AUD 1 Audit Standards & Engagement Planning 2

Question 1

The auditor’s responsibilities for the detection of material misstatements due to fraud are met through the performance of various steps during different phases of the audit.

Standards require the auditor to perform:

Answer 1

The auditors are responsible to detect material misstatements due to fraud.
Standards require the auditor to perform the following:

• Understand the nature and characteristics of fraud
• Hold a “brainstorming” session with engagement staff to discuss the risks of material misstatements due to fraud.
• The auditor is required to obtain the information needed to identify risks of material misstatement due to fraud.
• The auditor will also evaluate the results of analytical procedures performed in the planning of the audit, consider the identified fraud risk factors and whatever other information is available to the auditor.

Question 2

Provide examples of the “brainstorming” session with engagement staff to discuss the risks of material misstatements due to fraud:

Answer 2

Auditors hold a “brainstorming” session with engagement staff to discuss the risks of material misstatements due to fraud:

• How and where financial statements might be susceptible to fraud, how management could perpetrate and conceal fraudulent financial statements, and how assets could be misappropriated; and

• Consider known internal and external factors affecting Motivation (Incentives /pressures) for fraud, Opportunities and a culture or environment that enables management or others to Rationalize committing fraud.
o Exercise Professional Skepticism.

Question 3

The auditor is required to obtain the information needed to identify risks of material misstatement due to fraud.

Examples:

Answer 3

The auditor is required to obtain the information needed to identify risks of material misstatement due to fraud:

• Inquiry of management and others about knowledge or suspicion of fraud, management’s understanding of the risk of fraud, and programs and controls established to mitigate risks.
• Evaluation of results of analytical procedures performed in the planning of the audit.
• Consideration of fraud risk factors, which are events or conditions that create reasons or motivation to commit fraud, the opportunity to commit fraud, or the attitudes that allow the rationalization of committing fraud.
• Consider other information

Question 4

The auditor will evaluate the results of analytical procedures performed in the planning of the audit, consider the identified fraud risk factors and whatever other information is available to the auditor.

Examples:

Answer 4

Standards require the auditor to perform the following:

The auditor will evaluate the results of analytical procedures performed in the planning of the audit, consider the identified fraud risk factors and whatever other information is available to the auditor.

On that basis, the auditor will Identify risks that may result in a material misstatement to the financial statements due to fraud:

• Information gathered is evaluated considering size, complexity, and ownership attributes of entity.
• Information is evaluated as to pervasiveness of fraud risk factors, whether they affect the financial statements as a whole or specific account balances or classes of transactions and related assertions.

• The auditor applies professional judgment in the consideration of:
▪ Whether the type of risk indicates misappropriation of assets or fraudulent financial reporting.
▪ Whether the risk is of sufficient magnitude to cause a material misstatement.
▪ The likelihood that the risk will result in a material misstatement.

Question 5

The auditors are responsible to detect material misstatements due to ____.

Standards require the auditor to perform:

Answer 5

The auditors are responsible to detect material misstatements due to fraud.

Standards require the auditor to perform the following:

• Understand the nature and characteristics of fraud
• Hold a “brainstorming” session with engagement staff
• Obtain the information needed to identify risks of material misstatement due to fraud.
• Evaluate the results of analytical procedures performed in the planning of the audit
• Identified factors that represent the risks of material misstatement and evaluate those risks in light of the entity’s internal controls.
• Determine the nature, timing, and extent of substantive procedures needed to respond to the results of the assessments.
• Evaluate the audit evidence obtained.
• Communicate knowledge or suspicion of fraud to management and governance on a timely basis.
• Document the consideration of fraud

Question 6

One of the most common ways in which financial statements are fraudulently misstated is through the overstatement of _______.

Answer 6

One of the most common ways in which financial statements are fraudulently misstated is through the overstatement of revenue.

As a result, the auditor is required to presume that revenue recognition represents a risk of material misstatement.

The auditor recognizes that, due to the potential of management override of controls, there would not necessarily be evidence of specific risks of material misstatement due to fraud.

Question 7

One of the most common ways in which financial statements are fraudulently misstated is through the overstatement of revenue.

As a result, the auditor is required to presume that revenue _________ represents a risk of material misstatement.

Answer 7

The auditor is required to presume that revenue recognition represents a risk of material misstatement.

Question 8

The auditor recognizes that, due to the potential of management override of controls, there would not necessarily be _________ of specific risks of material misstatement due to fraud.

Answer 8

The auditor recognizes that, due to the potential of management override of controls, there would not necessarily be evidence of specific risks of material misstatement due to fraud.

Question 9

The auditor will determine the nature, timing, and extent of substantive procedures needed to respond to the results of the fraud risk assessments.

Examples:

Answer 9

The auditor will determine the nature, timing, and extent of substantive procedures needed to respond to the results of the fraud risk assessments.

o The auditor may change the overall way the audit is conducted.

o The auditor may change
the (N) nature of procedures to obtain more reliable evidence;
the (T) timing of procedures, such as by performing tests of balances closer to the balance sheet date; or
the (E) extent of procedures to obtain more evidence to derive more conclusive results.

o The auditor should perform procedures in recognition of the risk of management override of controls. The auditor may:
▪ Examine journal entries and other adjustments;
▪ Review accounting estimates for bias; or
▪ Evaluate the business rationale for significant unusual transactions.

Question 10

The auditor will evaluate the audit evidence obtained. In accumulating the evidence, the risk of material misstatement due to fraud is assessed throughout the audit.

The auditor will:

Answer 10

The auditor will then evaluate the audit evidence obtained. The auditor will:

o Evaluate results of analytical procedures performed as substantive tests or as part of overall review for indications of risks of material misstatement not identified previously;

o Evaluate accumulated results of procedures at or near date of auditor’s report; and

o Consider if identified misstatements may be indicative of fraud.
▪ Even if not material, the auditor should consider the implications.
▪ If material, or potentially material, the auditor should attempt to obtain additional evidence, consider the implication on other aspects of the audit, discuss the matter with the appropriate level of management, and consider suggesting that the client consult legal counsel.

o When risk is very high, the auditor may consider withdrawing from the engagement taking into account:
▪ Implications about the integrity of management; and
▪ The level of cooperation from governance.

Question 11

The auditor is required to Communicate knowledge or suspicion of _____ to management and governance on a timely basis.

