Annual Accounting and Auditing Update & Review

Annual Accounting

and Auditing Update & Review

#5410VEXAM MATERIAL

5410V Final Exam • 1

ANNUAL ACCOUNTING AND AUDITING UPDATE & REVIEW (COURSE #5410V)

COURSE DESCRIPTION

The purpose of this course is to inform the reader of the various changes affecting accounting, compilation and review, and auditing engagements, as well as a review and recall of existing standards. Topics include a summary of newly issued FASB statements, new statements issued by the Auditing Standards Board, changes in compilation and review engagements, current and pending developments, practice issues, and more. Prerequisites: None. Course level: Overview. Course #5410V - 24 CPE hours.

LEARNING ASSIGNMENTS AND OBJECTIVES

As a result of studying each assignment, you should be able to meet the objectives listed below each individual assignment.

ASSIGNMENT 1: SUBJECTAccounting and Financial Reporting for COVID-19, the CARES Act, and PPP Loans

Study the course materials from pages 1 to 96Complete the review questions throughout the chapterAnswer the exam questions 1 to 20

Objectives:

• To recognize some types of concentrations that might require disclosure under the risk and uncertainty rules

• To identify the definition of near term• To recall the frequency in which an entity should test goodwill for impairment• To recall the method for valuing certain types of inventory• To recognize how business interruption insurance recoveries may be presented on the statement

of income• To identify certain GAAP going-concern terminology• To identify certain tax law changes made by the CARES Act• To recognize how a company should present and account for CARES Act PPP loans and related

forgiveness on its financial statements

2 • 5410V Final Exam

ASSIGNMENT 2: SUBJECTImplementing the New Lease Standard-2021: ASU 2016-02 Leases and Other Amendments


Objectives:

• To recognize a key change made to GAAP by the new lease standard• To identify a type of lease that exists for a lessee under ASU 2016-02• To recall a type of lease for which the ASU 2016-02 rules do not apply • To recognize some of the criteria that determine whether a contract is or is not a lease• To identify how a lessee should account for initial direct costs • To recall how a lessor should account for initial direct costs for a lease in certain instances• To identify how a lessor should account for lease payments received on the income statement for

an operating lease• To recognize how certain existing leases are accounted for on the implementation date of ASU

2016-02• To recall the potential impact that the new lease standard might have on a lessee’s EBITDA and

debt-equity ratios

ASSIGNMENT 3: SUBJECTFinancial Instruments- Credit Losses ASU 2016-13- 2021

Study the course materials for pages 225 to 246Complete the review questions throughout the chapterAnswer the exam questions 41 to 45

Objectives:

• To recognize the model that ASU 2016-13 uses to deal with credit losses• To identify how credit losses should be recorded under new ASU 2016-13• To identify some of the disclosures required by ASU 2016-13


ASSIGNMENT 4: SUBJECTCurrent Developments- Accounting and Financial Reporting- 2021


Objectives:

• To identify a characteristic of a multi-employer plan• To recall the color coding of funded status of a multi-employer plan• To recognize the impact of changes in life expectancy on pension benefit obligations• To recognize an argument for not amortizing goodwill• To identify an impact of the Wayfair decision on company sales taxes• To identify an example of a customer-related asset

ASSIGNMENT 5: SUBJECTImplementing the New Revenue Standard- ASC 606: 2021 Guidance for Private Companies


Objectives:

• To recognize the types of agreements that qualify as contracts under the revenue standard• To recall a condition that must be met to identify a separate performance obligation• To identify at least one method that is used to record revenue in Step 5 of the revenue standard• To recognize when a good is considered transferred to a customer under ASC 606• To recognize how to account for the transfer of a product with a right to return• To recall the general rule that determines whether an entity should record revenue gross or net• To recall how certain contract costs are accounted for under the revenue standard• To recognize certain disclosures required by the revenue standard for nonpublic entities


ASSIGNMENT 6: SUBJECTFinancial Instruments- 2021: Implementing ASU 2016-01


Objectives:

• To identify the category of securities for which ASU 2016-01 retains the three categories under existing GAAP

• To recall one of the changes made by ASU 2016-01 to existing GAAP for financial instruments • To recall how available-for-sale debt securities are measured on an entity’s balance sheet• To recognize how an entity should account for a temporary impairment• To recall how an entity should present an unrealized gain or loss on an equity security under ASU

2016-01• To identify how a mutual fund that invests in debt and equity securities should classify the

investment• To recall a change made to the exemption for fair value disclosures with respect to trade receivables

and payables

ASSIGNMENT 7: SUBJECTSSARS No. 25: Materiality in a Review of Financial Statements and Adverse Conclusions


Objectives:

• To recognize a precondition for an accountant to accept a SSARS engagement• To recall whether the preparation of financial statements standard is an attest or nonattest service• To identify whether a report is required in a preparation of financial statements engagement• To recognize what the reporting requirements are, if any, when a “no assurance” legend is omitted

from prepared financial statements under the AR-C 70 standards• To identify where to disclose GAAP departures in a preparation of financial statements engagement• To identify factors that should be considered in determining materiality in a review engagement • To recognize a change that SSARS No. 25 makes to the accountant’s review report• To identify the term that GAAP uses for management’s assessment of an entity’s going concern• To recall some of the items that should be documented in a review engagement


ASSIGNMENT 8: SUBJECTNew Auditing and Attestation Standards: SAS Nos. 134-143 and SSAE Nos. 19-22


