Module 4
The Public Company Accounting Oversight Board (PCAOB) is not responsible for standards related to Accounting. Attestation. Auditing. Quality control
Accounting.
The phrase "generally accepted accounting principles" is an accounting term that Includes broad guidelines of general application but not detailed practices and procedures. Encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time. Provides a measure of conventions, rules, and procedures governed by the AICPA. Is included in the audit report to indicate that the audit has been conducted in accordance with generally accepted auditing standards (GAAS).
Encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time.
Which of the following are issued by the Securities and Exchange Commission? Journal of Accountancy. Accounting Trends and Techniques. Industry Audit Guides. Financial Reporting Releases.
Financial Reporting Releases.
As guidance for measuring the quality of the performance of an auditor, the auditor should refer to Statements of the Financial Accounting Standards Board. Generally accepted auditing standards. Interpretations of the Statements on Auditing Standards. Statements on Quality Control Standards.
Generally accepted auditing standards.
A CPA firm would be reasonably assured of meeting its responsibility to provide services that conform with professional standards by Adhering to generally accepted auditing standards. Having an appropriate system of quality control. Joining professional societies that enforce ethical conduct. Maintaining an attitude of independence in its engagements.
Having an appropriate system of quality control.
Which of the following is not an element of quality control for a CPA firm? Relevant ethical requirements. Acceptance and continuance of clients relationships and specific engagements. Professional skepticism Monitoring.
Professional skepticism
The independent auditor's plan for an examination in accordance with generally accepted auditing standards is influenced by the possibility of material misstatements. The auditor will therefore conduct the examination with an attitude of Professional skepticism. Subjective mistrust. Objective indifference. Professional responsiveness.
Professional skepticism.
The Sarbanes-Oxley Act of 2002 imposes a mandatory rotation applicable to both the audit engagement partner and the quality control (also called review) partner. How long in total is the partner allowed to serve as the engagement partner or review partner before someone else must serve in that capacity? 3 years. 5 years. 7 years. 10 years.
5 years.
A basic objective of a CPA firm is to provide professional services to conform with professional standards. Reasonable assurance of achieving this basic objective is provided through Continuing professional education. A system of quality control. Compliance with Auditing Standards Board reporting requirements. A system of peer review.
A system of quality control.
One of a CPA's firm's basic objectives 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. A system of peer review. Continuing professional education. Compliance with generally accepted reporting standards.
A system of quality control.
The nature and extent of a CPA firm's quality control policies and procedures depend on The CPA firm's size The nature of the CPA firm's practice Cost-benefit considerations A. Yes Yes Yes B. Yes Yes No C. Yes No Yes D. No Yes Yes A. B. C. D.
A. Yes Yes Yes
Which of the following AICPA standards did the PCAOB not adopt as a part of its interim standards? Auditing Standards Board Standards. Attestation Standards. Accounting and Review Services Standards. Quality Control Standards.
Accounting and Review Services Standards.
According to PCAOB standards, each of the following items of information should be included in the documentation of an engagement quality review except Identification of the engagement quality reviewer and others who assisted the reviewer. Identification of the documents reviewed by the engagement quality reviewer and others who assisted the reviewer. The date on which the engagement quality reviewer provided concurring approval of issuance. An assessment by the engagement quality reviewer of the instances of fraud identified by the audit team.
An assessment by the engagement quality reviewer of the instances of fraud identified by the audit team.
Which of the following professional services would be considered an attest engagement? A management consulting engagement to provide computerized advice to a client. An engagement to report on compliance with statutory requirements. An income tax engagement to prepare federal and state tax returns. An engagement to prepare the tax returns of the company's CEO.
An engagement to report on compliance with statutory requirements.
