MARKED QUESTIONS I Flashcards
1
Q
According to PCAOB,a complete and final set of audit documentation should be assembled for retention not more than
A
45 days after the report release date
2
Q
A cooling-off period of how many years is required before a member of an issuer’s audit engagement team may begin working for the registrant in a key position?
A
1 year.
3
Q
A CPA firm would best provide itself reasonable assurance of meeting its responsibility to offer professional services that conform with professional standards by
A
Maintaining a comprehensive system of quality control that is suitably designed in relation to its organizational structure.
4
Q
A CPA is permitted to disclose confidential client information without the consent of the client to I. Another CPA firm is the information concerns suspected tax return irregularities. II. A state CPA society voluntary quality control review board.
A
II only
5
Q
A CPA purchased stock in a client corporation and placed it in a trust as an educational fund for the CPA’s minor child. The trust securities are not material to the CPA’s wealth but are material to the child’s personal net worth. According to the AICPA Code of Professional Conduct, would this action impair the CPA’s independence with the client?
A
Yes, because the stock would be a direct financial interest and materiality is not a factor.
6
Q
A CPA started to audit the F/Ss of a non-issuer. After completing certain audit procedures, the client requested the CPA to change the engagement to a review because of a scope limitation. The CPA concludes that there is reasonable justification for the change. Under these circumstances, the CPA’s review report should include a:
A
Statement that a review is substantially less in scope than an audit.
7
Q
A person identified as an audit committee financial expert of an issuer generally must have acquired the attributes of a financial expert through any of the following experiences, except
A
Serving on at least one other issuer’s audit committee or disclosure committee of the board of directors. The Sarbanes-Oxley Act of 2002 specifies that an audit committee must contain at least one financial expert. The attributes of a financial expert on the audit committee can be acquired in a number of ways, including: serving as a principal financial officer, principal accounting officer, controller, public accountant, or auditor; actively supervising a principal financial officer or principal accounting officer; or assessing the performance of public accountants with respect to preparation, auditing, or evaluation of financial statements.
8
Q
A practitioner to express an opinion on management’s assertion that the square footage of a warehouse offered for sale is 150,000 square feet. The practitioner should refer to which of the following sources for professional guidance
A
Statements on Standards for Attestation Engagements
9
Q
A primary advantage of using generalized audit software packages to audit the financial statements of a client that uses an EDP system is that the auditor may:
A
Access information stored on computer files while having a limited understanding of the client’s hardware and software features.
10
Q
A recurring audit is an audit engagement
A
for an existing audit client for whom the auditor performed the preceding audit.
11
Q
According the PCAOB’s auditing standard for engagement quality reviews, the reviewer should evaluate the significant judgements that relate to engagement planning, including all of the following except A. The consideration of the firm’s recent engagement experience with the company and risks identified in connection with the firm’s client acceptance and retention process; B. The consideration of the company’s business, recent significant activities and related financial reporting issues and risks; C. The judgments make about materiality and the effect of those judgments on the engagement strategy; D. Review the engagement completion document and confirm with the engagement partner that there are no significant unresolved matters.
A
D. Review the engagement completion document and confirm with the engagement partner that there are no significant unresolved matters. This answer is not a significant judgment repeated to engagement planning; this function generally is done in the review state.
12
Q
According the PCAOB’s auditing standard for engagement quality reviews, the reviewer should evaluate the significant judgments that relate to engagement planning, including all of the following excep
A
Review the engagement completion document and confirm with the engagement partner that there are no significant unresolved matters. This function generally is done in the review stage.
13
Q
According to PCAOB auditing standards, all of the following statements are true about the terms of an audit engagement, except
A
The auditor should record the understanding of the terms of the audit engagement in an engagement letter and provide the engagement letter to the audit committee and management annually. The auditor is not required to provide it to management.
14
Q
According to PCAOB auditing standards, all required audit committee communications should be made in a timely manner and
A
Prior to the issuance of the audit report. Required audit committee communications can be done orally or in writing.
15
Q
According to PCAOB auditing standards, the auditor is required to communicate to the audit committee all of the following, except
A
Specific details of planned audit procedures designed to detect fraud.
16
Q
According to PCAOB standards, each of the following items of information should be included in the documentation of an engagement quality review:
A
- Identification of the engagement quality reviewer and others who assisted the reviewer; 2. Identification of the documents reviewed by the engagement quality reviewer and others who assisted the reviewer; 3. The date on which the engagement quality reviewer provided concurring approval of issuance.
17
Q
According to the AICPA Code of Professional Conduct, under which of the following circumstances may a CPA receive a contingent fee for services?
A
Representing a client in an IRS examination of the client’s federal income tax return. Contingent fee in certain tax matters are permitted, including: a member representing a client in an examination by a revenue agent of the client’s federal or state income tax return; a member representing a client in connection with obtaining a private letter ruling, filing an amended return based on a tax issue that is the subject of a test case involving a different taxpayer or on which the taxing authority is developing a position.
18
Q
According to the AICPA Code of Professional Conduct, what would a covered member most appropriately do upon learning that another member of an attest engagement team is considering employment with the client?
A
Notify an appropriate person in the firm.
19
Q
According to the AICPA code of Professional Conduct, which of the following actions by a CPA most likely involves an act discreditable（失信誉的，耻辱的）to the profession?
A
Retaining client records after the client demands their return.
20
Q
According to the IFAC Code of Ethics for Professional Accountants, audit teams are required to be independent of the audit client during the engagement period and during which other period?
A
The period covered by the F/Ss
21
Q
According to the IFAC Code of Ethics for Professional Accountants, in deciding whether to disclose confidential information, the professional accountant should consider which of the following relevant factors?
A
Whether the anticipated recipients are appropriate and the type of communication that is expected. The IFAC Code of Ethics for Professional Accountants prohibits accountants from disclosing confidential information acquired as a result of professional and business relationships without proper and specific authority or unless there is a legal or professional right or duty to disclose. In deciding whether to disclose confidential information, the Code requires professional accountants to consider, among other points, the type of communication that is expected and to whom it is addressed; in particular.
22
Q
According to the PCAOB, which of the following tax services may be provided jointly with the audit of an issuer’s financial statements without impairing independence? A. Planning and issuing an opinion in favor of the tax treatment of an aggressive tax position; B. Reviewing a proposed transaction and informing the client of the tax consequences; C. Providing consultations under a contingency fee arrangement; D. Preparing tax returns for an individual in a financial oversight reporting role during the audit period.
A
B. Reviewing a proposed transaction and informing the client of the tax consequences A public accounting firm is not independent if the firm provides: any non-audit service to the audit client related to marketing, planning, or opining in favor of the tax treatment of, a confidential transaction or an aggressive tax position transaction; during the period of engagement, any tax service to a person in a financial reporting oversight; during the audit period any service or product to the audit client for a contingent fee or a commission. Reviewing a proposed transaction and informing the client of the tax consequences would not impair independence.
