Chapt 2 LO2

Question 1

what are partners of an LLP personally liable for?

Answer 1

the partnership’s debts and obligation, their own acts, and acts of others under their supervision.

Question 2

do professional corporations offer personal liability protection similar to that of general corporation?

Answer 2

PC laws in some states offer this protection whereas protection in others states is minimal

Question 3

how does the hierarchical structure of a CPA firm promote competence?

Answer 3

individuals at each level of the audit supervise and review the work of others at the level just below them in the organ structure

Question 4

what are the attributes of a LLC that are like a general partnership and a general corporation?

Answer 4

general partnership- structured and taxed like them general corporation- owners have limited personal liability

Question 5

what does the staff assistant do ?

Answer 5

perform most of the detailed audit work

Question 6

a limited liability partnership is owned by who?

Answer 6

one or more partners

Question 7

what is the factor “The need for independence from clients” which affects the structure of the firm mean?

Answer 7

independence permits auditors to to remain unbiased in drawing conclusions about the financial statements

Question 8

the variation in personal liability protection in professional corporations makes it difficult for a CPA firm to operate as a PC when?

Answer 8

they have clients in different states

Question 9

what do the big 4 and many smaller firms operate as?

Answer 9

LLP

Question 10

what are Six organizational structures are available to CPA firms?

Answer 10

1. Proprietorship 2. General Partnership 3. General Corporation 4. Professional Corporation 5. Limited Liability Companies 6. Limited Liability Partnership

Question 11

what are parners of an LLP not personally liable for?

Answer 11

liabilities arising from negligent acts of other partners, and employees not under their supervision

Question 12

which organization structures provide some protection for litigation loss? 4)

Answer 12

1. General Corporation 2. Professional Corporation 3. Limited Liability Companies 4. Limited Liability Partnership

Question 13

can accouting firms operate as a LLC

Answer 13

in most states. all states have LLC laws

Question 14

what does the manager and senior manager do?

Answer 14

helps the in charge auditor plan and manage the audit, reviews the in charge or senior auditors work, and manages relations with the client. may be responsible for more than one engagement at the same time

Question 15

what is the factor “The increased litigation risk faced by auditors” which affects the structure of the firm mean?

Answer 15

audit firms experience increase in litigation related costs. some orgainization structures afford a degree of protection to individual firm members

Question 16

how is a LLP structured and taxed?

Answer 16

like a general partnership

Question 17

what is the advantage of a general corporation?

Answer 17

shareholders are liable only to the extent of their investment in the corporation.

Question 18

what is the personal liability protection of an LLP

Answer 18

less than that of general corporation or LLC

Question 19

what is a limited liability company (LLC)?

Answer 19

a company that combines the most favorable attributes of a general corporation and a general partnership

Question 20

except for the proprietorship, each structure results in an entity separate from the CPA personally , which helps promote what?

Answer 20

auditor independence

Question 21

what does the senior or in charge auditor do?

Answer 21

coordinates and is responsible for the performance of audit procedures, including supervising and revewing staff work

Question 22

why don’t most CPA firms organize as a general corporation?

Answer 22

because they are prohibited by law from doing so in most states

Question 23

what is the factor “The importance of a structure to encourage competence” which affects the structure of the firm mean?

Answer 23

competence permits auditors to conduct audits and perform other services efficiently and effectilty

Question 24

CPA firms vary in nature and range of services, which affects the structure of the firms. Three main factors that affect the structure of all firms are:

Answer 24

1. The need for independence from clients 2. The importance of a structure to encourage competence- heirarch structure everyone checking everyones work 3. The increased litigation risk faced by auditors

Question 25

what is a professional corporation?

Answer 25

provides professional services and is owned by one or more shareholders.

Question 26

what does the partner do?

Answer 26

reviews the overall audit work and is involved in significant audit decision. is an owner of the firm and has the ultimate responsibility for conducting the audit and serving the client