AUD Review

Question 4 aq.aud.pcaob.004_0818 Which of the following is an accurate statement regarding PCAOB rules for auditors of public companies?Accounting firms may not provide any services to their public company audit clients on a contingent fee basis.Public company accounting firms providing attest work need not concern themselves with SEC and AICPA rules so long as they comply with PCAOB rules.Accounting firms may provide any tax consulting services to public company audit clients so long as they are approved in advance by the client's board of directors.Accounting firms may not provide any tax consulting services to public company audit clients, even if they are approved in advance by the client's audit committee.

Accounting firms may not provide any services to their public company audit clients on a contingent fee basis. You Answered Correctly! Correct! Rule 3521 states that contingent fees for "any service or product" provided to a public company audit client would impair independence.

Question 5 aq.aud.pcaob.005_0818 Which of the following is an accurate statement regarding PCAOB rules for auditors of public companies?Public company accounting firms may provide tax services to audit clients' top officers without forfeiting independence so long as the services are approved by top management.If nonaudit services are not barred by the SEC and PCAOB, an accounting firm may provide them to a public company audit client without seeking approval from the client's audit committee. All PCAOB rules must be approved by the SEC. All PCAOB rules apply to all audits performed in the United States.

All PCAOB rules must be approved by the SEC. You Answered Correctly! Correct! This puts the PCAOB solidly under the thumb of the SEC.

Question 4 AICPA.101015AUD-SIM Tim is an auditor helping to audit an employee benefit plan. Which of the following roles connected to the plan would create independence problems for Tim if performed by a partner in his office?Promoter.Underwriter.Voting Trustee.All of the above.

All of the above.

uestion 5 aq.sec.exch.com.004_2017 Which of the following transactions impairs independence under the SEC rules?The Lark audit firm audits ABC Co., a Fortune 100 company that manufactures widgets. Pam, who is on Lark's audit team, borrows money from ABC to buy a car. The loan is collateralized by the automobile.The Wren audit firm audits XYZ Co., a publicly traded financial institution. Pim, who is on Wren's audit team, has a credit card issued by XYZ and currently owes $20,000 on the card.The Meadowlark audit firm audits LMN Co., a publicly traded insurance company, which is teetering on the brink of bankruptcy. Pom is on Meadowlark's audit team for the LMN audit and owns a life insurance policy issued by LMN Co. that she bought before she became a covered person.All of the options.

All of the options.

Question 2 aq.sec.exch.com.001_2017 Which of the following are "covered persons" for purposes of the SEC's independence rules?Sarah, a tax partner at her firm. She gave 15 hours of advice to her firm's audit team regarding the audit of ABC Co.Tory, the chairman and senior partner at Sarah's firm.Burt, the lead partner for the ABC Co. audit at Sarah's firm.All of the options. You Answered Correctly! All three of these people are "covered persons" for SEC purposes.

All of the options. You Answered Correctly! All three of these people are "covered persons" for SEC purposes.

Question 4 AICPA.080964REG-1B Maisy wishes to start her own accounting firm and wonders what restrictions there are on names of such firms. Which of the following is accurate?An accounting firm's name may not be misleading.An accounting firm's name may include the names of past owners.An accounting firm's name may (if not misleading) include a fictitious name.All three choices provided.

All three answer choices provided.

Question 5 AICPA.080965REG-1B Allen wishes to start his own audit firm. In which form may he practice, assuming the form is permitted in his state?Sole proprietorship.General partnership.LLP.All three answer choices provided.

All three answer choices provided.

Question 3 AICPA.080923REG-1B Which of the following actions by a CPA most likely constitutes an act discreditable to the profession?Discriminating on the basis of race in employment.Negligently making false journal entries.Failing to pay one's own personal income tax.All three of the choices provided.

All three of the choices provided. You Answered Correctly! All of these are listed as discreditable acts according to the Acts Discreditable Rule. This is the best answer.

Question 5 AICPA.141011AUD-SIM If Maria has ABC for an attest client, from which of the following should she be wary of accepting gifts that might threaten her objectivity?ABC.ABC's officers.ABC's major (> 10%) shareholders.All three of the choices provided.

All three of the choices provided. You Answered Correctly! Because all three answer choices provided are correct, this is the best answer. Maria should also be very concerned about gifts from ABC's directors.

Question 4 AICPA.141010AUD-SIM Which of the following would constitute a conflict of interest that poses a threat to objectivity?The ABC Accounting Firm is hired by Bozo Co. to provide litigation support services in its lawsuit against Bebop Corp., which is a tax client of ABC.Quan suggests that his tax client Linda invest her tax refund in Blitz Corporation without disclosing that he owns a large stake in Blitz.Tibble recommends that his tax client Borton hire a financial planner named Tilden without disclosing that Tilden has agreed in exchange to refer all his clients who need an accountant to Tibble.All three of the choices provided.

All three of the choices provided. You Answered Correctly! Because the three choices provided are all examples of conflicts of interest, this is the best answer.

Question 6 assess.AICPA.AUD.dol-0023 According to the U.S. Department of Labor, an auditor of an employee benefit plan would be considered independent ifThe auditor is committed to acquire a material indirect financial interest in the plan sponsor.An actuary associated with the auditor's firm renders services to the plan. A member of the auditor's firm is an investment advisor to the plan.The auditor's firm maintains financial records for the plan.

An actuary associated with the auditor's firm renders services to the plan. CORRECT! Department of Labor rules allow audit firms to provide actuarial services to a plan without impairing independence.

Question 1 aicpa.aq.pcaob.eng.qual.rev.001_18 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. You Answered Correctly! Correct! By process of elimination, this answer is not identified by PCAOB auditing standards as a matter that is required documentation in an engagement quality review. There is no expectation that fraud issues will be routinely identified by the audit team, nor does the quality reviewer provide a separate assessment of such matters.

Question 6 assess.AICPA.AUD.sqcs-0010 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. Differences of opinion between the engagement partner and the quality control reviewer should be resolved using the firm's established policies and procedures, not by industry best practices.

Question 1 AICPA.101150AUD 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. Title II of the Sarbanes-Oxley Act of 2002 establishes 5 years as the upper limit for how long someone can serve as the engagement partner or review partner before mandatory rotation is required.

Question 3 AICPA.940502REG-BL Which of the following statements best explains why the CPA profession has found it essential to promulgate ethical standards and to establish means for ensuring their observance?A distinguishing mark of a profession is its acceptance of responsibility to the public.A requirement for a profession is to establish ethical standards that stress primary responsibility to clients and colleagues.Ethical standards that emphasize excellence in performance over material rewards establish a reputation for competence and character.Vigorous enforcement of an established code of ethics is the best way to prevent unscrupulous acts.

