ACTG 677 Midterm Exam UPDATED
QUESTIONS AND CORRECT ANSWERS
A - CORRECT ANSWER Unconditional requirements in the clarified Statements on Standards
for Accounting and Review Services are indicated by the word
A) Must
B) Should
C) May
D) Could
C - CORRECT ANSWER Which of the following statements should not be included in the
accountant's standard report based on the compilation of and entity's financial statements?
A) A statement that the accountant has not audited or reviewed the financial statements
B) A statement that the compilation was performed in accordance with standards promulgated by the
American Institute of CPAs
C) A statement that the accountant does not express an opinion but expresses only limited assurance
on the financial statements
D)A statement that no procedures were performed to verify the accuracy or completeness of the
information provided by management
A - CORRECT ANSWER An accountant was asked by a potential client to perform a
compilation of its financial statements. The accountant is not familiar with the industry in which the
client operates. In this situation, which of the following actions is the accountant most likely to take?
A) Accept the engagement and obtain an adequate level of knowledge about the industry
B) Decline the engagement
C) Request that management engage an independent industry expert to consult with the accountant
D) Postpone accepting the engagement until the accountant has obtained an adequate level of
knowledge about the industry
,D - CORRECT ANSWER Which of the following services, if any, may an accountant who is
not independent provide?
A) Both compilations and reviews
B) Reviews, but not compilations
C) No services
D) Compilations, but not reviews
B - CORRECT ANSWER An accountant complied the financial statements of a nonissuer in
accordance with Statements on Standards for Accounting and Review Services (SSARS). If the
accountant has an ownership interest in the entity, which of the following statements is correct?
A) A report need not be issued for a compilation of a nonissuer
B) The accountant is required to include the disclaimer "I am not independent with respect to the
entity" in the compilation report.
C) The accountant should refuse the compilation engagement
D) The accountant is required to include the disclaimer "I am an owner of the entity" in the report
C - CORRECT ANSWER Financial statements of a nonpublic entity subject to a compilation
engagement should be accomplished by the accountant's report stated that
A) A compilation consists principally of inquiries of entity personnel and analytical procedures
applied to financial data
B) The accountant assessed the accounting principles used and significant estimates made by
management
C) The accountant does not express an opinion or any other form of assurance on the financial
statements
D) The scope of the accountant's procedures has not been restricted in testing the financial
information that is the representation of management
B - CORRECT ANSWER Which of the following procedures is not usually performed by the
accountant during a review engagement of a nonpublic entity?
, A) Inquiring about actions taken at meetings of the board of directors that may affect the financial
statements
B) Communicating any material weaknesses discovered during the consideration of the internal
control structure
C) Issuing a report stating that the review was performed in accordance with standards established by
the AICPA
D) Reading the financial statements to consider whether they conform with generally accepted
accounting principles
C - CORRECT ANSWER Inquiry and analytical procedures ordinarily performed during a
review of a nonpublic entity's financial statements include
A) Inquiries designed to identify significant deficiencies in the internal control structure
B) Analytical procedures concerning management's assertions regarding continued existence
C) Inquiries concerning actions taken at meetings of the owners and those charged with governance
D) Analytical procedures designed to test the accounting records by obtaining corroborating evidential
matter
B - CORRECT ANSWER Which of the following is required of an accountant in reviewing a
company's financial statements under Statements on Standards for Accounting and Review Services
(SSARS)?
A) Observe client's physical inventory
B) Obtain knowledge of the client's industry
C) Assess the operating effectiveness of the entity's internal control over financial reporting
D) Send bank confirmations
A - CORRECT ANSWER Which of the following procedures would be generally performed
when evaluating the accounts receivable balance in an engagement to review financial statements in
accordance with Statements on Standards for Accounting and Review Services?
