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c. It created the Public Company Accounting Oversight Board (PCAOB) as a replacement for the Financial Accounting Standards Board |
b. Different interests may exist between the company preparing the statements and the persons using the statements |
a. Future improvements to accomplish the goals of management |
a. Agreed-upon procedures report |
A. Auditing Standards Board |
A. Business Risk |
C. Statements on Auditing Standards (SASs) |
B. Conducts operational audits and reports the results to Congress |
C. Members, regardless of whether they are in public practice, are required to meet such requirements |
A. State Boards of Accountancy |
C. Compliance audit |
A. Professional standards for CPAs |
D. Securities and Exchange Commission |
B. Understanding as to the reasons for the change of auditors |
D. Disagreements with management as to auditing procedures |
D. The prospective client's consent to make inquiries of the predecessor auditor, if any |
D. After performing our preliminary analytical procedures we will discuss with you the other procedures we consider necessary to complete the engagement |
B. The auditor's responsibility for ensuring that the audit committee is aware of any significant deficiencies that come to the auditor's attention |
A. Management's responsibility for the entity's compliance with laws and regulations |
A. Management's acknowledgment of its responsibility for maintaining effective internal control |
B. Engagement letter |
A. Management's responsibility to provide certain written representations to the auditor |
D. Potential risks of material misstatement |
D. Financial statement assertions |
D. Determining the extent of involvement of the client's internal auditors |
D. The audit evidence gathered supports the auditor's conclusions |
D. Timing of inventory observation procedures to be performed |
C. Document the disagreement and ask to be disassociated from the resolution of the matter |
B. Results are consistent with the conclusions to be presented in the auditor's report |
C. Professional skepticism |
1. Give guidance to the staff regarding both technical and personnel aspects of the audit |
A. $10,000 |
C. Exist independently of the financial statement audit |
A. Assurance provided by substantive tests |
c) Control risk; Detection risk; Inherent risk |
C. The entity's financial statements of the prior year |
A. Influence the design of internal control |
B. Comparing the financial statements to anticipated results |
A. Knowledge necessary to assess the risk of material misstatement and design further audit procedures |
C. Both I & II |
A. Audit procedures that are effective for detecting an unintentional misstatement may be ineffective for an intentional misstatement that is concealed through collusion |
D. An auditor should design the audit to provide reasonable assurance of detecting errors and fraud that are material to the financial statements |
A. The entity's industry is experiencing declining customer demand |
A. Inability to generate cash flows from operations while reporting substantial earnings growth |
D. Consider whether the results of audit procedures affect the assessment of the risk of material misstatement due to fraud |
D. The disclosure of fraudulent activities to parties other than the client's senior management and its audit committee is not ordinarily part of the auditor's responsibility |
C. Both I & II |
C. Change the timing of substantive tests from year-end to an interim date |
A. Control policies and procedures are unlikely to pertain to the assertions |
C. Substantive tests to restrict detection risk for significant transactions classes |
C. Both I & II |
B. Has a significant effect on the entity's financial reporting process |
D. The effects of significant accounting policies adopted by management in emerging areas for which there is no authoritative guidance |
D. The degree of reliance the auditor placed on the management representation letter |
C. Bank statements obtained from the client |
D. A recalculation of bad debt expense |
B. Examination of evidence |
A. Suspense debits that management believes will benefit future operations |
D. Classification, and Valuation & Allocation |
A. Completeness |
D. Performing analytical procedures designed to disclose differences from expectations |
A. Performing analytical procedures |
C. Obtain additional evidence regarding the valuation of inventory |
D. Transactions selected for testing are not supported by proper documentation |
B. Differences between reconciliations of control accounts and subsidiary records are not investigated |
A. Place limited reliance on the work performed by the internal auditors |
B. Educational background and professional certification of internal auditors |
A. Quality of the internal auditor's working paper documentation |
c) Obtaining an understanding of internal control; Performing tests of controls; Performing substantive tests |
A. Complement, but do not replace, substantive tests designed to support the assertion |
C. The possibility of a misunderstanding concerning management's responsibility for the financial statements |
