MARKED QUESTIONS I Flashcards
According to PCAOB,a complete and final set of audit documentation should be assembled for retention not more than
45 days after the report release date
A cooling-off period of how many years is required before a member of an issuer’s audit engagement team may begin working for the registrant in a key position?
1 year.
A CPA firm would best provide itself reasonable assurance of meeting its responsibility to offer professional services that conform with professional standards by
Maintaining a comprehensive system of quality control that is suitably designed in relation to its organizational structure.
A CPA is permitted to disclose confidential client information without the consent of the client to I. Another CPA firm is the information concerns suspected tax return irregularities. II. A state CPA society voluntary quality control review board.
II only
A CPA purchased stock in a client corporation and placed it in a trust as an educational fund for the CPA’s minor child. The trust securities are not material to the CPA’s wealth but are material to the child’s personal net worth. According to the AICPA Code of Professional Conduct, would this action impair the CPA’s independence with the client?
Yes, because the stock would be a direct financial interest and materiality is not a factor.
A CPA started to audit the F/Ss of a non-issuer. After completing certain audit procedures, the client requested the CPA to change the engagement to a review because of a scope limitation. The CPA concludes that there is reasonable justification for the change. Under these circumstances, the CPA’s review report should include a:
Statement that a review is substantially less in scope than an audit.
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
Serving on at least one other issuer’s audit committee or disclosure committee of the board of directors. The Sarbanes-Oxley Act of 2002 specifies that an audit committee must contain at least one financial expert. The attributes of a financial expert on the audit committee can be acquired in a number of ways, including: serving as a principal financial officer, principal accounting officer, controller, public accountant, or auditor; actively supervising a principal financial officer or principal accounting officer; or assessing the performance of public accountants with respect to preparation, auditing, or evaluation of financial statements.
A practitioner to express an opinion on management’s assertion that the square footage of a warehouse offered for sale is 150,000 square feet. The practitioner should refer to which of the following sources for professional guidance
Statements on Standards for Attestation Engagements
A primary advantage of using generalized audit software packages to audit the financial statements of a client that uses an EDP system is that the auditor may:
Access information stored on computer files while having a limited understanding of the client’s hardware and software features.
A recurring audit is an audit engagement
for an existing audit client for whom the auditor performed the preceding audit.
According the PCAOB’s auditing standard for engagement quality reviews, the reviewer should evaluate the significant judgements that relate to engagement planning, including all of the following except A. The consideration of the firm’s recent engagement experience with the company and risks identified in connection with the firm’s client acceptance and retention process; B. The consideration of the company’s business, recent significant activities and related financial reporting issues and risks; C. The judgments make about materiality and the effect of those judgments on the engagement strategy; D. Review the engagement completion document and confirm with the engagement partner that there are no significant unresolved matters.
D. Review the engagement completion document and confirm with the engagement partner that there are no significant unresolved matters. This answer is not a significant judgment repeated to engagement planning; this function generally is done in the review state.
According the PCAOB’s auditing standard for engagement quality reviews, the reviewer should evaluate the significant judgments that relate to engagement planning, including all of the following excep
Review the engagement completion document and confirm with the engagement partner that there are no significant unresolved matters. This function generally is done in the review stage.
According to PCAOB auditing standards, all of the following statements are true about the terms of an audit engagement, except
The auditor should record the understanding of the terms of the audit engagement in an engagement letter and provide the engagement letter to the audit committee and management annually. The auditor is not required to provide it to management.
According to PCAOB auditing standards, all required audit committee communications should be made in a timely manner and
Prior to the issuance of the audit report. Required audit committee communications can be done orally or in writing.
According to PCAOB auditing standards, the auditor is required to communicate to the audit committee all of the following, except
Specific details of planned audit procedures designed to detect fraud.
According to PCAOB standards, each of the following items of information should be included in the documentation of an engagement quality review:
- Identification of the engagement quality reviewer and others who assisted the reviewer; 2. Identification of the documents reviewed by the engagement quality reviewer and others who assisted the reviewer; 3. The date on which the engagement quality reviewer provided concurring approval of issuance.
