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Audit course exam 1-A CPA has installed a fairly large neon sign over the entrance to her building




Question;Question 1;A CPA has installed a fairly large neon;sign over the entrance to her building which reads, ?Jane Jones, Certified;Public Accountant, Audits, Taxes, Bookkeeping.?;Yes;No;Question 2;A CPA places an ad in the local newspaper;announcing the admission of new partners to the firm, the relocation of;the office, the new phone number, office hours, and hourly rates;charged. The ad also mentions that certain of their partners and;staff are fluent in Spanish.;Yes;No;Question 3;A state wherein a CPA practices has just;passed a law mandating that all municipalities over 10,000 population have;annual audits. The CPA and his partners telephone all the council;presidents and city managers of cities of that size soliciting their audit;work.;Yes;No;Question 4;A CPA, a partner in a one-office accounting;firm, has a brother who is a member of the board of directors of an audit;client. The partner lives about ten miles from her brother.;She and her husband do not have any joint investments with her;brother. Social contacts with her brother are infrequent.;Yes;No;Question 5;A CPA audits the books of a corporation in;which his wife is a stockholder. The CPA has no financial interest;in the client.;Yes;No;Question 6;A CPA audited the financial statements of a;client for the year ended December 31, 2011. In November 2011 a;partner in the same firm assisted the client in obtaining financing under;an arrangement in which the fee for such service would not be paid unless;the financing was obtained.;Yes;No;Question 7;A regulatory agency asked a CPA to supply;confidential client information in connection with an investigation of the;client. The client refused the give the CPA permission to comply;with the agency?s request, but the CPA supplied the information anyway.;Yes;No;Question 8;A CPA has been served with a validly issued;and enforceable subpoena to turn over certain client records that contain;confidential client information. The client refused the give the CPA;permission to comply with the subpoena, but the CPA turned over the;records anyway.;Yes;No;Question 9;A CPA audited a company?s financial;statements for the year ended June 30, 2012, and was issued stock by the;client in payment of the audit fee. Because the stock was immaterial;to the CPA?s personal net worth, she kept the stock in her investment;portfolio.;Yes;No;Question;10;On January 5 2012, a client engages a CPA;to perform its audit for the 12 months ended December 31, 2011. In;March 2011, the CPA prepared the company?s 2010 corporate tax return for;which he has still not been paid. The CPA decides to accept the;audit engagement and commence with the fieldwork, but has made an;arrangement with the client to be paid in full for the 2010 tax engagement;prior to the issuance of the 2011 audit report.;Yes;No;Question;11;The trustee of a bankruptcy estate engaged;a CPA to audit a client in bankruptcy. The CPA performed the audit;for this same client the prior year, and has not been paid. The CPA accepts;the audit engagement and commences with fieldwork. No arrangements;have yet been made for payment for either audit engagement.;Yes;No;Question;12;A CPA performs payroll preparation services;for an audit client, which include preparing and signing payroll;checks. The CPA is also responsible for mailing the checks to;employees or authorizing a transfer of funds from a client bank account to;employees? bank accounts.;Yes;No;Question;13;A CPA has a loan from a client financial;institution that the CPA believes meets the requirements for a;?grandfathered? loan under Ethics Interpretation 101-5.;Periodically, the bank requires the CPA to submit personal financial;statements and other information in order to reevaluate the CPA?s creditworthiness;to renew the loan. Since the CPA believes the loan continues to be;considered grandfathered, she continues to audit the client?s financial;statements on an ongoing basis.;Yes;No;Question;14;A CPA?s dependent parent is a 5% limited;partner in an audit client of the CPA. The CPA is a partner in his;accounting firm.;Yes;No;Question;15;A staff-level CPA participating in a review;engagement, has a dependent daughter who owns 10 shares of the review;client?s stock.;Yes;No;Question;16;A CPA, a partner assigned to a review;engagement, has a non-dependent son who is employed by the client as a;machine operator.;Yes;No;Question;1;A member of the AICPA may render which;service under a contingent fee arrangement?;A.;A provision of investment advisory;services, with the fee based on a percentage of the investment portfolio.;B.;A compilation of the financial statements;of client seeking a loan, with the fee contingent upon the amount the client is;able to borrow. The report does not;disclose lack of independence.;C.;An audit of the financial statements of a;company that intends to issue securities for sale to the public, with the fee;contingent upon the proceeds from the sale of the securities.;D.;An examination of the prospective financial;statements of a client who intends to sell limited partnerships, with the CPA?s;fee contingent upon the