C. Employees' actions affect the auditor's ability to rely on management's representations |
C. Auditor's report |
C. Management representation letter |
C. Management's compliance with contractual agreements that may affect the financial statements |
A. The availability of minutes of stockholders' and directors' meetings |
A. No events have occurred subsequent to the balance sheet date that require adjustment to, or disclosure in, the financial statements |
A. Sufficient audit evidence has been made available to the auditor to permit the issuance of an unqualified opinion |
A. Provide the principal support for the auditor's report |
D. Lead schedule |
B. A flowchart depicting the segregation of duties and authorization of transactions |
C. Management representation letter |
D. Borrowing money at an interest rate significantly below the market rate |
D. Selling real estate at a price significantly different from appraised value |
C. Obtain an understanding of the business purpose of the transaction |
A. The business structure may be deliberately designed to obscure related party transactions |
C. Reviewing confirmations of compensating balance arrangements |
C. Stating that a particular related party transaction occurred on terms equivalent to those that would have prevailed in an arm's-length transaction |
D. Perpetuate and conceal errors and fraud |
B. Affects management's financial statement assertions |
C. Control environment |
B. Management is dominated by one individual |
B. Management is dominated by on individual who is also a shareholder |
C. The adequacy of the accounting records |
A. Internal control policies and procedures may be ineffective due to mistakes in judgment and personal |
B. The integrity of the entity's management is suspect |
C. The chief financial officer waived approvals on all checks to one vendor to expedite payment |
D. Entity's ability to process and summarize financial data |
A. The amount of time budgeted to complete the engagement |
D. Search for significant deficiencies in the operation of the entity's internal control |
A. Design of the policies and procedures pertaining to the internal control components |
B. Process used to prepare significant accounting estimates |
D. Management may establish appropriate procedures but not enforce compliance with them |
D. Observation of client personnel |
D. Evaluate whether internal control procedures operated effectively |
C. Client records documenting the use of computer programs |
D. Preparation of system flowcharts |
B. If the auditor uses prior audit evidence for several controls, the auditor should test a sufficient portion of them in each audit so that each is tested every third audit |
D. The auditor need not search for deficiencies but should document and communicate any significant deficiencies and material weaknesses that are discovered |
C. An auditor may communicate some deficiencies during an audit in addition to after the audit's completion |
C. Evidence of a lack of objectivity by those responsible for accounting decisions |
B. Increase the assessment of control risk and increase the extent of substantive tests |
C. The significant deficiency has not been corrected |
B. Observing the employees as they apply control procedures |
B. Deter dishonestly by making employees aware that insurance companies may investigate and prosecute dishonest acts |
A. Collection of receivables |
B. Perform the planned auditing procedures closer to the balance sheet date |
D. Attribute sampling |
D. Attributes |
C. Variable sampling |
B. Inspecting employee time cards for proper approval by supervisors |
B. Individual invoices |
B. Estimate whether the dollar amount of inventory is reasonable |
A. The control procedures are operating effectively |
B. 4.5% |
D. The cost and effort of selecting additional sample items is low |
A. Does not support the auditor's planned assessed level of control risk when the true operating effectiveness of the internal control justifies such an assessment |
D. More than the deviation rate in the auditor's sample |
D. Control risk based on the auditor's sample is greater than the true operating effectiveness of the client's control activity |
A. Does not support the auditor's planned assessed level of control risk when the true operating effectiveness of the internal control justifies such an assessment |
D. More than the deviation rate in the auditor's sample |
D. Control risk based on the auditor's sample is greater than the true operating effectiveness of the client's control activity |
c) the allowable risk of assessing control risk too low |
D. Payroll register entry |
C. Be related to preliminary judgments about materiality levels |
B. Stratify the cash disbursements population so that the unusually large disbursements are selected |
A. Precision |
D. Sample size |
C. Measure the sufficiency of the audit evidence obtained |
C. Lower than assessing control risk too low for the larger population |
B. May occur in a systematic pattern, thus destroying the sample randomness |
B. The population has highly variable recorded amounts |
