Practice Issues: Compilation and Review. Course #6210A/QAS6210A Exam Packet

Transcription

1 Practice Issues: Compilation and Review Course #6210A/QAS6210A Exam Packet

2 PRACTICE ISSUES: COMPILATION AND REVIEW (COURSE #6210A/QAS6210A) COURSE DESCRIPTION This course informs the reader of the various changes proposed by the Accounting and Review Services Committee of the AICPA and practice issues surrounding compilation and review engagements. This course covers SSARS Nos. 9 through 19, responsibility for fraud, internal control and going concern, representation letters for reviews, personal financial statements, compiling pro forma financial information, OCBOA financial statements, legends on financial statements, and more. Uses material entitled Practice Issues Compilation and Review Update by Steven C. Fustolo, CPA. Prerequisites: Basic understanding of compilation and review engagements. Course level: Basic/Intermediate. Course #6210A/QAS6210A 20 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 Introduction SSARS No. 19: Compilation and Review Engagements Read the materials from pages 7 to 17 Study the review questions and suggested solutions: Pages 18 to 21 Answer the exam questions 1 to 6 Objectives: To discuss the framework for performing and reporting on compilation and review engagements ASSIGNMENT SUBJECT 2 SSARS No. 19: Compilation Engagements Read the materials from pages 22 to 52 Study the review questions and suggested solutions: Pages 53 to 58 Answer the exam questions 7 to 16 Objectives: To describe the requirements for compilation engagements per SSARS No. 19 Exam Page -1

3 ASSIGNMENT SUBJECT 3 SSARS No. 19: Review Engagements Read the materials from pages 59 to 89 Study the review questions and suggested solutions: Pages 90 to 96 Answer the exam questions 17 to 26 Objectives: To describe the requirements for review engagements per SSARS No. 19 ASSIGNMENT SUBJECT 4 Controllership Issues: What s Going on in Practice? Distributing Draft Financial Statements Consideration of Fraud and Internal Control in a Compilation and Review Engagement Analytical Procedures in a Review Engagement Using Staff in a Compilation or Review Engagement Legends on Compiled or Reviewed Financial Statements Use of the Term Unaudited in Compiled and Reviewed Financial Statements Going Concern: Compilation and Review Responsibility for Incomplete Information Compilation Engagement Read the materials from pages 97 to 125 Study the review questions and suggested solutions: Pages 126 to 131 Answer the exam questions 27 to 37 Objectives: To discuss the various responsibilities of the accountant as they relate to draft financial statements, fraud and internal control, analytical review procedures, using staff, and going concern issues ASSIGNMENT SUBJECT 5 Using OCBOA Financial Statements for Engagement Profitability SSARS No. 9 Omnibus Statement on Standards for Accounting and Review Services 2002 Selected Information Substantially All Disclosures Required by Generally Accepted Accounting Principles Are Not Included Reference to the Country of Origin in a Review or Compilation Report SSARS No. 10: Performance of Review Engagements SSARS No. 11: Standards for Accounting and Review Services Read the materials from pages 132 to 205 Study the review questions and suggested solutions: Pages 206 to 211 Answer the exam questions 38 to 49 Objectives: To explain the impact of SSARS Nos. 9, 10 and 11 Exam Page -2

4 ASSIGNMENT SUBJECT 6 Compilation and Review Statements SSARS No SSARS No. 15: Elimination of Certain References to Statements on Auditing Standards and Incorporation of Appropriate Guidance into Statements on Standards for Accounting and Review Services Changes to Illustrative Inquiries Review Engagement SSARS Interpretations SSARS No. 16: Defining Professional Requirements in Statements on Standards and Review Services SSARS No. 17: Omnibus Statement on Standards for Accounting and Review Standards 2008 SSARS No. 18: Applicability of Statements on Standards for Accounting and Review Services Read the materials from pages 212 to 278 Study the review questions and suggested solutions: Pages 279 to 282 Answer the exam questions 50 to 53 Objectives: To explain the impact of SSARS Nos. 12 through 18 ASSIGNMENT SUBJECT 7 Personal Financial Statements and Prescribed Forms Assurance Services An Engagement Expansion Opportunity Financial Statements Submitted in Litigation Support Engagements Involving Bankruptcy and Reorganization Campaign Reports Financial Statements Submitted Electronically Reporting on Budgets Read the materials from pages 283 to 297 Study the review questions and suggested solutions: Pages 298 to 301 Answer the exam questions 54 to 60 Objectives: To discuss how the rules for personal financial statements are applied Exam Page -3

