AUD Exam
A cooling‐off period of how many years is required before a member of an issuer's audit engagement team may begin working for the registrant in a key position? A. One year. B. Two years. C. Three years. D. Four years.
A.
A violation of the Code of Professional Conduct would least likely have occurred when a CPA in public practice A. Used a records‐retention agency to store the CPA's working papers and client records. B. Served as an expert witness in a damage suit and received compensation based on the amount awarded to the plaintiff. C. Referred life insurance assignments to the CPA's spouse, who is a life insurance agent. D. Served simultaneously as state director of revenues and practiced public accounting in the same state.
A.
A violation of the profession's ethical standards least likely would have occurred when a CPA A. CPA's accounting practice and based the price on a percentage of the fees accruing from clients over a 3‐year period. B. Received a percentage of the amounts invested by the CPA's audit clients in a tax shelter with the client's knowledge and approval. C. Had a public accounting practice and also was president and sole stockholder of a corporation that engaged in data processing services for the public. D. Formed an association, not a partnership, with two other sole practitioners and called the association "Adams, Betts and Associates."
A.
According to the standards of the profession, which of the following activities would most likely not impair a CPA's independence? A. Providing advisory services for a client. B. Contracting with a client to supervise the client's office personnel. C. Signing a client's checks in emergency situations. D. Accepting a luxurious gift from a client.
A.
After field work audit procedures are completed, a partner of the CPA firm who has not been involved in the audit performs a second or wrap‐up working paper review. This second review usually focuses on A. The fair presentation of the financial statements in conformity with GAAP. B. Irregularities involving the client's management and its employees. C. The materiality of the adjusting entries proposed by the audit staff. D. The communication of internal control weaknesses to the client's audit committee.
A.
Blossom & Robinson audited ADT Corporation for many years but was recently replaced by a smaller, cheaper firm. ADT has sought Blossom & Robinson's permission to include its last audit report in a loan application document. Blossom & Robinson wishes to be helpful but (a) is no longer independent regarding ADT and (b) wishes to assure itself that the audit report it issued is still at least somewhat representative of ADT's financial condition. Which of the following may Blossom & Robinson not do to assure itself? A. Redo the earlier audit. B. Make inquiries of ADT's new auditor. C. Read subsequent financial statements audited by ADT's new audit firm. D. Do some superficial investigation to determine if there have been any dramatic changes in ADT's financial situation.
A.
Which of the following acts by a CPA would not necessarily be considered an act discreditable to the profession under the AICPA Code of Professional Conduct? A. Prohibiting a client's new CPA firm from reviewing the audit working papers after the client has requested the CPA to do so. B. Engaging in discriminatory employment practices. C. Committing a felony. D. Knowingly signing a false tax return
A.
Which of the following bodies enforce the audit requirements of the Employee Retirement Security Act of 1974 (ERISA) with respect to employee benefit plans? A. The Department of Labor. B. The Department of Pension Management. C. The Securities and Exchange Commission. D. The Public Company Accounting Oversight Board
A.
Which of the following is true regarding PCAOB rules? A. The PCAOB requires firms auditing public companies to disclose the name of the engagement partner. B. 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. C. Auditors may not provide tax services to public company audit clients. D. Auditors of public companies may provide tax services to persons in a financial reporting oversight role in a public company audit client.
A.
Which of the following services would constitute a management function under Government Auditing Standards, and result in the impairment of a CPA's independence if performed by the CPA? A. Developing entity program policies. B. Providing methodologies, such as practice guides. C. Providing accounting opinions to a legislative body. D. Recommending internal control procedures.
A.
Which of the following underlies the application of generally accepted auditing standards, particularly the standards for obtaining sufficient appropriate audit evidence? A. The elements of materiality and audit risk. B. The element of internal control over compliance with laws and regulations. C. The element of "cooperative evidence." D. The element of absolute assurance.
A.
A government internal audit function is presumed to be free from organizational independence impairments for reporting internally when the head of the organization A. Is not accountable to those charged with governance. B. Performs auditing procedures that are consistent with generally accepted accounting principles. C. Is a line‐manager of the unit under audit. D. Is removed from political pressure to conduct audits objectively, without fear of political reprisal.
D.
A government internal audit function is presumed to be free from organizational independence impairments for reporting internally when the head of the organization: A. Is not accountable to those charged with governance. B. Performs auditing procedures that are consistent with generally accepted accounting principles. C. Is a line‐manager of the unit under audit. D. Is removed from political pressures to conduct audits objectively, without fear of political reprisal.
D.
According to the profession's ethical standards, a CPA who is a covered member would be considered independent in which of the following instances? A. A client leases part of an office building from the CPA, resulting in a material indirect financial interest to the CPA. B. The CPA has a material direct financial interest in a client, but transfers the interest into a blind trust. C. The CPA owns an office building and the mortgage on the building is guaranteed by a client. D. The CPA belongs to a country club that is a client in which membership requires the acquisition of a pro rata share of equity.
D.
Brecken wishes to certify financial statements that materially depart from GAAP. She believes that it is necessary to do so in order to prevent the statements from being misleading in light of a new federal statute, which GAAP has not been amended to accommodate. In order to implement this departure, Brecken should do which of the following: A. Describe the departure from GAAP. B. Describe the departure's approximate effects. C. State the reasons why compliance with GAAP would mislead. D. All three choices provided.
D.
On June 1, 20X8, a CPA obtained a $100,000 personal loan from a financial institution client for whom the CPA provided compilation services. The loan was fully secured and considered material to the CPA's net worth. The CPA paid the loan in full on December 31, 20X9. On April 3, 20X9, the client asked the CPA to audit the client's financial statements for the year ended December 31, 20X9. Is the CPA considered independent with respect to the audit of the client's December 31, 20X9 financial statements? A. Yes, because the loan was fully secured. B. Yes, because the CPA was not required to be independent at the time the loan was granted. C. No, because the CPA had a loan with the client during the period of a professional engagement D. No, because the CPA had a loan with the client during the period covered by the financial statements.
B.
Audit firms clearly should not own stock in an audit client. LMN Accounting Firm audits RST Corporation. Which of the following situations would not create an independence problem? A. LMN's employee benefit plan owns stock in a wholly‐owned subsidiary of RST. B. LMN's employee benefit plan owns stock in RST's parent corporation that owns 100% of RST's stock and counts RST as its largest subsidiary. C. LMN's employee benefit plan owns stock in Lambert Corporation, which sells 10 million widgets to TUV annually. D. LMN's employee benefit plan owns stock in FGH Corporation, an entity in which RST has invested $300 million.
C.
Generally accepted auditing standards are A> Required procedures to be used to gather evidence to support financial statements. B. Policies and procedures designed to provide reasonable assurance that the CPA firm and its personnel comply with professional standards. C. Pronouncements issued by the Auditing Standards Board. D. Rules acknowledged by the accounting profession because of their universal application.
C.
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? A. Reducing the extent of audit work due to pressure from management to reduce audit fees. B. Selecting audit items based on the wishes of an employee of the organization being audited. C. Bias in the items the auditors decide to select for testing. D. Influence by management on the personnel assigned to the audit.
C.
To increase transparency, the PCAOB requires auditors of public companies to disclose all of the following, except: A. The name of the engagement partner. B. The name, location, and extent of participation of each accounting firm whose work constituted at least 5% of the total audit hours. C. The name, location, and extent of participation of each accounting firm whose work constituted at least 25% of the total audit hours. D. 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.
C.
In which of the following situations would these auditors for PriceCoopersHouse (PCH) who are on the audit team for Mulholland Corporation, not have an independence problem? A. Tomasina participates in a retirement fund sponsored by a former employer. Although Tomasina has no desire or ability to direct the fund's investments, she has learned that it has purchased a small number of Mulholland Corporation shares. B. Tomasina participates in a retirement fund sponsored by a former employer. Although Tomasina has no desire or ability to direct the fund's investments, she has learned that it has purchased a small number of Mulholland Corporation shares. Tomasina's husband is on the fund's investment committee. C. Edward is trustee of a retirement plan sponsored by a social organization that he joined—the Rotary Notary Club (RNC). RNC's plan has recently purchased a significant number of shares of Mulholland. D. Edward participates in a retirement plan sponsored by a social organization that he joined—RNC. He is able to direct some of his money that is in the plan to specific investments and he chose to buy some Mulholland shares.
A.
In which of the following ways may suitable criteria appropriately be made available? Publicly available/Included with subject matter A. Yes Yes B. No No C. Yes No D. No Yes
A.
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? A. External. B. Relatives. C. Financial. D. Unusual.
A.
Kimmie wants to increase her income by charging contingent fees for her tax work. She needs guidance on what is permitted. Which of the following would be improper, assuming all the clients are nonattest clients? A. Charging a contingent fee to file an original tax return for a client. B. Charging a contingent fee to represent a client before a revenue agent who is examining the client's income tax return. C. Charging a contingent fee to help a client influence the drafting of a tax regulation. D.Charging a contingent fee to file an amended return claiming a refund where the claim turns on a tax issue that is the subject of a tax case involving another taxpayer.
A.
Member Kang has purchased Fragick & Associates, an accounting firm that does audit work. Kang wants to make some changes and keep some things the same. Which of the following is not true? A. Answer Kang may reorganize Fragick, which is a general partnership, as a limited liability limited partnership even if his state's law has no provision for such a form of organization. B. Kang, who wishes to retain disgruntled employee Jones, may not induce Jones to stay by letting him call himself a partner, even if he is not a partner of the firm. C. If Kang brings in any other owners, they must, like Kang, also be members of the AICPAs if the firm is to advertise itself as "Members of the AICPA." D. Kang may retain the name "Fragick" in the firm name, even if Fragick, the founder of the firm, is dead.
A.
Pursuant to the AICPA rules of conduct, the auditor's responsibility to the profession is defined by A. The AICPA Code of Professional Conduct. B. Federal laws governing licensed professionals who are involved in interstate commerce. C. Statements on Auditing Standards. D. The bylaws of the AICPA.
A.
The Department of Labor (DOL) most frequently conducts financial and performance audits following A. Government Auditing Standards. B. Sarbanes‐Oxley Requirements. C. Generally Accepted Auditing Standards. D. Financial Accounting Standards Board pronouncements
A.
The Tittle Corporation and its auditor, the Owens CPA firm, agreed to part ways and Tittle hired a new auditor. Approximately one year later, Tittle was negotiating for a big loan and the potential lender, McElheney Bank, wished to see Tittle's latest audit report. Tittle's new firm had not yet completed its first annual audit report. In which of the following would there be an independence problem for Owens to reissue its last audit report? A. Owens does not believe that it is still independent of Tittle, but is willing to reissue the report as of its original date if it is given the opportunity to perform new attest procedures sufficient to give it confidence that the numbers probably still reflect reality. B. Owens agrees to reissue the report if it has the opportunity to perform some new procedures to gain confidence that the numbers probably still reflect reality. A thorough check indicates that Owens is still independent of Tittle. C. Owens does not believe that it is still independent of Tittle, but is willing to reissue the report as of its original date if it is given the opportunity to make some inquiries of Tittle's new auditor to ensure that no dramatic changes have taken place that would render its report's finding useless. D. Owens does not believe that it is still independent of Tittle, but is willing to reissue the report as of its original date if it can read any subsequent quarterly financial statements issued by Tittle's successor audit firm.
A.
The auditor faces a risk that the examination will not detect material misstatements which occur in the accounting process. In regard to minimizing this risk, the auditor primarily relies on A. Substantive tests. B. Tests of controls. C. Internal control. D. Statistical analysis.
A.
The auditor with final responsibility for an engagement and one of the assistants have a difference of opinion about the results of an auditing procedure. If the assistant believes it is necessary to be disassociated from the matter's resolution, the CPA firm's procedures should enable the assistant to A. Refer the disagreement to the AICPA's Quality Review Committee. B. Document that member's disagreement with the conclusions were reached after appropriate consultation. C. Discuss the disagreement with the entity's management or its audit committee. D. Report the disagreement to an impartial peer review monitoring team.
A.
Wang is an auditor helping to audit an employee benefit plan. Which of the following services would create independence problems for Wang if performed by members of his office for the plan? A. Maintaining financial records. B. Performing actuarial services. C. Advising on tax issues. D. All of the above.
A.
Whether seeking an audit committee's permission to provide permissible tax services or other non‐audit services to a public company audit client or when preparing to take a public company on as a new audit client, three important steps are: A. Describe, discuss, and document. B. Request, explain, and record. C. Seek, document, and reconsider. D. Describe, examine, and reexamine.
A.
Which of the following is not a "covered member" under the Independence Rule of the Code of Professional Conduct? A. A partner in the same office as the lead attest partner. B. A manager that provides five hours of tax services to the client. C. A professional employee that is assigned to the engagement. D. A partner that manages the attest practice for the firm.
B.
Which of the following is not an element of quality control? A. Acceptance and continuance of client relationships and specific engagements. B. Human resources. C. Internal control. D. Monitoring.
B.
A CPA in public practice may not disclose confidential client information regarding auditing services without the client's consent in response to which of the following situations? A. A review of the CPA's professional practice by a state CPA society. B. A letter to the client from the IRS. C. An inquiry from the professional ethics division of the AICPA. D. A court‐ordered subpoena or summons.
B.
According to the PCAOB, which of the following tax services may be provided jointly with the audit of an issuer's financial statements without impairing independence? A. Planning and issuing an opinion in favor of the tax treatment of an aggressive tax position. B. Reviewing a proposed transaction and informing the client of the tax consequences. C. Providing consultations under a contingency fee arrangement. D. Preparing tax returns for an individual in a financial oversight reporting role during the audit period.
B.
According to the U.S. Department of Labor, an auditor of an employee benefit plan would be considered independent if A. The auditor is committed to acquire a material indirect financial interest in the plan sponsor. B. An actuary associated with the auditor's firm renders services to the plan. C. A member of the auditor's firm is an investment advisor to the plan. D. The auditor's firm maintains financial records for the plan.
B.
As guidance for measuring the quality of the performance of an auditor, the auditor should refer to A. Statements of the Financial Accounting Standards Board. B. Generally accepted auditing standards. C. Interpretations of the Statements on Auditing Standards. D. Statements on Quality Control Standards.
B.
Bonnie is a covered member regarding audit client Theis Corporation. She has acted as grantor to set up a trust that owns shares of Theis. Which of the following is true? A. If Bonnie retained the ability to amend or revoke the trust, any interest she had in Theis would be indirect. B. If Bonnie retained the ability to supervise the trust's investment decisions, any interest she had in Theis would be direct. C. If Bonnie has authority to control the trust, then her interest in its underlying holdings would be indirect. D. Bonnie can solve all independence problems by setting up a blind trust.
B.
If requested to perform a review engagement for a nonpublic entity in which an accountant has an immaterial direct financial interest, the accountant is A. Not independent and, therefore, may issue a review report, but may not issue an auditor's opinion. B. Not independent and, therefore, may not issue a review report. . C. Not independent and, therefore, may not be associated with the financial statements. D. Independent because the financial interest is immaterial and, therefore, may issue a review report.
B.
In which of the following scenarios did a member act properly? A. Ranny Tandor, fresh out of school and on her own, named her one‐person firm "PriceWaterhouseKoopers." B. Sandor, Salman & Dingle continued to use this firm name years after founding partner Jessica Dingle died in a car wreck. C. Melba, Toast & Jam included in its advertisements "Members of the AICPA" because slightly more than half of its CPA/owners were, indeed, members of the AICPA. D. Sally and Duncan were partners in a small firm that was auditing Flexmin Corporation. For personal reasons, Duncan had to move to another city and they dissolved their partnership, though they later completed the Flexmin audit. To save money, Sally and Duncan reported their results on the stationery they had had printed up when they were still partners.
B.
In which of the following situations would a CPA firm be independent with respect to an audit client? A. A partner in the office but not assigned to the engagement owns 10% of the outstanding stock of the client. B. A professional employee assigned to the engagement has a spouse that is employed as a salesperson by the client. C. The partner that manages the firm's audit practice owns 100 shares of the client's stock. D. A manager that provides twenty hours of nonattest services to the client has a material indirect interest in the client.
B.
In which of the following situations would a CPA's covered members' independence be considered to be impaired? I. The CPA maintains a checking account that is fully insured by a government deposit insurance agency at an audit‐client financial institution. II. The CPA has a direct financial interest in an audit client, but the interest is maintained in a blind trust. III. The CPA owns a commercial building and leases it to an audit client. The rental income is material to the CPA. A. I and II. B. II and III. C. I and III. D. I, II, and III.
B.
Inability to evaluate internal control due to a circumstance‐caused scope limitation relating to a significant account in a Sarbanes‐Oxley 404 internal control audit is most likely to result in a(n) A. Adverse opinion. B. Disclaimer of opinion. C. Unqualified opinion with explanatory language. D. All of the above are equally likely.
B.
The Summer CPA firm audits Winter Corporation. Which of the following statements is correct regarding the impact of gifts and entertainment upon independence? A. When a power outage disrupted work at Winter's headquarters, Winter's CEO took the Summer audit team members across the street and bought them each a cup of coffee at a coffee shop. This impaired independence. B. When an aging 80's hair band got up out of their wheelchairs for one last concert tour, Winter's CEO bought tickets in prime seats for every member of Summer's audit team. This impaired independence. C. Winter just rolled out its new widget, which is attractive and functional. It mounted these widgets (retail price: $20 each) on a small wooden pedestal and gave them out as mementos to all its employees in the main office. Because the Summer engagement team was onsite working on the audit, team members were also given widgets. This gift probably impaired independence. D. Just before the audit was due to be completed, Winter's CFO entered the office of Sharon, Summer's partner in charge of the Winter audit, and handed her a bottle of Remy Martin XO cognac (retail price $150), saying: "I know we've had our differences, but I just want you to know that there are no hard feelings. Right?" Sharon has been working hard for weeks on end and this gift seems like manna from heaven. She opens the bottle and pours a drink for the CEO and herself. This gift probably did not impair independence.
B.
The auditor with final responsibility for an engagement and one of the assistants have a difference of opinion about the results of an auditing procedure. If the assistant believes it is necessary to be disassociated from the matter's resolution, the CPA firm's procedures should enable the assistant to A. Refer the disagreement to the AICPA's Quality Review Committee. B. Document the details of the disagreement with the conclusion reached. C. Discuss the disagreement with the entity's management or its audit committee. D. Report the disagreement to an impartial peer review monitoring team.
B.
The phrase "generally accepted accounting principles" is an accounting term that A. Includes broad guidelines of general application but not detailed practices and procedures. B. Encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time. C. Provides a measure of conventions, rules, and procedures governed by the AICPA. D. Is included in the audit report to indicate that the audit has been conducted in accordance with generally accepted auditing standards (GAAS).
B.
The professional standards provide that members should cooperate to do all of the following, except: A. Improve the art of accounting B. Preserve the fiscal viability of the accounting profession. Correct! Preserving the fiscal viability of the accounting profession is one of the responsibilities that members bear. Indeed, they are to sacrifice personal advantage if necessary to act honorably. C. Maintain the public's confidence D. Carry out the profession's special responsibilities for self‐ governance.
B.
Under SEC independence rules, which of the following is not true? A. 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. B. 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. C. 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. D. Independence is impaired if an audit client has agreed to acquire any direct investment in the accounting firm.
B.
Under the ethical standards of the profession, which of the following positions would be considered a position of significant influence in an audit client? A. A marketing position related to the client's primary products. B. A policy‐making position in the client's finance division. C. A staff position in the client's research and development division. D. A senior position in the client's human resources division.
B.
Which of the following activities would most likely be considered an attestation engagement? A. Consulting with management representatives of a firm to provide advice. B. Issuing a report about a firm's compliance with laws and regulations. C. Advocating a client's position on tax matters that are being reviewed by the IRS. D. Preparing a client's tax returns
B.
Which of the following areas of professional responsibility should be observed by a CPA not in public practice? Objectivity Independence A. Yes Yes B. Yes No C. No Yes D. No No
B.
Which of the following best describes what is meant by the term "generally accepted auditing standards" [GAAS] under the AICPA's clarified auditing standards? A. Rules acknowledged by the accounting profession because of their universal application. B. Pronouncements issued by the Auditing Standards Board. C. Ten authoritative criteria that are classified as General Standards, Fieldwork Standards, and Reporting Standards. D. Procedures to be used to gather evidence to support financial statements.
B.
Which of the following investments in mutual funds would not create an independence problem for auditor Gomez? A. Gomez owns a few shares of the Wensleydale Mutual Fund (WMF) and is on his firm's audit team for WMF. B. Gomez owns 3% of the shares of a diversified mutual fund that owns stock in Minotaur Corporation. Gomez is on his firm's audit team for Minotaur. C. Gomez owns 20% of the shares of a diversified mutual fund that owns stock in Faber Corporation. Gomez is on his firm's audit team for Faber. D. Gomez owns 30% of the shares of an undiversified mutual fund that owns stock in Woodson Corporation. Gomez is on his firm's audit team for Woodson.
B.
Which of the following is accurate regarding the Code of Professional Conduct? A. Most of its provisions relate most directly to MIBs. B. Most of its provisions relate most directly to MIPPs. C. Most of its provisions relate most directly to Other Members. D. Its provisions are eternal and immutable.
B.
Which of the following is correct concerning PCAOB inspections? A. Engagements and audit areas to be inspected are selected randomly, without consideration of risk aspects. B. Inspections may include consideration of aspects of practice management, such as how partner compensation is determined. C. When a lack of compliance with standards is identified, the PCAOB staff attempts to determine the cause, which will ultimately lead to identification of a defect in a CPA firm's quality control system. D. All public company audits are inspected.
B.
Which of the following is true regarding the independence of audit firms and their public company audit clients? A. 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. B. 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." C. 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." D. 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.
B.
Which of the following professional services would be considered an attest engagement? A. A management consulting engagement to provide computerized advice to a client. B. An engagement to report on compliance with statutory requirements. C. An income tax engagement to prepare federal and state tax returns. D. An engagement to prepare the tax returns of the company's CEO.
B.
In which of the following situation has a member acted properly in relation to a records request by a client? A. Client Tim and tax CPA Jim got into a tiff and Tim fired Jim and asked for return of the documents he had given to Jim. Jim said: "Nuts to you and to the horse you rode in on. You owe me money." B. Client Tim and tax CPA Jim got into a tiff and Tim fired Jim and asked for return of the documents he had given to Jim. Jim said: "Nuts to you and to the horse you rode in on. I don't care if you have paid all my fees. I'm keeping these records because you are a jerk to fire me like this." C. Client Tim and tax CPA Jim got into a tiff and Tim fired Jim and asked to be provided with the tax return that Jim had just completed on Tim's behalf. Jim said: "Not a chance, Lance. I've worked solely on preparing this return for the last month and you have not paid my bill." D. Client Tim and tax CPA Jim got into a tiff and Tim fired Jim and asked for return of the documents he had given to Jim. Jim said: "OK. But I'm busy right now. You may expect them within 90 days."
C.
In which of the following situations will independence not be impaired in light of Department of Labor standards? A. ABC Accounting audits DEF Corporation's employee benefit plan. Tom a tax manager for ABC who does no professional work for DEF, purchases a small number of DEF shares. B. GHI Accounting audits JKL Corporation's employee benefit plan. GHI also serves as an investment advisor to the plan. C. MNO Accounting firm audits PQR Corporation's employee benefit plan. One of PQR's accountants, Suri, has joined MNO. Suri completed dissociated herself from PQR and its benefit plan and will not take part in an audit covering any time period that she worked at PQR. D. STU Accounting audits VWX Corporation's employee benefit plan. STU also acts as an underwriter for VWX when it issues new shares.
C.
Keith worked directly under the CFO at Burnett Corporation. He has decided that he'd like to return to public accounting where he used to work, and he accepts an offer at the Beard CPA Firm. Beard audits Burnett. Which of the following is true? A. Keith need not worry about independence issues so long as he does not join Beard's audit team on the Burnett account. B. Keith need not worry about independence issues so long as he joins Beard as merely a PTI overseeing the Burnett audit. C. Keith need not worry about independence issues so long as he joins Beard as another partner in the office (OPIO) and follows all five steps to complete dissociation from Burnett. D. Keith need not worry about independence issues so long as he joins Beard as a 10‐hour person relative to the Burnett audit and disposes of any financial interests he has in Burnett.
C.
Maya was on a consulting team for the URL Corporation. Her task was, in part, to value the physical assets owned by a URL subsidiary that the URL management team wished to convince the board of directors to sell. The folks at URL are very sociable. Which of the following situations might endanger Maya's objectivity and/or integrity? A. On Maya's birthday, URL gave her a birthday cake and a six‐pack of beer produced by a microbrewery that operated by a URL subsidiary. B. At the end of a long day of meetings, Maya and her team went to a local sandwich restaurant with a few URL employees to grab a bite before they all went back to work. Sam, the senior URL employee at the meal paid for everyone's meals with her personal credit card without telling anyone until everyone was ready to leave. C. Also on her birthday, URL's CEO, Tisha, gave Maya a beautiful necklace worth $1,000. D. During yet another long string of meetings between Maya's team and URL employees, URL ordered in a bunch of pizza for everyone to share.
C.
Sam is a tax accountant for KPMF and has been spending a lot of time working to prepare client Ginato Corporation's tax return. There has been some tension between Sam and his colleagues on the one hand and Ginato officers on the other. Sam views Ginato officers as trying to be exceptionally aggressive in the deductions they are seeking to take. As the deadline for completing the tax return approaches, which of the following is true? A. Ginato just rolled out its new widget, which is attractive and functional. It mounted these widgets (retail price: $20 each) on a small wooden pedestal and gave them out as mementos to all its employees in the main office. Because Sam and his colleagues were present, they received the widgets also. Although no rules of either Ginato or KPMF were violated, this exchange would impair Sam's integrity and objectivity B. Ginato owns an interest in a minor league baseball team located in its city. Opening day is approaching, and ticket sales have been slow. On the day of the game, Ginato employees are handing tickets out to passersby outside corporate headquarters in an attempt to increase attendance. As he leaves the building, Sam gladly takes two tickets because he loves baseball and had intended to go to the game anyway. Although no rules of either KMPF or Ginato were violated, this transaction would impair Sam's integrity and objectivity. C. Two days before the preparation deadline, Ginato's CEO enters Sam's office and hands him a bottle of Remy Martin XO cognac (retail price $150), saying: "I know we've had our differences, but I just want you to know that there are no hard feelings. Right?" Sam has been working hard for weeks on end and this gift seems like manna from heaven. He opens the bottle and pours a drink for the CEO and himself. Although no rules of either KPMF or Ginato were violated, this gift would impair Sam's integrity and objectivity. D. Two days before the preparation deadline, Ginato's CEO enters Sam's office, hands him a bottle of Hennessy Cognac VSOP (that he had acquired for $29.99 online) and said: "Happy birthday. I appreciate all the hard work you and your team have been doing. Hope you have a nice meal with your family tonight. See you tomorrow." Sam said: "My wife and I have dinner planned at a nice restaurant. I appreciate the gift" and went back to work. Although it did not violate any rules established by KPMF or Ginato, this gift would impair Sam's integrity and objectivity.
C.
The Niblock accounting firm audited JFK, Inc., a public company. Niblock also provided tax services to JFK, receiving as its fee 20% of any tax savings JFK enjoyed because of Niblock's advice. Which of the following is true? A. Tax advice to a public company audit client is automatically forbidden and impairs independence. B. This tax advice impairs independence because of the nature of the tax advice given. C. This tax advice impairs independence because it was provided on a contingent fee basis. D. If the contingent fee had been only 10%, it would have been fine.
C.
The Smith CPA firm merged with the Jones CPA firm. Both are relatively small firms and post‐merger they have only one office. In which of the following are threats to independence reduced to an acceptable level? A. Smith has long audited Marichal Corporation. Jones's senior partner, Roseboro's spouse, is CFO at Marichal, but plans to retire within two years. B. Jones's largest consulting client is Podres Corporation for which it often makes or approves business risk decisions. Smith audits Podres. Before the merger is complete, Jones terminates Podres as a NAS client. Because Nim has been one of Jones's partners working on the Podres engagement and therefore particularly knowledgeable about it, the new combined firm places Nim on the attest engagement team. C. Jones's largest consulting client is Podres Corporation for which it often makes or approves business risk decisions. Smith audits Podres. Before the merger is complete, Smith terminates Podres as an attest client. D. Jones has long audited Furillo Corporation. Roebucks' partner Janie has long had family connections to Furillo and, indeed, works 10 hours a week as a financial adviser to Furillo. Janie fully discloses her relationship to Furillo.
C.
The auditor's standard report on financial statements should refer to generally accepted auditing standards (GAAS) and generally accepted accounting principles (GAAP). GAAS GAAP A. Implicitly Explicitly B. Explicitly Implicitly C. Explicitly Explicitly D. Implicitly Implicitly
C.
Which of the following employment relationships does not impair independence under SEC rules? A. The Badger audit firm audits ABC Co., a publicly traded company. Tam is on Badger's audit team for the audit. His sister is a direct report of the CFO of ABC. B. The Otter audit firm audits XYZ Co., a publicly traded company. Tim was on Otter's audit team for the audit last year, but just a few days after last year's audit was completed, Tim severed all ties with Otter and went to work as the controller at XYZ. C. The Weasel audit firm audits LMN Co., a publicly traded company. LMN's audit cycle runs from January 1 to December 31. Tom was on Weasel's audit team for the 2016 audit. He severed all ties with Weasel on March 1, 2017. Tom went to work in a significant accounting position at LMN on January 2, 2019. D. The Possum audit firm audits PQR Co., a publicly traded company. Max is lead partner on the PQR audit team. Max's sister Estrella is CFO of PQR. Max and his sister are estranged.
C.
Which of the following has the lowest authoritative status but may be useful in assisting the auditor in applying the SASs? A. Statements on Auditing Standards. B. Auditing Statements of Position. C. Journal of Accountancy articles. D. Auditing Interpretations
C.
Which of the following is a "self review" threat to member independence? A. An engagement team member has a spouse that serves as CFO of the attest client. This is an example of a familiarity threat. B. A second partner review is required on all attest engagements. C. An engagement team member prepares invoices for the attest client. D. An engagement team member has a direct financial interest in the attest client.
C.
Which of the following is correct concerning Government Accountability Office (GAO) audits? A. They are based on the GAO's mission to support the President in meeting his or her constitutional responsibilities. B. They do not include requirements beyond those of generally accepted auditing standards. C. Audit team members may provide nonaudit services to the audit client. D. They are generally based on the "Blue Book."
C.
Which of the following is least likely to be directly examined in an inspection performed by the PCAOB? A. Audit engagements. B. Review engagements. C. Compilation engagements. D. CPA firm quality control system.
C.
Which of the following is most likely to be unique to the audit work of CPAs as compared to work performed by practitioners of other professions? A. Due professional care. B. Competence. C. Independence. D. Complex body of knowledge.
C.
Which of the following is not considered a threat to independence in the Code of Professional Conduct's Independence Conceptual Framework? A. Self‐review threat. B. Familiarity threat. C. Public interest threat. D. Self‐interest threat.
C.
Which of the following is true regarding "undue influence" threats to the integrity and objectivity of MIBs? A. Ahmad's boss pressures him to report misleading financial information to outside auditors. This is not an example of undue influence. B. Milly's superior pressures her to deviate from company policy. This is not an example of undue influence. C. Julie's superior browbeats her to convince her to change her conclusion regarding the proper tax treatment of a firm transaction. This is an example of undue influence D. Cindy has sued her employer for sexual harassment. This is an example of undue influence.
C.
Which of the following is true regarding Sarbanes‐Oxley (SOX) rules for auditors of public companies? A. SOX allows an audit partner to receive compensation based on selling nonaudit services to attest clients. B. SOX requires public companies to rotate audit firms every six years. C. 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. D. SOX allows audit firms to provide legal services to public company audit clients.
C.
Connie is a covered member for purposes of audit client Van Campen Corporation (VCC). Connie also happens to own an insurance policy issued by National Insurance Co. Under what circumstances would this create an independence problem for Connie regarding VCC? A. The policy has no investment option. B. The policy has an investment option and has invested a small amount of money in VCC shares, but Connie bought the policy under normal terms and conditions and has no ability to either select the policy's underlying investments or supervise or participate in its investment decisions. C. The policy has an investment option and Connie has the ability to select the policy's underlying investments. The underlying investments do not include any interest in VCC. D. The policy has an investment option and has put money into VCC shares. Connie has the ability to participate in the insurance company's investment decisions.
D.
Hermione's accounting firm is extraordinarily busy, yet new non‐audit business keeps coming to it from the growing community in which it is located. Hermione would like to take on as much of this non‐audit business as possible, and considers outsourcing a possible solution to her firm's bandwidth limitations. Which of the following is not true as Hermione thinks this through? A. Hermione may outsource administrative support services to third‐party service providers (TSPs) without undue worry regarding threats to objectivity and integrity. B. If Hermione wishes to outsource substantive services, she should notify her clients, ideally in writing, before providing any of their confidential information to the TSPs. C. If any clients object to Hermione's outsourcing of substantive services, she should either decline the engagement or do the work herself. D. If any clients object to Hermione's outsourcing of substantive services, they should just get over it.
D.
How many audits of public companies per year does a CPA firm that is registered with the Public Company Accounting Oversight Board (PCAOB) have to perform before it receives an annual inspection from the PCAOB? A. One audit. B. More than 10 audits. C. More than 50 audits. D. More than 100 audits.
D.
In recent years, the PWD accounting firm has had some ethical problems and it is really trying to clean up its act. Which of the following is true? A. Jill is a tax CPA at PWD. She reviewed the tax work of an outside firm that PWD had contracted to prepare some critical information for client Catenya Corporation's tax return. Jill realized that the work was of suspect accuracy, but said nothing because the deadline for filing the return was fast approaching. Jill acted properly given the exigent circumstances. B. Jill is a tax CPA at PWD. She and her superior, Tanmay, had a dispute regarding the tax treatment of a rather large transaction by client Akpel Corporation. Jill is pretty sure that Tanmay is wrong, but he is her boss and this is her first significant tax assignment for PWD, so she decided to just trust Tanmay's judgment. Jill acted properly. C. Tanmay is a tax partner at PWD and has responsibility to order supplies for the entire tax division in his office. Freddo, Tanmay's superior in the office, urges Tanmay to order the supplies from Freddo's sister's office supply company without comparing prices or quality available from other vendors. Next week, Freddo will be deciding who gets raises in this PWD office, so Tanmay follows the suggestion. Tanmay has acted properly. D. The PWD firm is attempting to convince Dipthong Corporation to hire PWD as its auditor. Partner Palmer and Manager Mavis make a strong presentation to Dipthong's CFO, Danny. Danny promises to consider PWD strongly. Palmer noticed that Danny seemed to be smitten with Mavis and tells Mavis: "We need this client. Here's a $200 bottle of Argentinian wine that I know Danny loves. And here are two $400 front‐row tickets to tomorrow night's game involving our hometown NBA team. You arrange a date with Danny and make this happen." Mavis is very reluctant to take any part in this, but Palmer insists, noting that Mavis has a potential promotion decision coming up soon. Mavis relents and texts Danny. Mavis has acted improperly.
D.
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? A. Personal. B. Organizational. C. External. D. Unusual.
D.
Member Ona is a tax accountant for Ernst & Touche (E&T). She provides 20 hours a year of tax services to Konkle Corporation, an audit client of E&T. Ona was named a trustee of the Chancellor Family Trust (CFT), which happens to own shares of Konkle. In which of the following situations is there not an independence problem? A. Ona has the ability to make investment decisions for CFT. B. CFT owns 15% of outstanding Konkle stock. C. CFT has put 22% of its assets into Konkle stock. D. Ona does not have the ability to make investment decisions for CFT, CFT owns only 4% of Konkle's stock, and CFT has placed only 3% of its assets into Konkle stock.
D.
Sally had her own small accounting firm. Due to some personal connections with a top officer of Ginormous Corporation, Sally was able to land Ginormous as a tax client. Unfortunately, Ginormous had very complicated international tax issues that Sally and her employees were unfamiliar with. Furthermore, Sally simply did not have enough employees to handle the job. Sally worked as hard as she could, but was unable to complete the job on time or accurately. Which of the following professional standards did Sally likely breach? A. She did not act with professional competence. B. She did not act with due professional care. C. She did not plan and supervise the engagement adequately. D. All three choices provided.
D.
Sally's manager seems to be incredibly eager to please their firm's audit client. Sally is thinking seriously about the Code of Professional Conduct and trying to remember where she must draw the line. Which of the following is permissible? A. Signing a document that she knows is misleading. B. Failing to correct a misstatement that she has the authority to correct. C. Making a misleading entry in the client's financial records when her manager instructs her to do so. D. Failing to correct a misstatement that she lacks the authority to correct.
D.
Tax accountant Sheelah has many wealthy clients who need the services of lawyers, investment advisers, and other service providers. She believes that she might be able to add some income to her bottom line by setting up referral fee deals with such providers. But Sheelah does not wish to violate any Code provisions. She wants guidance from you. Which of the following would be permissible? A. Referring a nonattest client to investment adviser Sarah and receiving back from Sarah a referral fee that the client is not informed about. B. Referring an attest client to financial planner Sapan and receiving back from Sapan a referral fee that the client is not informed about. C. Referring an attest client to attorney Ralph and receiving a referral fee from Ralph after disclosing it to the client. D. Referring a nonattest client to tax planner Tobias and receiving back from Tobias a referral fee after disclosing it to the client.
D.
The GAAS requirement states that due care is to be exercised in the performance of an audit is ordinarily interpreted to require A. Thorough review of the existing safeguards over access to assets and records. B. Limited review of the indications of employee fraud and illegal acts. C. Objective review of the adequacy of the technical training and proficiency of firm personnel. D. Critical review of the judgment exercised at every level of supervision.
D.
The Kopper CPA firm audits Krenzin Corporation. In which of the following situations did the member working at Kopper act properly? A. Donald, on the engagement team, was offered a job in Krenzin's CFO's office. He spent two weeks negotiating his pay structure. B. Larry, a PTI relative to the engagement team, was offered a plum management role at Krenzin. He called in sick for a week so as not to be actively involved in any work on audit. C. Mindy overheard a phone call and learned that PTI Larry had been given an offer of a plum management job by Krenzin. She knew that Larry did not report the offer to his firm. She figured Larry was a big boy and could make decisions like this for himself. D. Mindy overheard a phone call and learned that PTI Larry had been given an offer of a plum management job by Krenzin. She knew that Larry did not report the offer to his firm. She immediately alerted her firm (Kopper).
D.
The auditor's judgment concerning the overall fairness of the presentation of financial position, results of operations, and statement of cash flows is applied within the framework of A. Quality control. B. Generally accepted auditing standards which include the concept of materiality. C. The auditor's consideration of the audited company's internal control. D. Generally accepted accounting principles.
D.
Tim is an auditor helping to audit an employee benefit plan. Which of the following roles connected to the plan would create independence problems for Tim if performed by a partner in his office? A. Promoter. B. Underwriter. C. Voting Trustee. D. All of the above.
D.
To evaluate the significant judgments and conclusions of the engagement team under PCAOB auditing standards, the engagement quality reviewer should A. Make inquiries of client personnel and perform analytical procedures. B. Perform tests of details and analytical procedures to corroborate client account balances. C. Make inquiries of client personnel and selected members of the engagement team. D. Discuss matters with members of the engagement team, including the engagement partner, and review engagement documentation.
D.
Under which of the following circumstances may member May charge a client a contingent fee? A. May audits ABC Co. and wishes to charge it a contingent fee for the audit work. B. May audits ABC Co. and wishes to charge it a contingent fee for separate consulting work. C. May is examining prospective financial information for XYZ Co. and wishes to charge it a contingent fee for unrelated consulting services. D. Answer May prepares TUV Co.'s tax returns and wishes to charge it a contingent fee for nontax consulting services.
D.
Which of the following actions should a CPA firm take to comply with the AICPA's quality control standards? A. Establish procedures that comply with the standards of the Sarbanes‐Oxley Act. B. Use attributes sampling techniques in testing internal controls. C. Consider inherent risk and control risk before determining detection risk. D. Establish policies to ensure that the audit work meets applicable professional standards.
D.
Which of the following are "covered persons" for purposes of the SEC's independence rules? A. Sarah, a tax partner at her firm. She gave 15 hours of advice to her firm's audit team regarding the audit of ABC Co. B. Tory, the chairman and senior partner at Sarah's firm. C. Burt, the lead partner for the ABC Co. audit at Sarah's firm. D. All of the options.
D.
Which of the following are issued by the Securities and Exchange Commission? A. Journal of Accountancy. B. Accounting Trends and Techniques. C. Industry Audit Guides. D. Financial Reporting Releases.
D.
Which of the following bodies enforce the audit requirements of the Employee Retirement Security Act of 1974 (ERISA) with respect to employee benefit plans? A. Department of Commerce. B. The Department of Project Management. C. The Securities and Exchange Commission. D. The Department of Labor.
D.
Which of the following financial investments is not likely to create an independence problem for Kim, who is a "covered person" at her accounting firm for purposes of the audit of ABC Co.? A. Kim owns 0.1% of ABC's outstanding shares. B. Kim owns 1% of XYZ Co., which in turn owns 40% of ABC's shares. C. Kim owns 5% of an undiversified mutual fund that has a significant investment in ABC. D. Kim is a trustee of the Melon Trust. The trust owns a few shares of ABC, but Kim had nothing to do with that acquisition and, indeed, has no authority to make investment decisions for the trust.
D.
Which of the following is not a source of guidance included in the AICPA Code of Professional Conduct? A. Principles. B. Interpretations. C. Rules. D. Conduct factors.
D.
Which of the following services cannot be performed for a nonissuer attest client? A. Performing data processing services. . B. Communicating with management about the appropriateness of accounting principles. C. Preparing adjusting journal entries for client management consideration. D. Signing payroll checks.
D.
Which of the following statements is(are) correct regarding a CPA employee of a CPA firm taking copies of information contained in client files when the CPA leaves the firm? I. A CPA leaving a firm may take copies of information contained in client files to assist another firm in serving that client. II. A CPA leaving a firm may take copies of information contained in client files as a method of gaining technical expertise. A. I only. B. II only. C. Both I and II. D. Neither I nor II.
D.
Which of the following transactions impairs independence under the SEC rules? A. The Lark audit firm audits ABC Co., a Fortune 100 company that manufactures widgets. Pam, who is on Lark's audit team, borrows money from ABC to buy a car. The loan is collateralized by the automobile. B. The Wren audit firm audits XYZ Co., a publicly traded financial institution. Pim, who is on Wren's audit team, has a credit card issued by XYZ and currently owes $20,000 on the card. C. The Meadowlark audit firm audits LMN Co., a publicly traded insurance company, which is teetering on the brink of bankruptcy. Pom is on Meadowlark's audit team for the LMN audit and owns a life insurance policy issued by LMN Co. that she bought before she became a covered person. D. All of the options.
D.
Winstead has clashed with his manager regarding the proper treatment of an audit client's significant transaction. The manager says that the audit firm should approve the client's proposed treatment. Winstead's research tells him that the proposed treatment violates important accounting conventions. Which of the following is true regarding how Winstead should handle this situation? A. Because his manager has more experience, Winstead should simply defer to the manager's judgment. B. If Winstead concludes that the manager is wrong, he must take action, such as reporting to the PCAOB, even if the threat of a material misrepresentation or legal violation is not significant. C. If after significant research, Winstead still believes that he is right and the firm and client are wrong, he must resign from his firm. D. If after significant research, Winstead still believes that he is right and the firm and client are wrong, he should consider resigning from his firm if the threat of a material misrepresentation or legal violation is significant.
D.