23
Q
According to the profession’s standards, which of the following would be considered consulting services
A
Advisory services, Implementation services and product services
24
Q
According to the profession’s ethical standards, which of the following events may justify a departure from a Statement of Financial Accounting Standards?
A
New legislation: Yes Evolution of a new form of business transaction: Yes.
25
According to the Sarbanes-Oxley Act of 2002, the PCAOB has the legal authority to perform each of the following, except:
Prosecute suspected criminal violations by registered public accounting firms. The SEC has oversight authority over the PCAOB. Like the SEC, the PCAOB does not prosecute suspected criminal violations, but relays information to other government agencies that do so. The PCAOB provides independent oversight of public accounting firms providing audit services—setting standards as well as registering, investigating, and disciplining auditors
26
According to the SEC, members of an issuer's audit committee may not
Accept any consulting, advisory, or other compensatory fee from the registrant for services other than as a member of the board. As audit committee members are also members of the board of directors, they are restricted to receiving only the normal compensation provided to a board member. They cannot accept any additional consulting, advisory, or other compensatory fees from the registrant for services other than as a member of the board. There are no SEC rules restricting the establishment of procedures for employees to anonymously report fraud; being responsible for the compensation of any registered public accounting firm employed by the registrant to provide an audit report; or engaging independent counsel as deemed necessary to carry out their duties.
27
According to the standards of the profession, which of the following would be considered a part of a consulting services engagement?
Reviewing and commenting on a client-prepared business plan.
28
According to the standards of the profession, which of the following activities may be required in exercising due care?
Consulting with experts: Yes; Obtaining specialty accreditation: No
29
According to the standards of the profession, which of the following events would require a CPA performing a consulting services engagement for a non-audit client to withdraw from the engagement? I. The CPA has a conflict of interest that is disclosed to the client and the client consents to the CPA continuing the engagement. II. The CPA fails to obtain a written understanding from the client concerning the scope of the engagement.
Neither I nor II.
30
According to US GAAS, an auditor is associated with financial information when
The auditor has applied procedures sufficient to permit the auditor to report in accordance with US GAAS.
31
According to US GAAS, an auditor's professional judgment A. Should be documented so that it is sufficient to enable an experienced auditor, having no previous connection with the audit, to understand all professional judgments made B. Is not to be used as the justification for decisions that are not otherwise supported by the facts and circumstances of the engagement or by sufficient appropriate audit evidence C. Is exercised primarily during the planning and review stages of an audit D. Is not used regarding decisions about the nature, extent, and timing of audit procedures used to meet the requirements of US GAAS and gather audit evidence, but is relevant to decisions regarding materiality and audit risk:
B. Is not to be used as the justification for decisions that are not otherwise supported by the facts and circumstances of the engagement or by sufficient appropriate audit evidence Regarding incorrect answer A., it would be true if it stated that the significant, not all, professional judgments made should be documented.
32
According to US GAAS, in an audit engagement, an auditor strives to achieve independence in appearance in order to
Serve the public interest
33
According to US GAAS, interpretive publications include all of the following except
Answer 1. Auditing guidance included in AICPA Audit Risk Alerts. Answer 2. Articles in the AICPA’s journal of Accountancy (Has no authoritative status)
34
According to US GAAS, what is the distinguishing feature of the professional judgment expected of an auditor?
It is exercised based on competencies necessary to achieve reasonable judgments, developed by the auditor through relevant training, knowledge and experience.
35
After performing risk assessment procedures, an auditor decided not to perform tests of controls. The auditor most likely decided that:
It would be inefficient to perform tests of controls that would result in a reduction in planned substantive tests. After performing risk assessment procedures, an auditor decided not to perform tests of controls because it would be inefficient. In other words, the time required to perform tests of controls would be greater than the reduction in time spent on substantive testing.
36
All of the following are true about documentation for an audit of non issuer, except A. The auditor should prepare audit documentation on a timely basis; B. The documentation should be sufficient to enable an experienced auditor, having no previous connection with the audit, to understand the audit evidence obtained; C. Audit documentation should be retained for a period no shorter than 5 years from the date of the audit report; D. Audit documentation provides evidence that the audit was planned and performed in accordance with US GAAS and applicable legal and regulatory requirements.
C. Audit documentation should be retained for a period no shorter than 5 years from the date of the audit report; The retention period should not be shorter than 5 years from the report release date, not the date of the audit report.
37
All of the following statements regarding the PCAOB adopted interim auditing standards are true except
The interim standards provide guidance, but they are not authoritative.
38
An auditor may provide an issuer client any of the following nonaudit services without impairing independence and without obtaining the preapproval of the audit committee, except A. Nonaudit services with revenues in aggregate of less than 5% of the total revenues paid by the issuer to the auditor during the fiscal year in which the nonaudit services are provided B. Nonaudit services that were promptly brought to the attention of, and approved by, the audit committee prior to the completion of the audit C. Nonaudit services to perform financial information systems design and implementation D. Services that the issuer did not recognize as nonaudit services at the time of the engagement
C. Nonaudit services to perform financial information systems design and implementation The Sarbanes-Oxley Act of 2002 prohibits an auditor performing financial information systems design and implementation, even if the audit committee approves of the services to an issuer audit client; this is deemed to impair independence. Minor services will not impair independence and do not require pre-approval. These include relatively small revenue services, services approved prior to completion of the audit, and services that the issuer did not recognize as needing audit committee approval.
39
An auditor of a non-issuer exercising professional skepticism with respect to the risks of material misstatement due to fraud will most appropriately
Consider the reliability of information to be used as audit evidence. An auditor is required to conduct an audit with an attitude of professional skepticism. This refers to an attitude that includes a questioning mind (being alert to conditions that may indicate possible misstatement due to fraud or error) and a critical assessment of audit evidence. Hence an auditor of a non-issuer exercising professional skepticism with respect to the risks of material misstatement due to fraud will most appropriately consider the reliability of information to be used as audit evidence.
40
An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes, but containing columns for:
Reclassifications and adjustments.
41
An auditor reviews a client's accounting policies and procedures when considering which of the following planning matters?
Understanding the client's operations and business.
42
An initial audit engagement is an engagement
In which the financial statements for the prior period were either not audited or were audited by a predecessor auditor.
