Accy 131 Practice Exam 1
Which of the following is an example of a compliance audit? An audit of financial statements. An audit of a company's internal control over financial reporting. An audit of a company's policies and procedures for adhering to environmental laws and regulations. An audit of the efficiency and effectiveness of a company's legal department.
An audit of a company's policies and procedures for adhering to environmental laws and regulations.
Which of the following statements concerning auditor identification of client noncompliance with laws is correct? An auditor considers compliance with laws from the perspective of the reliability of management's representations rather than their relation to audit objectives derived from financial statement assertions. An auditor's responsibility to detect noncompliance with laws that have an indirect effect on the financial statements differs from that for laws that have a direct effect. An audit in accordance with generally accepted auditing standards normally includes highly effective special substantive audit procedures specially designed to detect noncompliance with laws that have an indirect but immaterial effect on the financial statements. An auditor has no responsibility to detect client noncompliance with laws that have a direct effect on the financial statements.
An auditor's responsibility to detect noncompliance with laws that have an indirect effect on the financial statements differs from that for laws that have a direct effect.
Which of the following is accurate with respect to litigation involving CPAs? A CPA is primarily responsible, while the client is secondarily responsible for the notes in an annual report filed with the SEC. A CPA will not be found liable for an audit unless the CPA has audited all affiliates of that company. A CPA may not successfully assert as a defense that he or she had no motive to be part of a fraud. A CPA may be found guilty in situations in which he or she didn't know of the misstatements in financial statements when the audit opinion was issued.
A CPA may be found guilty in situations in which he or she didn't know of the misstatements in financial statements when the audit opinion was issued.
Which of the following has primary responsibility for the fairness of the representations made in financial statements? Client's management. Independent auditor. AICPA. Audit committee.
Client's management.
In cases of breach of contract, plaintiffs generally have to prove all of the following, except: The CPAs made a false statement. The CPAs had a duty. The CPAs breached their duty. The client incurred losses related to the CPAs' performance.
The CPAs made a false statement.
By definition, proper professional skepticism on an audit requires: 1. mistrust of client: yes/no 2. subjective assessment of audit evidence: yes/no
1. no 2. no
Under the Ultramares rule, to which of the following parties will an accountant be liable for ordinary negligence? 1. parties in privity: yes/no 2. forseen parties: yes/no
1. yes 2. yes
In which of the following circumstances would a CPA be bound by ethics to refrain from disclosing any confidential information obtained during the course of a professional engagement? Confidential client information is made available as part of a quality review of the CPA's practice by a review team authorized by the AICPA. A major stockholder of a client company seeks accounting information from the CPA after management declined to disclose the requested information. An inquiry by a disciplinary body of a state CPA society requests confidential client information. The CPA is issued a summons enforceable by a court order that orders the CPA to present confidential information.
A major stockholder of a client company seeks accounting information from the CPA after management declined to disclose the requested information.
The AICPA Code of Professional Conduct states that a CPA shall not disclose any confidential information obtained in the course of a professional engagement except with the consent of the client. This rule should be understood to preclude a CPA from responding to an inquiry made by: An AICPA voluntary quality review body. The trial board of the AICPA. A news reporter who is a CPA. An investigative body of a state CPA society.
A news reporter who is a CPA.
Connor & Sullivan CPAs has one office. Which of the following is least likely to impair independence with respect to an audit client? A partner in the CPA firm is the son of the president of the client. The client owes the firm for two prior years' audit fees. A partner in the firm has an investment in a mutual fund that has a direct interest in the client. The husband of a partner in the firm has a small direct financial interest in the client.
A partner in the firm has an investment in a mutual fund that has a direct interest in the client.
Which of the following types of employees must be independent of an audit client? All firm professionals, regardless of their position. A partner in the office that performs the engagement. Senior auditors assigned to the office that performs the audit. Managers assigned to an office that does not participate in the engagement.
A partner in the office that performs the engagement.
What auditing standards do the auditors comply with to conduct an audit of a U.S. private company to be used for a loan from a publicly traded bank? Governmental auditing standards. AICPA auditing standards. International auditing standards. PCAOB auditing standards.
AICPA auditing standards.
Which of the following series of pronouncements are issued by the Securities and Exchange Commission? Auditing Registrar Releases. Form S-1. Accounting and Auditing Enforcement Releases. Statements of Position.
Accounting and Auditing Enforcement Releases.
When an accountant is not independent, the accountant is precluded from issuing a(n): Management advisory report. Agreed-upon procedures report. Preparation report. Tax planning report.
Agreed-upon procedures report.
A small CPA firm provides audit services to a large local company. Almost eighty percent of the CPA firm's revenues come from this client. Which statement is most likely to be true? The situation is specifically prohibited in the AICPA's Code of Conduct. The auditor should provide an "emphasis of a matter paragraph" to his/her audit report adequately disclosing this information and then it may issue an unqualified opinion. The small CPA firm does not have the proficiency to perform a larger audit. Appearance of independence may be lacking.