a) Variability in the dollar amounts of inventory items; Risk of incorrect acceptance |
A. Expected deviation rate |
A. Tolerable rate (7%) was less than the achieved upper precision limit (8%) |
B. Has been properly voided |
D. Modify the planned assessed level of control risk because the sample deviation rate plus the allowance for sampling risk exceeds the tolerable rate |
D. Sample size |
D. Sample rate of deviation plus the allowance for sampling risk exceeds the tolerable rate |
A. I only |
A. An auditor needs to estimate the dollar amount of the standard deviation of the population to use classical variables sampling |
A. The calculated audit amounts are approximately proportional to the client's book amounts |
a) Expected amount of misstatement; Measure of tolerable misstatement |
C. The auditor controls the risk of incorrect acceptance by specifying that risk level for the sampling plan |
C. Inclusion of zero and negative balances generally does not require special design considerations |
B. $2,000 |
d. all of the above |
d. All of the above are prohibited |
b. The client must hire an external CPA to approve all of the journal entries prepared by the auditor |
c. have the independent auditor report to an audit committee of outside members of the board of directors |
d. the Rules of Conduct are enforceable |
a. The auditor is not independent |
b. Safeguards implemented by the client |
c. Prohibited for clients for whom attestation services are provided |
c. A partner in the Oklahoma City office, who does not work on the audit, previously served as controller for the audit client |
a. A distinguishing mark of a profession is its acceptance of responsibility to the public |
c. Considered discreditable to the profession |
d. Payable if the audit of the financial statements led to a loan |
b. Review report |
c. Warranting the infallibility of the work performed |
c. A CPA-shareholder of the client corporation |
a. Yes, because the stock would be considered a direct financial interest and, consequently, materiality is not a factor |
b. An audit partner in the Eloi office |
a. The auditor is not independent |
a. Appearance of independence may be lacking |
c. The CPA's father is president of the audit client |
b. An unacceptable risk of non-independence exists |
c. Consider the threat from the perspective of a reasonable an informed third party who has knowledge of all the relevant information |
c. Supporting records not reflected in the client's records (e.g., proposed adjusting entries) may be withheld by the CPA if fees for the engagement remain unpaid |
a. Staff assistants assigned to the engagement |
c. Statements on Responsibilities in Tax Practice |
a. Performance of bookkeeping services for the client |
d. A partner in the firm has an investment in a mutual fund that has a direct interest in the client |
a. Prohibiting a client's new CPA firm from reviewing the audit working papers after the client has requested the CPA to do so |
c. Advertising including an indication that the firm has a close relationship with several tax court judges |
d. Revoke the offending member's CPA certificate |
d. A "covered member" owns an immaterial amount of stock in an audit client |
b. The covered member continues to hold an immaterial indirect financial interest in the client |
b. All attestation services, but not other professional services |
d. All professional services |
c) SEC |
b. Determine that the performance of all services is consistent with the firm's members' role as professionals |
c. The auditor should not make management decisions for an audit client |
c) The process of filing a form 8-k |
a. Only to persons qualified to practice public accounting |
d. Effects of a direct financial interest in the client upon the CPA's independence |
c. 20X4 report is issued |
d. The CPA has an immaterial joint, closely held business investment with the client |
a. All of its partners or shareholders are members of the Institute |
c. He would be liable for losses attributable to his negligence |
c. when such failure clearly results from failure to comply with generally accepted auditing standards |
b. CloseCo will recover damages for breach of contract |
c. The Securities Act of 1933 imposes substantial additional potential liability to the CPA firm |
a. The auditor has no responsibility for searching for indirect-effect illegal acts |
A. Maintain public confidence in the profession |
D. The misstatement is immaterial in the overall context of the financial statements |
B. CPAs are liable for either ordinary or gross negligence to identified third parties for whose benefit the audit was performed |
D. Either ordinary or gross negligence |
B. Existence of scienter |
C. He performed the audit with due diligence |
D. Either ordinary or gross negligence |
B. Limited liability partnership |
D. Rosenblum Approach |
C. Due professional care |
C. Joint and several liability |
D. Proportional liability |
C. Contributory negligence |
A. Rosenblum v. Adler |
C. Greater than the Securities Act of 1933 |
B. Either ordinary or gross negligence |
