Quiz 1 Wrong Answers Flashcards
Section 406 of Title IV of SOX “code of ethics for Senior Financial Officers” dictates that…
Each issuer’s disclose whether or not they have adopted code
Of ethics for senior financial officers
Based on the rules of the PCAOB, contingent fees and commissions…
2) why?
Are currently not allowed
2) will result in lack of independence for registered public
accounting firm
Any change in or waiver of code of ethics for senior officers requires…
Immediate disclosure
The International Ethics Standards Board for Accountants (IESBA) Code of Ethics for Professional Accountants identifies what 5 potential threats to fundamental principles?
1 self-interest 2 self-review 3 advocacy 4 familiarity 5 intimidation threats
Auditors performing work under GAGAS, in addition to having competence, technical knowledge, skills and experience to perform the audit must complete…
At least 24 hours of CPE relating to governmental auditing every
2 years
Individuals who work on GAGAS audits for 20% or more of their time must complete…
At least 80 hours of CPE relating to governmental auditing
Every 2 years
Prior to accepting an initial engagement pursuant of the standards of PCAOB, a registered public accounting firm must…
Describe in writing to the audit committee of issuer all relationships
Between registered public accounting firm that may bear on
Independence
Prior to accepting an initial engagement pursuant of the standards of PCAOB, a registered public accounting firm must describe in writing to audit committee of issuer all relationships between registered public accounting firm or…3
1 Any affiliates of firm and
2 potential audit client or
3 persons in financial reporting oversight role at potential
Audit client
Prior to accepting an initial engagement pursuant of the standards of PCAOB, a registered public accounting firm must document…
The substance of its discussion with audit committee of issuer
PCAOB requires registered public accounting firm to describe in writing…3
1 The scope and fee structure of the services
2 discuss potential effects on independence
3 document substance of discussion with audit committee
Any violation of the PCAOB’s rules is treated in the same manner as…
A violation of the Securities Exchange Act of 1934
Violations with any of the applicable auditing and related professional practice standards may result in…
Disciplinary proceedings by the PCAOB
In addition to adopting some rules from the AICPA and Auditing Standards Board (ASB), the Public Company Accounting Oversight Board has…
Adopted its own rules regarding auditing standards, ethics and
Independence
The Statements of Standards for Accounting and Review Services (SSARS) do not…
Specifically give a time period for retention of records
How long do the standards require a firm to retain engagement documentation?
The firm should establish policies and procedures for the retention
Of the records for a sufficient period
Registered public accounting firms and associated persons must be independent of their audit clients during…
The engagement period of which the financial statements are
Being audited
There are currently no requirements to be independent…
Prior to the engagement period
A direct financial interest is a financial interest…3
1 Owned directly by an individual or entity, or
2 under the control of an individual or entity, or
3 beneficially owned through an investment vehicle, estate or trust
A direct financial interest is includes a financial interest beneficially owned through an investment vehicle, estate, trust, or other intermediary when the beneficiary…2
1 controls the intermediary or
2 has the authority to supervise or participate in the intermediary’s
Investment decisions
A trust for an auditor’s minor child, that are not material to the CPA’s wealth, but material to the child’s personal net worth. Is the CPA’s net worth impaired with the client, why? Is materiality a factor?
Yes, stock is direct financial interest
Materiality not a factor
The Governmental Accountability Office (GAO) specifies 4 interrelated sections with respect to independence
1 conceptual framework
2 guidance for audit organizations that are structurally located
Within the entities they audit
3 requirements when performing nonaudit services
4 guidance on documentation
SOX Section Title IV, “Enhanced Review of Periodic Disclosures by issuers” dictates that…
The SEC will review disclosures made by issuers
SOX Section Title IV, “Enhanced Review of Periodic Disclosures by issuers” dictates that the SEC will review disclosures made by issuers. Special attention will be paid to disclosures of issuers:
Who have issued…
Issued material restatements if financial statements
SOX Section Title IV, “Enhanced Review of Periodic Disclosures by issuers” dictates that the SEC will review disclosures made by issuers. Special attention will be paid to disclosures of issuers:
Who experienced significant…
Volatility in their stock price
SOX Section Title IV, “Enhanced Review of Periodic Disclosures by issuers” dictates that the SEC will review disclosures made by issuers. Special attention will be paid to disclosures of issuers:
Have the largest…
Market capitalization
SOX Section Title IV, “Enhanced Review of Periodic Disclosures by issuers” dictates that the SEC will review disclosures made by issuers. Special attention will be paid to disclosures of issuers:
Are emerging companies with disparities in price to earnings ratios and with…
Operations that significantly affect any material sector of the
economy
The main considerations in the actual retention of engagement material should include…2
1 the nature of the engagement and firm’s circumstances and
2 if there are generally accepted retention periods in absence
Of specific legal requirements
Hiring and advancement are under the quality element of…
What are they not under?
Human resources
Not under engagement performance
Policies and procedures for engagement supervision might include:
Tracking the…
Progress of the engagement
Policies and procedures for engagement supervision might include:
Considering the…
Capabilities and competence of individual engagement team
Members
Considering capabilities and competence of individual members of engagement team includes…3
1 whether they have sufficient time to carry out their work
2 they understand their instructions
3 whether work is being carried in accordance with planned
Approach of engagement
Confirmation is presumptively required unless accounts receivable are immaterial, use of confirmations would be ineffective or combined assed leve, of inherent and control risk is low, which auditing standards apply?
US PCAOB Auditing Standards
US Auditing Standards under the AICPA
The PCAOB allows for certain exemptions in in performing tax services for…
Persons in accounting oversight roles
While the firm may occasionally consult with its peer reviewer, there is…
No requirement to discuss all significant conclusions with peer reviewer on each engagements
The objectives of the engagement procedures have been achieved is…
Is a quality control policy/procedure related to a review
The following is a quality control policy/procedure related to a review:
The work has been performed in accordance with…
Professional standards and applicable regulatory and legal requirements
The following is a quality control policy/procedure related to a review:
Significant findings and…
Issues have been raised for further consideration
The following is a quality control policy/procedure related to a review:
Appropriate consultations have taken place and the…
The resulting conclusions have been documented and implemented
The following is a quality control policy/procedure related to a review:
Nature, timing and extent of work performed is…
Appropriate and without need of revision
The following is a quality control policy/procedure related to a review:
The work performed supports…
The conclusions reached and is appropriately documented
The following is a quality control policy/procedure related to a review:
Evidence obtained is sufficient and…
Appropriate to support the report
Summarization of findings from the firm’s annual inspection is…
What is it not?
A monitoring activity
Not an engagement performance
A CPA’s independence is not compromised when management has…3
1 made the decisions
2 evaluated adequacy of services performed
3 accepted responsibility for the services
