451 Audit Module 3

GAO guidelines would apply to those who audit all of the following, except: A state government. A county commission. A start‐up that Jay launched with his parents' money and is currently headquartered in their basement. A trade school whose students are heavily dependent on government‐guaranteed student loans.

A start‐up that Jay launched with his parents' money and is currently headquartered in their basement.

The Government Accountability Office's (GAO's) ethical principles apply to firms auditing all of the following, except: Federal government agencies Trade schools that receive federal government grants Charities that receive federal government grants All public companies with capital exceeding $2 billion dollars

All public companies with capital exceeding $2 billion dollars

The GAO standards for GAGAS auditors emphasize professional behavior by covered auditors. That concept includes all of the following, except: Avoidance of conflicts of interest. Sensitivity to appearances of impropriety. Putting forth an honest effort to meet technical and professional standards. Always dressing to suit the professional occasion.

Always dressing to suit the professional occasion.

Which of the following is correct concerning Government Accountability Office (GAO) audits? They are based on the GAO's mission to support the President in meeting his or her constitutional responsibilities. They do not include requirements beyond those of generally accepted auditing standards. Audit team members may provide nonaudit services to the audit client. They are generally based on the "Blue Book."

Audit team members may provide nonaudit services to the audit client.

In accordance with the independence standards of the GAO for performing audits in accordance with generally accepted government auditing standards, which of the following is not an example of an external impairment of independence? Reducing the extent of audit work due to pressure from management to reduce audit fees. Selecting audit items based on the wishes of an employee of the organization being audited. Bias in the items the auditors decide to select for testing. Influence by management on the personnel assigned to the audit.

Bias in the items the auditors decide to select for testing.

Which of the following is true regarding the independence of an auditor preparing to audit a federally regulated employee benefit plan? Department of Labor (DOL) ethical guidelines apply to those who audit private companies that are employment agencies. An auditor may be on the team auditing Teamsters Local #56's employee benefit plan and simultaneously serve as a trustee of the plan so long as he fully discloses the potential conflict. Cary and Terry formed an accounting firm. Cary maintains financial records for Muggle Union Local #22's pension plan. Terry audits the plan. Although Cary and Terry are careful never to talk business about Local #22, there is still an independence problem here. The Pease accounting firm audits Muggle Union Local #56's employee benefit plan and provides actuarial services to the plan. This creates an unacceptable conflict of interest.

Cary and Terry formed an accounting firm. Cary maintains financial records for Muggle Union Local #22's pension plan. Terry audits the plan. Although Cary and Terry are careful never to talk business about Local #22, there is still an independence problem here.

Which of the following is not an example of a Financial Reporting Oversight Role (FROR)? CEO CFO CAO C‐3PO

C‐3PO

What three steps must a public company audit firm undertake in order to seek approval to do permissible tax consulting for an audit client? Describe, discuss, and document .Describe, debate, and discuss. Show, explain, and retain. Beg, borrow, and steal.

Describe, discuss, and document

Independence standards of the GAO for audits in accordance with generally accepted government auditing standards describe three types of impairments of independence. Which of the following is one of these types of impairments? External. Relatives. Financial. Unusual.

External.

The Department of Labor (DOL) most frequently conducts financial and performance audits following Government Auditing Standards. Sarbanes‐Oxley Requirements. Generally Accepted Auditing Standards. Financial Accounting Standards Board pronouncements.

Government Auditing Standards.

Under the independence standards of the GAO for performing audits in accordance with generally accepted government auditing standards, which of the following are overreaching principles for determining whether a nonaudit service impairs independence? I. Auditors must not perform nonaudit services that involve performing management functions or making management decisions. II. Auditors must not audit their own work or provide nonaudit services in situations in which the nonaudit services are significant or material to the subject matter of the audit. III. Auditors must not perform nonaudit services which require independence. I only. I and II only. I, II and III. II and III only.

I and II only.

Which of the following are important categories for SEC independence rules? Immediate Family Members and Close Relatives. Third Cousins and Cousins One‐Removed. Immediate Family Members and Close Family Members. Close Relatives and Distant Relatives.

Immediate Family Members and Close Family Members.

Under SEC independence rules, which of the following is not true? Independence is impaired if any partner, principal, shareholder, or professional employee of the firm (and any of their immediate family members or close family members) own more than 5% of a client's stock. Independence is impaired if the firm or any covered persons or their immediate family members serve as voting trustees of a trust containing an audit client's securities even if they have no authority to make investment decisions. An accounting firm may maintain an account in an audit client bank without impairing independence so long as the likelihood of the bank experiencing financial difficulties is remote. Independence is impaired if an audit client has agreed to acquire any direct investment in the accounting firm.

Independence is impaired if the firm or any covered persons or their immediate family members serve as voting trustees of a trust containing an audit client's securities even if they have no authority to make investment decisions.

