1. Ethics, Prof Responsibilities & General Principles Flashcards
May a CPA hire for the CPA’s public accounting firm a non-CPA systems analyst who specializes in developing computer systems?
Yes, provided the CPA is able to supervise the specialist and evaluate the specialist’s end product.
What are the two main types of conflict of interest for members?
Conflicts between the interests of two clients and between the interests of a client on one hand and the firm and/or its members on the other.
The two types of conflicts of interest for members are
(a) between the interests of two clients so that the member cannot fulfill professional duties to both simultaneously, and
(b) between a client and the member and/or the firm so that it would injure the client for the member to serve the interests of the firm and/or himself or herself.
true regarding PCAOB rules
The PCAOB requires firms auditing public companies to disclose the name of the engagement partner.
Berry Corporation hires the Unitas CPA firm to perform an audit. Which of the following provisions in their engagement contract would not be problematic?
A provision in which Berry Corporation agrees to indemnify Unitas for any losses it sustains in litigation caused by knowing misrepresentations made by Berry Corporation’s agents.
ABC Accounting and DEF Accounting are firms in the same network. ABC is preparing an audit report for client GHI Corporation. DEF must be independent of GHI if:
The use of ABC’s audit report regarding GHI is unrestricted..
Network firms must comply with independence rules regarding audits by other network firms if the use of the audit or review report for the client is not restricted.
Each of the following broker-dealer relationships impairs auditor independence with respect to a broker-dealer issuer audit client, except:
The auditor has a cash balance in a brokerage account that is FULLY COVERED by the Securities Investor Protection Corporation.
Charlie is an auditor whose firm audits Sitton Corporation, a publicly-held company. Under Sarbanes-Oxley, which of the following are NAS that Charlie’s firm may perform for Sitton without impairing independence?
Tax advice
three steps a public company audit firm must undertake in order to seek approval to do permissible tax consulting
Describe,
discuss, and
document
GAO standards identify three types of impairments
personal,
external, and
organizational
The Department of Labor (DOL) most frequently conducts financial and performance audits following
Government Auditing Standards.
According to the ethical standards of the profession, a CPA’s independence would most likely be impaired if the CPA:
- Accepted any gift from a client
- Became a member of a trade association that is a client.
- Contracted with a client to supervise the client’s office personnel.
- Served, with a client bank, as a co-fiduciary of an estate or trust.
Contracted with a client to supervise the client’s office personnel.
The requirement for independence by the auditor regarding audits of employee benefit plans apply to the plan as well as
The plan sponsor.
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?
- Auditors must not perform nonaudit services that involve performing management functions or making management decisions.
- 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.
- Auditors must not perform nonaudit services which require independence
1 and 2 are the two overreaching principles for determining whether a nonaudit service impairs independence
overreaching-beyond their scope of responsibility
Member Cinda is an auditor. She is married to Terry. One of her clients is Bowen Corporation. Which of the following relationships would not impair Cinda’s independence?
- Terry owns stock in Bowen
- Terry is an internal auditor at Bowen
- Terry is a custodian at Bowen
- Terry is general counsel at Bowen
Terry is a custodian at Bowen
others are key positions
which body enforces the audit requirements of the Employee Retirement Security Act of 1974 (ERISA) with respect to employee benefit plans?
The Department of Labor
The rule requiring payment of fees to not be more than one year in arrears contains what exception
bankruptcy
three main steps to applying the Conceptual Framework
Identify threats,
evaluate the significance of the threats, and
identify and apply safeguards.
Code of Professional Conduct (on contingent fees) allows
representing of a client in an IRS examination of the client’s federal income tax return for a contingent fee
Which of the following accountants should comply primarily with the guidelines other than those for Members in Business (MIBs)?
- Jill, an internal auditor at Mason Corporation
- Sameer, a staff accountant at Morrowville Community College.
- Arjun, an auditor for PriceWoodHouse, a public accounting firm.
- Deeble, a J.D. and a C.P.A. who performs fraud detection work for a state securities fraud regulator.
Arjun, an auditor for PriceWoodHouse, a public accounting firm
q: who is not MIB, Arjun is MIPP
If requested to perform a review engagement for a nonpublic entity in which an accountant has an immaterial direct financial interest, the accountant is
Not independent and, therefore, may not issue a review report
Working papers belong to the member and
need not be handed over to the client even if the client has paid his or her bills.
Under the ethical standards of the profession, which of the following business relationships would generally not impair an auditor’s independence?
Advisor to client’s board of trustees.
important categories for SEC independence rules
Immediate Family Members and Close Family Members
To increase transparency, the PCAOB requires auditors of public companies to disclose all of the following, except:
The name, location, and extent of participation of each accounting firm whose work constituted at least 25% of the total audit hours.
