Ch. 2 - The CPA Profession

Question 1

Which of the following statements accurately describes U.S. CPA firms that are not sole proprietorships?

a. Most derive the majority of their revenues from tax services.
b. The most common organizational structure is the limited liability partnership structure.
c. The firm will be subject to an annual peer review.
d. The number of other professionals within a firm generally equals the number of partners in the firm.

Answer 1

b. The most common organizational structure is the limited liability partnership structure

Question 2

You have been engaged to audit the final statements of a US public company. Which of the following statements is correct?

a. Your firm must be registered with PCAOB
b. Your firm will be subject to auditing and quality control standards issued by the SEC.
c. Your firm must be either a National or Big Four CPA firm.
d. You will be engaged to audit both the quarterly and annual financial statements of your client.

Answer 2

a. Your firm must be registered with PCAOB (Public Company Accounting Oversight Board)

Question 3

Which of the following best describes what is meant by US auditing standards?

a. Acts to be performed by the auditor.
b. Measures of the quality of the auditor’s performance.
c. Procedures to be used to gather evidence to support financial statements.
d. Audit objectives generally determined on audit engagements.

Answer 3

b. Measures of the quality of the auditor’s performance.

Question 4

The Responsibilities principle underlying AICPA auditing standards includes a requirement that

a. field work be adequately planned and supervised
b. the auditor’s report state whether or not the financial statements conform to generally accepted accounting principles
c. professional judgment be exercised by the auditor
d. informative disclosures in the financial statements be reasonably adequate.

Answer 4

c. professional judgment be exercised by the auditor

Question 5

What is the general character of the responsibilities characterized by the Performance principles?

a. the competence, independence, and professional care of persons performing the audit.
b. Criteria for the content of the auditor’s report on financial statements and related footnote disclosures.
c. The criteria of audit planning and evidence gathering.
d. The need to maintain an independence in mental attitude in all matters pertaining to the audit.

Answer 5

c. The criteria of audit planning and evidence gathering.

Question 6

The nature and extent of a CPA firm’s quality control policies and procedures depend on

The CPA Firm’s Size…The Nature of the CPA Firm’s Practice…Cost-benefit Considerations

a. yes…yes…yes
b. yes…yes…no
c. yes…no…yes
d. no…yes…yes

Answer 6

a. yes…yes…yes

Question 7

Which of the following elements of a CPA firm’s quality control that should be considered in establishing its quality control policies and procedures?

Human Resources…Monitoring…Engagement Performance

a. yes…yes…no
b. yes…yes…yes
c. no…yes…yes
d. yes…no…yes

Answer 7

b. yes…yes…yes

Question 8

One purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to

a. enable the CPA firm to attest to the reliability of the client
b. satisfy the CPA firm’s duty to the public concerning the acceptance of new clients.
c. provide reasonable assurance that the integrity of the client is considered
d. anticipate before performing any field work whether an unqualified opinion can be issued.

Answer 8

c. provide reasonable assurance that the integrity of the client is considered

Question 9

What are the Big Four Accounting firms?

Answer 9

1) Deloitte
2) PricewaterhouseCoopers
3) Ernst & Young
4) KPMG