AUD 1.14 - QUALITY CONTROL (SQCS) Flashcards
1.14 - Quality Control:
Which of the following factors does not influence a CPA firm’s quality control policies and procedures?
A) The size of the firm.
B) Cost-benefit considerations
C) The Sarbanes Oxley Act.
D) The nature of the firm’s practice.
C) The Sarbanes Oxley Act.
Quality control policies and procedures will vary from firm to firm depending on the size of the firm, the nature of its practice, and cost-benefit considerations. A CPA firm’s quality control policies and procedures are required to comply with Statements on Quality Control Standards established by the AICPA, not the Sarbanes-Oxley Act.
1.14 - Quality Control:
According to the profession’s standards, which of the following statements is correct regarding the standards a CPA should follow when recommending tax return positions and preparing tax returns?
A) A CPA may recommend a position in which the CPA has a good faith belief that the position has substantial authority in support of its being sustained if challenged.
B) A CPA may recommend a position that the CPA concluded is frivolous as long as the position is adequately disclosed on the return.
C) A CPA may sign a tax return as tax preparer knowing that the return takes position that will not be sustained if challenged.
D) A CPA will usually not advise the client of the potential penalty consequences of the recommended tax return position.
A) A CPA may recommend a position in which the CPA has a good faith belief that the position has substantial authority in support of its being sustained if challenged.
A tax preparer should never take a position the preparer believes is frivolous. The standard for adoption of a position is that there be substantial authority in support of its being sustained if challenged.
If the CPA believes that there are potential penalties from adopting a certain position, the client should be advised of this potential.
A tax preparer should not sign a return that takes a position the CPA believes will not withstand a challenge.
1.14 - Quality Control:
In deciding whether or not to accept a prospective audit client, which of the following would have the biggest impact on the auditor’s decision?
A) The auditor is not familiar with the industry in which the client operates.
B) The client’s accounting department is staffed by two people who are performing many overlapping duties that should be segregated
C) The client’s predecessor auditor indicted that the client’s management lacks integrity
D) The client’s controller is a former manager of the auditing firm.
The primary objective of a CPA firm’s client and engagement continuance and acceptance policies is to avoid association with a client whose management lacks integrity.
As a result, any knowledge of management lacking integrity would prevent an auditor from accepting an engagement.
An auditor may accept a client in an industry they are not familiar with provided they obtain the understanding and knowledge required prior to starting the audit (a).
A lack of segregation of duties is a control deficiency that will affect the nature, timing, and scope of the procedures the auditor performs but it would not prevent the auditor from accepting the engagement (c).
It is acceptable to accept a client who employs a former employee of the auditing firm provided the independence requirements have been complied with (d).
1.14 - Quality Control:
QUALITY CONTROL ELEMENTS @ FIRM LEVEL:
6 elements:
H
E
A
L
M
E
H - HR management
E - Ethical Requirements - Ind
A - Acceptance of clients
L - Leadership (tone@top)
M - Monitoring - compliance
E - Engagement performance
Don’t confuse with GAAS, which is QC @ AUDIT LEVEL for each engagement:
GEN / FIELD / REPORTING
TIP / PIC / ANOE