proceeds.;1;points;Question;2;Which of the following is the authoritative;body designated to promulgate attestation standards for non-issuers?;A.;Financial Accounting Standards Board.;B.;Governmental Accounting Standards Board.;C.;Auditing Standards Board.;D.;General Accounting Office.;1;points;Question;3;Which of the following professional;services is considered an attest engagement?;A.;A consulting service engagement to provide;computer advice to a client.;B.;An engagement to report on compliance with;statutory requirements.;C.;An income tax engagement to prepare federal;and state tax returns.;D.;The compilation of financial statements;from a client?s accounting records.;1;points;Question;4;According to the PCAOB, an accounting;firm?s independence is least likely to be impaired if the firm;A.;Provides a service to the audit client for;a contingent fee.;B.;Provides tax services to a person in a;financial reporting oversight role at the audit client.;C.;Receives a commission from the audit;client.;D.;Has an audit client that employs a former;firm professional.;1;points;Question;5;When Congress passed the Sarbanes-Oxley Act;of 2002, it imposed greater regulation on issuers and their auditors and;required increased accountability. Which;of the following is not a provision of the Act?;A.;The Act provides criminal penalties for;fraud.;B.;Auditors may not provide specific non-audit;services for their audit clients.;C.;Audit firms must be rotated on a periodic;basis.;D.;Executives must certify the appropriateness;of the financial statements.;1;points;Question;6;What is the meaning of the generally;accepted auditing standard that requires the auditor to be independent?;A.;The auditor may have a direct ownership;interest in the client?s business if it is not material.;B.;The auditor must adopt a critical attitude;during the audit.;C.;The auditor?s sole obligation is to third;parties.;D.;The auditor must be without bias with;respect to the client under audit.;1;points;Question;7;Under the ethical standards of the;profession, which of the following situations involving nondependent members of;an auditor?s family is most likely to impair the independence of an individual;participating in an audit engagement?;A.;A spouse?s employment with a client.;B.;A sibling?s loan to a director of a client.;C.;A first cousin?s loan from a client.;D.;A parent?s immaterial investment in a;client.;1;points;Question;8;Which action is not considered a;discreditable act under the Interpretations of Conduct Rule 501, Acts;Discreditable?;A.;A CPA fails to follow standards and;procedures established by governmental agencies in audits of grants by those;agencies.;B.;A CPA has a bank collect notes received;from a client in payment of fees.;C.;A CPA-defendant has lost a final appeal of;an adverse verdict in a racial discrimination suit in federal court.;D.;A CPA-defendant has lost a final appeal of;an adverse verdict in a sexual harassment suit in state court.;1;points;Question;9;Which is the benchmark against which a;member must ultimately test all decisions?;A.;Objectivity.;B.;Due care.;C.;Integrity.;D.;Competence.;1;points;Question;10;Inclusion of which of the following statements;in a CPA?s advertisement is not acceptable pursuant to the AICPA Code of;Professional Conduct?;A.;Paul Fall, Certified Public Accountant;J.D., Evans Law School 1990.;B.;Paul Fall, Certified Public Accountant;Free Consultation.;C.;Paul Fall, Certified Public Accountant;Fluency in Spanish and French.;D.;Paul Fall, Certified Public Accountant;Endorsed by the AICPA.;1;points;Question;11;Under the ethical standards of the;profession, which of the following business relationships would generally not;impair an auditor?s independence?;A.;Client?s general counsel.;B.;Member of a client?s board of directors.;C.;Promoter of a client?s securities.;D.;Advisor to a client?s board of trustees.;1;points;Question;12;An external auditor is not permitted to;discuss confidential client information except with the specific consent of the;client. This ethical proscription;A.;Will prevent the auditor from engaging;another auditing firm to conduct a peer review.;B.;Will not preclude the auditor from;complying with a validly issued court subpoena.;C.;Is unenforceable.;D.;Is often used by a client to blunt the;auditor?s efforts to modify the standard auditor?s report.;1;points;Question;13;Which of the following best describes what;is meant by the term ?generally accepted auditing standards??;A.;Procedures to be used to gather evidence to;support financial statements.;B.;Measures of the audit quality.;C.;Rules acknowledged by the accounting;profession because of their universal application.;D.;Pronouncements issued by the Auditing;Standards Board.;1;points;Question;14;Which of the following best describes the;reason an independent auditor reports on financial statements?;A.;The company preparing the statements and;the persons using the statements may have different interests.;B.;A management fraud may exist, and is more;likely to be detected by independent auditors.;C.;A misstatement of account balances may;exist and is generally corrected as the result of the independent auditor?s;work.;D.;The company preparing the statements may;have a poorly designed internal control