5 ASSIGNMENT SUBJECT 8 Peer Review Changes Peer Reviews: Recurring Deficiencies Noted in Compilation and Review Engagements GAAP Hierarchy: Compilation and Review Read the materials from pages 302 to 319 Study the review questions and suggested solutions: Pages 320 to 326 Answer the exam questions 61 to 74 Objectives: To identify the changes in peer review and deficiencies found in peer review engagements ASSIGNMENT SUBJECT 9 Simplifying the Reporting Process Using the Internet An Accountant s Research Tool Consulting on Complex Technical and Ethical Questions Changes to Engagement Letters Liability to Accountants Who Perform Bank Reconciliations Read the materials from pages 327 to 369 Study the review questions and suggested solutions: Pages 370 to 374 Answer the exam questions 75 to 83 Objectives: To explain how to tighten up engagement letters Exam Page -4

6 ASSIGNMENT SUBJECT 10 Changes in Independence Rules That Affect Compilation and Review Engagements Revision of Interpretation Performance of Nonattest Services International Compilation and Review Standards Responsibility to Third Parties: The Privity Standard Public Perception of Accountants in Jury Trials Ethics Interpretations Determining Whether Financial Statements Have Been Prepared by the Accountant Read the materials from pages 375 to 447 Study the review questions and suggested solutions: Pages 448 to 455 Answer the exam questions 84 to 100 Objectives: To discuss the changes in the independence rules that affect compilation and review engagements ASSIGNMENT 11 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 Practice Issues: Compilation 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 2010 Program publication date 06/22/10 Exam Page -5

7 PRACTICE ISSUES: COMPILATION AND REVIEW (COURSE #6210A/QAS6210A) 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 100 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 Practice Issues: Compilation and Review course (#6210A/QAS6210A) qualifies for 20 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 -6

8 PRACTICE ISSUES: COMPILATION AND REVIEW (COURSE #6210A/QAS6210A) FINAL EXAM The following questions are either true or false and/or multiple choice. Please indicate your choice on the enclosed Answer Sheet. 1. 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 2. 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 3. 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 4. A compilation and review article published in the AICPA s The CPA Letter is an example of which of the following categories of literature within the compilation and review hierarchy: a) compilation and review standard b) interpretative publication c) other compilation and review publications 5. 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 6. 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 7. 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 8. 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 9. Which of the following 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 Exam Page -7

9 10. An accountant lacks independence with respect to a compilation client. Which one of the following options is permitted to be followed by the accountant: 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 11. An accountant is issuing a compilation report and is not independent for more than one reason. The accountant wishes to disclose the reasons for the lack of independence. How should the accountant disclose the reasons: a) each reason must be presented in a separate paragraph in the compilation report b) the accountant may combine the reasons into a single paragraph c) the reasons may be combined only if they are the same general type d) only reasons that related to family relationships and ownership may be combined 12. 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 13. 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 14. 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 15. 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 16. Reasons for changing the type of engagement 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 Exam Page -8

10 17. 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 18. 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 19. is the risk that the accountant may unknowingly fail to modify his or her review report on financial statements that are materially misstated. a) engagement risk b) review risk c) compliance risk d) detection risk 20. 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 relevant nonfinancial information 21. Analytical procedures may be performed at which of the following levels: a) financial statement level only b) detailed account level only c) neither (a) nor (b) d) both (a) and (b) 22. 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 Exam Page 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 24. The date of the management s representation letter the date of the accountant s review report. a) should not be dated earlier than b) should be dated the same as c) should be dated prior to 25. 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 26. Instances where an accountant might have a duty to disclose information about a fraud or illegal act to parties outside of the entity exclude which of the following: a) to comply with certain legal and regulatory requirements b) to a successor accountant c) in response to a subpoena d) in response to a request from a lender 27. In considering whether a controller may issue compiled financial statements, which of the following is true: a) SSARS Interpretation No. 21 offers authoritative guidance as to the reporting responsibilities for accountants offering controllership services b) SSARS Interpretation No. 21 offers nonauthoritative guidance as to the reporting responsibilities for accountants offering controllership services c) SSARS Interpretation No. 21 does not address the issue of accountants offering controllership services are true

11 28. Facts: A CPA is a CFO for a company. The company asks the CFO to issue a compilation report on the company s financial statements. Which of the following is correct: a) the CPA is permitted to issue a compilation report because he or she is the CFO b) the CPA is not permitted because he or she is not in the practice of public accounting c) the CPA can issue a review but not a compilation report d) the CPA can issue a compilation report as long as he or she disclaims independence 29. In minimizing the CPA s exposure to fraud risk, the author provides three recommendations that include all of the following except: a) make sure the engagement letter is up-todate for new internal control and fraud language b) make sure the client is fully aware of his or her responsibility to prevent and detect fraud c) make sure that confirmation procedures are part of all engagements d) send out a standard internal control/fraud letter to all clients for all engagements 30. Which of the following is not a question that is included on the Client Internal Control/ Defalcation Checklist: a) Is the person who handles cash also responsible for recording cash? b) Do you reconcile a bank statement on a timely basis at least once a month? c) Do you ever sign blank checks? d) Have you considered hiring additional employees to ensure a stronger segregation of duty? 31. With respect to the requirement to gather information about fraud, an accountant (auditor) is required to gather such information for: a) an audit, but not a compilation or review engagement b) an audit and review, but not a compilation engagement c) all engagements 32. With respect to the requirements for considering fraud and illegal acts among engagements, which of the following is true as to required communications about fraud. An accountant (auditor) is required to communicate fraud for: a) compilation, review and audit engagements b) audits, but not compilation and review engagements c) audits and reviews, but not compilation engagements 33. The three types of analytical procedures that can be used in a review engagement include all of the following except: a) trend analysis b) reasonableness tests c) ratio analysis d) inquiry of key personnel 34. Which of the following terms should not be placed on the pages of a compiled or reviewed financial statements: a) See Accountants Compilation Report b) See Accountants Review Report c) Unaudited 35. In dealing with going concern as it relates to compilation and review engagements, which of the following is true: a) the CPA is not responsible for going concern in compilation and review engagements b) the CPA is responsible for going concern in compilation, but not review engagements c) the concept of going concern is the same for compilation and review engagements as with audit engagements d) the CPA is responsible for going concern in review, but not compilation engagements Exam Page -10

12 36. Which of the following is not a factor that may indicate a potential going concern problem: a) unusually liberal credit terms to customers including dating of receivables b) continued operating losses c) negative cash from operations in statement of cash flows d) strong cash flows but a lawsuit that may occur in the future 37. A company that has an Altman Z Score of 4.0: a) is headed toward bankruptcy b) is strong with an unlikely risk of bankruptcy c) could have problems with bankruptcy in the future d) has a score that has no correlation with bankruptcy 38. Which of the following is not included as part of the definition of Other Comprehensive Basis of Accounting (OCBOA): a) income tax basis b) cash / modified cash basis c) regulatory basis d) GAAP accrual basis 39. Generally, OCBOA-income tax basis financial statements are best used and most useful in all of the following instances except: a) there is a less financially sophisticated closely held client b) the client is motivated to present higher financial statement income c) the company is in a strong financial position and will not be forced into debt covenant violations by presenting a lower net income d) there is incentive to reduce overall engagement time 40. Which of the following is an example of a deferred M-1 that is eliminated by OCBOA financial statements: a) depreciation MACRS is used for financial statements b) meals and entertainment c) key man life insurance d) penalties and fines 41. Financial statements prepared on an other comprehensive basis of accounting (OCBOA) should include all of the following disclosures except: a) summary of significant accounting policies b) a reconciliation of OCBOA to GAAP income for each period presented c) basis of accounting and how it differs from GAAP d) similar informative disclosures to those required by GAAP 42. With respect to OCBOA financial statements, a statement of cash flows: a) is required b) is not required c) is not allowed 43. A representation letter is required for: a) all review engagements, but not required for compilation engagements b) all engagements c) only audits, but not for reviews and compilations 44. In designing an effective representation letter, an accountant may wish to consider all of the following except: a) avoid the use of technical terms, and instead use terms that are understandable to the client b) in litigation, a more thorough explanation in person has helped some firms defend against management s claim that they did not understand the level of service being performed c) it is good practice to review the representation letter with the client before the letter is signed d) make the letter very technical in nature so that it will be binding in the event of litigation Exam Page -11