43
An issuer's auditor is prohibited from providing tax services to which of the following individuals? A. The chair of the board of directors B. The chair of the audit committee C. The CEO D. The CFO of an affiliate of the issuer audited by another firm
C. CEO A registered public accounting firm is not independent of its audit client if the firm provides any tax service to a person in an financial reporting oversight role at the audit client during the engagement period. Remember, the examiners’ instructions are to select the best answer. The audit committee chair has influence over the auditor by the nature of the audit committee purpose— the tax return preparation engagement would be unlikely to increase that influence. Further, the audit committee chair presumably is an independent director with little motivation to influence the audit adversely. The chair of the board of directors (BOD) is not necessarily a person with a financial reporting oversight role whereas the CEO always has a financial reporting oversight role. The CFO of an affiliate audited by another firm is more remote than the CEO of the client entity.
44
As the basis for the auditor's opinion, US GAAS require the auditor to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error. All of the following are true about the concept of reasonable assurance except A. It is obtained when the auditor has gathered sufficient appropriate audit evidence to reduce audit risk to an acceptably moderate level. B. It is obtained when the auditor has gathered sufficient appropriate audit evidence to reduce audit risk to an acceptably low level. C. It is the standard because there are inherent limitations of an audit that result in most of the audit evidence being persuasive rather than conclusive. D. It is a high, but not absolute, level of assurance.
B. It is obtained when the auditor has gathered sufficient appropriate audit evidence to reduce audit risk to an acceptably moderate level.
45
At least how often should the PCAOB inspect a registered public accounting firm that regularly issues audit reports to 50 issuers?
Every 3 years. Under SOX Title - I, Section 104, PCAOB has to conduct an inspection of a registered public accounting firm and report deficiencies to the SEC and make available to the public. Such inspections are to be performed every year for firms that provide more than 100 audit reports annually and every three years for firms that provide up to 100 audit reports annually.
46
Audit documentation should:
Show that the accounting records agree or reconcile with the financial statements.
47
Audit engagement team members should remain alert for evidence of noncompliance with which of the following relevant ethical requirements?
Performing professional responsibilities with the highest sense of integrity.
48
Before accepting an engagement to audit a new client, a CPA is required to
Request the client to authorize the predecessor auditor to respond fully to inquiries that will assist the auditor in determining whether to accept the engagement.
49
Before applying principal substantive tests to an entity's accounts receivable at an interim date, an auditor should:
Assess the difficulty in controlling the incremental (递增的，增加的) audit risk
50
Before applying substantive tests to the details of asset accounts at an interim date, an auditor should assess:
The difficulty in controlling the incremental audit risk.
51
Both the AICPA's Statements on Auditing Standards and the PCAOB's auditing standards limit the period of evaluation by an auditor of an entity's ability to continue as a going concern to 12 months from the date of the F/S. The International Standards on Auditing differ in that they
Required that it be at least 12 months from the date of the F/Ss, but do not limit it to 12 months.
52
Due to a scope limitation, an auditor of a public company disclaimed an opinion on the financial statements taken as a whole, but the audit report included a statement that the current asset portion of the entity's balance sheet was fairly stated. The inclusion of this statement is
Not appropriate because it may tend to overshadow the auditor's disclaimer of opinion. Piecemeal opinions (expressions of opinion as to certain identified items in financial statements) should not be expressed when the auditor has disclaimed an opinion or has expressed an adverse opinion on the financial statements taken as a whole because piecemeal opinions tend to overshadow or contradict a disclaimer of opinion or an adverse opinion. (See the editor note below the incorrect answer explanations for a more detailed discussion regarding the meaning of financial statements taken as a whole vs. piecemeal opinions.) Editor note: Reference in the fourth reporting standard to the financial statements taken as a whole (The report shall either contain an expression of opinion regarding the financial statements, taken as a whole, or an assertion to the effect that an opinion cannot be expressed…) applies equally to a complete set of financial statements and to an individual financial statement (for example, to a balance sheet) for one or more periods presented. The auditor may express an unqualified opinion on one of the financial statements and express a qualified or adverse opinion or disclaim an opinion on another if the circumstances warrant. On the other hand, a piecemeal opinion refers to an opinion on a portion of an individual financial statement; not an opinion on an individual financial statement.
53
During an audit conducted in accordance with US GAAS, an auditor should depart from a relevant presumptively mandatory requirement only when
A required specific procedure would be ineffective in achieving the intent of the requirement.
54
During an audit of the financial statements of a company, the CFO provides a spreadsheet to the audit team that contains a number of errors that are material to the financial statements. Under what circumstances would this situation be a violation of the rules of the Sarbanes-Oxley Act of 2002 on improper influence on the conduct of audits? A. The CFO discovers and corrects most of the errors in the spreadsheet, which was prepared by a staff accountant. One immaterial error remains of which the CFO is aware, and this error remains undetected by the audit team, but the financial statements end up being fairly presented. B. The audit team discovers the errors through alternate procedures when they discern that the spreadsheet was improperly manipulated by the CFO. This international conduct of the CFO doesn't succeed in affecting the audit. C. The CFO had the spreadsheet prepared by a vendor of the company; the vendor intentionally misstates information in the spreadsheet, and the CFO does not discover the misstatements. The errors remain undetected by the audit team, and the financial statements are materially misleading. D. The CFO was unaware of the errors in the spreadsheet, which was prepared by a staff accountant and reviewed by the CFO. The errors remain undetected by the audit team, and the financial statements are materially misleading
B. The audit team discovers the errors through alternate procedures when they discern that the spreadsheet was improperly manipulated by the CFO. This intentional conduct of the CFO does not succeed in affecting the audit. It is unlawful for (1) any officer or director of an issuer to do any act (2) to fraudulently influence, coerce, manipulate, or mislead any auditor performing an audit if (3) the purpose is to render the financial statements materially misleading. The CFO is not excused by failure to affect the audit. Improper influence occurs when an officer or director of an issuer fraudulently influences, coerces, manipulates, or misleads the independent auditor of the financial statements for the purpose of rending the financial statements materially misleading. In this situation, the auditor identified material errors that were intentionally recorded by the CFO. However, this fraudulent manipulation did not effect the audit. Based on the circumstances, it appears that improper influence most likely occurred because the auditor knew of the manipulation but did not to allow it to affect the audit.
55
During the initial planning phase of an audit, a CPA most likely would not A. Obtain a general understanding of the client’s industry and business; B. Apply analytical procedures for risk assessment purposes; C. Discuss the timing of the audit procedures with the client’s management; D. Determine materiality.
C. Discuss the timing of the audit procedures with the client’s management. Coordination and scheduling are done with the client during the initial phase of an audit. However, the auditor does not divulge complete details of the audit to preserve the effectiveness of an audit. When discussing matters included in the overall audit strategy or audit plan, care is required in order not to compromise the effectiveness of the audit because discussing the nature and timing of detailed audit procedures with management may compromise the effectiveness of the audit by marketing the audit procedures too predictable.
