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Chapter 6 > Professional Responsibilities Chapter 6 > Flashcards

Professional Responsibilities Chapter 6 Flashcards

1
Q

AICPA code of conduct addresses what is

A

JUST & RIGHT

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2
Q

Covered Members are

A

All members in the office connected with the attest engagement

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3
Q

Independence is Impaired

A

1) Financial Interest though a partnership where member is a GP
2) Accept a gift that is more than a token

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4
Q

Independence is NOT Lost

A

1) Investing in a Mutual Fund
2) member owns a direct Financial Interest in Company A and Company A has a direct Financial Interest in attestation client

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5
Q

When can an Audit Member join the client side

A

After 1 year of disassociating with the Firm

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6
Q

When in discussion with the client about a Job offer

A

Auditor must inform his Firm

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7
Q

Business relationships that impair:

A

1) Underwriter/ Broker Dealer
2) Stock Transfer or Escrow agent
3) General Counsel
4) Trustee for client profit sharing pension
5) Any Mgt capacity

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8
Q

Honorary Trustee / non charitable civic group /Trade association

A

is considered independent

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9
Q

Immaterial DOLLAR amount

A

law suit does not impair independence 4 work unrelated to Attestation

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10
Q

Integrity & objectivity

A

Paramount for members in Educational & Client Advocacy

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11
Q

Compliance with Standards

A

Audit & Attestation = PCAOB & ASB
Mgt consulting= Mgt consulting service committee
Accounting & review Service = Accounting & Review service committee
Govt Accounting Stds = GASB
Tax Issuers = Tax executive committee

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12
Q

Departure From GAAP

A

Must be well DESCRIBED & EXPLAINED

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13
Q

Rule 301

A

1) Court Request Subpoena and Summons
2) CPA Review - Quality Control
3) Ethics Division of the AICPA

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14
Q

When contingent Fees are charged For compliance

A

Must include a statement that he/she is NOT independent

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15
Q

Commissions

A

Must be disclosed to he client

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16
Q

Referral Fees for recommendation of a CPA

A

must be disclosed to the client

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17
Q

NON CPA owners

A

can use the term ‘Principals’ or ‘Owners’ or “officer” or “shareholder’

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18
Q

When the CPA uses his/her designation to sign off on a report

A

Should indicate to readers that he/she is not independent

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19
Q

Only registered Firms

A

Can audit an SEC issue (PCAOB Rules0

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20
Q

Registration of a member includes

A

a) Names of issuers audited CURRENT & PRECEEDING
b) Fees charged
c) Firm Quality control
d) List of accountants involved
e) Disclosure of any disagreements between the issuer and the Firm

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21
Q

Civil or Monetary Penalties for intentionally, knowingly conducting ,or reckless conduct,

A

750,000.00 Individuals

15,000,000.00 registered firms

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22
Q

Repeat offenders

A

100,000.00 Individuals

2,000,000.00 registered firms

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23
Q

Prohibited Services

A

a) Bookkeeping
b) Financial Information and system design
c) Appraisal and Valuation Services
d) Actuarial Services
e) Internal Audit Outsourcing
f) Legal

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24
Q

Audit Partner Rotation

A

5 years

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25
Q

What does an Auditor REPORT to the audit Committee

A

1) Critical Accounting Policies
2) Alternative accounting Treatment used
3) Material Communication between Audit Firm and Manager as well as a schedule of unadjusted audit difference and management letter

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26
Q

SOX Title V (Enhanced Financial Disclosure)

A

1) Reflect all material adjustments that have been recorded by the registered firm
2) Disclose all off-balance sheet items that have material impact
3) Officer/Director or shareholder of 10%+ should file a report to disclose # of shares held
4) 10 days of becoming a director / officer or 10%+ shareholder
5) Change of ownership must be announced via filing within 2 days
6) 10-K & 10-Q must include a report on internal reporting relating to EFFECTIVENESS OF I/C and MANAGEMENTS RESPONSIBILITIES TO I/C
7) 10-k & 10Q must have a code of ethics for senior officers. If not, a reason as to why should be provided
8) When there is a change of code of ethics, one must file a Form 8K

