SU 01: Engagement Responsibilities

Question 1

What is the following conceptual difference between attestation standards and GAAS

Answer 1

The attestation standards provide a framework for attest function beyond historical f/s

Question 2

What is not an attestation standard

Answer 2

A sufficient understanding of internal control shall be obtained to plan engagement.
No attestation standards internal controls. However the second standard of field work applicable to GAAS states “the auditor must obtain a sufficient understanding of the entity and its environment including internal control

Question 3

In an attest engagement a cpa typically

Answer 3

Expresses a conclusion about a written assertion.
An attest engagement is one in which a practitioner is engaged to issue or does is an examination, review or agreed-upon procedures repot on subject matter or assertion that is the responsibility of another party

Question 4

Who establishes GAAS

Answer 4

Auditing Standards Board and Public Company Accounting Oversight Board
AICPA Conduct rule 202, requires adherence to standards promulgated by by AICPA council

Question 5

Which of the following best describes what is meant by GAAS
A Rules acknowledged by accounting profession due to universal application
B Pronouncements by ASB
C measure of quality of audit

Answer 5

C an audit should be planned, performed, and reported on in accordance with GAAS. Auditing standards are concerned with audit quality and objectives to attained.
A wrong - standards are not elective but required
B wrong PCAOB issues GAAS

Question 6

Third general standard states due professional care in planning and performance of audit and report. It requires
A thorough review of safeguard of assets
B limited review of indication of employee fraud
C objective review of adequacy training of firm personnel
D supervision of assistants by auditors with final responsibility for audit

Answer 6

D, AU 230 due professional care imposes a responsibility on upon each individual within an independent firm to observe standards of field work. The first standard AU 150 requires proper supervision of assistants

Question 7

Which of the following statements is true regarding auditors responsibility for f/s
A making suggestions that are adopted about form and content of entity’s f/s impairs independence
B an auditor may draft f/s with management acct sys
C fair presentation of audited f/s in conformity with GAAP

Answer 7

B, the independent auditors may make suggestions about form and content of f/s or draft them based on mgmt sys. However their responsibility is confined to the expression of opinion on them. Management is responsible for the fair presentation in accordance with GAAP

Question 8

Observing the mailing of statements to customers is performed to support which assertion
A existence
B classification
C both

Answer 8

A, the existence assertion relates to whether the related balance exists at BS date. Observing mailing and error correction is evidence that client customers are genuine

Question 9

North co nonissue asked tax accountant to prepare interim FS on accountants computer which provisions should acct comply with
A statements on standards for accounting and review services
B statements on standards for attestation engagement

Answer 9

A, SSARS apply to comps and reviews performed by practitioners Accounting and Review Services Committee is the senior tech committee authorized to pronounce upon unaudited FS

Question 10

Assurance services are best described as
A services designed for the improvement of operations resulting in better outcomes
B independent professional services that improve quality of information

Answer 10

B, the AICPA defines assurance services as “independent professionals services that improve the quality of information or context for decision makers. Assurance services encompass audit and other attestation services. Assurance does not encompass consulting services

Question 11

The AICPA assurance service called CPA review attempts to provide users with
A a profile of the business risks and the appropriate system I place to manage those risks
B an opinion on whether f/s are fairly stated
C an evaluation of whether an entity has reliable measures of performance beyond traditional f/s

Answer 11

C, CPA performance review evaluates whether an entity performance measurement systems contains relevant reliable measures for assessing the degree to which the entity’s goals and objectives are achieved. Try’s to provide balance scorecard beyond traditional f/s

Question 12

An entity engaged a CPA to determine whether the clients website complies with defined web trust principles and criteria the CPA should apply the provisions of
A statements on assurance standards
B statements on standards for attestation engagements

Answer 12

B, an attest engagement involves reporting on subject matter, or an assurance about a subject matter, that is the responsibility of another party. When providing web trust assurance the accountant must address written assertions by management

Question 13

1.) Considering business reputation of management

Answer 13

a. Acceptance and Continuance of client relationships and specific engagements – Policies should be established for deciding whether to accept a client. The purpose is to minimize the likelihood of association with client who lack integrity