Which of the following statements is correct regarding characteristics required of an engagement quality reviewer under PCAOB auditing standards? Only a partner of the registered public accounting firm conducting the audit can serve as an engagement quality reviewer. An individual outside of the registered public accounting firm becomes an "associated person" of the registered public accounting firm when receiving compensation from the firm for performing the engagement quality review. There is no requirement that the engagement quality reviewer must be independent from the client involved, since the engagement quality reviewer cannot make engagement team decisions or otherwise assume any responsibilities of the engagement team. The engagement quality reviewer is required to be a partner in a public accounting firm, regardless of whether the reviewer is from within the firm or outside the firm responsible for the audit engagement subject to the engagement quality review.
An individual outside of the registered public accounting firm becomes an "associated person" of the registered public accounting firm when receiving compensation from the firm for performing the engagement quality review.
Principles Underlying an Audit Conducted in Accordance with GAAS state that sufficient appropriate audit evidence is to be obtained through designing and implementing appropriate responses, i.e., by performing audit procedures, to afford a reasonable basis for an opinion regarding the financial statements under audit. The substantive evidential matter required by this standard may be obtained, in part, through Flowcharting the internal control structure. Proper planning of the audit engagement. Analytical procedures. Audit documentation.
Analytical procedures.
According to GAAS, which of the following terms identifies a requirement for audit evidence? Appropriate. Adequate. Reasonable. Disconfirming.
Appropriate.
Interpretive publications include all of the following, except for Appendices to Statements on Auditing Standards. Articles in the AICPA's Journal of Accountancy. Auditing guidance included in AICPA Audit and Accounting Guides. Auditing interpretations of the Statements on Auditing Standards.
Articles in the AICPA's Journal of Accountancy.
Quality control for a CPA firm, as referred to in Statements on Quality Control Standards, applies to Auditing services only. Auditing and management advisory services. Auditing and tax services. Auditing and accounting and review services.
Auditing and accounting and review services.
The auditor makes explicit reference to "auditing standards generally accepted in the United States of America" in which paragraph of the standard unmodified audit report? Opening. Auditor's Responsibility. Opinion. Both second and third option.
Auditor's Responsibility.
How should differences of opinion between the engagement partner and the quality control reviewer be resolved? By adhering to industry best practices. By following the firm's policies and procedures. By accepting the recommendations of the client's audit committee. By issuing a disclaimer of opinion and reporting the issue to those charged with the entity's governance.
By following the firm's policies and procedures.
Which of the following is least likely to be directly examined in an inspection performed by the PCAOB? Audit engagements. Review engagements. Compilation engagements. CPA firm quality control system.
Compilation engagements.
The exercise of due professional care requires that an auditor Examine all available corroborating evidence. Critically review the judgment exercised at every level of supervision. Reduce control risk below the maximum. Attain the proper balance of professional experience and formal education.
Critically review the judgment exercised at every level of supervision.
To evaluate the significant judgments and conclusions of the engagement team under PCAOB auditing standards, the engagement quality reviewer should Make inquiries of client personnel and perform analytical procedures. Perform tests of details and analytical procedures to corroborate client account balances. Make inquiries of client personnel and selected members of the engagement team. Discuss matters with members of the engagement team, including the engagement partner, and review engagement documentation.
Discuss matters with members of the engagement team, including the engagement partner, and review engagement documentation.
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 Refer the disagreement to the AICPA's Quality Review Committee. Document that member's disagreement with the conclusions were reached after appropriate consultation. Discuss the disagreement with the entity's management or its audit committee. Report the disagreement to an impartial peer review monitoring team.
Document that member's disagreement with the conclusions were reached after appropriate consultation.
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 Refer the disagreement to the AICPA's Quality Review Committee. Document the details of the disagreement with the conclusion reached. Discuss the disagreement with the entity's management or its audit committee. Report the disagreement to an impartial peer review monitoring team.
Document the details of the disagreement with the conclusion reached.
In connection with the element of monitoring, a CPA firm's system of quality control should ordinarily provide for the maintenance of A file of minutes of staff meetings. Updated personnel files. Documentation to demonstrate compliance with its policies and procedures. Documentation to demonstrate compliance with peer review directives.
