Module 1 - Professional Responsibilities [WILEY]

Generally accepted auditing standards are:

a - required procedures to be used to gather evidence to support financial statements

b - policies and procedures designed to provide reasonable assurance that the CPA firm and its personnel comply with professional standards

c - pronouncements issued by the Auditing Standards Board

d - rules acknowledged by the accounting profession because of their universal application

c - pronouncements issued by the Auditing Standards Board

Which of the following is a conceptual difference between the attestation standards and generally accepted auditing standards?

a - the attestation standards do not apply to audits of historical financial statements while the generally accepted auditing standards do

b - the requirement that the practitioner be independent in mental attitude is omitted from the attestation standards

c - the attestation standards do not permit an attest engagement to be part of a business acquisition study or a feasibility study

d - the attestation standards include reviews, while generally accepted auditing standards do not

a - the attestation standards do not apply to audits of historical financial statements while the generally accepted auditing standards do

Which of the following is not an attestation standard?

a - Sufficient evidence shall be obtained to provide a reasonable basis for the conclusion that is expressed in the report

b - the report shall identify the subject matter on the assertion being reported on and state the character of the engagement

c - the work shall be adequately planned and assistants, if any, shall be properly supervised

d - a sufficient understanding of internal control shall be obtained to plan the engagement

d - a sufficient understanding of internal control shall be obtained to plan the engagement

Which of the following is most likely to be unique to the audit work of CPAs as compared to work performed by practitioners of other professions?

a - due professional care

b - competence

c - independence

d - complex body of knowledge

c - independence

The Public Company Accounting Oversight Board's standards require that due care is to be exercised in the performance of an audit. This standard is ordinarily interpreted it require

a - thorough review of the existing safeguards over access to assets and records

b - limited review of the indications of employee fraud and illegal acts

c - objective review of the adequacy of the technical training and proficiency of firm personnel

d - critical review of the judgement exercised at every level of supervision

d - critical review of the judgement exercised at every level of supervision

For which of the following can a member of the AICPA receive an automatic expulsion from the AICPA?

I. Member is convicted of a crime punishable my imprisonment for more than one year

II. Member files his own fraudulent tax return

III. Member files fraudulent tax return for a client knowing that it is fraudulent

a - I only

b - I and II only

c - I and III only

d - I, II, and III

d - I, II, and III

Which of the following is an example of a safeguard implemented by the client that might mitigate a threat to independence?

a - required continuing education for all attest engagement team members

b - an effective corporate governance structure

c - required second partner review of an attestation engagement

d - management selection of the CPA firm

b - an effective corporate governance structure

Which of the following is a "self review" threat to member independence?

a - an engagement team member has a spouse that serves as CFO of the attest client

b - a second partner review is required on all attest engagements

c - an engagement team member prepares invoices for the attest client

d - an engagement team member has a direct financial interest in the attest client

c - an engagement team member prepares invoices for the attest client

According to the standards of the profession, which of the following circumstances will prevent a CPA performing audit engagements from being independent?

a - obtaining a collateralized automobile loan from a financial institution client

b - litigation with a client relating to billing for consulting services for which the amount is immaterial

c - employment of the CPA's spouse as a client's director of an internal audit

d - acting as an honorary trustee for a not-for-profit organization client

c - employment of the CPA's spouse as a client's director of an internal audit

The profession's ethical standards most likely would be considered to have been violated when a CPA represents that specific consulting services will be performed for a stated fee and it is apparent at the time of the representation that the

a - actual fee would be substantially higher

b - actual fee would be substantially lower than the fees charged by other CPAs for comparable services

c - CPA would not be independent

d - fee was a competitive bid

a - actual fee would be substantially higher

According to the ethical standards of the profession, which of the following acts is generally prohibited?

a - issuing a modified report explaining a failure to follow a governmental regulatory agency's standards when conducting an attest service for a client

b - revealing confidential client information during a quality review of a professional practice by a team from the state CPA society

c - accepting a contingent fee for representing a client in an examination of the client's federal tax return by an IRS agent

d - retaining client records after an engagement is terminated prior to completion and the client has demanded their return

d - retaining client records after an engagement is terminated prior to completion and the client has demanded their return

According to the profession's ethical standards, which of the following events may justify a departure from a statement of the governmental accounting standards board?

