ACCT 3350 Ch. 1 - 5

j. In providing non-attest services to an attest client, a CPA is allowed to perform which of the following activities?

A CPA may help train client employees for attest client.

a. If a CPA performs in audit recklessly, the CPA will be liable to third partiers who where unknown and not foreseeable to the CPA for:

A CPA will be liable to third parties where were unknown and not foreseeable for gross negligence.

f. The AICPA Code of Professional Conduct states CPA shall not disclose any confidential information obtained in the course of professional engagement except with the consent of client. This rule may preclude a CPA firm from responding ton an inquiry from:

A shareholder of the client corporation.

e. Basic objective of CPA firm is to provide professional services that confirm with professional standards. Reasonable assurance of achieving this basic objective is provided through:

A system of quality control.

b. Which is not prohibited by AICPA Code of Professional Conduct?

Advertising in Newspapers is accepted.

To make recommendations on accounting and control systems

Audit of policies and procedures for adhering to environmental laws and regulations.

b. Which of the following standards are currently established by AICPA?

Auditing standards to audit nonpublic companies.

b. Which of the following has primary responsibility for the fairness of the representations made in financial statements:

Client's management: responsible for representations contained in financial statements. Independent auditors are responsible for performing their audit in accordance with generally accepted auditing standards.

c. The most important benefit of an annual audit is:

Client's management: responsible for representations contained in financial statements. Independent auditors are responsible for performing their audit in accordance with generally accepted auditing standards.

d. If the CPA's provided negligent tax advice to a public company, the client would bring suit under:

Common Law

f. Under common law, the CPAs who were negligent may mitigate some damages to a client by proving:

Contributory negligence - negligence on the part of the plaintiff, may be used as a defense and the court may limit or bar recovery by a plaintiff whose own negligence contributed to the loss.

he most significant result of the Continental Vending case was that it:

Created a more general awareness of auditor criminal prosecution.

h. Which did not precipitate the passage of the Sarbanes Oxley Act of 2002?

Ethical scandals at the AICPA

i. Which establishes accounting standards for US Gov't agencies:

Federal Accounting Standards Advisory Board.

j. Which is correct about Forensic Audits?

Forensic audits are usually performed when fraud has been found or suspected.

i. An Audit provides reasonable assurance of detecting material misstatements that:

Indicates Fraudulent financial reporting and misappropriation of assets.

g. Which is most likely to be in violation of AICPA Code of Professional Conduct to Bill Jones a sole practitioner with no employees?

Names his company Jones & Smith, CPA's is misleading, appears to be a partnership.

e. Which organization has responsibility to perform inspections of auditors of public companies?

PCAOB

i. Which of the following non-attest services may be performed by auditors of a public company?

Preparation of client's tax return.

g. Under the Securities and Exchange Act of 1934, auditors and other defendants are faced with:

Proportionate Liability

d. Financial statement audits performed under PCAOB are designed to provide which types of assurance with respect o the detection of material misstatements due to errors or fraud?

Reasonable, but not absolute

k. Compliance with standards rule requires CPA to adhere to all of the following except:

Statements on Responsibilities for assurance services (does not exist)

h. Bill Adams, CPA accepted an audit engagement of Kelly Co. During audit Bill became aware of his lack of competence. What should he do?

Suggest to Kelly Co. to engage another CPA to complete the audit.

e. Which of the following cases reaffirmed the principles in the Ultramares case?

The Credit Alliance Corp versus Arthur Andersen.

a. Which organization can revoke the right of an individual to practice as a CPA?

The applicable state board of accountancy. License is granted by the state and they have the right to revoke it.

g. In general, internal auditors' independence will be greatest when they report to:

The audit committee of the board of directors (the higher in the organization the auditor reports, the higher the independence).

g. The general 10 PCAOB Auditing standards require that:

The auditors maintain an independent mental attitude - required by the 2nd standard of PCAOB standards.

h. A CPA issued an unqualified opinion on the financial statements of a company that sold common stock in a public offering subject to the Securities Act of 1933. Based on a misstatement in the financial statements, the CPA is being sued by an investor who purchased shares of this public offering. Which of the following represents a viable defense?

The false statement is immaterial in the overall context of the financial statements.

f. Which of the following is NOT explicitly included in a standard report for a nonpublic company:

The internal control of the client is not explicitly mentioned in the unqualified repot, but it is implicit in the reference to Generally Accepted Auditing Standards.

l. Which is NOT a difference noted when comparing the AICPA report to the international Audit report?

The international report includes an opinion of internal control.

c. In cases of breach of contract, plaintiffs generally have to prove all of the following EXCEPT:

The plaintiffs need not prove that the CPA made a false statement, it is enough to prove loses and breach of a duty that the CPA had.

j. Which statement best expresses the factors that purchasers of securities registered under the Securities Act of 1933 need to prove to recover losses from the auditors?

The purchasers of securities must prove that the financial statements were misleading; then, the burden of proof is shifted to the auditors to show that the audit was performed with "due diligence."

e. Which of the following is implied when a CPA signs a declaration of a federal income tax return?

The return is not misleading based on information available to the CPA. Preparer acknowledges that the return is "true, correct, and complete..." based on all information of which the preparer has knowledge.

k. What best describes the purpose of the auditor's consideration of internal control in a financial statement audit for a nonpublic company?

To make recommendations on accounting and control systems

l. The 1136 Tenants Case was important because of its emphasis upon the legal liability of the CPA when associated with:

Unaudited Financial Statements - The 1136 Tenants case was a landmark case concerning auditor's liability when they are associated with unaudited financial statements.

l. Which of the following is not included in AICPA's Code of Ethics?

Use of appropriate sampling methods -- sampling methods is not addressed in the code

a. Which best describes the relationship between assurance services and attest services:

both sets of standards require independence.

j. Which is NOT included in the integrated audit report on the financial statements of a public company?

j. Which is NOT included in the integrated audit report on the financial statements of a public company?

k. Audit firms that are subject to PCAOB inspections include:

Audit firms registered with PCAOB.

f. Gov't auditing in addition to including audits of financial statements, also include audits of efficiency, effectiveness, and:

Compliance

c. Which of the following does FASB consider a source of non-authoritative guidance for use when there is no authoritative guidance available?

FASB Concept Statements.

i. Which of the following elements is most frequently necessary to hold a CPA liable to a client?

Failed to exercise Due Care.

b. Which of the following approaches to auditor's liability is least desirable form the CPA's perspective?

Rosenblum Approach

d. A public accounting firm would be least likely to be in violation of AICPA's independence rule in which of the following cases?

A partner's checking account is held at a financial institution for which the accounting firm performs the attest services.

a. Which of the following is NOT a covered member for attest engagement

A partner in the national office of the firm that performs marketing services.

d. The Sarbanes Oxley Act created the PCAOB. What is NOT a responsibility of PCAOB?

Review financial reports filed with the SEC.

c. In which situation would a public accounting firm have violated AICPA Code of Professional Conduct in determining its fee?

A fee is based on whether or not the firm's audit report leads to approval on client's loan application.

h. Which AICPA quality control standard would most likely be satisfied when a CPA firm maintains records indicating which partners or employees of the firm were previously employed by the CPA Firm's clients?

Relevant Ethical Requirements - this quality control standard is designed to assure that personnel assigned to an engagement are independent to perform the work