B. Client contributory negligence |
A. Plaintiff |
D. Common law |
B. A loss sustained by a lender not in privity of contract in a suit brought in a state court which adheres to the Ultramares v. Touche precedent |
D. 1136 Tenants Corporation v. Rothenberg |
D. Court cases brought under the Securities Act of 1933 |
D. Rosenblum v. Adler |
B. Lack of gross negligence |
C. Material misstatements were contained in the financial statements |
A. Audit complied with generally accepted auditing standards |
A. Unknowingly violates the 1934 Securities Exchange Act |
C. It makes recovery against CPAs more difficult under common law litigation |
C. Eliminates personal liability for some, but not all, partners |
C. A CPA may be exposed to criminal as well as civil liability |
C. Failed to exercise due care |
A. That the audit was performed in accordance with GAAS |
A. Must exercise the level of care, skill, and judgment expected of a reasonably prudent CPA under the circumstances |
D. Fails to follow generally accepted auditing standards |
C. The CPA probably is liable to any person who suffered a loss as a result of the fraud |
A. Is the client's creditor who sues the accountant for negligence |
B. Gross negligence |
A. Win because there was no privity of contract between Hark and Third |
b) Parties in privity |
B. There was a material misstatement in the financial statements |
B. $200,000 |
B. Gross negligence |
a) Registered public accounting firms; Registered public accounting firm employees |
a. describes the limitations on the usefulness of the presentation |
D. Electronic commerce systems |
D. Probability of achieving estimates |
D. Financial forecast |
B. The client's management |
B. Financial projections |
A. Valuation and allocation |
C. Review supporting documents for new large balances occurring after the interim date, and evaluate any significant changes in balances at year-end |
D. Potentially increases the risk that errors that exist at the balance sheet date will not be detected |
B. Internal controls during the remaining period are effective |
D. Assess the difficulty in controlling the incremental audit risk |
D. Reconcile the amounts included in the statement of cash flows to the other financial statements' balances and amounts |
C. Accounting records to the supporting evidence |
B. Existence or occurrence |
C. Sales billed to customers were actually shipped |
B. Corroborate information regarding deposit and loan balances |
D. Be unaware of all the financial relationships that the bank has with the client |
A. Prior year checks listed in the cutoff statement to the year-end outstanding checklist |
C. Low average balance compared to high level of deposits |
C. Unrecorded sales at year-end |
A. Send positive confirmation requests |
C. Segregation of duties between receiving cash and posting the accounts receivable ledger |
D. Completeness |
B. Valuation and allocation |
B. Inspect the entity's reports of pre-numbered shipping documents that have not been recorded in the sales journal |
A. Valuation or allocation |
A. Valuation and allocation |
A. Unreturned negative confirmation requests rarely provide significant explicit evidence |
C. Ask the client to contact the customers to request that the confirmations be returned |
D. Dates uncollectible accounts are authorized to be written off with the dates the write-offs are actually recorded |
C. Customers may not be inclined to report understatement errors in their accounts |
B. Cash receipts and accounts receivable |
B. Verify the sources and contents of the faxes in telephone calls to the senders |
D. The combined assessed level of inherent risk and control risk relative to accounts receivable is low |
A. Request the senders to mail the original forms to the auditor |
A. The recipients are likely to sign the confirmations without devoting proper attention to them |
D. A client-prepared statement of account showing the details of the customer's account balance |
C. If you do not report any difference within 15 days, it will be assumed that this statement is correct |
A. Including a list of items or invoices that constitute the account balance |
A. Fictitious credit sales have been recorded during the year |
B. Completeness |
D. More non-responses are likely to occur |
B. The form was mailed by the controller |
C. Represented by inventory tags are included in the listing |
D. All goods owned at year-end are included in the inventory balance |
B. Inspect agreements to determine whether any inventory is pledged as collateral or subject to any liens |
B. Completeness |
A. Testing the entity's computation of standard overhead rates |
B. Request the client to schedule the physical inventory count at the end of the year |
A. Completeness of disclosures |
A. Valuation and allocation |
D. Sales returns |
C. Items listed in the inventory listing schedule to inventory tags and the auditor's recorded count sheets |
B. Cost of goods sold |
C. All inventory owned by the client is on hand at the time of the count |
C. Examining an analysis of inventory turnover |
A. Test the computation of standard overhead rates |