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27
Q

COVERED PERSON (SEC Definition)

A

is a person in the audit engagement team, the audit chain of command, persons who supervise, . All persons who evaluate the performance or recommend compensation, of the audit engagement or provide quality or oversight

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28
Q

Not Impaired

A

a) unsolicited gift is received and is DISPOSED of within 30day of knowing
b) covered persons participating in an employee compensation benefit plan- DISPOSES of Shares within 30 days

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29
Q

Lead Partners & others “Rotation”

A

Lead - 5 year rotation
other - 2years
Smaller firms with less than 5 clients who issues Fewer than 10 partners may be exempt from rotation

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30
Q

Pre-approval is not required for audit services

A

That do not EXCEED 5% of the revenue

**Can be brought to the audit committees attention b4 completion of the audit

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31
Q

DOL (Department of Labor)

A

Independence is required for employee benefits program audit
Impaired when:
1) any direct /indirect interest in the plan sponsor
2) Connection to the plan sponsor or promotion , advisor, trust, voting rights
3) accountant or member that maintains records
___________________________
NOT IMPAIRED
1) Former employee disassociated from plan
2) Actuary used by the accountant rendered service to the plan
3) The accountant was engaged by the plan sponsor during the period of professional engagement

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32
Q

SELF INTEREST THREAT

A

Threat that a financial institution will inappropriately influence an accountants judgement or behavior

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33
Q

SELF REVIEW THREAT

A

Threat that the accountant will not appropriately review previous judgements or service performed by the accountant

Self-review threat—Members reviewing as part of an attest engagement evidence that results from their own, or their firm’s, nonattest work such as, preparing source documents used to generate the client’s financial statements

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34
Q

ADVOCACY THREAT

A

Threat that an accountant will advocate a clients position when objectivity is compromised

Advocacy threat—Actions promoting an attest client’s interests or position. fn 4

Promoting the client’s securities as part of an initial public offering
Representing a client in U.S. tax court

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35
Q

FAMILIARITY THREAT

A

threat that an accountants becomes too sympathetic to the employers interest due to LONG & CLOSE relationship

Familiarity threat—Members having a close or longstanding relationship with an attest client or knowing individuals or entities (including by reputation) who performed nonattest services for the client.

A member of the attest engagement team whose spouse is in a key position at the client, such as the client’s CEO
A partner or partner equivalent of the firm who has provided the client with attest services for a prolonged period
A member who performs insufficient audit procedures when reviewing the results of a nonattest service because the service was performed by the member’s firm
A member of the firm having recently been a director or an officer of the client
A member of the attest engagement team whose close friend is in a key position at the client

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36
Q

PENALTIES ISSUABLE BY THE STATE BOARD

A
  1. Suspension or revocation
  2. Monetary Fine
  3. Rep-remand or censure
  4. Probation
  5. Request for additional CPE.
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37
Q

PENALTIES ISSUABLE BY THE SEC

A

Can censure or permanently revoke the rights of a CPA to perform before the SEC if:

a) Lacks qualification
b) unethical or unprofessional
c) willfully violates federal laws

SEC CAN ISSUE CEASE & DESIST

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38
Q

AUDIT DOCUMENTATION aka Working papers

A

1) Assist in planning, conducting , supervising the audit
2) Assist in reviews of predecessors work
3) Shows work performed and dates
4) Includes Abstract or Copies of significant contracts - NOT ISA

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39
Q

REPORT RELEASE DATE

A

The date on which the auditor grants the client permission to use the report. When the report is delivered

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40
Q

Document Retention

A

SAS Rules: 5 years after Report release date

PCAOB. Rules : 7 years after Report release Date

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41
Q

Final Audit Documentation

A

SAS - 60 Days following the report release date

PCAOB. - 45 Days following report release date

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42
Q

Permanent File (Continuous)

A

Audit documents that has continuing interest year to year - Contracts, pension plans, Leases, stock options, articles of incorporation, minutes of meeting, bonds indenture

