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Flashcards in RESP Deck (129):
1

The Government Accountability Office (GAO):

Conducts operational audits and reports the results to Congress.

2

Which of the following is correct concerning General Accountability Office (GAO) audits?
a. They are based on the GAO’s mission to support the President in meeting his or her constitutional responsibilities.
b. Audit team members may not also work on nonattest engagements.
c. They are generally based on the “Blue Book.”
d. They do not include requirements beyond those of generally accepted auditing standards.

Audit team members may not also work on nonattest engagements.

3

Which of the following is not true about the Public Company Accounting Oversight Board created by the Sarbanes-Oxley Act of 2002?
a. The board oversees the SEC.
b. The board has the responsibility to discipline CPA firms that audit public companies.
c. The board consists of 5 members.
d. The board has responsibility to develop independence standards for CPA firms that audit public companies.

The board oversees the SEC.

4

The organization charged with protecting investors and the public by requiring full disclosure of financial information by companies offering securities to the public is
the:

Securities and Exchange Commission.

5

Which of the following is a correct statement about the circumstances under which a CPA firm may or may not disclose the names of its clients without the clients’
express permission?
a. A CPA firm may disclose this information if the practice is limited to performing asset valuations in anticipation of mergers and acquisitions.
b. A CPA firm may not disclose this information because the identity of its clients is confidential information.
c. A CPA firm may disclose this information unless disclosure would suggest that the client may be experiencing financial difficulties.
d. A CPA firm may disclose this information if the practice is limited to bankruptcy matters, so that prospective clients with similar concerns will be able to contact
current clients.

A CPA firm may disclose this information unless disclosure would suggest that the client may be experiencing financial difficulties.

6

Which of the following is not considered a threat to independence in the Conceptual Framework for AICPA Independence Standards?
a. Public interest threat.
b. Self-review threat.
c. Financial self-interest threat,
d. Familiarity threat.

Public interest threat.

7

Which of the following is correct about an audit report under International Standards for Auditing? The audit opinion may assert that the financial statements:
a. Neither
b. Present fairly
c. Give a fair and true view.
d. Present fairly and Give a fair and true view.

Present fairly and Give a fair and true view.

8

In which of the following situations would a CPA firm be independent with respect to an audit client?
a. A manager that provides twenty hours of nonattest services to the client has a material indirect interest in the client.
b. A partner in the office but not assigned to the engagement owns 10% of the outstanding stock of the client.
c. A professional employee assigned to the engagement has a spouse that is employed as a salesperson by the client.
d. The partner that manages the firm’s audit practice owns 100 shares of the client’s stock.

A professional employee assigned to the engagement has a spouse that is employed as a salesperson by the client.

9

According to the ethical standards of the profession, a CPA’s independence would most likely be impaired if the CPA
a. Served, with a client bank, as a cofiduciary of an estate or trust.
b. Accepted any gift from a client.
c. Contracted with a client to supervise the client’s office personnel.
d. Became a member of a trade association that is a client.

Contracted with a client to supervise the client’s office personnel.

10

Under the Code of Professional Conduct of the AICPA, which of the following is required to be independent in fact and appearance when discharging professional
responsibilities?
a. A CPA not in public practice.
b. A CPA in public practice providing tax and management advisory services.
c. A CPA in public practice providing auditing and other attestation services.
d. All CPAs.

CPA in public practice providing auditing and other attestation services.

11

Which of the following is not an AICPA pronouncement enforceable under the AICPA Code of Professional Conduct?
a. Statements on Responsibilities in Personal Consulting Advisory Practice.
b. Statements on Auditing Standards.
c. Statements on Standards for Accounting and Review Services.
d. Statements on Standards for Valuation Services.

Statements on Responsibilities in Personal Consulting Advisory Practice.

12

The Sarbanes-Oxley Act of 2002 prohibits the performance of certain services for audit clients by auditors of public companies. Which of the following is not
prohibited?
a. Management functions.
b. Bookkeeping services.
c. Appraisal services.
d. Tax preparation services.

Tax preparation services.

13

The audit report of which organization(s) includes section titles?

International Auditing and
Assurance Standards Board

14

Which of the following is not a “covered member” under the Independence Rule of the Code of Professional Conduct?
a. A partner in the same office as the lead attest partner.
b. A partner that manages the attest practice for the firm.
c. A manager that provides five hours of tax services to the client.
d. A professional employee that is assigned to the engagement.

A manager that provides five hours of tax services to the client.

15

Bill Fling, CPA, has posted the general ledger and has maintained the financial records of Wing Corporation. As a part of his responsibilities he has recorded journal
entries and made closing entries. Which of the following best summarizes the AICPA and SEC views as to the following question: Is audit independence impaired?
AICPA
A. AICPA and SEC
B. AICPA
C. SEC
D. Neither

SEC

16

According to the standards of the profession, which of the following circumstances will prevent a CPA performing audit engagements from being independent?
a. Obtaining a collateralized automobile loan from a financial institution client.
b. Possessing an immaterial indirect financial interest in the client.
c. Employment of the CPA’s spouse as a client’s director of internal audit.
d. Acting as an honorary trustee for a not-for-profit organization client.

