Audit 12

Question 1

Auditor has audited same people for 4 years.- What affect on audit risk of any?

Answer 1

Decraese Audit risk

Question 2

Employees are paid - biweekly- What affect on audit risk of any?

Answer 2

No effect on audit risk

Question 3

Changed method of preparing F.S from cash to GAAP- What affect on audit risk of any?

Answer 3

Increase in audit risk - change in method even if positive increase likelihood of mistatement

Question 4

Sold half of controlling interest and retained significant interest – What affect on audit risk of any?

Answer 4

• Increased audit risk - now do it on equity method - harder to get information and increase RMM

Question 5

A litigation loss contingency included LY was dropped.- What affect on audit risk of any?

Answer 5

-Decreased audit risk

Question 6

Undisclosed related party transactions – What affect on audit risk of any?

Answer 6

Increased audit risk

Question 7

enter into a barter transaction that is unusual that create a contingent liability- What affect on audit risk of any?

Answer 7

• Increased audit risk - creates a contingent liability

Question 8

Increased insurance coverage from historical cost to replacement cost – What affect on audit risk of any?

Answer 8

No affect on audit risk

Question 9

New policy to refund money if the work fails inspection that leads to increase in revenue
- What affect on audit risk of any?

Answer 9

increase audit risk - guaranteeing refund if failing creates a contingent liability

Question 10

an initial public offering is planned for next year- What affect on audit risk of any?

Answer 10

• Increased audit risk - greater incentive to overstate profitability

Question 11

Audit committee must be independent of the entity - they are a subcommittee of the BoD

Answer 11

They aren’t responsible for DIM nor are they managers from within the company

-1 must have financial background - don’t need to be a CPA

Question 12

What are examples of consulting services

Answer 12

• advisory services
• EDP system implementation services
• Transaction services
• Staff and other support services
• product services
• reviewing and commenting on a client’s financial statements

Question 13

Why does the CPA profession find it essential to promulgate ethical standards and to establish means for ensuring their observance

Answer 13

The CPA profession does this to emphasize the professions responsibility to the public. Not one that sees its primary role merely in serving the interests of its own members and clients

Question 14

SOX established who?

Answer 14

PCAOB - for public companies who are issuers who report to the SEC

Question 15

Who sets rules for Private firm audits

Answer 15

ASB

Question 16

FASB does what?

Answer 16

FASB is responsible for establishing GAAP for all entities -public and non public
They do NOT regulated CPA firms

Question 17

• AICPA Code of Prof conduct
• Internal Rev Code
• Treasure Department Practice Rules (Circular 230)

All have what?

Answer 17

Formal administrative authority

-AICPA statements on Responsibilities in Tax Practice - is merely advisory

Question 18

A CPA must act with both integrity and objectivity in any professional engagement.

Answer 18

Independence is only required for attest engagements

Don need to be independent for consulting engagements (which is nonattest)

Question 19

Who is required to be independent in both fact and appearance

Answer 19

A CPA in public practice providing auditing and other attestation services

Question 20

Covered Members include who:

Answer 20

those member working in the same office as the attest client