56
During the initial planning phase of an audit, the auditor most likely would:
Discuss the timing of the audit procedures with the client’s management.
57
Factors a CPA firm should take into consideration when deciding whether to undertake or continue client relationships an engagements.
1. The client’s integrity; 2. The firm’s ability to perform the engagement; 3. The firm’s ability to comply with legal and ethical requirements.
58
For audit procedures related to the inspection of significant contracts or agreements, the auditor should: A. Include abstracts or copies of those contracts or agreements in the audit documentation if they’re needed to enable an experienced auditor to understand the work performed and conclusions reached. B. Make sure that, if abstracts or copies of those contracts or agreements are added to the audit file, they are stored in a manner that preserves their confidentiality; C. Retain he original document; D. Include abstracts or copies of those contracts or agreements in the audit documentation
D. Include abstracts or copies of those contracts or agreements in the audit documentation. The auditor should include abstracts whether or not they would be needed by an experienced auditor.
59
Hill has been retained to audit the F/Ss of Monday. Monday's predecessor auditor was Post, who has been notified by Monday that Post's services have been terminated. Under these circumstances, which party should initiate(提出) the communications between Hill and Post?
Hill, the successor auditor.
60
If the predecessor auditor refuses to give the current auditor of a non-issuer access to the documentation, what should the current auditor do?
Review the risk assessment of the opening balances of the F/Ss.
61
In a financial statement audit of a non-issuer, an auditor would consider a judgmental misstatement to be a misstatement that A. Involves an estimate. B. Exists because of non-statistical sampling performed by the auditor. C. Arises from a flaw in the accounting system. D. Arises from a routine calculation.
A. Involves an estimate Estimates are often used in financial accounting, such as useful life of a depreciable asset, percentage of uncollectible, etc. There is a strong element of subjectivity and judgment involved in developing these estimates. Thus, a misstatement involving an estimate can be considered a judgmental misstatement. (B) is incorrect because judgmental misstatements in the financial statements can be identified both by statistical as well as non-statistical sampling. (C) is incorrect because a judgmental misstatement is more likely to be the result of human error than of a flaw in the accounting system. (D) is incorrect because factual misstatements, and not judgmental misstatements are likely to occur as a result of routine calculations.
62
In addition to descriptions of the nature, timing, and extent of planned risk assessment procedures and planned further audit procedures, which of the following additional pieces of information should be documented in the audit plan?
Other audit procedures to be performed to comply with generally accepted auditing standards.
63
In addition to descriptions of the nature, timing, and extent of planned risk assessment procedures and planned further audit procedures, which of the following additional pieces of information should be documented in the audit plan?
Other audit procedures to be performed to comply with generally accepted auditing standards.
64
In addition to the opinion on the F/Ss, the auditor's responsibility in an audit in accordance with US GAAS, include all of the following except:
Authentication of documents.
65
In an audit of financial statements, an auditor’s primary consideration regarding an internal control policy or procedure is whether the policy or procedure
Affects management’s financial statement assertions.
66
In assessing the objectivity of internal auditors, the independent CPA who is auditing the entity's F/Ss most likely would consider the:
Internal auditing standards developed by The Institute of Internal Auditors. (Objectivity is reflected by the organizational level to which the internal audit reports as well as by policies prohibiting audits of areas where the internal auditor lacks independence. In assessing the objectivity of internal auditors, the independent CPA who is auditing the entity's F/Ss considers information obtained from previous experience, from discussions with management, from external quality reviews and from professional internal auditing standard, such as those developed by the institute of internal auditors. )
67
In developing an overall audit strategy, an auditor should consider:
Preliminary evaluations of materiality, audit risk, and internal control
68
In obtaining an understanding of the entity and its environment, including its internal control, an auditor is required to obtain knowledge about the:
Design of relevant internal controls pertaining to financial reporting in each of the 5 internal control components.
69
In performing tests of controls over authorization of cash disbursements, which of the following statistical sampling methods would be most appropriate? A. Variables B. Stratified C. Ratio D. Attributes
D. Attributes When performing tests of controls the auditor is looking for the deviation rate from established control procedures set by the client. For testing the controls, the auditor performs attributes sampling procedures. Answers (a) and (c) represent substantive sampling procedures. Answer (b) describes a selection method that is not relevant to attribute sampling.
70
In planning an audit, the auditor’s knowledge about the design of relevant internal controls should be used to:
Identify the types of potential misstatements that could occur.
71
In which of the following situations would a CPA’s independence be considered to be impaired?
The CPA has a direct financial interest in an audit client, but the interest is maintained in a blind trust; The CPA owns a commercial building and leases it to an audit client. The lease qualifies as a capital lease. A CPA’s independence would not be considered to be impaired by her/his maintaining a checking account that is fully insured by a government deposit insurance agency at an audit-client financial institution.
72
Management's acknowledgement of their responsibility for the preparation and fair presentation of the F/Ss (part of the premise on which an audit in accordance with US GAAS is conducted), include all of the following except:
Knowledge of US GAAS related to the F/Ss.
73
Primary differences between International Standards on Auditing (ISA) and Public Company Accounting Oversight Board (PCAOB) auditing standards include all of the following except A. PCAOB auditing standards, unlike ISA, do not include a requirement to put changes to the terms of an engagement in writing. B. ISA do not have a requirement similar to PCAOB auditing standards for an audit of internal control over financial reporting that is integrated with an audit of financial statements. C. ISA, unlike PCAOB auditing standards, do not allow the principal auditor to share responsibility with another auditor and accordingly, do not allow a reference in the audit report to another auditor. D. There are significant differences per PCAOB auditing standards vs. ISA regarding requirements for written representations from management.
D. There are significant differences per PCAOB auditing standards vs. ISA regarding requirements for written representations from management. There are no substantive differences per PCAOB auditing standards vs. ISA regarding requirements for written representations from management.
74
Prior to commencing field work, an auditor usually discusses the general audit strategy with the client's management. Which of the following details do management and the auditor usually agree upon at this time?
Answer 1:The schedules and analyses that the client's staff should prepare (Prior to commencing field work, the auditor would likely discuss with management any assistance desired from client staff. This is part of establishing an understanding with the client) Answer 2: The coordination of the assistance of the client's personnel in data preparation.
75
Quality control,as referred to in Statements on quality Control Standards (SQCS), applies to a CPA firm’s responsibilities for its system of quality control for its
Accounting and auditing practice
76
Regarding communication with the client, A. The auditor takes into account that management and those charged with governance, by definition, constitute 2 exclusive groups; B. If the auditor is directed by the client to communicate with a client’s audit committee, the auditor need not repeat the communications make to them to the entire governing body of the entity; C. The auditor may presume that if a company has an audit committee, communications required by US GAAS to be made to those charged with governance should be made to such a subgroup of their members appointed by them for this purpose; D. If matters required by US GAAS are communicated with a person with management responsibilities who also has governance responsibilities, the matters need not be communicated twice.