13 45. When dealing with supplementary information, which of the following is not true: a) in a review engagement, supplementary information may be reviewed b) in a review engagement, supplementary information may be compiled c) in a compilation engagement, supplementary information may be compiled d) in a compilation engagement, supplementary information may be reviewed 46. With respect to page legends for supplementary information, which of the following is true: a) make sure each page of supplementary information makes reference to the Accountant s report b) make sure each page of supplementary information does not reference the Accountant s report c) make sure each page of supplementary information has the term statement in the title 47. With respect to Interpretation No. 22, the label Selected Information Substantially All Disclosures Required by Generally Accepted Accounting Principles Are Not Included should not be used in situations where substantially all disclosures are included. a) true b) false 48. With respect to Interpretation No. 24 of SSARS No. 1, a compilation or review report reference the country of origin. a) must b) may, but is not required to c) may never 49. SSARS No. 11 does which of the following: a) establishes a SSARS hierarchy in order to provide accountants with the appropriate literature and publications that fall within that hierarchy b) establishes standards for internal control c) establishes detailed examples as to how to perform analytical review procedures 50. According to SSARS No. 12, the accountant must report fraud: a) even if the matter is considered inconsequential b) only if the matter is considered inconsequential c) only if it is consequential 51. Examples of specified elements, accounts or items of a financial statement that an accountant may compile include schedules of all of the following except: a) rentals b) royalties c) profit participation d) balance sheet 52. According to SSARS No. 15, an accountant may emphasize, in any report on financial statements, a matter. a) disclosed in the financial statements b) only if it will have a material effect on the financial statements c) that would otherwise be required to be included in the report d) when and if the matter would result in an adjustment within one year of the balance sheet date 53. One key change made by SSARS No. 17 is that the term is replaced with the term. a) nonpublic entity, nonissuer b) nonissuer, public entity c) public entity, nonpublic entity 54. SOP 82-1 (ASC 274) requires that assets be stated at their: a) amortized cost b) replacement cost c) estimated current values Exam Page -12

14 55. A prescribed form as defined by SSARS No. 3 includes which of the following: a) a standard preprinted financial statement form b) a form designed or adopted by the entity for whom the financial statements are being compiled c) a tax return d) a comprehensive set of instructions, directing a particular form 56. In connection with many business or individual loans, a bank usually requires an annual personal financial statement to ensure the financial stability of the owner and/or guarantor of the loan. In this case, the CPA has several options, one of which is: a) prepare a personal financial statement on a regulatory basis b) prepare the bank s prescribed form financial statement c) deliver a tax return instead of a prescribed form financial statement 57. With respect to financial statements submitted in litigation support engagements involving bankruptcy and reorganization, Interpretation No. 20 of SSARS No. 1 exempts such financial statements from the applicability of SSARS No. 1 if which of the following occurs: a) the statements are submitted to the bank b) the services are in connection with the resolution of a dispute between two or more parties c) the statements will be issued for internaluse only d) the statements will be given to a minimum of four third parties 58. With respect to a CPA s reporting responsibility when engaged to prepare a campaign report for a candidate running for public office, which of the following is generally true: a) such a presentation is covered by SSARS No. 1 b) such a presentation is considered a prescribed form financial statement c) such a presentation is treated like an audit are true 59. The SSARSs are not applicable to financial statements submitted on computer disk or through a data transmission network. a) true b) false 60. If a CPA is engaged to present financial statements for the fiscal year along with budgeted financial statements on a comparative basis, which of the following is true: a) the budgeted information for the expired period should be treated as supplementary information b) the budgeted information for the expired period should be treated as historical financial information c) the budgeted information for the expired period should be treated as forecasted information are true 61. The AICPA s peer review program consists of how many types of peer reviews: a) three b) two c) four d) seven 62. With respect to a system review under the new AICPA peer review program, a system review is the same as: a) an off-site review b) an engagement review c) a report review 63. In accordance with the new AICPA peer review program, which of the following types of engagements performed would require that a system review be performed on that firm: A firm that performs: a) only compilations that omit substantially all disclosures b) only perform audits c) only performs reviews d) only perform compilations and reviews Exam Page -13

