1.1 Flashcards
In connection with the element of human resources, a CPA firm’s system of quality control should ordinarily provide that all personnel
Participate in professional development activities that enable them to fulfill responsibilities assigned.
The firm’s policies and procedures should provide for all personnel to receive general and industry-specific CPE and engage in other professional development activities. The purpose is to enable personnel to carry out assigned responsibilities and satisfy CPE requirements of the AICPA and regulatory agencies, such as the GAO and state boards of accountancy (QC 10).
A CPA in public practice is required to comply with the provisions of the Statements on Standards for Accounting and Review Services when
Advising a client regarding the selection of computer software:
Advocating a client’s position before the IRS:
No
No
SSARSs apply to services in connection with the unaudited statements or other unaudited information of a nonpublic entity. Advising a client regarding the selection of computer software is a consulting service (CS 100) and is outside the scope of SSARSs. Advocating a client’s position before the IRS is subject to ethics requirements but also is a service outside the scope of SSARSs.
Which of the following assertions is most closely related to the audit objective to verify that all sales have been recorded?
Completeness.
The completeness assertion is evaluated to determine that all transactions and events that should have been recorded in the financial statements were recorded.
A CPA is required to comply with the provisions of Statements on Standards for Attestation Engagements when engaged to
Provide assurance on investment performance statistics prepared by an investment company on established criteria.
SSAEs apply only to attest engagements for which no specific standards (e.g., SASs or SSARSs) apply. In an attest engagement, a practitioner is engaged to issue or does issue an examination, a review, or an agreed-upon procedures report on subject matter, or an assertion about the subject matter, that is the responsibility of another party. Moreover, the practitioner must state a conclusion about the subject matter or the assertion in relation to the criteria against which the subject matter was evaluated in the report. Attest services traditionally have been limited to expressing an opinion on historical financial statements on the basis of an audit in accordance with U.S. GAAP. But CPAs increasingly provide assurance on representations other than historical statements and in forms other than an opinion.
A financial statement audit is designed to
Obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to fraud or error.
The auditor’s overall objectives include obtaining reasonable assurance about whether the financial statements as a whole are free of material misstatement, whether due to fraud or error. This determination permits an auditor to express an opinion on whether the statements are presented fairly, in all material respects, in accordance with the applicable reporting framework.
One purpose of establishing quality control policies and procedures for deciding whether to accept new clients is to
Provide reasonable assurance that the firm has the resources to undertake new engagements.
CPA firms should have policies and procedures to determine whether to accept or continue a client or to perform a specific engagement. The firm’s policies and procedures should provide reasonable assurance that it (1) has considered the integrity of the client and the risks involved, (2) is competent, (3) has the necessary capabilities and resources, and (4) is able to comply with applicable requirements (QC 10).
Independent auditing can best be described as
A discipline that enhances the degree of confidence that users can place in financial statements.
The purpose of an audit is to provide financial statement users with an opinion by the auditor on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable reporting framework (e.g., GAAP, cash basis, etc.). An auditor’s opinion enhances the degree of confidence that users can place in financial statements.
According to AU-C 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Generally Accepted Auditing Standards, “presumptively mandatory requirements” in the auditing standards use which word?
Should.
The auditor must comply with a presumptively mandatory requirement in all cases in which the requirement is relevant except in rare cases. The standards use the word “should” to indicate this requirement.
One purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to
Provide reasonable assurance that the integrity of the client is considered.
CPA firms should have policies and procedures to determine whether to accept or continue a client or to perform a specific engagement. The firm’s policies and procedures should provide reasonable assurance that it (1) has considered the integrity of the client and the risks involved, (2) is competent, (3) has the necessary capabilities and resources, and (4) is able to comply with applicable requirements (QC 10).
Assurance and advisory services differ from consulting services because
Assurance and advisory services usually involve situations in which one party wants to monitor another and focus on improving information.
Assurance and advisory services do not include consulting services. Assurance and consulting services often are similar because they are delivered using a similar body of knowledge and skills. However, assurance and advisory services differ from consulting services because assurance services focus on improving information, whereas consulting services strive to provide advice. Also, assurance and advisory services often involve monitoring of one party by another (often within the same company) rather than the two-party arrangements common in consulting engagements.
An auditor observes the mailing of monthly statements to a client’s customers and reviews evidence of follow-up on errors reported by the customers. This test of controls most likely is performed to support management’s financial statement assertion(s) of
Classification & Understandability:
Existence:
No
Yes
The existence assertion relates to whether the related balance exists at the balance sheet date. Observation of the mailing of monthly statements as well as observing the correction of reported errors provides evidence that controls may be effective in ensuring that client customers are genuine.
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.
A CPA firm must have a system of quality control to provide reasonable assurance that the firm and its personnel (1) comply with professional standards, (2) comply with applicable legal and regulatory requirements, and (3) issue appropriate reports. The nature and extent of the quality control system developed by an individual firm depends on factors such as the size and operating characteristics of the firm.
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.
According to AU-C 220 and QC 10, differences of opinion (1) within the engagement team, (2) with a consultant, or (3) between the engagement partner and the quality control reviewer should be resolved by following the firm’s related policies and procedures. A member of the engagement team should be able to document his or her disagreement with the conclusions reached after appropriate consultation. Moreover, (1) conclusions should be documented and implemented, and (2) the report should be released only after resolution of the matter. According to AS 1201, in applying due professional care, each engagement team member has a responsibility to bring to the attention of appropriate persons any disagreements or concerns about accounting and auditing issues that (s)he believes are significant to the statements or the report regardless of how they may have arisen. The PCAOB’s AS 1215 requires documentation of disagreements among members of the engagement team or with consultants about final conclusions on significant accounting or auditing matters.
Which of the following services may a CPA perform in carrying out a consulting service for a client?
I. Analysis of the client’s accounting system
II. Review of the client’s prepared business plan
III. Preparation of information for obtaining financing
I, II, & III.
Each of the three services may be performed as a consulting service. AICPA standards describe (1) analysis of an accounting system as an advisory service, (2) review of a client’s prepared business plan as a consultation, and (3) preparation of information for obtaining financing as a transaction service. Other possible services are implementation services, staff and other support services, and product services.
Which of the following is a conceptual difference between the attestation standards and generally accepted auditing standards?
The attestation standards provide a framework for the attest function beyond historical financial statements.
Two principal conceptual differences exist between the attestation standards and GAAS. First, the attestation standards provide a framework for the attest function beyond historical financial statements. Second, the attestation standards accommodate the growing number of attest services in which the practitioner expresses assurance below the level that is expressed for the traditional audit (an opinion).