Answer 11

The auditor is required to Communicate knowledge or suspicion of fraud to management and governance on a timely basis.

o Any evidence of the existence of fraud should be communicated to management.

o Fraud involving senior management and fraud resulting in a material misstatement should be communicated to those charged with governance.
▪ Discuss with an appropriate level of management at least ONE level above those involved.

o Risks that have internal control implications should be communicated if they represent significant deficiencies or material weaknesses in internal control.

o Disclosure to third parties may be appropriate:
▪ To comply with legal or regulatory requirements;
▪ To a successor auditor when responding to inquiries;
▪ To respond to a subpoena; or
▪ To a funding agency when required of an entity receiving governmental financial assistance

Question 12

The auditor is required to document the consideration of fraud, including:

Answer 12

The auditor is required to document the consideration of fraud, including:

o The brainstorming session;

o Procedures performed to obtain information used to identify risks of material misstatement due to fraud;

o Identified risks of material misstatement;

o Reasons revenue recognition was not considered a fraud risk factor, if appropriate;

o Results of procedures performed in response to risk of management override of controls;

o Other factors drawing the auditor to the conclusion that additional procedures were required; and

o The nature of communication about fraud.

Question 13

The auditors are responsible to detect material misstatements due to fraud.

Standards require the auditor to perform:

Answer 13

The auditors are responsible to detect material misstatements due to fraud.

Standards require the auditor to perform the following:

• Understand the nature and characteristics of fraud
• Hold a “brainstorming” session with engagement staff
• Obtain the information needed to identify risks of material misstatement due to fraud.
• Evaluate the results of analytical procedures performed in the planning of the audit
• Identified factors that represent the risks of material misstatement and evaluate those risks in light of the entity’s internal controls.
• Determine the nature, timing, and extent of substantive procedures needed to respond to the results of the assessments.
• Evaluate the audit evidence obtained.
• Communicate knowledge or suspicion of fraud to management and governance on a timely basis.
• Document the consideration of fraud

Question 14

The auditor should pay special attention to ____ risk factors that increase the probability of fraudulent financial reporting or defalcation.

Answer 14

The auditor should pay special attention to fraud risk factors that increase the probability of fraudulent financial reporting or defalcation.

Analysis of fraud risk factors provides only a general indication as to the existence of a material misstatement.

Question 15

The auditor must specifically assess fraud risk by _____ing and evaluating fraud risk factors.

Answer 15

The auditor must specifically assess fraud risk by identifying and evaluating fraud risk factors.

The employees Motivation (Incentives/Pressures), Opportunities, and Attitudes/Rationalizations as they relate to the different categories.

Question 16

If the auditor determines the financial statements are materially misstated, they should propose adjustments to the client.

If the client fails to make these adjustments, the auditor will issue a qualified or ______ opinion on the financial statements due to the departure from GAAP.

Answer 16

If the client fails to make these adjustments, the auditor will issue a qualified or adverse opinion on the financial statements due to the departure from GAAP.

Question 17

If the auditor is unable to obtain sufficient appropriate evidence to determine if errors or fraud have material effects on the financial statements, the auditor will issue a qualified opinion or ________ due to the scope limitation.

Answer 17

If the auditor is unable to obtain sufficient appropriate evidence to determine if errors or fraud have material effects on the financial statements, the auditor will issue a qualified opinion or disclaimer due to the scope limitation.

Question 18

The auditor should pay attention to the way the client handles information about fraud.

If management fails to take action against the responsible party and doesn’t move to limit the risk of a repeat of errors and fraud causing material misstatement, the auditor must consider the implications as it relates to management’s ______ and may have to withdraw from the engagement.

Answer 18

If management fails to take action against the responsible party and doesn’t move to limit the risk of a repeat of errors and fraud causing material misstatement, the auditor must consider the implications as it relates to management’s integrity and may have to withdraw from the engagement.

The auditor also must withdraw if the client refuses to accept an audit report that has been modified due to errors or fraud on the financial statements.

Question 19

Fraud Risk Factors Examples

Misstatements Arising from Fraudulent Financial Reporting

• (Motivation) Incentives/Pressure
• Opportunities
• Attitudes/Rationalizations

Answer 19

Fraud Risk Factors Examples

Misstatements Arising from Fraudulent Financial Reporting

• (Motivation) Incentives/Pressure

1. Threats to financial stability or profitability
2. Pressure to meet requirements or expectations of third-party excessive
3. Threats to personal financial situations of management or directors
4. Excessive pressure by management or governance to meet financial targets

• Opportunities

1. Opportunities due to the nature of the entity or industry
2. Management not monitored effectively
3. Organizational structure complex or unstable
4. Deficiencies in internal control

• Attitudes/Rationalizations
1. Factors allowing governance, management, or employees to engage in fraudulent activities

Question 20

Fraud Risk Factors Examples

Misstatements Arising from Misappropriation of Assets

• (Motivation) Incentives/Pressure
• Opportunities
• Attitudes/Rationalizations

Answer 20

Fraud Risk Factors Examples

Misstatements Arising from Misappropriation of Assets

• (Motivation) Incentives/Pressure

1. Pressure created by personal financial obligations of management or employees with access to assets
2. Adverse relationship between the entity and employees with access to assets

• Opportunities

1. Assets particularly susceptible due to characteristics or circumstances
2. Inadequate internal controls over assets, including inadequate

• Attitudes/Rationalizations
1. Attitudes or behavior of those with access to assets susceptible to misappropriation

Question 21

Misstatements Arising from Fraudulent Financial Reporting

• (Motivation) Incentives/Pressure

1. Threats to financial stability or profitability
2. Pressure to meet requirements or expectations of third-party excessive
3. Threats to personal financial situations of management or directors
4. Excessive pressure by management or governance to meet financial targets

Answer 21

Misstatements Arising from Fraudulent Financial Reporting

• (Motivation) Incentives/Pressure

1. Threats to financial stability or profitability
   • Decline in margins along with high degree of competition or sales saturation
   • High vulnerability to rapid changes (e.g., technology, product obsolescence, interest rates)
   • Declines in customer demand and business failures in industry or economy
   • Threat of bankruptcy, foreclosure, or takeover due to operating losses
   • Recurring negative cash flows from operations along with reported earnings and growth
   • Rapid growth or unusual profitability, especially when compared to others
   • New accounting, statutory, or regulatory requirements
2. Pressure to meet requirements or expectations of third-party excessive
   • Creditors or analysts have profitability or trend expectations, particularly if aggressive
   • Need for additional debt or equity to remain competitive
   • Difficulty in meeting exchange listing requirements or debt covenants
   • Potential adverse effect of poor financial results on pending transactions
3. Threats to personal financial situations of management or directors
   • Significant financial interests in the entity
   • Compensation largely contingent on financial results
   • Personal guarantees of entity debts
4. Excessive pressure by management or governance to meet financial targets

Question 22

Misstatements Arising from Fraudulent Financial Reporting

• Opportunities

1. Opportunities due to the nature of the entity or industry
2. Management not monitored effectively
3. Organizational structure complex or unstable
4. Deficiencies in internal control

