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Sampling and Communications

A5, Sim 2, Task 6

Title: Internal Control Report (AICPA Adapted)

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Selection List – Column B

Question 1 Question 2

Accountant's Report on Internal Controls analyzed

Auditor's Report on Agreed-Upon Procedures audited

Auditor's Report on Internal Controls examined
Independent Accountant's Report reviewed

Independent Auditor's Report tested

Registered Public Accounting Firm Report

Selection List – Column B

Question 3 Question 4

American Institute of Certified Public

Accountants assessment

Auditing Standards Board attestation

Committee of Sponsoring Organizations of
the Treadway Commission audit
International Auditing and Assurance Board evaluation

Public Company Accounting Oversight Board examination

Securities and Exchange Commission inspection
review

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Selection List – Column B

Question 5 Question 6

American Institute of Certified Public

Accountants Legitimate

Auditing Standards Board Logical

Committee of Sponsoring Organizations of
the Treadway Commission Reasonable
International Auditing and Assurance Board Reliable

Public Company Accounting Oversight Board Sufficient

Securities and Exchange Commission Valid

Selection List – Column B

Question 7 Question 8

Cost considerations American Institute of Certified Public Accountants

Design limitations Auditing Standards Board

Committee of Sponsoring Organizations of the
Distinct limitations Treadway Commission
Inherent limitations International Auditing and Assurance Board

Operational considerations Public Company Accounting Oversight Board

Unique conditions Securities and Exchange Commission

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Title: Internal Control Report (AICPA Adapted) Solution

This question is testing the student's knowledge of the nonissuer report expressing an opinion directly on
the company's internal controls over financial reporting. An example of this report may be found in A-5
Topic 2, "Internal Control Communications."

#1: Independent Auditor's Report

#2: examined

#3: Committee of Sponsoring Organizations of the Treadway Commission

#4: examination

#5: American Institute of Certified Public Accountants

#6: reasonable

#7: inherent limitations

#8: Committee of Sponsoring Organizations of the Treadway Commission

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Draft Report

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Other Professional Engagements
A2, Sim 1, Task 7
Title: Review Engagement Procedures (AICPA Adapted)
Selection List – Column B
Questions 1&2
Are any investments encumbered?
Are there compensating balances or other
restrictions on the availability of funds?
Has there been a proper cutoff of sales
transactions?
Please prepare and sign confirmations as of
year-end for mailing.
Please provide an outstanding list as of April
30, Year 1, in order to trace the subsequent
bank statements.
Please provide the following sample of
account reconciliations for reperformance.
Please provide the interest income report for
recalculation.
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Selection List – Column B
Questions 3&4
Please prepare and sign confirmations as of year-
end for mailing.
Please provide copies of the following sample of
purchase invoices to voucher current year additions.
Please provide the following sample of account
reconciliations for reperformance.
Were consignments in or out considered in taking a
physical count?
What are the company's capitalization policies, and
have those policies been consistently and
appropriately applied?
When will the physical inventory count and fixed
asset reviews occur so that I may coordinate our
observation.
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Selection List – Column B

Question 5&6

Are there assets that have been pledged as collateral?

Have all liabilities been appropriately accrued?

Please prepare and sign confirmations as of year-end for mailing.
Please provide an explanation for why the load amortization schedule does not
recalculate.
Please provide the following sample of account reconciliations for
reperformance.
Please provide the following sample of invoices to perform the search for
unrecorded liabilities.

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Title: Review Engagement Procedures (AICPA Adapted) Solution

Account Question or request

Cash Are there compensating balances or other
restrictions on the availability of funds?
Accounts receivable Has there been a proper cutoff of sales
transactions?
Inventory Were consignments in or out considered in taking
a physical inventory count?
Fixed assets What are the company's capitalization policies,
and have those policies been consistently and
appropriately applied?
Accounts payable Have all liabilities been appropriately accrued?
Debt Are there assets that have been pledged as
collateral?

This question may be answered by process of elimination. Many answer choices relate to control or
substantive procedures, which are performed in an audit but not in a review. (Examples of control
procedures and substantive procedures are provided in A4.)

Question #1 (Cash—Are there compensating balances or other restrictions on the availability of funds?)
and Question #2 (Accounts receivable—Has there been a proper cutoff of sales transactions?)

The following answer choices are unlikely inquiries to be made in a review and may be eliminated as
answer choices. These answer choices are asking for management to provide additional corroborating
evidence. Generally, in a review, the accountant merely inquires of management and does not need
additional detailed evidence to substantiate management's responses.

• Please prepare and sign confirmations as of year-end for mailing.

o Sending out confirmations is a substantive procedure performed in an audit, not a review.
• Please provide an outstanding check list as of April 30, Year 1 in order to trace to subsequent
bank statements.
o Substantive procedures, such as tracing checks to subsequent bank statements, are
performed in an audit, not a review.
• Please provide the following sample of account reconciliations for reperformance.
o Reperformance, which is a procedure to test controls, is not typically performed in a
review.
• Please provide the interest income report for recalculation.
o Evidence of the interest income report is a substantive procedure more likely to be
performed in an audit rather than in a review.