According to the AICPA Code of Professional Conduct, under which of the following circumstances may a CPA receive a contingent fee for services?
Representing a client in an IRS examination of the client’s federal income tax return. Contingent fee in certain tax matters are permitted, including: a member representing a client in an examination by a revenue agent of the client’s federal or state income tax return; a member representing a client in connection with obtaining a private letter ruling, filing an amended return based on a tax issue that is the subject of a test case involving a different taxpayer or on which the taxing authority is developing a position.
According to the AICPA Code of Professional Conduct, what would a covered member most appropriately do upon learning that another member of an attest engagement team is considering employment with the client?
Notify an appropriate person in the firm.
According to the AICPA code of Professional Conduct, which of the following actions by a CPA most likely involves an act discreditable（失信誉的，耻辱的）to the profession?
Retaining client records after the client demands their return.
According to the IFAC Code of Ethics for Professional Accountants, audit teams are required to be independent of the audit client during the engagement period and during which other period?
The period covered by the F/Ss
According to the IFAC Code of Ethics for Professional Accountants, in deciding whether to disclose confidential information, the professional accountant should consider which of the following relevant factors?
Whether the anticipated recipients are appropriate and the type of communication that is expected. The IFAC Code of Ethics for Professional Accountants prohibits accountants from disclosing confidential information acquired as a result of professional and business relationships without proper and specific authority or unless there is a legal or professional right or duty to disclose. In deciding whether to disclose confidential information, the Code requires professional accountants to consider, among other points, the type of communication that is expected and to whom it is addressed; in particular.
According to the PCAOB, which of the following tax services may be provided jointly with the audit of an issuer’s financial statements without impairing independence? A. Planning and issuing an opinion in favor of the tax treatment of an aggressive tax position; B. Reviewing a proposed transaction and informing the client of the tax consequences; C. Providing consultations under a contingency fee arrangement; D. Preparing tax returns for an individual in a financial oversight reporting role during the audit period.
B. Reviewing a proposed transaction and informing the client of the tax consequences A public accounting firm is not independent if the firm provides: any non-audit service to the audit client related to marketing, planning, or opining in favor of the tax treatment of, a confidential transaction or an aggressive tax position transaction; during the period of engagement, any tax service to a person in a financial reporting oversight; during the audit period any service or product to the audit client for a contingent fee or a commission. Reviewing a proposed transaction and informing the client of the tax consequences would not impair independence.
According to the profession’s standards, which of the following would be considered consulting services
Advisory services, Implementation services and product services
According to the profession’s ethical standards, which of the following events may justify a departure from a Statement of Financial Accounting Standards?
New legislation: Yes Evolution of a new form of business transaction: Yes.
According to the Sarbanes-Oxley Act of 2002, the PCAOB has the legal authority to perform each of the following, except:
Prosecute suspected criminal violations by registered public accounting firms. The SEC has oversight authority over the PCAOB. Like the SEC, the PCAOB does not prosecute suspected criminal violations, but relays information to other government agencies that do so. The PCAOB provides independent oversight of public accounting firms providing audit services—setting standards as well as registering, investigating, and disciplining auditors
According to the SEC, members of an issuer’s audit committee may not
Accept any consulting, advisory, or other compensatory fee from the registrant for services other than as a member of the board. As audit committee members are also members of the board of directors, they are restricted to receiving only the normal compensation provided to a board member. They cannot accept any additional consulting, advisory, or other compensatory fees from the registrant for services other than as a member of the board. There are no SEC rules restricting the establishment of procedures for employees to anonymously report fraud; being responsible for the compensation of any registered public accounting firm employed by the registrant to provide an audit report; or engaging independent counsel as deemed necessary to carry out their duties.
According to the standards of the profession, which of the following would be considered a part of a consulting services engagement?
Reviewing and commenting on a client-prepared business plan.
According to the standards of the profession, which of the following activities may be required in exercising due care?
Consulting with experts: Yes; Obtaining specialty accreditation: No
According to the standards of the profession, which of the following events would require a CPA performing a consulting services engagement for a non-audit client to withdraw from the engagement? I. The CPA has a conflict of interest that is disclosed to the client and the client consents to the CPA continuing the engagement. II. The CPA fails to obtain a written understanding from the client concerning the scope of the engagement.