Answer 22

Misstatements Arising from Fraudulent Financial Reporting

• Opportunities

1. Opportunities due to the nature of the entity or industry
   • Significant related-party transactions not in the ordinary course of business
   • Entity has ability to dictate terms or conditions to suppliers or customers, which could result in inappropriate transactions)
   • Accounts based on significant estimates involving subjective judgments or uncertainties
   • Significant, unusual, or highly complex transactions, especially near period end
   • Significant international operations across with differing business environments and cultures
   • Significant bank accounts or operations in tax haven jurisdictions
2. Management not monitored effectively
   • Management dominated by a single person or small group without compensating controls
   • Ineffective oversight by governance
3. Organizational structure complex or unstable
   • Difficulty in determining organization or individuals with controlling interest in entity
   • Overly complex structure
   • High turnover of senior management, counsel, or board members
4. Deficiencies in internal control
   • Inadequate monitoring of controls
   • Ineffective accounting, internal audit, or information technology staff; or high turnover
   • Accounting and information systems that are not effective

Question 23

Misstatements Arising from Fraudulent Financial Reporting

• Attitudes/Rationalizations
1. Factors allowing governance, management, or employees to engage in fraudulent activities

Answer 23

Misstatements Arising from Fraudulent Financial Reporting

• Attitudes/Rationalizations

1. Factors allowing governance, management, or employees to engage in fraudulent activities
   • Ethical standards not effectively communicated, implemented, supported, or enforced
   • Nonfinancial management inappropriately participate in selecting accounting principles or determining estimates
   • History of violations of securities or other laws
   • Management has excessive interest in maintaining or increasing stock price
   • Aggressive or unrealistic forecasts provided to analysts and others
   • Management fails to correct significant deficiencies on a timely basis
   • Management interested in minimizing earnings for tax reasons
   • Recurring use of materiality by management in attempts to justify marginal or inappropriate accounting
   • Strained relationship with current or predecessor auditor

Question 24

Misstatements Arising from Misappropriation of Assets

• (Motivation) Incentives/Pressure

1. Pressure created by personal financial obligations of management or employees with access to assets
2. Adverse relationship between the entity and employees with access to assets

Answer 24

Misstatements Arising from Misappropriation of Assets

• (Motivation) Incentives/Pressure

1. Pressure created by personal financial obligations of management or employees with access to assets
2. Adverse relationship between the entity and employees with access to assets
   • Known or anticipated layoffs
   • Changes to compensation or benefit plans
   • Promotions, compensation, or other rewards inconsistent with expectations

Question 25

Misstatements Arising from Misappropriation of Assets

• Opportunities

1. Assets particularly susceptible due to characteristics or circumstances
2. Inadequate internal controls over assets, including inadequate

Answer 25

Misstatements Arising from Misappropriation of Assets

• Opportunities

1. Assets particularly susceptible due to characteristics or circumstances
   • Large amounts of cash processed or on hand
   • Inventories consisting of small, high-value, or high-demand items
   • Assets easily convertible such as bearer bonds, diamonds, or computer chips
   • Fixed assets that are small or marketable
2. Inadequate internal controls over assets, including inadequate
   • Segregation of duties
   • Monitoring of employees with access to assets
   • Recordkeeping for assets
   • System for authorizing or approving transactions
   • Physical safeguarding of assets
   • Reconciliation of assets
   • Documentation of transactions, such as credits for merchandise returns
   • No requirement for mandatory vacations for key employees
   • Management understanding of information technology (IT) to properly oversee IT staff
   • Controls over access to automated records

Question 26

Misstatements Arising from Misappropriation of Assets

• Attitudes/Rationalizations

1. Attitudes or behavior of those with access to assets susceptible to misappropriation

Answer 26

Misstatements Arising from Misappropriation of Assets

• Attitudes/Rationalizations

1. Attitudes or behavior of those with access to assets susceptible to misappropriation
   • Disregard for need for monitoring or reducing risks
   • Disregard for internal control
   • Behavior indicating displeasure or dissatisfaction with company or its treatment of employees
   • Changes in behavior or lifestyle that indicate assets may have been misappropriated

Question 27

A CPA firm must establish a system of _____ control designed to provide it with reasonable assurance that the firm and its personnel comply with professional standards and applicable regulatory and legal requirements, and that the firm or engagement partners issue reports that are appropriate in the circumstances.

Answer 27

A CPA firm must establish a system of quality control designed to provide it with reasonable assurance that the firm and its personnel comply with professional standards and applicable regulatory and legal requirements, and that the firm or engagement partners issue reports that are appropriate in the circumstances.

Question 28

SQCS (Statements on Quality Control Standards), issued by the Auditing Standards Board (ASB), apply to an accounting and auditing practice.

• A practice that performs audit, attestation, compilation, review, and other services for which standards have been set.
• Only applies to engagements governed by standards set by the __________________ (ASB) or the Accounting and _____ Services Committee (ARSC) of the AICPA.

Answer 28

• Only applies to engagements governed by standards set by the Auditing Standards Board (ASB) or the Accounting and Review Services Committee (ARSC) of the AICPA.

Question 29

Quality control standards complement those that are applied primarily at the individual level.

Each CPA firm is different:
The specific procedures depend on the ____ of the firm, the _____ of the practice, the organizational structure and cost-benefit considerations.

Answer 29

Quality control standards complement those that are applied primarily at the individual level (such as the Code of Professional Conduct).

Each CPA firm is different:
The specific procedures depend on the size of the firm, the nature of the practice, the organizational structure and cost-benefit considerations.

Question 30

Each CPA firm is different:
The specific procedures depend on the size of the firm, the nature of the practice, the _____________ structure and ____ - benefit considerations.

Answer 30

Each CPA firm is different:
The specific procedures depend on the size of the firm, the nature of the practice, the organizational structure and cost-benefit considerations.

Question 31

The 6 Elements of Quality control include:

HEAL-ME

Answer 31

The 6 Elements of Quality control:

(HEAL-ME)

1. H = Human Resources (Personnel management)
2. E = Ethical Requirements – (Independence)
3. A = Acceptance and continuance of client relationships and specific engagements
4. L = Leadership responsibilities for quality within the firm (“tone at the top”)
5. M = Monitoring
6. E = Engagement performance

Question 32

The 6 Elements of Quality control:
(HEAL-ME)

• H____ R________

The firm should establish policies and procedures for effective hiring, development, assignment, and advancement of staff.

Answer 32

The 6 Elements of Quality control:
(HEAL-ME)

• Human Resources (Personnel management)

The firm should establish policies and procedures for effective hiring, development, assignment, and advancement of staff.

