AICPA AICPA Certifications CPA-TEST Questions & Answers

• Question 1181:

  If information accompanying the basic financial statements in an auditor-submitted document has been subjected to auditing procedures, the auditor may include in the auditor's report on the financial statements an opinion that the accompanying information is fairly stated in:

  A. Accordance with generally accepted auditing standards.

  B. Conformity with generally accepted accounting principles.

  C. All material respects in relation to the basic financial statements taken as a whole.

  D. Accordance with attestation standards expressing a conclusion about management's assertions.

  Correct Answer: C

  Explanation: Choice "c" is correct. When an auditor submits a document that contains information in addition to the client's basic financial statements, and this information was subjected to auditing procedures, the auditor may include in the auditor's report an opinion that the information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. This statement would follow the opinion paragraph in the standard report. Choice "a" is incorrect. Information in an ASD is not stated in an auditor's report to be in accordance with GAAS. Instead, the auditor would state that the "information has been subjected to the auditing procedures applied in the audit of the basic financial statements..." Choice "b" is incorrect. The auditor would not state that ASD information was fairly stated in accordance with GAAP. The information in an ASD is in addition to that required by GAAP. Choice "d" is incorrect. Reports on ASD are not "attest engagements."

• Question 1182:

  An auditor is engaged to report on selected financial data that are included in a client-prepared document containing audited financial statements. Under these circumstances, the report on the selected data should:

  A. Be limited to data derived from the audited financial statements.

  B. Be distributed only to senior management and the board of directors.

  C. State that the presentation is a comprehensive basis of accounting other than GAAP.

  D. Indicate that the data are not fairly stated in all material respects.

  Correct Answer: A

  Explanation:

  Choice "a" is correct. An auditor's report on selected information included in a client-prepared document

  containing audited financial statements should be limited to data derived from audited financial statements.

  Choice "b" is incorrect. It is not necessary to limit distribution of such a report.

  Choice "c" is incorrect. Selected financial data is not an "other comprehensive basis of accounting."

  Choice "d" is incorrect. The auditor indicates whether the selected financial data is fairly stated, in all

  material respects, in relation to the financial statements from which it has been derived.

• Question 1183:

  An auditor may report on condensed financial statements that are derived from complete financial statements if the:

  A. Condensed financial statements are distributed to stockholders along with the complete financial statements.

  B. Auditor describes the additional procedures performed on the condensed financial statements.

  C. Auditor indicates whether the information in the condensed financial statements is fairly stated in all material respects in relation to the complete financial statements from which it has been derived.

  D. Condensed financial statements are presented in comparative form with the prior year's condensed financial statements.

  Correct Answer: C

  Explanation: Choice "c" is correct. An auditor may report on condensed financial statements that are derived from financial statements that he or she has audited, indicating (1) that he or she has audited and expressed an opinion on the complete financial statements, (2) the date of the auditor's report, (3) the type of opinion expressed, and (4) that the information contained in the condensed financial statements is fairly stated in all material respects in relation to the complete financial statements from which it has been derived. Choice "a" is incorrect. The condensed financial statements do not have to be distributed to the stockholders. Choice "b" is incorrect. The audit report on condensed financial statements does not require that additional procedures be described. Choice "d" is incorrect. Condensed financial statements do not need to be presented in comparative form with the prior year's financial statements.

• Question 1184:

  When an auditor submits a document containing audited financial statements to a client, and those financial statements include supplementary information required by GAAP, the auditor may choose any of the following options, except:

  A. Express an opinion on the information, if he or she has been engaged to examine such information.

  B. Express negative assurance on the information, if review procedures have been appropriately performed.

  C. Report on whether the information is fairly stated in relation to the financial statements taken as a whole, if appropriate auditing procedures have been applied.

  D. Disclaim an opinion on the information.

  Correct Answer: B

  Explanation:

  Choice "b" is correct. The auditor would not perform a review or express negative assurance on

  supplementary information required by GAAP that is included in an auditor-submitted document.

  Choice "a" is incorrect. The auditor may express an opinion on the information, if he or she has been

  engaged to examine it.

  Choice "c" is incorrect. The auditor may report on whether the information is fairly stated in relation to the

  financial statements taken as a whole, if appropriate auditing procedures have been applied.

  Choice "d" is incorrect. The auditor may disclaim an opinion on the information.

• Question 1185:

  Which of the following reporting options is least likely with regard to supplementary information that is required by GAAP?

  A. The auditor's report on the financial statements makes no reference to the supplementary information.

  B. A disclaimer of opinion is issued on supplementary information that is not clearly distinguished from the financial statements and is not marked "unaudited."

  C. The auditor's report on the financial statements includes both an opinion on the supplementary information and a statement restricting the use of the report.

  D. The auditor's report on the financial statements includes an opinion regarding whether the supplementary information is fairly stated in all material respects in relation to the financial statements taken as a whole.

  Correct Answer: C

  Explanation:

  Choice "c" is correct. There is no requirement that the auditor's report on supplementary information

  required by GAAP be restricted.

  Choice "a" is incorrect. An auditor is not required to audit supplementary information, and in such cases

  the auditor's report on the basic financial statements would not generally include a reference to such

  information.

  Choice "b" is incorrect. When supplementary information that is not clearly distinguished from the financial

  statements is not marked "unaudited," the auditor would generally issue a disclaimer on that information.

  Choice "d" is incorrect. When the auditor chooses to apply auditing procedures to the supplementary information, he or she may express an opinion regarding whether the supplementary information is fairly stated in all material respects in relation to the financial statements taken as a whole.

• Question 1186:

  Which of the following is true regarding the auditor's responsibility to report on information accompanying the basic financial statements in a client-prepared document?