D. If matters required by US GAAS are communicated with a person with management responsibilities who also has governance responsibilities, the matters need not be communicated twice. In some cases, all of those charged with governance are involved in managing the entity; eg, a small business in which a single owner manages the entity and no one else has a governance role. In these cases, if matters required by US GAAS are communicated with a person with management responsibilities and the person also has governance responsibilities, the matters need not be communicated again with the same person in the person’s governance role. C is incorrect, the auditor should determine the appropriate person within the entity’s governance structure with whom to communicate.
77
Regarding internal control related matters identified in an audit of F/Ss, the auditor should include in the written communication of significant deficiencies and material weaknesses A. A description of the significant deficiencies and material weaknesses and an analysis of their effects, including the magnitude expresses as a percentage of the applicable accounts; B. A description of the significant deficiencies and material weaknesses and an explanation of their effect on the auditor’s overall risk assessment; C. Not include suggestions for remedial action on the deficiencies as this may tend to overshadow the reporting of the deficiencies; D. A description of the significant deficiencies and material weaknesses and an explanation of their potential effects.
D. A description of the significant deficiencies and material weaknesses and an explanation of their potential effects. The purpose of the communication is to report matters to management ad those charged with governance that merit their attention in meeting their responsibilities, not how it relates to the audit. Thus, the auditor should not communicate their effect on the auditor’s overall risk assessment.
78
Regarding the auditor’s communication responsibilities related to fraud or suspected fraud, A. The auditor should communicate these matters on a timely basis to the appropriate level of management unless the matter is considered inconsequential; B. Only when senior management or employees who have significant roles in internal control are involved in the fraud or suspected fraud should the auditor communicate these matters on a timely basis to those charged with governance. C. When management is involved in the fraud or suspected fraud the auditor should communicate these matters to those charged with governance and discuss with them the nature, timing, and extent of audit procedures necessary to complete the audit; D. The auditor should communicate the occurrence or suspicion of fraud to stakeholders outside the entity.
C. When management is involved in the fraud or suspected fraud the auditor should communicate these matters to those charged with governance and discuss with them the nature, timing, and extent of audit procedures necessary to complete the audit; A is incorrect. Even the matter is considered inconsequential, auditor still should communicate.
79
Related to the planning of an audit, the auditor should include in the audit documentation all of the following, except:
Records of discussions with management related to planning activities, including the agreed upon dates for their delivery of requested data.
80
Report release date is
Defined as the date on which the auditor grants the client permission to use the report and also the date on which the report is delivered to the client.
81
The auditor is required to communicate each of the following items to those charged with governance, except: A. An overview of the planned scope and timing of the audit; B. The auditor’s responsibilities to complete the audit in accordance with generally accepted auditing standards; C. All control deficiencies detected during the course of the audit; D. Any significant findings from the audit;
C. All control deficiencies detected during the course of the audit; The auditor would never bring up all control deficiencies detected during the audit. That would be impractical and a waste of time. However, if there is a pattern of control deficiencies that are significant deficiencies or material weaknesses, the auditor would bring that forwarded.
82
The auditor with final responsibility for an engagement and one of the assistants have a difference of opinion about the results of an auditing procedure. If the assistant believes it is necessary to be disassociated from the matter's resolution, the CPA firm's procedures should enable the assistant to:
Document the details of the disagreement with the conclusion reached.
83
The authorization body designated to promulgate standards that provide performance and reporting guidance for preparation of financial statements, compilations engagements and reviews of the unaudited F/Ss of a non-issuer is the
AICPA
84
The communication with the predecessor auditor may be either written or oral, and may include:
1. Information bearing on management integrity; 2. Disagreements with management about accounting policies, auditing procedures, etc; 3. Communication to those charged with governance regarding fraud and noncompliance with laws; 4. Communication to management and those charged with governance regarding internal control significant deficiencies and material weaknesses; 5. Predecessor auditor’s understanding about the reasons for the change.
85
The documentation completion date is
Defined as the date after which existing documentation must not be deleted, and additions to the documentation file must be documented as such.
86
The element of the audit planning process most likely to be agreed upon with the client before implementation of the audit strategy is the determination of the
Timing of inventory observation procedures to be performed.
87
The fourth standard of reporting requires the auditor's report for a public company's financial statements to contain either an expression of opinion regarding the financial statements taken as a whole or an assertion to the effect that an opinion cannot be expressed. The objective of the fourth standard is to prevent
Misinterpretations regarding the degree of responsibility the auditor is assuming. The objective of the fourth reporting standard is to prevent misinterpretation of the degree of responsibility the auditor assumes when associated with financial statements. The auditor may express different opinions on the statements presented. Material scope restrictions result in a qualification or disclaimer of opinion. An auditor is not precluded from reporting on only one of the basic financial statements and not the others.
88
The in-charge auditor most likely would have a supervisory responsibility to explain to the staff assistants:
How the results of various auditing procedures performed by the assistants should be evaluated.
89
The objective of performing analytical procedures in planning an audit is to identify the existence of:
Unusual transactions and events.
90
The office issuing the auditor’s report on a public company must obtain, and review and retain, prior to the report release date, the following documentation related to the work performed by other auditors, except for A. Any findings affecting the consolidating or combining of accounts in the consolidated financial statements B. All internal controls over financial reporting found to be ineffective by other auditors C. Letters of representations from management D. Sufficient information to allow the reconciliation of the financial statement amounts audited by the other auditors to the information underlying the consolidated financial statements
B. All internal controls over financial reporting found to be ineffective by other auditors. The office issuing the auditor’s report on a public company is not required to obtain records of all internal controls over financial reporting found to be ineffective by other auditors; however, documentation regarding all significant deficiencies and material weaknesses in internal control over financial reporting, including a clear distinction between those two categories is required. In addition to this and the items in the other three answer alternatives, the following documentation related to the work performed by other auditors must be obtained, and reviewed and retained, prior to the report release date by the office issuing the auditor’s report: an engagement completion document; a list of significant risks, the auditor’s responses, and the results of the auditor’s related procedures; sufficient information relating to any significant findings or issues that are inconsistent with or contradict the final conclusions; a schedule of accumulated misstatements, including a description of the nature and cause of each accumulated misstatement, and an evaluation of uncorrected misstatements, including the quantitative and qualitative factors the auditor considered to be relevant to the evaluation; and all matters to be communicated to the audit committee.
