AUD 1

Question 1

safeguards that might reduce a threat of noncompliance with the code to an acceptable level

Answer 1

Safeguards created by the profession, Safeguards implemented by the client and Safeguards implemented by the firm.

Question 2

Key Concept in Code’s Conceptual Framework

Answer 2

Threats, Safeguards and acceptable level

Question 3

Violations of Code of Professional Conduct

Answer 3

an auditor knowing about material modifications of audited financial statements and stating that they were not aware

Question 4

Members may properly advocate on behalf of

Answer 4

Tax clients. They can be watchdogs for audit (attest) clients but not advocates.

Question 5

Events that may justify a departure from a Statement of Financial Accounting Standards, according to the profession’s ethical standards

Answer 5

New legislation and evolution of a new form of business transaction

Question 6

if client objects to outsourcing

Answer 6

the member should either not outsource the work or decline to provide the service altogether.

Question 7

Audit Documentation ownership

Answer 7

Owned by the CPA (Audit) firm and would not have to turn over the documentation during a litigation during the middle of an audit

Question 8

an act discreditable to the profession and violation of the profession’s ethical standards

Answer 8

Retaining client records after the client demands their return

Question 9

Contingent fee may be accepted by auditors if

Answer 9

for seeking a private letter ruling

Question 10

Allowing a review of professional practice without client authorization

Answer 10

is not in violation of professional standards regarding the confidentiality of client information by a CPA

Question 11

A CPA in public practice may not disclose confidential client information regarding auditing situations without the client’s consent in response to

Answer 11

A letter to the client from the IRS

Question 12

Firms that must have their financial interests WHOLLY owned by CPAs

Answer 12

firms that identify themselves as “Members of the AICPA.

Question 13

Firms that must have a MAJORITY of their financial interests owned by CPAs

Answer 13

attest firms

Question 14

Sampson is an audit partner at the QRS Accounting Firm. There is a lot of tax work to be done in her city, so she wishes to invest in R&H Square, a local accounting firm that specializes in tax preparation. Its other owners and employees are not CPAs. Which of the following is not true regarding this investment opportunity?

Answer 14

If Sampson is a minority owner of R&H, other employees of R&H must follow Code provisions on collection of commissions and referral fees through R&H.

Question 15

SELF-REVIEW threat to independence example

Answer 15

ABC Auditing prepared source documents for client XYZ Co. that were ultimately audited by ABC

Question 16

Example of an ADVOCACY threat to independence

Answer 16

ABC Auditing acted as a promoter of audit client XYZ Co.’s stock in an initial public offering (IPO)

Question 17

Example of an adverse interest threat to independence

Answer 17

ABC Auditing’s audit partner in charge of the XYZ Co. audit learned that her spouse had been promoted from a nonmanagerial role to CFO at XYZ Co.

Question 18

Covered Members

Answer 18

a staff member who works on the engagement for the audit firm. Could also be the partners, individual who is in position to influence the attest engagement, or the firm itself.

Question 19

Independence of firms in the same network

Answer 19

Firm A must be independent of Firm B’s attest clients if use of the audit or review reports is unrestricted. Independence not required if reports are restricted.

Question 20

Proper Inclusions of an engagement letter signed by auditor and client

Answer 20

The client must reimburse the auditor for any damages it pays to investors caused by its nonnegligent failure to detect fraud by client’s management