One of a CPA firm's basic objectives is to provide professional services that conform with professional standards. Reasonable assurance of achieving this basic objective is provided through:
Answer(s): A
Choice "a" is correct. A system of quality control establishes policies and procedures that provide reasonable assurance of conforming with professional standards. Choice "b" is incorrect. Peer review is a process whereby one CPA firm reviews another. It can be part of the monitoring element of quality control, but it does not (in and of itself) provide reasonable assurance that a CPA firm will comply with professional standards. Choice "c" is incorrect. The objective of continuing professional education (CPE) is to increase the competency of auditors. Professional development activities such as this are part of the personnel management element of quality control, but they do not (in and of themselves) provide reasonable assurance that a CPA firm will comply with professional standards. Choice "d" is incorrect. Compliance with the standards of reporting (part of the ten generally accepted auditing standards) helps ensure that audit results are appropriately communicated to the users of financial statements, but such compliance does not provide assurance regarding conformity with professional standards.
Which of the following is not a comprehensive basis of accounting other than generally accepted accounting principles?
Answer(s): D
Choice "d" is correct. A basis of accounting used by an entity to comply with the financial reporting requirements of a lending institution is not a comprehensive basis because such a requirement, in itself, would not have substantial support. A comprehensive basis of accounting other than GAAP is one of the following:1. Cash basis and modified cash basis2. Tax basis3. Prescribed regulatory basis4. Other basis with substantial support (e.g., price-level basis). Choices "a", "b", and "c" are incorrect, as explained above.
Which of the following accounting bases may be used to prepare financial statements in conformity with a comprehensive basis of accounting other than generally accepted accounting principles?I). Basis of accounting used by an entity to file its income tax return.II). Cash receipts and disbursements basis of accounting.
Answer(s): C
Choice "c" is correct. Both the basis of accounting used by an entity to file its income tax return and the cash receipts and disbursements basis of accounting are comprehensive bases of accounting other than GAAP.OCBOAs also include:* A basis prescribed by a regulatory agency* A definite set of criteria having substantial support (e.g., price-level basis)
A CPA is required to comply with the provisions of Statements on Standards for Accounting and Review Services when:
Choice "d" is correct. A CPA is not required to comply with the provisions of Statements on Standards for Accounting and Review Services when proposing correcting journal entries or preparing standard monthly journal entries, since these activities do not constitute a "submission" of financial statements.Choices "a", "b", and "c" are incorrect, per above Explanation.
An auditor's special report on financial statements prepared in conformity with the cash basis of accounting should include a separate explanatory paragraph before the opinion paragraph that:
Choice "c" is correct. An auditor's special report on financial statements prepared in conformity with the cash basis of accounting should include a separate explanatory paragraph before the opinion paragraph that refers to the note to the financial statements that describes the basis of accounting. Choice "a" is incorrect. The auditor should not include a separate explanatory paragraph that justifies the reasons for any departure from GAAP.Choice "b" is incorrect. The opinion paragraph (not the preceding explanatory paragraph) states whether the financial statements are fairly presented in conformity with the other comprehensive basis of accounting.Choice "d" is incorrect. The auditor's report does not explain the differences between GAAP and the OCBOA, but merely states that they are different.
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