Documentation to demonstrate compliance with its policies and procedures.
Which of the following is an element of a CPA firm's quality control policies and procedures applicable to the firm's accounting and auditing practice? Information processing. Engagement performance. Technology selection. Professional skepticism.
Engagement performance.
Within the context of quality control, a primary purpose of the engagement performance element is to help ensure that CPA firm personnel have adequate technical training. Engagements are adequately supervised. The CPA firm undertakes only those engagements it is competent to perform. CPA firm personnel comply with relevant ethical requirements.
Engagements are adequately supervised.
Which of the following actions should a CPA firm take to comply with the AICPA's quality control standards? Establish procedures that comply with the standards of the Sarbanes-Oxley Act. Use attributes sampling techniques in testing internal controls. Consider inherent risk and control risk before determining detection risk. Establish policies to ensure that the audit work meets applicable professional standards.
Establish policies to ensure that the audit work meets applicable professional standards.
The Public Company Accounting Oversight Board (PCAOB) is charged with all of the following responsibilities except: Establishing accounting standards for public companies. Establishing auditing standards. Registering accounting firms that will audit public companies. Inspecting accounting firms that will audit public companies.
Establishing accounting standards for public companies.
Which of the following activities would be most helpful to a CPA in deciding whether to accept a new audit client? Reviewing industry benchmarking data. Considering the client's compensation methods. Evaluating the CPA's ability to properly service the client. Evaluating the most recent peer review of the client's previous auditor.
Evaluating the CPA's ability to properly service the client.
At least how often should the PCAOB inspect a registered public accounting firm that regularly issues audit reports to 50 issuers? Annually. Every two years. Every three years. As requested by the firm.
Every three years.
How does an auditor make the following representations when issuing the standard auditor's report on comparative financial statements? Examination of evidence Consistent application of accounting principles Explicitly Explicitly Implicitly Implicitly Implicitly Explicitly Explicitly Implicitly
Explicitly Implicitly
An auditor's responsibility to express an opinion on the financial statements is Implicitly represented in the auditor's unmodified report. Explicitly represented in the responsibility paragraphs of the auditor's unmodified report. Explicitly represented in the opening paragraph of the auditor's unmodified report. Explicitly represented in the opinion paragraph of the auditor's unmodified report.
Explicitly represented in the responsibility paragraphs of the auditor's unmodified report.
In performing an attestation engagement, a CPA typically Supplies litigation support services. Assesses control risk at a low level. Expresses a conclusion about the assertion on the subject matter. Provides management consulting advice.
Expresses a conclusion about the assertion on the subject matter.
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 Quality control. Generally accepted auditing standards which include the concept of materiality. The auditor's consideration of the audited company's internal control. Generally accepted accounting principles.
Generally accepted accounting principles.
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? Due professional care. Competence. Independence. Complex body of knowledge.
Independence.
A PCAOB engagement that focuses on the sufficiency of a CPA firm's quality control system is most likely to be referred to as a(n) Financial statement audit. Inspection. Peer review. Quality control.
Inspection.
Which of the following is correct concerning PCAOB inspections? Engagements and audit areas to be inspected are selected randomly, without consideration of risk aspects. Inspections may include consideration of aspects of practice management, such as how partner compensation is determined. 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. All public company audits are inspected.
Inspections may include consideration of aspects of practice management, such as how partner compensation is determined.
Under Title II of the Sarbanes-Oxley Act, the auditor of an issuer cannot legally perform which type of service for that issuer? Tax services. Review of interim information. Internal audit outsourcing services. Audit of internal control over financial reporting.
Internal audit outsourcing services.
Which of the following is not an element of quality control? Acceptance and continuance of client relationships and specific engagements. Human resources. Internal control. Monitoring.
Internal control.
An attestation engagement is one in which a CPA is engaged to Issue a written communication expressing a conclusion about the reliability of a written assertion that is the responsibility of another party. Provide tax advice or prepare a tax return based on financial information the CPA has not audited or reviewed. Testify as an expert witness in accounting, auditing, or tax matters, given certain stipulated facts. Assemble pro forma financial statements based on the representations of the entity's management without expressing any assurance.