Appearance of independence may be lacking
In general, internal auditors' independence will be greatest when they report directly to the: Audit committee of the board of directors. Stockholders. Financial vice president. Corporate controller.
Audit committee of the board of directors.
Vinson, CPA is supervisor to Elkins, CPA. Under Vinson's direction, Elkins signed a document containing materially false and misleading information. Who has committed an act discreditable to the profession? Vinson. Neither Vinson nor Elkins. Both Vinson and Elkins. Elkins.
Both Vinson and Elkins.
The risk associated with survivability and profitability is referred to as: Inherent risk. Business risk. Information risk. Relative risk.
Business risk.
In determining the scope and nature of services to be performed in public practice, a CPA firm should: Determine that the performance of all services is consistent with the firm's members' role as professionals. Have in place internal control procedures. Require independence for all services performed. Only perform accounting related services.
Determine that the performance of all services is consistent with the firm's members' role as professionals.
An act passed by Congress aimed at promoting financial stability improving accountability and transparency in the financial system: Sarbanes-Oxley Act. Dodd-Frank Act. Public Company Accounting Oversight Board Act. Better governance Act.
Dodd-Frank Act.
CPAs should not be liable to any party if they perform their services with: Ordinary negligence. Due professional care. Good diligence. Regulatory providence.
Due professional care.
An audit should be designed to obtain reasonable assurance of detecting material misstatements due to: Errors and fraud. Errors, fraud and noncompliance with all laws. Errors. Errors, fraud, and noncompliance with laws with a direct effect on financial statement amounts and others.
Errors, fraud, and noncompliance with laws with a direct effect on financial statement amounts and others.
A retired sole practitioner is most likely to violate the AICPA Code of Professional Conduct by Purchasing stock in a prior audit client. Assisting an individual who is studying for the CPA exam. Assisting a new CPA with advertising brochures. Failure to file an income tax return.
Failure to file an income tax return.
Jones, CPA, is in court defending himself against a lawsuit filed under the 1933 Securities Act. The charges have been filed by purchasers of securities covered under that act. If the purchasers prove their required elements, in general, Jones will have to prove that: He performed the audit with good faith. He performed the audit with due diligence. He is not guilty of gross negligence. The plaintiffs did not show him to be negligent.
He performed the audit with due diligence.
Which of the following is an element of quality control for a CPA firm? Human Resources. Independence and freedom from bias. Engagement engineering. Acceptance and continuance of personnel.
Human Resources.
Some of the following criteria are essential to satisfactory performance in several professions. Which one is unique to audit work by CPAs? General competence. Independence. Due professional care. Familiarity with a complex body of technical knowledge.
Independence.
In preparing the personal tax returns for a client, Sarah Milsaps, CPA, observed that the deductions for contributions and interest were unusually large. When she asked the client for backup information to support the deductions, she was told, "Ask me no questions, and I will tell you no lies." Milsaps completed the return on the basis of the information acquired from the client. In the above situation, which rule of the AICPA Code of Professional Conduct has been violated? Integrity and Objectivity rule Independence rule. General Standards rule. Confidential Client Informatin rule.
Integrity and Objectivity rule
Assume that $1,000,000 in damages are awarded to a plaintiff, and the CPA's percentage of responsibility established at 25%, while others are responsible for the other 75%. Also assume the others have no financial resources. As a result the CPA has been required to pay the entire $1,000,000. The auditor's liability is most likely based upon which approach to assessing liability? Joint and several liability. Absolute liability. Contributory negligence. Proportional liability.
Joint and several liability
Which of the following forms of organization is most likely to protect the personal assets of any partner, or shareholder who has not been involved on an engagement resulting in litigation? Limited liability partnership. Partnership. Professional corporation. Subchapter M Incorporation.
Limited liability partnership.
The primary responsibility for the adequacy of disclosure in the financial statements of a publicly held company rests with the: Partner assigned to the audit engagement. Management of the company. Securities and Exchange Commission. Auditor in charge of the fieldwork.
Management of the company.
Under the Sarbanes Oxley Act (SOX) of 2002, which of the following nonaudit services is not prohibited from being performed for an audit client by a registered public accounting firm? Tax compliance services. Bookkeeping services. Appraisal or valuation services. Internal audit services
Tax compliance services.
A firm's quality control system includes the following procedure: Each office of the firm shall be visited at least annually by review persons selected by the director of accounting and auditing. Procedures to be undertaken by the reviewers are illustrated by the oftice review program. The above procedure is applicable to which element of quality control? Monitoring. Human resources. Engagement performance. Leadership responsibility.
Monitoring.
Which of the following is the most likely type of audit opinion when a limitation on the scope of the audit is significant? Adverse. Unmodified Qualified Disclaimer
Qualified
Financial statement audits performed under PCAOB requirements are designed to provide which type(s) of assurance with respect to the detection of material misstatements due to errors or fraud? Reasonable: yes/no Absolute: yes/no
Reasonable: yes Absolute: no
The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board (PCAOB). Which of the following is not one of the responsibilities of that board? Establish independence standards for auditors of public companies. Review financial reports filed with the SEC. Sanction registered audit firms. Establish auditing standards for audits of public companies.