The threshold for disclosure is 5%, not the 25% number contained in this answer
The concept of materiality would be least important to an auditor when considering the
Effects of a direct financial interest in the client on the CPA’s independence.
if a direct financial interest exists, materiality is not a factor.
According to PCAOB auditing standards, all of the following statements are true about the terms of an audit engagement, except
The auditor should record the understanding of the terms of the audit engagement in an engagement letter and provide the engagement letter to the audit committee and management annually.
The auditor is not required to provide it to management.
Which of the following statements is correct concerning the Public Company Accounting Oversight Board (PCAOB)?
The Sarbanes-Oxley Act of 2002 established the Public Company Accounting Oversight Board (PCAOB).
Due to a scope limitation, an auditor of a public company disclaimed an opinion on the financial statements taken as a whole, but the audit report included a statement that the current asset portion of the entity’s balance sheet was fairly stated. The inclusion of this statement is
Not appropriate because it may tend to overshadow the auditor’s disclaimer of opinion.
Too large of a portion separate. If instead of asset it said AR then it would be alright to give separate opinion
Under the Sarbanes-Oxley Act of 2002, exactly how many consecutive years may an audit partner lead an audit for an issuer?
5 years
Which of the following would least likely appear in an auditor’s engagement letter?
A statement that, after performing preliminary procedures, the auditor will discuss the other procedures considered necessary to complete the engagement
A CPA is required to comply with the provisions of Statements on Standards for Accounting and Review Services for the preparation of financial statements when
Performing general
bookkeeping services-NO
Consulting on
accounting matters-NO
In recognition of the possibility that a material misstatement due to fraud could exist, the auditor should maintain professional skepticism
Investigating further if conditions identified during the audit cause the auditor to believe that a document may not be authentic or that terms in a document have been modified but not disclosed to the auditor
Would the following factors ordinarily be considered in planning an audit engagement’s personnel requirements?
Opportunities or on-the-job training-YES
Continuity and periodic rotation of personnel-YES
The Public Company Accounting Oversight Board’s responsibilities include
Investigation and enforcement of registered public accounting firms for violations of specified laws or professional standards.
The fourth standard of reporting requires the auditor’s report for a public company’s financial statements to contain either an expression of opinion regarding the financial statements taken as a whole or an assertion to the effect that an opinion cannot be expressed. The objective of the fourth standard is to prevent
Misinterpretations regarding the degree of responsibility the auditor is assuming
According to the IFAC Code of Ethics for Professional Accountants, in deciding whether to disclose confidential information, the professional accountant should consider which of the following relevant factors?
Whether the anticipated recipients are appropriate and the type of communication that is expected.
In an audit of financial statements, an auditor’s primary consideration regarding an internal control policy or procedure is whether the policy or procedure
Affects management’s financial statement assertions
When a client requests a change in the terms of an audit engagement prior to the completion of the engagement,
A misunderstanding concerning the nature of the service originally requested may be considered a reasonable basis for the request.
An accountant can perform, with preapproval of the audit committee of the board of directors, which of the following nonaudit services during the audit of an issuer?
Tax planning 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 system of quality control
All of the following describe conditions which require the auditor to refuse a proposed audit engagement (that is not required by law or regulation) except
In an initial audit, management does not authorize contact with the predecessor auditor.
As a condition for accepting any engagement to be performed in accordance with SSARS, an accountant is required to do all of the following except
Determine if the accountant is independent of the entity.
Independence not required for all SSARS engagements
Regarding communication with the client,
If matters required by US GAAS are communicated with a person with management responsibilities who also has governance responsibilities, the matters need not be communicated twice.
How should differences of opinion between the engagement partner and the quality control reviewer be resolved?
By following the firm’s policies and procedures.
Which of the following situations would not impair objectivity, integrity, or independence with respect to an audit client?
An out-of-town client takes the audit engagement team out to dinner at a renowned local restaurant
Which of the following statements is FALSE in regard to an engagement conducted in accordance with the standards of the PCAOB to report on whether a previously reported material weakness continues to exist?
The auditor’s opinion on whether a previously reported material weakness continues to exist may be expressed as “the material weakness exists” or “the material weakness has been eliminated”.
Under the ethical standards of the profession, which of the following investments in a client is not considered to be a direct financial interest?
An investment held through a non-regulated mutual fund
Under the ethical standards of the profession, which of the following is a “permitted loan” regardless of the date it was obtained?
Secured automobile loan
collateralized by the vehicle is a permitted loan
A CPA firm would best provide itself reasonable assurance of meeting its responsibility to offer professional services that conform with professional standards by
Maintaining a comprehensive system of quality control that is suitably designed in relation to its organizational structure
According to the SEC, members of an issuer’s audit committee may not
Accept any consulting, advisory, or other compensatory fee from the registrant for services other than as a member of the board
At least how often should the PCAOB inspect a registered public accounting firm that regularly issues audit reports to 50 issuers?