A distinguishing mark of a profession is its acceptance of responsibility to the public. You Answered Correctly! Ethical standards are not legally required, and so the goal in creating them lies in showing a willingness to go above and beyond minimum requirements. Observing ethical standards shows the public that CPAs are more concerned than are most professions with working in an ethical and trustworthy fashion.

Question 4 AICPA.940502AUD-AU Which of the following factors most likely would cause an auditor not to accept a new audit engagement?An inadequate understanding of the entity's internal control structure.The close proximity to the end of the entity's fiscal year. Concluding that the entity's management probably lacks integrity. An inability to perform preliminary analytical procedures before assessing control risk.

Concluding that the entity's management probably lacks integrity. You Answered Correctly! Management integrity via the control environment sets the tone of an organization and provides the foundation for all other components of internal control. An inherent limitation of an internal control structure is the possibility of management override. Thus, the lack of management integrity can impact the audit in terms of the occurrence of both employee and management errors and irregularities. If the auditor believes that management lacks integrity, the risk that material misstatements might not be discovered becomes unacceptably high. As a result, the auditor would probably decide not to accept the engagement.

Question 4 aq.gao.002 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?Developing entity program policies.Providing methodologies, such as practice guides.Providing accounting opinions to a legislative body.Recommending internal control procedures.

Developing program policies for an audited entity would impair auditor independence. This is one of many management roles that, under GAO rules, an auditor may not perform for an audited entity without impairing independence. Giving advice on a routine business matter does not impair independence

Question 9 AICPA.950502AUD-AU A successor auditor most likely would make specific inquiries of the predecessor auditor regardingSpecialized accounting principles of the client's industry.The competency of the client's internal audit staff.The uncertainty inherent in applying sampling procedures.Disagreements with management as to auditing procedures.

Disagreements with management as to auditing procedures. You Answered Correctly! Auditors are required by professional standards to make inquiries pertaining to the integrity of management, disagreements with management regarding accounting principles and auditing procedures, and the predecessor's understanding of the reason for the change in auditors.

Question 2 AICPA.911101AUD-AU A CPA firm would be reasonably assured of meeting its responsibility to provide services that conform with professional standards byAdhering 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.Joining professional societies that enforce ethical conduct. You Answered Correctly! A firm is required to establish an appropriate system of quality control to provide reasonable assurance of conforming with professional standards.

Question 2 AICPA.941103AUD-AU Hill, CPA, has been retained to audit the financial statements of Monday Co. Monday's predecessor auditor was Post, CPA, who has been notified by Monday that Post's services have been terminated. Under these circumstances, which party should initiate the communications between Hill and Post? Hill, the successor auditor. Post, the predecessor auditor. Monday's controller or CFO. The chairman of Monday's board of directors.

Hill, the successor auditor. The initiative belongs to Hill, the successor auditor. It does not belong to Post, the predecessor auditor. When an auditor has been retained to audit the financial statements of an entity, the auditor contacts the predecessor auditor to obtain information about matters that may affect the conduct of the audit and to review the prior year audit documentation. The successor auditor should contact the predecessor auditor prior to final acceptance of the engagement.

Question 6 AICPA.080966REG-1B Which firms must have a majority of their financial interests owned by CPAs? I.Attest firms.II.Firms that identify themselves as "Members of the AICPA." I only. II only. I and II. Neither I nor II.

I only.

Question 1 AICPA.080951REG-1B Dain would violate the Code of Professional Responsibility if, during an audit, he: I.Stated that he was not aware of any material modifications that should be made to the audited financial statements in order for them to be in conformity with GAAP if he was, in fact, aware of needed material modifications. II.Stated that he was not aware of any material modifications that should be made to the audited financial statements in order for them to be in conformity with GAAP if he was aware of immaterial modifications that would be desirable.

I only. Material departures from GAAP, which require material modifications, violate the Code of Professional Conduct.

Question 5 AICPA.080942REG-1B Sally has her own small accounting firm. Due to some personal connections with a top officer of Mediumsize Corporation, Sally landed an interview with Mediumsize as a potential tax client. Mediumsize has some complicated tax issues of a type that Sally has not handled before. Which of the following is true? I.Because Sally has not handled these complicated issues before, she cannot take this engagement.II.Sally can take this engagement if she believes in good faith that she can research these tax issues and handle them competently.III.Sally can take this engagement if she believes in good faith that she can consult with experts in the area and thereby handle these tax issues competently. I only. II only. I and II. II and III.

II and III. You Answered Correctly! Because choices II and III are both accurate, this is the best answer.

Question 4 AICPA.080943REG-1B Dena prepared personal income tax returns for 100 clients last year. Two of her clients have come to her with valid complaints about errors she made in their returns, causing them to pay more than they should have in taxes. Which of the following is true? I.Dena's CPA license should be revoked, because she obviously cannot exercise due professional care.II.While it is certainly possible that Dena has acted without due professional care in these two instances, the AICPA does not demand perfection. I only. II only. I and II. Neither I nor II.

II only. You Answered Correctly! The AICPA and state accountancy boards do not expect CPAs to be "Ms. or Mr. Super Accountant."

Question 2 AICPA.141014AUD-SIM Members may properly: I.Advocate on behalf of audit clients. II.Advocate on behalf of tax clients. I only. II only. I and II. Neither I nor II.

II.Advocate on behalf of tax clients. You Answered Correctly! Members may advocate on behalf of tax and advisory service clients, although they should never stretch the bounds of performance standards, go beyond sound and reasonable professional practice, or compromise their credibility.

Question 2 aq.conflict.interest.002_17 Selden has provided sage tax advice to QRS Co. for many years. QRS has invited Selden to join its board of directors. Which of the following is advice that Selden should heed?Because as a tax professional he need not worry about independence, it is perfectly fine for Selden to join the QRS board.Because Selden's position as a director will be fully disclosed, he need not worry about threats to objectivity.If QRS wishes to tap Selden's expertise, it would probably be preferable to have him serve as a consultant to the QRS board rather than to join the board as a member.It would never be acceptable for Selden to serve on the QRS board.

If QRS wishes to tap Selden's expertise, it would probably be preferable to have him serve as a consultant to the QRS board rather than to join the board as a member. You Answered Correctly! Correct! This choice provides a route whereby QRS can gain from Selden's wisdom, yet the threat to his objectivity is minimized.

Question 6 AICPA.141013AUD-SIM Which of the following is true? Clients have the right to veto any outsourcing by a CPA firm. Clients must be informed in writing before any professional services are outsourced. If the client objects to outsourcing of professional services, then the member should either not outsource the work or decline to provide the service altogether. All three choices provided.