Question 33

The 6 Elements of Quality control:
(HEAL-ME)

• E____ R________s

The firm should establish procedures to ensure that independence is maintained in attest engagements, and that there is an appropriate means for identifying potential independence difficulties involving staff members.

The purpose is to ensure that the firm will always be able to act with integrity and objectivity in the performance of work.

Answer 33

The 6 Elements of Quality control:
(HEAL-ME)

• Ethical Requirements – (Independence)

The firm should establish procedures to ensure that independence is maintained in attest engagements, and that there is an appropriate means for identifying potential independence difficulties involving staff members.

The purpose is to ensure that the firm will always be able to act with integrity and objectivity in the performance of work.

Question 34

The 6 Elements of Quality control:
(HEAL-ME)

• A_________ and continuance of client relationships and specific engagements

The firm should establish policies and procedures to be followed before the ________of new clients and engagements and to determine if continued association with existing clients is warranted. The primary purpose is to ensure that the firm only associates with clients whose managements have integrity.

Answer 34

The 6 Elements of Quality control:
(HEAL-ME)

• Acceptance and continuance of client relationships and specific engagements

The firm should establish policies and procedures to be followed before the acceptance of new clients and engagements and to determine if continued association with existing clients is warranted. The primary purpose is to ensure that the firm only associates with clients whose managements have integrity.

Question 35

The 6 Elements of Quality control:
(HEAL-ME)

• L_______ responsibilities for quality within the firm (“tone at the top”)

The firm’s _________ must assume ultimate responsibility for the firm’s quality control.

Answer 35

The 6 Elements of Quality control:
(HEAL-ME)

• Leadership responsibilities for quality within the firm (“tone at the top”)

The firm’s leadership must assume ultimate responsibility for the firm’s quality control.

Question 36

The 6 Elements of Quality control:
(HEAL-ME)

• M_______

The firm should establish procedures to verify that it is complying with the above standards.
Specific individuals should be assigned responsibility for the administration of policies and procedures, but all members of the firm are responsible for compliance.

Answer 36

The 6 Elements of Quality control:
(HEAL-ME)

• Monitoring

The firm should establish procedures to verify that it is complying with the above standards.
Specific individuals should be assigned responsibility for the administration of policies and procedures, but all members of the firm are responsible for compliance.

Question 37

The 6 Elements of Quality control:
(HEAL-ME)

• E_________ performance

The firm should establish policies and procedures to ensure that it meets applicable professional standards in the performance of its engagements.

Answer 37

The 6 Elements of Quality control:
(HEAL-ME)

• Engagement performance

The firm should establish policies and procedures to ensure that it meets applicable professional standards in the performance of its engagements.

Policies and procedures also need to be established:
o For resolving differences of opinions within the engagement team.
o So that the confidentiality, safe custody, integrity, accessibility, and retrievability of engagement documentation are maintained.

Question 38

The 6 Elements of Quality control:

HEAL-ME

Answer 38

The 6 Elements of Quality control:

(HEAL-ME)

1. H = Human Resources (Personnel management)
2. E = Ethical Requirements – (Independence)
3. A = Acceptance and continuance of client relationships and specific engagements
4. L = Leadership responsibilities for quality within the firm (“tone at the top”)
5. M = Monitoring
6. E = Engagement performance

Question 39

Although an effective _____ control system is conducive to compliance with GAAS, deficiencies in or instances of noncompliance with a firm’s ______ control system do not, in and of themselves, indicate that an engagement was not performed in accordance with the applicable professional standards.

Answer 39

Although an effective quality control system is conducive to compliance with GAAS, deficiencies in or instances of noncompliance with a firm’s quality control system do not, in and of themselves, indicate that an engagement was not performed in accordance with the applicable professional standards.

Question 40

P____ review programs

To evaluate the quality control of a firm according to the standards, either the PCAOB or another CPA professional will review and critique the firm’s policies and procedures.

Answer 40

Peer Review

To evaluate the quality control of a firm according to the above standards,
either the PCAOB, in the case of auditors of public entities, or another CPA professional, in the case of auditors of nonpublic entities,
will review and critique the firm’s policies and procedures.

These are known as peer review programs.

Written communication of the firm’s quality control policies and procedures to firm personnel is not required, but is recommended.

Question 41

Quality Control (HEAL-ME)
• Conduct of all professionals within CPA firm on ALL engagements

VS

GAAS
• Each __________ Audit engagement

Answer 41

Quality Control (HEAL-ME)
• Conduct of all professionals within CPA firm on ALL engagements

VS

GAAS
• Each individual Audit engagement

Question 42

Quality Control (HEAL-ME):
• Human Resources (Personnel management)
• Ethical Requirements – (Independence)
• Acceptance and continuance of client relationships
and specific engagements
• Leadership responsibilities for quality within the firm
(“tone at the top”)
• Monitoring
• Engagement performance

VS

GAAS
• Auditor TIPPICANOE

Answer 42

Quality Control (HEAL-ME):
• Human Resources (Personnel management)
• Ethical Requirements – (Independence)
• Acceptance and continuance of client relationships
and specific engagements
• Leadership responsibilities for quality within the firm
(“tone at the top”)
• Monitoring
• Engagement performance

VS

GAAS
• Auditor TIPPICANOE

Question 43

Quality Control for an Engagement Conducted in Accordance with GAAS

A CPA is required to implement quality control procedures at the _________ level.

Answer 43

Quality Control for an Engagement Conducted in Accordance with GAAS (AU-C 220)

A CPA is required to implement quality control procedures at the engagement level to give the auditor reasonable assurance of:

• Compliance with professional standards and applicable laws and regulations.
• The issuance of a report that is appropriate under the circumstances.

Question 44

Quality Control for an Engagement Conducted in Accordance with GAAS (AU-C 220)

Specific requirements in relation to an audit engagement include:

Answer 44

Quality Control for an Engagement Conducted in Accordance with GAAS (AU-C 220)

Specific requirements in relation to an audit engagement include:

• The engagement partner’s responsibility for the overall quality of the engagement
• Alertness to the risk of noncompliance with ethical requirements
• Procedures related to acceptance and continuance of the client relationship and the audit engagement

• Considerations related to assigning personnel to the engagement
o May involve the use of personnel with specialized skills
o May involve the use of external specialists

• Engagement performance
• Monitoring of the engagement

• Engagement documentation that includes:
o Issues identified and resolutions related to compliance with ethical requirements
o Conclusions regarding compliance with independence requirements
o Conclusions regarding acceptance and continuance
o Nature, scope, and conclusions of consultations during the engagement

Question 45

Quality control requirements for engagement performance indicate the engagement partner’s responsibilities for:

Answer 45

Quality control requirements for engagement performance indicate the engagement partner’s responsibilities for:

• Direction, supervision, and performance of the engagement in compliance with professional standards, applicable legal and regulatory requirements, and firm policies and procedures.
• Issuance of a report that is appropriate under the circumstances.
• Reviewing the results of the engagement to evaluate the sufficiency of appropriate audit evidence to support conclusions reached and the report issued.
• Consultations among engagement team members to resolve difficult or contentious matters.
• Making certain that an engagement quality review is performed when called for by firm policy.
• Making certain that firm policies are followed in dealing with differences of opinion among members of the engagement team.