Every three years (because less than 100)
If more than 100 then annually
Primary differences between International Standards on Auditing (ISA) and Public Company Accounting Oversight Board (PCAOB) auditing standards include all of the following except
There are significant differences per PCAOB auditing standards vs. ISA regarding requirements for written representations from management.
The third general standard requires that due professional care be exercised in the planning and performance of the audit and the preparation of the report of a public company. This standard is ordinarily interpreted to require
Critical review of the judgment exercised at every level of supervision
(exercise of due professional care requires critical review at every level of supervision of the work done and the judgment exercised by those assisting in the audit)
A recurring audit is an audit engagement
For an EXISTING audit client for whom the auditor performed the PRECEDING audit
When a former partner of a registered public accounting firm who left the firm two years ago accepts a financial reporting oversight role at an issuer audit client, the independence of the registered public accounting firm is considered impaired unless which of the following is true?
The former partner has no remaining capital balance in the registered public accounting firm.
disclosure not adequate
According to US GAAS, interpretive publications include all of the following except
Auditing guidance included in AICPA Audit Risk Alerts. it’s ex of another auditing publication not interpretive publication
Which of the following bodies promulgates standards for audits of federal financial assistance recipients?
Government Accountability Office (GAO)
A codified SSARS section is relevant to the engagement when
the section is in effect and the circumstances addressed by it exist.
The International Standards on Auditing require that the period of the auditor’s evaluation of an entity’s ability to continue as a going concern be
at least 12 months from the date of the financial statements, but do not limit it to 12 months.
According to US GAAS, an auditor’s professional judgment
Is NOT to be used as the justification for decisions that are not otherwise supported by the facts and circumstances of the engagement or by sufficient appropriate audit evidence
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
Document the details of the disagreement with the conclusion reached
A practitioner is engaged to express an OPINION on management’s assertion that the square footage of a warehouse offered for sale is 150,000 square feet. The practitioner should refer to which of the following sources for professional guidance?
Statements on Standards for Attestation Engagements
In an attest service, the practitioner is engaged to issue a report on subject matter or on an assertion about the subject matter which in this case is the square footage of the warehouse
An engagement quality review and concurring approval of issuance are required for engagements (conducted pursuant to the standards of the PCAOB) to perform audits and for engagements to
Review interim financial information
The authoritative body designated to promulgate standards that provide performance and reporting guidance for preparation of financial statements, compilations engagements and reviews of the unaudited financial statements of a nonissuer is the
AICPA
Which of the following matters is an auditor required to communicate to those charged with governance?
- The auditor is responsible for forming and expressing an opinion about whether the financial statements that have been prepared by management, with the oversight of those charged with governance, are prepared, in all material respects, in accordance with the applicable financial reporting framework
- The audit of the financial statements does not relieve management or those charged with governance of their responsibilities.
Both
Under the ethical standards of the profession, which of the following situations involving nondependent members of an auditor’s family is most likely to impair the auditor’s independence?
A spouse’s employment with a client
parent is considered a close relative, but not an immediate family member. A close relative who is not an immediate family member may have an immaterial interest in an auditor’s client without imparing the auditor’s independence.
Which of the following is an element of a CPA firm’s quality control policies and procedures applicable to the firm’s accounting and auditing practice?
Engagement performance
The firm’s quality control system should include policies and procedures addressing it and the other elements which are: leadership responsibilities for quality within the firm; relevant ethical requirements; acceptance and continuance of client relationships and specific engagements; human resources; and monitoring.
Which of the following fee arrangements generally would not be permitted under the ethical standards of the profession?
A contingent fee for preparing a client’s income tax return
According to the standards of the profession, a CPA is not required to be independent for consulting engagements with non-audit clients. The CPA need not withdraw from the engagement
if there arises a conflict of interest that is fully disclosed to the client and the client consents to it. The understanding of the scope of the engagement may be written or oral.
If during the audit, the auditor concludes that the materiality for the financial statements as a whole (and, if applicable, materiality level or levels for particular classes of transactions, account balances, or disclosures) is inappropriate and thus revises materiality levels, the auditor is required to
Determine whether it is also necessary to revise performance materiality and whether the nature, timing, and extent of the further audit procedures remain appropriate, but only when the materiality for the financial statements taken as a whole is LOWERED
In a computerized payroll system environment, an auditor would be least likely to use test data to test controls related to
Proper approval of overtime by supervisors (proper doc inspection which requires judgement and comp system is unable)
Inherent limitations
- cost should not outweigh benefits
- mistakes may occur
- segregation of duties may break down due to collusion
Which of the following statements is true regarding an auditor’s communications with a predecessor auditor prior to engagement acceptance?
US GAAS provides a list of matters that may be subject to the auditor’s inquiry of the predecessor auditor.
US GAAS are developed and issued
in the form of Statements on Auditing Standards (SAS)
