CPA Auditing and Attestation (AUD) : Preparation vs Compilation vs Review Engagements

Study concepts, example questions & explanations for CPA Auditing and Attestation (AUD)

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Example Questions

Example Question #1 : Preparation Vs Compilation Vs Review Engagements

The Compilation audit report will:

Possible Answers:

Discuss auditing procedures

Express an opinion based on GAAP

Discuss internal control findings

State that the Financial Statements are the responsibility of management

Correct answer:

State that the Financial Statements are the responsibility of management

Explanation:

Although the firm may assist management in the preparation of statements, the compilation audit report will state that the report is the responsibility of management.

Example Question #2 : Preparation Vs Compilation Vs Review Engagements

A review engagement provides what level of assurance regarding the applicable financial framework

Possible Answers:

minimal assurance

limited assurance

sufficient assurance

absolute assurance

Correct answer:

limited assurance

Explanation:

A review engagement provides limited assurance.  Limited assurance is given that the financial statements comply with the applicable reporting framework.

Example Question #3 : Preparation Vs Compilation Vs Review Engagements

A review engagement should express which of the following terms:

Possible Answers:

Managements responsibilities

Auditors Responsibilities

Managements objectives

All of the answer choices are correct

Correct answer:

All of the answer choices are correct

Explanation:

AR Section 90; review of financial statements.  Section .04 states that the engagement determines: management responsibility, the auditor’s responsibility, and management objectives.

Example Question #4 : Preparation Vs Compilation Vs Review Engagements

Regarding the review of financial statements of a non-issuer performed in accordance with SSARS, the CPA is required to obtain:

Possible Answers:

An understanding of internal control

A letter of consent from the prior auditor

Sufficient evidence supporting management's assertions

A client representation letter

Correct answer:

A client representation letter

Explanation:

The CPA is required to obtain a representation letter from management for all financial statements and periods covered by the review report.

Example Question #5 : Preparation Vs Compilation Vs Review Engagements

Of the following statements, which is correct regarding a review of a nonpublic entity financial statements in accordance with SSARS?

Possible Answers:

The CPA is required to assess the risk of fraud

It is not necessary for the CPA to obtain a management representation letter

The CPA must be independent to issue the review report

An opinion is expressed in the review report

Correct answer:

The CPA must be independent to issue the review report

Explanation:

In order to issue a review report on the financial statements of a nonpublic entity, the accountant must be independent.

Example Question #6 : Preparation Vs Compilation Vs Review Engagements

When a preparer conducts a preparation engagement, the accountant should:

Possible Answers:

Both

Neither

Issue a disclaimer of opinion if he or she is unable to include a statement on each page of the financial statements

Perform a compilation engagement if he or she is unable to include a statement on each page of the financial statements

Correct answer:

Both

Explanation:

With a preparation requirement, the preparer must include a statement on each page of the financials. If he or she cannot, these two options are the only options.

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