Neither I nor II.
According to US GAAS, an auditor is associated with financial information when
The auditor has applied procedures sufficient to permit the auditor to report in accordance with US GAAS.
According to US GAAS, an auditor’s professional judgment A. Should be documented so that it is sufficient to enable an experienced auditor, having no previous connection with the audit, to understand all professional judgments made B. Is not to be used as the justification for decisions that are not otherwise supported by the facts and circumstances of the engagement or by sufficient appropriate audit evidence C. Is exercised primarily during the planning and review stages of an audit D. Is not used regarding decisions about the nature, extent, and timing of audit procedures used to meet the requirements of US GAAS and gather audit evidence, but is relevant to decisions regarding materiality and audit risk:
B. Is not to be used as the justification for decisions that are not otherwise supported by the facts and circumstances of the engagement or by sufficient appropriate audit evidence Regarding incorrect answer A., it would be true if it stated that the significant, not all, professional judgments made should be documented.
According to US GAAS, in an audit engagement, an auditor strives to achieve independence in appearance in order to
Serve the public interest
According to US GAAS, interpretive publications include all of the following except
Answer 1. Auditing guidance included in AICPA Audit Risk Alerts. Answer 2. Articles in the AICPA’s journal of Accountancy (Has no authoritative status)
According to US GAAS, what is the distinguishing feature of the professional judgment expected of an auditor?
It is exercised based on competencies necessary to achieve reasonable judgments, developed by the auditor through relevant training, knowledge and experience.
After performing risk assessment procedures, an auditor decided not to perform tests of controls. The auditor most likely decided that:
It would be inefficient to perform tests of controls that would result in a reduction in planned substantive tests. After performing risk assessment procedures, an auditor decided not to perform tests of controls because it would be inefficient. In other words, the time required to perform tests of controls would be greater than the reduction in time spent on substantive testing.
All of the following are true about documentation for an audit of non issuer, except A. The auditor should prepare audit documentation on a timely basis; B. The documentation should be sufficient to enable an experienced auditor, having no previous connection with the audit, to understand the audit evidence obtained; C. Audit documentation should be retained for a period no shorter than 5 years from the date of the audit report; D. Audit documentation provides evidence that the audit was planned and performed in accordance with US GAAS and applicable legal and regulatory requirements.
C. Audit documentation should be retained for a period no shorter than 5 years from the date of the audit report; The retention period should not be shorter than 5 years from the report release date, not the date of the audit report.
All of the following statements regarding the PCAOB adopted interim auditing standards are true except
The interim standards provide guidance, but they are not authoritative.
An auditor may provide an issuer client any of the following nonaudit services without impairing independence and without obtaining the preapproval of the audit committee, except A. Nonaudit services with revenues in aggregate of less than 5% of the total revenues paid by the issuer to the auditor during the fiscal year in which the nonaudit services are provided B. Nonaudit services that were promptly brought to the attention of, and approved by, the audit committee prior to the completion of the audit C. Nonaudit services to perform financial information systems design and implementation D. Services that the issuer did not recognize as nonaudit services at the time of the engagement
C. Nonaudit services to perform financial information systems design and implementation The Sarbanes-Oxley Act of 2002 prohibits an auditor performing financial information systems design and implementation, even if the audit committee approves of the services to an issuer audit client; this is deemed to impair independence. Minor services will not impair independence and do not require pre-approval. These include relatively small revenue services, services approved prior to completion of the audit, and services that the issuer did not recognize as needing audit committee approval.
An auditor of a non-issuer exercising professional skepticism with respect to the risks of material misstatement due to fraud will most appropriately
Consider the reliability of information to be used as audit evidence. An auditor is required to conduct an audit with an attitude of professional skepticism. This refers to an attitude that includes a questioning mind (being alert to conditions that may indicate possible misstatement due to fraud or error) and a critical assessment of audit evidence. Hence an auditor of a non-issuer exercising professional skepticism with respect to the risks of material misstatement due to fraud will most appropriately consider the reliability of information to be used as audit evidence.