D. Items in the inventory listing to inventory tags and the auditor's recorded count sheets |
D. Expenditures for property and equipment have not been charged to expense |
C. Tests of controls and limited tests of current year property and equipment transactions |
D. Select certain items of equipment from the account records and locate them in the plant |
B. Plant assets were retired during the year |
C. Discover expenditures that were expensed but should have been capitalized |
D. Repairs and maintenance |
B. Vendors' invoices |
C. Vouching selected entries in the accounts payable subsidiary ledger to purchase orders and receiving reports |
B. Receiving reports |
C. Completeness |
C. Vouch a sample of cash disbursements recorded just after year-end to receiving reports and vendor invoices |
C. Determine that purchases were properly recorded |
A. Cash disbursements |
B. Correlating interest expense recorded for the period with outstanding debt |
C. Compare interest expense with the bonds payable amount for reasonableness |
D. Verify that stock is issued in accordance with the authorization of the board of directors and the articles of incorporation |
C. Completeness of disclosures |
D. Trace the authorization for the transaction to a vote of the board of directors |
A. Minutes of board of directors meetings |
C. Number of shares issued and outstanding |
B. Confirm the number of shares owned that are held by an independent custodian |
B. Examine the contracts for possible risk exposure and the need to recognize losses |
C. Records produced by investment services |
A. Develop an understanding of the economic substance of each derivative |
A. Dividend record books produced by investment advisory services |
B. Rights and obligations |
C. Confirm the number of shares owned that are held by an independent custodian |
A. Completeness of recorded investment income |
D. Request the client to have the bank seal the safe deposit box until the auditor can count the securities at a subsequent date |
B. Examine the audited financial statements of the investee company |
A. Unqualified opinion |
C. Unqualified opinion |
B. Not refer to consistency in the auditor's report |
B. The auditor lacks independence with respect to the audited entity |
A. Is unable to obtain audited financial statements supporting the entity's investment in a foreign subsidiary |
C. The financial statements are not in conformity with the FASB Statements regarding the capitalization of leases |
D. Management's refusal to furnish written representations |
B. Qualified opinion |
D. Unqualified |
B. Estimate of the total likely misstatement is less than a material amount |
C. Unqualified opinion |
C. May express an unqualified opinion with an explanatory paragraph |
C. Except for qualified opinion or an adverse opinion |
B. Qualified opinion or an adverse opinion |
B. explicitly represented in the opening paragraph of the auditor’s standard report |
A. A statement that the auditor believes that his or her audit provides a reasonable basis for expressing negative assurance |
D. Considering the adequacy of disclosure about the entity's possible inability to continue as a going concern |
c) Opinion |
c) Scope; Opinion |
d) None of the above |
B. Prior to the opinion paragraph |
C. Increase ownership equity |
B. Issue an unqualified opinion with no reference to this omission but be prepared to defend the action |
B. Information about the entity's ability to continue as a going concern is not disclosed |
C. Lease rather than purchase operating facilities |
D. Inquiring of the entity's legal counsel about litigation, claims, and assessments |
B. Provide the information in the audit report, if practicable, and qualify the opinion because of a departure from GAAP |
B. In such circumstances, when appropriate requirements have been met, Firm A should issue a standard unqualified opinion on the financial statements |
C. Based on audit procedures performed, assess whether there is substantial doubt about the entity's ability to continue as a going concern |
A. Express an adverse opinion with an explanatory paragraph disclosing the reason (the accounting change) for the opinion |
C. Issue an "except for" qualification or an adverse opinion |
C. A change from the straight line method of depreciation to an accelerated method for a class of fixed assets |
A. Introductory paragraph |
C. Adverse opinion |
B. Reliance placed upon a specialist to evaluate the diamonds |
C. Sometimes they precede and sometimes they follow the opinion paragraph |
A. Standard unqualified |
A. The shareholders of the corporation whose financial statements were examined |
C. Used in a qualified opinion |
B. The audit was conducted in accordance with accounting principles generally accepted in the United States of America |
C. The nonpublic company report has an additional paragraph referring to the client's fraud prevention procedures |
B. The auditors should issue an "except for" qualification for the departure from generally accepted accounting principles |
A. Circumstances have significantly limited the scope of the auditors' procedures |