15 64. With respect to the new AICPA Standards for Performing and Reporting Reviews, which of the following types of reviews has been eliminated and rolled into the new review system: a) report review b) system review c) engagement review d) technical review 65. Under the AICPA peer review program, a peer reviewer identifies a as a result of his or her evaluation of the firm s system of quality control. a) matter b) finding c) deficiency d) issue 66. The AICPA peer review program has a new grading system that includes all of the following except: a) pass without a finding b) pass c) pass with deficiency d) fail 67. With respect to the AICPA peer review program, if a firm receives a fail in its reviewer s grade, it means which of the following: a) there was one or more significant deficiencies b) there was at least three deficiencies c) there was a combination of more than one deficiency(ies) and significant deficiency(ies) 68. With respect to the AICPA peer review program, the initial selection of engagements by the reviewer should be provided: a) at the time the engagement letter is signed b) no earlier than three weeks prior to the commencement of the peer review c) on site at the start of the peer review d) the AICPA is silent on this matter 69. Specific financial statement deficiencies noted in peer reviews related to assets include all of the following except: a) improper classifications between current and long-term assets b) investments in majority owned or controlled subsidiary not consolidated c) cash overdrafts shown as a negative balance in the current asset section d) inventories valued using the wrong accounting method 70. Specific financial statement deficiencies noted in peer reviews related to the statement of cash flows include all of the following except: a) cash flow statement not categorized by operating, investing and financing activities b) misclassification of activities, especially between investing and financing activities c) no disclosure of non-cash investing and financing activities d) using the wrong titles on the statement categories 71. Specific financial statement deficiencies noted in peer reviews related to incomplete and missing disclosures include all of the following except: a) not disclosing the amount of the fixed assets on hand b) significant accounting policies, such as revenue recognition c) basis of accounting other than GAAP d) concentrations of credit risk 72. Common functional area deficiencies noted in peer reviews related to employee benefit plans include all of the following except: a) inadequate testing of participant data and investments b) inadequate or missing disclosures related to participant directed investment programs, investments and participant data c) failure to understand testing requirements on a limited-scope engagement d) failure to include the proper wording in the report Exam Page -14

16 73. Which of the following is true as it relates to the GAAP hierarchy: a) GAAP is the same for all engagements b) GAAP is different for audits than for reviews and compilations c) GAAP is the same for audits and compilations, but different for reviews d) GAAP may vary between audits, reviews and compilation engagements depending on the circumstances 74. Under the GAAP hierarchy, non-authoritative GAAP guidance consists of all of the following except: a) Technical Practice Aids b) FASB Concepts Statements c) FASB ASC d) AICPA Issues Papers 75. GAAP changes that typically are not meaningful to small businesses include all of the following except: a) goodwill and indefinite lived intangibles b) using two depreciation methods c) using an allowance for bad debts d) consolidating a variable interest entity 76. Examples of simpler reporting options include all of the following except: a) compile OCBOA statements b) compile financial statements with no footnotes and statement of cash flows c) use a compilation report at interim periods that list the departures from GAAP d) issue financial statements with no report 77. Facts: An entity uses the cash basis of accounting to prepare its federal income tax return and also uses the income tax basis of accounting for financial statements using the accrual basis. Using a different income tax basis method for the income tax return and financial statements is: a) acceptable under all circumstances b) not acceptable under any circumstances c) acceptable if there is an income tax basis departure noted in the report 78. CPAs can use the Internet to do which of the following: a) discuss accounting issues with peers b) communicate with clients c) obtain accounting research information and texts d) all of the above 79. For traditional compilation and review engagements, the engagement letter should include all of the following items except: a) a description of the nature and limitations of the services to be performed b) a description of the report to be rendered c) the timing of confirmations to be sent to third parties d) a statement that the engagement cannot be relied upon to disclose errors, fraud or illegal acts 80. An example of language to include in engagement letters that is highly recommended but difficult to obtain includes a limit on amount of damages in litigation and time to sue. a) true b) false 81. Highly recommended provisions to include in engagement letters include all of the following except: a) ownership of records b) record retention policy c) mediation clause d) arbitration clause 82. The author notes that in connection with engagement letters a CPA firm should be careful not to include which of the following matters in their engagement letters: a) fees to be charged b) marketing information about the firm c) scope of services d) estimated report release date Exam Page -15

