ch_1_complete_solutions

ch_1_complete_solutions - Multiple Choice Questions From...

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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:
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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
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ch_1_complete_solutions - Multiple Choice Questions From...

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