Specific Services Flashcards
The ABC Accounting Firm audits DEF Corporation, a privately-held company. DEF wishes to hire ABC to provide benefit plan administration services. Which of the following services, if provided by ABC, would impair its independence?
Communicating summary plan data to the plan trustees.
Preparing account valuations.
Serving as a plan fiduciary.
Processing transactions initiated by plan participants.
Serving as a plan fiduciary.
Correct! Serving as a plan fiduciary is acting as management, which is not allowed
The GHI accounting firm has been hired by its privately-held audit client JKL Corporation, to provide bookkeeping, payroll and related services. Which of the following would not impair independence?
Preparing financial statements based on the client’s trial balance information.
Approving or authorizing client transactions.
Preparing source documents.
Accepting responsibility to sign checks.
Preparing financial statements based on the client’s trial balance information.
Correct! Merely preparing financial statements based on the client’s information would not impair independence.
MNO Corporation, a privately-held firm, wishes its auditor, PQR Accounting, to provide corporate finance consulting services. Which of the following services, if provided by PQR, would impair its independence?
Assisting in developing corporate strategies.
Consummating a transaction on the client’s behalf.
Assisting in drafting offering documents.
Introducing management to sources of capital.
Consummating a transaction on the client’s behalf.
Correct! Either committing a client to a transaction or consummating a transaction on its behalf impairs independence.
STU Corporation, a privately-held firm, would like its audit firm, VWX Accounting, to provide executive or employee search services. Which of the following, if provided by VWX, would impair independence?
Recommending a position description.
Committing STU to employee compensation or benefits.
Recommending qualified candidates based on client-approved criteria.
Advising STU regarding which employee benefits it should offer.
Committing STU to employee compensation or benefits.
Correct! To commit STU to certain compensation or benefits is a management function that would impair VWX’s independence. Recommending something for the client’s consideration is one thing. Committing the client to a contractual liability is another.
Soldier Corporation, a privately-held company, wishes to hire its audit firm, Sailor Accounting Firm, to provide information systems consulting services. Which of the following services could Sailor provide to Soldier without impairing Sailor’s independence?
Designing, developing, installing or integrating an information system for Soldier that is unrelated to Soldier’s financial statements or accounting records.
Supervising client personnel in the daily operation of Soldier’s financial information system.
Operating Soldier’s network.
Designing Soldier’s financial information system.
Designing, developing, installing or integrating an information system for Soldier that is unrelated to Soldier’s financial statements or accounting records.
Correct! Because this system would be unrelated to the information that Sailor would eventually audit, independence is not impaired.
Collison Corporation, a privately-held firm, wishes its audit firm, Hinrich Accounting, to provide certain internal audit functions for it. Which of the following services, if provided by Hinrich, would impair independence?
Identifying opportunities for improvement.
Recommending improvements for management consideration.
Reporting to the board of directors on behalf of management regarding internal audit affairs.
Assessing whether performance complies with management policies.
Reporting to the board of directors on behalf of management regarding internal audit affairs.
Correct! Auditors should not advocate for management and reporting to the board on management’s behalf would impair independence.
Darnell Corporation, a privately-held firm, would like to hire its auditor, the Valentine Accounting Firm, to provide certain investment services. Which of the following services, if provided by Valentine, would impair its independence?
Recommending allocation of funds that Darnell should invest in various asset classes.
Transmit Darnell’s investment selections to Darnell’s broker.
Performing bookkeeping services relative to Darnell’s portfolio balance.
Executing transactions to buy or sell for Darnell.
Executing transactions to buy or sell for Darnell.
Correct! Executing the actual buy or sell transactions for audit client Darnell does impair Valentine’s independence.
Which of the following services cannot be performed for a nonissuer attest client?
Performing data processing services.
Communicating with management about the appropriateness of accounting principles.
Preparing adjusting journal entries for client management consideration.
Signing payroll checks.
Signing payroll checks.
This answer is correct. Signing payroll checks is a management function that impairs the independence of the CPA.
Bill Fling, CPA, has posted the general ledger and has maintained the financial records of Wing Corporation. As a part of his responsibilities he has recorded journal entries and made closing entries. Which of the following best summarizes the AICPA and SEC views as to the following question: Is audit independence impaired?
AICPA SEC Yes Yes Yes No No Yes No No
No Yes
Which of the following benefit plan administration services may not be provided by an auditor to a private company attest client?
Communicate summary plan data to plan trustee.
Advise client management regarding impact of plan provisions.
Prepare account valuations.
Make disbursements on plan’s behalf.
Make disbursements on plan’s behalf.
This is a management responsibility that goes too far to avoid an independence problem.
Which of the following internal audit functions may be performed by an auditor for a private company attest client?
Reporting to the board on behalf of management regarding internal audit affairs.
Identifying opportunities for improvement.
Determining which, if any, recommendations for improving internal control systems should be implemented.
Performing ongoing monitoring activities that affect execution of transactions.
Identifying opportunities for improvement.
This is merely an advisory function and is permissible.