Objectives:

• To recall the location of certain sections in the auditor’s report• To recognize the categorization of an adverse opinion• To identify a change that SAS No. 136 makes to the limited-scope ERISA audit• To recognize one of the changes made by AU-C 703 to ERISA audits• To recall the reporting requirement when an auditor obtains other information in an audit• To identify a reference that is made in the new definition of materiality• To recognize the definition of certain types of paragraphs made by SAS No. 139• To identify an attribute of audit evidence referenced in SAS No. 142• To identify how inherent and control risk should be assessed under the SAS No. 143 requirements• To recall the three approaches that an auditor can use to perform further audit procedures required

by SAS No. 143• To identify a change made by SSAE No. 19• To recognize one of the four types of engagements within SSAE No. 21’s new definition of

attestation engagement• To identify an example of subject matter that is within the scope of SSAE No. 22’s review

ASSIGNMENT 9:• Complete the Answer Sheet and Course Evaluation and submit to PES


NOTICEThis course and test have been adapted from supplemental material and uses the materials entitled 2021 FASB SSARS and SAS Update and Review © 2021 by Fustolo Publishing LLC. Displayed by permission of the author. All rights reserved.

The views expressed in this text are those of the author(s) and do not necessarily reflect the views, opinions, or positions of Professional Education Services, LP, its employees, or owners.

Use of these materials or services provided by Professional Education Services, LP (“PES”) is governed by the Terms and Conditions on PES’ website (www.mypescpe.com). PES provides this course with the understanding that it is not providing any accounting, legal, or other professional advice and assumes no liability whatsoever in connection with its use. PES has used diligent efforts to provide quality information and material to its customers, but does not warrant or guarantee the accuracy, timeliness, completeness, or currency of the information contained herein. Ultimately, the responsibility to comply with applicable legal requirements falls solely on the individual licensee, not PES. PES encourages you to contact your state Board or licensing agency for the latest information and to confirm or clarify any questions or concerns you have regarding your duties or obligations as a licensed professional.

© Professional Education Services, LP 2021

Program Publication Date 07/29/2021


ANNUAL ACCOUNTING AND AUDITING UPDATE & REVIEW (COURSE #5410V) – EXAM OUTLINE

COURSE EXPIRATION DATE: Per AICPA and NASBA standards, this course must be completed within ONE YEAR from the date of purchase.

TEST FORMAT: The following final exam, consisting of 120 multiple choice questions, is based specifically on the material included in this course. The answer sheet must be completed and returned to PES for CPE certification. You will find the answer sheet at the back of this exam packet so that you may easily remove it and use it while taking your test.

LICENSE RENEWAL INFORMATION: The Annual Accounting and Auditing Update & Review course (#5410V) qualifies for 24 CPE hours.

PROCESSING: Your exam will be graded promptly. You must score 70% or better to pass. If you mail or fax your exam, when you pass, your certificate of completion will be mailed. If you do not pass, we will give you a courtesy call to inform you of this, and another answer sheet will be sent to you free of charge. If you complete your exam online, your certificate will be available automatically in your account if you achieve a passing grade.

GRADING OPTIONS – Please choose only ONE of the following:

GRADING OPTIONS: Please choose only ONE of the following. There is no additional charge for any of these grading options. Make sure to fill out your answer sheet completely prior to submitting it.

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ANNUAL ACCOUNTING AND AUDITING UPDATE & REVIEW (COURSE #5410V) – FINAL EXAM

The following questions are multiple choice. Please indicate your choice on the enclosed Answer Sheet.

1. Company X has various concentrations in its business. X wants to know which concentrations might require disclosure. Under ASC 275, which of the following is likely to be a type of concentration for which a disclosure might be required:

A. concentration of graduates from Harvard University

B. concentration in the amount of goodwillC. concentration in the sources of materials

from ChinaD. concentration in fixed assets

2. In accordance with ASC 275, how is the term “near term” defined:

A. as a period of time not more than 18 months from the date of a triggering event

B. as a period of time not to exceed one year from the date of the financial statements

C. as a period of time within five years of the date of the financial statements with certain limitations

D. it is not defined by GAAP

3. How should intangible assets with finite lives be accounted for:

A. they should be amortized and tested annually for impairment

B. they should not be amortized and should be tested annually for impairment

C. they should be amortized and only tested for impairment if there is an indication that an impairment might exist

D. they should not be amortized and should not be tested for impairment

4. Which of the following entities is permitted to elect the accounting alternative for goodwill under ASU 2014-02:

A. a private companyB. an SEC registrantC. a non-profit entityD. a pension plan

5. Company X is a publicly held entity with goodwill. How often should X test goodwill for impairment:

A. annuallyB. at least bi-annually C. never, as the impairment rules do not applyD. only if there is an ensuing activity or event

6. Big Jim’s Manufacturing has an impairment loss on goodwill. In accordance with ASC 350, which of the following is true with respect to what happens to goodwill after recording the impairment loss:

A. the adjusted carrying amount of goodwill becomes the new accounting basis

B. the original basis of goodwill is retained going forward

C. an allowance account is established so that fluctuations in basis are permitted in the future

D. the original cost is retained as the basis, regardless of whether there is a writedown


7. Company Y is a nonpublic (private) company with goodwill and wishes to elect ASU 2014-02’s accounting alternative. What is the maximum life over which Y is permitted to amortize its goodwill using the accounting alternative:

A. 10 years straight lineB. goodwill may not be amortizedC. 15 years straight lineD. 40 years straight line or accelerated

8. The term “more likely than not” means which of the following:

A. probableB. more than 50% probabilityC. more than 75% probabilityD. remote

9. Company K uses LIFO to value its inventory. At the end of the year, how should K measure its inventory under ASC 330:

A. net realizable valueB. lower of cost and net realizable valueC. lower of cost or marketD. cost

10. Company L wrote down its inventory to lower of cost and net realizable value last year. This year, it appears that there is a recovery of the writedown. Which of the following is true with respect to U.S. GAAP:

A. L is permitted to reverse the previous year’s writedown

B. L cannot reverse the previous year’s writedown under GAAP

C. L is permitted to reverse the previous year’s writedown above original cost

D. L has one year to recover any inventory writedowns

11. According to ASC 220-30, under what conditions may an entity choose how to classify business interruption insurance recoveries in the statement of operations:

A. without any restrictionsB. as long as the recovery is insignificantC. as long as that classification is not contrary

to existing GAAPD. as long as the amount is characterized as

unusual

12. Sally Smith CPA is the auditor of Company N. Sally concludes that there is substantial doubt about N’s ability to continue as a going concern for a reasonable period of time. How should Sally issue her audit report on N:

A. include an emphasis-of-matter paragraph in the audit report

B. issue an adverse opinionC. include an other-matter paragraph in the

audit reportD. issue an unmodified report

13. Under the going-concern rules for GAAP, auditing, and review standards, which of the following terms is used as a benchmark in considering going concern:

A. uncertaintyB. substantial doubtC. severe uncertaintyD. significant doubt

14. Company L has a net operating loss in 2020. L had taxable income in years 2015 to 2019. Which of the following is true as to how L can treat the NOL:

A. L is permitted to carry the NOL forward for 20 years under the CARES Act

B. L is permitted to carry back the NOL five years under the CARES Act

C. L is not permitted to carry the NOL forward under the CARES Act

D. L is not permitted to carry the NOL back under the CARES Act


15. Under the CARES Act, which of the following changes is made to the deductibility of interest:

A. deductibility is increased from 30% to 50% of EBITDA

B. there is no limit to the deductibility of interestC. deductibility is reduced from 70% to 40% of

pretax incomeD. no interest is deductible unless it is secured

by a mortgage

16. Debt issuance costs should be reported as which of the following:

A. expensed as period costsB. as a direct reduction from the face amount of

the PPP loanC. as a deferred charge assetD. as a current asset, consistent with the term

of the related PPP loan that created the costs

17. Company X’s PPP loan is forgiven. How should X account for the forgiveness of debt:

A. as a credit to equityB. as a gain on extinguishment of debtC. as a deferred credit to remain on the balance

sheetD. as a reduction in eligible expenses

18. Steve’s Sloppy Sandwiches receives forgiveness of its $2 million PPP loan. How should the Company treat the forgiveness for tax purposes:

A. nontaxable incomeB. taxable at a reduced corporate rate of 15%C. nontaxable to the extent the Company

reinvests the proceeds in qualifying equipment

D. taxable at the Company’s marginal rate

19. If a loan under the CARES Act PPP is forgiven, how should it be accounted for in the tax calculation:

A. as a temporary differenceB. as a permanent differenceC. as taxable income subject to the tax

provisionD. as a tax credit

20. Which of the following is an example of a circumstance in which an accountant may consider it necessary to include an emphasis-of-matter paragraph in a review report:

A. there is significant supplementary informationB. unusually important subsequent eventC. all catastrophes, regardless of the effect on

the financial statements D. the purchase of a significant amount of

equipment

21. What is one key change under the new lease standard:

A. a small portion of operating leases, but not capital leases, will be brought onto the balance sheet

B. existing capital leases, but not operating leases, will be brought onto the balance sheet

C. no leases will be capitalizedD. all leases with a lease term more than 12

months must be capitalized

22. Under new ASU 2016-02, which of the following is a type of lease for a lessee:

A. finance lease B. sales-type lease C. direct finance lease

D. capital lease


23. Which of the following is a type of lease for which the ASU 2016-02 rules do not apply:

A. lease of retail spaceB. lease of equipmentC. lease of intangible assetD. lease of motor vehicle

24. Captain Joe is a CPA for Company X. Joe is assessing whether a contract that X has meets the definition of a lease for purposes of ASU 2016-02. Which of the following is true: A lease conveys the right to _______________________ identified property, plant, or equipment.

A. sellB. purchase at the end of the leaseC. control the use ofD. convert

25. In determining whether a contract has a lease, there is a general rule: If there is no ___________, there is no lease.

A. identified assetB. lease termC. fixed lease paymentD. signed agreement

26. Company L executes a lease agreement with a lessor. L is trying to determine whether the agreement qualifies to be a lease under ASU 2016-02. L does not have the right to use the leased asset if the lessor has the substantive right to do which of the following:

A. retain the asset at the end of the leaseB. substitute the assetC. sell the asset at the end of the lease

D. insure the asset throughout the lease

27. With respect to the new lease rules, a component of a contract includes only those items or activities that are which of the following:

A. they transfer a good or service to a lesseeB. they are otherwise incurred by the lessorC. they are easily separable from other

componentsD. they are clearly identified separately within

the contract

28. With respect to a lessee, for a lease term to be a major part of the remaining economic life of the underlying asset, which one of the following thresholds must be satisfied:

A. present value of the lease payments must exceed 50% of the fair value of the leased asset

B. lease term is 75% or more of the remaining economic life of the leased asset

C. there is a bargain purchase optionD. there must not be any transfer of ownership

during the lease term

29. At the commencement date of a lease, how should a lessee account for initial direct costs:

A. include them as part of the right-of-use assetB. expense them as incurredC. capitalize them as an intangible asset and

amortize themD. net them against the lease obligation

30. ASU 2016-02 provides that if it is ___________________________ that a lessee will exercise the option to purchase the leased asset, the amount of the purchase is included as part of the lease payments.