Employment of the CPA’s spouse as a client’s director of internal audit.

17

The series of international standards on auditing financial statements issued by the International Auditing and Assurance Standards Board are referred to as:

International Standards on Auditing.

18

Which of the following is not a section title ordinarily included in an international audit report?
a. Opinion.
b. Auditor’s responsibility.
c. Board of directors overall responsibility.
d. Management’s responsibility for the financial statements.

Board of directors overall responsibility.

19

The AICPA allows an auditor to perform which of the following services for an audit client?
a. Authorization of transactions for the client.
b. Preparation and posting of journal entries without the client’s approval.
c. Preparation of client source documents.
d. Performance of bookkeeping services for the client.

Performance of bookkeeping services for the client.

20

In which of the following situations would a CPA’s covered members’ independence be considered to be impaired?
I. The CPA maintains a checking account that is fully insured by a government deposit insurance agency at an audit-client financial institution.
II. The CPA has a direct financial interest in an audit client, but the interest is maintained in a blind trust.
III. The CPA owns a commercial building and leases it to an audit client.The rental income is material to the CPA.
a. II and III.
b. I, II, and III.
c. I and III.
d. I and II.

II and III.

21

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. Actively supervising a principal financial officer or principal accounting officer.
b. Assessing the performance of public accountants with respect to preparation, auditing, or evaluation of financial statements.
c. As a principal financial officer, principal accounting officer, controller, public accountant, or auditor.
d. Serving on at least one other issuer’s audit committee or disclosure committee of the board of directors.

Serving on at least one other issuer’s audit committee or disclosure committee of the board of directors.

22

A violation of the Code of Professional Conduct would least likely have occurred when a CPA in public practice

Used a records-retention agency to store the CPA’s working papers and client records.

23

Which of the following acts by a CPA would not necessarily be considered an act discreditable to the profession under Rule 501 of the AICPA Code of Professional
Conduct?
a. Engaging in discriminatory employment practices.
b. Prohibiting a client’s new CPA firm from reviewing the audit working papers after the client has requested the CPA to do so.
c. Knowingly signing a false tax return.
d. Committing a felony.

Prohibiting a client’s new CPA firm from reviewing the audit working papers after the client has requested the CPA to do so.

24

Which of the following is least likely to be directly examined in an inspection performed by the PCAOB?
a. CPA firm quality control system.
b. Review engagements.
c. Compilation engagements.
d. Audit engagements.

Compilation engagements.

25

A CPA audits the financial statements of a client. The CPA has also been asked to perform bookkeeping functions for the client. Under the AICPA Code of Professional Conduct, which of the following activities would impair the CPA’S independence with respect to the client?
a. The CPA records transactions in accordance with classifications determined by management.
b. The CPA authorizes client transactions and reports them to management.
c. The CPA prepares financial statements from a trial balance provided by management.
d. The CPA posts adjusting journal entries prepared by management to the trial balance.

he CPA authorizes client transactions and reports them to management.

26

According to the AICPA Code of Professional Conduct, which of the following actions by a CPA most likely involves an act discreditable to the profession?
a. Accepting a commission from a nonattest function client.
b. Auditing financial statements according to governmental standards despite the client’s preferences.
c. Refusing to provide the client with copies of the CPA’s workpapers.
d. Retaining client records after the client demands their return.

Retaining client records after the client demands their return.

27

A CPA should maintain objectivity and be free of conflicts of interest when performing

All professional services.

28

In which of the following situations is there a violation of client confidentiality under the AICPA Code of Professional Conduct?
a. A member whose practice is in bankruptcy discloses a client’s name.
b. A member uses a records retention agency to store client’s records that contain confidential client information.
c. A member discloses confidential client information to a professional liability insurance carrier after learning of a potential claim agairis erie ineirioer.
d. A member discloses confidential client information to a court in connection with arbitration proceedings relating to the client.

A member whose practice is in bankruptcy discloses a client’s name.

29

Which of the following is not a source of guidance to CPAs with respect to their professional responsibilities?
a. Principles of the Code of Professional Conduct
b. Interpretations of the Code of Professional Conduct
c. Rules of the Code of Professional Conduct
d. All of the above are sources of guidance

All of the above are sources of guidance

30

An integrated audit performed under the Sarbanes-Oxley Act includes auditor opinion on

Financial statements and internal control

31

Multiple properly disclosed uncertainties in the financial statements may result in a disclaimer of opinion under which standards?

AICPA SASs and International ISAs

32

Which of the following services cannot be performed for a nonissuer attest client?
a. Recording transactions approved by management.
b. Performing data processing services.
c. Signing payroll checks.
d. Preparing financial statements.

Signing payroll checks.

33

If requested to perform a review engagement for a nonpublic entity in which an accountant has an immaterial direct financial interest, the accountant is

Not independent and, therefore, may not issue a review report.