If the client objects to outsourcing of professional services, then the member should either not outsource the work or decline to provide the service altogether.

Question 1 AICPA.920560AUD-AU 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. You Answered Correctly! An attestation engagement is one in which the practitioner is engaged to 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.

Question 2 AICPA.101149AUD 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. You Answered Correctly! Standards for the accountant, not the company. The PCAOB is a standard-setting body for certain matters related to registered public accounting firms (including auditing and quality control, among other matters). However, the PCAOB is not an accounting standard-setting body and does not promulgate GAAP affecting the financial statements of issuers.

Question 2 aq.discred.acts.001_17 Client Lewis has demanded return of work product produced by the Martin accounting firm. The Martin firm is resisting the demand. Which of the following is not a proper ground for Martin to deny return of the work product?Lewis owes money to the Martin firm for work Martin did that is unrelated to these documents.Lewis owes money to the Martin firm for its work in preparing these particular documents.The work product is incomplete.Lewis has sued Martin and these records are the subject of a disputed discovery request.

Lewis owes money to the Martin firm for work Martin did that is unrelated to these documents. It is proper to withhold the work product when outstanding (or even threatened) litigation exists concerning the engagement.

Question 2 AICPA.101119AUD 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.

Correct: Technical training that is adequate to meet the requirements of a professional. You Answered Incorrectly. An auditor with a pre-existing and well-informed point of view about the audit (for example, the belief that a clean audit opinion should be issued) would be biased and not independent.

Question 3 AICPA.900547AUD-AU The exercise of due professional care requires that an auditorExamine 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. You Answered Correctly! The exercise of due professional care requires that a critical review of the work completed and the judgments made be performed at every level of supervision

Question 2 aq.aud.pcaob.002_2017 Whether seeking an audit committee's permission to provide permissible tax services or other non-audit services to a public company audit client or when preparing to take a public company on as a new audit client, three important steps are:Describe, discuss, and document.Request, explain, and record.Seek, document, and reconsider.Describe, examine, and reexamine.

Describe, discuss, and document. You Answered Correctly! In each of these three cases, the accounting firm is to describe in writing important issues surrounding the relationship, discuss those specifically with the audit committee, and document the discussion for posterity.

Question 3 aq.aud.pcaob.003_2017 The Single accounting firm audits Double, Inc., a public company. Which of the following people may not receive any tax service consulting from Single?Bill, who is an outside director on Double's board.Omar, Double's head of internal audit.Kelly, Double's controller, who was hired away from a competitor in the middle of an audit cycle when the former controller died suddenly and the contract to provide the tax advice was assigned before Kelly joined Double and the services were terminated 39 days after Kelly began work.Sally, assistant CFO of a Double subsidiary that is audited by Triple accounting firm. You Answered Correctly! Because Omar is in a Financial Reporting Oversight Role and none of the exceptions appears to apply, he may not receive any tax services from Single.

Omar, Double's head of internal audit. You Answered Correctly! Because Omar is in a Financial Reporting Oversight Role and none of the exceptions appears to apply, he may not receive any tax services from Single.

Question 4 AICPA.080955REG-1B Which of the following actions by a CPA most likely does not constitute an act discreditable to the profession?Sexually harassing an employee.Providing for a right of contribution from the client in an audit engagement letter.Providing for a right of indemnification from the client in an audit engagement letter.All of the above.

Question 4 AICPA.080955REG-1B Which of the following actions by a CPA most likely does not constitute an act discreditable to the profession?Sexually harassing an employee.Providing for a right of contribution from the client in an audit engagement letter.Providing for a right of indemnification from the client in an audit engagement letter.All of the above. You Answered Correctly! While the SEC and most government agencies oppose full indemnification of wrongdoers, contribution is typically allowed and, therefore, would not violate the Code.

Question 2 AICPA.940503AUD-AU The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether theAuditor'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 audit is to be performed by persons having adequate technical training and proficiency as auditors. This requirement is met through the firm's quality control system. It would not normally be addressed in the audit documentation. The audit work performed by each assistant should be reviewed for adequacy and to ensure that it supports the conclusions reached.

Question 6 AICPA.111160AUD 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?Refusing to provide the client with copies of the CPA's audit documentation.Auditing financial statements according to governmental standards despite the client's preferences.Accepting a commission from a nonattest function client.Retaining client records after the client demands their return.

Retaining client records after the client demands their return. Client records belong to the client and should be returned to the client upon demand (even if there is an ongoing fee dispute). Accepting commissions from attest clients is a problem, but not from nonattest clients.

Question 7 AICPA.940501REG-BL Which of the following actions by a CPA most likely violates the profession's ethical standards?Arranging with a financial institution to collect notes issued by a client in payment of fees due.Compiling the financial statements of a client that employed the CPA's spouse as a bookkeeper.Retaining client records after the client has demanded their return.Purchasing a segment of an insurance company's business that performs actuarial services for employee benefit plans.

Retaining client records after the client has demanded their return. Only audit documentation may be retained indefinitely by a CPA. Such documentation may be necessary for defending against a malpractice suit. Client records, however, must be returned to a client upon request. An unethical situation might arise in the case of an AUDIT in such a situation, as independence would be threatened by the employment of the CPA's spouse. However, merely compiling financial statements poses no ethical dilemma.

Question 2 aqs.mipp.intro.001_0819 Which of the following is a safeguard against threats to independence implemented by the firm?Rotation of engagement team personnelKnowledgeable and experienced managersLicensure requirementsProfessional standards and threat of discipline

Rotation of engagement team personnel You Answered Correctly! Correct! This is an example of a safeguard implemented by a firm.

Question 2 AICPA.990403AUD-AU 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. You Answered Correctly! The type of engagement described is a WebTrust assurance engagement. It is performed in accordance with the Statements on Standards for Attestation Engagements.

Question 3 aq.conflict.interest.003_17 In which of the following situations would member Taka not be in a conflict of interest?Taka is giving financial advice to both the buyer and the seller in a commercial real estate deal.Taka is giving financial advice to both the husband and the wife in a messy divorce proceeding.Taka is providing financial advice to ABC Co. as it readies a bid to buy a large office building knowing that Taka's own firm is simultaneously planning to submit a bid itself.Taka's firm is bidding to buy a tract of real estate that is owned by a company that was a tax client of the firm more than 10 years before.

