. ASU states that if the VIE accounting alternative is elected, it should be applied by a private company lessee to which one of the following: All future lessor entities under common control, but not to any current or past entities All current and future lessor entities under common control All current and past (but not future) lessor entities under common control All lessor entities under common control that existed at the date of the election 59. The election to adopt ASU 's accounting alternative is a (an): Change in accounting estimate Accounting policy election Correction of an error Special one-time election authorized by ASC With respect to ASU , when issuing a compilation or review report to deal with an accounting principle being implemented and the retrospective application election to a previous year, which of the of following is true: The SSARSs require a report modification for a review (but not compilation) report The SSARSs require a report modification for a compilation (but not review) report The SSARSs require a report modification for a compilation and review report The SSARSs do not require a report modification for a compilation or review report 61. Under ASU , the infrastructure that is the subject of a service concession arrangement shall not be recognized as of the operating entity: An intangible asset Property, plant and equipment A current period expense A deferred credit 62. In accordance with ASU , service concession arrangements are not within the scope of :

11 ASC 840, Leases Revenue and costs related to operation services under ASC Topic 605, Revenue Recognition Revenue and costs related to construction under ASC Topic 605, Revenue Recognition ASC 853, Service Concession Arrangements 63. In accordance with ASU , which of the following is a situation in which an in- substance repossession or foreclosure occurs: The creditor receives physical possession of the debtor's assets The creditor is promised that he or she will receive possession of the debtor's assets in the future upon a triggering event, such as the debtor's death The creditor believes he or she will ultimately prevail in obtaining the debtor's assets once a future foreclosure is completed The creditor estimates that the fair value of the underlying collateral exceeds the carrying amount of the debt 64. In accordance with ASU , a creditor may obtain legal title to residential real estate property even if the : Borrower still retains the deed Borrower has redemption rights Creditor has not foreclosed yet Borrower has not given the creditor a deed in lieu of foreclosure 65. In order to qualify for cash flow hedge accounting, ASC , Derivatives and Hedging, states that all of the following criteria must be met except: There must be an informal designation and documentation throughout hedge period There must be eligibility of hedged items and transactions There must be eligibility of hedging instruments There must be hedging effectiveness 66. Which one of the following entities is an eligible entity that can use the simplified hedge accounting approach: Public business entity Not-for-profit entity Employee benefit plan Private company 67. ASU states that a receive-variable, pay-fixed interest rate swap for which the simplified hedge accounting approach is applied may be measured subsequently at instead of fair value: Settlement value Present value Liquidation value Original cost 68. An intangible asset with a finite life should be : Amortized Tested annually for impairment

12 Combined with intangibles with indefinite lives and not amortized Expensed as there is no future benefit 69. Company Y is a nonpublic (private) company with goodwill and wishes to elect ASU 's accounting alternative. Over what life may Y amortize its goodwill using the accounting alternative: 10 years straight line Goodwill may not be amortized 15 years straight line 40 years straight line or accelerated 70. ASU 's accounting alternative applies to which one of the following goodwill transactions: Goodwill that an entity recognizes in a business combination Internally generated goodwill Goodwill from investments recorded at cost Goodwill that has been fully amortized 71. Company X, a private company, has been amortizing goodwill under ASU 's election. X revises the useful life over which it amortizes goodwill. Which of the following is true. The cumulative amortization period of goodwill cannot exceed : 5 years 15 years 10 years 40 years 72. The threshold used in the qualitative approach for goodwill impairment is : Probable More likely than not Reasonably possible Remote 73. Which of the following is the formula used for the new, single-step quantitative test for goodwill impairment loss authorized under ASU for private companies: Carrying amount less fair value of an entity's stockholder's equity Market value less fair value of the entity's goodwill Fair value of total assets less fair value of goodwill Discount cash flows less carrying amount of goodwill 74. Which of the following is a public business entity: A not-for-profit entity An employee benefit plan An entity that files financial statements with the SEC A private company that files financial statements 75. ASU provides an exception to the general rule under which an unrecognized tax benefit shall be presented and not combined with deferred tax assets, to the extent a net operating loss

