Auditing: The Art and Science of Assurance Engagements 15th Canadian Edition by Alvin A Arens Test b

A) For the review engagement, information risk is reduced more than for an audit.
B) For the review engagement, the documentation to be provided by the client is greater.
C) The review engagement requires considerably less work, so is less costly.
D) For the review engagement, the financial statements assessed will have more detail.
Answer: C
68) The Sarbanes-Oxley Act requires the auditor to attest to the
A) efficiency of the internal controls in financial reporting.
B) accuracy of the financial statements.
C) effectiveness of internal controls.
D) compliance of the company with the generally accepted accounting framework.
Answer: C
69) The reasoning behind the requirements of the Sarbanes- Oxley Act's section 404 (attestation on internal control
over financial reporting) is that
A) effective controls reduce the likelihood of future misstatements in the financial statements.
B) automated controls improve customer service, resulting in higher product sales.
C) effective controls result in greater profits to organizations, reducing business failures.
D) better internal controls can be implemented at a lower cost, improving product quality.
Answer: A
70) There is an increasing demand for assurance about computer controls surrounding financial information
transacted electronically and the security of the information related to the transaction. This is in large part due
to
A) client's uncertainty about the proper functioning of their computer systems.
B) the increasing presence of Internet sales in many businesses.
C) the large volume of transactions and information shared online and in real- time by companies.
D) the use of computer- assisted auditing tools.
Answer: C
71) Which of the following services provides no assurance about the client's financial statements?
A) audit B) review C) SysTrust D) compilation
Answer: D
72) Herbert Zora is having financial statements prepared by his PA to accompany his tax return. His primary
concern is cost. Of the following, the lowest- cost engagement that the PA can perform for Zora's financial
statements is
A) compilation. B) WebTrust. C) audit. D) review.
Answer: A
73) When readers are cautioned that the financial statements may not be appropriate for their purposes, the
non- assurance service is called a(n)
A) review. B) audit. C) SysTrust. D) compilation.
Answer: D
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
74) As a PA, you have been asked to prepare your sister Betty's year-end financial statements. Betty is a
photographer and is the sole shareholder of a small company called Best Weddings Ltd. She photographs
weddings, graduations, and schools, and earns about $75 000 per year. Betty has said that she only needs the
financial statements for her tax returns and would like you to prepare the tax returns too.
Required:
A. Would you be able to prepare the financial statements for your sister? Why or why not?
B. If yes, what type of report would you prepare to accompany the financial statements?
C. Would you be able to prepare the tax returns for your sister? Why or why not?
Answer: A. Yes, the PA would be able to prepare the financial statements as a bookkeeping (or compilation)
assignment. No assurance is provided for a compilation, so independence is not required. An audit or
review could not be prepared because for those engagements, assurance is provided, which means that
the PA would need to be independent.
B. A compilation report would be prepared to accompany the financial statements. The report would
need to disclose the relationship and that independence was absent.
C. Yes, the PA would be able to prepare the tax returns, as assurance is not required for tax returns.
Identification of the preparer is required on tax returns. It would be important to discuss with your sister
why she wants you to prepare the tax returns (Does she just want to save some money? Or is she trying to
prepare tax returns that are fraudulent?). It would be inappropriate (and professionally dangerous) to be
associated with false and misleading information, as one could be sued by the tax department and
expelled from the profession.