17 83. Courts are holding accountants who perform bookkeeping services to a higher level of responsibility when there is employee embezzlement because clients misunderstand all of the following except: a) the different levels of accounting services b) the accountant s role in performing the service c) basic terminology such as bank reconciliation d) the cost of services rendered 84. In order for an accountant to perform nonattest services for an attest client, the client must agree to perform certain functions that include all of the following except: a) make all management decisions and perform all management functions b) establish and maintain internal controls, including monitoring ongoing activities c) perform all accounting functions for the accountant d) evaluate the adequacy and results of the nonattest services performed 85. Under Interpretation 101-3, a designated individual must have all of the following except: a) skill b) knowledge c) experience d) reputation 86. Which of the following would not be an acceptable designated individual under Interpretation 101-3: a) outsourced bookkeeper b) owner of a company c) sales person with extensive sales experience d) controller 87. Which of the following would not be considered to impair a CPA s independence: a) having the authority to, or authorize, execute or consummate a transaction b) having custody of client assets c) supervising client employees in the performance of their normal recurring activities d) preparing financial statements based on information in the trial balance Exam Page In considering bookkeeping functions, which of the following would impair independence: a) record transactions for which management has determined or approved the appropriate account classification b) prepare financial statements based on information in the trial balance c) post client-approved entries to a client s trial balance d) prepare source documents 89. Signing an extension to file a tax return for a client will automatically impair an accountant s independence. a) true b) false 90. An accountant is hired to give expert witness services on behalf of a group of companies. One of those companies is a client for whom the accountant performs a review engagement. That client is not designated as a lead plaintiff or defendant of the group, nor does the client have sole decision-making power to select or approve the expert witness. Which of the following is correct: a) independence is impaired in all instances b) independence is impaired if the client constitutes 10 percent of the members of the group, including the claim c) independence is impaired if the client constitutes 25 percent of the members of the group, including the claim d) independence is impaired if the client constitutes 15 percent of the members of the group, including the claim 91. Answering questions while testifying as a fact witness would not impair independence. a) true b) false 92. The performance of consulting services automatically impairs a CPA s independence. a) true b) false

18 93. Mary is a CPA who reviews the financial statements for Company X. Mary is named a future trustee of a trust that will hold 100% of the common stock of Company X once X s shareholder dies. Mary reviews the December 31, 20X1 financial statements and issues the financial statements and report thereon on March 31, 20X2. The shareholder dies on March 5, 20X2 and Mary becomes the sole trustee on that date. Which of the following is correct: a) Mary is not independent with respect to X on the day the shareholder dies, which is March 5, 20X2 b) Mary is independent with respect to X because the shareholder died and the common stock went into the trust after December 31, 20X1 c) Mary was not independent the date on which she was named as a trustee even though the trust did not hold the common stock shares 94. With respect to unpaid fees, independence is impaired if, when the report on the client s current year is issued, billed or unbilled fees remain unpaid for: a) more than one year prior to the date of the report b) more than one month prior to the date of the report c) more than two years prior to the date of the report d) more than $5,000 total 95. The International standards for compilation and review apply to CPAs who practice in the United States or abroad and are engaged to either compile or review financial statements for use solely outside the United States. a) true b) false 96. The privity standard states that an accountants liability is limited to those third parties with whom: a) the accountant has reviewed the client s financial statements b) the accountant has a contractual relationship c) the accountant and client have discussed the client s financial statements 97. Under the near-privity standard, a third-party that does not have a contractual relationship with the accountant can still bring suit against an accountant for negligence if how many conditions are met: a) two b) three c) five d) six 98. An accountant practices in a state that uses the restatement approach for its privity standard. The accountant is responsible for third parties the accountant will be provided with the financial report. a) has named and who b) expressly knows c) has contacted and who d) implicitly understands 99. Camico Mutual Insurance Co. published a report entitled, Public Perceptions in a Post Enron World, based on a survey of the American public. According to the survey, in the post-enron environment, of those surveyed believe the things they hear in the news about corporate wrongdoing. a) 78% b) 66% c) 45% d) 22% Exam Page -17