The controller of a small utility company has interviewed audit firms proposing to perform the annual audit of their employee benefit plan. According to the guidelines of the Department of Labor (DOL), the selected auditor must be The firm that proposes the lowest fee for the work required. Independent for purposes of examining financial information required to be filed annually with the DOL. Included on the list of firms approved by the DOL. Independent of the utility company and NOT relying on its services.

Independent for purposes of examining financial information required to be filed annually with the DOL.

The controller of a small utility company has interviewed audit firms proposing to perform the annual audit of their employee benefit plan. According to the guidelines of the Department of Labor (DOL), the selected auditor must be The firm that proposes the lowest fee for the work required. Independent for purposes of examining financial information required to be filed annually with the DOL. Included on the list of firms approved by the DOL. Independent of the utility company and not relying on its services.

Independent for purposes of examining financial information required to be filed annually with the DOL.

A government internal audit function is presumed to be free from organizational independence impairments for reporting internally when the head of the organization Is not accountable to those charged with governance. Performs auditing procedures that are consistent with generally accepted accounting principles. Is a line‐manager of the unit under audit. Is removed from political pressure to conduct audits objectively, without fear of political reprisal.

Is removed from political pressure to conduct audits objectively, without fear of political reprisal.

The GAO standards expect those who audit pursuant to GAGAS to do all of the following, except: Act independently. Act in accordance with the public interest. Use government information, resources, and positions for the official purposes rather than for personal gain. Not worry about objectivity and integrity so long as they are independent.

Not worry about objectivity and integrity so long as they are independent.

Which of the following is true regarding Sarbanes‐Oxley (SOX) rules for auditors of public companies? SOX allows an audit partner to receive compensation based on selling nonaudit services to attest clients. SOX requires public companies to rotate audit firms every six years. SOX prohibits an auditor of a public company from providing any service or product to a public company audit client on a contingent fee basis. SOX allows audit firms to provide legal services to public company audit clients.

SOX prohibits an auditor of a public company from providing any service or product to a public company audit client on a contingent fee basis.

Which of the following bodies enforce the audit requirements of the Employee Retirement Security Act of 1974 (ERISA) with respect to employee benefit plans? Department of Commerce. The Department of Project Management. The Securities and Exchange Commission. The Department of Labor.

The Department of Labor.

Which of the following bodies enforce the audit requirements of the Employee Retirement Security Act of 1974 (ERISA) with respect to employee benefit plans? The Department of Labor. The Department of Pension Management. The Securities and Exchange Commission. The Public Company Accounting Oversight Board.

The Department of Labor.

Which of the following is true regarding the independence of audit firms and their public company audit clients? The Sable Accounting Firm may provide tax services on a contingent fee basis to a public company audit client without impairing independence so long as different employees are on its audit and its tax teams. The Mable Accounting Firm may provide tax advice to a public company audit client without impairing independence so long as they do not advise or help the client enter into "confidential transactions" or "aggressive tax position transactions." The Fable Accounting Firm may provide tax services to FRORs (persons serving in financial reporting oversight roles) of public company audit clients so long as they do not advise or help the client enter into "confidential transactions" or "aggressive tax position transactions." The Table Accounting Firm may provide tax services to a public company audit client without impairing independence so long as the provision of services is approved in advance by the client's CFO.

The Mable Accounting Firm may provide tax advice to a public company audit client without impairing independence so long as they do not advise or help the client enter into "confidential transactions" or "aggressive tax position transactions."

Which of the following is true regarding PCAOB rules? The PCAOB requires firms auditing public companies to disclose the name of the engagement partner. The PCAOB has no procedure by which a firm may seek approval from a public company's audit committee for provision of permitted nonaudit services. Auditors may not provide tax services to public company audit clients. Auditors of public companies may provide tax services to persons in a financial reporting oversight role in a public company audit client.

The PCAOB requires firms auditing public companies to disclose the name of the engagement partner.

To increase transparency, the PCAOB requires auditors of public companies to disclose all of the following, except: 0The name of the engagement partner. The name, location, and extent of participation of each accounting firm whose work constituted at least 5% of the total audit hours. The name, location, and extent of participation of each accounting firm whose work constituted at least 25% of the total audit hours. The number and aggregate extent of participation of all other accounting firms participating in the audit whose individual participation was less than 5% of total audit hours.

The name, location, and extent of participation of each accounting firm whose work constituted at least 25% of the total audit hours.

The requirement for independence by the auditor regarding audits of employee benefit plans apply to the plan as well as Investment companies doing business with the plan. Members of the plan. The plan sponsor. The actuary firm doing services for the plan.

The plan sponsor.

Independence standards of the GAO for audits in accordance with generally accepted government auditing standards describe three types of impairments of independence. Which of the following is not one of these types of impairments? Personal. Organizational. External. Unusual.

Unusual.