Review financial reports filed with the SEC.
A public company's audit report must be addressed to the board of directors and the Audit committee Shareholders. Company itself. President.
Shareholders.
Attest engagements always have: An examination report. A written subject title. Subject matter. Reasonable assurance.
Subject matter.
Which of the following is not explicitly included in an audit report with an unqualified opinion for a nonpublic company? That all material instances of fraud have been identified. An identification of the financial statements audited. The CPA's opinion that the financial statements comply with generally accepted accounting principles. That generally accepted auditing standards were followed during the audit.
That all material instances of fraud have been identified.
Fleming and Company CPAs, issued an unqualified opinion on the 20X3 financial statements of Walton Corporation Late in 20X4, Walton determined that its controller had embezzled over $2,000,000. Fleming was unaware of the embezzlement. Walton has decided to sue Fleming to recover the $2,000,000. The suit is based upon Fleming's failure to discover the missing money while performing the audit. Which of the following is Fleming's best defense? The financial statements were presented in conformity with GAAP. Fleming had no knowledge of the embezzlement. That the audit was performed in accordance with GAAS. The controller was Walton's agent and as such had designed the controls which facilitated the embezzlement.
That the audit was performed in accordance with GAAS.
The auditors' report for a nonpublic company should indicate: That the auditors evaluate the appropriateness of accounting policies used. That accounting principles have been consistently applied. Any weakness in internal control observed by the auditors. That no material illegal acts have been identified.
That the auditors evaluate the appropriateness of accounting policies used.
Which of the following is correct concerning the Securities Acts of 1933 and Securities Exchange Act of 1934 with regard to auditor liability? Only the 1933 Act is affected by the Private Securities Litigation Reform Act of 1995 provision for proportionate liability under certain circumstances. The 1934 Act provides protection to less investors. The 1933 Act relates to SEC Form 10Ks, while the 1934 Act relates to SEC Form S-1s. The 1933 Act holds auditors to a higher standard of performance.
The 1933 Act holds auditors to a higher standard of performance.
Under common law, which of the following statements most accurately reflects the liability of a CPA who fraudulently gives an opinion on an audit of a client's financial statements? The CPA probably is liable to the client even if the client was aware of the fraud and did not rely on the opinion. The CPA probably is liable to any person who suffered a loss as a result of the fraud. The CPA is liable only to third parties in privity of contract with the CPA. The CPA is liable only to known users of the financial statements.
The CPA probably is liable to any person who suffered a loss as a result of the fraud.
Which is correct concerning an audit requirement that is "unconditional"? Not performing the requirement will ordinarily result in permanent revocation of the auditor's CPA license. The auditor must comply with the requirement unless the auditor demonstrates and documents that alternative actions were sufficient. The auditor must fulfill the requirement in all cases where that requirement is relevant. The word "should" precedes it.
The auditor must fulfill the requirement in all cases where that requirement is relevant.
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 CPA detected the false statement after the audit date. The investor has not proved fraud or negligence by the CPA. The investor did not actually rely upon the false statement. The false statement is immaterial in the overall context of the financial statements.
The false statement is immaterial in the overall context of the financial statements.
The Private Securities Litigation Reform Act of 1995 imposes proportionate liability on the CPA who: Unknowingly violates the 1934 Securities Exchange Act. Unknowingly violates the 1933 Securities Act. Knowingly or unknowingly violates the 1934 Securities Exchange Act. Knowingly or unknowingly violates the 1933 Securities Act.
Unknowingly violates the 1934 Securities Exchange Act.
Which of the following is the type of audit opinion most clients prefer? Qualified Disclaimer Adverse Unmodified
Unmodified
As compared to the AICPA Code of Professional Conduct, IFAC's International Code of Ethics for Professional Accountants: Has different rules regarding independence. Applies to more types of services. Uses a conceptual approach. Has more specific restrictions.
Uses a conceptual approach.
Within the context of quality control, the quality control element most directly related to assuring that the company has sufficient personnel with needed competence, capabilities, and commitment is monitoring. human resources. generally accepted competence. relevant ethical requirements.
human resources.
A CPA sole practitioner purchased stock in a client corporation and placed it in a trust as an educational fund for the CPA's minor child. The trust securities were not material to the CPA but were material to the child's personal net worth. Would the independence of the CPA be considered to be impaired with respect to the client? No, because the CPA would not be considered to have a material indirect financial interest in the client. Yes, because the stock would be considered a direct financial interest and, consequently, materiality is not a factor. Yes, because the stock would be considered an indirect financial interest that is material to the CPA's child. No, because the CPA would not be considered to have a direct financial interest in the client.
Yes, because the stock would be considered a direct financial interest and, consequently, materiality is not a factor.
A CPA ethically could: perform an audit of Tombstone, Arizona for less than 1/2 of normal audit billing rates. perform a review on a contingent fee basis. base her audit fee on the proceeds of her client's stock issue. own preferred stock in a corporation that is an audit client.
perform an audit of Tombstone, Arizona for less than 1/2 of normal audit billing rates.