Taka's firm is bidding to buy a tract of real estate that is owned by a company that was a tax client of the firm more than 10 years before. You Answered Correctly! Correct! Because the seller has not been a client for at least ten years, it seems unlikely that there could be a conflict of interest here. Only if the accounting firm had learned some confidential proprietary information while serving the client that is still of value a decade later would there be some sort of a conflict here.

Question 1 aqs.intro.pref.002_0819 Which of the following is accurate? Tax preparers must be independent in fact.Members providing consulting services must be independent in appearance.So long as they act with independence, auditors need not worry about objectivity or integrity.Tax consultants must act with integrity and objectivity. Question 2 AICPA.141052AUD-SIM Which of the following is true regarding the Principles of Professional Conduct?To live up to the Code of Professional Conduct, members may have to work hard, but they do not have to sacrifice their own best interests.Members must not only be competent in the provision of professional services; they must also cooperate with other members to improve the art of accounting.Due care in the audit area is satisfied if a member knows generally accepted accounting principles and generally accepted accounting standards inside and out.Because the Code of Professional Conduct does not expressly prohibit a member from moonlighting as a circus trapese performer, a member could perform at a local bar as "Sam the Flying CPA." You Answered Correctly! The code requires members to cooperate with each other to improve the art of accounting (and to maintain the public's confidence in the profession, and to carry out the profession's special responsibilities). Question 3 AICPA.940502REG-BL Which of the following statements best explains why the CPA profession has found it essential to promulgate ethical standards and to establish means for ensuring their observance?A distinguishing mark of a profession is its acceptance of responsibility to the public.A requirement for a profession is to establish ethical standards that stress primary responsibility to clients and colleagues.Ethical standards that emphasize excellence in performance over material rewards establish a reputation for competence and character.Vigorous enforcement of an established code of ethics is the best way to prevent unscrupulous acts. You Answered Correctly! Ethical standards are not legally required, and so the goal in creating them lies in showing a willingness to go above and beyond minimum requirements. Observing ethical standards shows the public that CPAs are more concerned than are most professions with working in an ethical and trustworthy fashion. Question 4 aq.intro.pref.001_17 Jeffrey has two jobs. In the mornings, he works for a firm in public practice. In the afternoon, he has a job working as a member in business. If he finds himself in a position where standards seem to be inconsistent, he should choose:Those applying to MIPPsThose applying to MIBs.Those applying to OMs.None of the above; no standards would apply in that setting. You Answered Correctly! Correct! A member serving in multiple roles should choose the most restrictive applicable provisions and that will be the standards applying to MIPPs.

Tax consultants must act with integrity and objectivity. You Answered Correctly! Correct! But they need not worry about independence unless they are also doing attest work.

Question 1 aicpa.aqaud.mipp.intro.002_20 A CPA is considering whether to accept an engagement to prepare financial statements for a new client. Which of the following statements is correct regarding the independence of the CPA?The CPA should be independent of the client.The CPA is not required to make a determination of whether the CPA is independent of the client.The CPA is required to disclose in the engagement report any relationships with the client's personnel.The CPA should obtain management's understanding regarding the benefits of an accountant being independent of a client.

The CPA is not required to make a determination of whether the CPA is independent of the client. Correct. Because the CPA is not doing any attest-related work, the CPA need not make a determination of independence.

Question 3 aq.sec.exch.com.002_2017 Which of the following persons are "close family members" for purposes of SEC independence rules?Tina, a 14-year-old whose mother is on her firm's audit engagement team for the ABC Co. audit.Tip, whose cousin Fred is the lead partner on the ABC Co. audit.Merlin, whose granddaughter just joined an accounting firm and is providing technical advice to the audit team doing the ABC Co. audit.Sam, whose best friend since childhood is Muhammad, who is on the audit team for the ABC Co. audit.

Tina, a 14-year-old whose mother is on her firm's audit engagement team for the ABC Co. audit. You Answered Correctly! Correct. Tina is both a CFM and an Immediate Family Member (IFM) if we assume that she is dependent on her mother, which she probably is.

Question 1 AICPA.940501AUD-AU Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding the predecessor's Opinion of any subsequent events occurring since the predecessor's audit report was issued. Understanding as to the reasons for the change of auditors. Awareness of the consistency in the application of GAAP between periods. Evaluation of all matters of continuing accounting significance.

Understanding as to the reasons for the change of auditors. A successor auditor should communicate with the predecessor auditor about matters that will assist the successor auditor in deciding whether to accept the engagement. These would include the integrity of management, disagreements with management, and the predecessor's understanding of the reason for the change in auditors. The successor auditor would not inquire as to the predecessor's evaluation of all matters of continuing accounting significance.

Question 1 aicpa.aqaud.dol.002_20 In which of the following situations would an auditor who is rendering an audit opinion on the financial statements of an employee benefit plan that will be filed with the Department of Labor be considered independent?The auditor's spouse has obtained an immaterial direct financial interest in the employee benefit plan.The auditor obtained a material indirect financial interest in the employee benefit plan.A member of the auditor's firm was an investment advisor to the employee benefit plan during the period of professional engagement but was not providing services as of the date of the opinion.A member of the auditor's firm was a voting trustee of the plan in a prior year but has since disassociated from the plan and did not participate in auditing the financial statements of the plan.

A member of the auditor's firm was a voting trustee of the plan in a prior year but has since disassociated from the plan and did not participate in auditing the financial statements of the plan. You Answered Correctly! Correct. The member here is independent because he or she both dissociated from the plan and did not participate in the audit of the plan covering any period of the member's role as trustee.

Question 3 AICPA.101014AUD-SIM The ABC Accounting firm is auditing an employee benefit plan. Which of the following parties cannot have any direct or material indirect financial interest in the plan to prevent an independence violation?A member of the engagement team.A partner in an office in another city.ABC itself.A, B, and C.

A, B, and C. You Answered Correctly! Choices A and C would both be correct under the current AICPA Code of Professional Conduct as well, although B would not. But B is correct under DOL standards.

Question 4 AICPA.100981AUD-SIM 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. You Answered Correctly! The PCAOB (specifically, AS Section 1220) states: "An outside reviewer who is not already associated with a registered public accounting firm would become associated with the firm issuing the report if he or she . . . (1) receives compensation from the firm issuing the report for performing the review or (2) performs the review as agent for the firm issuing the report."

Question 1 AICPA.901116AUD-AU-SIM 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, throughFlowcharting the internal control structure.Proper planning of the audit engagement.Analytical procedures.Audit documentation. Question 2 AICPA.940503AUD-AU The audit work performed by each assistant should be reviewed to determine whether it was adequately performed and to evaluate whether theAuditor'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. You Answered Incorrectly. The audit is to be performed by persons having adequate technical training and proficiency as auditors. This requirement is met through the firm's quality control system. It would not normally be addressed in the audit documentation.

