AICPA AICPA Certifications CPA-TEST Questions & Answers

• Question 1101:

  An accountant's compilation report on a financial forecast should include a statement that the:

  A. Compilation does not include evaluation of the support of the assumptions underlying the forecast.

  B. Hypothetical assumptions used in the forecast are reasonable.

  C. Range of assumptions selected is one in which one end of the range is less likely to occur than the other.

  D. Prospective statements are limited to presenting, in the form of a forecast, information that is the accountant's representation.

  Correct Answer: A

  Explanation:

  Choice "a" is correct. An accountant's compilation report on a financial forecast should include a statement

  that the compilation does not include evaluation of the support of the assumptions underlying the forecast.

  (An examination of the financial forecast would include evaluation of the support).

  Choice "b" is incorrect. An accountant does not give any form of assurance related to hypothetical

  assumptions, which are not used in financial forecasts anyway. (Hypothetical assumptions are used in

  financial projections).

  Choice "c" is incorrect. No mention of the range of assumptions selected is made in the compilation report.

  Choice "d" is incorrect. A compilation is limited to presenting, in the form of a forecast, information that is

  management's representation.

• Question 1102:

  Which of the following is not an attestation standard?

  A. Sufficient evidence shall be obtained to provide a reasonable basis for the conclusion that is expressed in the report.

  B. The report shall identify the assertion being reported on and state the character of the engagement.

  C. The work shall be adequately planned and assistants, if any, shall be properly supervised.

  D. A sufficient understanding of internal control shall be obtained to plan the engagement.

  Correct Answer: D

  Explanation:

  Choice "d" is correct. A sufficient understanding of internal control is not required to be obtained in an

  attestation engagement.

  Choice "a" is incorrect. In an attestation engagement, sufficient evidence shall be obtained to provide a

  reasonable basis for the conclusion that is expressed in the report.

  Choice "b" is incorrect. An attestation report should identify the assertion being reported on and state the

  character of the engagement.

  Choice "c" is incorrect. In an attestation engagement, the work should be adequately planned and

  assistants, if any, should be properly supervised.

• Question 1103:

  An accountant's standard report on a compilation of a projection should not include a:

  A. Statement that a compilation of a projection is limited in scope.

  B. Disclaimer of responsibility to update the report for events occurring after the report's date.

  C. Statement that the accountant expresses only limited assurance that the results may be achieved.

  D. Separate paragraph that describes the limitations on the presentation's usefulness.

  Correct Answer: C

  Explanation:

  Choice "c" is correct. A compilation of prospective financial statements is not intended to provide

  assurance on the prospective financial statements or the assumptions underlying such statements.

  Choice "a" is incorrect. The report on a compilation should include a statement that a compilation is limited

  in scope.

  Choice "b" is incorrect. The report on a compilation should include a statement that the accountant

  assumes no responsibility to update the report for events subsequent to the report date.

  Choice "d" is incorrect. The report on a compilation should include a separate paragraph that describes the

  limitations on the presentation's usefulness.

• Question 1104:

  In performing an attest engagement, a CPA typically:

  A. Supplies litigation support services.

  B. Assesses control risk at a low level.

  C. Issues a report on subject matter (or on an assertion about subject matter) that is the responsibility of another party.

  D. Provides management consulting advice.

  Correct Answer: C

  Explanation: Choice "c" is correct. In performing an attest engagement, a CPA typically issues a report on subject matter (or on an assertion about subject matter) that is the responsibility of another party. Choice "a" is incorrect. Supplying litigation support services is not an attest engagement because the CPA is not reporting on subject matter (or an assertion about subject matter) that is the responsibility of another party. Choice "b" is incorrect. An attest engagement may include a report on internal control; however, the assessed level of control risk may or may not be at a low level. Choice "d" is incorrect. Management consulting advice is not considered to be an attest engagement because the CPA is not reporting on subject matter (or on an assertion about subject matter) that is the responsibility of another party.

• Question 1105:

  An accountant's report on a review of pro forma financial information should include a: A. Statement that the entity's internal control was not relied on in the review.

  B. Disclaimer of opinion on the financial statements from which the pro forma financial information is derived.

  C. Caveat that it is uncertain whether the transaction or event reflected in the pro forma financial information will ever occur.

  D. Reference to the financial statements from which the historical financial information is derived.

  Correct Answer: D

  Explanation:

  Choice "d" is correct. The accountant's report on a review of pro forma financial information should include

  a reference to the financial statements from which the historical information is derived and a statement as

  to whether such financial statements were audited or reviewed.

  Choice "a" is incorrect. No statement on the entity's internal control is necessary.

  Choice "b" is incorrect. If the auditor has audited the financial statements from which the pro forma

  financial information is derived, an opinion on those statements may be expressed.

  Choice "c" is incorrect. The report on a review of pro forma financial information would include an

  Explanation: of the objective and limitations of the information, but would not discuss the uncertainty

  surrounding occurrence of the transaction or event.

