Nature And Scope Of Engagements
Help Questions
CPA Auditing and Attestation (AUD) › Nature And Scope Of Engagements
A nonissuer company’s lender requests an audit, but management only wants limited assurance and is willing to accept a report that does not express an opinion. The CPA will perform inquiry and analytical procedures and obtain management representations. Which type of engagement is most appropriate to meet management’s desired assurance level?
Review under SSARS because it provides limited assurance
Audit under AU-C because lenders always require reasonable assurance
Compilation under SSARS because it provides negative assurance
Examination under SSAE because it is limited assurance
Explanation
This question tests review engagements under SSARS when limited assurance is preferred over audits. The key facts are the nonissuer status, management's desire for limited assurance without opinion, and use of inquiry, analytics, and representations. The correct answer aligns with SSARS reviews as they provide limited assurance without audit-level procedures or opinions. Choice A is incorrect as AU-C audits provide reasonable assurance, contradicting management's wishes; choice C is incorrect as SSARS compilations provide no assurance, not negative; choice D is incorrect as SSAE examinations provide reasonable assurance. Choice B fits the limited assurance level. Accountants should align engagement with management's assurance preferences. Balance user requests with cost-effective options like reviews when full audits are not mandated.
A nonissuer not-for-profit organization asks a CPA to provide assurance on whether it complied with donor-imposed restrictions over a grant program. The CPA will perform procedures to obtain reasonable assurance and express an opinion on management’s assertion regarding compliance. What is the correct engagement type given the client’s needs?
Examination engagement under SSAE on compliance
Review engagement under SSARS on compliance
Audit under PCAOB standards because compliance is involved
Compilation engagement under SSARS of a compliance schedule
Explanation
This question tests examination engagements under SSAE for compliance assertions. The key facts are the nonissuer NFP, assurance on donor compliance, procedures for reasonable assurance, and opinion on assertion. The correct answer aligns with SSAE examinations as they provide opinions on compliance using criteria. Choice B is incorrect as SSARS reviews are for financial statements; choice C is incorrect as SSARS compilations provide no assurance; choice D is incorrect as PCAOB applies to issuers. Choice A matches the reasonable assurance need. Practitioners should apply SSAE for compliance attestations. Ensure suitable criteria exist for compliance examinations.
A nonissuer entity requests assurance on a schedule of royalties paid to a licensor, and the licensor requires only limited assurance rather than an opinion. The practitioner will perform primarily inquiry and analytical procedures where applicable and issue a conclusion providing limited assurance. Under these circumstances, which engagement should be performed?
PCAOB audit because royalties affect revenue recognition
Review engagement under SSAE (limited assurance on the royalty schedule)
Audit engagement under AU-C (reasonable assurance opinion)
Compilation under SSARS (no assurance) with a disclaimer of assurance
Explanation
This question tests review attestations under SSAE for limited assurance on schedules. The key facts are the nonissuer status, limited assurance on royalties, inquiry and analytics, and conclusion. The correct answer aligns with SSAE reviews as they provide limited assurance on subject matter. Choice B is incorrect as AU-C audits provide reasonable assurance on statements; choice C is incorrect as SSARS compilations provide no assurance; choice D is incorrect as PCAOB is for issuers. Choice A fits the limited assurance. Accountants should select SSAE reviews for non-financial limited assurance. Use inquiry and analytics efficiently for review-level conclusions.
A privately owned construction company (a nonissuer) needs financial statements for bonding purposes, and the surety specifically requires an auditor’s opinion and expects the auditor to obtain reasonable assurance. The auditor will perform risk assessment procedures, tests of details, and issue an audit report. Which type of engagement is most appropriate for this client?
Agreed-upon procedures engagement under SSAE (findings only)
Review engagement under SSARS (limited assurance)
Compilation engagement under SSARS (no assurance)
Audit engagement under AICPA auditing standards (AU-C)
Explanation
This question tests audit engagements under AU-C for nonissuers needing opinions. The key facts are the nonissuer status, surety requirement for opinion with reasonable assurance, and audit procedures. The correct answer aligns with AU-C as it requires opinions based on reasonable assurance for financial statements. Choice B is incorrect as SSARS reviews provide no opinion; choice C is incorrect as compilations provide no assurance; choice D is incorrect as SSAE agreed-upon procedures report findings only. Choice A fits the opinion requirement. Accountants should confirm user needs for opinions to select audits. Perform risk-based procedures to support audit opinions.
A privately held company (a nonissuer) asks a CPA to provide limited assurance on whether its internal control over financial reporting is suitably designed as of a specified date. The CPA will evaluate management’s description and criteria and issue a conclusion providing limited assurance. Which type of engagement is most appropriate for this client?
PCAOB integrated audit because internal control is involved
Review engagement under SSAE on internal control design (limited assurance)
Audit under AU-C of internal control (reasonable assurance on controls only)
Compilation under SSARS of management’s control description (no assurance)
Explanation
This question tests review attestations under SSAE for ICFR design. The key facts are the nonissuer status, limited assurance on control design, evaluation, and conclusion. The correct answer aligns with SSAE reviews as they provide limited assurance on control suitability. Choice B is incorrect as SSARS compilations provide no assurance; choice C is incorrect as AU-C audits focus on statements; choice D is incorrect as PCAOB is for issuers. Choice A matches the limited assurance on controls. Practitioners should use SSAE for ICFR attestations. Evaluate design criteria for review-level conclusions.
