Auditing Exam 1
Report to Congress or Municipal Governments
Governmental Auditors
If a CPA performs an audit recklessly, the CPA will be liable to third parties who were unknown and not foreseeable to the CPA for:
Gross negligence
Current auditing standards do not allow which of the following types of loans from a financial institution audit client?
Home mortgage loans.
Gorman is a staff assistant on the audit. Gorman's mother owns shares of Gillington that are material to her net worth and of which Gorman has knowledge.
Independence is impaired
Bill Johnson, a senior in the San Diego office, has a material investment in the capital stock of Cameron, He does not participate in the engagement.
Independence of the CPA is impaired
Some of the following criteria are essential to satisfactory performance in several professions. Which one is unique to audit work by CPAs?
Independence.
Customize and implement a prepackaged payroll system.
Indeterminate
Which of the following is most likely to be a violation of the AICPA rules of conduct by Bill Jones, a sole practitioner with no other employees?
Jones names his firm Jones and Smith, CPAs.
_________ is (are) responsible for the financial statements.
Management
Which of the following individuals is least likely to be considered a covered member by the independence standard?
Manager who does not work on the audit.
Fraud
Misappropriation of assets
AICPA
National organization of CPAs.
Using payroll time records approved by management, generate unsigned payroll checks on a continuing basis for the client, the client signs the checks.
No
Daleiden and his associates audit a number of municipalities. He proposes to contact other CPAs and inform them of his interest in obtaining more of these types of audits. He offers a $500 "finder's fee" to CPAs who forward business to him.
No violation
Daleiden wishes to advertise that if he is hired to perform the audit, he will discount his fees on tax services (he does intend to grant a discount).
No violation
Daleiden wishes to form a professional corporation and use the name "AAAAAAAA the CPAs" to obtain the first ad in the yellow pages of the telephone book.
No violation
Daleiden wishes to prepare a one-page flyer that he will have his son stuff on the windshields of each car at the Pleasant Valley shopping mall. The flyer will outline the services provided by Daleiden's firm and will include a $50-off coupon for services provided on the first visit.
No violation
Which of the following is (are) required when a CPA is performing only consulting services for a client? Independence Objectivity (1) Yes Yes (2) Yes No (3) No Yes (4) No No
Option 3
The most important benefit of having an annual audit by a public accounting firm is to:
Provide assurance to investors and other outsiders that the financial statements are reliable.
The five-member board established in 2002 to oversee the audit of public (issuer) companies that are subject to the securities laws. The board has authority to establish or adopt (or both) rules for auditing, quality control, ethics, independence, and other standards relating to the preparation of audit reports.
Public Company Accounting Oversight Board
A limitation on the scope of the audit is significant, but not so as to overshadow an overall opinion.
Qualified.
A material departure from GAAP exists, but not so material as to pervasively misstate the financial statements.
Qualified.
An engagement designed to express limited assurance relating to subject matter or an assertion.
Review
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?
Review financial reports filed with the SEC.
A set of reforms that toughened penalties for corporate fraud, restricted the kinds of consulting CPAs can perform for audit clients, and created the Public Company Accounting Oversight Board to oversee CPAs and public accounting firms.
Sarbanes-Oxley Act of 2002
A government agency authorized to regulate companies seeking approval to issue securities for sale to the public.
Securities and Exchange Commission
The __________ is a governmental organization that regulates the sale of securities.
Securities and Exchange Commission
This is the report most clients prefer.
Standard unmodified.
The GASB promulgates standards for:
State and local governments.
A series of statements issued by the Auditing Standards Board of the AICPA. Generally accepted auditing standards are developed and issued in the form of these statements.
Statements on Auditing Standards
Bill Adams, CPA, accepted the audit engagement of Kelly Company. During the audit, Adams became aware of his lack of competence required for the engagement. What should Adams do?
Suggest that Kelly Company engage another CPA to perform the audit.
Which of the following organizations establishes accounting standards for U.S. government agencies?
The Federal Accounting Standards Advisory Board.
Which of the following approaches to auditors' liability is least desirable from the CPA's perspective?
The Rosenblum approach.
Which of the following organizations can revoke the right of an individual to practice as a CPA?
The applicable state board of accountancy.
GAO
The audit arm of Congress.
Which of the following is not a reason why auditors provide reasonable assurance, and not absolute assurance? - The nature of financial reporting. - The nature of auditors' independence requirements. - The nature of audit procedures. - The need to conduct an audit within a reasonable period of time at a reasonable cost.
The nature of auditors' independence requirements.
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."
In providing nonattest services to an attest client, a CPA is allowed to perform which of the following functions?
Training client employees.
The 1136 Tenants' case was important because of its emphasis upon the legal liability of the CPA when associated with:
Unaudited financial statements.
The firm of Harwood & Toole, CPAs, has been the auditor and tax return preparer for Tucker, Inc., a nonpublic company, for several years. In the current year, the management of Tucker discharged Harwood & Toole from the audit and tax engagement because of a disagreement over a tax matter. Management of Tucker has not paid Harwood & Toole any of the current year's audit and tax fees. Another CPA firm has been hired and management of Tucker has requested that Harwood & Toole provide the following items: Indicate which of the following items must be provided to management of Tucker by Harwood & Toole. Several consolidating entries prepared by Tucker, Inc., and reviewed by Harwood & Toole.
Yes
An audit designed to detect violations of laws and regulations would be referred to as:
a compliance audit.
CPAs should not seek to obtain clients by _______ that is false, misleading or deceptive.
advertising
The Securities Exchange Act of 1934 applies to:
all companies under the jurisdiction of the Securities and Exchange Commission.
To __________ to information means to provide assurance as to its fairness and dependability.
attest
A(n)_______provides the highest form of assurance CPAs can offer.
audit
In a(n)______, the risk of material misstatement is low.
audit
Which of the following would be considered a close relative?
brother
The risk that a company will not be able to meet its commitments is referred to as:
business risk.
CPAs in public practice should not accept a fee from an audit client that is __________ upon a specified finding.
contingent
The AICPA requires members in public practice to obtain 120 hours of ___________ every three years.
continuing education
A CPA's independence with respect to an enterprise will be impaired if the CPA has any __________ or material indirect financial interest in the enterprise.
direct financial interest
Retaining a client's accounting records for nonpayment of fees is an act __________ to the profession.
discreditable
An operational audit is a study of a unit of an organization to evaluate the efficiency and __________ of the unit.
effectiveness
The auditor's report is the ________ of an audit.
end product
Under the 1934 Securities Exchange Act auditors are liable to ordinary trade creditors for the:
existence of scienter.
The Code of Professional Conduct requires independence for all:
financial statement audits.
Rosenblum Approach
foreseeable user approach; third party must prove existence of scienter
Restatement Approach
foreseen user approach; auditors must prove due diligence
Audit the Company They Work For
internal auditors
The AICPA Code of Professional Conduct includes: Principles, Rules and __________.
interpretations
Ultramares Approach
known user approach; auditors must prove due diligence
Public accounting firms are organized as sole proprietorships, partnerships, professional corporations, or __________.
limited liability companies (limited liability partnerships)
An effect of the Sarbanes-Oxley Act of 2002 was to:
reduce the accounting profession's level of self-regulation.
"Accounting and review services" is the term used by CPA firms to describe work done for small businesses that do not want audits, but periodically need the services of professional accountants. Such services often consist of the preparation, compilation or __________ of financial statements.
review
A(n) _______ report includes the wording that 'we are not aware of any material modifications...'
review
A(n) ____is generally limited to inquiry and analytical procedures.
review
1933 Act
- Auditors must prove due diligence
Which of the following is not a type of auditors' opinion?
Advisory.
The AICPA over time has played an important role in standards setting. Which of the following standards are currently established by the AICPA?
Auditing standards applicable to audits of nonpublic companies.
FASB
Body designated to establish accounting standards for entities other than state and local governments.
Immediate Family
- Dependent child - Spouse - Spousal Equivalent - Dependent Parent
1934 Act
- Third party must prove existence of scienter - Auditors must prove good faith
An attitude of independence is a most essential element of an audit by a firm of certified public accountants. Describe several situations in which the CPA firm might find it somewhat difficult to maintain this independent point of view.
1. Derived a major portion of the firm's income from one client; 2. Had a personal financial interest in the company being audited; 3. Made the fee contingent upon the obtaining of a bank loan by the client; 4. Was financially indebted to the client; 5. Was a member of the board of directors of the client company or otherwise participated in the management of the company.
Correct order of the standard auditors' report.
1. Title 2. Introduction 3. Management's Responsibility for the Financial Statements 4. Auditor's Responsibility 5. Opinion
In which of the following situations would a public accounting firm have violated the AICPA Code of Professional Conduct in determining its fee?
A fee is based on whether or not the public accounting firm's audit report leads to the approval of the client's application for bank financing.
Which of the following is not a covered member for an attest engagement under the Independence Rule of the AICPA Code of Professional Conduct?
A partner in the national office of the firm that performs marketing services.
For a CPA firm with one office, which of the following individuals is most likely to impair the firm's independence with respect to an audit client?
A partner owns 50 shares of stock in the client (the total value is immaterial to both the partner and to the audit client).
A public accounting firm would least likely be considered in violation of the AICPA Independence Rule in which of the following instances?
A partner's checking account, which is fully insured by the Federal Deposit Insurance Corporation, is held at a financial institution for which the public accounting firm performs attest services.
inspection
A review of a CPA firm conducted by PCAOB
A basic objective of a CPA firm is to provide professional services that conform with professional standards. Reasonable assurance of achieving this basic objective is provided through:
A system of quality control.
The Accounting Principles Rule requires the CPA to recognize the pronouncements of the Financial Accounting Standards Board and the Government __________ .
Accounting Standards Board
Which of the following is an area in which the Public Company Accounting Oversight Board is not empowered to establish or adopt standards? - Auditing. - Accounting. - Ethics. - Quality Control.
Accounting.
SEC
Administers the Securities Acts.
An auditor has concluded that the financial statements are not fairly presented in that they are pervasively misstated. The most appropriate type of audit opinion is:
Adverse.
The financial statements are not fairly presented.
Adverse.
Which of the following is not prohibited by the AICPA Code of Professional Conduct?
Advertising in newspapers.
The report indicates that the audit evidence obtained is sufficient and appropriate to provide a basis for the audit opinion
Agree
An attest engagement in which the CPAs agree to perform procedures for a specified party and issue a report that is restricted to use by that party.
Agreed-upon procedures engagement
Implement an off-the-shelf accounting package, as well as perform the audit, Nonpublic
Allowable
Prepare the corporate tax return, as well as perform the audit, Nonpublic
Allowable
Prepare the corporate tax return, as well as perform the audit, Public
Allowable
Provide bookkeeping services, as well as perform the audit, WW will not determine journal entries, authorize transactions, or prepare or modify source documents, Nonpublic
Allowable
Provide financial information systems design and implementation assistance, WW provides no attest services for that company, Public
Allowable
Serve on the board of directors of the company, WW provides no attest services for the company, Public
Allowable
The national professional organization of CPAs engaged in promoting high professional standards to ensure that CPAs serve the public interest.
American Institute of Certified Public Accountants
Which of the following is an example of a compliance audit?
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'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.
The plaintiff security purchaser must prove a monetary loss occurred.
Applies to both Section 11 of the 1933 Securities Act and Section 10(b) of the Securities Exchange Act
The plaintiff security purchaser must prove material misstatements were included in a filed document.
Applies to both Section 11 of the 1933 Securities Act and Section 10(b) of the Securities Exchange Act
The plaintiff security purchaser must prove lack of due diligence by the CPA.
Applies to neither Section 11 of the 1933 Securities Act and Section 10(b) of the Securities Exchange Act
The plaintiff security purchaser must prove privity with the CPA.
Applies to neither Section 11 of the 1933 Securities Act and Section 10(b) of the Securities Exchange Act
A representation or declaration made by the responsible party, typically management of the entity.
Assertion
Professional services that enhance the quality of information, or its context, for decision makers.
Assurance services
An engagement in which the CPAs issue an examination, a review, or an agreed-upon procedures report on subject matter or an assertion about subject matter that is the responsibility of another party (e.g., management).
Attest engagement
In general, internal auditors' independence will be greatest when they report directly to the:
Audit committee of the board of directors.
When the auditors discover that an audit client has committed an illegal act they will ordinarily report it to the:
Audit committee of the company being audited.
An examination designed to provide an opinion that is the CPA's highest level of assurance that the financial statements follow generally accepted accounting principles, or another acceptable basis of accounting.
Audit of financial statements
A report providing reasonable assurance
Audit report
GASB
Body designated to establish accounting standards for state and local governments.
FASAB
Body designated to establish accounting standards for the federal government.
Which of the following best describes the relationship between assurance services and attest services?
Both attest and assurance services require independence.
Which of the following has primary responsibility for the fairness of the representations made in financial statements?
Client's management.
If the CPAs provided negligent tax advice to a public company, the client would bring suit under:
Common law
Under common law, the CPAs who were negligent may mitigate some damages to a client by proving:
Contributory negligence.
Other Relative or Friend
Cousin, Golf Partner, Niece, Nephew, College Friend, Roommate
The most significant result of the Continental Vending case was that it:
Created a more general awareness of the possibility of auditor criminal prosecution.
A partner in the Los Angeles office of Bell & Greer jointly owns a cattle ranch in Montana with one of the directors of Trek Corporation. The value of the investment is material to both parties.
Definitely impaired
Trek Corporation has not yet paid Bell & Greer for professional services rendered in Year 4. This fee is substantial in amount and is now 15 months past due.
Definitely impaired
The report indicates that the auditor considers and provides an opinion on compliance with major laws and regulations
Disagree
The report is ordinarily addressed to whom it may concern
Disagree
The report ordinarily concludes on whether the financial statements are in conformity with generally accepted auditing standards
Disagree
The auditors are unable to determine the overall fairness of the financial statements.
Disclaimer.
Error vs Fraud
Error - Mistake in gathering data - Unreasonable estimates from misinterpretation of facts Fraud - Misappropriation of assets - Fraudulent financial reporting
Which of the following did not precipitate the passage of the Sarbanes-Oxley Act of 2002 to regulate public accounting firms:
Ethical scandals at the AICPA.
An attest engagement designed to provide the highest level of assurance that CPAs provide on an assertion.
Examination
Which of the following elements is most frequently necessary to hold a CPA liable to a client?
Failed to exercise due care.
Close Relative
Father, Sister, Brother, Mother, Independent Child, Grandfather
Independent-Audit Financial Statements
Financial Statement Auditors
A set of criteria used to determine measurement, recognition, presentation, and disclosure of all material items appearing in the financial statements.
Financial reporting framework
The suitable criteria in a financial statement audit are set forth in the financial reporting framework selected by management, often ____________.
GAAP
Valid statements concerning gross negligence include all except which of the following?
Gross negligence may be viewed as "failure to exercise due professional care."
PCAOB
Group created to oversee and discipline CPAs and public accounting firms that audit public companies.
Quality control elements
Human resources and monitoring
Enforce Federal Tax Laws Only
IRS auditors
Johnson, a partner in the Chicago office, owns 100 shares of the stock of Gillington. He has no responsibilities with respect to the Gillington audit.
Independence is impaired
Masterson is a staff assistant in the Green Bay office and owns 10 percent of Gillington's outstanding common stock. Masterson provides no services to Gillington and is not able to influence the engagement.
Independence is impaired
Schilling, the partner in charge of the entire firm, works in the Green Bay office. He owns 100 shares of Gillington stock (market value $2 per share) but provides no services on the engagement.
Independence is impaired
Gizmo, a partner in the Green Bay office, owns 600 shares of the stock of Gillington. He has no responsibilities with respect to the Gillington audit.
Independence is not impaired
Jim West is the father of Will West, a Phoenix partner, Jim West has a material investment in Cameron, Will West is unaware of his father's investment but does participate in the engagement.
Independence is not impaired.
Sandra Steversen, a staff assistant in the Phoenix office, works on the Cameron audit. Her uncle works as the chief accounting officer for Cameron.
Independence is not impaired.
Bill Adams, a senior in the Phoenix office, does not work on the Cameron audit but owns 9 percent of Cameron's outstanding equity (common stock).
Independence of both the CPA and the firm is impaired.
Mary McGraw, a partner in the San Diego office, fell wildly in love with Bill Smith, the treasurer for Cameron Corporation, They were married in Las Vegas, During the week, McGraw still lives in San Diego and works in that office, while Bill Smith lives in Phoenix, working for Cameron. On weekends. they commute to the, home in Yuma. Mary does not participate in the engagement.
Independence of the CPA is impaired
Monitor employee time cards and make changes when errors are detected.
Indeterminate
Screen candidates and recommend the most highly qualified candidate to serve as treasurer for the client.
Indeterminate
Which of the following is not one of the forms of attestation presented in the AICPA Statements on Standards for Attestation Services:
Inspection.
As required by the Sarbanes-Oxley Act and the Public Company Accounting Oversight Board, an audit that includes providing assurance on both the financial statements and internal control over financial reporting.
Integrated audit
IIA
International organization of internal auditors.
Post client approved entries to client's trial balance.
No
Provide all of the initial training and instruction to client employees on a newly implemented payroll information and control system.
No
The firm of Harwood & Toole, CPAs, has been the auditor and tax return preparer for Tucker, Inc., a nonpublic company, for several years. In the current year, the management of Tucker discharged Harwood & Toole from the audit and tax engagement because of a disagreement over a tax matter. Management of Tucker has not paid Harwood & Toole any of the current year's audit and tax fees. Another CPA firm has been hired and management of Tucker has requested that Harwood & Toole provide the following items: Indicate which of the following items must be provided to management of Tucker by Harwood & Toole. A copy of Tucker's partially completed tax return prepared by the staff of Harwood & Toole.
No
The firm of Harwood & Toole, CPAs, has been the auditor and tax return preparer for Tucker, Inc., a nonpublic company, for several years. In the current year, the management of Tucker discharged Harwood & Toole from the audit and tax engagement because of a disagreement over a tax matter. Management of Tucker has not paid Harwood & Toole any of the current year's audit and tax fees. Another CPA firm has been hired and management of Tucker has requested that Harwood & Toole provide the following items: Indicate which of the following items must be provided to management of Tucker by Harwood & Toole. Copies of Harwood & Toole's audit working papers from prior engagements.
No
The firm of Harwood & Toole, CPAs, has been the auditor and tax return preparer for Tucker, Inc., a nonpublic company, for several years. In the current year, the management of Tucker discharged Harwood & Toole from the audit and tax engagement because of a disagreement over a tax matter. Management of Tucker has not paid Harwood & Toole any of the current year's audit and tax fees. Another CPA firm has been hired and management of Tucker has requested that Harwood & Toole provide the following items: Indicate which of the following items must be provided to management of Tucker by Harwood & Toole. Copies of adjusting entries prepared by the staff of Harwood & Toole.
No
Now assume that the 12 services are being contemplated for nonattest clients. Which of the services does the AICPA Code of Professional Conduct prohibit under this assumption?
None
Provide actuarial services related to certain liabilities, as well as perform the audit, the subjectively determined liabilities relate to a material portion of the financial statements, Nonpublic
Not Allowable
Provide actuarial services related to certain liabilities, as well as perform the audit, the subjectively determined liabilities relate to a material portion of the financial statements, Public
Not Allowable
Provide tax planning services for corporate executives of an audit client (not for the company), Public
Not Allowable
Provide internal audit outsourcing, as well as perform the audit, Public
Not Allowed
A manager in the Newport Beach office of Bell & Greer is the son of the treasurer of Trek Corporation.
Not definitely impaired
A partner in the Los Angeles office of Bell & Greer has been a long-time personal friend of the chief executive officer of Trek Corporation.
Not definitely impaired
The former controller of Trek Corporation became a partner in the Newport Beach office of Bell & Greer on March 15, Year 5, resigning from Trek Corporation on that date.
Not definitely impaired
The plaintiff security purchaser must prove reliance on the document.
Only applies to Section 10(b) of the Securities Exchange Act.
The plaintiff security purchaser must prove the CPA had scienter.
Only applies to Section 10(b) of the Securities Exchange Act.
An audit provides reasonable assurance of detecting material Fraudulent Financial Reporting Misappropriation of Assets (1) Yes Yes (2) Yes No (3) No Yes (4) No No
Option 1
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 Absolute (1) Yes Yes (2) Yes No (3) No Yes (4) No No
Option 2
Which of the following nonattest services may be performed by the auditors of a public company?
Preparation of the company's tax return.
Under the Securities and Exchange Act of 1934, auditors and other defendants are generally faced with:
Proportionate liability.
The __________ regulates all accounting firms that audit public companies.
Public Company Accounting Oversight Board
The standards or benchmarks used to measure and present the subject matter and against which the CPA evaluates the subject matter. They are criteria that are established or developed by groups composed of experts that follow due process procedures, including exposure of the proposed criteria for public comment.
Suitable criteria
Which of the following is not explicitly included in a standard report for a nonpublic company?
That internal control of the client was satisfactory.
In cases of breach of contract, plaintiffs generally have to prove all of the following, except:
The CPAs made a false statement.
Which of the following statement is most accurate in describing an auditor's responsibility to detect errors and fraud?
The auditor should assess the risk that errors and fraud may cause the financial statements to contain material misstatements, and design the audit to obtain reasonable assurance of detecting material errors and fraud.
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.
Which of the following is not included in an integrated audit report on the financial statements of a public company?
The report states that the audit was performed in accordance with AICPA standards.
Which of the following is implied when a CPA signs the preparer's declaration on a federal income tax return?
The return is not misleading based on all information of which the CPA has knowledge.
As a consequence of their failure to adhere to generally accepted auditing standards in the course of their audit of Frost Corp., Jones & Telling, CPAs, did not detect the embezzlement of a material amount of money by the company's controller. As a matter of common law, to what extent would the CPAs be liable to Frost Corp. for losses attributable to the theft?
They would be liable for all losses attributable to their negligence.
Daleiden has a thorough knowledge of the tax law. He has a number of acquaintances who prepare their own tax returns. He proposes to offer to review these returns before they are filed with the Internal Revenue Service. For this review, he will charge no fee unless he is able to identify legal tax savings opportunities. He proposes to charge each individual one-third of the tax savings he is able to identify.
Violation
Prepare the payroll tax return form and sign it on behalf of management.
YES
Accept responsibility to sign payroll checks, but only in emergency situations.
Yes
Approve employee time cards.
Yes
Manage a client's local area network system related to payroll.
Yes
Present payroll business risk considerations to the board of directors on behalf of management.
Yes
Supervise client personnel in the daily operation of the payroll system.
Yes
The firm of Harwood & Toole, CPAs, has been the auditor and tax return preparer for Tucker, Inc., a nonpublic company, for several years. In the current year, the management of Tucker discharged Harwood & Toole from the audit and tax engagement because of a disagreement over a tax matter. Management of Tucker has not paid Harwood & Toole any of the current year's audit and tax fees. Another CPA firm has been hired and management of Tucker has requested that Harwood & Toole provide the following items: Indicate which of the following items must be provided to management of Tucker by Harwood & Toole. Accounting records of Tucker, Inc., in the possession of Harwood & Toole.
Yes
Auditors must be independent of any enterprise and must also __________ independent to third parties.
appear
The audit of an income tax return by an auditor of the Internal Revenue Service is considered a (an):
compliance audit.
Consulting services for audit clients should be advisory in nature, CPAs should not assume the role of __________ for these clients.
decision maker
Violation of the AICPA Code of Professional Conduct may result in admonishment, suspension or __________ of the offending member.
expulsion
An opinion indicates that the financial statements are presented ___________.
fairly
Which of the following would NOT be considered a close relative?
friend
Which of the following would be considered an immediate family member?
husband
In evaluating independence, financial interests of a CPA's __________ are ascribed directly to the CPA.
immediate family
The two most essential qualities for a CPA to perform the attest function properly are professional competence and __________.
independence
Mavis, CPA, has audited the financial statements of South Bay Sales Incorporated for several years and had always been paid promptly for services rendered. Last year's audit invoices have not been paid because South Bay is experiencing cash flow difficulties, and the current year's audit is scheduled to commence in one week. With respect to the past-due audit fees, Mavis should:
inform South Bay's management that the past-due audit fees are considered an impairment of auditor independence; therefore, it must be paid prior to the issuance of the auditors' report.
Primary responsibility for audited financial statements rests with __________ even though the statements may be drafted and processed in the auditors' office.
management
Which of the following would be considered an other relative?
nephew
An opinion includes an introduction, management's and the auditor's responsibility, and a(n) __________.
opinion
Under common law, auditors are generally liable to the client for:
ordinary negligence or gross negligence.
A CPA ethically could:
perform an audit of Tombstone, Arizona for less than 1/2 of normal audit billing rates.
Which of the following would NOT be considered an immediate family member?
sister
The professional staff of a typical public accounting firm includes partners, managers, senior auditors and __________.
staff assistants
In connection with a lawsuit, a third party attempts to gain access to the auditor's working papers. The client's defense of privileged communication will be successful only to the extent it is protected by the:
state law
In the event that a CPA issues an unmodified audit report on financial statements that he or she knows to be misleading, that CPA is:
subject to criminal as well as civil liability.
An audit report indicates that the audit evidence we have obtained is _______ to provide a basis for the opinion.
sufficient
According to court decisions, the generally accepted auditing standards established by the AICPA ordinarily apply:
to all CPAs in public practice.