34

The profession’s ethical standards would most likely be considered to have been violated when a CPA
a. Represented to a potential client that the CPA’s fees were substantially lower than the fees charged by other CPA5 for comparable services.
b. Issued a report on a financial forecast that omitted a caution regarding achievability.
c. Accepted a consulting engagement concerning data processing services for which the CPA lacked independence.
d. Continued an audit engagement after the commencement of litigation against the CPA alleging excessive fees filed in a stockholder’s derivative action.

Issued a report on a financial forecast that omitted a caution regarding achievability.

35

With respect to the acceptance of contingent fees for professional services, the IFAC Code of Ethics for Professional Accountants indicates that the accounting firm

Should establish appropriate safeguards around acceptance of a contingent fee.

36

Which of the following is true about the requirements for confirmation of accounts receivable under International Standards on Auditing?
a. Confirmation of accounts receivable is an optional procedure based on the auditor’s judgment.
b. Confirmation of accounts receivable is required when the accounts are material.
c. Confirmation of accounts receivable is required in all audits.
d. Confirmation of accounts receivable is presumptively required.

Confirmation of accounts receivable is an optional procedure based on the auditor’s judgment.

37

Assuming appropriate disclosure is made, which of the following fee arrangements generally would be permitted under the ethical standards of the profession?
a. A fee paid to the client’s tax accountant for recommending a computer system to the client.
b. A contingent fee paid to the CPA for reviewing the client’s financial statements.
c. A contingent fee paid to the CPA for preparing the client’s amended income tax return.
d. A fee paid to the client’s audit firm for recommending investment advisory services to the client.

A fee paid to the client’s tax accountant for recommending a computer system to the client.

38

The AICPA Conceptual Framework for Independence Standards suggests that CPAs evaluate whether a particular threat would lead which type of person to conclude
that an unacceptable risk of non-independence exists?

Reasonably informed third party.

39

Which of the following is true about audit reports under International Standards on Auditing?
a. An emphasis of a matter paragraph must be added for a change in accounting principle.
b. In a group audit, the group (principal) auditor may indicate reliance on a component (other) auditor.
c. The auditor may modify the opinion for an uncertainty about the client’s continued existence as a going concern.
d. The auditor may not sign the opinion in the name of the audit partner.

The auditor may modify the opinion for an uncertainty about the client’s continued existence as a going concern.

40

Pursuant to the AICPA rules of conduct, the auditor’s responsibility to the profession is defined by

The AICPA Code of Professional Conduct.

41

To exercise due professional care an auditor should

Critically review the judgment exercised by those assisting in the audit.

42

Page, CPA, has T Corp. and W Corp. as audit clients. T Corp. is a significant supplier of raw materials to W Corp. Page also prepares individual tax returns for Time, the owner of T Corp. and West, the owner of W Corp. When preparing West’s return, Page finds information that raises going-concern issues with respect to W Corp. May Page disclose this information to Time?

No, because the information is confidential and may not be disclosed without West’s consent.

43

A client company has not paid its year 1 audit fees. According to the AICPA Code of Professional Conduct, in order for the auditor to be considered independent with
respect to the year 2 audit, the year 1 audit fees must be paid before the:

Year 2 fieldwork is started.

44

Which of the following is an example of a safeguard implemented by the client that might mitigate a threat to independence?
a. Management selection of the CPA firm.
b. Establish controls over the acceptance of attest clients.
c. Required second partner review of an attest engagement.
d. An effective corporate governance structure.

An effective corporate governance structure.

45

Coverage of International Auditing and Assurance Standards Board pronouncements includes

Financial statement reviews and Firm quality control.

46

International Auditing and Assurance Standards Board pronouncements govern

Audits and Other assurance engagements

47

A CPA firm must do which of the following before it can participate in the preparation of an audit report of a company registered with the Securities and Exchange
Commission (SEC)?
a. Join the SEC Practice Section of the AICPA.
b. Register with the Financial Accounting Standards Board (FASB).
c. Register with the SEC pursuant to the Securities Exchange Act of 1934.
d. Register with the Public Company Accounting Oversight Board.

Register with the Public Company Accounting Oversight Board.

48

A CPA in public practice may not disclose confidential client information regarding auditing services without the client’s consent in response to which of the following
situations?
a. An inquiry from the professional ethics division of the AICPA.
b. A review of the CPA’s professional practice by a state CPA society.
c. A court-ordered subpoena or summons.
d. A letter to the client from the IRS.

A letter to the client from the IRS.

49

In relation to the AICPA Code of Professional Conducti the IFAC Code of Ethics for Professional Accountants

Has fewer outright prohibitions.

50

A CPA who is not in public practice is obligated to follow which of the following rules of conduct?

Integrity and objectivity.

51

Which of the following is not a broad category of threat to auditor independence?
a. Financial self-interest.
b. Safeguards implemented by the client.
c. Undue influence.
d. Familiarity.

Safeguards implemented by the client.