Question 46

Chart for Audit Research questions

Professional Standards Selections

Answer 46

Use this chart for Audit Research questions

Professional Standards Selections
AU-C = U.S. Auditing Standards
PCAOB-AS = PCAOB Auditing Standards
AT-C = Attestation Services
AR-C = Statements on Standards for Accounting and Review Services

ET                =  Code of Professional Conduct
BL                =  Bylaws

VS                =  Statements on Standards for Valuation Services
CS               =  Statement on Standards for Consulting Services

PFP             =  Personal Financial Planning
CPE            =  Continuing Professional education
TS               =  Tax Services
PR              =  Peer Review Standards
QC             =  Quality Control Standards

Question 47

Standards tested on the AUD exam include:

Answer 47

AUDIT Professional Authoritative Literature for Research Questions

The first step in performing a research question for the AUD exam is to determine what set of
standards the question relates to.

Standards tested on the AUD exam include:

• Statements on Auditing Standards (SAS) for nonpublic U.S. entities, AU-C;
• Auditing standards for public U.S. entities, PCAOB-AS;
• Statements on Standards for Attestation Engagements (SSAE), AT-C;

• Statements on Standards for Accounting and Review Services (SSARS) standards for reviews, compilations, or
preparation engagements of nonpublic entities, AR-C;

• The AICPA Code of Professional Conduct, ET;
• The bylaws applicable to members of the AICPA, BL;
• Standards for valuation services, VS;
• Standards for consulting services, CS;
• Standards for personal financial planning services, PFP;
• Requirements for continuing professional education, CPE;
• Tax services, TS,
• Peer review standards, PR, and
• Quality control standards, QC.

Question 48

AU-C U.S. Clarified Auditing Standards for financial statement audits of nonpublic entities.

The primary source of authoritative literature for the performance of an audit of a non-public entity in the U.S. consists of

Statements on _______ Standards (SAS) issued by the Auditing Standards Board (ASB),

Answer 48

The primary source of authoritative literature for the performance of an audit of a non-public entity in the U.S. consists of

Statements on Auditing Standards (SAS) issued by the Auditing Standards Board (ASB),

the senior technical body of the AICPA designated to issue pronouncements on auditing matters applicable to the preparation and issuance of audit reports for nonissuers.

Question 49

In performing a research question related to auditing standards for nonpublic entities, after determining that the appropriate source will be Statements on Auditing Standards (SASs), the U.S. Auditing Standards (AU-C) literature,

the next step would be to determine which section of the standards the information is likely to be included in.

The sections of the clarified auditing standards for nonpublic entities are:

Answer 49

The sections of the clarified auditing standards for nonpublic entities are:

(examples)

AU-C 200 – Overall objectives of the independent auditor and the conduct of an audit in accordance with GAAS
AU-C 210 – Terms of engagement
AU-C 220 – Quality control for an engagement conducted in accordance with GAAS
AU-C 230 – Audit documentation

……………….

Once the appropriate section has been identified, scanning the section, if relatively short, or using a word search, if the section is longer, will generally be sufficient to quickly identify the specific paragraph being sought.

Sample research question:

Identify the section of professional standards that describes from whom written representation should be obtained.

Answer:
Written representations are considered a form of audit evidence.
Written representations is the title of AU-C 580, which is where the answer is most certainly to be found. Scrolling in that section, under requirements, the first caption is “Management From Whom Written Representations Are Requested” and paragraph AU-C 580.09 indicates “The auditor should request written representations from management with appropriate responsibilities for the financial statements and knowledge of the matters concerned.”
Solution: AU-C 580.09

Question 50

The PCAOB-AS standards have been codified and are organized as follows:

PCAOB-AS = PCAOB Auditing Standards

Answer 50

The Public Company Accounting Oversight Board, or
PCAOB-AS - is a nonprofit corporation established by Congress to oversee the audits of public entities, referred to as issuers, in order to protect investors and the public interest by promoting informative, accurate, and independent audit reports.

The PCAOB-AS standards have been codified and are organized as follows:

General Auditing Standards
(examples)

1000 – General Principles and Responsibilities
AS 1001: Responsibilities and Functions of the Independent Auditor
AS 1005: Independence
AS 1010: Training and Proficiency of the Independent Auditor
AS 1015: Due Professional Care in the Performance of Work

1100 – General Concepts
       AS 1101: Audit Risk
       AS 1105: Audit Evidence
       AS 1110: Relationship of Auditing Standards to Quality Control Standards
..........

Audit Procedures
(examples)

2100 – Audit Planning and Risk Assessment
AS 2101: Audit Planning
AS 2105: Consideration of Materiality in Planning and Performing an Audit
AS 2110: Identifying and Assessing Risks of Material Misstatement

………………

Sample research question:

Assume that you are assigned to the audit of Roger Corporation, an issuer company.
Your firm is performing its first integrated audit for the company, and the partner on the engagement has asked you to research professional standards to identify the factors that should be considered in planning the audit and may affect the firm’s audit procedures. Identify and insert the reference in the following box.

Answer:
An audit of internal control over financial reporting that is integrated with an audit of financial statements is the topic of AS 2201. Scrolling quickly down that section, there is a heading “Planning the Audit”, under which paragraph 2201.09 indicates “The auditor should properly plan the audit of internal control over financial reporting and properly supervise the engagement team members.
When planning an integrated audit, the auditor should evaluate whether the following matters are important to the company’s financial statements and internal control over financial reporting and, if so, how they will affect the auditor’s procedures – “

Solution: PCAOB AS 2201 Par. 09

Question 51

AT-C: Attestation Engagements (SSAE)

When a CPA performs an attestation engagement, the authoritative literature is the Statements on __________s for Attestation Engagements (SSAEs), which are issued by senior technical bodies of the AICPA designated to issue pronouncements on attestation matters.

The primary objective of attestation standards (AT-C) is to provide guidance for performing and reporting on attestation engagements.