Question 14

2.) Emphasis of independence in training programs and supervision

Answer 14

a. Relevant ethical requirements – Firm sponsored training programs and supervision help assure that personnel understand the expectation that they maintain independence both in mental attitude and in appearance

Question 15

3.) Reviewing Engagement workpapers

Answer 15

a. Engagement Performance – The firm should employ policies and procedures for the conduct and supervision of work at all organizational levels to provide reasonable assurance that work performed meets professional standards, regulatory requirements, and the firm’s standards on quality

Question 16

4.) Training and designation of individuals within firm as specialist and authoritative sources

Answer 16

a. Engagement Performance – Policies and procedures should be established to provide reasonable assurance that personnel assigned to engagements will seek assistance, to the extent required, from persons having appropriate levels of knowledge, competence, judgement and authority

Question 17

5.) Establishing and guidelines for entry-level employees

Answer 17

a. Human Resources – The firm should ensure that employees possess the appropriate qualifications and characteristics to enable them to perform competently

Question 18

6.) Promoting “tone at top” recognizing the importance of quality.

Answer 18

a. Leadership responsibilities for quality within the firm – The firm should promote an internal culture based on the recognition of quality is essential in performing engagements and should establish policies and procedures to support that culture

Question 19

7.) Inspection

Answer 19

a. Monitoring – Inspection procedures to evaluate the adequacy of quality control policies and procedures, employee understanding of them, and the extent of compliance. These procedures relate to monitoring because findings are evaluated and changes considered

Question 20

8.) Ensuring employees have skills for responsibilities they are called upon to assume

Answer 20

a. Human Resources – Policies and procedures should be established to provide reasonable assurance that those selected for advancement will have the qualification necessary for the fulfillment of the responsibilities they will assume

Question 21

9.) Requiring honest and candid employees

Answer 21

a. Relevant Ethical Requirements – Policies and procedures should be established to provide reasonable assurance that personnel perform all professional responsibilities with integrity. Thus, they should be candid except as constrained by the Code of Professional Conduct

Question 22

Define Type of Assurance Compilation

Answer 22

Disclaimer of assurance

Question 23

Define Type of Assurance Review

Answer 23

Limited Assurance

Question 24

Define Type of Assurance Examination/Audit

Answer 24

Positive assurance or opinion expressed

Question 25

Define Type of Assurance Agreed-Upon Procedures

Answer 25

Results of procedure but no assurance

Question 26

Attestation General Standards (5)

Answer 26

1. ) Training and proficiency in attestation
2. ) Knowledge of subject matter
3. ) Suitable and available criteria
4. ) Independence in mental attitude
5. ) Due Professional Care

Question 27

Standards of Field Work - Attestation (2)

Answer 27

1. ) Planning and supervision

2. ) Sufficient Evidence

Question 28

Standards of Reporting - Attestation (4)

Answer 28

1. ) Character of Engagement
2. ) Conclusion on Subject Matter
3. ) Significant Reservations
4. ) Any restrictions on use

Question 29

General Standards - Auditing (3)

Answer 29

1. ) Training and proficiency in auditing
2. ) Independence in mental attitude
3. ) Due Professional Care

Question 30

Standards of Field Work - Auditing (3)

Answer 30

1. ) Planning and supervision
2. ) Sufficient understanding on Internal Control
3. ) Sufficient and appropriate audit evidence

Question 31

Standards of Reporting - Auditing (4)

Answer 31

1. ) Conformity with GAAP
2. ) Principles of Consistency observed
3. ) Informative disclosures reasonably adequate
4. ) Expression of Opinion

Question 32

Assertions about transactions and events (5) PL and Stmt of C-Flows

Answer 32

1. ) Occurrence - events actually occurred
2. ) Completeness - T&E that should have been recorded were recorded
3. ) Accuracy - Amounts were recorded appropriately
4. ) Cutoff - T&E were recorded in the proper period
5. ) Classification - T&E were recorded in proper accounts

Question 33

Assertions about Account Balance (BS) (4)

Answer 33

1. ) Existence - A, L and OE exist
2. ) Rights and Obligations - the entity controls the rights to A,L and OE
3. ) Completeness - all A, L, OE that should have been recorded have been
4. ) Valuation and Allocation - A, L and OE are included at appropriate amounts