Issue a written communication expressing a conclusion about the reliability of a written assertion that is the responsibility of another party.
Which of the following activities would most likely be considered an attestation engagement? Consulting with management representatives of a firm to provide advice. Issuing a report about a firm's compliance with laws and regulations. Advocating a client's position on tax matters that are being reviewed by the IRS. Preparing a client's tax returns
Issuing a report about a firm's compliance with laws and regulations.
Under the Sarbanes-Oxley Act of 2002, which of the following is not a stated responsibility of the Public Company Accounting Oversight Board? Conducting inspections of registered public accounting firms. Overseeing the registration of public accounting firms. Issuing accounting standards that must be followed by issuers in financial reporting. Issuing auditing standards that must be followed by registered public accounting firms in auditing the financial statements of issuers.
Issuing accounting standards that must be followed by issuers in financial reporting.
Which of the following has the lowest authoritative status but may be useful in assisting the auditor in applying the SASs? Statements on Auditing Standards. Auditing Statements of Position. Journal of Accountancy articles. Auditing Interpretations.
Journal of Accountancy articles.
Section 404 of the Sarbanes-Oxley Act of 2002 requires each annual report of an issuer to include which of the following? Representations from the company's external auditors that the company has effective internal control over operations. Management representations that the company's external auditors have examined its internal control over compliance with laws and regulations. Reasonable assurances that fraud will be identified before the issuance of the company's annual report. Management's assessment of the effectiveness of internal control over financial reporting.
Management's assessment of the effectiveness of internal control over financial reporting.
The purpose of establishing quality control policies and procedures for deciding whether to accept or continue a client relationship is to Monitor the risk factors concerning misstatements arising from the misappropriation of assets. Provide reasonable assurance that personnel are adequately trained to fulfill their responsibilities. Minimize the likelihood of associating with clients whose management lacks integrity. Document objective criteria for the CPA firm's responses to peer review comments.
Minimize the likelihood of associating with clients whose management lacks integrity.
The primary purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to Enable the CPA firm to attest to the reliability of the client. Satisfy the CPA firm's duty to the public concerning the acceptance of new clients. Minimize the likelihood of association with clients whose management lacks integrity. Anticipate before performing any field work whether an unqualified opinion can be expressed.
Minimize the likelihood of association with clients whose management lacks integrity.
GAAS require the auditor's report to contain either an expression of opinion regarding the financial statements or an assertion to the effect that an opinion cannot be expressed. The objective of this requirement is to prevent Misinterpretations regarding the degree of responsibility the auditor is assuming. An auditor from reporting on one basic financial statement and not the others. An auditor from expressing different opinions on each of the basic financial statements. Restrictions on the scope of the examination, whether imposed by the client, or by the inability to obtain evidence.
Misinterpretations regarding the degree of responsibility the auditor is assuming.
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? One audit. More than 10 audits. More than 50 audits. More than 100 audits.
More than 100 audits.
Which of the following is correct concerning membership on the Public Company Accounting Oversight Board? Only two of its members may be CPAs. It is composed of nine members. All members must also currently be active in public accounting. A majority of members must be or have been accounting educators.
Only two of its members may be CPAs.
Which of the following is not a correct statement regarding differences between PCAOB auditing standards on engagement quality review and AICPA Statements on Quality Control Standards (SQCS)? PCAOB auditing standards require a concurring approval of issuance before the engagement report is released, whereas the SQCS have no such requirement. PCAOB auditing standards require a cooling-off period of at least two years before an engagement partner can serve as an engagement quality reviewer, whereas the SQCS have no such requirement. PCAOB auditing standards require engagement quality review documentation to be retained separately from the related engagement documentation for 10 years, whereas SQCS only require that the engagement quality review documentation be retained for 5 years with the other related engagement documentation. PCAOB auditing standards require an engagement quality review before an audit report is released, whereas SQCS do not require an engagement quality review.