C. The audit report indicates a division of responsibility between two CPA firms |
D. Refer to the report of the predecessor auditors |
A. A disclaimer of opinion |
B. Form S-1 |
C. Are assuming full responsibility for the work of the other auditors |
D. Use the date of the previous report |
C. A separate paragraph which discusses the basis for the opinion rendered |
D. There are significant scope limitations on the audit |
B. Unqualified opinion and an explanatory paragraph |
A. Is appropriate and would not negate the unqualified opinion |
B. Limitation in the scope of the audit |
A. It applies equally to a complete set of financial statements and to each individual financial statement |
B. Reliance placed upon the report of other auditors |
D. Each of the years in the two-year period |
d) Conformity with PCAOB Standards (Explicitly); Adequacy of disclosure (Implicitly) |
D. Be applied on a basis consistent with those followed in the prior year |
C. The statements are not in conformity with generally accepted accounting principles regarding pension plans |
A. Unqualified opinion with an appropriate explanatory paragraph |
B. Refuses to permit its lawyer to respond to the letter of audit inquiry |
A. A standard unqualified opinion |
B. Misinterpretations regarding the degree of responsibility that the auditor is assuming |
A. The introductory, scope, and opinion paragraphs of the report |
C. May refer to the audit of the other CPA |
D. The type of opinion expressed by the predecessor auditor |
B. Disclosed in the notes to the financial statements of the current year |
D. Updating the report on the previous financial statements regardless of the opinion previously issued |
A. May accept the engagement because such engagements merely involve limited reporting objectives |
B. Disclaimer of opinion |
A. Magnitude of the portion of the financial statements examined by the other auditor |
B. A change from an unacceptable accounting principle to a generally accepted one |
B. Accumulation of sufficient appropriate audit evidence |
A. The statements are not in conformity with the FASB Statements regarding the capitalization of leases |
b. An auditor considers materiality for planning purposes in terms of the largest aggregate level of misstatements that could be material to any one of the financial statements |
b. explicitly represented in the opening paragraph of the auditor’s standard report |
d. not be relied upon to provide assurance that illegal acts will be detected |
b. An auditor may draft an entity’s financial statements based on information from management’s accounting system |
b. an attitude of professional skepticism |
C. An auditor's responsibilities for audited financial statements are confined to the expression of the auditor's opinion |
C. Reflect transactions in a manner that presents the financial statements within a range of acceptable limits |
A. FASB Technical Bulletins |
D. An opinion by the auditor |
A. AICPA Accounting Trends & Techniques |
A. Maintain public confidence in the profession |
C. Materiality and audit risk |
B. Measures of the quality of the auditor's performance |
D. "should" |
C. The entity and its environment, including internal control |
D. "Sufficient appropriate audit evidence" |
C. Standards of fieldwork |
A. Quality control |
C. Relevant ethical requirements |
B. Tax services |
B. An audit firm may not perform an audit for a client whose controller was previously employed by the audit firm and participated in the audit of the client within the client's previous fiscal year |
d) Hiring Auditor; Negotiating fees; Overseeing audit work |
D. the Securities and Exchange Commission |
D. They are interpretations which are intended to clarify the meaning of “generally accepted auditing standards.” |
a. audit risk |
a. The auditor has no responsibility for searching for indirect-effect illegal acts |
C. Errors, fraud, and those illegal acts with a direct effect on financial statement amounts |
C. Appears in the opinion paragraph of the auditors' report |
A. Criteria for competence, independence, and professional care of individuals performing the audit |
B. Whether the results of their client's operating decisions are fairly presented in the financial statements |
B. GAAS in the scope paragraph and GAAP in the opinion paragraph |
A. Any disputes over significant accounting issues have been settled to the auditors' satisfaction |
D. Responsibility for losses because of errors of judgment |
C. They are authoritative statements, enforced through the Code of Professional Conduct |
F. An opinion by the auditor |
C. To minimize the likelihood of association with clients whose managements lack integrity |
a) Fraudulent Financial Reporting; Misappropriation of Assets |
B. Includes a report on subject matter, or on an assertion about subject matter |
A. Appendices to Statements on Auditing Standards |
b) Scope |
A. Have substantial authoritative support |
B. If audit procedures reveal illegal acts, the auditors should take appropriate actions |
C. Knowledge required to fulfill assigned responsibilities and to progress within the firm |
D. Relevant ethical requirements |