SOLVED

Learning Objective 25-7 1) An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided that: A) distribution of the report is to be restricted to the specified users involved. 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. Learning Objective 25-8 1) An auditor who conducts an examination in accordance with generally accepted auditing standards and concludes that the financial statements are fairly presented in accordance with a comprehensive basis of accounting other than GAAP, should issue a: A) review report. B) special kind of report. C) qualified opinion. D) disclaimer of opinion. 2) Debt compliance letters are ordinarily addressed to: A) underwriters of securities. B) the client’s audit committee. C) creditor financial institutions. D) the Securities and Exchange Commission. 3) An auditor has been asked to report on the balance sheet of Kane Company but not on the other basic financial statements. The auditor will have access to all information underlying the basic financial statements. Under these circumstances, the auditor: A) may accept the engagement because such engagements merely involve limited reporting objectives. B) may accept the engagement but should disclaim an opinion because of an inability to apply the procedures considered necessary. C) should refuse the engagement because there is a client-imposed scope limitation. D) should refuse the engagement because of a departure from generally accepted auditing standards. 4) A CPA who has been engaged to audit financial statements that were prepared on a cash basis: A) must ascertain that there is proper disclosure of the fact that the cash basis has been used, the general nature of material items omitted, and the net effect of such omissions. B) may not be associated with such statements which are not in accordance with generally accepted accounting principles. C) must render a qualified report explaining the departure from generally accepted accounting principles in the opinion paragraph. D) must restate the financial statements on an accrual basis and then render the standard (short-form) report. 5) The engagement and report on debt compliance letters should be limited to compliance matters that the auditor is qualified to evaluate. Which of the following engagements would be inappropriate for the CPA to attempt to evaluate? A) Determining whether the client has properly restricted its business activities to the requirements of an agreement. B) Determining whether principal and interest payments were made when due. C) Determining whether the proper limitations were maintained on dividends, working capital, and debt ratios. D) Determining whether the accounting records were adequate for conducting an ordinary audit. 6) State four types of assurance services that fall within the auditing standards but are not audits, reviews, or compilations of financial statements in accordance with GAAP. 7) Auditors frequently audit statements prepared on bases other than GAAP. Discuss four commonly used bases other than GAAP. 8) A primary concern in reporting on a comprehensive basis is to make sure that the statements clearly indicate that they are prepared on a basis other than GAAP. A) True B) False 9) When issuing a debt compliance letter, the auditor’s opinion should be in the form of a negative assurance. A) True B) False 10) Auditors should provide debt compliance letters only for clients for whom the auditor has done an audit of the overall financial statements. A) True