New Legislation Evolution of New Form

a - No Yes

b - Yes No

c - Yes Yes

d - No No

c - Yes Yes

May a CPA hire for the CPA's public accounting firm a non-CPA systems analyst who specializes in developing computer systems?

a - Yes, provided the CPA is qualified to perform each of the specialist's tasks

b - Yes, provided the CPA is able to supervise the specialist and evaluate the specialist's end product

c - No, because non-CPA professionals are not permitted to be associated with CPA firms in public practice

d - No, because developing computer systems is not recognized as a service performed by public accountants

b - Yes, provided the CPA is able to supervise the specialist and evaluate the specialist's end product

During an audit, Bill Adams believes that his supervisor's position on an accounting matter, although consistent with the client's desires, materially departs from GAAP - the basis followed for the client's financial statements. Bill discussed his concerns with his supervisor and the matter is still not resolved. Following the AICPA Code of Professional Conduct, which of the following is least likely to be appropriate?

a - Bill should consider consulting with legal council

b - bill should determine whether there are responsibilities to communicate the matter to third parties

c - Bill should document his understanding of the situation in the working papers

d - Bill should use the discreditable acts framework to determine whether his supervisor is involved in an act discreditable to the profession

d - Bill should use the discreditable acts framework to determine whether his supervisor is involved in an act discreditable to the profession

According to the standards of the profession, which of the following activities would most likely not impair a CPA's independence?

a - providing advisory services for a client

b - contracting with a client to supervise the client's office personnel

c - signing a client's checks in emergency situations

d - accepting a luxurious gift from a client

a - providing advisory services for a client

Which of the following reports may be issued only by an accountant who is independent of a client?

a - standard report on an examination of a financial forecast

b - report on consulting services

c - compilation report on historical financial statements

d - compilation report on financial projection

a - standard report on an examination of a financial forecast

According to the requirements of the public accounting profession, which of the following activities may be required in exercising due care

consulting w experts obtaining spec. accred

a - yes yes

b - yes no

c - no yes

d - no no

b - yes no

Larry Sampson is a CPA and is serving as an expert witness in a trial concerning a corporation's financial statements. Which of the following is(are) true?

I. Sampson's status as an expert witness is based upon his specialized knowledge, experience, and training

II. Sampson is required by AICPA ruling to present his position objectively

III. Sampson may regard himself as acting as an advocate

a - I only

b - I and II only

c - I and III only

d - III only

b - I and II only

According to the ethical standards of the profession, which of the following acts is generally prohibited?

a - purchasing a product form a third party and reselling it to a client

b - writing a financial management newsletter promoted and sold by a publishing company

c - accepting a commission for a recommending a product to an audit client

d - accepting engagements obtained trough the efforts of third parties

c - accepting a commission for a recommending a product to an audit client

To exercise due professional care an auditor should

a - critically review the judgement exercised by those assisting in the audit

b - examine all available corroborating evidence supporting managements assertions

c - design the audit to detect all instances of illegal acts

d - attain the proper balance of professional experience and formal education

a - critically review the judgement exercised by those assisting in the audit

Kar, CPA, is a staff auditor participating in the audit engagement of Fort, Inc. Which of the following circumstances impairs Kar's independence?

a - during the period of the professional engagement, Fort gives Kar tickets to a football game worth $75

b - Kar owns stock in a corporation that Fort's 401(k) plan also invests in

c - Kar's friend, and employee of another local accounting firm, prepares Fort's tax returns

d - Kar's sibling is a director of internal audit at Fort

d - Kar's sibling is a director of internal audit at Fort

On June 1, 20X8, a CPA obtained a $100,000 personal loan from a financial institution client for whom the CPA provided compilation services. The loan was fully secured and considered material to the CPA's net worth. The CPA paid the loan in full on December 31, 20X9. On April 3, 20X9, the client asked the CPA to audit the client's financial statements for the year ended December 31, 20X9. Is the CPA considered independent with respect to the audit of the client's December 31, 20X9 financial statements?

a - Yes, because the loan was fully secured

b - Yes, because the CPA was not required to be independent at the time the loan was granted

c - No, because the CPA had a loan with the client during the period of a professional engagement

d - No, because the CPA had a loan with the client during the period covered by the financial statements

b - Yes, because the CPA was not required to be independent at the time the loan was granted

Which of the following statements is(are) correct regarding a CPA employee of a CPA firm taking copies of information contained in client files when the CPA leaves the firm?

