AUD 6

Question 1

At least how often should the PCAOB inspect a registered public accounting firm that regularly issues audit reports to 50 issuers?

Answer 1

Every three years.

Question 2

The Public Company Accounting Oversight Board consists of:

Answer 2

Exactly 2 CPAs (3 non CPAs)

Question 3

How many audits of public companies per year does a CPA firm that is registered with the Public Company Accounting Oversight Board (PCAOB) have to perform before it receives an annual inspection from the PCAOB?

Answer 3

More than 100 audits.

Question 4

Rules issued under the Sarbanes-Oxley Act of 2002 restrict former members of an audit engagement team from accepting employment as a chief executive, chief financial or chief accounting officer, or controller of an audit client that files reports with the Securities and Exchange Commission. How many annual audit period(s) must be completed before such employment can be accepted?

Answer 4

One.

Question 5

The Sarbanes-Oxley Act of 2002 prohibits a registered public accounting firm from providing any non-audit service to an issuer contemporaneously with the audit, except:

Answer 5

Tax services pre-approved by the audit committee.

Question 6

The Sarbanes-Oxley Act of 2002 defines the responsibilities of the audit committee as including all of the following, except:

Answer 6

Directing the auditor’s application of audit principles. (The audit committee is responsible for both engaging the auditor and negotiating the auditor’s compensation as well as resolving disagreements between management and the auditor.)

Question 7

According to COSO, which of the following organizational structures best promotes internal control?

Answer 7

Corporate internal audit staff with direct reporting to the corporate director of internal audit, who in turn reports to the audit committee.

Question 8

The Sarbanes-Oxley Act of 2002 requires that the members of the audit committee be independent with regard to the issuer. Within the meaning of the law, which of the following corporate officers would be considered independent?

Answer 8

Board member - yes; independent auditor - no.

Question 9

Who is required to make special certification statements regarding the establishment of internal control systems on Form 10-K?

Answer 9

Both the principal executive officer and the principal financial officer.

Question 10

According to the Sarbanes-Oxley Act of 2002, when an issuer’s board of directors selects members to be on the company’s audit committee, the board of directors must select individuals who:

Answer 10

Are members of the company’s board of directors.

Question 11

Improper influence

Answer 11

Improper influence occurs when an officer or director of an issuer fraudulently influences, coerces, manipulates, or misleads the independent auditor of the financial statements for the purpose of rendering the financial statements materially misleading.

Question 12

The Sarbanes-Oxley Act of 2002 requires that the members of the audit committee of a public company be independent. Receipt of which of the following would destroy independence within the meaning of the law?

Answer 12

President’s Salary - yes
Board Member’s Salary - no

Question 13

The Sarbanes-Oxley Act of 2002 requires that one or more members of the audit committee be a financial expert and that the financial reports disclose:

Answer 13

The existence of financial expert(s) on the audit committee or the reasons why the audit committee does not have a financial expert.

Question 13

Conflict-of-interest provisions of the Sarbanes-Oxley Act of 2002 generally prohibit the directors or executive officers of an issuer from:

Answer 13

Receiving a personal loan from the issuer not in the ordinary course of business.

Question 14

The Sarbanes-Oxley Act of 2002 requires that the management report on internal control include all of the following, except:

Answer 14

A statement that there are no disagreements between management and the auditor as to the effectiveness of internal controls.

Question 15

Which of the following is necessary to be an audit committee financial expert, according to the criteria specified in the Sarbanes-Oxley Act of 2002?

Answer 15

Experience with internal accounting controls

Question 16

Each of the following statements is correct regarding the existence and implementation of codes of conduct, except:

Answer 16

The codes of conduct must be in writing and displayed in public areas, such as a break room.

Question 17

To ensure that the audit report for an issuer is prepared in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, the report must

Answer 17

Attest to and report on the internal control assessment made by the management of the issuer.

Question 18

According to the Sarbanes-Oxley Act of 2002, an issuer must disclose whether or not it has adopted a code of ethics for which of the following?

Answer 18

The issuer’s senior financial officers, but not for other employees of the issuer.