Analytical procedures. You Answered Correctly! Substantive evidential matter required by the Principles may include evidence obtained through the performance of substantive analytical procedures (as well as that obtained through inspection, observation, inquiries, and confirmation). Analytical procedures performed as substantive tests can be used to provide substantive evidential matter.

Question 1 AICPA.090780.AUD-AU According to GAAS, which of the following terms identifies a requirement for audit evidence?Appropriate.Adequate.Reasonable.Disconfirming.

Appropriate. This Answer is Correct GAAS requires the auditor to obtain "sufficient appropriate audit evidence..."

Question 10 AICPA.130712AUD Which of the following matters does an auditor usually include in the engagement letter? Arrangements regarding fees and billing. Analytical procedures that the auditor plans to perform. Indications of negative cash flows from operating activities. Identification of working capital deficiencies.

Arrangements regarding fees and billing. The engagement letter identifies the respective responsibilities of the entity and the auditor, and essentially constitutes the contract between the parties. It is customary for the engagement letter to address fee-related issues. The engagement letter would not specify particular audit procedures that the auditor plans to perform, such as substantive analytical procedures.

Question 2 aq.form.org.002_0818 Which of the following would constitute a violation of the Code of Professional Conduct?Tim is a tax accountant at ABC Accounting but also owns a small financial interest in an unrelated consulting firm.The DEF Accounting firm does attest work, and CPAs own a majority, but not all, of its financial interests.CPA firm Smith & Jones merged with CPA firm Knight & Day and call the new firm Smith, Jones & Knight. CPA firm Bludger & Snitch fell apart due to personal conflicts, and Adam Bludger and Mary Snitch each formed their own new firm. However, because they had been in the middle of an audit of LMN Corporation at the time of the breakup, Adam and Mary went ahead and finished the audit, presenting their report on their old Bludger & Snitch letterhead because they had lots of it left over.

CPA firm Bludger & Snitch fell apart due to personal conflicts, and Adam Bludger and Mary Snitch each formed their own new firm. However, because they had been in the middle of an audit of LMN Corporation at the time of the breakup, Adam and Mary went ahead and finished the audit, presenting their report on their old Bludger & Snitch letterhead because they had lots of it left over. You Answered Correctly! Correct! Under these circumstances, Bludger and Smith should present their report on plain paper to avoid misleading people into thinking that they are still partners. B is incorrect because There was a time when an attest firm had to be owned 100% by members, but majority ownership suffices under current rules.

Question 1 aicpa.aq.discred.acts.002_18 According to the AICPA Code of Professional Conduct, which of the following records must a CPA return to the client when requested?Client-provided records, even if fees are due to the CPA for the engagement and are unpaidClient-provided records requested for a second time because the client misplaced the first set of recordsSupporting records prepared by the CPA consisting of adjusting, closing, combining, or consolidating entries prior to the completion of the engagementThe CPA's working papers consisting of analyses and schedules prepared by the client at the CPA's request

Client-provided records, even if fees are due to the CPA for the engagement and are unpaid You Answered Correctly! Correct! Client-provided records should be delivered to the client at the client's request, even if the client has not paid its bill to the member.

Question 5 AICPA.100982AUD-SIM 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. You Answered Correctly! The PCAOB (specifically, AS Section 1220) requires the engagement quality reviewer to evaluate the significant judgments and conclusions of the engagement team by (1) holding discussions with the engagement partner and other members of the engagement team and (2) reviewing the engagement's audit documentation. The engagement quality reviewer is not expected to direct inquiries to client personnel or perform audit verification procedures to corroborate account balances, such as analytical procedures or tests of details. Hence, the last choice is the correct answer.

Question 1 AICPA.111173AUD 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. You Answered Correctly! The AICPA's quality control standards are applicable to the CPA firm's portfolio of audit (and other financial statement related) services, which is consistent with this answer.

Question 3 AICPA.040214FAR-SIM 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. You Answered Correctly! The FASB establishes accounting standards. PCAOB establishes auditing standards.

Establishing accounting standards for public companies. You Answered Correctly! The FASB establishes accounting standards. PCAOB establishes auditing standards.

Question 5 assess.AICPA.AUD.sqcs-0032 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. CORRECT! The AICPA's Statements on Quality Control Standards emphasize four specific issues in making client acceptance/continuance decisions: (1) the integrity of management and those charged with governance; (2) the competence of the engagement team (including time and resources); (3) compliance with relevant ethical requirements (such as independence); and (4) significant issues from prior engagements that affect the continuing relationship. Evaluating the CPA's ability to properly service the client is associated with the competence of the engagement team, which is identified as an important consideration.

Question 4 assess.AICPA.AUD.pcaob.resp-0043 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. You Answered Correctly! CORRECT! Registered public accounting firms that audit more than 100 issuers must be inspected annually; those that audit 100 or fewer issuers must be inspected every three years. In this case, a registered public accounting firm that issues audit report to 50 issuers would be inspected every three years.

Question 2 aq.dol.001_17 In which of the following situations will independence not be impaired in light of Department of Labor standards?ABC Accounting audits DEF Corporation's employee benefit plan. Tom a tax manager for ABC who does no professional work for DEF, purchases a small number of DEF shares.GHI Accounting audits JKL Corporation's employee benefit plan. GHI also serves as an investment advisor to the plan.MNO Accounting firm audits PQR Corporation's employee benefit plan. One of PQR's accountants, Suri, has joined MNO. Suri completely dissociated herself from PQR and its benefit plan and will not take part in an audit covering any time period that she worked at PQR.STU Accounting audits VWX Corporation's employee benefit plan. STU also acts as an underwriter for VWX when it issues new shares.

MNO Accounting firm audits PQR Corporation's employee benefit plan. One of PQR's accountants, Suri, has joined MNO. Suri completely dissociated herself from PQR and its benefit plan and will not take part in an audit covering any time period that she worked at PQR. You Answered Correctly! Correct! Suri may move from the audit client or its benefit plan under DOL rules so long as she does the two things that she did here—dissociate herself from PQR and not participate in an audit covering any period of time while she worked for PQR or its plan.

Question 5 AICPA.101016AUD-SIM Wang is an auditor helping to audit an employee benefit plan. Which of the following services would create independence problems for Wang if performed by members of his office for the plan?Maintaining financial records.Performing actuarial services.Advising on tax issues.All of the above.

Maintaining financial records. You Answered Correctly! Under DOL guidelines, many consulting services are permitted, but one cannot maintain independence while auditing records that one maintained in the first place.

