ch_1_complete_solutions - Multiple Choice Questions From...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Multiple Choice Questions From CPA Examinations 1-14 a. (3) b. (2) c. (2) d. (3) 1-15 a. (2) b. (3) c. (4) d. (3) Discussion Questions And Problems 1-16 a. The relationship among audit services, attestation services and assurance services is reflected in Figure 1-3 on page 12 of the text. Audit services are a form of attestation service, and attestation services are a form of assurance service. In a diagram, audit services are located within the attestation service area, and attestation services are located within the assurance service area. b. 1. (2) An attestation service other than an audit service b.2. (1) An audit of historical financial statements b.3. (2) An attestation service other than an audit service b.4. (2) An attestation service other than an audit service; or (3) An assurance service that is not an attestation service ( WebTrust developed from the AICPA Special Committee on Assurance Services, but the service meets the criteria for an attestation service.) b.5. (2) An attestation service other than an audit service b.6. (2) An attestation service other than an audit service b.7. (2) An attestation service that is not an audit service (Review services are a form of attestation, but are performed according to Statements on Standards for Accounting and Review Services.) b.8. (2) An attestation service other than an audit service b.9. (2) An attestation service other than an audit service b.10. (3) An assurance service that is not an attestation service 1-17 a. The interest rate for the loan that requires a review report is lower than the loan that did not require a review because of lower information risk. A review report provides moderate assurance to financial statement users, which lowers information risk. An audit report provides further assurance and lower information risk. As a result of reduced information risk, the interest rate is lowest for the loan with the audit report. b. Given these circumstances, Busch should select the loan from First City Bank that requires an annual audit. In this situation, the additional cost of the audit is less than the reduction in interest due to lower information risk. The following is the calculation of total costs for each loan:
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
1-17 (continued) LENDER CPA SERVICE COST OF CPA SERVICES ANNUAL INTEREST ANNUAL LOAN COST Existing loan None 0 $ 247,500 $ 247,500 United National Bank Review $ 20,000 $ 202,500 $ 222,500 First City Bank Audit $ 45,000 $ 157,500 $ 202,500 c. Busch should select the loan from United National Bank due to the higher cost of the audit and the reduced interest rate for the loan from United National Bank. The following is the calculation of total costs for each loan: LENDER CPA SERVICE COST OF CPA SERVICES ANNUAL INTEREST ANNUAL LOAN COST Existing loan None 0 $ 247,500 $ 247,500 United National Bank Review $ 20,000 $ 180,000 $ 200,000 First City Bank Audit $ 55,000 $ 157,500 $ 212,500 d. Busch may desire to have an audit because of the many other benefits that an audit provides. The audit will provide Busch’s management with assurance about annual financial information used for decision-making purposes. The audit may detect errors or fraud, and provide management with
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern