1.5 Flashcards
Personal financial planning services include those that are limited to
Assisting the client to act on personal financial planning decisions.
“Personal financial planning engagements are only those that involve developing strategies and making recommendations to assist a client in defining and achieving personal financial goals.” However, unless they are undertaken by specific agreement with the client, the CPA is not responsible for other services. These services include (1) assisting the client to act on planning decisions, (2) monitoring progress in achieving goals, and (3) updating recommendations and revising planning decisions (PFP 100).
Within the context of quality control, the primary purpose of continuing professional education (CPE) and training activities is to provide a CPA firm with reasonable assurance that personnel within the firm have
The ability to fulfill assigned responsibilities and the qualifications for advancement.
According to QC 10, the firm should adopt policies and procedures to obtain reasonable assurance that personnel at all levels participate in general and industry-specific CPE and other professional development activities that enable them to fulfill responsibilities assigned and satisfy applicable CPE requirements of the AICPA and regulatory agencies. Furthermore, personnel chosen for advancement should “have the qualifications necessary for fulfillment of the responsibilities they will be called on to assume.”
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.
Which of the following are elements of a CPA firm’s quality control that should be considered in establishing its quality control policies and procedures?
Human Resources:
Monitoring:
Engagement Performance:
Yes
Yes
Yes
The quality control element of human resources relates to providing reasonable assurance that the firm has sufficient personnel with the necessary capabilities, competence, and commitment to ethics. The quality control element of monitoring relates to providing reasonable assurance that the firm has a quality control system that is relevant, adequate, effective, and complied with. The quality control element of engagement performance relates to providing reasonable assurance that (1) engagements are consistently performed in accordance with applicable requirements and (2) issued reports are appropriate (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.
What standards are applicable for a compilation of the historical financial statements of a nonissuer?
Statements on Standards for Accounting and Review Services (SSARSs).
SSARSs apply to engagements to prepare, compile, and review historical financial information of nonissuers. They also apply to certain prospective, pro forma, and other historical financial information.
When a PCAOB auditing standard indicates that an auditor “could” perform a specific procedure, how should the auditor decide whether and how to perform the procedure?
By exercising professional judgment in the circumstances.
Words such as “must” and “should” indicate unconditional responsibilities and presumptively mandatory responsibilities, respectively. Words such as “might” and “could” indicate that the auditor has a responsibility to consider a matter. Thus, (s)he is expected to use professional judgment.
When an accountant performs a review of the financial statements of a nonissuer, (s)he
Seeks to establish a reasonable basis for providing limited assurances about the statements.
To obtain a reasonable basis for the expression of limited assurance, the accountant must apply analytical procedures, make inquiries of management and other entity personnel, and obtain written representations from management. Accordingly, the review report states, “Based on my review, I am not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with accounting principles generally accepted in the United States of America.”
Which of the following best describes the reason an independent auditor reports on financial statements?
The company preparing the statements and the persons using the statements may have different interests.
Management and financial statement users may have an adversary relationship because their interests in the firm are different. The independent auditor provides assurance that the financial statements are not biased for or against any interest.
In performing an attest engagement, a CPA typically
Reports on subject matter other than traditional financial statements.
When a CPA in the practice of public accounting performs an attest engagement, the engagement is subject to the attestation standards. An attest engagement is one in which 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.
A CPA is required to comply with the provisions of Statements on Standards for Accounting and Review Services (SSARSs) when
Assisting in adjusting for books on account:
Accounting consultation matters:
No
No
SSARSs apply to the professional responsibilities of accountants who prepare, compile, or review the unaudited financial statements or financial information of a nonpublic entity. Unlike a compilation, a preparation does not require the accountant to (1) determine whether (s)he is independent or (2) issue a report. The service allows an accountant to use software to generate financial statements. However, merely assisting in their preparation is a bookkeeping service (AR-C 70). The objective of a compilation is to assist management in presenting financial information in the form of financial statements. But the accountant does not undertake to obtain or provide any assurance on them (AR-C 80). The objective of a review is to obtain limited assurance that no material modifications should be made for the statement to conform with the applicable financial reporting framework (AR-C 90). Neither assisting in adjusting the books of account nor consulting on accounting matters is a preparation, compilation, or review. Moreover, consulting services are governed by the Statement on Standards for Consulting Services, not SSARSs.
According to PCAOB quality control standards applying to audits, the engagement quality reviewer most likely
Must be an associated person of a registered public accounting firm.
The objective of the reviewer is to evaluate the significant judgments made and the related conclusions reached. (S)he must be an associated person of a registered public accounting firm and may be from outside the firm. Moreover, the reviewer must have the competence to serve as a partner on the engagement and have independence, integrity, and objectivity. But an engagement partner on either of the two preceding audits ordinarily may not be the reviewer.
In pursuing a CPA firm’s quality control objectives, a CPA firm may maintain records indicating which partners or employees of the CPA firm were previously employed by the CPA firm’s clients. Which quality control element is this procedure most likely to satisfy?
Relevant ethical requirements.
CPA firms should avoid situations in which third parties might question the firm’s independence. Thus, they should adhere to the independence and other principles established by the AICPA Code of Professional Conduct and the requirements of regulators and other authorities (QC 10).
The purpose of establishing quality control policies and procedures for deciding whether to accept or continue a client relationship is to
Minimize the likelihood of associating with clients whose management lacks integrity.
The procedures pertaining to client acceptance or continuation should provide reasonable assurance that the likelihood of association with a client whose management lacks integrity is minimized. They include consideration of the business reputation of the client’s principal owners, key management, related parties, and those charged with governance.
The authoritative body designated to promulgate standards concerning an accountant’s association with unaudited financial statements of an entity that is not required to file financial statements with an agency regulating the issuance of the entity’s securities is the
Accounting and Review Services Committee.
The AICPA bylaws designate the Accounting and Review Services Committee as the senior technical committee authorized to issue pronouncements in connection with the unaudited financial statements or other unaudited financial information of a nonissuer.