A. probableB. more likely than notC. reasonably certain

D. reasonably possible


31. Company Z pays $1 million for leasehold improvements for space it leases. The remaining lease term is 10 years. There is no option to purchase the real estate at the end of the lease. The useful life of the leasehold improvements is 30 years. The useful life of the underlying real estate is 40 years. Over what period should Z amortize the leasehold improvements:

A. 10 yearsB. 30 yearsC. 40 yearsD. tax life of 39 years

32. Jones Company is a lessee who has classified its lease as a finance (Type A) lease. Where should the repayment of the principal portion of a finance (Type A) lease be presented on the statement of cash flows:

A. operating activitiesB. financing activitiesC. investing activitiesD. disclosed only

33. If a lessor’s lease does not qualify for a sales-type lease or a direct financing lease, it is classified as which of the following:

A. capital leaseB. finance leaseC. operating leaseD. leveraged lease

34. In a sales-type lease, a lessor should reassess a lease term if which of the following is true:

A. the lease is modifiedB. the original discount rate changesC. it appears the underlying asset has a longer

economic life than originally anticipated D. lessor receives a bona fide offer to sell or

transfer the underlying leased asset

35. How should a lessor initially account for initial direct costs for a lease classified as an operating lease from the lessor’s perspective:

A. defer the initial direct costsB. expense the initial direct costsC. capitalize the costs as part of the right of use

assetD. record the costs as part of other

comprehensive income in stockholders’ equity

36. With respect to a lessor lease classified as an operating lease, how should lease payments received be recorded on the income statement:

A. on a straight-line basis over the lease termB. on an accelerated basis over the lease termC. on a straight-line basis over the useful life of

the underlying leased assetD. on an accelerated basis over the useful life

of the underlying leased asset

37. Company X, a lessee, is implementing ASU 2016-02 for its leases. All of its existing leases on the implementation date have lease terms more than 12 months and do not qualify for the short-term lease exception. Which of the following is true as it relates to X’s existing leases on the implementation date of ASU 2016-02:

A. all of X’s existing leases will be grandfathered from having to comply with the new lease standard

B. all of X’s capital leases only will be grandfathered from having to comply with the new lease standard

C. all of X’s existing operating leases only will be grandfathered from having to comply with the new lease standard

D. none of X’s existing leases are grandfathered from implementing ASU 2016-02


38. Company X is implementing ASU 2016-02 for its leases. How should X record any implementation adjustment:

A. as an adjustment to equityB. as a cumulative effect on the income

statementC. as a separate component of other

comprehensive incomeD. there is no adjustment required

39. One potential impact from the new lease standard for lessee’s finance (Type A) leases is that EBITDA will likely have a/an:

A. favorable impact because interest will decrease while rental expense will increase

B. unfavorable impact because depreciation will increase while rental expense will decrease

C. favorable impact because interest and amortization expense will increase while rental expense will decrease

D. unfavorable impact because interest, depreciation and rental expense will all increase

40. Under the new lease standard, which of the following is true:

A. lease terms are likely to shorten, to decrease the amount of the lease obligation

B. lease terms are likely to get longer, to reduce the amount of the lease obligation

C. lease terms are likely to shorten, to increase the amount of the leased asset recorded

D. lease terms are likely to get longer, to reduce the amount of the leased asset recorded

41. Which of the following does ASC 326-20 (as amended by ASU 2016-13) not apply to:

A. financing receivablesB. held-to-maturity debt securitiesC. off-balance sheet credit exposures not

accounted for as insurance

D. policy loan receivables of an insurance entity

42. Jean Claude CPA is implementing the ASU 2016-13 credit loss model for his client, Company Z. Which of the following models does ASU 2016-13 use in dealing with credit losses:

A. incurred loss modelB. expected credit loss modelC. probable loss modelD. measured loss model

43. Which of the following is true with respect to ASU 2016-13’s new rules for credit losses related to available-for-sale debt securities:

A. credit losses should be recorded through a direct writedown of the asset

B. credit losses should be recorded through an allowance for credit losses

C. credit losses should be recorded based on an other-than-temporary threshold

D. once a credit loss is recorded, it cannot be reversed

44. John Mitchell CPA is preparing the disclosures required for his client to implement ASU 2016-13 with respect to credit losses. Which of the following disclosures is not a new disclosure required by ASU 2016-13:

A. the balance in the allowance for credit losses at the balance sheet date

B. reasons for significant changes in the amount of writeoffs

C. the amount of any significant purchases of financial assets during the reporting period

D. the activity in the allowance for credit losses


45. Sally Green CPA is implementing ASU 2016-13 for her client, Big Ed’s Hard Money Lender. Big Ed has some financial assets recorded at amortized cost. How should Sally account for the implementation of ASU 2016-13 with respect to credit losses involving financial assets recorded at cost:

A. as a cumulative-effect adjustment to the income statement

B. as a restatement of financial statements presented

C. as a cumulative-effect adjustment to the opening retained earnings

D. as a disclosure only

46. What is one of the characteristics of a multi-employer pension plan:

A. many employers are part of one, identical collective bargaining agreement

B. assets contributed by one particular employer must be used for that employer’s employees only

C. employers are jointly and severally liable for the plan obligations

D. there is no withdrawal or exit fee

47. Company X is the sponsor of a pension plan that is part of a larger multi-employer plan. The multi-employer plan’s funded status is 55%. Which color code does the funded status relate to:

A. redB. greenC. yellow

D. orange

48. Company X is computing the pension liability for its defined benefit pension plan. Which of the following is true as it relates to calculating the amount of X’s pension liability for its retirees:

A. the shorter the life expectancy, the greater the present value of the pension benefit obligation

B. the longer the life expectancy, the greater the present value of the pension benefit obligation

C. the life expectancy has no impact on the amount of the pension liability

D. the longer the life expectancy, the lower the present value of the pension benefit obligation

49. Which of the following is an argument against amortizing goodwill:

A. goodwill is not a depleting assetB. amortizing goodwill is too time consumingC. it is impossible to determine the useful life of

goodwillD. goodwill is not an appreciating asset

50. Company X is an online retailer that sells goods in all 50 states. Which of the following is correct regarding sales tax as it relates to the Wayfair decision:

A. states can require X to pay sales tax even if X does not have a physical presence in those states

B. X might be required to pay sales tax to a state if X has more than 100 transactions in that state

C. X might be required to pay sales tax to a state if X has at least $50,000 of in-state sales collected in that state

D. X is required to collect and pay sales tax only in states in which it has a physical presence


51. Company X has a wholly owned subsidiary, Company S, which is a disregarded entity (a one-member LLC). Which of the following is true under ASU 2019-12:

A. X may elect to allocate a portion of consolidated tax expense to S even though S pays no taxes

B. X is not permitted to allocate a portion of tax expense to S because X pays no taxes

C. X is required to allocate a portion of the consolidated amount of tax expense to S

D. if X elects to allocate taxes to S, it must also do so for all members of the group that files a consolidated tax return.

52. Company Y is a not-for-profit entity with goodwill and wishes to elect the accounting alternative identified in ASU 2019-06. Over what life is Y permitted to amortize its goodwill using the accounting alternative:

A. 10 years straight lineB. goodwill may not be amortizedC. 15 years straight lineD. 40 years straight line or accelerated

53. Which of the following is an example of a customer-related intangible asset in ASU 2019-06:

A. going-concern valueB. customer listC. patentD. trademark

54. Which of the following is considered a private company under ASU 2018-17:

A. a not-for-profit entityB. an employee benefit plan on plan accountingC. an entity that is a public business entity

D. a closely held business

55. Company B is an operating company that leases its office from Company C. B wishes to elect the accounting alternative in ASU 2018-17. In order to qualify for the accounting alternative, which of the following must exist:

A. B must own a majority of C’s voting interestB. B and C must be under common controlC. B and C must have a leasing arrangementD. B must provide the majority of the support for

C’s operations

56. In accordance with the revenue standard, which of the following is true if it pertains to an entity’s customary business practices:

A. a contract must be in writing under the statute of frauds

B. a contract cannot be oralC. a contract cannot be impliedD. a contract may be oral or implied

57. Company X is applying Step 1 of the revenue recognition standard, which is to identify the contract with a customer. One of the criteria in Step 1 is that it is _______ that the entity will collect the consideration to which it will be entitled in exchange for the goods or services.

A. probableB. likelyC. possibleD. remote

58. Under the revenue standard, in identifying a separate performance obligation, one condition that must be met is a promised good or service must be which of the following:

A. similarB. distinctC. separable

D. interchangeable


59. Company Z has several performance obligations and wants to allocate the transaction price to each obligation under Step 4 of the revenue standard. In order to make the allocation, which piece of information should Z obtain for each performance obligation:

A. standalone priceB. fair valueC. replacement costD. discounted price

60. In accordance with the revenue standard, revenue is recognized under different approaches in Step 5, one of which is which of the following:

A. over timeB. as cash if collected similar to the installment

sales methodC. when the transaction is complete and

collectibility is reasonably assuredD. using the completed contract method or cost

recovery method

61. Gino’s Construction is implementing the revenue standard. Which of the following is an example of an input method the company might use to recognize revenue over time:

A. surveys of performanceB. appraisals of results achievedC. units producedD. costs incurred

62. Under ASC 606, when is a good considered transferred:

A. when it is shipped or given to a common carrier

B. when the customer obtains control of that good

C. when title passes

D. when any receivable is collectible

63. A company sells a product and allows its customers the right to return the product. To account for the transfer of the product with the right to return, which of the following should the company recognize:

A. a refund receivableB. a deferred creditC. a refund liabilityD. a credit to equity

64. Company Z is determining whether it should record certain revenue on a gross or net basis. Which of the following is the general rule that Z should follow:

A. if Z is a principal, it should record revenue at the gross amount

B. if Z is a principal, it should record revenue on a net amount of any fee or commission

C. if Z is an agent, it should record revenue at the gross amount

D. if Z is an agent, it has the choice of recording revenue at a gross or net amount of any fee or commission

65. A (an) ______________________ is a warranty that can be purchased by a customer in addition to the purchase of the underlying product or service.

