AT.22 Drill on QC, Professional Ethics and Governance

An additional partner review of the audit and its findings is typically performed by an experienced member of the firm. Which of the following individuals is qualified to perform this concurring partner review?

Choices:

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The engagement partner who has worked on the client for three years.

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An employee of the enforcement division of the SEC.

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An experienced partner of the firm who did not actively participate on the audit.

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A partner of another firm or office who knows the client well and who was a vital member of the audit team.

An experienced partner of the firm who did not actively participate on the audit.

The limitation of an auditor's liability under contract law known as

Choices:

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privity of contract.

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contributory liability.

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statutory liability.

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common law liability.

privity of contract.

As a consequence of his failure to adhere to generally accepted auditing standards in the course of his examination of the Lamp Corp., Harrison, CPA, did not detect the embezzlement of a material amount of funds by the company’s controller. As a matter of common law, to what extent would Harrison be liable to the Lamp Corp. for losses attributable to the theft?

Choices:

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He would have no liability, since the ordinary examination cannot be relied upon to detect thefts of assets by employees.

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He would have no liability because privity of contract is lacking.

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He would be liable for losses attributable to his negligence.

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He would be liable only if it could be proven that he was grossly negligent.

He would be liable for losses attributable to his negligence.

The skills and qualities of the engagement team is likely to provide a positive contribution to audit quality where

Choices:

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partners and staff understand their clients’ business and adhere to the principles underlying auditing and ethical standards.

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partners and staff exhibit professional skepticism in their work and are robust in dealing with issues identified during the audit.

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sufficient training is given to audit personnel in audit, accounting and industry specialist issues.

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all of the given choices.

all of the given choices.

Competence as a certified public accountant includes all of the following except

Choices:

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Having the technical qualifications to perform an engagement.

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Possessing the ability to supervise and evaluate the quality of staff work.

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Warranting the infallibility of the work performed.

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Consulting others if additional technical information is needed.

Warranting the infallibility of the work performed.

The firm may obtain information to determine integrity of the client from the following, except:

Choices:

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Communications with existing or previous providers of professional accountancy services to the client in accordance with relevant ethical requirements, and discussions with other third parties.

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Inquiry of other firm personnel or third parties such as bankers, legal counsel and industry peers.

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Background searches of relevant databases.

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All of the given choices.

All of the given choices.

Under the Code of Professional Ethics, which of the following may a practicing CPA do in connection with educational seminars?

Choices:

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Send announcements about his appearance on a seminar program to non-clients or invite them to attend.

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Sponsor a seminar and send invitations to non-clients.

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Allow himself to be listed as a tax expert on the seminar announcement.

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Distribute firm literature at the seminar to non-clients on a relevant topic being discussed at the seminar.

Distribute firm literature at the seminar to non-clients on a relevant topic being discussed at the seminar.

A client company has not paid its 2018 audit fees. According to the Code of Professional Conduct, for the auditor to be considered independent with respect to the 2019 audit, the 2018 audit fees must be paid before the

Choices:

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2018 report is issued

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2019 field work is started

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2019 report is issued

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2020 field work is started

2019 report is issued

A CPA, wrote an article for publication in PICPA Accountants Journal or News Magazine.  The Code of Professional Ethics would be violated if the CPA allowed the article to state that the CPA was a

Choices:

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Member of PICPA

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Professor at a school of professional accountancy

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Partner in a national CPA firm

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Practitioner specializing in providing tax services.

Practitioner specializing in providing tax services.

Fees calculated on a predetermined basis relating to the outcome or result of a transaction or the result of the work performed

Choices:

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Contingent fee

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Retainer fees

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Flat sum fees

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Per diem fees

Contingent fee

A small CPA firm provides audit services to a large local company. Almost eighty percent of the CPA firm's revenues come from this client. Which statement is most likely to be true?

Choices:

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Appearance of independence may be lacking.

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The small CPA firm does not have the proficiency to perform a larger audit.

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The situation is satisfactory if the auditor exercises due skeptical negative assurance care in the audit.

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The auditor should provide an "emphasis of a matter paragraph" to his/her audit report adequately disclosing this information and then it may issue an unqualified opinion.

Appearance of independence may be lacking.

To succeed in an action against the auditor, the client must be able to show that:

Choices:

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the auditor was fraudulent.

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the auditor was grossly negligent.