Question 12 AICPA.020403AUD-AU An auditor's engagement letter most likely would include Management's acknowledgment of its responsibility for maintaining effective internal control.The auditor's preliminary assessment of the risk factors relating to misstatements arising from fraudulent financial reporting.A reminder that management is responsible for illegal acts committed by employees.A request for permission to contact the client's lawyer for assistance in identifying litigation, claims, and assessments.

Management's acknowledgment of its responsibility for maintaining effective internal control. This Answer is Correct AU-C 210 (Terms of Engagement, paragraph 10) requires the following specific matters to be addressed in the engagement letter: "The objective and scope of the audit of the financial statements. The responsibilities of the auditor. The responsibilities of management. A statement that because of the inherent limitations of an audit, together with the inherent limitations of internal control, an unavoidable risk exists that some material misstatements may not be detected, even though the audit is properly planned and performed in accordance with GAAS. Identification of the applicable financial reporting framework for the preparation of the financial statements. Reference to the expected form and content of any reports to be issued by the auditor and a statement that circumstances may arise in which a report may differ from its expected form and content." The example engagement letter provided in an appendix to that pronouncement identifies several specific responsibilities of management, including the following: "for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error". Although a lawyer's letter will normally be requested in an audit, permission for the letter is not requested in the engagement letter.

Question 1 AICPA.101136AUD-SIM The GAO's independence rules for auditing apply when Sam audits which of the following:IBM.The Corner Store, a small business opened by two recent immigrants.Maricopa County, Arizona.All of the above.

Maricopa County, Arizona. You Answered Correctly! This is a government entity, and no doubt an entity that receives federal funds, so in addition to the AICPA's Code of Professional Conduct, GAGAS and attendant independence rules will apply.

Question 3 AICPA.941102REG-BL According to the profession's ethical standards, which of the following events may justify a departure from a Statement of Financial Accounting Standards? New legislation Evolution of a new form of business transaction NoYesYesNoYesYesNoNo

New legislation Evolution of a new form of business Yes Yes You Answered Correctly! There is a strong presumption that established accounting principles must always be followed. However, the AICPA cannot always anticipate all circumstances in which such principles might be applied and recognizes that there may be occasional situations where literal application of pronouncements on accounting principles would render financial statements misleading. In those situations, departure from the accounting principles is justified under the Code of Ethics. An unusual degree of materiality or the existence of conflicting industry practices are given as examples of circumstances where departure from accounting principles is NOT usually justified. But new legislation and evolution of a new form of business transaction are BOTH given as examples of circumstances where departure IS justified.

Question 6 aq.sec.exch.com.006_17 Which of the following relationships is permitted under SEC independence rules?ABC Accounting Firm audits DEF Co., a large public company. Before DEF became an audit client, several ABC partners bought small amounts of DEF stock. Cumulatively, they own 6.3% of DEF stock and have not sold it.Susie is on GHI Accounting Firm's audit engagement team for client JKL Co., a large public corporation. Susie's spouse is on JKL's board of directors.Timmy is a tax partner in the Akron office of the MNO Accounting Firm, which has as an audit client PQR Co., a large public corporation. Timmy does 15 hours of tax work for PQR every year and owns some shares of PQR stock.Mary is an auditor at the STU Accounting Firm which has as an audit client VWX Corp., a large public banking company. Mary is not on the audit team for VWX, but before she ever went to work for STU, she borrowed money from VWX to buy her car. The loan is still outstanding, but it is collateralized by the car and Mary's payments are up-to-date.

Mary is an auditor at the STU Accounting Firm which has as an audit client VWX Corp., a large public banking company. Mary is not on the audit team for VWX, but before she ever went to work for STU, she borrowed money from VWX to buy her car. The loan is still outstanding, but it is collateralized by the car and Mary's payments are up-to-date. You Answered Correctly! Correct! This is permitted. Mary doesn't seem to be a covered person. Even if she were, this loan would be permitted so long as, and this appears to be the case, VWX is a financial institution, the loan is fully collateralized, and normal lending procedures were followed.

AICPA.141052AUD-SIM Which of the following is true regarding the Principles of Professional Conduct? To live up to the Code of Professional Conduct, members may have to work hard, but they do not have to sacrifice their own best interests. Members must not only be competent in the provision of professional services; they must also cooperate with other members to improve the art of accounting. Due care in the audit area is satisfied if a member knows generally accepted accounting principles and generally accepted accounting standards inside and out.Because the Code of Professional Conduct does not expressly prohibit a member from moonlighting as a circus trapese performer, a member could perform at a local bar as "Sam the Flying CPA."

Members must not only be competent in the provision of professional services; they must also cooperate with other members to improve the art of accounting. You Answered Correctly! The code requires members to cooperate with each other to improve the art of accounting (and to maintain the public's confidence in the profession, and to carry out the profession's special responsibilities).

Question 3 AICPA.941124AUD-AU 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 fieldwork whether an unqualified opinion can be expressed.

Minimize the likelihood of association with clients whose management lacks integrity. You Answered Incorrectly. Quality control policies and procedures governing new client acceptance are established to minimize the likelihood of association with a client whose management lacks integrity. This does not mean that the firm attests to the reliability of the client, however.

Question 1 aq.conflict.interest.001_17 The Patterson Accounting Firm (PAF) does not wish to have its integrity or objectivity compromised by the fact that its tax client, Borovia Corporation, is a constant giver of gifts and entertainment to its outside consulting, law, and accounting firms. Which of the following should PAF keep in mind?As long as the gifts are given by Borovia's owners, but not Borovia itself, no objectivity problems arise.PAF's accountants should remember that a violation of the integrity duty is presumed if they receive gifts that violate PAF's rules and the member knows or is reckless in not knowing of the violation.Gifts that a jury would find "reasonable in the circumstances" are fine even if they violate Borovia's official policy.Gifts of entertainment are treated differently for these purposes than gifts of objects or money.

PAF's accountants should remember that a violation of the integrity duty is presumed if they receive gifts that violate PAF's rules and the member knows or is reckless in not knowing of the violation. You Answered Correctly! Correct! If there is both a gift that violates the accounting firm's or the client's rulesandthe accountant knows or is reckless in not aware of the violation, a violation of the duties of objectivity and integrity is presumed.

Question 2 AICPA.101018AUD-SIM Sue's firm was hired to audit a Reno County project that used federal grant money to attempt to create jobs for people on welfare. Sue was in charge of the audit, and her team found many questionable practices. When the chief administrator of Reno County's government heard about Sue's preliminary findings, he called her into his office and told her that her firm would lose every single audit contract it had with every single unit of Reno County government if he was not pleased with Sue's audit report. This is an example of:A potential personal impairment of independence.A potential external impairment of independence.A potential organizational impairment of independence.None of the above.