52

In comparison to U.S. Statements on Auditing Standards regarding audit reports, International Standards on Auditing:

Require the identification of location of the auditor’s office that audited the client.

53

Smith, CPA, is a partner of Johnson Accounting Firm. Johnson audited the books of Hometown Bank. Smith’s independence would be impaired under which of the
following circumstances?
a. Smith is a director of Hometown Bank.
b. Smith has a collateralized automobile loan with Hometown Bank.
c. Smith had an account with Hometown Bank two years ago.
d. Smith and a Hometown Bank board member belong to the same church.

Smith is a director of Hometown Bank.

54

How many audits of public companies per year does a CPA firm that is registered with the Public Company Accounting Oversight Board (PCAOB) have to perform before it receives an annual inspection from the PCAOB?

More than 100 audits.

55

In relation to the AICPA Code of Professional Conduct, the rules of the International Code of Ethics for Professional Accountants:

Have fewer definitive prohibitions.

56

Hickory Inc. is a small manufacturer. Its office building, plant, and warehouse are all located in Zena, Ohio. William Cream is the principal owner and president of Hickory.

Hickory is not a publicly held (issuer) corporation. The primary uses of the financial statements are for its fifteen shareholders and for bank credit purposes. Hickory’s
financial statements have never been audited or reviewed.

On July 18, year 1, William Cream hired the CPA firm of Part & Co. to audit Hickory’s financial statements for the year ended December 31, year 1. Part & Co. has
offices in Cleveland, where the partner in charge of the engagement practices, and Chicago.

In order for Part & Co. to be considered independent with respect to the Hickory audit, which of the following individuals would most likely be permitted to own an
immaterial direct financial interest in Hickory?
a. Professional managers that provide ten hours of nonattest services to Hickory.
b. None of the professional employees or partners at either office.
c. Professional employees at the Chicago office.
d. Professional employees and partners at the Cleveland office.

Professional employees at the Chicago office.

57

According to the AICPA Code of Professional Conduct, in which of the following circumstances may a CPA serve on a company’s board of directors?
a. The CPA audits a bank to which the company has applied for financing, and board approval is required for said financing to occur.
b. The CPA is asked by the company to test the internal controls of the company and offers compensation to the CPA for said services.
c. The CPA performs attestation services for a nonpublic company.
d. The CPA does not audit the company and has no other business connection with the company.

The CPA does not audit the company and has no other business connection with the company.

58

An auditor’s independence is considered impaired if the auditor has

A joint, closely held business investment with the client that is material to the auditor’s net worth.

59

If an audit firm discovers threats to independence with respect to an audit engagement, the IFAC Code of Ethics for Professional Accountants indicates that the firm
should

Evaluate the significance of the threats and apply appropriate safeguards to reduce them to an acceptable level

60

Under the International Code of Ethics for Professional Accountants an auditor may accept a contingent fee:

If appropriate safeguards are established.

61

The Code of Professional Conduct would most likely be considered to have been violated when the 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
a. Fee was a competitive bid.
b. Actual fee would be substantially lower than the fees charged by other CPAs for comparable services.
c. Actual fee would be substantially higher.
d. CPA would not be independent.

Actual fee would be substantially higher.

62

A violation of the profession’s ethical standards least likely would have occurred when a CPA
a. Received a percentage of the amounts invested by the CPA’S audit clients in a tax shelter with the client’s knowledge and approval.
b. Purchased another CPA’s accounting practice and based the price on a percentage of the fees accruing from clients over a 3-year period.
c. Formed an association, not a partnership, with two other sole practitioners and called the association MAdams, Betts and Associates.”
d. Had a public accounting practice and also was president and sole stockholder of a corporation that engaged in data processing services for the public.

Purchased another CPA’s accounting practice and based the price on a percentage of the fees accruing from clients over a 3-year period.

63

According to the AICPA Code of Professional Conduct, which of the following financial interests in the client during the period of the engagement impairs a CPA’s
independence?
a. Only direct and material indirect financial interests.
b. Only material financial interests.
c. All direct and indirect financial interests.
d. Only direct financial interests.

Only direct and material indirect financial interests.

64

Under which of the following circumstances may a CPA charge fees that are contingent upon finding a specific result?
a. If fixed by courts, other public authorities, or in tax matters if based on the results of judicial proceedings.
b. For an audit or a review if agreed upon by both the CPA and the client.
c. For a compilation if a third party will use the financial statement and disclosure is not made in the report.
d. For an examination of prospective financial statements.

If fixed by courts, other public authorities, or in tax matters if based on the results of judicial proceedings.

65

An issuer may hire an employee of a registered public accounting firm who served on the audit engagement team within the previous year for which of the following
positions?
a. CEO.
b. Controller.
c. CFO.
d. Staff accountant.

Staff accountant.

66

Based on the IFAC Code of Ethics for Professional Accountants, threats to independence arise from all of the following except
a. Intimidation.
b. interest.
c. Inherent risk of the engagement.
d. Advocacy.

Inherent risk of the engagement.