An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes, but containing columns for:
Reclassifications and adjustments.
An auditor reviews a client’s accounting policies and procedures when considering which of the following planning matters?
Understanding the client’s operations and business.
An initial audit engagement is an engagement
In which the financial statements for the prior period were either not audited or were audited by a predecessor auditor.
An issuer’s auditor is prohibited from providing tax services to which of the following individuals? A. The chair of the board of directors B. The chair of the audit committee C. The CEO D. The CFO of an affiliate of the issuer audited by another firm
C. CEO A registered public accounting firm is not independent of its audit client if the firm provides any tax service to a person in an financial reporting oversight role at the audit client during the engagement period. Remember, the examiners’ instructions are to select the best answer. The audit committee chair has influence over the auditor by the nature of the audit committee purpose— the tax return preparation engagement would be unlikely to increase that influence. Further, the audit committee chair presumably is an independent director with little motivation to influence the audit adversely. The chair of the board of directors (BOD) is not necessarily a person with a financial reporting oversight role whereas the CEO always has a financial reporting oversight role. The CFO of an affiliate audited by another firm is more remote than the CEO of the client entity.
As the basis for the auditor’s opinion, US GAAS require the auditor to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. All of the following are true about the concept of reasonable assurance except A. It is obtained when the auditor has gathered sufficient appropriate audit evidence to reduce audit risk to an acceptably moderate level. B. It is obtained when the auditor has gathered sufficient appropriate audit evidence to reduce audit risk to an acceptably low level. C. It is the standard because there are inherent limitations of an audit that result in most of the audit evidence being persuasive rather than conclusive. D. It is a high, but not absolute, level of assurance.
B. It is obtained when the auditor has gathered sufficient appropriate audit evidence to reduce audit risk to an acceptably moderate level.
At least how often should the PCAOB inspect a registered public accounting firm that regularly issues audit reports to 50 issuers?
Every 3 years. Under SOX Title - I, Section 104, PCAOB has to conduct an inspection of a registered public accounting firm and report deficiencies to the SEC and make available to the public. Such inspections are to be performed every year for firms that provide more than 100 audit reports annually and every three years for firms that provide up to 100 audit reports annually.
Audit documentation should:
Show that the accounting records agree or reconcile with the financial statements.
Audit engagement team members should remain alert for evidence of noncompliance with which of the following relevant ethical requirements?
Performing professional responsibilities with the highest sense of integrity.
Before accepting an engagement to audit a new client, a CPA is required to
Request the client to authorize the predecessor auditor to respond fully to inquiries that will assist the auditor in determining whether to accept the engagement.
Before applying principal substantive tests to an entity’s accounts receivable at an interim date, an auditor should:
Assess the difficulty in controlling the incremental (递增的，增加的) audit risk
Before applying substantive tests to the details of asset accounts at an interim date, an auditor should assess:
The difficulty in controlling the incremental audit risk.
Both the AICPA’s Statements on Auditing Standards and the PCAOB’s auditing standards limit the period of evaluation by an auditor of an entity’s ability to continue as a going concern to 12 months from the date of the F/S. The International Standards on Auditing differ in that they
Required that it be at least 12 months from the date of the F/Ss, but do not limit it to 12 months.
Due to a scope limitation, an auditor of a public company disclaimed an opinion on the financial statements taken as a whole, but the audit report included a statement that the current asset portion of the entity’s balance sheet was fairly stated. The inclusion of this statement is
Not appropriate because it may tend to overshadow the auditor’s disclaimer of opinion. Piecemeal opinions (expressions of opinion as to certain identified items in financial statements) should not be expressed when the auditor has disclaimed an opinion or has expressed an adverse opinion on the financial statements taken as a whole because piecemeal opinions tend to overshadow or contradict a disclaimer of opinion or an adverse opinion. (See the editor note below the incorrect answer explanations for a more detailed discussion regarding the meaning of financial statements taken as a whole vs. piecemeal opinions.) Editor note: Reference in the fourth reporting standard to the financial statements taken as a whole (The report shall either contain an expression of opinion regarding the financial statements, taken as a whole, or an assertion to the effect that an opinion cannot be expressed…) applies equally to a complete set of financial statements and to an individual financial statement (for example, to a balance sheet) for one or more periods presented. The auditor may express an unqualified opinion on one of the financial statements and express a qualified or adverse opinion or disclaim an opinion on another if the circumstances warrant. On the other hand, a piecemeal opinion refers to an opinion on a portion of an individual financial statement; not an opinion on an individual financial statement.
