ACCT411 - Exam 1 Review

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.) Developing entity program policies.

Which best describes the documentation completion date? A.) Forty-five days from the report release date, based on PCAOB standards. B.) Sixty days from the report release date, based on PCAOB standards. C.) Seven years from the report release date, based on auditing standards. D.) Five years from the report release date, based on auditing standards.

A.) Forty-five days from the report release date, based on PCAOB standards.

Which of the following provides the most authoritative guidance for an audit of an issuer? A.) General guidance provided by the Public Company Accounting Oversight Board Auditing Standards. B.) Specific guidance provided by the Statement of Auditing Standards. C.) An article in the AICPA CPA Letter addressing frequently asked questions on a new auditing standard. D.) Audit disclosure checklists obtained from a continuing professional education class.

A.) General guidance provided by the Public Company Accounting Oversight Board Auditing Standards.

Each of the following is an ethical principle that should guide the work of auditors in the conduct of audits under government auditing standards, except: A.) Materiality B.) Integrity C.) The public Interest D.) Proper use of government information

A.) Materiality

10 Generally Accepted Auditing Standards

1. Adequate technical training and proficiency 2. Independence 3. Exhibit due professional care 4. Adequately plan the work and supervise 5. Understanding of the entity and it's internal controls 6. Competent evidential matter 7. Statements are prepared in accordance with GAAP 8. Must identify circumstances in which principles have not been consistently observed 9. Informative disclosures 10. Expression of opinion of financial statements

Areas that a CPA firm must address with its quality control system

1. CPA's firm size 2. Nature of the CPA firm's practice 3. Cost-benefit considerations

Four issues that plaintiff clients have to prove to prevail in a lawsuit against a CPA firm under common law

1. CPAs had a duty 2. Client incurred losses related to CPAs performance 3. CPAs breached their duty 4. A plaintiff under Rule 10b-5 must prove reliance on a misstatement and that the defendant acted with scienter

9 Rules of AICPA Code of Professional Conduct

1. Integrity and objectivity rule 2. General standards rule 3. Compliance with standards rule 4. Accounting principles rule 5. Confidential client information rule 6. Acts discreditable rule 7. Advertising and other forms of solicitation rule 8. Form of organization and name rule 9. Independence

in general the issues a third party plaintiff must prove to prevail in a lawsuit against a CPA firm under common law.

1. Must prove reliance on a misstatement. 2.CPA duty 3.Breached contract 4.Losses incurred by third party.

6 Principles of AICPA Code of Professional Conduct

1. Responsibilities 2. The public interest 3. Integrity 4. Objectivity and independence 5. Due care 6. Scope and nature of services

According to the AICPA Code of Professional Conduct, what would a covered member most appropriately do upon learning that another member of an attest engagement team is considering employment with the client? A.) Notify an appropriate person in the accounting firm. B.) Disassociate from the engagement. C.) Report the situation to the client's board of directors. D.) Advise the engagement partner to withdraw the firm from the engagement.

A.) Notify an appropriate person in the accounting firm.

According to the AICPA Code of Professional Conduct, which of the following records must a CPA return to the client when requested? A.) Client-provided records, even if fees are due to the CPA for the engagement and are unpaid. B.) Client-provided records requested for a second time because the client misplaced the first set of records. C.) Supporting records prepared by the CPA consisting of adjusting, closing, combining, or consolidating entries prior to the completion of the engagement. D.) The CPA's working papers consisting of analyses and schedules prepared by the client at the CPA's request.

A.) Client-provided records, even if fees are due to the CPA for the engagement and are unpaid.

Define the interpretations of AICPA Code of Professional Conduct

Applications of rules to specific business situations

Define the principles of AICPA Code of Professional Conduct

Aspirational goals of behavior

The audit documentation that makes up the current file most likely would include a copy of the: A.) Bank reconciliation. B.) Pension plan contract. C.) Articles of incorporation. D.) Flowchart of the internal control.

A.) Bank reconciliation.

Which of the following factors would most likely influence the form and extent of the auditor's documentation of an entity's internal control environment? A.) Complexity and size of the entity. B.) Amount of audit work performed at an interim date. C.) Amount of audit work performed by the internal auditor. D.) Results of verifying material account balances.

A.) Complexity and size of the entity.

According to the AICPA Code of Professional Conduct, which of the following activities results in an act discreditable to the profession? A.) A CPA solicits recent Uniform CPA Examination questions without written authorization from the AICPA. B.) A CPA signs a document containing immaterial false and misleading information, or permits or directs another CPA to do so. C.) A CPA who is engaged to perform a government audit neglects to follow certain government auditing requirements and discloses in the audit report the fact that such requirements were not followed and the reasons for it. D.) A CPA fails to give a client copies of the CPA's workpapers related to a completed and issued work product upon the client's request because the client has not paid fees payable to the CPA for the work product.

A.) A CPA solicits recent Uniform CPA Examination questions without written authorization from the AICPA.

Which of the following matters does an auditor usually communicate to management? A.) Arrangements involving a predecessor auditor B.) Indications of adverse key financial ratios C.) An agreement regarding preliminary materiality thresholds D.) Identification of recurring operating losses

A.) Arrangements involving a predecessor auditor

Rules issued under the Sarbanes-Oxley Act of 2002 restrict former members of an audit engagement team from accepting employment as a chief executive, chief financial or chief accounting officer, or controller of an audit client that files reports with the Securities and Exchange Commission. How many annual audit period(s) must be completed before such employment can be accepted? A.) One B.) Two C.) Three D.) Five

A.) One

According to the Sarbanes-Oxley Act of 2002, the PCAOB has the legal authority to perform each of the following,except: A.) Prosecute suspected criminal violations by registered public accounting firms. B.) Process, review, and approve the registration of public accounting firms that audit issuers. C.) Inspect and review selected audit engagements of registered public accounting firms. D.) Establish auditing, quality control, and independence standards for audits of issuers.

A.) Prosecute suspected criminal violations by registered public accounting firms.

An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes, but containing columns for: A.) Reclassifications and adjustments. B.) Reconciliations and tickmarks. C.) Accruals and deferrals. D.) Expense and revenue summaries.

A.) Reclassifications and adjustments.

If the predecessor auditor refuses to give the current auditor of a nonissuer access to the documentation, what should the current auditor do? A.) Review the risk assessment of the opening balances of the financial statements. B.) Withdraw from the engagement. C.) Disclaim an opinion due to a scope limitation. D.) Discuss the matter with the client's legal counsel.

A.) Review the risk assessment of the opening balances of the financial statements.

Smith, CPA, is a partner of Johnson Accounting Firm. Johnson audited the books of Homewtown Bank. Smith's independence would be impaired under which of the following circumstances? A.) Smith is a director of Hometown Bank. B.) Smith has a collateralized automobile loan with Hometown bank C.) Smith had an account with Hometown Bank two years ago. D.) Smith and a Hometown bank board member belong to the same church

A.) Smith is a director of Hometown Bank.

A nonissuer requests that a CPA change an audit engagement to a review engagement. If the accountant agrees tot eh change, how, if at all, should the accountant's review report be modified? A.) The accountant should issue the review report without mentioning the change in engagement. B.) The accountant should include in the review report a disclaimer of an audit opinion. C.) The accountant should include in the review report the circumstances that resulted in the change in engagement. D.) The accountant should include in the review report a reference to the original engagement but not the reason for the change.

A.) The accountant should issue the review report without mentioning the change in engagement.

Which of the following statements is most accurate regarding audit documentation requirements? A.) The auditor should document findings that could result in a modification of the auditor's report. B.) If different audit procedures were performed due to a lack of responsiveness by the client, the lack of responsiveness should not be included in the working papers. C.) If an oral explanation serves as sufficient support for the work the auditor performed, the explanation should be documented in the working papers. D.) If the results of audit procedures indicate a need to revise the previous assessment of risk, the new assessment should be documented and the original assessment should be removed.

A.) The auditor should document findings that could result in a modification of the auditor's report.

A registered public accounting firm is conducting an audit of an issuer and initiated its current-year audit on January 1, year 3. Many of the firm's former auditors are now employed by the client. Under which of the following circumstances may the firm perform the audit? A.) The client's CFO was the lead partner on the audit until December 31, year 1. B.) The client's CEO was a manager on the audit until June 30, year 2. C.) The client's controller was a staff accountant on the audit for two weeks during year 2. D.) The client's chief accounting officer was the concurring partner on the audit until April 15, year 2.

A.) The client's CFO was the lead partner on the audit until December 31, year 1.

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 review of the audit documentation. This second review usually focuses on: A.) The fair presentation of the financial statements in conformity with GAAP. B.) Fraud 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 those charged with governance.

A.) The fair presentation of the financial statements in conformity with GAAP.

Rules issued under the Sarbanes-Oxley Act of 2002 prohibit a registered accounting firm from performing an audit at a public company if any person serving as the public company's chief executive, chief financial or chief accounting officer, or controller or chief accounting officer worked for the registered accounting firm within the preceding: A.) Within one year before the current audit. B.) Within two years of the current audit. C.) Within three years of the current audit. D.) Within five years of the current audit.

A.) Within one year before the current audit.

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.) Yes;Yes;Yes

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.) An actuary associated with the auditor's firm renders services to the plan.

To ensure that the audit report for an issuer is prepared in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, the report must: A.) Be prepared within 60 days of the end of the issuer's fiscal year-end unless extenuating circumstances, as outlined in the act, are publicly disclosed. B.) Attest to and report on the internal control assessment made by the management of the issuer. C.) Be prepared within 60 days of the issuer's fiscal year-end, be certified by the Public Company Accounting Oversight Board, and be publicly disclosed. D.) Attest to, and report on, the efficiency and effectiveness of the issuer's system of internal control.

B.) Attest to and report on the internal control assessment made by the management of the issuer.

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? A.) Information processing B.) Engagement performance C.) Technology selection D.) Professional skepticism

B.) Engagement performance

Which of the following rules of the AICPA Code of Professional Conduct must be observed even by a member who is not in public practice? A.) Independence Rule. B.) Integrity and Objectivity. C.) Contingent Fees Rule. D.) Form of Organization and Name Rule.

B.) Integrity and Objectivity.

Audit engagement team members should remain alert for evidence of noncompliance with which of the following relevant ethical requirements? A.) Maintaining a suspicious attitude, presuming that the client is dishonest until evidence proves otherwise. B.) Performing professional responsibilities with the highest sense of integrity. C.) Performing audit procedures efficiently and within expected time budgets. D.) Maintaining confidentiality of client information by not including it in the audit documentation.

B.) Performing professional responsibilities with the highest sense of integrity.

A CPA firm must do which of the following before it can participate in the preparation of an audit report of a company registered with the Securities and Exchange Commission (SEC)? A.) Join the SEC Practice Section of the AICPA. B.) Register with the Public Company Accounting Oversight Board. C.) Register with the Financial Accounting Standards Board (FASB). D.) Register with the SEC pursuant to the Securities Exchange Act of 1934.

B.) Register with the Public Company Accounting Oversight Board

Considering only the provisions of the AICPA Code of Professional Conduct, which of the following services may a CPA perform for a commission or contingent fee? A.) Preparation of an original income tax return. B.) Representation of a nonattest client in an IRS examination. C.) Preparation of an amended income tax return to claim a deduction that was inadvertently omitted on an originally filed return. D.) Performance of consulting services for an audit client.

B.) Representation of a nonattest client in an IRS examination.

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.) Reviewing a proposed transaction and informing the client of the tax consequences.

Which of the following terms used within standards indicates a presumatively mandatory requirement? A.) Must B.) Should C.) May D.) Might

B.) Should

Each of the following is a require attributed of an issuer's audit committee financial expert, except: A.) The ability to assess the application of accounting principles in connection with estimates, accruals, and reserves. B.) Significant audit experience as a certified public accountant. C.) An understanding of internal controls related to financial reporting. D.) An understanding of generally accepted accounting principles.

B.) Significant audit experience as a certified public accountant.

Which of the following statements is most accurate regarding sufficient and appropriate documentation? A.) Accounting estimates are not considered sufficient and appropriate documentation. B.) Sufficient and appropriate documentation should include evidence that the audit working papers have been reviewed. C.) If additional evidence is required to document significant findings or issues, the original evidence is not considered sufficient and appropriate and therefore should be deleted from the working papers. D.) Audit documentation is the property of the client, and sufficient and appropriate copies should be retained by the auditor for at least five years.

B.) Sufficient and appropriate documentation should include evidence that the audit working papers have been reviewed.

An independent auditor must have which of the following? A.) A pre-existing and well-informed point of view with respect to the audit. B.) Technical training that is adequate to meet the requirements of a professional. C.) A background in many different disciplines. D.) Experience in taxation that is sufficient to comply with generally accepted auditing standards.

B.) Technical training that is adequate to meet the requirements of a professional.

During an audit of the financial statements of a company, the CFO provides a spreadsheet to the audit team that contains a number of errors that are material to the financial statements. Under what circumstances would this situation be a violation of the rules of the Sarbanes-Oxley Act of 2002 on improper influence on the conduct of audits? A.) The CFO discovers and corrects most of the errors in the spreadsheet, which was prepared by a staff accountant. One immaterial error remains of which the CFO is aware, and this error remains undetected by the audit team, but the financial statements end up being fairly presented. B.) The audit team discovers the errors through alternative procedures when they discern that the spreadsheet was improperly manipulated by the CFO. This intentional conduct of the CFO does not succeed in affecting the audit. C.) The CFO had the spreadsheet prepared by a vendor of the company; the vendor intentionally misstates information in the spreadsheet, and the CFO does not discover the misstatements. The errors remain undetected by the audit team, and the financial statements are materially misleading. D.) The CFO was unaware of the errors in the spreadsheet, which was prepared by a staff accountant and reviewed by the CFO. The errors remain undetected by the audit team, and the financial statements are materially misleading.

B.) The audit team discovers the errors through alternative procedures when they discern that the spreadsheet was improperly manipulated by the CFO. This intentional conduct of the CFO does not succeed in affecting the audit.

Which of the following best describes the effect of a contingent fee arrangement on the auditor's independence? A.) The contingent fee arrangement does not impair independence if it is consistent with the registered public accounting firm's quality control policies. B.) The contingent fee arrangement impairs independence. C.) The contingent fee arrangement does not impair independence unless more than half of the fee is subject to contingencies. D.) The contingent fee arrangement impairs independence unless approved by the client's audit committee.

B.) The contingent fee arrangement impairs independence.

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: A.) The CPA firm's duty to the public concerning the acceptance of new clients is satisfied. B.) The likelihood of associating with clients whose management lacks integrity is minimized. C.) Client-prepared schedules that are necessary for the engagement are completed on a timely basis. D.) Sufficient corroborating evidence to support the financial statement assertions is available.

B.) The likelihood of associating with clients whose management lacks integrity is minimized.

The understanding with the client regarding a financial statement audit generally includes which of the following matters? A.) The expected opinion to be issued. B.) The responsibilities of the auditor. C.) The contingency fee structure. D.) The preliminary judgment about materiality.

B.) The responsibilities of the auditor.

Which of the following conditions most likely would pose the greatest risk in accepting a new audit engagement? A.) Staff will need to be rescheduled to cover this new client. B.) There will be a client-imposed scope limitation. C.) The firm will have to hire a specialist in one audit area D.) The client's financial reporting system has been in place for 10 years.

B.) There will be a client-imposed scope limitation.

What is the maximum number of days in which a nonissuer's auditor should complete the assembly of the final audit file following the report release date? A.) 30 days B.) 45 days C.) 60 days D.) 75 days

C.) 60 days

In which of the following situations is there a violation of client confidentiality under the AICPA Code of Professional Conduct? A.) A member discloses confidential client information to a court in connection with arbitration proceedings relating to the client. B.) A member discloses confidential client information to a professional liability insurance carrier after learning of a potential claim against the member. C.) A member whose practice is primarily bankruptcy discloses a client's name. D.) A member uses a records retention agency to store clients' records that contain confidential client information.

C.) A member whose practice is primarily bankruptcy discloses a client's name.

Under the ethical standards of the profession, which of the following investments by a CPA in a corporate client is an indirect financial interest? A.) An investment held in a retirement plan. B.) An investment held in a blind trust. C.) An investment held through a regulated mutual fund. D.) An investment held through participation in an investment club.

C.) An investment held through a regulated mutual fund.

According to the ethical standards of the profession, a CPA's independence would most likely be impaired if the CPA: A.) Accepted any gift from a client B.) Became a member of a trade association that is a client. C.) Contracted with a client to supervise the client's office personnel. D.) Served, with a client bank, as a co-fiduciary of an estate or trust.

C.) Contracted with a client to supervise the client's office personnel.

Which of the following activities would be most helpful to a CPA in deciding whether to accept a new audit client? A.) Reviewing industry benchmarking data. B.) Considering the client's compensation methods. C.) Evaluating the CPA's ability to properly service the client. D.) Evaluating the most recent peer review of the client's previous auditor.

C.) Evaluating the CPA's ability to properly service the client.

Under the provisions of the Sarbanes-Oxley Act of 2002, the lead audit or coordinating partner and the reviewing partner must rotate off the audit: A.) Each year. B.) Every three years. C.) Every five years. D.) Every seven years.

C.) Every five years.

At least how often should the PCAOB inspect a registered public accounting firm that regularly issues audit reports to 50 issuers? A.) Annually. B.) Every two years. C.) Every three years. D.) As requested by the firm.

C.) Every three years.

According to the AICPA Code of Professional Conduct, which of the following financial interests in the client during the period of the engagement impairs a CPA's independence? A.) All direct and indirect financial interests. B.) Only direct financial interests. C.) Only direct and material indirect financial interests. D.) Only material financial interests.

C.) Only direct and material indirect financial interests.

According to the AICPA Code of Professional Conduct, which of the following actions will impair independence? A.)Preparing client financial statements based on information in a trial balance. B.) Processing payroll for a client's signature based on client record keeping. C.) Participating in the hiring or termination of a client's employees. D.) Assisting a client in drafting a stock-offering document or memorandum.

C.) Participating in the hiring or termination of a client's employees.

According to the AICPA Code of Professional Conduct, under which of the following circumstances may a CPA receive a contingent fee for services? A.) Examining a client's prospective financial information. B.) Preparing a client's federal income tax return. C.) Representing a client in an IRS examination of the client's federal income tax return. D.) Reviewing a client's financial statements.

C.) Representing a client in an IRS examination of the client's federal income tax return.

The Sarbanes-Oxley Act of 2002 prohibits a registered public accounting firm from providing any non-audit service to an issuer contemporaneously with the audit, except: A.) Bookkeeping or other services related to the accounting records or financial statements of the audit client. B.) Appraisal or valuation services, fairness opinions, or contribution-in-kind reports. C.) Tax services pre-approved by the audit committee. D.) Financial information systems design and implementation.

C.) Tax services pre-approved by the audit committee.

An issuer's auditor is prohibited from providing tax services to which of the following individuals? A.) The chair of the board of directors B.) The chair of the audit committee C.) The CEO D.) The CFO of an affiliate of the issuer audited by another firm

C.) The CEO

At the completion of an audit, which of the following entities has ownership of the audit working papers? A.) The client. B.) The client's audit committee. C.) The CPA firm that performed the audit. D.) The client's stockholders

C.) The CPA firm that performed the audit.

A successor auditor's inquiries of the predecessor auditor should include questions regarding: A.) The predecessor's evaluation of audit risk and judgment about materiality. B.) Subsequent events that occurred since the predecessor's audit report was issued. C.) The predecessor's understanding as to the reasons for the change in auditors. D.) The predecessor's knowledge of accounting matters of continuing significance.

C.) The predecessor's understanding as to the reasons for the change in auditors.

When an auditor of a parent nonissuer is also the auditor of a component, then each of the following factors would ordinarily influence the decision to obtain a separate engagement letter from the component, except: A.) The legal requirements regarding the appointment of the auditor. B.) Whether a separate audit report is to be issued on the component. C.) Whether there has been any turnover of the component's board members. D.) The degree of independence of the component management from the parent entity.

C.) Whether there has been any turnover of the component's board members.

The permanent file of the audit documentation for an engagement generally would not include: A.) Bond indenture agreements. B.) Lease agreements. C.) Working trial balance. D.) Flowchart of internal control.

C.) Working trial balance.

According to PCAOB standards, each of the following items of information should be included in the documentation of an engagement quality review, except: A.) Identification of the engagement quality reviewer and others who assisted the reviewer B.) Identification of the documents reviewed by the engagement quality reviewer and others who assisted the reviewer. C.) The date on which the engagement quality reviewer provided concurring approval of issuance. D.) An assessment by the engagement quality reviewer of the instances of fraud identified by the audit team.

D.) An assessment by the engagement quality reviewer of the instances of fraud identified by the audit team.

Under which of the following circumstances may a CPA charge fees that are contingent upon finding a specific result? A.) For an examination of prospective financial statements. B.) For an audit or a review if agreed upon by both the CPA and the client. C.) For a compilation if a third party will use the financial statement and disclosure is not made in the report. D.) If fixed by courts, other public authorities, or in tax matters if based on the results of judicial proceedings.

D.) If fixed by courts, other public authorities, or in tax matters if based on the results of judicial proceedings.

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.) Is removed from political pressures to conduct audits objectively, without fear of political reprisal.

Which of the following factors most likely would lead a CPA to conclude that a potential audit engagement should not be accepted? A.) There are significant related party transactions that management claims occurred in the ordinary course of business. B.) Internal control activities requiring the segregation of duties are subject to management override. C.) Management continues to employ an inefficient system of information technology to record financial transactions. D.) It is unlikely that sufficient appropriate audit evidence is available to support an opinion on the financial statements.

D.) It is unlikely that sufficient appropriate audit evidence is available to support an opinion on the financial statements.

An auditor's engagement letter most likely would include a statement that: A.) Lists potential significant deficiencies discovered during the prior year's audit. B.) Explains the analytical procedures that the auditor expects to apply. C.) Describes the auditor's responsibility to evaluate going concern issues. D.) Limits the auditor's responsibility to detect errors and fraud.

D.) Limits the auditor's responsibility to detect errors and fraud.

A CPA firm would best provide itself reasonable assurance of meeting its responsibility to offer professional services that conform with professional standards by: A.) Establishing an understanding with each client concerning individual responsibilities in a signed engagement letter. B.) Assessing the risk that errors and fraud may cause the financial statements to contain material misstatements. C.) Developing specific audit objectives to support management's assertions that are embodied in the financial statements. D.) Maintaining a comprehensive system of quality control that is suitably designed in relation to its organizational structure.

D.) Maintaining a comprehensive system of quality control that is suitably designed in relation to its organizational structure.

Section 404 of the Sarbanes-Oxley Act of 2002 requires each annual report of an issuer to include which of the following? A.) Representations from the company's external auditors that the company has effective internal control over operations. B.) Management representations that the company's external auditors have examined its internal control over compliance with laws and regulations. C.) Reasonable assurances that fraud will be identified before the issuance of the company's annual report. D.) Management's assessment of the effectiveness of internal control over financial reporting.

D.) Management's assessment of the effectiveness of internal control over financial reporting.

Which of the following would a successor auditor ask the predecessor auditor to provide after accepting an audit engagement? A.) Disagreements between the predecessor auditor and management as to significant accounting policies and principles. B.) The predecessor auditor's understanding of the reasons for the change of auditors. C.) Facts known to the predecessor auditor that might bear on the integrity of management. D.) Matters that may facilitate the evaluation of financial reporting consistency between the current and prior years.

D.) Matters that may facilitate the evaluation of financial reporting consistency between the current and prior years.

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 in order to to be subject to mandatory annual inspection by the PCAOB? A.) One audit. B.) More than 10 audits. C.) More than 50 audits. D.) More than 100 audits.

D.) More than 100 audits.

According to SEC regulations, each of the following non-audit services will impair an auditor's independence, except: A.) Designing a management information system that aggregates source data underlying the financial statements. B.) Performing an internal audit function. C.) Preparing the audit client's financial statements that are filed with the SEC. D.) Preparing the audit client's tax return.

D.) Preparing the audit client's tax return.

According to the AICPA Code of Professional Conduct, which of the following actions by a CPA most likely involves an act discreditable to the profession? A.) Refusing to provide the client with copies of the CPA's workpapers. B.) Auditing financial statements according to governmental standards despite the client's preferences. C.) Accepting a commission from a nonattest function client. D.) Retaining client records after the client demands their return.

D.) Retaining client records after the client demands their return.

Under the provisions of the Sarbanes-Oxley Act of 2002, registered public accounting firms are required to prepare and maintain audit work papers and other information related to any audit report for a period of: A.) One year B.) Three years C.) Five years D.) Seven years

D.) Seven years

Each of the following broker-dealer relationships impairs auditor independence with respect to a broker-dealer issuer audit client, except: A.) The auditor has a brokerage account that holds both U.S. securities and assets other than cash or securities B.) The auditor has a brokerage account that holds U.S> securities in excess of Securities Investor Protection Corporation coverage limits. C.) The auditor has a brokerage account that includes assets other than cash or securities. D.) The auditor has a cash balance in a brokerage account that is fully covered by the Securities Investor Protection Corporation.

D.) The auditor has a cash balance in a brokerage account that is fully covered by the Securities Investor Protection Corporation.

Which of the following statements is correct about actions taken after the documentation completion date? A.) An auditor must not many any amendments to audit documentation before the end of the specified retention period. B.) An auditor must not make any additions to audit documentation before the end of the specified retention period. C.) An auditor must not make any changes to audit documentation before the end of the specified retention period. D.) The auditor must not many any deletions to audit documentation before the end of the specified retention period.

D.) The auditor must not make any deletions to audit documentation before the end of the specified retention period.

Prior to commencing fieldwork, an auditor usually discusses the general audit strategy with the client's management. Which of the following matters do the auditor and management agree upon at this time? A.) The appropriateness of the entity's plans for dealing with adverse economic conditions. B.) The determination of the fraud risk factors that exist within the client's operations. C.) The control weaknesses to be included in the communication with those charged with governance. D.) The coordination of the assistance of the client's personnel in data preparation.

D.) The coordination of the assistance of the client's personnel in data preparation.

Before accepting an engagement to audit a new client, a CPA is required to obtain: A.) An assessment of fraud risk factors likely to cause material misstatements. B.) An understanding of the prospective client's industry and business. C.) The prospective client's signature to a written engagement letter D.) The prospective client's consent to make inquiries of the predecessor

D.) The prospective client's consent to make inquiries of the predecessor

Which of the following auditor concerns most likely could be so serious that the auditor concludes that a financial statement audit cannot be performed? A.) Management fails to modify prescribed internal controls for changes in information technology. B.) Internal control activities requiring segregation of duties are rarely monitored by management. C.) Management is dominated by one person who is also the majority stockholder. D.) There is a substantial risk of intentional misapplication of accounting principles.

D.) There is a substantial risk of intentional misapplication of accounting principles.

Define the rules of AICPA Code of Professional Conduct

Enforceable ethical regulations that CPAs must follow

Know the liability for CPAs under the Federal 33 (page 688) and 34 Securities Laws (page 692) and Tort Reform.

It prohibits any unlawful activity which: 1. Employ any device, scheme, or artifice to defraud 2. Make any untrue statement of a material fact or to omit to state a material fact necessary 3. Engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person 4. Liability as a "Seller" of Securities (Federal 33 law)

Define the rulings of AICPA Code of Professional Conduct

Professional Ethics Executive Committee (PEEC) publishes "rulings" on the applicability of rules in specific situations