I. A CPA leaving a firm may take copies of information contained in client files to assist another firm in serving the client

II. A CPA leaving a firm may take copies of information contained in client files as a method of gaining technical expertise

a - I only

b - II only

c - I and II

d - neither I nor II

d - neither I nor II

Which of the following statements is correct regarding an accountant's working papers?

a - the accountant owns the working papers and generally may disclose them as the accountant sees fit

b - the client owns the working papers but the accountant has full custody of them until the accountant's bill is paid in full

c - the accountant owns the working papers but generally may not disclose them without the client's consent or court order

d - the client owns the working papers but, in the absence of the accountant's consent, may not disclose them without a court order

c - the accountant owns the working papers but generally may not disclose them without the client's consent or court order

Which of the following is an authoritative body designed to promulgate attestation standards?

a - Auditing Standards Board

b - Governmental Accounting Standards Board

c - Financial Accounting Standards Board

d - General Accounting Office

a - Auditing Standards Board

The auditor with final responsibility for an engagement and one of the assistants have a difference of opinion about the results of an auditing procedure. If the assistant believes it is necessary to be disassociated from the matter's resolution, the CPA firm's procedures should enable the assistant to

a - refer the disagreement to the AICPA's Quality Review Committee

b - Document that member's disagreement with the conclusions reached after appropriate consultation

c - discuss the disagreement with the entity's management or its audit committee

d - report the disagreement to an impartial peer review monitoring team

b - Document that member's disagreement with the conclusions reached after appropriate consultation

The nature and extent of a CPA firm's quality control policies and procedures depend on

CPA firm size Practice Nature Cost/Benefit

a - yes yes yes

b - yes yes no

c - yes no yes

d - no yes yes

a - yes yes yes

A CPA firm may communicate its quality control policies and procedures to its personnel in which manner(s):

Orally Written

a - No No

b - No Yes

c - Yes No

d - Yes Yes

d - Yes Yes

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

a - acceptance and continuance of client relationships and specific engagements

b - human resources

c - internal control

d - monitoring

c - internal control

Quality control for a CPA firm, as referred to in Statements on Quality Control Standards, applies to

a - auditing services only

b - auditing and management advisory services

c - auditing and tax services

d - auditing and accounting and review services

d - auditing and accounting and review services

One of a CPA firm's basic objectives is to provide professional services that conform with professional standards. Reasonable assurance of achieving this basic objective is provided through

a - a system of quality control

b - a system of peer review

c - continuing professional education

d - compliance with generally accepted accounting principles

a - a system of quality control

Which of the following is correct concerning PCAOB guidance that uses the term "should"?

a - the auditor must fulfill the responsibilities

b - the auditor must comply with requirements unless he demonstrates that alternative actions were sufficient to achieve the objectives of the standard

c - the auditor should consider performing the procedure; whether the auditor performs depends on the exercise of professional judgement in the circumstances

d - the auditor has complete discretion as to whether to perform the procedure

b - the auditor must comply with requirements unless he demonstrates that alternative actions were sufficient to achieve the objectives of the standard

Under the Sarbanes-Oxley Act, most audit working papers must be saved how many years?

a - 5

b - 7

c - 10

d - indefinitely

b - 7

Passage of the Sarbanes-Oxley Act led to the establishment of the

a - Auditing Standards Board

b - Accounting Enforcement Releases Board

c - Public Company Accounting Oversight Board

d - Securities and Exchange Commission

c - Public Company Accounting Oversight Board

Under Title II of SOX, the auditor of an issuer cannot legally perform which type of service for that issuer?

a - tax services

b - review of interim information

c - internal auditing outsourcing services

d - Audit of internal control over financial reporting

c - internal auditing outsourcing services

The audit partner in charge of an audit of a public company may only

a - be in charge of the audit of that one company

b - perform the role as long as he or she also performs the "second partner review" for that audit

c - perform the role for 5 consecutive years

d - perform the role if he has proper AICPA issuer accredidation

c - perform the role for 5 consecutive years

Which of the following is correct concerning member ship on the PCAOB?

a - only 2 of its members may be CPAs

b - It is composed of 9 members

c - all members must also currently be active in public accounting

d - a majority of members must be or have been accounting educators

a - only 2 of its members may be CPAs

The PCAOB is NOT responsible for standards related to

a - accounting

b - attestation

c - auditing

d - quality control

a - accounting

A PCAOB engagement that focuses on the sufficiency of a CPA firm's quality control system is MOST likely to be referred to as a(n)

a - financial statement audit

b - inspection

c - peer review

d - quality control

b - inspection

Which statement below is correct concerning communicating the results of a PCAOB inspection?