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43
Q

Current File

A

Information appropriate to the year end audit

a) Audit plan
b) F.S. Statement
c) Working T/B , J/E
d) Letter of confirmation
e) abstract cor copies of documentation

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44
Q

Manual audit procedures in a computerized environment are aka

A

Auditing around the computer

a) Tests the inputs, processes the data independently
b) For simple batch systems

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45
Q

Computer assisted audit techniques aka

A

CAAT auditing though the computer

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46
Q

Transaction Tagging

A

electronic tag or mark -follow though the client system

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47
Q

Embedded audit modules

A

Sections that collect transaction data for the auditor

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48
Q

Test Data (Test Deck)

A

uses the application program to process set of data the results are already known. Client system is used offline still under the auditors control

________________
Least likely to use on Proper approval of time by supervisors because that is something that one wouldn’t log in a computer

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49
Q

Integrated Test Facility (ITF)

A

Like Test date except (LIVE DATA) is used

Client personnel are not informed that date is being run

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50
Q

Parallel Simulation

A

Reperformance test is a test where the auditor reprocesses the auditors tests using live data (using software provided by the auditor

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51
Q

Generalized Audit Software (GASP)

A

allows the auditor to perform test controls and substantive tests directly on the client systems. The auditor defines the client system to the GASP then specifies the test and sections that should be made

a) Examine compliance
b) Much higher %
c) LITTLE Technical Knowledge
d) Can reduce time

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52
Q

OMB Circular A-133

A

is a source of supplementary requirements

Entities that receive federal funds are subject to audit requirements that are commonly referred to as single audits. Among other things, the Single Audit Act Amendments of 1996 are intended to promote sound financial management, including effective internal control, with respect to federal awards administered by state and local governments and not-for-profit organizations. Links on this page will take you to important information about Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, (Circular A-133) as well as related resources offered by the GAQC

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53
Q

GAAS Generally Accepted Auditing Standards

A

including General Standards of fieldwork and reporting standards previously described. GAAS are applicable to all audits

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54
Q

GAGAS (Yellow Book)

A

programs, activities, and functions
assistance received by contractors, not for profit and other non-govenmentail organizations

GAGAS IS DESIGNED TO AUDIT REASONABLE ASSURANCE OF DETECTING MATERIAL MISSTATEMENTS RESULTING FROM NONCOMPLIANCE

55
Q

Audit requirements for federal financial assistance programs

A

conducted in accordance with GAAS and GAGAS

a) expand internal control documentation
b) expand reporting to include formal written reports on consideration for I/C
c) whether federal programs are administered in accordance with applicable laws and regulations
d) Application of single audit

56
Q

GAAP Basis Financial Audit

A

Government auditing standards (yellow book) incorporates GAAS and determine whether the financial statements present daily Yellow book

57
Q

OCBOA Financial Statements

A

specify that ocboa is used

58
Q

Attestation engagement

A

Yellow book (GAS) compliance with the laws, effectiveness of I/C, presentation of Management Discussion and Analysis MD&A, reliability of performance measures

59
Q

Performance Audit

A

Effectiveness, Economy and Efficiency

I/C

60
Q

WRITTEN REPORT ON I/C**

A

1) The assertion that evaluating compliance with laws, rules and regulations with direct and material effect on the FS is part of developing and opinion on the FS
2) The assertion that specific controls relating to the FS are considered
3) An indication either no weaknesses were found or that significant deficiencies ( reportable conditions) were found and whether those deficiencies were material

61
Q

SINGLE AUDIT : OMB Circular A-133

A

entities that expend total federal assistance equal or greater than 500,000 in a fiscal have an audit performed with the act
If they expend less than the amount then are except

62
Q

Major Program

A

expends $300,000. or more

63
Q

Single audit

A

separate evaluation of Materiality for each program selected

64
Q

Audit communication in government audit (HIGHER)

A

communicate significant deficiencies to specific regulatory bodies or grantor agencies

65
Q

Report (DISCLAIMER) on FS and supplementary schedule of expenditures of federal awards

A

GAAS * GAS * Single audit (Circular 133)

66
Q

Report on Internal control and compliance with provisions of laws , regulations, contracts, grants and agreements