67

Which of the following family relationships is most likely to impair a CPA’s independence with respect to a particular audit client on which the CPA works as a “covered
member”?
a. The CPA’s father is president of the audit client.
b. The CPA’s spouse participates in a savings plan sponsored by the client.
c. A close relative has a material investment in that client of which the CPA is not aware.
d. A cousin has an immaterial investment in the client of which the CPA is aware.

The CPA’s father is president of the audit client.

68

which of the following actions by a CPA most likely violates the profession’s ethical standards?
a. Arranging with a financial institution to collect notes issued by a client in payment of fees due.
b. Using a records-retention agency to store confidential client records.
c. Retaining client records after the client has demanded their return.
d. Compiling the financial statements of a client that employed the CPA’s spouse as a bookkeeper.

Retaining client records after the client has demanded their return.

69

When the auditor of group financial statements (the “principal auditor”) is performing an audit in conformity with International Auditing Standards and a component
(other) auditor is involved, which of the following is correct?
a. The component auditor must issue its report on the portions of the financial statements it has audited and this report must be included with the report on the
group financial statements.
b. The auditor of the group financial statements must refer to the component auditor and must name that auditor.
c. The auditor of the group financial statements may, but is not required to, refer to the component auditor.
d. The auditor of the group financial statements may not refer to the component auditor.

The auditor of the group financial statements may not refer to the component auditor.

70

For which of the following can a member of the AICPA receive an automatic expulsion from the AICPA?
I. Member is convicted of a felony.
II. Member fails to exercise due professional care in an audit engagement.
III. Member files fraudulent tax return for a client knowing that it is fraudulent.

I. Member is convicted of a felony.
III. Member files fraudulent tax return for a client knowing that it is fraudulent.

71

When an accountant is not independent, the accountant is precluded from issuing a:

Review report.

72

AICPA independence requirements suggest that a CPA should evaluate whether a particular threat to independence would lead a reasonable person, aware of all
the relevant facts, to conclude that:

An unacceptable risk of non-independence exists.

73

Which of the following statements is correct?
a. 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.
b. CPA working papers are the joint property of the CPA and the client.
c. Client-prepared records (e.g., the general ledger) may be retained by the CPA until fees due to the CPA are received.
d. CPA working papers that include copies of client’s records are not available to third parties under any circumstances.

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.

74

When performing risk assessment procedures under the International Auditing Standards, the auditor shall consider

Whether there are events or conditions that may cast significant doubt about the entity’s ability to continue as a going concern.

75

Which of the following is a “self review” threat to member independence?
a. An engagement team member prepares invoices for the attest client
b. An engagement team member has a son that serves as CFO of the attest client.
c. A second partner review is required on all attest engagements.
d. An audit partner has a indirect interest in the attest client.

An engagement team member prepares invoices for the attest client

76

Independence standards of the GAO for audits in accordance with generally accepted government auditing standards describe three types of impairments of
independence. Which of the following is one of these types of impairments?
a. Unusual.
b. External.
c. Financial.
d. Relatives.

External.

77

Which of the following is most accurate relating to the International Auditing and Assurance Standards Board (IAASB) and the International Federation of Accountants
(IFAC)?
a. IFAC is a subcommittee of IAASB:
b. IFAC and IAASB are the international sections of the Public Company Accounting Oversight Board.
c. IAASB is a Board within IFAC:
d. The two are entirely independent of one another.

IAASB is a Board within IFAC:

78

Which of the following can cause a CPA to receive an automatic expulsion from the AICPA?
I. The CPA’S CPA certificate is revoked by the relevant state board of accountancy.
II. The CPA is convicted of a felony.
III. The CPA intentionally did not file his personal tax return as required by federal law.

I. The CPA’S CPA certificate is revoked by the relevant state board of accountancy.
II. The CPA is convicted of a felony.
III. The CPA intentionally did not file his personal tax return as required by federal law.

79

Under the ethical standards of the profession, which of the following positions would be considered a position of significant influence in an audit client?
a. A staff position in the client’s research and development division.
b. A policy-making position in the client’s finance division.
c. A senior position in the client’s human resources division.
d. A marketing position related to the client’s primary products.

A policy-making position in the client’s finance division.

80

The Public Company Accounting Oversight Board (PCAOB) has authority to establish which of the following relating to public companies?
a. Attestation standards and Independence standards
b. Attestation standards
c. Independence standards
d. Neither

Attestation standards and Independence standards

81

According to the profession’s ethical standards, a CPA who is a covered member would be considered independent in which of the following instances?
a. The CPA has a material direct financial interest in a client, but transfers the interest into a blind trust.
b. A client leases part of an office building from the CPA, resulting in a material indirect financial interest to the CPA.
c. The CPA owns an office building and the mortgage on the building is guaranteed by a client.
d. The CPA belongs to a country club that is a client in which membership requires the acquisition of a pro rata share of equity.

The CPA belongs to a country club that is a client in which membership requires the acquisition of a pro rata share of equity.

