Accepting an engagement to compile a financial projection for a publicly held company most likely would be inappropriate if the projection were to be distributed to:
Answer(s): D
Choice "d" is correct. Accepting an engagement to compile a financial projection for a publicly held company most likely would be inappropriate if the projection were to be distributed to all stockholders of record as of the report date (general use). Only a financial forecast is suitable for general use.Choices "a", "b", and "c" are incorrect. Financial projections are for limited use, and may be used by the responsible party alone (choice "c" - the principal stockholder only), or by the responsible party and third parties with whom the responsible party is negotiating directly (choices "a" and "b"- a bank or a labor union with which the entity is negotiating).
When an accountant compiles projected financial statements, the accountant's report should include a separate paragraph that:
Choice "d" is correct. The report on compiled projected financial statements should include a separate paragraph that describes the limitations on the usefulness of the presented statements. Choice "a" is incorrect. The accountant's report on a compilation of a forecast or a projection does not describe the differences between them.Choice "b" is incorrect. The report would not identify the accounting principles used by management.Choice "c" is incorrect. A report on compiled projected financial statements does not express any assurance regarding the achievability of results.
A CPA firm should establish procedures for conducting and supervising work at all organizational levels to provide reasonable assurance that the work performed meets the firm's standards of quality. To achieve this goal, the firm most likely would establish procedures for:
Answer(s): B
Choice "b" is correct. Procedures for reviewing audit documentation and engagement reports are established to ensure that the work performed meets the firm's quality standards. This relates to the quality control element of engagement performance.Choice "a" is incorrect. Evaluations of prospective and continuing client relationships are performed to minimize the likelihood of association with a client whose management lacks integrity. This relates to the quality control element of acceptance and continuance of clients and engagements. Such evaluations do not ensure that the work performed meets the firm's quality control standards Choice "c" is incorrect. Requiring personnel to adhere to the applicable independence rules relates to the quality control element of independence, integrity, and objectivity. Such requirements are established to provide independence, but they do not ensure that the work performed meets the firm's quality control standards.Choice "d" is incorrect. Maintaining personnel files and periodic evaluations of personnel are part of the quality control element of personnel management. Such policies are established to provide for appropriate hiring, assignment, development, and advancement of employees, but they would not ensure that the work performed meets the firm's quality control standards.
Which of the following are elements of a CPA firm's quality control that should be considered in establishing its quality control policies and procedures?
Choice "b" is correct. Quality control elements are:(1) Independence, integrity, and objectivity,(2) Personnel management,(3) Acceptance and continuance of clients and engagements, (4) Engagement performance, and(5) Monitoring.Choices "a", "c", and "d" are incorrect based on the above Explanation.
A CPA firm would be reasonably assured of meeting its responsibility to provide services that conform with professional standards by:
Choice "b" is correct. Quality control standards relate to the conduct of a firm's audit practice. They set forth standards for the establishment of policies and procedures to provide reasonable assurance of conforming with professional standards.Choice "a" is incorrect. GAAS relate to the conduct of individual audit engagements. Choice "c" is incorrect. Joining professional societies that enforce ethical conduct (e.g., the AICPA or state CPA society) will not assure the firm of meeting its responsibility to conform with GAAS. A system of policies and procedures (i.e., a system of quality control) must be established to provide this assurance.Choice "d" is incorrect. Independence is part of the quality control element of independence, integrity, and objectivity, but maintaining independence alone will not help the firm meet its responsibility to conform with professional standards.
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