A

GAS * Single audit (Circular 133)

67
Q

Report on compliance and I/C over compliance applicable to each major program. This report must include an opinion or disclaimer on compliance

A

Single audit (Circular 133)

68
Q

Schedule of findings and questioned costs

A

Single audit (Circular 133)

69
Q

Audit Findings

A

‘Yes’ , ‘No’ to the identifications of a findings under OMB circular A-133 including reportable conditions in I/C over major programs and material noncompliance with laws and regulations and contracts questioned costs greater than 10,000

70
Q

Major programs by

A

Catalog of Federal Domestic assistance (CFDA) the dollar threshold used to distinguish Type A & Type B

71
Q

Working papers

A

Applying procedures reached at end of the engagement

72
Q

Which of the following would not impact auditors consideration of materiality

A

Point of this question is that: Any direct financial interest to client interest whether material or not affects auditor independence

73
Q

Section 202 - Private letter rulings

A

allow contingent fees

74
Q

Computer vs. Manual Operations

A

Computer eliminates the occurrence of Random manual errors

75
Q

Assigning personelle to engagements

A

Part of CPA quality control

76
Q

A report on compliance would include

A

OPINION on whether the Firm complied with all regulations

77
Q

Non compliance with Government auditing standards

A

Qualified or adverse opnion

78
Q

Government auditing standards should include

A

Material instances where fraud was discovered

79
Q

Communication with the audit committee

A

The auditor must communicate to the audit committee, in writing, regarding the proposed tax services and related fees, and must discuss with the audit committee the potential effects of the proposed tax services on the firm’s independence. Tax services related to contingent fee arrangements, confidential tax transactions, and certain aggressive tax transactions are expressly prohibited.

80
Q

Generalized Audit software

A

When companies use information technology (IT) extensively and evidence is available only in electronic form, generalized audit software packages generate the programs necessary to interrogate the files and extract and analyze the data.

81
Q

Micro Computers

A

When using microcomputers in an auditing task, audit documentation may not contain readily observable details of calculations (e.g., present value calculations). In order to review assistants’ work, a supervisor may have to examine the formulas used on the microcomputer rather than simply examining the audit documentation.
Choice “c” is incorrect. The

82
Q

Embedded Audit modules (why auditor hesitate)

A

Embedded audit modules are sections of the application program code that collect transaction data for the auditor. Embedded audit modules are usually built into the application program when the program is developed. This would require that the auditors be involved in the system design of the application to be monitored.

83
Q

Supplemental in government audit

A

The auditor’s report on compliance and on internal control over financial recording (based on an audit) must include the scope of testing of compliance and internal control

84
Q

Permitted Services

A

Tax planning , Tax compliance , Tax advise

85
Q

Computer vs Human

A

Computer cannot be used to make judgements on control risk

86
Q

Advisor to client board of trustee

A

Does not impair auditor.

87
Q

Performance of continuous audit tests

A

When things are done electronically with little audit trail

88
Q

Objectivity

A

Choice “b” is correct. Objectivity includes independence of mind and appearance when providing audits, maintaining an attitude of impartiality, having intellectual honesty, and being free of conflicts of interest.

89
Q

Due Professional Care

A

Due care in performing an audit requires a member to plan and supervise adequately any professional activity for which he or she is responsible. This includes critical review at every level of supervision of the work done and the judgment exercised by those assisting in the examination.

90
Q

Government Auditing Standards

A

The report on the audit of financial statements should describe the scope of the auditor’s testing of compliance with laws and regulations and internal control over financial reporting, and present the results of those tests.

91
Q

Quality Control Elements

A

Quality control elements are:

  1. Human resources
  2. Engagement/client acceptance and continuance
  3. Leadership responsibilities
  4. Performance of the engagement
  5. Monitoring
  6. Ethical requirements
92
Q

Working TB columns

A

are for adjustments and reclassifications

93
Q

Statements on Quality Control Standards

A

Statements of Quality Control Standards (SQCS) are issued to provide guidance with respect to audit quality control. These standards indicate that the nature and extent of a firm’s quality control policies and procedures are directly tied to its organizational structure. So by maintaining a comprehensive system of quality control in relation to its organizational structure, the CPA firm would provide reasonable assurance that its professional services conform to the above standards.