13 carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law: As a liability As a deferred tax credit As a reduction to the deferred tax asset As a credit to other comprehensive income 76. Which of the following is not a category or subcategory of financial statements proposed under the financial performance reporting project: Business section Financial section Income tax section Debt section 77. In accordance with the FASB's proposed financial instruments project, an entity would classify each financial asset into a category on the basis of two criteria, one of which is: Entity's business model for managing the asset Duration of holding the underlying asset Extent to which the asset is a 'critical component' Entity's intent and historical actions taken in connection with similar assets 78. One key change under the proposed lease standard is: A small portion of operating leases, but not capital leases, would be brought onto the balance sheet Capital leases, but not operating leases, would be brought onto the balance sheet No leases would be capitalized Most existing operating leases would be brought onto the balance sheet 79. Under the proposed lease standard, the lessee recognizes the liability at the present value of the lease payments discounted at which of the following permitted rates: The lessor's borrowing rate The interest rate for similar obligations in the market The lessee's incremental borrowing rate 110% of the applicable federal rate 80. What happens to existing leases on the date of adoption of the proposed lease standard: Existing operating leases are grandfathered but capital leases are not Existing capital leases are grandfathered but operating leases are not The proposed standard does not grandfather any existing leases Existing leases are phased into the new standard over a four-year period 81. Which of the following is a change made in SSARS No. 21 that is carried over from auditing standards: The term 'illegal acts' is replaced with the term 'noncompliance with laws and regulations' Confirmations must be sent to third parties in a review engagement

14 Term 'income tax basis' is retained A management representation letter is optional for a review engagement similar to an audit engagement 82. Which of the following is an engagement type that is not a type of engagement that is authorized under SSARS No. 21: Audit engagement Preparation of financial statements engagement Compilation engagement Review engagement 83. AR-C 70 treats the preparation of financial statements as a(an). Nonattest service in all cases Attest service in all cases Attest service if performed in conjunction with a review or audit engagement Nonattest service only if performed as part of a compilation engagement 84. Ralph Crammer is an accountant. What has to happen in order for Ralph to perform a preparation of financial statements engagement: Ralph must be engaged (hired) to prepare financial statements Ralph must be forced to prepare financial statements because he has submitted financial statements Ralph must makes journal entries to the general ledger Ralph must link general ledger accounts to financial statement line items 85. Sally Fields is a CPA who is performing a preparation of financial statement engagement under AR-C 70. Which of the following is true with respect to peer review: Sally is most likely not subject to peer review as long as the only engagements she performs are preparation engagements Sally is not subject to peer review as long as Sally only performs preparation and compilation engagements, and avoids review and audit engagements Sally is most likely subject to peer review even if the only engagements she performs are preparation of financial statement engagements Sally has the option of participating in a peer review program if she performs both preparation, compilation and review engagements 86. Joan Arch CPA is performing a preparation of financial statements engagement under AR-C 70. Which of the following is the type of report that must be issued for this type of engagement: No report is issued in most cases An abbreviated compilation report is issued A special preparation report is issued The accountant has an option to issue either a compilation or review report for the preparation engagement 87. Ronald Reagan is performing a preparation of financial statements engagement under AR-C 70. Management refuses to include a legend on each page of the financial statements. What are the accountant's options under AR-C 70:

15 Accountant may type in his or her own legend on each page of the financial statements Accountant should issue a disclaimer report Accountant is not required to do anything as a preparation engagement is a plain- paper engagement Accountant must withdraw from the engagement 88. If a description of a special purpose framework is presented on the face of the financial statements, which of the following is an acceptable location where the description can be presented: Next to the title of the financial statement such as 'balance sheet-tax basis' Only under the title of the financial statements but not next to the title Must be presented only at the bottom of the financial statement under the legend, if there is a legend There is no requirement to include a description on the face of the financial statements as it must be presented in the notes to financial statements 89. An accountant is preparing financial statements on the tax basis. A statement of cash flows is not included. What kind of legend should be included to reflect the fact that a statement of cash flows is not included: No legend is required. A statement of cash flows is not required under the tax basis of accounting A legend should be included stating that there is a GAAP departure A comment must be made in the notes to financial statements A legend is required only on the balance sheet, but not on the income statement 90. With respect to a preparation of financial statements engagement under AR-C 70, an engagement letter. Should be signed by the accountant but not by management or those charged with governance Should be signed by both the accountant and management or those charged with governance Does not have to be signed Should be signed by management but not by the accountant 91. The objective of a compilation engagement is to. Prepare financial statements Apply accounting and financial reporting expertise Read financial statements Opine on financial statements 92. If an accountant performs a nonattest service for an attest client, the accountant must determine that certain safeguards exist to ensure he or she does not taint his independence. One is that there must be language in the engagement letter that confirms that. 93. The client assumes responsibility for the nonattest service performed The accountant must approve all entries The accountant must approve all account classifications The client takes no responsibility for the service performed