82

According to the SEC, an auditor is not independent of its issuer audit client in which of the following situations:
a. The auditor’s cousin has an insurance policy obtained from the issuer before it became an audit client.
b. The auditor has an investment in an entity that has the ability to exercise significant influence over the audit client.
c. The auditor has an automobile loan at standard terms from the audit client that is collateralized by the automobile.
d. The auditor’s grandparent was in an accounting role at the audit client and ended employment before the period under audit began.

The auditor has an investment in an entity that has the ability to exercise significant influence over the audit client.

83

Which of the following is not correct relating to the Sarbanes-Oxley Act?
a. It restricts the types of consulting CPAs may perform for audit clients.
b. It toughens penalties for corporate fraud.
c. It created the Public Company Accounting Oversight Board (PCAOB) as a replacement for the Financial Accounting Standards Board.
d. It eliminates a significant portion of the accounting profession’s system of self-regulation.

It created the Public Company Accounting Oversight Board (PCAOB) as a replacement for the Financial Accounting Standards Board.

84

An audit of a large public company following International Auditing Standards ordinarily includes an opinion on

Financial statements

85

When the dependent daughter of a partner in a CPA firm owns ten shares of stock in an audit client, which rule of the Code of Professional Conduct is most directly
relevant?

Independence.

86

Spinner, CPA, had audited Lasco Corp.’s financial statements for the past several years. Prior to the current year’s engagement, a disagreement arose that caused
Lasco to change auditing firms. Lasco has demanded that Spinnner provide Lasco with Spinner’s working papers so that Lasco may show them to prospective auditors to help them prepare their bids for Lasco’s audit engagement. Spinner refused and Lasco commenced litigation. Under the ethical standards of the profession, will Spinner be successful in refusing to turn over the working papers?

Yes, because Spinner is the owner of the working papers.

87

Which of the following is not a safeguard to mitigate or eliminate threats to independence according to Conceptual Framework for AICPA Independence Standards?
a. Those created by the profession, legislation or regulation.
b. Those implemented by the CPA involved.
c. Those implemented by the client.
d. Those implemented by the CPA firm.

Those implemented by the CPA involved.

88

The Department of Labor (DOL) most frequently conducts financial and performance audits following

Government Auditing Standards.

89

Which of the following is true about requirements to send a letter of audit inquiry to the client’s lawyer under International Standards on Auditing?
a. A lawyer’s letter need never be obtained.
b. A lawyer’s letter must be obtained if the auditor assesses a related risk of material misstatement.
c. A lawyer’s letter must be obtained in all audits.
d. A lawyer’s letter must be obtained if the client uses an outside attorney.

A lawyer’s letter must be obtained if the auditor assesses a related risk of material misstatement.

90

Which of the following are issued by the Securities and Exchange Commission?
a. Industry Audit Guides.
b. Journal of Accountancy.
c. Financial Reporting Releases.
d. Accounting Trends and Techniques.

Financial Reporting Releases.

91

According to the profession’s ethical standards, a CPA who is a covered member would be considered independent in which of the following instances?
a. The CPA has a material direct financial interest in a client, but transfers the interest into a blind trust.
b. A client leases part of an office building from the CPA, resulting in a material indirect financial interest to the CPA.
c. The CPA owns an office building and the mortgage on the building is guaranteed by a client.
d. The CPA belongs to a country club that is a client in which membership requires the acquisition of a pro rata share of equity.

The CPA belongs to a country club that is a client in which membership requires the acquisition of a pro rata share of equity.

92

According to the SEC, an auditor is not independent of its issuer audit client in which of the following situations:
a. The auditor’s cousin has an insurance policy obtained from the issuer before it became an audit client.
b. The auditor has an investment in an entity that has the ability to exercise significant influence over the audit client.
c. The auditor has an automobile loan at standard terms from the audit client that is collateralized by the automobile.
d. The auditor’s grandparent was in an accounting role at the audit client and ended employment before the period under audit began.

The auditor has an investment in an entity that has the ability to exercise significant influence over the audit client.

93

Which of the following is not correct relating to the Sarbanes-Oxley Act?
a. It restricts the types of consulting CPAs may perform for audit clients.
b. It toughens penalties for corporate fraud.
c. It created the Public Company Accounting Oversight Board (PCAOB) as a replacement for the Financial Accounting Standards Board.
d. It eliminates a significant portion of the accounting profession’s system of self-regulation.

It created the Public Company Accounting Oversight Board (PCAOB) as a replacement for the Financial Accounting Standards Board.

94

An audit of a large public company following International Auditing Standards ordinarily includes an opinion on

Financial statements

95

When the dependent daughter of a partner in a CPA firm owns ten shares of stock in an audit client, which rule of the Code of Professional Conduct is most directly
relevant?

Independence.

96

Spinner, CPA, had audited Lasco Corp.’s financial statements for the past several years. Prior to the current year’s engagement, a disagreement arose that caused
Lasco to change auditing firms. Lasco has demanded that Spinnner provide Lasco with Spinner’s working papers so that Lasco may show them to prospective auditors to help them prepare their bids for Lasco’s audit engagement. Spinner refused and Lasco commenced litigation. Under the ethical standards of the profession, will Spinner be successful in refusing to turn over the working papers?