94
Q

Government audit standards published by GAO

A

Primarily apply to audits of federal financial assistance and government organizations.

95
Q

Section 404

A

Management’s assessment of the effectiveness of internal control over financial reporting.

96
Q

Test Data

A

While the auditor will frequently use many valid and invalid conditions, it is not feasible to test every possible valid and invalid condition using a test data approach.

97
Q

Supplementary information

A

Per Government Auditing Standards, audit documentation should contain sufficient information so that supplementary oral explanations are not required.

98
Q

Government auditing standard report

A

Government Auditing Standards require that the auditor issue a written report on internal control in all audits. As part of this reporting requirement, the auditor must describe the scope of the auditor’s work in obtaining an understanding of internal control and his or her assessment of control risk.

99
Q

Integrated Test Facility

A

Run data through live system then posts though SIMULATED

100
Q

Internal Control report on compliance

A

The audit opinion states that the audit was conducted in order to express an opinion on compliance but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance.

101
Q

Government audit standards (Yellow Book)

A

In a variety of circumstances, auditors may be required to report directly to an entity external to the audited entity (e.g., the grantor, inspectors general, etc.). Instances that require external reporting might include situations in which management is unwilling to take corrective action with regard to illegal acts, fraud or material non compliance or circumstances in which a specific requirement is imposed by the grantor that requires that any discovery of illegal acts, fraud or material non compliance by the auditor be reported to the grantor or others.

102
Q

OMB Circular A-133

A

OMB Circular A-133 allows auditors to use a risk-based approach to determine major grants.

103
Q

Establishing materiality levels in compliance

A

The auditors’ purpose in establishing materiality levels in a compliance audit includes all of the following, except:
a.
Determining the nature and extent of risk assessment procedures.
b.
Establishing the basis for the opinion on effectiveness of internal control over compliance.
c.
Determining the nature, timing and extent of additional audit procedures.
d.
Evaluate whether the entity has complied with applicable requirements.

104
Q

Planning and audit

A

When assigning personnel to an engagement, the firm should consider the following factors in achieving a balance of engagement manpower requirements, personnel skills, and individual development and utilization: 1) engagement size and complexity, 2) personnel availability, 3) special expertise required, 4) timing of the work to be performed, 5) continuity and periodic rotation of personnel, and 6) opportunities for on-the-job training.

105
Q

Does not Impair independence

A

The CPA belongs to a country club client in which membership requires the acquisition of a pro rata share of equity.

106
Q

Integrated test facility.

A

commingled with real data

107
Q

Embedded audit module

A

Embedded audit modules are sections of an application program code that collect transaction data for the auditor. Such modules allow the auditor to capture specific data as transactions are being processed.

108
Q

\Parallel simulation

A

is a technique in which the auditor reprocesses the client’s data using the auditor’s own software. The auditor then compares his or her results to those obtained by the client.

109
Q

The content of the representation letter will generally not affect the nature and extent of audit documentation. Factors affecting the nature and extent of audit documentation include:

A

The risk of material misstatement;
The extent to which judgment was required in performing the work and evaluating the results;
The nature of the specific auditing procedure;
The significance of the evidence obtained;
The nature and extent of any problems identified; and
The need to document conclusions that may not be obvious.

110
Q

not a significant finding

A

Significant audit findings do not include staffing changes at the client.
example : Retirement of the accounts payable manager and subsequent hiring of a replacement.

111
Q

Professional behavior

A

Choice “b” is correct. Professional behavior includes an auditor’s honest effort in the performance of professional services in accordance with the relevant technical and professional standards.

112
Q

Quality control under Government auditing standards

A

. Audit organizations seeking to enter into a contract to perform an audit in accordance with government auditing standards should provide their most recent external quality control review report to the party contracting for the audit. The audit organization should make its most recent peer review report publicly available by posting to an external website or through similar means.

113
Q

Under DOL rules,

A

Under DOL rules, independence is impaired when an auditor also serves as an investment advisor to the employee benefit plan.