Potential external impairment of independence. The potential impairment threat is external, stemming from the threatened firing. Because Sue works for an outside accounting firm, and not the government, this is not an example of an organizational impairment.

Question 6 aq.aud.pcaob.006_0818 Master Accounting Firm wishes to provide consulting services to its public company audit client, XAL Corporation. The services it wishes to provide are permitted by PCAOB rules, but Master knows that it must receive the consent of XAL's audit committee. Which of the following is not a step that Master should undertake to acquire that consent?Describing in writing the scope of the services to be providedDiscuss the potential effects of provision of the services on independenceDocument the discussion with the audit committee about effects of provision of the services on independence Provide a list of the names of Master employees who will provide the services

Provide a list of the names of Master employees who will provide the services You Answered Correctly! Correct! This is not one of the three steps..

Question 1 aq.acct.aud.001_2017 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. You Answered Correctly! The auditor's primary role is to provide an impartial (independent) report on the reliability of management's financial statements. These financial statements are distributed to interested parties outside of the reporting entity itself, such as actual or potential shareholders and creditors, major customers and suppliers, employees, regulators, and others for their decision-making (resource allocation) needs. Management prepares the financial statements and represents that they are in fact fairly presented while the auditor is auditing such representations.

Question 3 AICPA.100980AUD-SIM 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.

Question 3 AICPA.100980AUD-SIM Which of the following is not a correct statement regarding differences between PCAOB auditing standards on engagement quality review and AICPA 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. You Answered Incorrectly. The PCAOB (specifically, AS Section 1220) identifies a number of differences relative to the AICPA's quality control standards, including those stated in the first, second, and last choices. However, the PCAOB requires the engagement quality review documentation to be retained along with (not separately from!) the related engagement documentation; and PCAOB auditing standards require such audit documentation to be retained for 7 years, not 10. Moreover, the AICPA's SQCS do not require that the engagement quality review documentation be retained along with the related audit documentation. Hence, C is correct.

Question 1 aq.aud.sec.005_2017 Which of the following employment relationships does not impair independence under SEC rules?The Badger audit firm audits ABC Co., a publicly traded company. Tam is on Badger's audit team for the audit. His sister is a direct report of the CFO of ABC.The Otter audit firm audits XYZ Co., a publicly traded company. Tim was on Otter's audit team for the audit last year, but just a few days after last year's audit was completed, Tim severed all ties with Otter and went to work as the controller at XYZ.The Weasel audit firm audits LMN Co., a publicly traded company. LMN's audit cycle runs from January 1 to December 31. Tom was on Weasel's audit team for the 2016 audit. He severed all ties with Weasel on March 1, 2017. Tom went to work in a significant accounting position at LMN on January 2, 2019.The Possum audit firm audits PQR Co., a publicly traded company. Max is lead partner on the Possum audit team. Max's sister Estrella is CFO of PQR. Max and his sister are estranged.

The Weasel audit firm audits LMN Co., a publicly traded company. LMN's audit cycle runs from January 1 to December 31. Tom was on Weasel's audit team for the 2016 audit. He severed all ties with Weasel on March 1, 2017. Tom went to work in a significant accounting position at LMN on January 2, 2019 You Answered Correctly! Tom has disassociated from Weasel by severing all ties and has served the one-year cooling-off period.

Question 5 AICPA.990406AUD-AU-SIM An auditor is required to establish an understanding with a client regarding the services to be performed for each engagement. This understanding generally includes Management's responsibility for errors and the illegal activities of employees that may cause material misstatement. The auditor's responsibility for ensuring that the audit committee is aware of any significant deficiencies in internal control that come to the auditor's attention. Management's responsibility for providing the auditor with an assessment of control risk associated with the entity's financial statements.The auditor's responsibility for determining preliminary judgments about materiality and audit risk factors.

The auditor's responsibility for ensuring that the audit committee is aware of any significant deficiencies in internal control that come to the auditor's attention. The understanding requires that management take responsibility for correcting material misstatements and for "identifying and ensuring that the entity complies with the laws and regulations applicable to its activities." Management is not required to take responsibility for errors and illegal activities of employees. Professional standards require that the auditor establish an understanding with the client regarding the services to be performed. The understanding would generally include: the objective of the audit; management's responsibilities with regard to the financial statements, internal control, compliance with laws and regulations, availability of records, and the management representation letter; the auditor's responsibilities for GAAS and reportable conditions; a description of an audit; and management's responsibilities regarding correction of material misstatements and evaluation of immaterial adjustments.

Question 2 AICPA.100979AUD-SIM 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. You Answered Correctly! The PCAOB (specifically, AS Section 1220) identifies the following as "significant engagement deficiencies": when (1) the engagement team failed to obtain sufficient appropriate evidence; (2) the engagement team reached an inappropriate overall conclusion; (3) the engagement report is not appropriate; or (4) the firm is not independent of its client. Because the second, third, and fourth answers are specifically identified as significant engagement deficiencies, the first answer is the correct answer. If management's accounting estimates are unreasonable, it constitutes a GAAP departure, not a deficiency in the performance of the audit engagement.

Question 1 aq.aud.pcaob.001_2017 The Niblock accounting firm audited JFK, Inc., a public company. Niblock also provided tax services to JFK, receiving as its fee 20% of any tax savings JFK enjoyed because of Niblock's advice. Which of the following is true?Tax advice to a public company audit client is automatically forbidden and impairs independence.This tax advice impairs independence because of the nature of the tax advice given.This tax advice impairs independence because it was provided on a contingent fee basis.If the contingent fee had been only 10%, it would have been fine.

This tax advice impairs independence because it was provided on a contingent fee basis. You Answered Correctly! Auditors of public companies cannot provide any services to an audit client on a contingent fee basis.

Question 7 AICPA.010502AUD-AU Which of the following factors most likely would cause a CPA to not accept a new audit engagement? The prospective client has already completed its physical inventory count. The CPA lacks an understanding of the prospective client's operations and industry. The CPA is unable to review the predecessor auditor's documentation. The prospective client is unwilling to make all financial records available to the CPA.

The prospective client is unwilling to make all financial records available to the CPA. You Answered Correctly! A CPA would not accept a client who was unwilling to make all financial records available. Access to all financial records would be a minimum requirement for the audit, and management is required to state in the management representation letter that all financial records and data have been made available to the auditors.