Yes, because Spinner is the owner of the working papers.

97

Which of the following is not a safeguard to mitigate or eliminate threats to independence according to Conceptual Framework for AICPA Independence Standards?
a. Those created by the profession, legislation or regulation.
b. Those implemented by the CPA involved.
c. Those implemented by the client.
d. Those implemented by the CPA firm.

Those implemented by the CPA involved.

98

The Department of Labor (DOL) most frequently conducts financial and performance audits following

Government Auditing Standards.

99

Which of the following is true about requirements to send a letter of audit inquiry to the client’s lawyer under International Standards on Auditing?
a. A lawyer’s letter need never be obtained.
b. A lawyer’s letter must be obtained if the auditor assesses a related risk of material misstatement.
c. A lawyer’s letter must be obtained in all audits.
d. A lawyer’s letter must be obtained if the client uses an outside attorney.

A lawyer’s letter must be obtained if the auditor assesses a related risk of material misstatement.

100

Which of the following bodies enforce the audit requirements of the Employee Retirement Security Act of 1974 (ERISA) with respect to employee benefit plans?
a. The Department of Labor.
b. The Securities and Exchange Commission.
c. Department of Commerce.
d. The Department of Project Management.

The Department of Labor.

101

In performing consulting engagements CPAs should not take any positions that might

Impair their objectivity

102

Under the ethical standards of the profession, which of the following investments by a CPA in a corporate client is an indirect financial interest?
a. An investment held in a blind trust.
b. An investment held in a retirement plan.
c. An investment held through participation in an investment club.
d. An investment held through a regulated mutual fund.

An investment held through a regulated mutual fund.

103

Under the ethical standards of the profession, which of the following business relationships would generally not impair an auditor’s independence?
a. Advisor to client’s board of trustees.
b. Promoter of a client’s securities.
c. Client’s trustee for its pension fund.
d. Member of a client’s board of directors.

Advisor to client’s board of trustees.

104

Reply as to whether the confirmation of accounts receivable is presumptively required under the following standards:
a. US PAOB, Auditing Standard Board, and International Auditing Standards
b. US PAOB and Auditing Standard Board
c. US PAOB
d. None

US PAOB and Auditing Standard Board

105

Which of the following forms of advertising is most likely to be considered a violation of Rule 502 of the AICPA Code of Professional Conduct?
a. Advertising including an indication that the firm has a close relationship with several tax court judges.
b. Advertising including the types of services offered and the standard fees for the services.
c. Advertising including the experience of the firm’s professional staff.
d. Advertising including the percentage of the firm’s staff that have CPA certificates.

Advertising including an indication that the firm has a close relationship with several tax court judges.

106

ABC Company is audited by the Albuquerque office of Whitt CPAs. Which of the following individuals would be least likely to be considered a “covered member” by the
AICPA Code of Professional Conduct independence standard?
a. Staff assistant on the audit.
b. An audit partner in the Silver Springs office who performs no attest services for ABC Company.
c. The partner in charge of Whitt CPAs (she does not work on the ABC Company audit).
d. A tax partner in Albuquerque who performs no attest services for ABC Company or for any other firm clients.

An audit partner in the Silver Springs office who performs no attest services for ABC Company.

107

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. No, because the CPA would not have a direct financial interest in the client
b. Yes, because the stock would be a direct financial interest and materiality is not a factor.
c. Yes, because the stock would be an indirect financial interest and materiality is not a factor.
d. Yes, because the stock would be a direct financial interest and materiality is a factor.

Yes, because the stock would be a direct financial interest and materiality is not a factor.

108

Rules issued under the Sarbanes-Oxley Act of 2002 restrict former members of an audit engagement team from accepting employment as a chief executive, chief
financial or chief accounting officer, or controller of an audit client that files reports with the Securities and Exchanges Commission. How many annual audit period(s)
must be completed before such employment can be accepted?

One.

109

According to the ethical standards of the profession, which of the following acts generally is prohibited?
a. Revealing client tax returns to a prospective purchaser of the CPA’s practice.
b. Accepting a contingent fee for representing a client in connection with obtaining a private letter ruling from the Internal Revenue Service.
c. Retaining client records after the client has demanded their return.
d. Issuing a modified report explaining the CPA’s failure to follow a governmental regulatory agency’s standards when conducting an attest service for a client.

Retaining client records after the client has demanded their return.

110

Which of the following is not a broad category of safeguards that mitigate or eliminate threats to independence?
a. Safeguards created by the profession, legislation, or regulation.
b. Safeguards created by peers who performed the audit in the preceding year.
c. Safeguards implemented by the attest client.
d. Safeguards implemented by the firm, including policies and procedures to implement professional and regulatory requirements.

Safeguards created by peers who performed the audit in the preceding year.

111

International Standards on Auditing are issued by

The International Federation of Accountants.