114
Q

Auditors conducting an audit in accordance with the Single Audit Act use a risk-based approach designed to:

A

Focus the audit on high-risk programs.

115
Q

An enterprise engaged a CPA to audit its financial statements in accordance with Government Auditing Standards (the Yellow Book) because of the provisions of government grant funding agreements. Under these circumstances, the CPA is required to report on the enterprise’s internal controls either in the report on the financial statements or in:

A

The report on the audit of the financial statements should describe the scope of the auditor’s testing of compliance with laws and regulations and internal control over financial reporting, and should either present the results of those tests or refer to a separate report containing that information.

116
Q

Federal awards expended

A

Free rents received as part of an award to carry out a federal program are treated as federal funds expended.

117
Q

Management’s written representation to the auditor in connection with a governmental audit would most likely include:

A

Identification of management’s interpretation of compliance requirements that are subject to different interpretations.

118
Q

Test Data

A

Test data must consist of all possible valid and invalid conditions.

Test data are processed with the client’s computer and the results are compared with the auditor’s predetermined results.

Test for invalid ID #

119
Q

Report on compliance

A

State that the audit should be planned to obtain reasonable assurance about whether noncompliance could have a material effect on the entity’s programs.

120
Q

Contingent Fees are allowed

A

Representing a client in an IRS examination of the client’s federal income tax return.

121
Q

Second wrap up :

A

The fair presentation of the financial statements in conformity with GAAP.

122
Q

use of micro computers

A

Microcomputer systems are sometimes characterized by weak file and data security, and are usually accessible by many office personnel. (Manual systems, in contrast, generally restrict one user from accessing other users’ files.) Thus, it is usually easier (increased risk) for unauthorized persons to access and alter computer system files, especially microcomputer system files.

123
Q

In auditing a not-for-profit entity that receives governmental financial assistance, the auditor has a responsibility to:

A

Assess whether management has identified laws and regulations that have a direct and material effect on the entity’s financial statements.

124
Q

Will not impair

A

Reviewing a proposed transaction and informing the client of the tax consequences.

125
Q

Deficiency in operation

A

exists when a properly designed control is either not executed as designed or the person performing the control does not have either the authority or the skill to perform the control. In this case, the clerk did not have the necessary authority to follow through on the control.

126
Q

Audit documentation s

A

Serves mainly to provide: 1) the principal support for the auditor’s report; 2) assistance in the planning, conduct, and supervision of the audit; 3) accountability; and 4) useful information.

127
Q

Microcomputers

A

In microcomputer audit applications, efficient and effective system usage requires:

  1. Identification of the appropriate audit tasks and
  2. Appropriate software to perform the selected audit tasks.
128
Q

An auditor who is testing IT controls in a payroll system would most likely use test data that contain conditions such as:

A

Test data often contains invalid information (such as invalid job numbers) that is used to test EDP controls.

129
Q

Government audit does not require

A

A concurrent opinion on the financial statements taken as a whole.

130
Q

An independent accountant can issue

A

Standard report on an examination of a financial forecast.

131
Q

The permanent (continuing) file of audit documentation most likely would include copies of the:

A 
a.	
Attorney's letters.
	b.	
Debt agreements.
	c.	
Lead schedules.
	d.	
Bank statements.

Debt agreements

132
Q

Audit documentation Detail

A

An experienced auditor who has no previous connection with the audit can understand the procedures performed and the evidence obtained.

133
Q

Financial information Design

A

Financial information systems design and implementation to an attestation client would impair independence. In addition, all non-audit services, except those that fall under the de minimis exception, need to be preapproved by the audit committee.
]
Note to Students: This question implies that there are three unique situations in which the auditor may provide an issuer client non-audit services without impairing independence and without obtaining the preapproval of the audit committee. However, Regulation S-X provides that all three conditions must be met. The incorrect answers in this question are ALL required in order to satisfy the exception.

134
Q

Significant deficiencies

A

To specific legislative and regulatory bodies when reporting under Government Auditing Standards.

Chapter 6 (1 decks)

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