Auditing Expert Answers & Study Resources

56) The Sarbanes-Oxley Act of 2002 is considered the most sweeping securities law since the 1933 and 1934 Acts. Which item in the list below was not part of the Sarbanes-Oxley Act of 2002? A) Enhances prosecutorial tool available in fraud cases. B) Legislates new guidelines for ethics and integrity for public.

51) In order to achieve effective quality control, a firm of independent auditors should establish policies and procedures for: A) determining the minimum procedures necessary for unaudited financial statements. B) setting the scope of audit work. C) deciding whether to accept or continue a client. D) setting the scope of internal control study and.

51) Which of the following procedures is not usually performed by the accountant during a review engagement of a nonpublic entity? A) Inquiry about actions taken at meetings of the board of directors that may affect the financial statements. B) Issuance of a report stating that the review was performed in accordance.

41) Rule 10b-5 under Section 10(b) of the Securities Exchange Act of 1934 imposes liability on an accountant for violation of certain duties. Which of the following is an investor not required to prove to recover from a CPA? A) A material, factual misrepresentation or omission. B) Reliance by the plaintiff on.

59) The most restrictive view under common law is that auditors have no liability to third parties who do not have a privity relationship with the auditor. Briefly define privity and the effect it has on the auditor, client, investors, and creditors under common law. 60) Section 11 under the Securities.

16) Which of the following is the best statement of the duty owed by an accountant in his or her professional work? A) To do the job correctly and discover all irregularities. B) To follow generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS). C) To act as a professional and.

68) Identify the primary purposes of the General Standards Rule, the Compliance with Standards Rule, and the Accounting Principles Rule of the Rules of Conduct. .

31) A basic objective of a CPA firm is to provide professional services that conform to professional, legal, and regulatory requirements. Reasonable assurance of achieving this basic objective is provided through: A) compliance with generally accepted reporting standards. B) a system of quality control. C) a system of peer review. D) continuing professional education. 32).

62) Why do professions establish codes of conduct that define ethical behaviors for members of the profession? 63) Distinguish between the following theories of ethical behavior: a utilitarian approach, a rights-based approach, and a justice-based approach. .

65) Listed below are definitions of the six Principles of Professional Conduct. For each, identify the principle being defined. a. A member should observe the profession's technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibility to the best of the member's ability. b..

36) Quincy bought Teal Corp. common stock in an offering registered under the Securities Act of 1933. Worth & Co., CPAs, gave an unqualified opinion on Teal's financial statements that were included in the registration statement filed with the SEC. Quincy sued Worth under the provisions of the 1933 Act.

46) During a review of the financial statements of a nonpublic entity, an accountant becomes aware of inadequate disclosure that is material to the financial statements. If management refuses to correct the financial statement presentations, the accountant should: A) issue an adverse opinion. B) issue an "except for" qualified opinion. C) disclose this.

58) Suits are often brought against auditors that allege that the auditors did not detect some type of fraud or defalcation. List the six defenses that the auditors could mount against client negligence claims. .

46) In which of the following instances would the independence of the CPA not be considered to be impaired? The CPA has been retained as the auditor of a: A) charitable organization in which an employee of the CPA serves as treasurer. B) municipality in which the CPA owns $25,000 of the.

56) In determining estimates of fees, an auditor may take into account each of the following, except the: A) value of the service to the client. B) degree of responsibility assumed by undertaking the engagement. C) skills required to perform the service. D) attainment of specific findings. 57) An auditor is about to commence a.

64) Discuss the new enhancements implemented by the new PCAOB reporting standards for "listed" (public) entities. .

71) How has the advancement in technology led to the creation of the Trust Services? .

64) The Sarbanes-Oxley Act of 2002 grants the PCAOB the ability to undertake two functions over registered public accounting firms and persons associated with such firms. Briefly explain the purpose of the PCAOB, making sure to reference their two major functions. .

26) According to the Code of Professional Conduct, which of the following individuals is not in a position to influence an attest engagement (i.e., not a covered member)? A) The office's managing partner (or partner equivalent) who determines the compensation of the attest engagement partner. B) The office's IT expert partner, who.

61) Jones Retailing, a nonpublic entity, has asked Winters, CPA, to compile financial statements that omit substantially all disclosures required by generally accepted accounting principles. Winters may compile such financial statements, provided the: A) reason for omitting the disclosures is explained in the engagement letter and acknowledged in the management representation.

36) A CPA's failure to file a tax return is: A) considered acceptable by the AICPA Code of Professional Conduct. B) ill-advised because it would impair the CPA's independence with respect to attest clients. C) considered discreditable to the profession. D) a violation of generally accepted auditing standards. 37) Which of the following is allowable.

56) When an accountant compiles a nonpublic entity's financial statements that omit substantially all disclosures required by generally accepted accounting principles, the accountant should indicate in the compilation report that the financial statements are: A) restricted for internal use only by the entity's management. B) not to be given to financial institutions.

41) Before performing a compilation of the financial statements of a nonpublic entity, an accountant should: A) perform a thorough study and evaluation of the internal control system. B) complete a series of inquiries concerning the entity's procedures for recording, classifying, and summarizing transactions. C) design working papers intended to provide sufficient competent.

11) Given one or more hypothetical assumptions, a responsible party may prepare, to the best of his knowledge and belief, an entity's expected financial position, results of operations, and changes in cash flows. Such prospective financial statements are known as: A) pro forma financial statements. B) financial projections. C) partial presentations. D) financial forecasts. 12).

21) Inquiry of the entity's personnel and analytical procedures are the primary bases for the issuance of a(n): A) compilation report on financial statements for a nonpublic company in its first year of operations. B) auditor's report on financial statements supplemented with price-level information. C) review report on comparative financial statements for a.

