CH 2

Question 1

What are the activities of CPA firm

Answer 1

1) Accounting and bookkeeping services
2) Tax services
3) Management consulting services

Question 2

What are three main factors that influence the organizational structure of all CPA firms

Answer 2

1) The need for independence from clients
2) The importance of a structure to encourage competence
3) The increased litigation risk faced by auditors

Question 3

Define Proprietorship

Answer 3

one business owner

Question 4

Define General Partnership

Answer 4

form of organization that has multiple owners

Question 5

Define General Corporation

Answer 5

Advantage of a corporation is that shareholders are liable

Question 6

Define Professional Corporation

Answer 6

provides professional services and is owned by on or more shareholders

Question 7

Define Limited liability Company

Answer 7

LLC combines the most favorable attributes of a general corporation and a general partnership

Question 8

Define Limited liability partnership

Answer 8

owned by one or more partners. It is structured and taxed like a general partnership, but the personal liability protection of an LLP is less than that of a general corporation or an LLC.

Question 9

Define Sarbanes Oxley act

Answer 9

Act is considered by many observers to be the most important legislation affecting the auditing profession since 1930s.

The provisions of the act apply to publicly held companies and their audit firms

Established PCAOB

Question 10

PCAOB

Answer 10

the organization is overseen by SEC

PCAOB provides oversight for auditors of public companies, establishes auditing and quality control standards for public company audits ,and performs inspections of the quality controls at audit firms

Question 11

SEC

Answer 11

a federal agency of the government that assists in providing investors with reliable information upon which to make investment decisions.

Question 12

AICPA

Answer 12

performs the following services for CPAs

1) sets professional requirements
2) conducts research
3) Publishes materials related to performed
4) develops specialist certifications to market and ensure quality of services

Question 13

What are specific reports that are sent to SEC

Answer 13

form s-1 ( general form without specifics)
form 8-K ( report significant events that are public interests)
form 10-k (financial and auditing report must be filed annually)
form 10-Q ( report must be filed quarterly for all publicly held companies)

Question 14

What are AICPA’s standards and rules?

Answer 14

1) auditing standards ( ASB who offer pronouncements)
2) Compilation and review standards ( ARSC issues CPA’s responsibilities)
3) Other attestation standards ( a framework for develop types of attestation services)
4) Code of Professional Conduct ( professional ethics that AICPA created as rule of conduct for CPAs)

Question 15

What are ASB’s pronouncements?

Answer 15

SAS ( statements on auditing standards)

Question 16

What is the difference between ASB’s and ARSC’s pronouncements?

Answer 16

ARSC’s pronouncements are called SSARS.

Question 17

What are GAAS’s three categories?

Answer 17

general standards
standards of field work
Reporting standards

Question 18

What are principles provde a framework to conduct an audit of financial statements?

Answer 18

1) auditor is required to express opinion on whether the financial statement are presented fairly
2) report financial statements

Question 19

Who represents international standards on auditing?

Answer 19

1) IFAC is the world wide organization for the accountancy profession

IAASB works to improve the uniformity of auditing practices and related services throughout the world

Question 20

What are PCAOB auditing general standards?

Answer 20

1) adequate training and proficiency
2) Independence in mental attitude
3) Due professional care

Question 21

What are PCAOB auditing standards of field work?

Answer 21

1) Proper planning and supervision
2) understanding of the entity
3) Sufficient appropriate evidence

Question 22

What are AICPA’s principles?

Answer 22

1) purpose of auditing
2) Responsibilities
3) Performance
4) Reporting

Question 23

What are PCAOB’s auditing procedures?

Answer 23

1) statements prepared in accordance with GAAP
2) Circumstances when GAAP not followed
3) Adequacy of disclosures
4) Expression of opinion on financial statements

Question 24

What are elements of quality control?

Answer 24

1) Leadership to enhance quality
2) Relevant ethical requirements
3) Acceptance and continuation of clients and engagements
4) Human resources
5) Engagement performance
6) Monitoring