a - the entire report issued by the PCAOB is publicly available

b - the portion of the report issued on a CPA firm's quality control is not ordinarily publicly available

c - the report issued is only available to Congress

d - the report is available only to PCAOB members

b - the portion of the report issued on a CPA firm's quality control is not ordinarily publicly available

Which of the following sets of standards does the PCAOB not have the authority to establish for audits of public companies?

a - auditing standards

b - quality control standards

c - accounting standards

d - independence standards

c - accounting standards

In relation to the AICPA Code of Professional Conduct, the IFAC Code of Ethics for Professional Accountants

a - has more outright prohibitions

b - has fewer outright prohibitions

c - has no outright prohibitions

d - applies only to professional accountants in business

b - has fewer outright prohibitions

Based on the IFAC Code of Ethics for Professional Accountants, threats to independence arise from all of the following except:

a - self-interest

b - advocacy

c - the audit relationship

d - intimidation

c - the audit relationship

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

a - immediately resign from the engagement

b - notify the appropriate regulatory body

c - document the issue

d - evaluate the significance of the threats and apply appropriate safeguards to reduce them to an acceptable level

d - evaluate the significance of the threats and apply appropriate safeguards to reduce them to an acceptable level

With respect to the acceptance of contingent fees for professional services, the IFAC code of Ethics for Professional Accountants indicates that the accounting firm

a - should not accept contingent fees

b - should establish appropriate safeguards around acceptance of a contingent fee

c - should accept contingent fees only for assurance services other than audits of financial statements

d - should accept contingent fees if it is customary in the country

b - should establish appropriate safeguards around acceptance of a contingent fee

With regard to marketing professional services, IFAC Code of Ethics for Professional Accountants indicates that

a - direct marketing is prohibited

b - marketing is allowed if lawful

c - marketing should be honest and truthful

d - marketing of audit services is prohibited

c - marketing should be honest and truthful

What body establishes international auditing standards?

a - the PCAOB

b - the International Federation of Accountants

c - the World Bank

d - the International Assurance Body

b - the International Federation of Accountants

Which of the following is not true about international auditing standards?

a - international auditing standards do not require an audit of internal control

b - international auditing standards do not allow reference to division of responsibilities in the audit report

c - international auditing standards require obtaining an attorney's letter

d - international auditing standards are based on a risk assessment approach

c - international auditing standards require obtaining an attorney's letter

Which of the following is most likely to be required in an audit performed in conformity with international auditing standards?

a - confirmation of accounts receivable

b - audit report modification for a change in accounting principles

c - an opinion on internal control

d - audit report inclusion of the location in which the auditor practices

d - audit report inclusion of the location in which the auditor practices

Independence standards of the GAO for audits in accordance with generally accepted government auditing standards describe three types of impairments of independence. Which of the following is not one of these types of impairments?

a - personal

b - organizational

c - external

d - unusual

d - unusual

In accordance with the independence standards of the GAO for performing audits in accordance with generally accepted government auditing standards, which of the following is not an example of an external impairment of independence?

a - reducing the extent of audit work due to pressure from management to reduce audit fees

b - selecting audit items based on the wishes of an employee of the organization being audited

c - bias in the items the auditors decide to select for testing

d - influence by management on the personnel assigned to the audit

c - bias in the items the auditors decide to select for testing

Under the independence standards of the GAO for performing audits in accordance with generally accepted government auditing standards, which of the following are overreaching principles for determining whether a nonaudit service impairs independence?

I. Auditors must perform nonaudit services that involve performing management functions or making management decisions

II. Auditors must not audit their own work or provide nonaudit services in situations in which the nonaudit services are significant or material to the subject matter of the audit

III. Auditors must not perform nonaudit services which require independence

a - I only

b - I and II only

c - I, II, and III

d - II and III only

b - I and II only

Which of the following bodies enforce the audit requirements of the Employee Retirement Security Act of 1974 (ERISA) with respect to employee benefit plans?

a - the Department of Labor

b - the Department of Pension Management

c - the Securities and Exchange Commission

d - the PCAOB

a - the Department of Labor

The requirements for independence by the auditor regarding audits of employee benefit plans apply to the plan as well as

a - investment companies doing business with the plan

b - members of the plan

c - the plan sponsor

d - the actuary firm doing the services for the plan

c - the plan sponsor