69) As with most professionals, internal auditors must follow guidelines promoting ethical conduct. The IIA Code of Ethics is important for internal auditors because the reliability of their work depends on a reputation for a high level of personal integrity. The Code of Ethics consists of four main principles of.

64) Which professional and regulatory bodies establish the ethical and professional rules for auditors of: (1) public companies and (2) private companies? .

41) The profession's ethical standards 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) CPA would not be independent. B) fee was a competitive.

31) Which of the following statements is true regarding the performance of an assurance service on information systems reliability by a CPA? A) The CPA is not permitted to provide any other services for the entity if he or she is to perform the service. B) The service will require the CPA.

63) Briefly describe the Sarbanes-Oxley Act of 2002. Be sure to mention (1) who passed the Act, (2) its primary objectives, (3) major aspects of the Act, (4) the parties that it affects, and (5) its relationship to the SEC rules. .

6) Auditing standards do not allow private companies to have an audit of internal control over financial reporting integrated with the audit of their financial statements. 7) The practitioner's objective in an engagement to audit an entity's internal control is to assess management's assessment of the effectiveness of internal controls. 8) Under.

26) May an accountant plan and perform an engagement to compile or review the financial statements of a not-for-profit entity if the accountant is unfamiliar with the specialized industry accounting principles? A) Only a compilation could be performed without the specialized knowledge. B) Only a review could be performed without the specialized.

62) What type of liability has the Private Securities Litigation Reform Act of 1995 created for cases filed under federal statutory law? How did this change from previous legislation? How has this impacted the cases against auditors and the way cases are now presented? .

16) PCAOB rules require tax services provided by a public company auditor to be considered and approved by the company's audit committee. 17) With respect to ethics, the rights-based approach: A) suggests that auditors should always verify ownership of a client's material tangible assets. B) is primarily concerned with equity and impartiality. C) suggests.

31) The Sarbanes-Oxley Act enhances prosecutorial tools available in major fraud cases by: A) expanding laws against fraud and obstruction of justice. B) increasing criminal penalties for fraud and its cover-up. C) strengthening sentencing guidelines applicable to large-scale frauds. D) All of these are true. 32) A CPA who fraudulently performs an audit of a.

51) While conducting an audit, Larson Associates, CPAs, failed to detect material misstatements included in its client's financial statements. Larson's unqualified opinion was included with the financial statements in a registration statement and prospectus for a public offering of securities made by the client. Larson knew that its opinion and.

70) Internal auditors fall into two primary categories—assurance services and consulting services. Briefly explain these two categories in relation to internal auditors. .

26) Ford & Co., CPAs, issued an unqualified opinion on Owens Corp.'s financial statements. Relying on these financial statements, Century Bank lent Owens $750,000. Ford was unaware that Century would receive a copy of the financial statements or that Owens would use them to obtain a loan. Owens defaulted on.

21) What is the primary reason that Congress passed the Securities Litigation Uniform Standards Act of 1998? A) To overturn the Private Securities Litigation Reform Act of 1995. B) As a result of concerns that plaintiff attorneys could get around the Private Securities Litigation Reform Act of 1995 by filing class action.

36) An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided that: A) distribution of the report is restricted to the specified users involved. B) the prospective financial statements also are examined. C) responsibility for the adequacy of the procedures performed is taken by the accountant. D) negative assurance.

69) When can a CPA disclose confidential information without the client's consent? .

66) Ms. Lembke is a partner for DTS, a CPA firm. She is the lead partner for the firm's largest client, The Grey Elephant. Ms. Zadina, who works in the same office as Ms. Lembke, has a sister who is the controller for The Grey Elephant. Because of potential independence.

67) In your own words, describe how the Institute of Internal Auditors (IIA) defines internal auditing. 68) The IIA's professional guidance is organized into an International Professional Practices Framework. This framework consists of two broad categories of guidance. List these categories of guidance and what they include. .

Match the Trust Services Principle with its proper definition. A) Personal information is collected, used, retained, and disclosed and disposed to meet the entity's objectives. B) Information and systems are available for operation and use to meet the entity's objectives. C) Information designated as private is protected to meet the entity's objectives. D) Information.

16) Absolute assurance is provided in: A) an audit engagement. B) a compilation engagement. C) a review engagement. D) none of the items listed. 17) Reasonable assurance is provided in: A) an audit engagement. B) a compilation engagement. C) a review engagement. D) none of the items listed. 18) Which of the following should not be included in an accountant's.

46) In regards to the Foreign Corrupt Practices Act (FCPA), external auditors: A) are responsible for ensuring that sufficient internal controls are maintained. B) should immediately report any discovered violation of the FCPA to the client's management. C) should verify compliance with corporate codes of conduct. D) are not subject to any penalties. 47) This.

63) Discuss three circumstances that prohibit the auditor from issuing an unqualified/unmodified opinion and the types of reports that the auditor may issue for a financial statement audit because of these circumstances. .

61) One of the greatest sources of liability for auditors under the 1934 Act is Section 10(b) and the related Rule 10b-5, which states that it is unlawful for any person to defraud, make any untrue statement of a material fact, or engage in any act in connection with the.

21) Which of the following is not a Principle of Professional Conduct as defined by the Code of Professional Conduct? A) Integrity. B) Due care. C) Reporting. D) Scope and nature of services. 22) For private companies, accounting firms are prohibited from providing: A) outsourced internal audit services. B) audit services. C) review services. D) none of these. 23) A.

66) An agreed-upon procedures engagement is significantly more limited in scope than an examination. An accountant may perform an agreed-upon procedures attestation engagement for prospective financial statements provided that attestation standards are complied with and eleven criteria are met. Identify five of the eleven criteria below. .