Question 19

A person identified as an audit committee financial expert of an issuer generally must have acquired the attributes of a financial expert through any of the following experiences, except:

Answer 19

Serving on at least one other issuer’s audit committee or disclosure committee of the board of directors.

Question 20

Pursuant to the Sarbanes-Oxley Act of 2002, an accountant who destroys documents to impede an investigation by a U.S. agency can be:

Answer 20

Fined and/or imprisoned not more than 20 years.

Question 21

A CPA in charge of the external audit of a nonissuer received an unexpected inheritance that includes 100 shares of the audit client’s common stock. Which of the following actions should the CPA take to avoid violating independence rules?

Answer 21

Sell or donate the stock within 30 days after receipt of ownership rights.

Question 22

An auditor’s independence is not impaired

Answer 22

if the auditor has a cash balance in a brokerage account that is fully covered by the Securities Investor Protection Corporation.

Question 23

When a former partner of a registered public accounting firm who left the firm two years ago accepts a financial reporting oversight role at an issuer audit client, the independence of the registered public accounting firm is considered impaired unless which of the following is true?

Answer 23

The former partner has no remaining capital balance in the registered public accounting firm.

Question 24

An audit committee should pre-approve all of the following services:

Answer 24

a) Tax compliance and planning services; b) audit services; and c) review engagements; d) non-audit services related to internal control over financial reporting

Question 25

According to the SEC, which of the following best describes a non-audit service that, when jointly provided with the audit of an issuer, would result in the accountant’s loss of independence?

Answer 25

Preparing the client’s footnote disclosure of significant accounting policies.

Question 25

Permitted tax services include: tax compliance, tax planning, and tax advice. The PCAOB prohibits tax services related to confidential or aggressive tax transactions and tax services to corporate officers of audit clients or immediate family members of corporate officers.

Question 26

Independence of a member is impaired if the CPA’s spouse is employed by the client in a position which is audit-sensitive. Examples of positions that are audit-sensitive include cashier, internal auditor, accounting supervisor, purchasing agent, or inventory warehouse supervisor.

Answer 26

The following types of loans do not impair independence:

Automobile loans
Loans of the surrender value under terms of an insurance policy
Borrowings fully collateralized by cash deposits at the same financial institution
Credit cards and cash advances on checking accounts with an aggregate unpaid balance of $10,000 or less

Question 27

An independent auditor must have which of the following?

Answer 27

Technical training that is adequate to meet the requirements of a professional.

Question 28

In compilation and review engagements…

Answer 28

the accountant is not required to specifically assess fraud risk or to perform procedures designed to detect material misstatements due to fraud or noncompliance with laws and regulations.

Question 29

A CPA audits the financial statements of a client. The CPA has also been asked to perform bookkeeping functions for the client. Under the AICPA Code of Professional Conduct, which of the following activities would impair the CPA’s independence with respect to the client?

Answer 29

The CPA authorizes client transactions and reports them to management. (Examples of activities with an attestation client that impair independence would include bookkeeping activities that include authorizing, executing or consummating a transaction on behalf of a client or preparing source documents or originating data (e.g., purchase orders).)

Question 30

Which of the following matters should an accountant include when establishing an understanding with a client regarding the services to be performed for a compilation engagement?

Answer 30

The effect that independence impairments, if present, will have on the expected form of the accountant’s report.

Question 31

With regard to business relationships, independence is impaired…

Answer 31

if the member is an employee of an attestation client or is able to make management decisions on behalf of the client. Independence would, therefore, be impaired if a CPA contracted with the client to supervise the client’s office personnel (e.g., in the performance of normal recurring activities).

Question 32

Which of the following representations does an accountant make implicitly when issuing the standard report for the compilation of a nonissuer’s financial statements?

Answer 32

.
The accountant is independent with respect to the entity. If the accountant is not independent, he should specifically disclose the lack of independence. Otherwise, independence is implied.

Question 33

In which of the following situations is there a violation of client confidentiality under the AICPA Code of Professional Conduct?