19 100. Camico Mutual Insurance Co. published a report entitled, Public Perceptions in a Post Enron World, based on a survey of the American public. Based on the survey compared to accountants who work for large national accounting firms, think that accountants in small firms are less honest. a) 55% b) 39% c) 6% Congratulations you ve completed the exam! Exam Page -18

20 PRACTICE ISSUES: COMPILATION AND REVIEW #6210A/QAS6210A (20 CPE hours) ANSWER SHEET (6/10) Important Note: For certification, this answer sheet must be completed and submitted to PES for grading within one year from the date of purchase. Please use black ink and print for quicker processing thank you. Name (as it appears on your license) Address City State Zip Home Work Daytime Phone ( ) address (for online grading) License Number State Expiration Date CPA, CFP, EA (circle one) If course was ordered by another party, please indicate name here: GRADING OPTIONS Please choose only ONE of the following: ONLINE GRADING Visit our website at o Login to your account (if you are a first-time user, you must set up a new user account). o Go to the MY CPE tab and click the My CPE Exams in Progress folder. o If your exam is not already located in this folder, click Add Exam Previously Purchased and follow the instructions. Mail Mail your exam to: PES, 4208 Douglas Blvd., Ste 50, Granite Bay, CA Fax Fax your exam to (916) and choose one of the following options: Please: mail my results only or fax phone my results to: ( ) PLEASE INDICATE YOUR ANSWER BY FILLING IN THE APPROPRIATE CIRCLE A B C D A B C D A B C D A B C D A B C D 1. O O O O 21. O O O O 41. O O O O 61. O O O O 81. O O O O 2. O O O O 22. O O O O 42. O O O O 62. O O O O 82. O O O O 3. O O O O 23. O O O O 43. O O O O 63. O O O O 83. O O O O 4. O O O O 24. O O O O 44. O O O O 64. O O O O 84. O O O O 5. O O O O 25. O O O O 45. O O O O 65. O O O O 85. O O O O 6. O O O O 26. O O O O 46. O O O O 66. O O O O 86. O O O O 7. O O O O 27. O O O O 47. O O O O 67. O O O O 87. O O O O 8. O O O O 28. O O O O 48. O O O O 68. O O O O 88. O O O O 9. O O O O 29. O O O O 49. O O O O 69. O O O O 89. O O O O 10. O O O O 30. O O O O 50. O O O O 70. O O O O 90. O O O O 11. O O O O 31. O O O O 51. O O O O 71. O O O O 91. O O O O 12. O O O O 32. O O O O 52. O O O O 72. O O O O 92. O O O O 13. O O O O 33. O O O O 53. O O O O 73. O O O O 93. O O O O 14. O O O O 34. O O O O 54. O O O O 74. O O O O 94. O O O O 15. O O O O 35. O O O O 55. O O O O 75. O O O O 95. O O O O 16. O O O O 36. O O O O 56. O O O O 76. O O O O 96. O O O O 17. O O O O 37. O O O O 57. O O O O 77. O O O O 97. O O O O 18. O O O O 38. O O O O 58. O O O O 78. O O O O 98. O O O O 19. O O O O 39. O O O O 59. O O O O 79. O O O O 99. O O O O 20. O O O O 40. O O O O 60. O O O O 80. O O O O 100. O O O O Please complete the attached course evaluation your opinion is extremely valuable. Exam Page -19

21 Practice Issues: Compilation and Review #6210A/QAS6210A - Course Evaluation Rate on a scale of 1-10 with 1 being poor and 10 being excellent. 1. The course met the course objectives described in the promotional material. 2. The course was up to date, held my interest, was timely, and effective. 3. The course materials were understandable, valuable, and suitable for a correspondence course. 4. The amount of advance knowledge and stated prerequisites were appropriate. 5. The completion time was appropriate for the number of credits allowed. 6. The course met my professional education needs. Please answer the following questions mark/rate any and all that may apply 1. How would you rate PES s order desk customer service 2. What can PES do to keep you as a valued customer? 3. Any other comments regarding this course or our company would be appreciated. 4. What other courses/subjects would you like to see PES offer in the future? Mail to: Professional Education Services, LP 4208 Douglas Blvd., Ste 50, Granite Bay, CA Exam Page -20