91
The primary objective of procedures performed to obtain an understanding of the entity and its environment is to provide an auditor with:
Knowledge necessary are for risk assessment and audit planning.
92
The profession’s ethical standards most likely would be considered to have been violated when a CPA represents that specific consulting services will be performed for a stated fee, and it is apparent at the time of the representation that the
Actual fee would be substantially higher.
93
The Public company accounting oversight board's responsibilities include
Investigation and enforcement of registered public accounting firms for violations of specified laws or professional standards.
94
The responsibilities and activities of the PCAOB includes:
(1) registering public accounting firms; (2) overseeing the audit of public companies (issuers) that are subject to the securities laws; (3) establishing or adopting standards on auditing, quality control, ethics, and independence; (4) inspecting audit firms every 3 years (1 year if the firm is large) to (a) examine selected audit and review engagements, (b) evaluate the system of quality, and (c) test audit, supervisory, and quality control procedures; and (5) conducting investigations and disciplinary proceedings involving, and imposing appropriate sanctions upon, registered public accounting firms and associated persons.
95
The SSARS guidance on the preparation of financial statements is not applicable
Performing general bookkeeping services and consulting on accounting matters.
96
The third general standard requires that due professional care be exercised in the planning and performance of the audit and the preparation of the report of a public company. This standard is ordinarily interpreted to require A. Thorough review of the existing safeguards over access to assets and records B. Limited review of the indications of employee fraud and illegal acts C. Objective review of the adequacy of the technical training and proficiency of firm personnel D. Critical review of the judgment exercised at every level of supervision
D. Critical review of the judgement exercised at every level of supervision. The exercise of due professional care requires critical review at every level of supervision of the work done and the judgment exercised by those assisting in the audit. Safeguards over assets and records and review of indications of fraud and illegal acts are internal control issues. Objective review of the adequacy of the training and proficiency of personnel is a quality control issue and relates to the first general standard—the audit is to be performed by a person or persons having adequate technical training and proficiency as an auditor.
97
To obtain an understanding of a continuing client's business in planning an audit, an auditor most likely would:
Review prior-year audit documentation and the permanent file for the client.
98
To obtain an understanding of a continuing client's business in planning an audit, an auditor most likely woud
Review prior-year audit documentation and the permanent file for the client.
99
Under PCAOB standards, which one of the following factors would indicate that a company has less complex operations?
A centralized accounting function.
100
Under PCAOB standards, which one of the following factors would indicate that a company has less complex operations?
A centralized accounting function.
101
Under the ethical standards of the profession, which of the following investments by a CPA in a corporate client is an indirect financial interest?
An investment held through a regulated mutual fund.
102
Under the ethical standards of the profession, which of the following is a “permitted loan” regardless of the date it was obtained?
Secured automobile loan. Independence is generally impaired if a covered member has loan to or from a client. However, certain exceptions apply. One such exception is for an automobile loan collateralized by the vehicle. Editor’s note: The key to answering this question is the term “secured” as is noted in answer C.
103
Under the Sarbanes-Oxley Act of 2002, exactly how many consecutive years may an audit partner lead an audit for an issuer?
5 years.
104
US GAAS
Are developed and issued in the form of Statements on Auditing Standards.
105
US GAAS use 2 categories of professional requirements
To describe the degree of responsibility it imposes on auditors. US GAAS use 2 categories of professional requirements, identified by specific terms (unconditional and presumptively mandatory), to describe the degree of responsibility it imposes on auditors.
106
When a company's stock record books are maintained by an outside registrar or transfer agent, the auditor should obtain confirmation from the registrar or transfer agent concerning the A. Amount of dividends paid to related parties B. Expected proceeds from stock subscriptions receivable C. Number of shares issued and outstanding D. Proper authorization of stock rights and warrants
C. Number of shares issued and outstanding The auditor will need to confirm the shares issued and outstanding with the registrar to ascertain whether the corporate records are accurate and that stock is issued in accordance with the authorization of the board of directors and the articles of incorporation. Confirming the amount of dividends paid to related parties is not a common procedure. The auditor would obtain confirmations from subscribers to determine the expected proceeds from stock subscriptions receivable. Proper authorization of stock rights and warrants would be verified through reading the minutes of the board of directors' meetings.
107
When a former partner of a registered public accounting firm who left the firm two years ago accepts a financial reporting oversight role at an issuer audit client, the independence of the registered public accounting firm is considered impaired unless which of the following is true?
The former partner has no remaining capital balance in the registered public accounting firm. If a partner or professional employee leaves the firm and subsequently is employed by or associated with that client in a key position, then the firm’s independence would be impaired, unless a number of conditions are met, including: there are no amounts owed to a former partner or professional employee for a prior interest in the firm or for unfunded, vested retirement benefits; the former partner is not in a position to exert any influence over the accounting firm’s operations or financial policies; and the former partner may not participate or appear to participate, and is not associated with, the firm. It is irrelevant how long the former partner was employed with the firm. Disclosure of the relationship is not adequate.
108
Which of the bodies promulgates standards for audits of federal financial assistance recipients?
Government Accountability Office (GAO)
109
Which of the following actions should a CPA firm take to comply with the AICPA’s quality control standards?
Establish policies to ensure that the audit work meets applicable professional standards.
110
Which of the following actions should a CPA firm take to comply with the AICPA’s quality control standards?
Establish policies to ensure that the audit work meets applicable professional standards.
111
Which of the following activities would be most helpful to a CPA in deciding whether to accept a new audit client?
Evaluating the CPA's ability to properly service the client.
112
Which of the following activities would be most helpful to a CPA in deciding whether to accept a new audit client? A. Reviewing industry benchmarking data. B. Considering the client's compensation methods. C. Evaluating the CPA's ability to properly service the client. D. Evaluating the most recent peer review of the client's previous auditor.
C. Evaluating the CPA's ability to properly service the client. The most helpful activity to a CPA in deciding whether to accept a new audit client is to evaluate the CPA’s ability to properly service the client. A CPA should evaluate his own ability to properly service the client. Specifically, the CPA should check if he has the ability to meet reporting deadlines (considering factors like timing and complexity of the engagement and the availability of audit staff). (A) is incorrect because reviewing industry benchmark data can be done post acceptance of the engagement. (B) is incorrect because the amount of compensation rather than the method of compensation would be more relevant in deciding whether to accept a new client or not. (D) is incorrect because while the peer review of the client's previous auditor might give an insight in the performance of the previous auditor, it is not of much help in deciding whether to accept a new client or not.
113
Which of the following auditor concerns most likely could be so serious that the auditor concludes that a F/S audit cannot be performed?
There is a substantial risk of intentional misapplication of accounting principles. (intentional misapplication of accounting principles would indicate that MGMT lacks integrity and as a result, the auditor might conclude that a F/S audit cannot be performed)
114
Which of the following best describes the effect of a contingent fee arrangement on the auditor’s independence?