Answer 51

AT-C: Attestation Engagements (SSAE)

When a CPA performs an attestation engagement, the authoritative literature is the Statements on Standards for Attestation Engagements (SSAEs), which are issued by senior technical bodies of the AICPA designated to issue pronouncements on attestation matters.

The primary objective of attestation standards (AT-C) is to provide guidance for performing and reporting on attestation engagements.

Although attestation engagements are not audits of financial statements, to which SASs apply, or reviews of financial statements, to which SSARS apply, they are similar in many respects.

Question 52

Attestation engagements consist of
• e________s, in which the accountant expresses an opinion;
• r____s, in which the accountant expresses a conclusion; and
• agreed-upon procedures engagements, in which the accountant expresses findings.

Answer 52

Attestation engagements consist of
• examinations, in which the accountant expresses an opinion;
• reviews, in which the accountant expresses a conclusion; and
• agreed-upon procedures engagements, in which the accountant expresses findings.

They are distinct from audits and reviews of financial statements in that, instead of comparing financial information to an applicable financial reporting framework, attestation engagements involve reporting on the reliability of subject matter or an assertion about the subject matter, as measured against suitable and available criteria.

Question 53

Attestation engagements are distinct from audits and reviews of financial statements in that,

instead of comparing financial information to an applicable financial reporting framework,

attestation engagements involve reporting on the r_______ of subject matter or an a_______ about the subject matter, as measured against suitable and available criteria.

Answer 53

Attestation engagements are distinct from audits and reviews of financial statements in that,

instead of comparing financial information to an applicable financial reporting framework,

attestation engagements involve reporting on the reliability of subject matter or an assertion about the subject matter, as measured against suitable and available criteria.

Question 54

Attestation engagements are distinct from audits and reviews of financial statements in that,

instead of ______ing financial information to an applicable financial reporting framework,

attestation engagements involve reporting on the reliability of subject matter or an assertion about the subject matter, as measured against suitable and available criteria.

Answer 54

Attestation engagements are distinct from audits and reviews of financial statements in that,

instead of comparing financial information to an applicable financial reporting framework,

attestation engagements involve reporting on the reliability of subject matter or an assertion about the subject matter, as measured against suitable and available criteria.

Question 55

The Attestation Standards (AT-C) are organized as follows:

AT-C Introduction
AT-C Glossary
AT-C 100 – Common Concepts
AT-C 200 – Level of Service (ERA)
AT-C 300 – Subject Matter

Answer 55

The Attestation Standards (AT-C) are organized as follows:

AT-C Introduction
AT-C Glossary
AT-C 100 – Common Concepts
AT-C 200 – Level of Service (ERA)
AT-C 300 – Subject Matter

Sample research question:

In anticipation of a merger, the president of Welcore Inc., a nonpublic audit client of your firm, would like to present a projection to shareholders that is intended to present what the president believes to be the likely impact of the transaction.
The president has asked you to perform an examination of the projection so that you can express an opinion as to whether the prospective financial information is presented in accordance with the guidelines for the presentation of prospective financial information, as established by the AICPA, and whether the assumptions underlying the projection are suitably supported and provide a reasonable basis for the president’s projection, given the hypothetical assumptions regarding the business combination.

Which section of the Professional Standards addresses this issue?

Answer:

Prospective financial statements are addressed in AT- C Section 305, entitled “Prospective Financial Information”. Scrolling down that section, there is a heading entitled “Objectives of an Examination Engagement”.

Paragraph .07 under that heading begins with “In conducting an examination of prospective financial information, the objectives are…”

Solution: AT-C 305.07

Question 56

AR-C: Statements on Standards for Accounting and Review Services (SSARS) apply to

• preparation engagements,
• compilations and
• reviews of n_______ company financial statements.

Answer 56

AR-C: Statements on Standards for Accounting and Review Services (SSARS) apply to
• preparation engagements,
• compilations and
• reviews of nonpublic company financial statements.

They do not cover preparing a trial balance, assisting in adjustments, consulting on accounting or tax matters, preparing tax returns, preparing manuals, and processing financial data, which are considered bookkeeping services.

They apply exclusively to nonpublic entities, also referred to as nonissuers.

Question 57

AR-C: Statements on Standards for Accounting and Review Services (SSARS) apply to
• preparation engagements,
• compilations and
• reviews of nonpublic company financial statements.

They apply exclusively to nonpublic entities, also referred to as n_______s.

Answer 57

AR-C: Statements on Standards for Accounting and Review Services (SSARS) apply to
• preparation engagements,
• compilations and
• reviews of nonpublic company financial statements.

They apply exclusively to nonpublic entities, also referred to as nonissuers.

Question 58

SSARS concern the p________ of financial statements for a client, which does not involve the issuance of a report, or the compilation or review of financial statements, both of which do require the accountant to issue a report.

Answer 58

Statements on Standards for Accounting and Review Services (SSARS)

SSARS concern the preparation of financial statements for a client, which does not involve the issuance of a report, or the compilation or review of financial statements, both of which do require the accountant to issue a report.

The principals and requirements related to preparation, compilation, and review engagements are not limited to financial statements.

They may also be applied to engagements for the preparation, compilation, or review of financial information.

Question 59

SSARS also provides g_____ on the compilations and reviews of comparative financial statements, pro forma financial information, and personal financial statements included in written personal financial plans.

Answer 59

SSARS also provides guidance on the compilations and reviews of comparative financial statements, pro forma financial information, and personal financial statements included in written personal financial plans.

SSARS, like the other standards, have been codified.

Question 60

The sections of the standards related to preparation engagements, compilations, and reviews are (AR-C):

Answer 60

The sections of the standards related to preparation engagements, compilations, and reviews are (AR-C):

AR-C 60 – General Principles for Engagements Performed in Accordance With Statements on Standards for Accounting and Review Services
AR-C 70 – Preparation of Financial Statements
AR-C 80 – Compilation Engagements
AR-C 90 – Review of Financial Statements
AR-C 120 – Compilation of Pro Forma Financial Information

…………….

Sample research question:

The president of Enright Corporation, a client, asked you to perform a review of the financial statements for the current year only.
You have completed your fieldwork and find you can issue an unmodified review report.

Which section of the Professional Standards indicates what, is required to be included in an unmodified review report for the financial statements of a single year?

Answer:

Reviews of financial statements are the subject matter of AR-C section 90. Scrolling in AR-C Section 90, There is a heading entitled “Reporting on the Financial Statements” followed by a sub-heading entitled “Accountant’s Review Report”. Paragraph 39 under that sub-heading begins with “The written review report should include…”

Solution: AR-C 90.39

Question 61

ET-Code of Professional Conduct (CODE)

The AICPA Code of Professional Conduct (ET) was created to provide guidance and rules to all members of the AICPA—those in public practice, in industry, in government, and in education—in the performance of their professional __________s.

