CPA Client Advisory Services 2 — Questions and Answers
Question 1: A CPA providing Client Advisory Services (CAS) helps a small business owner implement a cloud-based accounting system. Which professional standard primarily governs this engagement?
- SSARS No. 21
- SSAE No. 18
- AICPA SSCS No. 1 (Correct answer)
- SSARS No. 25
Correct answer: AICPA SSCS No. 1
AICPA Statement on Standards for Consulting Services (SSCS) No. 1 governs CPA consulting and advisory engagements, including accounting system implementation.
Question 2: Under a CAS engagement, a CPA notices the client's internal controls over cash disbursements are inadequate. The CPA's primary obligation is to:
- File a report with the SEC immediately
- Communicate the deficiency to management and those charged with governance (Correct answer)
- Resign from the engagement
- Correct the deficiency without informing management
Correct answer: Communicate the deficiency to management and those charged with governance
CPAs must promptly communicate identified internal control deficiencies to appropriate levels of management and governance.
Question 3: A CPA providing outsourced CFO services prepares monthly financial statements for a client. This activity is best classified as:
- An audit engagement
- A compilation under SSARS
- A non-attest CAS engagement (Correct answer)
- A review engagement
Correct answer: A non-attest CAS engagement
Outsourced CFO services including financial statement preparation fall under non-attest CAS engagements governed by SSCS No. 1.
Question 4: When a CPA assists a client in selecting Key Performance Indicators (KPIs) for their dashboard, the MOST important initial step is:
- Benchmarking against industry averages immediately
- Understanding the client's strategic objectives and decision-making needs (Correct answer)
- Installing the dashboard software
- Reviewing prior year tax returns
Correct answer: Understanding the client's strategic objectives and decision-making needs
Effective KPI selection must align with the client's specific strategic goals and the decisions management needs to make.
Question 5: A CPA's CAS client asks for a cash flow forecast for the next 12 months to present to a bank for a loan. Which document should the CPA prepare?
- Prospective financial statements — projection
- Prospective financial statements — forecast (Correct answer)
- A compiled balance sheet only
- A reviewed income statement
Correct answer: Prospective financial statements — forecast
A forecast uses management's best estimate assumptions about expected conditions and is appropriate when third parties like lenders will rely on it.
Question 6: During a CAS engagement, a CPA discovers evidence suggesting the client's controller is embezzling funds. The CPA should FIRST:
- Report directly to law enforcement
- Inform the client's audit committee or board of directors (Correct answer)
- Immediately terminate the engagement without notice
- Continue the work and document findings quietly
Correct answer: Inform the client's audit committee or board of directors
The CPA should escalate suspected fraud to the audit committee or board, as they represent the appropriate governance authority.
Question 7: A CPA providing CAS is asked to also perform an audit of the same client's financial statements. The PRIMARY concern is:
- Fee arrangement conflicts
- Independence impairment due to self-review threat (Correct answer)
- Lack of technical competence
- Engagement letter requirements
Correct answer: Independence impairment due to self-review threat
Performing both CAS (bookkeeping/preparation) and an audit for the same client creates a self-review threat to independence under AICPA independence rules.
CPA Client Advisory Services 2
A CPA providing Client Advisory Services (CAS) helps a small business owner implement a cloud-based accounting system.
Which professional standard primarily governs this engagement?