PCAOB auditing standards require engagement quality review documentation to be retained separately from the related engagement documentation for 10 years, whereas SQCS only require that the engagement quality review documentation be retained for 5 years with the other related engagement documentation.
One of the objectives of the human resources element quality control mandates that a public accounting firm should establish policies and procedures for recruitment processes which provide reasonable assurance that all personnel Prepare working papers which are standardized in form and content. Perform engagements in accordance with professional standards. Will advance within the organization. Develop specialties in specific areas of public accounting.
Perform engagements in accordance with professional standards.
The audit partner in charge of an audit of a public company may only Be in charge of the audit of that one company. Perform the role as long as he or she also performs the "second partner review" for that audit. Perform that role for five consecutive years. Perform the role if he or she has proper AICPA issuer accreditation.
Perform that role for five consecutive years.
In AICPA professional standards, the word should indicates an (a) Interpretive suggestion that does not constitute a professional requirement. Unconditional requirement with which the auditor is obligated to comply. Presumptively mandatory requirement from which the CPA may depart in rare circumstances. Recommendation that has no authoritative status.
Presumptively mandatory requirement from which the CPA may depart in rare circumstances.
Generally accepted auditing standards are Required procedures to be used to gather evidence to support financial statements. Policies and procedures designed to provide reasonable assurance that the CPA firm and its personnel comply with professional standards. Pronouncements issued by the Auditing Standards Board. Rules acknowledged by the accounting profession because of their universal application.
Pronouncements issued by the Auditing Standards Board.
Which of the following best describes what is meant by the term "generally accepted auditing standards" [GAAS] under the AICPA's clarified auditing standards? Rules acknowledged by the accounting profession because of their universal application. Pronouncements issued by the Auditing Standards Board. Ten authoritative criteria that are classified as General Standards, Fieldwork Standards, and Reporting Standards. Procedures to be used to gather evidence to support financial statements.
Pronouncements issued by the Auditing Standards Board.
Which of the following is not a primary responsibility of an auditor: Provide regulators with an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. Provide creditors with an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. Provide management with an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. Provide investors with an opinion by the auditor on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.
Provide management with an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.
A financial statement audit report issued for a public company states that the audit was performed in accordance with which of the following standards? Generally accepted auditing standards. Public Company Accounting Oversight Board standards. Securities and Exchange Commission standards. Sarbanes-Oxley standards.
Public Company Accounting Oversight Board standards.
The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether the Auditor's system of quality control has been maintained at a high level. Results are consistent with the conclusions to be presented in the auditor's report. Audit procedures performed are approved in the professional standards. Audit has been performed by persons having adequate technical training and proficiency as auditors.
Results are consistent with the conclusions to be presented in the auditor's report.
The organization charged with protecting investors and the public by requiring full disclosure of financial information by companies offering securities to the public is the: Auditing Standards Board. Financial Accounting Standards Board. Government Accounting Standards Board. Securities and Exchange Commission.
Securities and Exchange Commission.
A person identified as an audit committee financial expert of an issuer generally must have acquired the attributes of a financial expert through any of the following experiences, except As a principal financial officer, principal accounting officer, controller, public accountant, or auditor. Serving on at least one other issuer's audit committee or disclosure committee of the board of directors. Actively supervising a principal financial officer or principal accounting officer. Assessing the performance of public accountants with respect to preparation, auditing, or evaluation of financial statements.
Serving on at least one other issuer's audit committee or disclosure committee of the board of directors.
An entity engaged a CPA to determine whether the client's web sites meet defined criteria for standard business practices and controls over transaction integrity and information protection. In performing this engagement, the CPA should comply with the provisions of Statements on Assurance Standards. Statements on Standards for Attestation Engagements. Statements on Standards for Management Consulting Services. Statements on Auditing Standards.
Statements on Standards for Attestation Engagements.