112

Which of the following services is considered a personal financial planning service?
a. Providing tax advice.
b. Projecting future taxes.
c. Making recommendations on achieving personal financial goals.
d. Compiling personal financial statements.

Making recommendations on achieving personal financial goals.

113

When a threat to independence arises an auditor should consider

Available safeguards to independence.

114

Which of the following most accurately summarizes the intended use of International Standards on Auditing?
a. Foreign publicly traded companies.
b. Publicly traded companies, private businesses, and governmental entities.
c. Publicly traded companies.
d. Publicly traded companies and private businesses.

Publicly traded companies, private businesses, and governmental entities.

115

Which of the following is correct concerning PCAOB inspections?
a. When a lack of compliance with standards is identified, the PCAOB staff attempts to determine the cause, which will ultimately lead to identification of a defect in a CPA firm’s quality control system.
b. All public company audits are inspected.
c. Engagements and audit areas to be inspected are selected randomly, without consideration of risk aspects.
d. Inspections may include consideration of aspects of practice management, such as how partner compensation is determined.

Inspections may include consideration of aspects of practice management, such as how partner compensation is determined.

116

Auditors involved in governmental auditing
I. Should follow generally accepted government auditing standards established by the US Governmental Accountability Office.
II. Should follow all relevant AICPA standards that apply to financial related audits.

I. Should follow generally accepted government auditing standards established by the US Governmental Accountability Office.
II. Should follow all relevant AICPA standards that apply to financial related audits.

117

Must a CPA in public practice be independent in fact and appearance when providing the following services?
a. Compilation of personal financial forecast
b. Preparation of a tax return
c. Compilation of a financial forecast
d. None of the above

None of the above

118

Which of the following AICPA standards did the PCAOB not adopt as a part of its interim standards?
a. Accounting and Review Services Standards.
b. Attestation Standards.
c. Auditing Standards Board Standards.
d. Quality Control Standards.

Accounting and Review Services Standards.

119

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

Retaining client records after the client has demanded their return.

120

Which of the following is not a broad category of safeguards that mitigate or eliminate threats to independence?
a. Safeguards created by the profession, legislation, or regulation.
b. Safeguards created by peers who performed the audit in the preceding year.
c. Safeguards implemented by the attest client.
d. Safeguards implemented by the firm, including policies and procedures to implement professional and regulatory requirements.

Safeguards created by peers who performed the audit in the preceding year.

121

A CPA has helped an individual with a personal financial plan. Which of the following is correct concerning CPA assistance to the individual in implementation of that
plan?
a. The CPA may assist as long as it does not impair independence.
b. The CPA may undertake such an engagement after considering existing professional standards.
c. The CPA must not assist.
d. The CPA must assist.

The CPA may undertake such an engagement after considering existing professional standards.

122

An audit of financial statements of a nonpublic US company that plans to use the financial statements in a foreign country may be performed using which of the
following standards?
a. Auditing Standards Board and International Auditing Standards
b. Auditing Standards Board
c. International Auditing Standards
d. Neither

Auditing Standards Board and International Auditing Standards

123

An audit performed by the Department of Labor is least likely to address

Evaluation of Sarbanes-Oxley required COSO compliance.

124

The concept of materiality would be least important to an auditor when considering the:
a. Decision whether to use positive or negative confirmations of accounts receivable.
b. c. Adequacy of disclosure of a client’s illegal act.
Discovery of weaknesses in a client’s internal control.
d. Effects of a direct financial interest in the client upon the CPA’s independence.

Effects of a direct financial interest in the client upon the CPA’s independence.

125

Which of the following areas of professional responsibility should be observed by a CPA not in public practice?
a. Objectivity and Independence
b. Objectivity
c. Independence
d. Neither

Objectivity

126

Which of the following acts by a CPA is a violation of professional standards regarding the confidentiality of client information?
a. Allowing a PCAOB inspector to review working papers of an issuer client without that client’s permission.
b. Releasing financial information to a local bank with the approval of the client’s mail clerk.
c. Faxing a tax return to a loan officer at the request of the client.
d. Responding to an enforceable subpoena.

Releasing financial information to a local bank with the approval of the client’s mail clerk.

127

Which of the following statements is true with respect to the PCAOB and SEC’s concept of independence when an auditor both prepares financial statements and audits those financial statements for a client?
a. The auditor cannot audit the financial statements since a lack of integrity exists.
b. The auditor is independent if he or she is able to maintain a level of professional detachment.
c. The auditor is not independent.
d. The auditor can audit the financial statements only if the audit process does not culminate in the expression of an opinion on the financial statements.

The auditor is not independent.

128

Under International Auditing Standards (ISA), the time horizon for a going concern consideration is

At least twelve months from the date of the audit report.

129

Governmental auditing is often accomplished under the Single Audit Act. Which of the following may be engaged to do this work?
I. CPA firms.
II. Government auditors at the local level.
III. Government auditors at the state level.

I. CPA firms.
II. Government auditors at the local level.
III. Government auditors at the state level.