Question 11 AICPA.111170AUD Before accepting an engagement to audit a new client, a CPA is required to obtainAn assessment of fraud risk factors likely to cause material misstatements.An understanding of the prospective client's industry and business.The prospective client's signature to a written engagement letter. The prospective client's consent to make inquiries of the predecessor, if any.

The prospective client's consent to make inquiries of the predecessor, if any. You Answered Correctly! AICPA standards addressing required communications between successor and predecessor auditors state that an auditor should not accept an engagement until the successor auditor's required communications with the predecessor auditor have been evaluated.

Question 8 AICPA.120716AUD The understanding with the client regarding a financial statement audit generally includes which of the following matters? The audit plan identifying the nature, timing, and extent of planned audit procedures. The responsibilities of the auditor. The contingency fee structure. The preliminary judgment about materiality.

The responsibilities of the auditor. The auditor would not normally share with management (or those charged with governance) the written audit plan that specifies the nature, timing, and extent of audit procedures to be performed in order to obtain sufficient appropriate audit evidence.

Question 1 aq.form.org.001_0818 Wilson, Belson, Nilsson, and Sansome are auditors who own their own firm, a professional limited liability company. They have called the firm Wilson, Belson, Nilsson & Sansome, PLLC. Wilson is retiring. Jones, who is not yet a member of the AICPA, is joining the firm. Which of the following new names for the firm may they properly adopt and use?Wilson, Belson, Nilsson, Sansome & JonesWilson, Belson, Nilsson, Sansome & Jones, Tax ExpertsWilson, Belson, Nilsson, Sansome & Jones, Members of the AICPAWilson, Belson, Nilsson, Sansome & Jones, a Professional Corporation

Wilson, Belson, Nilsson, Sansome & Jones You Answered Correctly! Correct! The firm may continue to use Wilson's name, even though he has retired. Question 2

Question 5 AICPA.090603REG-I-B Spinner, CPA, had audited Lasco Corp.'s financial statements for the past several years. Prior to the current year's engagement, a disagreement arose that caused Lasco to change auditing firms. Lasco has demanded that Spinner provide Lasco with Spinner's audit documentation so that Lasco may show them to prospective auditors to help them prepare their bids for Lasco's audit engagement. Spinner refused and Lasco commenced litigation. Under the ethical standards of the profession, will Spinner be successful in refusing to turn over the documentation?Yes, because Spinner is the owner of the audit documentation.Yes, because Lasco is required to direct prospective auditors to contact Spinner to make arrangements to view the audit documentation in Spinner's office.No, because Lasco has a legitimate business reason for demanding that Spinner surrender the audit documentation.No, because it was Lasco's financial statements that were audited.

Yes, because Spinner is the owner of the audit documentation. Spinner may, under proper circumstances, have to convey to Lasco (a) client-provided records, (b) client records prepared by Spinner, and (c) supporting records. However, it should not have to convey its audit documentation, which it owns. That Lasco's financial statements were audited does not change the bottom line here. These are still the CPA's audit documentation that needs not be provided to the client unless state law, federal law, or contractual obligation so provide.

Question 3 AICPA.101019AUD-SIM The City of Fairluth's internal auditor became ill, which created some difficult situations. Chiang typically audited Fairluth on behalf of his accounting firm. When the mayor prevailed upon Chiang to temporarily help prepare the city's basic financial records, he did so. Later, he and his team audited those records and pronounced them fair and accurate. And they probably were. Nonetheless, is it possible that we have an independence problem here under GAO guidelines regarding nonaudit services?No, this was an emergency situation and Chiang acted sensibly in a manner that does not implicate independence rules so that supplemental safeguards need even be considered.No, this activity did raise independence issues, but they are easily remedied by resort to supplemental safeguards such as ensuring that extent of the audit work was not reduced below that which is normal.Yes, this activity raises independence problems that are so severe that they cannot be remedied by application of supplemental safeguards.None of the above. .

Yes, this activity raises independence problems that are so severe that they cannot be remedied by application of supplemental safeguards. Under GAGAS, auditors should never audit their own work, which is what is happening here. This creates an independence problem so severe that it cannot be remedied by application of supplemental safeguards

Question 6 AICPA.990505AUD-AU In assessing whether to accept a client for an audit engagement, a CPA should consider the Client's business riskCPA's business risk YesYesYesNoNoYesNoNo

YesYes The client's business risk is the risk that the client will fail to meet its objectives, particularly with regard to survival and profitability. The CPA's business risk is the risk that the CPA's business will suffer due to association with the client. The CPA should consider both risks in determining whether to accept a client for an audit engagement. This answer is incorrect because the CPA would consider his/her own business risk in addition to the client's business risk in deciding whether to accept a client for an audit engagement.

Question 3 AICPA.980519AUD-AU Ordinarily, the predecessor auditor permits the successor auditor to review the predecessor's working paper analyses relating to Contingencies Balance sheet YesYes YesNo NoYes NoNo

YesYes You Answered Correctly! The successor auditor normally reviews the predecessor's audit documentation relating to planning, internal control, audit results, balance sheet accounts, and contingencies. Thus, this is the correct answer. The successor auditor would request a review of contingency and balance sheet documentation.

Question 4 AICPA.921103AUD-AU 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.

You Answered Correctly! A firm establishes a system of internal control in order to provide reasonable assurance that the professional services provided will conform to professional standards.

Question 4 AICPA.141017AUD-SIM Which of the following are sources of safeguards that might reduce a threat of noncompliance with the code to an acceptable level?Safeguards created by the profession.Safeguards implemented by the client.Safeguards implemented by the firm.All three choices provided.

You Answered Correctly! Because the three choices provided are all examples of sources of safeguards, this is the best answer.

Question 4 aq.intro.pref.001_17 Jeffrey has two jobs. In the mornings, he works for a firm in public practice. In the afternoon, he has a job working as a member in business. If he finds himself in a position where standards seem to be inconsistent, he should choose:Those applying to MIPPsThose applying to MIBs.Those applying to OMs.None of the above; no standards would apply in that setting.

You Answered Correctly! Correct! A member serving in multiple roles should choose the most restrictive applicable provisions and that will be the standards applying to MIPPs.

Question 3 aq.form.org.003_0818 Which of the following is not a sign that firms are part of a network?They share common control.They share a common business strategy.They are located in the same office building.They share profits.

You Answered Correctly! Correct! Simply being located in the same office building is not a sign that the firms are part of a network. Completely unrelated accounting firms often lease offices in the same building.

Question 3 AICPA.141015AUD-SIM Which of the following is not a key concept in the code's Conceptual Framework?Threats.Safeguards.Unusual danger.Acceptable level.

You Answered Correctly! Unusual danger is not part of the Conceptual Framework.