2011 Becker CPA PassMaster A2 7

2011 Becker CPA PassMaster A2 7 - Becker Professional...

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Unformatted text preview: Becker Professional Education Registered to: www.VividBook.org [email protected] Question CPA-03424 Which of the following statements is correct concerning letters for underwriters, commonly referred to as comfort letters? a. Letters for underwriters are required by the Securities Act of 1933 for the initial public sale of registered secufifles. b. Letters for underwriters typically give negative assurance on unaudited interim financial information. c. Letters for underwriters usually are included in the registration statement accompanying a prospectus. d. Letters for underwriters ordinarily update auditors' opinions on the prior year's financial statements. Explanation Choice "b" is correct. Comments concerning the unaudited interim financial information provide negative assurance as to whether any material modifications should be made to the unaudited interim financial information in order for it to be in conformity with GAAP. Choice "a" is incorrect. Comfort letters are not required by the Securities Act of 1933, and copies are not filed wtheSEC. Choice "c" is incorrect. Comfort letters are addressed to the underwriter and are not included in the registration statement accompanying the prospectus. Choice "d" is incorrect. The comfort letter does not update the opinion on previous financial statements. Often, underwriters will request that the accountants repeat in the comfort letter their report on the audited financial statements. Because of the special significance of the auditor's report, the auditors should not repeat their report. 2011 Edition. Distributed by DeVrleecker Educational Development Corp. Copyright ?2010 DeVryiBecker Educational Development Corp. All rights reserved. Becker Professional Education Registered to: www.VividBook.org [email protected] Question CPA-03449 Which of the following matters is covered in a typical comfort letter? a. Negative assurance concerning whether the entity's internal controls operated as designed during the period being audited. b. An opinion regarding whether the entity complied with laws and regulations under GovernmentAuditing Standards and the Single Audit Act of 1984. c. Positive assurance concerning whether unaudited condensed financial information complied with generally accepted accounting principles. d. An opinion as to whether the audited financial statements comply in form with the accounting requirements of the SEC. Explanation Choice "d" is correct. In a typical comfort letter, the accountants express an opinion (i.e., positive assurance) concerning the financial statements' compliance (as to form) with the pertinent accounting requirements of the SEC. Choice "a" is incorrect. No assurance is generally provided in a comfort letter regarding the operation of an entity's internal control. Choice "b" is incorrect. A typical comfort letter is addressed to the underwriters of the securities. Government Auditing Standards and the Single Audit Act are not applicable to a comfort letter related to the issuance of secunnes. Choice "c" is incorrect. Negative assurance (not positive) is typically provided regarding unaudited condensed financial information. 2011 Edition. Distributed by DeVrleecker Educational Development Corp. Copyright ?2010 DeVryiBecker Educational Development Corp. All rights reserved. Becker Professional Education Registered to: www.VividBook.org [email protected] Question CPA-03457 Comfort letters ordinarily are signed by the clients: a. Independent auditor. b. Underwriter of securities. c. Audit committee. d. Senior management. Explanation Choice "a" is correct. A comfort letter is a letter containing a negative assurance from the CPA to the underwriter or certain other requesting parties just before the registration of the client's securities. Choice "b" is incorrect. The comfort letter is sent to the underwriter. Choice "c" is incorrect. The audit committee does not sign a comfort letter. Choice "d" is incorrect. Senior management may sign a client representation letter, not a comfort letter. 2011 Edition. Distributed by DeVrleecker Educational Development Corp. Copyright ?2010 DeVrviBecker Educational Development Corp. All rights reserved. Becker Professional Education Registered to: www.VividBook.org [email protected] Question CPA-03459 When an accountant issues to an underwriter a comfort letter containing comments on data that have not been audited, the underwriter most likely will receive: a. Negative assurance on capsule information. b. Positive assurance on supplementary disclosures. c. A limited opinion on “pro forma" financial statements. d. A disclaimer on prospective financial statements. Explanation Choice "a" is correct. When an accountant issues to an underwriter a comfort letter containing comments on data that have not been audited, the underwriter most likely will receive negative assurance on capsule information. Choice "b" is incorrect. Positive assurance cannot be given if the information was not audited. Choices "c“ and "d" are incorrect. A comfort letter generally covers the period from the date of the last auditor's report to the effective date of the registration. It does not provide any form of assurance on "pro forma" financial statements, nor would it include a disclaimer on prospective financial statements. 2011 Edition. Distributed by DeVrleecker Educational Development Corp. Copyright ?2010 DeVryiBecker Educational Development Corp. All rights reserved. Becker Professional Education Registered to: www.VividBook.org [email protected] Question CPA-05479 Comfort letters ordinarily are: Addressed to the client's Signed by the client's a. Audit committee Independent auditor b. Underwriter of securities Senior management 0. Audit committee Senior management d. Underwriter of securities Independent auditor Explanation Choice "d" is correct. A comfort letter is a letter from the independent auditor to the named undervvriterjust before the registration of the client's securities. Choices "a", "b", and "c" are incorrect, based on the above explanation. 2011 Edition. Distributed by DeVrviBecker Educational Development Corp. Copyright ?2010 DeVrviBecker Educational Development Corp. All rights reserved. Becker Professional Education Registered to: www.VividBook.org [email protected] Question CPA-05901 When issuing letters for underwriters, commonly referred to as comfort letters, an accountant may provide negative assurance concerning: a. The absence of any significant deficiencies in internal control. b. The conformity of the entity's unaudited condensed interim financial information with generally accepted accounting principles (GAAP). c. The results of procedures performed in compiling the entity's financial forecast. d. The compliance of the entity's registration statement with the requirements of the Securities Act of 1933. Explanation Choice "b" is correct. When issuing letters for underwriters, commonly referred to as comfort letters, an accountant may provide negative assurance concerning the conformity of the entity's unaudited condensed interim financial information with generally accepted accounting principles (GAAP). Choice "a" is incorrect. Comments in a comfort letter are limited to financial information. Choice "c" is incorrect. Accountants may not provide negative assurance on the results of procedures performed in compiling an entity's financial forecast. Accountants may attach to the comfort letter a standard report on a compilation of the forecast, and may include additional procedures and findings in the comfort letter, but may not provide any form of assurance on the forecast. Choice "d" is incorrect. When issuing letters for undenivriters, commonly referred to as comfort letters, an accountant typically provides positive assurance concerning the compliance of the financial statements and financial statement schedules included in the registration statement with the requirements of the Securities Act of 1933. 2011 Edition. Distributed by DeVrleecker Educational Development Corp. Copyright ?2010 DeVryiBecker Educational Development Corp. All rights reserved. ...
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