Answer 61

ET-Code of Professional Conduct (CODE)

The AICPA Code of Professional Conduct (ET) was created to provide guidance and rules to all members of the AICPA—those in public practice, in industry, in government, and in education—in the performance of their professional responsibilities.

It includes principles and rules as well as interpretations and guidance. The principles provide a framework upon which the rules are based, which in turn govern the performance of professional responsibilities.

Question 62

The AICPA Code of Professional Conduct (ET)

The Code is divided into 4 chapters consisting of a preface that applies to all members

The Code has been codified:

Answer 62

The AICPA Code of Professional Conduct (ET)

The Code is divided into 4 chapters consisting of a preface that applies to all members

The Code has been codified as follows:

Preface – All Members
ET 0.100 – Overview of the Code of Professional Conduct
ET 0.200 – Structure and Application of the AICPA Code
ET 0.300 – Principles of Professional Conduct
ET 0.400 – Definitions
ET 0.500 – Nonauthoritative Guidance
ET 0.600 – New, Revised, and Pending Interpretations and Other Guidance

Part 1 – Members in Public Practice
ET 1.000 – Introduction
ET 1.100 – Integrity and Objectivity
ET 1.200 – Independence
ET 1.300 – General Standards
ET 1.310 – Compliance With Standards
ET 1.320 – Accounting Principles
ET 1.400 – Acts Discreditable
ET 1.500 – Fees and Other Types of Remuneration
ET 1.600 – Advertising and Other Forms of Solicitation
ET 1.700 – Confidential Information
ET 1.800 – Form of Organization and NAME

Part 2 – Members in Industry
ET 2.000 – Introduction
ET 2.100 – Integrity and Objectivity
ET 2.300 – General Standards
ET 2.310 – Compliance With Standards
ET 2.320 – Accounting Principles
ET 2.400 – Acts Discreditable

Part 3 – Other Members
ET 3.100 – Introduction
ET 3.400 – Acts Discreditable

Question 63

The AICPA Code of Professional Conduct (ET)

The Code is divided into 4 chapters consisting of a preface that applies to all members

Sample research question:

Answer 63

The AICPA Code of Professional Conduct (ET)

The Code is divided into 4 chapters consisting of a preface that applies to all members

The Code has been codified as follows:

• Preface – All Members
ET 0.100 – Overview of the Code of Professional Conduct

• Part 1 – Members in Public Practice
ET 1.000 – Introduction
ET 1.100 – Integrity and Objectivity

• Part 2 – Members in Industry
ET 2.000 – Introduction

• Part 3 – Other Members
ET 3.100 – Introduction
ET 3.400 – Acts Discreditable

Sample research question:
You work with a CPA firm as an assistant. The senior on the XYZ audit has asked you to determine whether you are eligible to work on the XYZ audit since he knows that you own 100 shares of XYZ worth $700 in total.

He has asked you to research the following:
He thinks that he recalls the issue relates to whether you are or are not a “covered member.”
He would like you to find the definition of a covered member in the professional standards.
What section and paragraph addresses the definition of a covered member.

Answer:
Definitions are provided in the preface to the Code of Professional Conduct in section ET 0.400.
The definitions are listed in alphabetical order and “Covered member” is defined in paragraph .12.

Solution: ET 0.400.12

Question 64

BL-Bylaws

Bylaws of the American Institute of Certified Public Accountants (BL), governing matters of membership and governance of the Institute.

Contained in the same publication as the Code of Professional Conduct.

Answer 64

BL-Bylaws

Bylaws of the American Institute of Certified Public Accountants (BL), governing matters of membership and governance of the Institute.

Contained in the same publication as the Code of Professional Conduct.

The sections of the Bylaws are as follows:
BL 100 – Name and Purpose
BL 200 – Admission to, and Retention of, Membership and Association
BL 300 – Organization and Procedure
BL 400 – Financial Management and Controls
BL 500 – Meetings of the Institute and the Council
BL 600 – Election of Council, Board of Directors, and Officers of the Institute
BL 700 – Termination of Membership and Disciplinary Sanctions
BL 800 – Amendments
BL 900 - General

Question 65

The AICPA Statement on Standards for Valuation Services (SSVS) establishes standards for AICPA members who are engaged to, or, as part of another engagement, estimate the v____ of a business (including not-for-profit entities or activities), business ownership interest, security, or intangible asset.

Answer 65

VS-Statements on Standards for Valuation Services

The AICPA Statement on Standards for Valuation Services (SSVS) establishes standards for AICPA members who are engaged to, or, as part of another engagement, estimate the value of a business (including not-for-profit entities or activities), business ownership interest, security, or intangible asset.

Although the SSVS have been codified, there is only one section,

VS 100, Valuation of a Business, Business Ownership Interest, Security, or Intangible Asset.

Question 66

The AICPA Statement on Standards for Consulting Services (SSCS) provides b________ standards for the conduct of consulting services.

Answer 66

CS-Statement on Standards for Consulting Services

The AICPA Statement on Standards for Consulting Services (SSCS) provides behavioral standards for the conduct of consulting services.

The SSCS includes the General Standards found in Rule 201 of the AICPA Professional Code of Conduct plus three additional standards found in Rule 203, including Client Interest, Understanding with the Client and Communication with the Client.

Consulting services differ fundamentally from the CPA’s function of attesting to the assertions of other parties.

In an attest service, the practitioner expresses a conclusion about the reliability of a written assertion that is the responsibility of another party, the asserter. In a consulting service, the practitioner develops the findings, conclusions, and recommendations presented.

The nature and scope of work is determined solely by the agreement between the practitioner and the client. Generally, the work is performed only for the use and benefit of the client.

The only section of SSCS is CS 100, Statements on Standards for Consulting Services.

Question 67

Consulting services differ fundamentally from the CPA’s function of attesting to the assertions of other parties.

In an attest service, the practitioner expresses a conclusion about the reliability of a written assertion that is the responsibility of another party, the asserter.

In a consulting service, the practitioner develops the findings, conclusions, and r_________s presented.

Answer 67

Consulting services differ fundamentally from the CPA’s function of attesting to the assertions of other parties.

In an attest service, the practitioner expresses a conclusion about the reliability of a written assertion that is the responsibility of another party, the asserter.

In a consulting service, the practitioner develops the findings, conclusions, and recommendations presented.

The nature and scope of work is determined solely by the agreement between the practitioner and the client. Generally, the work is performed only for the use and benefit of the client.

The only section of SSCS is CS 100, Statements on Standards for Consulting Services.

Question 68

In a consulting service, the practitioner develops the findings, c_________s, and recommendations presented.