16 One procedure that an accountant should perform in a compilation engagement is that the accountant should. Perform analytical procedures Perform inquiries Perform confirmation procedures Read the financial statements 94. Facts: Susie Stone is preparing a compilation report for a client under the new AR-C 80 compilation standards. Which of the following is true: The report no longer requires that the accountant's city and state where he or she practices be included The accountant's responsibility has been expanded in the report The objective (definition) of a compilation engagement is not included in the report The report modification for lack of independence is no longer required 95. An accountant is including a paragraph in his compilation report noting that she is not independent and wants to disclose the reasons for the lack of independence. Which of the following is true. She must disclose only the key reason why she lacks independence She must disclose all reasons for lack of independence She is not permitted to disclose the reasons for lack of independence She must quantify the impact that lack of independence might have on the financial statements 96. Elisa is an accountant who is performing a compilation engagement on Company Z's financial statements. U.S. GAAP is the framework. Management elects to include disclosures only about a few matters in the notes. How should such disclosures be labeled: Notes to Financial Statements Selected Information- Substantially All Disclosures Required by Accounting Principles Generally Accepted in the United States of America Are Not Included See Accountant's Report on Partial Information The Selected Notes Are an Integral Part of the Financial Statements 97. How should an accountant disclaim supplementary information in a compilation engagement: Include an other-matter paragraph in the accountant's compilation report Include a disclosure in the notes to financial statements Include a legend on each page of the supplementary information Do nothing because a disclaimer on supplementary information is not authorized for a compilation engagement 98. Which of one of the following types of engagements found in SSARS No. 19 does SSARS No. 21 eliminate: Management-use only financial statements engagement Assembled financial statements engagement Plain-paper financial statements engagement Examination of financial statements engagement

17 99. Which of the following is not information on which an accountant may perform a review engagement under AR-C 90: Interim financial information subject to a review under auditing standards AU-C 930 Required supplementary information Information that is contained on a tax return Schedule of royalties 100. Jenny is an accountant who is performing a review engagement. Which of the following is not a requirement that Jenny must satisfy to perform her engagement under AR-C 90: Understand the industry Obtain knowledge of the industry Understand and document internal control Obtain a written representation from management 101. In performing analytical procedures in a review engagement, one procedure is to compare ratios developed from recorded amounts to. Expectations developed by the accountant Moving average ratios over the past five years Forecasted amounts or ratios Pro forma amounts 102. Which of the following is an example of evidence an accountant would obtain that the financial statements reconcile with accounting records: Compare the financial statements to? The accounting records or general ledger Forecasted financial statement Pro forma financial statement Industry information and ratios 103. Which of the following would be an appropriate title for an accountant's review report: Accountant's Report Independent Accountant's Review Report Report Review Report 104. If there are both emphasis-of-matter and other-matter paragraphs in an auditor's report, in what order should the various paragraphs be presented: FIRST: Accountant's conclusion paragraph, SECOND: Emphasis-of-matter paragraph, and THIRD: Other-matter paragraph FIRST: Emphasis-of-matter paragraph, SECOND: Other-matter paragraph, and THIRD: Accountant's conclusion paragraph FIRST: Emphasis-of-matter paragraph, SECOND: Accountant's conclusion, and THIRD: Other-matter paragraph FIRST: Accountant's conclusion, SECOND: Other-matter paragraph, and THIRD: Emphasis-of matter paragraph