A. service-type warrantyB. umbrella-type warrantyC. assurance-type warrantyD. insurance-type warranty

66. How should goods shipped to a customer on consignment be accounted for under the revenue standard:

A. revenue is recognized because control transfers to the customer

B. revenue is not recognized even though control has transferred to the customer

C. revenue is not recognized because there is no transfer of control to the customer

D. revenue is recognized even though control has not been transferred to the customer


67. Company M is permitted to make an accounting policy election to do which of the following:

A. exclude from the transaction price only sales tax imposed and collected

B. exclude from the transaction price all taxes assessed by a governmental authority

C. include in the transaction price sales tax collected

D. include in the transaction price corporate income taxes incurred

68. Company X has certain incremental costs associated with obtaining a contract. One such cost consists of sales commissions. Under the revenue standard, how should X account for the commissions:

A. expense the commissions as period costsB. recognize the commissions as an asset and

amortize itC. net the cost against the revenue and present

it on a net basis on the income statementD. record it as a receivable and present it as net

of an allowance account

69. With respect to a customer contract under ASC 606, an entity shall present any unconditional rights to consideration separately as which of the following:

A. a liabilityB. a deferred creditC. a receivableD. a contra-equity account

70. Company X is electing to use the full retrospective method to adopt the ASC 606 revenue standard. Which of the following is correct:

A. X must apply it retrospectively to the beginning of the earliest year presented

B. X must apply it prospectively to the next yearC. X must apply it retrospectively to the

beginning of the current year

D. X must apply it to the next year only

71. ASU 2016-01 splits the accounting for investments between which of the following:

A. debt securities and equity securitiesB. long-term debt and short-term debtC. nonpublic equity investment and public

company equity investmentD. equity securities categorized as trading and

debt securities held to maturity

72. ASU 2016-01 retains three categories for which of the following:

A. debt securitiesB. equity securitiesC. debt and equity securitiesD. no securities, the three categories rule has

been removed from GAAP altogether

73. ASU 2016-01 provides that available-for-sale debt securities should be measured on the statement of financial position at which of the following:

A. fair valueB. amortized costC. lower of cost or marketD. liquidation value

74. Company X has an investment in a debt security that has an impairment. X determines the impairment is temporary. Under ASU 2016-01, how should the impairment be accounted for:

A. no impairment loss is recordedB. an impairment loss is recorded as part of

other comprehensive incomeC. an impairment loss should be recorded to

expenseD. a partial loss is recognized, with the

remainder not recorded to the extent the fair value exceeds amortized cost


75. Company Z has an investment in an equity security sold on a public exchange for which fair value is readily determinable. How should the equity securities investment be recorded on Z’s balance sheet:

A. at fair valueB. at amortized costC. at lower of cost or marketD. at liquidation value

76. Company K has an investment in an equity security sold on a public exchange for which fair value is readily determinable. How should K present any unrealized gain or loss on the investment:

A. included in earningsB. included in stockholder’s equity, net of

applicable taxesC. included nowhere; unrealized gains are not

recordedD. included as a deferred credit on the balance

sheet until the asset is sold

77. An entity records an equity security at fair value under ASU 2016-01. In 2020, the entity sells the security. Which of the following is true:

A. no realized gain or loss is recorded at the time of the sale

B. a realized gain or loss is recorded based on the difference between the carrying amount and fair value

C. the carrying amount is not adjusted to fair value as of the sale date

D. a partial realized gain is recorded at the date of sale

78. Company X has an investment in a mutual fund. The fund invests in various assets including U.S. government debt securities and equity securities. In determining how to measure the investment in the mutual fund, X should consider the investment in the mutual fund to be which of the following:

A. an equity securityB. a debt securityC. a hybrid security consisting of attributes of

both an equity and debt securityD. X should look through the form of the

investment to determine whether to classify it as a debt or equity security

79. ASU 2016-01 amends ASC 310 to change the exemption for the fair value disclosure with respect to trade receivables and payables. The disclosure of fair value for trade receivables or payables is not required if which of the following is true:

A. the carrying amount exceeds the fair valueB. the trade receivables or payables are due in

one year or lessC. the trade receivables and payables are due

in more than one yearD. the fair value approximates the carrying

amount

80. With respect to the exception to measurement of fair value, ASU 2016-01 eliminates the exception for which of the following:

A. applicationB. practicabilityC. implementation

D. valuation


81. In accordance with AR-C 60, a precondition for an accountant to accept any SSARS engagement is that he or she must determine whether the financial reporting framework selected by management is which of the following:

A. reasonableB. acceptableC. logicalD. usable

82. AR-C 70 treats the preparation of financial statements as which of the following:

A. a nonattest service B. an attest service in all casesC. an attest service if performed in conjunction

with a review or audit engagementD. a nonattest service only if performed as part

of a compilation engagement

83. Joan Arch CPA is performing a preparation of financial statements engagement under AR-C 70. Which of the following is the type of report that must be issued for this type of engagement:

A. no report is issued in most casesB. an abbreviated compilation report is issuedC. a special preparation report is issuedD. Joan has an option to issue either a

compilation or review report for the preparation engagement

84. Rob Regan is performing a preparation of financial statements engagement under AR-C 70. Management refuses to include a legend for “no assurance” on each page of the financial statements. What are the accountant’s options under AR-C 70:

A. accountant may type in his or her own legend on each page of the financial statements

B. accountant should issue a disclaimer reportC. accountant is not required to do anything as

a preparation engagement is a plain-paper engagement

D. accountant must withdraw from the engagement

85. Emma Rockwell is an accountant who is performing a preparation of financial statements engagement under AR-C 70. The GAAP financial statements omit a statement of cash flows which is a GAAP departure. Which of the following is true:

A. Emma is not required to do anything B. disclosure of the GAAP departure (omission

of a statement of cash flows) must be made in a note to financial statements or on the face of the financial statements

C. a disclosure of the GAAP departure should not be disclosed on the face of the financial statements

D. a disclosure of the GAAP departure should not be disclosed in the notes to the financial statements

86. In determining materiality in a review engagement, SSARS No. 25 requires that the accountant consider which of the following:

A. quantitative factorsB. qualitative factorsC. both quantitative and qualitative factors

D. all significantly relevant factors


87. Which of the following is a change thatSSARS No. 25 makes to the Accountant’sResponsibility paragraph in the review report:

A. language that states the accountant isrequired to be independent

B. language that states management must takeresponsibility for the financial statements

C. language that states management has achoice of applicable frameworks

D. language that states the accountant isrequired to perform analytical proceduresand inquiries

88. Under the going-concern rules found in ASU2014-15, which of the following terms is usedby management in its assessment of anentity’s ability to continue as a going concern:

A. uncertaintyB. substantial doubtC. severe uncertaintyD. significant doubt

89. Mary Lou CPA is performing a reviewengagement on GAAP financial statements ofCompany Z. There was substantial doubt about Z’s ability to continue as a going concern.However, through Z’s plan, the substantialdoubt has been alleviated and Z has adequatedisclosure about the going-concern matter.How should Mary Lou report on this situation:

A. Mary Lou must include an other-matterparagraph in her review report

B. Mary Lou must issue an adverse conclusionC. Mary Lou may include an emphasis-of-matter

paragraphD. Mary Lou must issue a qualified conclusion

90. Steve is performing a review engagement. Hisreview documentation should include all ofthe following except:

A. an engagement letterB. a management representation letterC. a copy of confirmation procedures performedD. a copy of the reviewed financial statements

and accountant’s review report

91. In new AU-C 700A, which of the following must be presented in the first section in the auditor’s report:

A. OpinionB. Responsibilities of ManagementC. Auditor’s ResponsibilityD. Key Matters

92. In AU-C 700A, in the Responsibilities of Management for the Financial Statements section, management accepts responsibility for two matters, one of which is the following:

A. the format and issuance of the auditor’s report

B. the preparation and fair presentation of the financial statements

C. the scope of the auditor’s proceduresD. the auditor’s evaluation of going concern

93. Which of the following is true with respect to key audit matters:

A. new AU-C 701 requires an auditor to communicate key audit matters in the auditor’s report

B. new AU-C 701 states that the auditor is not required to communicate key audit matters unless he or she is engaged to do so

C. new AU-C 701 precludes an auditor from communicating key audit matters in the auditor’s report

D. new AU-C 701 requires the communication of key audit matters in a separate note to the financial statements

94. Key audit matters consist of those matters that were _________ the audit of the financial statements.

A. relevant toB. of most significance inC. important to

D. critical to


95. An adverse opinion is an example of which of the following:

A. a modified opinionB. an unmodified opinionC. a qualified opinionD. a disclaimer of opinion

96. Where is the Basis for Opinion section placed in the auditor’s report when there is a modified opinion:

A. immediately before the Opinion sectionB. after the Management Responsibility section

and before the Auditor Responsibility sectionC. in the second section of the auditor’s reportD. there is no Basis for Opinion section needed

97. Which kind of paragraph refers to a matter other than those presented or disclosed in the financial statements that is relevant to users’ understanding of the audit, the auditor’s responsibilities, or the audit report:

A. unmodified opinion paragraphB. other-matter paragraphC. qualified opinion paragraphD. adverse opinion paragraph

98. Which of the following auditing standards requires an auditor to include an emphasis-of-matter paragraph in the audit report:

A. significant subsequent event and subsequent discovery facts

B. required supplementary informationC. consideration of fraud in a financial

statement audit

D. external confirmations

99. ____________________ are defined as “significant transactions that are outside the normal course of business for the entity, or that otherwise appear to be unusual due to their timing, size, or nature.”

A. material eventsB. extraordinary transactionsC. major ensuing eventsD. significant unusual transactions

100. Which of the following actions does AU-C 703, SAS No. 136 make to the limited-scope audit of ERISA plans:

A. the limited-scope audit is expanded B. the limited-scope audit is now required, and

no longer optionalC. the limited-scope audit is eliminated and

replacedD. there is no change to the limited-scope audit

101. One change made by AU-C 703 with respect to an ERISA-plan audit is that an auditor should do which of the following:

A. obtain a final version of Form 5500 prior to dating the auditor’s report

B. obtain a draft version of Form 5500 prior to issuing the auditor’s report

C. obtain a final version of Form 5500 prior to issuing the auditor’s report

D. obtain a draft version of Form 5500 prior to dating the auditor’s report

102. The scope of SAS No. 137 applies to other information that is included in which of the following:

A. an entity’s notes to financial statementsB. an entity’s financial statementsC. an entity’s tax returns

D. an entity’s annual report


103. When an auditor has obtained other information, he or she should report on the information as follows:

A. include an emphasis-of-matter paragraph in the auditor’s report

B. include an “other information” section in the auditor’s report

C. include an other-matter paragraph in the auditor’s report

D. disclose the other information only in the notes to financial statements

104. Which of the following is referenced in the new definition of materiality in SAS No. 138:

A. experienced practitioner B. reasonable userC. sophisticated businesspersonD. qualified investor

105. A change made by SAS No. 138 is to clarify that judgments about materiality involve which of the following:

A. qualitative considerations onlyB. quantitative considerations onlyC. neither qualitative nor quantitative

considerationsD. both qualitative and quantitative

considerations

106. Susie CPA is issuing an auditor’s report on the regulatory basis and has included language to describe the purpose for which the financial statements were prepared. Her auditor’s report should also include which of the following:

A. a statement that the financial statements may not be suitable for another purpose

B. a statement that a user must have a general understanding of the regulatory basis of accounting

C. a going-concern paragraph

D. a statement defining “restricted use”

107. Which one of the following is an example given by SAS No. 139 of certain matters in the auditor’s report on the entity’s complete set of financial statements, for which the auditor should consider the implications they have on the audit of a single financial statement, or for a specific element of a financial statement:

A. an unmodified opinion B. an emphasis-of-matter or other-matter

paragraph C. a disclosure of subsequent eventsD. a report on supplementary information

108. Sally CPA is performing an audit of Cool Boy Air Conditioning Company. Based on the amendment SAS No. 140 makes to AU-C 730, how should Sally present required supplementary information to conform with changes made by SAS Nos. 134 and 137:

A. in an other-matter paragraph in the auditor’s report

B. in a footnote to the auditor’s reportC. in an emphasis-of-matter paragraph in the

auditor’s reportD. in a separate section in the auditor’s

report entitled “Required Supplementary Information”

109. SAS No. 140 amends the definition of _____________ to align with the new definition of materiality found in SAS No. 138.

A. material noncomplianceB. immaterialC. insignificantD. noncompliance with rules and regulations

110. In accordance with SAS No. 142, which of the following is an example of an attribute of information obtained as audit evidence:

A. its relevanceB. its volume C. its locationD. its timing relative to the audit report release

date


111. Louie CPA is auditing the financial statements of Sal’s Safeway Construction Co. In evaluating information to be used as audit evidence, which of the following is an attribute of the information obtained in Louie’s audit as identified in SAS No. 142:

A. whether such information corroborates or contradicts assertions in the financial statements

B. whether such information corroborates, but does not contradict assertions in the financial statements

C. whether such information contradicts, but does not corroborate assertions in the financial statements

D. whether such information fails to corroborate or contradict assertions in the financial statements

112. Sally CPA is auditing the financial statements of Sweet and Sour Donuts LLC. In evaluating the information Sally uses as audit evidence in accordance with SAS No. 142, she should evaluate which of the following:

A. whether the information is sufficiently abundant

B. whether the information is sufficiently precise and detailed

C. whether the information is correlated with the information needed for the engagement

D. whether the information is targeted toward high-risk areas

113. Antonio CPA is auditing the financial statements of Larry’s Gourmet Pizza. Which of the following is an attribute that affects the reliability of information to be used as audit evidence:

A. accuracy of the informationB. the materiality of the informationC. whether the information is relevant to the

financial statementsD. the risk associated with accepting the

information

114. Melissa CPA is auditing the financial statements of Company Y. Melissa wants to use automated tools and techniques on information that can be used as audit evidence. In accordance with SAS No. 142, Melissa can use automated tools and techniques on which of the following functions:

A. to perform a risk assessment procedure, but not substantive procedures which must be performed manually

B. to perform risk assessment procedures, substantive tests, and obtain audit evidence about internal control

C. limited to obtaining audit evidence about Y’s internal control

D. limited to performing substantive procedures

115. SAS No. 143 defines _______________ as “susceptibility to an inherent lack of precision in measurement.”

A. estimation uncertaintyB. control riskC. inherent riskD. authenticity

116. Larry CPA is auditing Lee’s Last Minute Soup Co. In addressing the Company’s accounting estimates, SAS No. 143 requires which of the following:

A. inherent risk should be assessed, but not control risk

B. control risk should be assessed, but not inherent risk

C. both inherent risk and control risk should be assessed together simultaneously

D. inherent risk and control risk should be assessed separately


117. Phil CPA is auditing Sarah’s Famous Barbeque. In response to Phil’s assessment of the risks of material misstatement from accounting estimates, Phil is performing further audit procedures. Which of the following is not one of the three approaches that SAS No. 143 references should be performed:

A. obtaining audit evidence from events occurring up to the date of the auditor’s report

B. testing how management made the accounting estimate

C. developing an auditor’s point estimate or range

D. determining whether any risk is a significant risk

118. Which of the following is a change made by SSAE No. 19:

A. requires a practitioner to issue a restricted-use report

B. requires users to take responsibility for the sufficiency of procedures performed

C. allows the practitioner to report directly on a subject matter

D. precludes a practitioner to develop and assist in developing procedures

119. Which of the following is one of the four types of engagements within SSAE No. 21’s new definition of attestation engagement:

A. compilation engagementB. direct examination engagementC. audit engagement

D. preparation engagement

120. Ralph CPA is asked to perform a review engagement under SSAE No. 22. Which of the following is a subject matter on which Ralph is permitted to perform a review in accordance with SSAE No. 22:

A. prospective financial informationB. financial statementsC. internal controlD. schedule of investment returns

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