When a CPA is approached to perform an audit for the first time, the CPA should make inquiries of the predecessor auditor. This is a necessary procedure because the predecessor may be able to provide the successor with information that will assist the successor in determining:
A) Whether to accept the engagement.
The primary reason for the second communication with the predecessor auditors subsequent to acceptance of the client is:
A) To review the working papers related to the opening balances and the consistency of the application of generally accepted accounting principles.
A successor auditor most likely would make specific inquiries of the predecessor auditor regarding:
B) Disagreement with management as to auditing procedures.
Which of the following matters is generally included in an auditor's engagement letter?
A) Management's responsibility for the entity's compliance with laws and regulations.
Arrangements concerning which of the following are least likely to be included in an engagement letter?
B) CPA investment in the client's securities.
Which of the following statements would least likely appear in the auditor's engagement letter?
C) After performing our preliminary analytical procedures we will discuss with you the other procedures we consider necessary to complete the engagement.
One of the changes in auditing procedure which was brought about as a result of the 1136 Tenants Corp. case was that auditors were encouraged to begin using:
A) Engagement letters.
A common way for a CPA firm to demonstrate its lack of duty to perform a service is by use of a(n):
B) Audit contract, or engagement letter.
The engagement letter should include all of the following except
C) Auditor is not responsible for the detection of fraud.
Jackson, CPA has been offered the job of auditing Benton and Lutz, a manufacturing company. After proper consideration was made, Jackson has decided to accept the engagement. In what form should the understanding that has been reached between the two parties be documented?
D) Written documentation should be created by the auditor and furnished to the client.
Risk assessment involves considering threats to the organization’s objectives in the areas of
B) Operations, financial reporting, and compliance with laws and regulations.
To obtain an understanding of the entity and its environment, including its internal control, the auditor should perform each of the following risk assessment procedures except:
B) Sampling for variables.
In accordance with AU Section 150, the second standard of audit fieldwork is expanded from "internal control" to:
A) The entity and its environment, including its internal control.
Which of the following is the basic fundamental concept that underlies the audit process?
C) Risk.
Risk assessment for financial reporting is management’s process for identifying, analyzing, and responding to risks relevant to the preparation of financial statements in conformity with:
B) Generally Accepted Accounting Principles.
An auditor is assessing the level of inherent risk in an audit engagement and finds that it is higher than expected. Which of the following results is most likely?
C) The desired level of detection risk should be reduced.
The auditor seeks to obtain sufficient appropriate audit evidence by performing audit procedures. This work is designed to provide what type of basis for the opinion regarding the financial statements under audit?
C) Reasonable.
Risk affecting the preparation of financial statements can arise or change due to circumstances such as:
D) All of the above.
The auditor should use risk assessment to determine:
D) The nature, timing, and extent of further audit procedures to be performed.
As a result of the Sarbanes-Oxley Act, the Public Company Accounting Oversight Board (PCAOB) has been created. Which of the following is not true?
B) The PCAOB is a government agency.
In registering with the Public Company Accounting Oversight Board (PCAOB), a CPA firm must provide significant information. Which of the following is not a required disclosure?
C) A list of all audit clients.
According to the standards of the Public Company Accounting Oversight Board (PCAOB), the management of a company that issues securities must accept responsibility for the effectiveness of the company’s internal control over its financial reporting. Which of the following is not also a responsibility of the management?
C) Management must provide a written plan each year for updating the internal control over the financial reporting process.
According to the standards of the Public Company Accounting Oversight Board (PCAOB), the auditor of a company that issues securities must audit the company’s internal control as well as its financial statements. Which of the following statements is true about the reports that result from these audits?
B) The two reports can be combined or can be separate.
A CPA firm is issuing separate reports based on audits of an issuing company’s internal control over financial reporting and its financial statements. Which of the following statements is true according to the standards of the Public Company Accounting Oversight Board (PCAOB)?
C) Both reports have the same date which is normally the last day of audit fieldwork.
An independent auditor is performing an audit of a company’s internal control in connection with its financial reporting under the standards of the Public Company Accounting Oversight Board (PCAOB). A control deficiency has been uncovered. What are the two possible types of control deficiencies?
B) Design and operations.
According to the standards of the Public Company Accounting Oversight Board (PCAOB), the independent auditor must audit the internal control over the financial reporting of any company that issues securities. Assume that the company provides a written assessment that internal control is effective. Assume also that the auditor uncovers a material weakness in internal control that cannot be rectified before the end of the audit work. What action should be taken by the auditor?
C) The auditor should issue an adverse opinion on the effectiveness of internal control.
According to the standards of the Public Company Accounting Oversight Board (PCAOB), what is the general definition of a control deficiency?
B) A situation where the design or operation of an internal control does not allow employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis.