18 105. Steve is performing a review engagement. His review documentation should include all of the following item except a. Engagement letter Management representation letter Copy of confirmation procedures performed Copy of the reviewed financial statements 106. According to the 2014 Report to the Nation on Occupational Fraud and Abuse, which category of fraudulent cash disbursements involves the employee submitting invoices for payment by the organization that are for fictitious goods or services, inflated amounts, or for personal purchases: Billing schemes Check tampering Expense reimbursement schemes Register disbursement schemes 107. Under Section 806 of Sarbanes-Oxley, which of the following whistleblower protections is provided for employees of public companies: Requires a company board to pay whistleblowers a referral fee Requires a company to rehire an employee at three times his or her previous average compensation over the past three years Prevents a company from discharging an employee for providing information about fraud Permits a company to sue an employee who whistleblows false information 108. An incentive for a whistleblower to overreact and report to the SEC prematurely is: The information provided to the SEC must be fresh The first party to disclose a fraud is the only one who receives the reward There is a short time limit to whistleblow and receive a reward The special anti-retaliation rules allow for a very short window of protection after which a company can retaliate against an employee without recourse 109. One incentive for a company to offer a mechanism for employees to report an SEC violation first to the company is: It allows a company to correct the action internally before being reported to the SEC It allows the company to terminate the employee before the employee is able to report to the SEC It allows a company to file an injunction against the employee before the employee is able to report to the SEC It allows the company to modify files and other evidence and develop a defense strategy before being reported to the SEC 110. A/An is defined as deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Significant deficiency Error Irregularity

19 Severe deficiency 111. Jimmy is a CPA who is auditing Company Jimmy identifies a deficiency in internal control that does not rise to being either a significant deficiency or a material weakness. What action must Jimmy take, if any: Not a single thing has to be done Communicate with the board of directors Make an oral or written communication with management Modify the audit report 112. Which of the following is true as it relates to a situation in which there are no material weaknesses identified during an audit. The auditor stating that no material weaknesses were identified during the audit? Is not permitted to issue a written communication Is required to issue a written communication Is permitted to issue a written communication Is not permitted to issue an oral communication 113. Which is an example of a result that can occur if a CPA firm has a problem with a DOL employee benefit plan audit: The Form 5500 can be disqualified The CPA firm can be asked to take additional CPE Nothing can occur. The DOL has no authority over the CPA firm The CPA firm can be fined by the AICPA and state CPA society 114. Cheryl Tighe has a problem. She is an employee of a company. Cheryl likes to perpetrate fraud and enjoys the challenge of not getting caught. When she commits the fraud, she receives a 'cheaters' high. What kind of fraudster or cheater is she: Isolated fraudster Perpetual fraudster Talented cheater Chronic cheater 115. Company X is trying to reduce cheating in the company. Which of the following is not an action that might reduce cheating: Reduce the lighting so that the lights are dimmer than usual Hang mirrors with eyes on it Install mock cameras Have an honor code 116. What kind of fraudster is typically susceptible to the conditions of the fraud triangle: Perpetual fraudster Isolated fraudster Remorseful fraudster Recurring fraudster 117. Harry Callahan is auditing the current year's 20X2 financial statements for X Corporation. The prior period 20X1 financial statements were audited by

20 another auditor. In Harry's current year 20X2 audit report, Harry includes an other-matter paragraph separating his responsibility for the 20X1 prior year financial statements. In the current year 20X2 management representation letter, how should Harry handle 20X1 representations: Harry is not required to obtain representations for 20X1 because he is not issuing an opinion on 20X1 Harry must obtain representations for 20X1 Harry is not allowed to obtain representations for 20X1 Harry must obtain representations for 20X1 but insert a disclaimer related to those representations 118. In 2015, Ralph CPA is asked to perform an audit for year-end 2011, prior to the effective date of the new auditing standards (which was 2012). Which of the following is true: Ralph is not permitted to use the new standards because they were not in effect back in 2011 Ralph is permitted to use the new standards because they are now effective at the time the audit is being performed (2015) Ralph may use the new audit report, but may not follow the rest of the new standards for the 2011 audit Ralph must follow the old auditing standards 119. Which of the following is true as it relates to the city and state where the auditor practices: The city and state must be placed under the auditor's signature on the report in all cases The auditor is not permitted to place the city and state under the auditor's signature if such information is presented in the firm's letterhead on which the report is issued The SASs do not require the city and state to be named in the auditor's report If the city and state is named in the firm's letterhead on which the report is issued, it does not have to be presented below the auditor's signature 120. If an accountant is asked to provide some form of a comfort letter to a lender for a client, which of the following is a statement that would be appropriate for the accountant to make to the lender: 'The client is not insolvent' 'The client has the ability to pay all of his or her debts' 'The client has informed me that he is self employed' 'The client's business is profitable'