Answer 33

A member whose practice is primarily bankruptcy discloses a client’s name. (An ethics ruling related to the Confidential Client Information Rule states that it is permissible for a member to disclose the name of a client without the client’s consent unless the disclosure of the client’s name results in the release of confidential information. The specific example given in the ethics ruling states that if a member’s practice is limited to bankruptcy matters, the disclosure of a client’s name suggests that the client may be experiencing financial difficulties, which could be confidential client information, and therefore a violation of client confidentiality.)

Question 34

An accountant compiles the financial statements of a nonissuer and issues the standard compilation report. Although not specifically stated in this report, it is implied that:

Answer 34

Substantially all disclosures required by GAAP are included in the financial statements.

Question 35

Independence is impaired by a member, a member’s spouse or dependents, or a close family member who holds a key position in an audit client.

Answer 35

According to the Code, a close relative is defined as a parent, sibling, or nondependent child. Since a brother-in-law and family of the brother-in-law are not considered to be close relatives, independence would not be impaired.

Question 36

At least how often should the PCAOB inspect a registered public accounting firm that regularly issues audit reports to 50 issuers?

Answer 36

Every 3 years

Question 37

Under the ethical standards of the profession in the United States, which of the following circumstances would impair independence in the audit of an issuer but would not impair independence in the audit of a nonissuer?

Answer 37

The lead partner has worked on the audit engagement of a client for 10 years. (The ethical standards that apply to the audits of issuers (SOX/PCAOB/SEC) require that the lead partner rotate off the audit engagement after five years. The AICPA Code of Professional Conduct, which is followed when auditing nonissuers, does not require audit partner rotation.)

Question 38

Under Title IV of the Sarbanes-Oxley Act (SOX), disclosures found in an issuer’s annual financial statements will likely include all of the following, except:

Answer 38

All correcting adjustments identified by external auditors.

Question 39

An accountant who reviews the financial statements of a nonissuer should issue a report stating that a review

Answer 39

is substantially less in scope than an audit.

Question 40

When an accountant compiles the financial statements of a nonissuer in accordance with Statements on Standards for Accounting and Review Services, the accountant’s report should include:

Answer 40

A statement that the accountant does not express an opinion on the financial statements.

Question 41

Which of the following statements regarding an audit committee financial expert is most accurate?

Answer 41

The existence of a financial expert must be disclosed in financial reports of the issuer.

Question 42

The standard report issued by an accountant after reviewing the financial statements of a nonissuer states that:

Answer 42

The accountant is not aware of any material modifications that should be made to the financial statements.

Question 43

According to the AICPA Code of Professional Conduct, which of the following actions will impair independence?

Answer 43

Participating in the hiring or termination of a client’s employees/acting as the underwriter or promoter of the offering documents would impair independence.

Question 44

Which of the following procedures would an accountant most likely perform when reviewing the financial statements of a nonissuer performed in accordance with Statements on Standards for Accounting and Review Services?

Answer 44

Ask management about the entity’s procedures for recording transactions.

Question 45

For an investor who has a 20% ownership stake in the sole class of equity for a company, all of the following statements regarding the filing statement disclosure (per SOX) are correct, except:

Answer 45

The disclosure requirement is applicable once the investor reaches a 5% ownership level (it is 10% LEVEL)

Question 46

In which of the following circumstances would a covered member’s independence be impaired with respect to a nonissuer client?

Answer 46

The member owns municipal utility bonds issued by a client, and the bonds are not material to the member’s wealth.

Question 47

When selecting a population of disclosures to review, the SEC will likely place the lowest priority on an issuer that has:

Answer 47

common stock that is considered small cap

Question 48

Which of the following statements is correct regarding a review engagement of a nonissuer’s financial statements performed in accordance with the Statements on Standards for Accounting and Review Services (SSARS)?

Answer 48

A review provides an accountant with a basis for expressing limited assurance on the financial statements.

Question 49

According to the profession’s ethical standards, an auditor would be considered independent in which of the following instances?

Answer 49

The auditor’s checking account that is fully insured by a federal agency, is held at a client financial institution.

Question 50

The evaluation of internal controls must take place within

Answer 50

90 days prior to the issuance of the report.

Question 51

The Sarbanes-Oxley Act requires the PCAOB to perform an annual inspection of each registered public accounting firm that regularly provides audit reports

Answer 51

For more than 100 issuers.