• Question 1106:

  Which of the following is a conceptual difference between the attestation standards and generally accepted auditing standards?

  A. The attestation standards provide a framework for the attest function beyond historical financial statements.

  B. The requirement that the practitioner be independent in mental attitude is omitted from the attestation standards.

  C. The attestation standards do not permit an attest engagement to be part of a business acquisition study or a feasibility study.

  D. None of the standards of fieldwork in generally accepted auditing standards are included in the attestation standards.

  Correct Answer: A

  Explanation:

  Choice "a" is correct. Attestation standards provide a framework for the attest function beyond historical

  financial statements.

  Choice "b" is incorrect. The independence standard is almost the same for both attest engagements and

  audits.

  Choice "c" is incorrect. An attest engagement may be part of a larger engagement (such as a business

  acquisition study or a feasibility study).

  Choice "d" is incorrect. Attestation standards include two of the three GAAS fieldwork standards: planning/

  supervision and evidence. They do not include the internal control standard.

• Question 1107:

  An accountant's compilation report on a financial forecast should include a statement that:

  A. The forecast should be read only in conjunction with the audited historical financial statements.

  B. The accountant expresses only limited assurance on the forecasted statements and their assumptions.

  C. There will usually be differences between the forecasted and actual results.

  D. The hypothetical assumptions used in the forecast are reasonable in the circumstances.

  Correct Answer: C

  Explanation:

  Choice "c" is correct. The accountant's compilation report on a client's financial forecast should include a

  caveat that the prospective results may not be achieved.

  Choice "a" is incorrect. The historical financial statements upon which the forecast is based need not be

  audited, nor must they accompany the forecast compilation.

  Choice "b" is incorrect. The accountant expresses no assurance in the compilation report on forecasted

  statements.

  Choice "d" is incorrect. A compilation of a financial forecast would not include evaluation of the support for

  the assumptions underlying the forecast.

• Question 1108:

  An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided that:

  A. Use of the report is restricted to the specified parties.

  B. The prospective financial statements are also examined.

  C. Responsibility for the adequacy of the procedures performed is taken by the accountant.

  D. Negative assurance is expressed on the prospective financial statements taken as a whole.

  Correct Answer: A

  Explanation:

  Choice "a" is correct. An accountant may accept an engagement to apply agreed-upon procedures to

  prospective financial statements provided that certain conditions are met, including that the use of the

  report be restricted to the specified parties.

  Choice "b" is incorrect. There is no requirement that the prospective financial statements be examined.

  In fact, the practitioner's report on the application of agreed-upon procedures states that the auditor did not

  perform an examination.

  Choice "c" is incorrect. The specified parties must understand that they take responsibility for the

  sufficiency of the attest procedures.

  Choice "d" is incorrect. No assurance is expressed in an agreed-upon procedures engagement.

• Question 1109:

  An examination of a financial forecast is a professional service that involves:

  A. Compiling or assembling a financial forecast that is based on management's assumptions.

  B. Limiting the distribution of the accountant's report to management and the board of directors.

  C. Assuming responsibility to update management on key events for one year after the report's date.

  D. Evaluating the preparation of a financial forecast and the support underlying management's assumptions.

  Correct Answer: D

  Explanation:

  Choice "d" is correct. An examination of a financial forecast is a professional service that involves:

  1) evaluating the preparation of the prospective financial statements,

  2) evaluating the support underlying the assumptions,

  3) evaluating the presentation of the prospective financial statements in conformity with AICPA guidelines,

  and

  4) issuing an examination report.

  Choice "a" is incorrect. Compiling or assembling a financial forecast based on management's assumptions

  is part of a compilation engagement, not an examination engagement.

  Choice "b" is incorrect. A financial forecast may be issued for general use.

  Choice "c" is incorrect. The accountant's standard report specifically states that the accountant assumes

  no responsibility to update the report for events and circumstances occurring after the date of the report.

• Question 1110:

  When an accountant examines projected financial statements, the accountant's report should include a separate paragraph that:

  A. Describes the limitations on the usefulness of the presentation.

  B. Provides an Explanation: of the differences between an examination and an audit.

  C. States that the accountant is responsible for events and circumstances up to one year after the report's date.

  D. Disclaims an opinion on whether the assumptions provide a reasonable basis for the projection.

  Correct Answer: A

  Explanation: Choice "a" is correct. The accountant's standard report on an examination of projected financial statements should include a caveat that the projected results may not be achieved. This is included in a separate paragraph that describes the limitations on the usefulness of the presentation: "...there will usually be differences between the forecasted and actual results... [that] may be material." Choice "b" is incorrect. The accountant's report on the examination of projected financial statements would not include an Explanation: of the differences between an examination and an audit. Choice "c" is incorrect. A statement is included which specifically states that the accountant assumes no responsibility to update the report for events and circumstances occurring after the date of the report. Choice "d" is incorrect. The accountant does express an opinion that "the underlying assumptions provide a reasonable basis for management's forecast."