During an audit conducted in accordance with US GAAS, an auditor should depart from a relevant presumptively mandatory requirement only when
A required specific procedure would be ineffective in achieving the intent of the requirement.
During an audit of the financial statements of a company, the CFO provides a spreadsheet to the audit team that contains a number of errors that are material to the financial statements. Under what circumstances would this situation be a violation of the rules of the Sarbanes-Oxley Act of 2002 on improper influence on the conduct of audits? A. The CFO discovers and corrects most of the errors in the spreadsheet, which was prepared by a staff accountant. One immaterial error remains of which the CFO is aware, and this error remains undetected by the audit team, but the financial statements end up being fairly presented. B. The audit team discovers the errors through alternate procedures when they discern that the spreadsheet was improperly manipulated by the CFO. This international conduct of the CFO doesn’t succeed in affecting the audit. C. The CFO had the spreadsheet prepared by a vendor of the company; the vendor intentionally misstates information in the spreadsheet, and the CFO does not discover the misstatements. The errors remain undetected by the audit team, and the financial statements are materially misleading. D. The CFO was unaware of the errors in the spreadsheet, which was prepared by a staff accountant and reviewed by the CFO. The errors remain undetected by the audit team, and the financial statements are materially misleading
B. The audit team discovers the errors through alternate procedures when they discern that the spreadsheet was improperly manipulated by the CFO. This intentional conduct of the CFO does not succeed in affecting the audit. It is unlawful for (1) any officer or director of an issuer to do any act (2) to fraudulently influence, coerce, manipulate, or mislead any auditor performing an audit if (3) the purpose is to render the financial statements materially misleading. The CFO is not excused by failure to affect the audit. 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 rending the financial statements materially misleading. In this situation, the auditor identified material errors that were intentionally recorded by the CFO. However, this fraudulent manipulation did not effect the audit. Based on the circumstances, it appears that improper influence most likely occurred because the auditor knew of the manipulation but did not to allow it to affect the audit.
During the initial planning phase of an audit, a CPA most likely would not A. Obtain a general understanding of the client’s industry and business; B. Apply analytical procedures for risk assessment purposes; C. Discuss the timing of the audit procedures with the client’s management; D. Determine materiality.
C. Discuss the timing of the audit procedures with the client’s management. Coordination and scheduling are done with the client during the initial phase of an audit. However, the auditor does not divulge complete details of the audit to preserve the effectiveness of an audit. When discussing matters included in the overall audit strategy or audit plan, care is required in order not to compromise the effectiveness of the audit because discussing the nature and timing of detailed audit procedures with management may compromise the effectiveness of the audit by marketing the audit procedures too predictable.
During the initial planning phase of an audit, the auditor most likely would:
Discuss the timing of the audit procedures with the client’s management.
Factors a CPA firm should take into consideration when deciding whether to undertake or continue client relationships an engagements.
- The client’s integrity; 2. The firm’s ability to perform the engagement; 3. The firm’s ability to comply with legal and ethical requirements.
For audit procedures related to the inspection of significant contracts or agreements, the auditor should: A. Include abstracts or copies of those contracts or agreements in the audit documentation if they’re needed to enable an experienced auditor to understand the work performed and conclusions reached. B. Make sure that, if abstracts or copies of those contracts or agreements are added to the audit file, they are stored in a manner that preserves their confidentiality; C. Retain he original document; D. Include abstracts or copies of those contracts or agreements in the audit documentation
D. Include abstracts or copies of those contracts or agreements in the audit documentation. The auditor should include abstracts whether or not they would be needed by an experienced auditor.
