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