Question 34

Assertions about Presentation and Disclosure (4)

Answer 34

1. ) Occurrence and Right and Obligations - disclosed T&E have occurred and pertain to the entity
2. ) Completeness - All disclosures have been included
3. ) Classification and Understandability - Financial Info is appropriately presented and described
4. ) Accuracy and Valuation - Information is disclosed fairly and at appropriate amounts

Question 35

GAAS is best described as

Answer 35

Measures of audit Quality. An audit should be planned, performed, and reported on in accordance with GAAS. Auditing standards are concerned with audit quality and the objectives to be attained. (AU 150)

Question 36

Third General Standard - Due Professional Care requires

Answer 36

Supervision of assistants. According to AU 230 PDC imposes responsibility upon each professional within an independent AUD organization to observe stds of field work and reporting. The first standard of field work requires proper supervision of assistants (AU 150). Thus, AU 230 states that the auditor with final responsibility is responsible for the assignment of task and supervision of assistants

Question 37

Prospective Financial Statements (PFS) (AT 301)

Answer 37

Consist of financial forecasts and projections including summaries of significant assumptions and accounting policies

Question 38

Financial forecast

Answer 38

present to the best of the responsible party’s knowledge and belief, an entity’s financial position

Question 39

Financial projection

Answer 39

Based on assumptions of responsible party related to hypothetical assumptions. “What would happen if” May be expressed as a point estimate or range

Question 40

Pro Forma Financail Information PFFI (AT 401)

Answer 40

Significant effects on historical financial information would have been if a transaction had occurred at an earlier date. Example business combination or disposal of a segment

Question 41

An audit firm has a responsibility to adopt a system of quality control and establish policies and procedures to provide reasonable assurance that personnel comply with ______________.

Answer 41

A firm of independent auditors has a responsibility to adopt a system of quality control in conducting an audit practice. Thus, a firm should establish quality control procedures to provide it with reasonable assurance that its personnel comply with generally accepted auditing standards (GAAS) in its audit engagements.

Question 42

An audit firm has a responsibility to _______________ in accordance with the applicable legal and regulatory requirements.

Answer 42

A firm of independent auditors has a responsibility to adopt a system of quality control in conducting an audit practice. Thus, a firm should establish quality control procedures to provide it with reasonable assurance that its personnel comply with generally accepted auditing standards in its audit engagements. AU-C 250 states that “the auditor should remain alert to the possibility that other audit procedures applied may bring instances of noncompliance or suspected noncompliance with laws and regulations to the auditor’s attention.” Also, AU-C 220 states that, “within the context of the firm’s system of quality control, engagement teams have a responsibility to implement quality control procedures that are applicable to the audit engagement.”

Question 43

Quality control for a CPA firm applies to all ____________ services.

Answer 43

Quality control for a CPA firm does not explicitly apply to consulting and tax services, but quality control does apply to all review and compilation services.

Question 44

Quality control policies and procedures applicable to a CPA firm should encompass the element(s) of ________________.

Answer 44

The quality control policies and procedures applicable to a firm’s accounting and auditing practice encompass the following elements:
Independence, integrity, and objectivity
Personnel management
Acceptance and continuance of clients and engagements
Engagement performance
Monitoring

Question 45

A CPA firm must appropriately document _______ to properly administer a quality control system.

Answer 45

QC 10 states that the firm should establish policies and procedures requiring (a) appropriate documentation to provide evidence of the operation of each element of its system of quality control, (b) retention of documentation for a period of time sufficient to permit those performing monitoring procedures and peer review of the firm to evaluate the firm’s compliance with its system of quality control or for a longer period if required by law or regulation, and (c) documentation of complaints and allegations and responses to them.

Question 46

The form and content of documentation evidencing the operation of each of the elements of the system of quality control depend on factors such as __________________.

Answer 46

QC 10 states, “The form and content of documentation evidencing the operation of each of the elements of the system of quality control is a matter of judgment and depends on a number of factors, including the following:
The size of the firm and the number of offices
The nature and complexity of the firm’s practices and organization.”