For how long does the Sarbanes-Oxley Act require registered CPA firms to maintain audit documentation generated to support an audit report?
C) Seven years.
Which of the following is an effect of the Sarbanes-Oxley Act of 2002?
B) Reduce the accounting profession’s level of self regulation.
According to the standards of the Public Company Accounting Oversight Board (PCAOB), the auditor of a company that issues securities must audit the company’s internal control as well as its financial statements. What is the recommended timing of these two audits?
A) The two audits should be integrated.
According to the standards of the Public Company Accounting Oversight Board (PCAOB), what is the definition of a material weakness in internal control?
A) A significant deficiency (or a combination of significant deficiencies) in internal control that results in more than a remote likelihood that a material misstatement in the annual or interim financial statements will not be prevented or detected.
The CPA firm of Jeter and Cano is auditing the financial statements produced by Beckett Corporation. The shares of Beckett are publicly-traded on the New York Stock Exchange. What group is in charge of setting the auditing rules that Jeter and Cano must follow in performing this audit?
D) The Public Company Accounting Oversight Board (PCAOB)
Barbara Brown's CPA firm is the auditor of B&B Corporation, a large publicly traded company in the United States. Barbara's firm is therefore prohibited from performing all of the following services to the client except:
A) Tax advisory services
Sally Sloan is a partner at Sissy and Socks, CPAs, an auditor of public companies, subject to the oversight of the Public Company Accounting Oversight Board (PCAOB). Space Skates is a publicly-traded company and Sloan has worked on that engagement in recent years. Which of the following statements is true?
B) Sally must be rotated off of the audit of Space Skates' financial statements after being the reviewing audit partner for the last five years
London Company has just employed Edith Evans as its Controller and Chief Accounting Officer. Edith was formerly employed by Titan & Ich, CPAs. Titan & Ich is the independent auditor for the London Company. Which of the following statements is false?
A) If Edith participated in the London Co. audit, Titan & Ich must wait three years before auditing the firm
Brittney Spires has participated in public company audits for over twenty five years and now serves as the reviewing partner for several key audits performed by her firm. Which of the following statements is FALSE about the reviewing partner?
A) The reviewing partner is not required to possess the level of knowledge and competence related to accounting, auditing, and financial reporting that would be required to serve as the audit partner on the audit under review
The engagement of an audit of a United Kingdom public company that is listed in the United States and whose financial statements will be filed with the SEC is likely to be conducted under which of the following?
B) PCAOB Auditing Standards.
The engagement of an audit of a U.S. company that is a subsidiary of a Japanese company that will be used for reporting by the parent company in Japan is likely to be conducted under which of the following?
A) International Standards on Auditing.
Auditing standards in the United States now allow an auditor to perform an audit of financial statements of the U.S. in accordance with which of the following?
C) Both Generally Accepted Auditing Standards and International Standards on Auditing.
The engagement of an audit of a U.S. private company that has publicly traded debt is likely to be conducted under
D) PCAOB Auditing Standards.
The engagement of an audit of an Italian private company with no public debt is likely to be conducted under
B) International Standards on Auditing.
A CPA firm is planning to do an audit of a reporting entity located in a foreign country and the firm is required to follow the rules established by international auditing standards. What authoritative body establishes those standards?
B) The International Auditing and Assurance Standards Board
The International Ethics Standards Board for Accountants (IAESB) operates within the International Federation of Accountants (IFAC). It produces ethical standards to be used by accountants around the world. Which of these statements reflects the rules created by the IAESB in connection with the acceptance of contingent fees?
A) The professional accountant should make sure that necessary safeguards are in effect in connection with contingent fees.
Which of the following is not included in the International Federation of Accountants (IFAC) Code's conceptual framework as a threat to the fundamental principles that accountants should not compromise?
C) Financial-interest threat
Marmaduke is attempting to streamline his preparation for a job interview with Heathcliff & Garfield, CPAs. He is debating whether to familiarize himself with the International Federation of Accountants (IFAC) Code of Ethics. In which of the following situations should Marmaduke study the independence guidelines of the IFAC Code of Ethics?
D) All of the above
Lois is the controller at Lane Petrol, a European firm, and is considered by the International Federation of Accountants (IFAC) to be a Professional Accountant in Business (PAB). The CEO, Kent Clark, recently called Lois into his office and asked her to recognize a material amount of revenue for products that have neither been shipped to nor ordered by a customer. As a PAB, under the IFAC Code of Ethics, which of the following should Lois do?
B) Should consider safeguards to reduce this threat, such as formal dispute resolution or legal advice
Author
kindred1845
ID
161777
Card Set
Exam Questions - Audit Profession & Planning - Part II
Description
Exam Questions - Audit Profession & Planning - Part II