The contingent fee arrangement impairs independence
115
Which of the following best describes the preconditions of an audit?
The use by management of an acceptable financial reporting framework in the preparation and fair presentation of the financial statements and the agreement of management and, when appropriate, those charged with governance, to the premise on which an audit is conducted.
116
Which of the following boards is responsible for promulgating international standards on Auditing
International Auditing and Assurance Standards Board
117
Which of the following categories is included in the PCAOB's 10 standards?
Standards of fieldwork. Standards of fieldwork is one of the 3 categories of the 10 standards. The other 2 categories are general standards and standards of reporting.
118
Which of the following communications between the auditor with final responsibility for an engagement and the audit engagement team regarding the susceptibility of a client's financial statements to material misstatements due to error or fraud is required by auditing standards?
Discussing the need to maintain a questioning mind and to exercise professional skepticism throughout the audit. This correct answer is required by auditing standards.
119
Which of the following computer-assisted auditing techniques allows fictitious and real transactions to be processed together without client operating personnel being aware of the testing process?
Integrated test facility.
120
Which of the following computer-assisted auditing techniques processes client input data on a controlled program under the auditor’s control to test controls in the computer system?
Parallel simulation.
121
Which of the following factors most likely would cause a CPA to decline to accept a new audit engagement
Management is unwilling to permit inquiry of its legal counsel.
122
Which of the following factors most likely would cause a CPA to decide not to accept a new audit engagement?
Management's disregard of its responsibility to maintain an adequate internal control environment.
123
Which of the following is a correct statement regarding the nature and timing of communications between an accounting firm performing an initial audit of an issuer and the issuer’s audit committee?
Prior to accepting the engagement, the firm should describe in writing all relationships that, all of the date of the communication, may reasonably be thought to bear on independence.
124
Which of the following is awards necessary in a F/S audit? I. Tests of the operating effectiveness of controls. II. Analytical procedures. III. Risk assessment procedures.
Analytical procedures and risk assessment procedures. Risk assessment procedures must be performed to assess the RMM and to determine whether and to what extent further audit procedures are necessary. In additions, the planning process and the overall review stage of the audit must include application of analytical procedures. Tests of the operating effectiveness of controls, however, are only performed when the auditor risk assessment is based on the assumption hat controls are operating effectively, or when substantive procedures alone are insufficient.
125
Which of the following is not a documentation requirement for an engagement conducted pursuant to the standards of the PCAOB? A. The auditor must identify all significant findings or issues in an engagement completion document. B. The auditor must retain audit documentation for at least seven years from the report release date. C. Audit documentation must contain sufficient information to enable an experienced auditor, having no previous connection with the engagement, to understand the nature, extent, timing, and results of procedures performed; evidence obtained; and conclusions reached. D. A complete and final set of audit documentation should be assembled for retention not more than 60 days after the report release date.
D. A complete and final set of audit documentation should be assembled for retention not more than 60 days after the report release date. Should be 45 days instead of 60 days.
126
Which of the following is not a required part of the understanding between the client and the auditor?
Management's responsibility to correct deficiencies in internal control identified by the auditor. (MGMT may choose not to correct internal control deficiencies due to cost-benefit considerations, and this is not port of the understanding between the auditor and the client)
127
Which of the following is not a type of F/S assertion?
Fairness and accuracy
128
Which of the following is true about the timing of predecessor/successor communications
They can occur both before and after the auditor accepts the engagement.
129
Which of the following matters in a F/S audit is most appropriate to communicate with those charged with governance? A. Clearance explanations of work paper review notes; B. Major variances in budgeted versus actual audit hours; C. The nature ad timing of detailed audit procedures; D. An overview of the planned scope and timing of the audit.
D. An overview of the planned scope and timing of the audit. During a F/S audit, an auditor is required to communicate some important matters to those charged with governance. A and B are incorrect because these are matters internal to the audit firm and need not be disclosed. C is incorrect because the nature and timing of detailed audit procedures should not be discussed with either the mgmt or with those charged with governance, as it may reduce the effectiveness of the audit.
130
Which of the following procedures would an auditor least likely perform in planning a financial statement audit?
Selecting a sample of vendors' invoices for comparison to receiving reports.
131
Which of the following representations does an auditor make explicitly and which implicitly when issuing an unqualified opinion on a public company's F/S?
Conformity with GAAP: Explicitly Adequacy of disclosure: Implicitly An unqualified opinion states explicitly that the F/Ss present fairly, in all material respects, the financial position, results of operations, and cash flows in conformity with US GAAP. Adequacy of disclosure, per the 3rd standard of reporting, is not explicitly mentioned, i.e., is implicit, unless it is found to be inadequate.
132
Which of the following should an audit do when control risk is assessed at the maximum level? A. Perform fewer substantive test of details (should be more, not fewer) B. Perform more test of control (如果control risk风险设定为高，证明internal control不完善，所以不用花时间再去做test of control,而是应该留时间来做substantive test) C. Document the assessment; D. Document the control structure more extensively.
Document the assessment. Editor note: if the auditor is assessing the control risk as high, There isn’t validation to test controls since the auditor has concluded that the controls aren’t reliable. As such, the auditor should supplement the lack of control testing with more substantive tests of details.
133
Which of the following statements best describes the IFAC Code of Ethics for Professional Accountants?
A conceptual framework that requires a professional accountant to identify, evaluate, and address threats to compliance with established principles.
134
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.
135
Which of the following statements is correct concerning the Public Company Accounting Oversight Board (PCAOB)? A. It was established by the Sarbanes-Oxley Act of 2002. B. It was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act. C. It has oversight authority over the Securities and Exchange Commission (SEC). D. It was established by the Securities Exchange Act of 2002.
A. It was established by the Sarbanes-Oxley Act of 2002 The Sarbanes-Oxley Act of 2002 established the PCAOB. The Dodd-Frank Wall Street Reform and Consumer Protection Act amended the Sarbanes-Oxley Act of 2002, but it did not establish the PCAOB. The SEC has oversight authority over the PCAOB, not vice versa. There is no Securities Exchange Act of 2002.
136
Which of the following statements is false in regard to an engagement conducted in accordance with the standards of the PCAOB to report on whether a previously reported material weakness continues to exist? A. The auditor may report on more than one previously reported material weakness as part of a single engagement; B. This type of engagement is voluntary, i.e., the standards of the PCAOB do not require an auditor to undertake an engagement to report on whether a previously reported material weakness continues to exist; C. A qualified opinion is not permitted; D. The auditor's opinion on whether a previously reported material weakness continues to exist may be expressed as "the material weakness exists" or "the material weakness has been eliminated".