Answer 68

In a consulting service, the practitioner develops the findings, conclusions, and recommendations presented.

Question 69

In a consulting service, the practitioner develops the f______s, conclusions, and recommendations presented.

Answer 69

In a consulting service, the practitioner develops the findings, conclusions, and recommendations presented.

Question 70

In an attest service, the practitioner expresses a conclusion about the r______ of a written assertion that is the responsibility of another party, the asserter.

Answer 70

In an attest service, the practitioner expresses a conclusion about the reliability of a written assertion that is the responsibility of another party, the asserter.

Question 71

In an attest service, the practitioner expresses a c_______ about the reliability of a written assertion that is the responsibility of another party, the asserter.

Answer 71

In an attest service, the practitioner expresses a conclusion about the reliability of a written assertion that is the responsibility of another party, the asserter.

Question 72

The AICPA Statement on Standards in Personal Financial Planning Services (PFP) establishes r_________s in providing personal financial planning services.

Answer 72

PFP-Personal Financial Planning

The AICPA Statement on Standards in Personal Financial Planning Services (PFP) establishes responsibilities in providing personal financial planning services.

The only section of PFP is

PFP 100, Statement on Responsibilities in Personal Financial Planning Practice.

Question 73

The AICPA Statement on Standards for Continuing Professional Education Programs (CPE) establishes a framework for the development, presentation, measurement, and reporting of CPE programs and thereby help to ensure that accounting professionals receive the q_____ continuing professional education necessary to satisfy their obligations to serve the p____ interest.

Answer 73

CPE-Continuing Professional Education

The AICPA Statement on Standards for Continuing Professional Education Programs (CPE) establishes a framework for the development, presentation, measurement, and reporting of CPE programs and thereby help to ensure that accounting professionals receive the quality continuing professional education necessary to satisfy their obligations to serve the public interest.

Question 74

The AICPA’s Statements on Standards for Tax Services (SSTSs) are enforceable tax practice standards for members of the AICPA.

The SSTSs apply to all members regardless of the jurisdictions in which they practice and the types of taxes with respect to which they are providing services.

The SSTSs are organized into the following sections from which to choose:

Answer 74

TS-Tax Services

The AICPA’s Statements on Standards for Tax Services (SSTSs) are enforceable tax practice standards for members of the AICPA.

The SSTSs apply to all members regardless of the jurisdictions in which they practice and the types of taxes with respect to which they are providing services.

The SSTSs are organized into the following sections from which to choose:

• TS 100 – Tax Return Positions
• TS 200 – Answers to Questions on Returns
• TS 300 – Certain Procedural Aspects of Preparing Returns
• TS 400 – Use of Estimates
• TS 500 – Departure From a Position Previously Concluded in an Administrative Proceeding or Court Decision
• TS 600 – Knowledge of Error – Return Preparation and Administrative Procedures
• TS 700 – Form and Content of Advice to Taxpayers

Question 75

The Standards for Performing and Reporting on Peer Reviews and Interpretations provide information on a__________, planning, performing, reporting on and the acceptance of peer reviews of CPA firms (and individuals) enrolled in the AICPA Peer Review Program.

Answer 75

PR-Peer Review Standards

The Standards for Performing and Reporting on Peer Reviews and Interpretations provide information on administering, planning, performing, reporting on and the acceptance of peer reviews of CPA firms (and individuals) enrolled in the AICPA Peer Review Program.

Question 76

The Standards for Performing and Reporting on Peer Reviews and Interpretations provide information on administering, p______, performing, reporting on and the acceptance of peer reviews of CPA firms (and individuals) enrolled in the AICPA Peer Review Program.

Answer 76

PR-Peer Review Standards

The Standards for Performing and Reporting on Peer Reviews and Interpretations provide information on administering, planning, performing, reporting on and the acceptance of peer reviews of CPA firms (and individuals) enrolled in the AICPA Peer Review Program.

Question 77

The Standards for Performing and Reporting on Peer Reviews and Interpretations provide information on administering, planning, p_______, reporting on and the acceptance of peer reviews of CPA firms (and individuals) enrolled in the AICPA Peer Review Program.

Answer 77

PR-Peer Review Standards

The Standards for Performing and Reporting on Peer Reviews and Interpretations provide information on administering, planning, performing, reporting on and the acceptance of peer reviews of CPA firms (and individuals) enrolled in the AICPA Peer Review Program.

Question 78

The Standards for Performing and Reporting on Peer Reviews and Interpretations provide information on administering, planning, performing, r______ on and the acceptance of peer reviews of CPA firms (and individuals) enrolled in the AICPA Peer Review Program.

Answer 78

PR-Peer Review Standards

The Standards for Performing and Reporting on Peer Reviews and Interpretations provide information on administering, planning, performing, reporting on and the acceptance of peer reviews of CPA firms (and individuals) enrolled in the AICPA Peer Review Program.

Question 79

The AICPA Statements on Quality Control Standards (SQCSs) govern quality control standards established by the AICPA.

The AICPA’s Quality Control Standards do not address the quality-control ramifications of the Sarbanes-Oxley Act nor do they address the quality control ramifications of the PCAOB standards that must be followed by auditors of issuers.

Answer 79

QC-Quality Control Standards

The AICPA Statements on Quality Control Standards (SQCSs) govern quality control standards established by the AICPA.

The AICPA’s Quality Control Standards do not address the quality-control ramifications of the Sarbanes-Oxley Act nor do they address the quality control ramifications of the PCAOB standards that must be followed by auditors of issuers.

NOTE: the CPA exam will cover only those standards currently in force.

There is only one section of the SQCS,
QC 10, A Firm’s System of Quality Control.

Sample research question:
Assume that you are employed by Wilson and Wilson CPAs. One of the partners has asked you to research the professional standards for the section that identifies the elements of a firm’s quality control standards. Identify the section and place the reference in the box below.

Answer: QC 10A.17

Question 80

Chart for Audit Research questions

Professional Standards Selections

Answer 80

Use this chart for Audit Research questions

Professional Standards Selections
AU-C = U.S. Auditing Standards
PCAOB-AS = PCAOB Auditing Standards
AT-C = Attestation Services
AR-C = Statements on Standards for Accounting and Review Services

ET                =  Code of Professional Conduct
BL                =  Bylaws

VS                =  Statements on Standards for Valuation Services
CS               =  Statement on Standards for Consulting Services

PFP             =  Personal Financial Planning
CPE            =  Continuing Professional education
TS               =  Tax Services
PR              =  Peer Review Standards
QC             =  Quality Control Standards

Question 81

Completed

AUD 1 Audit Standards and Engagement Planning

Answer 81

Completed

AUD 1 Audit Standards and Engagement Planning