  A. The auditor may report on information accompanying the basic financial statements in a clientprepared document only if he or she has been specifically engaged to do so.

  B. The auditor is required to express an opinion on whether information accompanying the basic financial statements in a client-prepared document is fairly stated in all material respects in relation to the financial statements taken as a whole.

  C. If an auditor chooses to report on information accompanying the basic financial statements in a clientprepared document, the report should include a description of the character of the audit work performed.

  D. If an auditor chooses to report on information accompanying the basic financial statements in a clientprepared document, the report should include an opinion on the information but should not describe the character of the audit work performed.

  Correct Answer: C

  Explanation: Choice "c" is correct. If an auditor chooses to report on information accompanying the basic financial statements in a client-prepared document, the report should include a description of both the character of the audit work performed and the degree of responsibility assumed. Choice "a" is incorrect. There is no requirement that the auditor be specifically engaged to report on such information. If auditing procedures have been applied to the information, the auditor is permitted to report thereon. Choice "b" is incorrect. The auditor is permitted but not required to report on such information. Choice "d" is incorrect. If an auditor chooses to report on information accompanying the basic financial statements in a client-prepared document, the report should include an opinion on the information and a description of both the character of the audit work performed and the degree of responsibility assumed.

• Question 1187:

  The financial statements of ABC company, a U.S. entity, are prepared for inclusion in the consolidated financial statements of its non-U.S. parent. These financial statements are prepared in conformity with the accounting principles generally accepted in the parent's country and are for use only in that country. How may ABC company's auditor report on these financial statements?

  I. A U.S.-style report (unmodified).

  II. A U.S.-style report modified to report on the accounting principles of the parent's country.

  III.

  The report form of the parent's country.

  A.

  Option A

  B.

  Option B

  C.

  Option C

  D.

  Option D

  

  Correct Answer: D

  Explanation: Choice "d" is correct. No - Yes - Yes. When financial statements are prepared in conformity with the accounting principles generally accepted in the parent's country and are for use only in that country, the

  auditor may report using either a U.S.-style report modified to report on the accounting principles of the

  parent's country or the report form of the parent's country.

  Choices "a", "b", and "c" are incorrect, per the above explanation.

• Question 1188:

  Blue, CPA, has been asked to render an opinion on the application of accounting principles to a specific transaction by an entity that is audited by another CPA. Blue may accept this engagement, but should:

  A. Consult with the continuing CPA to obtain information relevant to the transaction.

  B. Report the engagement's findings to the entity's audit committee, the continuing CPA, and management.

  C. Disclaim any opinion that the hypothetical application of accounting principles conforms with generally accepted accounting principles.

  D. Notify the entity that the report is for the general use of all interested parties.

  Correct Answer: A

  Explanation:

  Choice "a" is correct. When rendering an opinion on the application of accounting principles to a specific

  transaction, the reporting CPA should consult with the continuing CPA to obtain information relevant to the

  transaction.

  Choice "b" is incorrect. The reporting CPA has no obligation to report the engagement's findings to the

  continuing CPA. Generally, the report would be addressed to the requesting party (e.g., management, the

  board of directors, etc.).

  Choice "c" is incorrect. There is no disclaimer in the report; however, the CPA does state that the

  preparers of the financial statements are responsible for proper accounting treatment.

  Choice "d" is incorrect. Use of the report is restricted to specified parties.

• Question 1189:

  In connection with a proposal to obtain a new client, an accountant in public practice is asked to prepare a written report on the application of accounting principles to a specific transaction. The accountant's report should include a statement that:

  A. Any difference in the facts, circumstances, or assumptions presented may change the report.

  B. The engagement was performed in accordance with Statements on Standards for Consulting Services.

  C. The guidance provided is for management use only and may not be communicated to the prior or continuing auditors.

  D. Nothing came to the accountant's attention that caused the accountant to believe that the accounting principles violated GAAP.

  Correct Answer: A

  Explanation: Choice "a" is correct. The accountant's report on the application of accounting principles should include a statement that should any facts or circumstances differ from those presented to the accountant, the accountant's conclusions may change. Choice "b" is incorrect. The report should state that the engagement was performed in accordance with "AICPA Standards," not statements on Standards for Consulting Services. Choice "c" is incorrect. The report's use is restricted to "specified parties," which may include parties other than management (e.g., the board of directors). Also, the preparers of the financial statements and the reporting accountant should consult with the entity's continuing accountant. Choice "d" is incorrect. The report does not provide negative assurance with respect to GAAP; rather, it may describe the appropriate accounting principles to be applied.

• Question 1190:

  Before reporting on the financial statements of a U.S. entity that have been prepared in conformity with another country's accounting principles, an auditor practicing in the U.S. should:

  A. Understand the accounting principles generally accepted in the other country.

  B. Be certified by the appropriate auditing or accountancy board of the other country.

  C. Notify management that the auditor is required to disclaim an opinion on the financial statements.

  D. Receive a waiver from the auditor's state board of accountancy to perform the engagement.

  Correct Answer: A

  Explanation:

  Choice "a" is correct. Before reporting on the financial statements of a U.S. entity that have been prepared

  in conformity with another country's accounting principles, the auditor practicing in the U.S. should

  understand the accounting principles generally accepted in the other country.

  Choice "b" is incorrect. The auditor practicing in the U.S. would be able to report on the financial

  statements of the U.S. entity without obtaining certification in the other country.

  Choice "c" is incorrect. The auditor need not disclaim an opinion on the financial statements prepared in

  conformity with another country's accounting principles.

  Choice "d" is incorrect. A waiver to perform the engagement is not necessary.