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 Substantive tests. Tests of controls. Internal control. Statistical analysis.
Substantive tests.
An independent auditor must have which of the following? A pre-existing and well-informed point of view with respect to the audit. Technical training that is adequate to meet the requirements of a professional. A background in many different disciplines. Experience in taxation that is sufficient to comply with generally accepted auditing standards.
Technical training that is adequate to meet the requirements of a professional.
Which of the following is correct concerning PCAOB guidance that uses the term "should"? The auditor must fulfill the responsibilities. The auditor must comply with requirements unless s/he demonstrates that alternative actions were sufficient to achieve the objectives of the standard. The auditor should consider performing the procedure; whether the auditor performs depends on the exercise of professional judgment in the circumstances. The auditor has complete discretion as to whether to perform the procedure.
The auditor must comply with requirements unless s/he demonstrates that alternative actions were sufficient to achieve the objectives of the standard.
Which of the following is correct concerning PCAOB guidance that uses the term "must"? The auditor must fulfill the responsibilities if relevant to the audit. The auditor must comply with requirements unless s/he demonstrates that alternative actions were sufficient to achieve the objectives of the standards. The auditor should consider the guidance; whether the auditor follows depends on exercise of professional judgment in the circumstances. The auditor has complete discretion as to whether to perform the procedure.
The auditor must fulfill the responsibilities if relevant to the audit.
Which of the following underlies the application of generally accepted auditing standards, particularly the standards for obtaining sufficient appropriate audit evidence? The elements of materiality and audit risk. The element of internal control over compliance with laws and regulations. The element of "cooperative evidence." The element of absolute assurance.
The elements of materiality and audit risk.
PCAOB standards applicable to an engagement quality review identify each of the following as examples of a "significant engagement deficiency," except for when The engagement team concluded that management's accounting estimates were unreasonable. The engagement team reached an inappropriate conclusion. The firm is not independent of its client. The engagement report is inappropriate.
The engagement team concluded that management's accounting estimates were unreasonable.
After fieldwork 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 The fair presentation of the financial statements in conformity with GAAP. Fraud involving the client's management and its employees. The materiality of the adjusting entries proposed by the audit staff. The communication of internal control weaknesses to the client's audit committee.
The fair presentation of the financial statements in conformity with GAAP.
Quality control policies and procedures that are established to decide whether to accept a new client should provide the CPA firm with reasonable assurance that The CPA firm's duty to the public concerning the acceptance of new clients is satisfied. The likelihood of associating with clients whose management lacks integrity is minimized. Client-prepared schedules that are necessary for the engagement are completed on a timely basis. Sufficient corroborating evidence to support the financial statement assertions is available.
The likelihood of associating with clients whose management lacks integrity is minimized.
A CPA establishes quality control policies and procedures for deciding whether to accept a new client or continue to perform services for a current client. The primary purpose for establishing such policies and procedures is To enable the auditor to attest to the integrity or reliability of a client. To comply with the quality control standards established by regulatory bodies. To minimize the likelihood of association with clients whose management lacks integrity. To lessen the exposure to litigation resulting from failure to detect fraud in client financial statements.
To minimize the likelihood of association with clients whose management lacks integrity.
One purpose of establishing quality control policies and procedures for acceptance and continuance of client relationships and specific engagements is to Undertake engagements only that the accounting firm is competent to perform. Monitor significant deficiencies in the design and operation of the client's internal control. Identify noncompliance with aspects of contractual agreements that affect the financial statements. Provide reasonable assurance that personnel will be adequately trained to fulfill their assigned responsibilities.
Undertake engagements only that the accounting firm is competent to perform.
A CPA firm may communicate its quality control policies and procedures to its personnel in which manner(s): Orally Written No No No Yes Yes No Yes Yes
Yes Yes
The Public Company Accounting Oversight Board (PCAOB) has authority to establish which of the following relating to public companies? Attestation standards Independence standards Yes Yes Yes No No Yes No No
Yes Yes