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there was a written contract.

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there is a close causal connection between the auditor’s behavior and the damages suffered by the client.

there is a close causal connection between the auditor’s behavior and the damages suffered by the client.

A CPA, while performing an audit, strives to achieve independence in appearance in order to

Choices:

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Reduce risk and liability

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Maintain public confidence in the profession

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Become independent in fact

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Comply with PSAs

Maintain public confidence in the profession

The CPA in public practice violates the Code of Professional Ethics for CPAs if he accepts a fee which was

Choices:

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Fixed by a public authority.

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Based on a price quotation submitted in competitive bidding.

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Determined based on the results of judicial proceedings.

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Payable after a specified finding was obtained.

Payable after a specified finding was obtained.

Defensive auditing includes all of the following except

Choices:

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clarifying the nature of the arrangement through the use of a written engagement letter.

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knowing when your client is about to fire your firm before hand.

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carefully selecting which clients to accept and retain.

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evaluation of a firm's capacity to adequately perform services for a specific client.

knowing when your client is about to fire your firm before hand.

Which of the following is not an element of quality control?

Choices:

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Documentation.

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Inspection.

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Supervision.

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Consultation.

Documentation.

Auditors are periodically punished for holding an investment in a client. This violates which ethical rule?

Choices:

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Integrity.

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Independence.

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Non compliance with GAAP.

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Confidentiality.

Independence.

True or False:

All prospective clients wishing their financial statements to be audited by an independent auditor should be accepted by the auditor as the service of the auditor is for public interest.

A previous client may always be an acceptable client to the auditor.

False, false

The failure of the auditor to meet PSAs

Choices:

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an accepted practice.

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a suggestion of negligence.

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an evidence of negligence.

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tantamount to criminal behavior.

an evidence of negligence.

A CPA should maintain objectivity and be free of conflicts of interest when performing:

Choices:

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Audits, but not any other professional services.

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All assurance services, but not other professional services.

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All assurance and tax services, but not other professional services.

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All professional services.

All professional services.

Which of the following statements is correct about independence?

Choices:

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Independence is potentially affected by self-interest, self-review, advocacy, familiarity and intimidation threats.

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Independence is not an element that is considered in the audit process.

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Independence is immaterial to the financial statements.

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Independence is not a requirement of IFAC’s Code of Ethics.

Independence is potentially affected by self-interest, self-review, advocacy, familiarity and intimidation threats.

The recruitment of senior management for an assurance client, such as those in a position to affect the subject of the assurance engagement may least likely create what threat

Choices:

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Self-interest

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Advocacy

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Intimidation

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Familiarity

Advocacy

There are various professional requirements for CPA firms to help assure audit quality. These requirements potentially minimize the exposure of public accounting firms and partners to lawsuits. These requirements include

Choices:

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auditor independence requirements.

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quality-control programs.

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review programs.

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all of the given choices.

all of the given choices.

In cases when the threat to independence is significant and no safeguards are available to reduce it to an acceptable level, which of the following actions should be taken?

Choices:

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Eliminating the activities of interests creating the threat.

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Refusing to accept or continue the assurance engagement.

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Either a or b

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Neither a nor b

Either a or b

An example of a breach of contract would likely include:

Choices:

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an auditor’s refusal to return the client’s general ledger book until the client paid last year’s audit fees.

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a bank’s claim that an auditor had a duty to uncover material errors in financial statements that had been relied on in making a loan.

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a CPA firm’s failure to complete an audit on the agreed-upon date because the firm had a backlog of other work which was more lucrative.

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an auditor’s claim that the client staff is unqualified.

a CPA firm’s failure to complete an audit on the agreed-upon date because the firm had a backlog of other work which was more lucrative.

If an audit firm discovers threats to independence with respect to an audit engagement, the Code of Ethics for Professional Accountants indicates that the firm should

Choices:

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Immediately resign from the engagement.

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Notify the appropriate regulatory body.

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Document the issue.

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Evaluate the significance of the threats and apply appropriate safeguards to reduce them to an acceptable level.

Evaluate the significance of the threats and apply appropriate safeguards to reduce them to an acceptable level.

Which of the following statement(s) is (are) true?

Choices:

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Gross negligence may constitute constructive fraud

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Constructive fraud is also termed recklessness.

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Fraud requires the intent to deceive

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All of the given choices are true

All of the given choices are true