A) Perform a reasonableness test of the balance by computing days' sales in receivables
B) Vouch a sample of subsequent cash receipts from customers
C) Confirm individually significant receivables balances with customers
QUESTIONS AND CORRECT ANSWERS
A - CORRECT ANSWER Unconditional requirements in the clarified Statements on Standards
for Accounting and Review Services are indicated by the word
A) Must
B) Should
C) May
D) Could
C - CORRECT ANSWER Which of the following statements should not be included in the
accountant's standard report based on the compilation of and entity's financial statements?
A) A statement that the accountant has not audited or reviewed the financial statements
B) A statement that the compilation was performed in accordance with standards promulgated by the
American Institute of CPAs
C) A statement that the accountant does not express an opinion but expresses only limited assurance
on the financial statements
D)A statement that no procedures were performed to verify the accuracy or completeness of the
information provided by management
A - CORRECT ANSWER An accountant was asked by a potential client to perform a
compilation of its financial statements. The accountant is not familiar with the industry in which the
client operates. In this situation, which of the following actions is the accountant most likely to take?
A) Accept the engagement and obtain an adequate level of knowledge about the industry
B) Decline the engagement
C) Request that management engage an independent industry expert to consult with the accountant
D) Postpone accepting the engagement until the accountant has obtained an adequate level of
knowledge about the industry
,D - CORRECT ANSWER Which of the following services, if any, may an accountant who is
not independent provide?
A) Both compilations and reviews
B) Reviews, but not compilations
C) No services
D) Compilations, but not reviews
B - CORRECT ANSWER An accountant complied the financial statements of a nonissuer in
accordance with Statements on Standards for Accounting and Review Services (SSARS). If the
accountant has an ownership interest in the entity, which of the following statements is correct?
A) A report need not be issued for a compilation of a nonissuer
B) The accountant is required to include the disclaimer "I am not independent with respect to the
entity" in the compilation report.
C) The accountant should refuse the compilation engagement
D) The accountant is required to include the disclaimer "I am an owner of the entity" in the report
C - CORRECT ANSWER Financial statements of a nonpublic entity subject to a compilation
engagement should be accomplished by the accountant's report stated that
A) A compilation consists principally of inquiries of entity personnel and analytical procedures
applied to financial data
B) The accountant assessed the accounting principles used and significant estimates made by
management
C) The accountant does not express an opinion or any other form of assurance on the financial
statements
D) The scope of the accountant's procedures has not been restricted in testing the financial
information that is the representation of management
B - CORRECT ANSWER Which of the following procedures is not usually performed by the
accountant during a review engagement of a nonpublic entity?
, A) Inquiring about actions taken at meetings of the board of directors that may affect the financial
statements
B) Communicating any material weaknesses discovered during the consideration of the internal
control structure
C) Issuing a report stating that the review was performed in accordance with standards established by
the AICPA
D) Reading the financial statements to consider whether they conform with generally accepted
accounting principles
C - CORRECT ANSWER Inquiry and analytical procedures ordinarily performed during a
review of a nonpublic entity's financial statements include
A) Inquiries designed to identify significant deficiencies in the internal control structure
B) Analytical procedures concerning management's assertions regarding continued existence
C) Inquiries concerning actions taken at meetings of the owners and those charged with governance
D) Analytical procedures designed to test the accounting records by obtaining corroborating evidential
matter
B - CORRECT ANSWER Which of the following is required of an accountant in reviewing a
company's financial statements under Statements on Standards for Accounting and Review Services
(SSARS)?
A) Observe client's physical inventory
B) Obtain knowledge of the client's industry
C) Assess the operating effectiveness of the entity's internal control over financial reporting
D) Send bank confirmations
A - CORRECT ANSWER Which of the following procedures would be generally performed
when evaluating the accounts receivable balance in an engagement to review financial statements in
accordance with Statements on Standards for Accounting and Review Services?
A) Perform a reasonableness test of the balance by computing days' sales in receivables
B) Vouch a sample of subsequent cash receipts from customers
C) Confirm individually significant receivables balances with customers