D. The auditor's opinion on whether a previously reported material weakness continues to exist may be expressed as "the material weakness exists" or "the material weakness has been eliminated".
137
Which of the following statements is most accurate regarding audit documentation requirements? A. The auditor should document findings that could result in a modification of the auditor’s report; B. If different audit procedures were performed due to a lack of responsiveness by the client, the lack of responsiveness should not be included in the working papers; C. If an oral explanation serves as sufficient support for the work the auditor performed, the explanation should be documented in the working papers; D. If the results of audit procedures indicate a need to revise the previous assessment of risk, the new assessment should be documented and the original assessment should be removed.
A. The auditor should document findings that could result in a modification of the auditor’s report; C is incorrect because it is a misconception that an oral explanation can substitute for written documentation to meet requirements. Written documentation is absolutely necessary. An oral explanation is a supplement to actual written documentation but not sufficient in itself.
138
Which of the following statements is not correct about materiality
An auditor considers materiality for the F/Ss as a whole in terms of the largest (should be smallest)aggregate level of misstatements that could be material to any one of the F/Ss
139
Which of the following statements is true regarding an auditor's communications with a predecessor auditor prior to engagement acceptance? A. Inquiries addressing specific matters are required, for example, the predecessor’s understanding about the reasons for the change in auditors. B. US GAAS provides a list of matters that may be subject to the auditor’s inquiry of the predecessor auditor. C. If management refuses to authorize the predecessor auditor to respond, or limits the response, the auditor should not accept the engagement. D. If the predecessor auditor provides no response or a limited response, the auditor should not accept the engagement.
B. US GAAS provides a list of matters that may be subject to the auditor’s inquiry of the predecessor auditor. Matters subject to the auditor’s inquiry of the predecessor auditor prior to engagement acceptance may include: (1) information that might bear on the integrity of management; (2) disagreements with management about accounting policies, auditing procedures, or other similarly significant matters; (3) communications to those charged with governance regarding fraud and noncompliance with laws or regulations by the entity; (4) communications to management and those charged with governance regarding significant deficiencies and material weaknesses in internal control; (5) the predecessor auditor’s understanding about the reasons for the change of auditors. Regarding incorrect answer A., specific inquiries are not required. Regarding incorrect answer C., if management refuses to authorize the predecessor auditor to respond, or limits the response, the auditor should inquire about the reasons and consider the implications of that refusal in deciding whether to accept the engagement. The auditor is not automatically precluded from accepting the engagement. Regarding incorrect answer D., if the predecessor auditor provides no response or a limited response, the auditor should evaluate the predecessor auditor’s response, or consider the implications, in determining whether to accept the engagement. Again, the auditor is not automatically precluded from accepting the engagement.
140
Which of the following statements is true regarding an auditor’s communications with a predecessor auditor prior to engagement acceptance? A. Inquiries addressing specific matters are required, for example, the predecessor’s understanding about the reasons for the change in auditions; B. US GAAS provides a list of matters that may be subject to the auditor’s inquiry of the predecessor auditor.
B. US GAAS provides a list of matters that may be subject to the auditor’s inquiry of the predecessor auditor. A is not correct, specific inquiries are not required.
141
Which of the following types of evidence would an auditor most likely examine to determine whether internal controls are operating as designed? (C)
A. Gross margin information regarding the client’s industry.(analytical test) B. Confirmations of receivables verifying account balances.(substantive test) C. Client records documenting the use of EDP programs. (control test) D. Anticipated results documented in budgets or forecasts. (analytical test)
142
Which of the following would least likely appear in an auditor's engagement letter?
D. A statement that, after performing preliminary procedures, the auditor will discuss the other procedures considered necessary to complete the engagement Answer D., the auditor would not promise to discuss the specific procedures to be performed during the audit. (However, the auditor is required to include the objective and scope of the audit in the written agreement to the terms of the engagement.) Answers A. and B., fees/billing arrangements and the request for management’s acknowledgment of the agreement, respectively, are examples of matters that are not required to be included, but may be included. Answer C. is the only answer alternative that is required to be included in the written agreement as to the terms of an audit engagement. Such reference may include a description of the types of reports to be issued; of course, the auditor need not describe the type of opinion expected to be expressed. A related statement that circumstances may arise in which a report may differ from its expected form and content is also required. Other items, in addition to answers A. and B., that are not required, but may be referenced in an engagement letter include: (1) elaboration of the scope of the audit, including reference to applicable legislation, regulations, US GAAS, and ethical and other pronouncements of professional bodies to which the auditor adheres; (2) the form of any other communication of results of the audit engagement; (3) arrangements regarding the planning and performance of the audit, including the composition of the audit team; (4) the expectation that management will provide written representations; (5) the agreement of management to make available to the auditor draft financial statements and any accompanying other information in a timely fashion; (6) the agreement of management to inform the auditor of events occurring or facts discovered subsequent to the date of the financial statements that may affect the financial statements; (7) arrangements concerning the involvement of other auditors or specialists; (8) arrangements concerning the involvement of internal auditors and other staff of the entity; (9) arrangements to be made with the predecessor auditor, if any, in the case of an initial audit; (10) any restriction of the auditor’s liability when not prohibited; (11) any obligations of the auditor to provide audit documentation to other parties; (12) additional services to be provided; and (13) a reference to any further agreements between the auditor and the entity.
143
Which of the following would least likely appear in an auditor’s engagement letter? A. The basis on which fees are computed and any billing arrangements; B. A request for management to acknowledge receipt of the letter and to agree to its terms, as may be evidenced by their signature on the letter and its return to the auditor; C. Reference to the expected form and content of any reports to be issued by the auditor; D. A statement tat, after performing preliminary procedures, the auditor will discuss the other procedures considered necessary to complete the engagement.
Answer D is correct. The auditor would not promise to discuss the specific procedures to be performed during the audit. (However, the auditor is required to include the objective and scope of the audit in the written agreement to the terms of the engagement.) A and B are examples of matters that are not required to be included,but may be included; C is the only answer alternative that is required to be included in the written agreement as to the terms of an audit engagement.
144
Which of the following would prevent an auditor from accepting a new client engagement?
Management has a reputation within the business community for materially overstating its revenue.
145
Which one of the below factors is not included in the PCAOB auditing standards as one that should influence the nature and extent of necessary planning activities?
The size of the auditing firm and the number of auditors assigned to the audit.
146
Which one of the below factors is not included in the PCAOB auditing standards as one that should influence the nature and extent of necessary planning activities?
The size of the auditing firm and the number of auditors assigned to the audit.
147
Which statement is not true about the application and other explanatory material in the codified sections of SSARS?
It may impose additional requirements.