The remaining answer choices are:

• Are investments encumbered?

o This question may be asked in a review, but it does not directly relate to the cash or
accounts receivable account. Determining whether investments are encumbered
typically relates to disclosures for investments.

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• Are there compensating balances or other restrictions on the availability of funds?

o This relates to cash. If cash is used as a compensating balance or has restrictions on the
availability of funds, then appropriate disclosure and presentation of the cash balance
(e.g., current or non-current) can be verified.

• Has there been a proper cutoff of sales transactions?

o This relates to accounts receivable. The accountant is verifying that sales made on credit
are recorded in the correct period.
o Note: This is also a question that could be related to cash. However, this is not the "best"
response for cash. The cash balance is related to more items than just sales
transactions. For example, cash may decrease as a result of payment of accounts
payable or increase as a result of sale of stock. One concern related specifically to cash
is whether it is used as a compensating balance or has other restrictions on the
availability of the funds, which is why that response is the "best" choice for the cash
inquiry.

Question #3 (Inventory—Were consignments in or out considered in taking a physical inventory count?)

and Question #4 (Fixed assets—What are the company's capitalization policies, and have those policies
been consistently and appropriately applied?)

The following answer choices may be eliminated:

• Please prepare and sign confirmations as of year-end for mailing.

o Sending out confirmations is a substantive procedure performed in an audit, not a review.
• Please provide copies of the following sample of purchase invoices to vouch current year
additions.
o Substantive procedures, such as vouching purchase invoices to current year additions,
are performed in an audit, not a review.
• Please provide the following sample of account reconciliations for reperformance.
o Reperformance, which is a procedure to test controls, is not typically performed in a
review.
• When will the physical inventory count and fixed asset reviews occur so that I may coordinate our
observation.
o Observation of inventory is performed in an audit, not a review.

The remaining answer choices are:

• Were consignments in or out considered in taking a physical count?

o This answer choice relates to inventory. The accountant is verifying that the appropriate
amount of inventory is recorded. Specifically, if the client is the consignor, that inventory
should be included in the count, even if off-site. If the client is the consignee, that
inventory should be excluded from the count, even if on-site.
• What are the company's capitalization policies, and have those policies been consistently and
appropriately applied?
o This answer choice relates to fixed assets. The accountant is verifying the accounting
polices used and the method used in applying them.

Question #5 (Accounts payable—Have all liabilities been appropriately accrued?) and Question #6
(Debt—Are there assets that have been pledged as collateral?)

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The following answer choices may be eliminated:

• Please prepare and sign confirmations as of year-end for mailing.

o Sending out confirmations is a substantive procedure performed in an audit, not a review.
• Please provide an explanation for why the loan amortization schedule does not recalculate.
o Typically, in a review, the accountant does not perform detailed substantive testing, such
as recalculation procedures, on individual account balances.
• Please provide the following sample of account reconciliations for reperformance.
o Reperformance, which is a procedure to test controls, is not typically performed in a
review.
• Please provide the following sample of invoices to perform the search for unrecorded liabilities.
o The search for unrecorded liabilities is a substantive procedure that is typically performed
in an audit, but not a review.

The remainder answer choices are:

• Are there assets that have been pledged as collateral?

o This question relates to debt. Sometimes when a company obtains debt, the company
has to provide collateral for the debt. This provides more security for the creditor loaning
the money. Assets that have been pledged as collateral should be disclosed in the
financial statements.
• Have all liabilities been accrued?
o This question relates to accounts payable. The accountant is verifying that all the
liabilities (e.g., accounts payable) have been recorded.
o Note: This is also a question that could be related to debt, because debt is a liability.
However, this is not the "best" response for debt. Debt represents money that must be
paid back. Liability is a broader term that refers to an economic obligation (which
includes wages payable, unearned revenue, etc.) Therefore, the question "Are there
assets that have been pledged as collateral?" is the best response for debt because it
relates directly to debt rather than "have all liabilities been accrued," which is a question
that could relate to several liability accounts.

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Other Professional Engagements

A2, Sim 1, Task 11

Title: Research (AICPA Adapted)

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Title: Research (AICPA Adapted) Solution

Source of answer for this question:

AT 601.52

Keyword search: subsequent events

Step 1: The question is asking about an attest engagement. Search just the attestation standards by
clicking on the Attestation Standards [AT] folder (located on the left hand side of the screen).

Step 2: Enter "compliance with law" and click "search within." You will find the majority of your results in
AT 601, "Compliance Attestation."

Step 3: Search just AT 601 "Compliance Attestation" by clicking on the AT 601 folder on the left-hand side
of the screen.

Step 4: Search for "Subsequent event"

AT 601.52 is the "best" response because it addresses this question directly:

• The subsequent event of noncompliance occurs subsequent to Year 1 (noncompliance occurred

during the first week of February Year 2), which is prior to the date of the examination report of
February 10.
• It describes the effect on the examination report—an explanatory paragraph should be added.

Note: AT 601.23 is an incorrect response because it relates to subsequent noncompliance in an agreed-

upon procedures engagement.

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