ACC 5400 Midterm 1
The AICPA Code of Professional Conduct states that a CPA shall not disclose any confidential information obtained in the course of a professional engagement except with the consent of the client. This rule may preclude a CPA from responding to an inquiry made by:
A CPA-shareholder of the client corporation.
Which of the following is least likely to result in an additional paragraph being added to an audit report?
A decision not to confirm accounts receivable.
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.
Which of the following types of employees must be independent of an audit client?
A partner in the office that performs the engagement.
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.
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 review of a company's financial statements by a CPA firm:
A)Is substantially less in scope of procedures than an audit.
Which of the following is not prohibited by the AICPA Code of Professional Conduct?
Advertising in newspapers.
l. 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.
Assume that the opinion paragraph of an auditors' report begins as follows: "With the explanation given in Note 6, . . . the financial statements referred to above present fairly . . ." This is:
An improper type of reporting.
g. In general, internal auditors' independence will be greatest when they report directly to the:
Audit committee of the board of directors.
Audit firms that are subject to inspections by the PCAOB staff include:
Audit firms that are registered with the PCAOB.
b. 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.
The auditors' report should be dated as of the date the:
Auditors have accumulated sufficient appropriate evidence.
In using the work of a specialist, the auditors referred to the specialist's findings in their report. This would be an appropriate reporting practice if the:
Auditors, as a result of the specialist's findings, give a qualified opinion on the financial statements.
Which of the following is not a primary approach to auditing an accounting estimate?
Confirm the amounts
Seeking and treating as more persuasive information that is consistent with one's initial beliefs describes which cognitive bias?
Confirmation bias
A difference of opinion concerning accounting and auditing matters relative to a particular phase of the audit arises between an assistant auditor and the auditor responsible for the engagement. After appropriate consultation, the assistant auditor asks to be disassociated from the resolution of the matter. The working papers would probably:
Document the assistant auditor's position and how the difference of opinion was resolved.
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
Which of the following nonattest services may be performed by the auditors of a public company?
Preparation of the company's tax return.
c. 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.
d. 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.
An audit report for a public client indicates that the audit was performed in accordance with:
Standards of the Public Company Accounting Oversight Board (United States).
Which of the following is not explicitly included in an audit report with an unqualified opinion for a nonpublic company?
That all material instances of fraud have been identified.
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.
In providing nonattest services to an attest client, a CPA is allowed to perform which of the following functions?
Training client employees.
A material departure from generally accepted accounting principles will result in auditor consideration of:
Whether to issue an adverse opinion rather than a qualified opinion.
d. 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?
Yes - reasonable No - Absolute
Of the following, which is the least reliable type of audit evidence?
Copies of sales invoices inspected by the auditors.
During financial statement audits, auditors seek to restrict which type of risk?
Detection Risk
When the auditors are unable to determine the overall fairness of the financial statements, the most likely type of audit opinion is:
Disclaimer
Which of the following is the most likely type of audit opinion when a material departure from GAAP exists, but not so material as to overshadow an overall opinion?
Disclaimer
An audit provides reasonable assurance of detecting material
Fraudulent financial reporting - YES Misappropriation of Assets - YES
An audit report for a public client indicates that the financial statements were prepared in conformity with:
Generally accepted accounting principles (United States).
What type of analytical procedure would an auditor most likely use in developing relationships among balance sheet accounts?
Ratio Analysis
A primary purpose of the audit working papers is to:
Support the auditors' opinion.
i. Which of the following organizations establishes accounting standards for U.S. government agencies?
The Federal Accounting Standards Advisory Board.
Performing analytical procedures may help an auditor to:
Achieve audit objectives related to a particular assertion.
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
Which of the following is a principle underlying an audit conducted in accordance with generally accepted auditing standards?
An auditor's opinion enhances the degree of confidence that intended users can place in the financial statements.
The auditors who wish to draw reader attention to a financial statement note disclosure on significant transactions with related parties should disclose this fact in:
An emphasis-of-matter paragraph to the auditors' report.
In developing an expectation for analytical procedures, the auditors are least likely to consider:
Anticipated costs of audit completion.
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 is not one of the forms of attestation presented in the AICPA Statements on Standards for Attestation Services:
Inspection
b. Which of the following has primary responsibility for the fairness of the representations made in financial statements?
Client's management.
f. Governmental auditing, in addition to including audits of financial statements, often includes audits of efficiency, effectiveness, and:
Compliance
Analytical procedures performed near the end of the audit to assist the auditor in forming an overall conclusion on the financial statements are aimed primarily at:
Considering unusual or unexpected account balances that were not previously identified.
Assume that you are an auditor of Company X and that you auditing the period ended 12/31/2022. Based on your audit procedures, you find that the company had fully expensed a $1M payment made for insurance coverage for the period 06/30/2022 to 06/30/2023. However, the expense was recorded in Cost of Goods Sold instead of insurance expense.
Dr. Prepaid Insurance Expense $500K Dr. Insurance Expense $500k Cr. Cost of Good Sold $1M
Which of the following is not a financial statement assertion made by management?
Effectiveness of internal control.
Critical audit matters are most likely to include those matters that:
Involve challenging, subjective or complex auditor judgment.
h. 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.
Which of the following does the FASB consider a source of nonauthoritative guidance for use when there is no authoritative guidance available?
FASB Concepts Statements.
j. Which of the following is correct about forensic audits?
Forensic audits are usually performed in situations in which fraud has been found or is suspected.
The cost of analytical procedures in terms of time needed to perform, when compared to other tests, is ordinarily considered:
Low
In an audit report on combined financial statements, reference to the fact that a portion of the audit was performed by a component auditor is:
Not to be construed as a qualification, but rather as a division of responsibility between the two CPA firms.
In what section of the audit working papers would a long-term lease agreement be filed?
Permanent working paper file
e. Which of these organizations has the responsibility to perform inspections of auditors of public companies?
Public Company Accounting Oversight Board.
Which AICPA quality control standard would most likely be satisfied when a CPA firm maintains records indicating which partners or employees of the firm were previously employed by the CPA firm's clients?
Relevant ethical requirements.
Which of the following statements best describes why auditors investigate related party transactions?
The substance of related party transactions may differ from their form.
k. What best describes the purpose of the auditors' consideration of internal control in a financial statement audit for a nonpublic company?
To determine the nature, timing, and extent of audit testing.
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
a. Which of the following organizations can revoke the right of an individual to practice as a CPA?
The applicable state board of accountancy.
As part of their audit, auditors obtain a representation letter from their client. Which of the following is not a valid purpose of such a letter?
To increase the efficiency of the audit by eliminating the need for other audit procedures.
Analytical procedures are most likely to detect:
Unusual transactions.
What type or types of audit opinion are appropriate when financial statements are materially and pervasively misstated?
qualified - NO adverse - YES
When the matter is properly disclosed in the financial statements of a nonpublic company, the likely result of substantial doubt about the ability of the client to continue as a going concern is the issuance of which of the following audit opinions?
qualified - NO unmodified with an add. p - YES
A nonpublic company's change in accounting principles that the auditors believe is not justified is likely to result in which of the following types of audit opinions?
qualified - YES unmodified with emphasis - NO
