Chapter 2 Flashcards
One of the main advantages of a “big” public accounting firm is
their ability to audit nearly all the largest companies worldwide.
National network firms are those with
offices in all major Canadian cities.
The most common organizational form used by public accounting firms is
sole proprietorship or partnership.
Most international and national accounting firms in Canada are comprised of professional accountants with the designation
CPA
The Canada Business Corporation Act gave authority to Canadian accounting and auditing standard-setters by stating that financial statements
should be prepared in accordance with the standards in the CPA Canada Handbook.
Zara works as an auditor for Quincy, Quentin and Quaid, a public accounting firm in Richmond Hill, Ontario. Zara has decided to leave the firm and establish her own firm in Whitby, Ontario. She plans to offer audits and taxation services. Which organization is responsible for licensing Zara?
CPA Ontario
Jessica is a summer junior at Branes & Castle, a PA firm. Jessica has only completed three accounting courses in university and has not yet taken her auditing class. A team of auditors from Branes & Castle are starting an audit and Jessica was sent to help them. CPA practice requirements mandate that Jessica
can perform work for the audit engagement as long as she is supervised and proper review of her work is performed.
The implementation of the Sarbanes-Oxley requirements in the United States resulted in the creation of the Public Company Accounting Oversight Board (PCAOB) to oversee listed companies’ auditors and develop audit standards. The impact of this requirement in Canada was
the creation of the Canadian Public Accountability Board (CPAB) to oversee Canadian audit professionals.
Stafford & Sandiford is a public accounting firm with 30 clients who are reporting issuers. Stafford & Sandiford can expect to be inspected by the Canadian Public Accountability Board
once every 3 years.
Larger audits may have established procedures that utilize an audit committee whenever there is a dispute between management and the auditors. What is the purpose of such procedures?
to facilitate the auditors’ independence from management
The primary role of security regulators in Canada includes to
protect investors.
A crucial role of security regulators in Canada includes to
foster fair, efficient, and competitive capital markets companies.
The Canadian Public Accountability Board’s (CPAB) mission is to
contribute to the public’s confidence in the integrity of financial reporting
All of the following are roles of the Canadian Public Accountability Board (CPAB) except:
opine on the financial statements of public companies.
The term reporting issuers
describes publicly held companies and mutual funds listed on a Canadian stock exchange.
In Canada, the organization responsible for setting auditing standards is
Auditing and Assurance Standards Board (AASB).
The most authoritative requirements for public accountants performing financial statement audits in Canada are the
CPA Canada Handbook requirements.
What is an auditor required to do with respect to a client’s financial reporting framework?
assess whether the framework selected by management is suitable
Canadian Auditing Standards (CASs) require that an audit be conducted using a
risk-assessment approach.
When conducting an audit, the auditor should look at Canadian Auditing Standards as
minimum standards of performance.
Which of the following rights is necessary for the completion of an audit?
The right to have access to the necessary records, information, and explanations.
Adequate planning and execution to reduce risk to an acceptable level is a requirement of which category of Canadian auditing standards (CAS)?
performance responsibility
The risk response phases of conducting the financial statement audit using a risk assessment approach includes
gathering evidence to assess the likelihood of material misstatement.
Communicating the findings of the audit in accordance with CASs is a requirement of which category of generally accepted auditing standards?
reporting
Who do the external auditors and the internal auditors usually report to?
audit committee
There are many elements of quality control at the firm level. Which element does the statement “an organizational culture that emphasizes that quality should be present for audit and review engagements” fall under?
leadership responsibilities within the firm
According to Canadian Standards on Quality Control (CSQC), which of the following is not one of the elements of quality control?
consistency with prior years
A PA firm has an organizational structure that assures the technical review of every engagement by a partner who has expertise in the client’s industry. This is an example of good
quality controls.
Farah is currently auditing Software Synx, a public company. After a long day of work, Farah goes for a drink with her friend John who mentions that he owns shares of Software Synx. Farah indicates that John should hold on to his shares as they will go up next week when the financial statements are released and show an increase of 12% for revenues. Which element of quality control is compromised by Farah?
relevant ethical requirements
Gary West is a sole practitioner. He has conducted the audit of Reggie’s Farm for the past 12 years. In the current year, Reggie’s Farm expanded by acquiring two other farms, installed a new accounting system, and also started to export to the United States. Gary accepted the audit of Reggie’s Farm for the upcoming year even though he has no experience with exports to the United States or companies the size of Reggie’s Farm. Which element of quality control is compromised for Gary’s firm?
client acceptance or continuance
Kobi MacDonald is a partner at a “Big Four” firm. He is responsible for testing the firm’s quality control procedures annually to ensure that the firm is in compliance with Canadian Auditing Standards. Which element of quality control is Kobi performing?
monitoring
There are many elements of quality control at the firm level. Which element does “adequate hiring policies (and documentation of their implementation) that ensure competence and integrity of personnel” relate to?
human resources
If a firm places ________ (a) focus on management advisory services, it may encourage auditors to ________ (b) on developing business than on performing a quality audit. Some claim that it ________ (c) compromise auditor independence and auditors ________ (d) easily swayed by the client’s arguments.
Others argue that being the client’s business advisor ________ (e) the quality of the audit since the auditor ________ (f) to provide important insights regarding improving management’s processes.
a. too much
b. focus more
c. may
d. will be
e. helps improve
f. is able