A startup (a nonissuer) needs financial statements prepared for a local lender, but the lender only requires that the statements be assembled in proper form and does not require any assurance. The accountant will not perform inquiries or analytical procedures and will issue a report describing the level of service. Which type of engagement is most appropriate for this client?
Audit engagement under AICPA auditing standards providing reasonable assurance
Review engagement under SSARS providing limited assurance
Examination engagement under SSAE providing an opinion on the financial statements
Compilation engagement under SSARS with no assurance provided
Explanation
This question tests knowledge of compilation engagements under SSARS for nonissuers. The key fact is that the lender requires financial statements in proper form but explicitly does not require any assurance. A compilation engagement under SSARS is appropriate when no assurance is needed, as the accountant assists in presenting financial information without performing verification procedures. A review (choice B) would provide limited assurance through inquiries and analytics, which exceeds the lender's requirements. An audit (choice C) provides reasonable assurance, far exceeding what is needed. An examination under SSAE (choice D) applies to subject matter other than historical financial statements. The decision rule is: when external users need financial statements but do not require assurance, a compilation provides the most cost-effective solution while meeting professional standards.
A nonpublic wholesaler (a nonissuer) requests that its CPA assist in preparing financial statements and provide them to a surety company, but the CPA is not engaged to obtain or provide any assurance. The CPA will issue a compilation report and include required disclosures about the level of service. Which engagement should be performed?
Compilation engagement under SSARS (no assurance)
Audit engagement under AU-C (reasonable assurance)
Examination engagement under SSAE (reasonable assurance)
Review engagement under SSARS (limited assurance)
Explanation
This question tests compilation engagements under SSARS for nonissuers with no assurance needs. The key facts are the nonissuer status, assistance in preparing statements for a surety without assurance, and issuance of a compilation report. The correct answer aligns with SSARS compilations as they allow preparation and reporting without verification procedures. Choice B is incorrect as SSARS reviews provide limited assurance, which is not requested; choice C is incorrect as AU-C audits require reasonable assurance; choice D is incorrect as SSAE examinations provide assurance on assertions. Choice A matches the no-assurance service with disclosures. Accountants should document no-assurance expectations to select compilations. Include required report language to communicate the service level clearly.
An issuer requests that its auditor perform an audit of the company’s financial statements for inclusion in a registration statement. The auditor will obtain reasonable assurance and express an opinion on the financial statements. Under these circumstances, which engagement should be performed?
Audit under AU-C because registration statements are nonissuer filings
Compilation under SSARS because the auditor is associated with the statements
Audit under PCAOB auditing standards
Review under SSARS because the statements are prospective
Explanation
This question tests audit standards for issuers' registration statements. The key facts include the issuer status, audit of FS for registration, reasonable assurance, and opinion. The correct answer aligns with PCAOB as it governs audits for SEC filings, including registrations. Choice B is incorrect as AU-C applies to nonissuers; choice C is incorrect as SSARS reviews are not audits; choice D is incorrect as SSARS compilations provide no assurance. Choice A fits the issuer audit requirement. Professionals should apply PCAOB for all issuer SEC-related audits. Confirm filing type to ensure compliance with regulatory standards.
A private company (a nonissuer) asks a practitioner to provide assurance over management’s schedule of greenhouse gas emissions for the year, which will be distributed to customers. The practitioner is engaged to obtain sufficient appropriate evidence to express an opinion on whether the schedule is fairly stated based on suitable criteria. What is the correct engagement type given the client’s needs?
Audit engagement under PCAOB standards because the report will be used by external parties
Examination attestation engagement under SSAE to provide reasonable assurance on the emissions schedule
Compilation engagement under SSARS because management provides the underlying data
Review engagement under SSARS because the subject matter is not a financial statement
Explanation
This question tests the application of attestation standards to nonfinancial subject matter. The key facts are that the subject matter is a greenhouse gas emissions schedule (not financial statements) and the practitioner will express an opinion with reasonable assurance. An examination attestation engagement under SSAE is the correct choice for providing an opinion on subject matter other than historical financial statements. A review under SSARS (choice A) applies only to historical financial statements of nonissuers. An audit under PCAOB standards (choice C) applies only to issuers, not private companies. A compilation under SSARS (choice D) applies to financial statements and provides no assurance. The professional framework is: when reasonable assurance and an opinion are needed on nonfinancial subject matter, an examination engagement under SSAE standards applies.
A public company (an issuer) has accelerated filer status and is preparing its annual report. Management requests an engagement that includes both an audit of the financial statements and an audit of internal control over financial reporting, with separate opinions. What is the correct engagement type given the client’s needs?
Integrated audit under PCAOB standards (financial statements and internal control over financial reporting)
Review of financial statements under SSARS combined with an agreed-upon procedures engagement on controls under SSAE
Financial statement audit under AICPA auditing standards with an internal control report under SSARS
Compilation of financial statements under SSARS with a management representation letter about controls
Explanation
This question tests knowledge of integrated audits required for certain public companies. The key facts are that this is an accelerated filer (large public company) requiring both a financial statement audit and an audit of internal control over financial reporting (ICFR). For accelerated filers, Section 404(b) of the Sarbanes-Oxley Act requires an integrated audit under PCAOB standards covering both financial statements and ICFR. AICPA standards with SSARS (choice B) cannot be used for issuers. A review combined with agreed-upon procedures (choice C) would not provide the required reasonable assurance and opinions. A compilation with representations (choice D) provides no assurance and is inappropriate for issuers. The rule is: accelerated filers must have integrated audits under PCAOB standards addressing both financial statements and ICFR.