structure.;1;points;Question;15;The AICPA Code of Professional Conduct;states, in part, that a CPA should maintain integrity and objectivity. Objectivity in the Code refers to a CPA?s;ability to;A.;Be unyielding in all matters dealing with;auditing procedures.;B.;Chose independently between alternative;accounting principles and auditing standards.;C.;Be impartial, intellectually honest, and;free of conflicts of interest.;D.;Distinguish independently between;accounting practices that are acceptable and those that are not.;1;points;Question;16;Monarch & Company, CPAs, has provided annual;audit and tax advisory services to Brickstone Corporation for several;years. Last year, Brickstone experienced;severe cash flow problems and was unable to pay Monarch in full, leaving a;significant balance unpaid. Monarch is;ready to begin fieldwork for the upcoming audit. What options are available to Monarch and;Brickstone?;A.;Brickstone may give the member a note with;a maturity date no later than one year after the date of the current year;report.;B.;Brickstone may have another firm perform;the field work and Monarch will review the workpapers and issue the report.;C.;Monarch may perform the audit as long as;the unpaid fees relating to the prior year are paid in full before the current;year report is issued.;D.;Monarch may set up a payment plan with;Brickstone over the next two years to settle the unpaid fees.;1;points;Question;17;Users of an issuer?s financial statements;demand independent audits because;A.;Users demand assurance that fraud does not;exist.;B.;Management relies on the auditor to improve;internal control.;C.;Users expect auditors to correct management;errors.;D.;Management may not be objective in;reporting.;1;points;Question;18;The employment of your spousal equivalent;at an audit client would generally impair your independence if he or she was;employed as;A.;A warehouse supervisor.;B.;A controller.;C.;A data entry clerk.;D.;Any of these choices would generally impair;independence of a spousal equivalent.;1;points;Question;19;The AICPA Code of Professional Conduct;would be violated if a CPA accepted a fee for services and the fee was;A.;Fixed by a public authority.;B.;Payable after a specified finding was;attained in a review of financial statements.;C.;Based on the results of judicial;proceedings in a tax matter.;D.;Based on a price quotation submitted in;competitive bidding.;1;points;Question;20;An auditor?s independence is considered;impaired if the auditor has;A.;An immaterial, indirect financial interest;in a client.;B.;A mortgage loan, executed with a financial;institution client on March 1, 1990, that is material to the auditor?s net;worth.;C.;A joint, closely held business investment;with the client that is material to the auditor?s net worth.;D.;An automobile loan from a client bank;collateralized by the automobile.;1;points;Question;21;Notes that are included with the financial;statements are the responsibility of the;A.;Company?s management.;B.;Internal auditor.;C.;Independent auditor.;D.;Securities and Exchange Commission.;1;points;Question;22;Which of the following standards requires a;critical review of the work done and appropriate judgment exercised by those;assisting in an audit at every level of supervision?;A.;Inspection.;B.;Proficiency.;C.;Audit risk.;D.;Due care.;1;points;Question;23;The AICPA Code of Professional Conduct;contains both general ethical principles that are aspirational in character and;also a;A.;Description of a member?s procedures for responding to an inquiry from a;trial board.;B.;List of violations that would cause the;automatic suspension of a member?s license.;C.;List of specific acts discreditable to the;profession.;D.;Set of specific, mandatory rules describing;minimum levels of conduct a member must maintain.;1;points;Question;24;According to the ethical standards of the;profession, which of the following acts is generally prohibited?;A.;Accepting a commission for recommending a;product to an audit client.;B.;Writing a financial management newsletter;promoted and sold by a publishing company.;C.;Accepting engagements obtained through the;efforts of third parties.;D.;Purchasing a product from a third party and;reselling it to a client.;1;points;Question;25;A staff member below the managerial level;belongs to an investment club composed of 20 members. She is the only person in the one-office CPA;firm belonging to this club. Buy and;sell decisions on investments are decided by majority vote, each member of the;club having one vote. The members at;their last meeting voted to purchase a minor number of shares of the Jones;Company, an audit client of the firm in which the staff person is located. Although she does not work on that;engagement, the staff person voted against the purchase.;A.;Since the staff person could not control;the actions of the club, independence of the firm with Jones Company is not;impaired.;B.;Since only a minor number of shares were;purchased, independence of the firm with Jones Company is not impaired.;C.;Independence of the firm with Jones Company;is impaired.;D.;Since the staff person is below the;managerial level and does not work on the engagement for this company;independence of the firm with Jones Company is not impaired.;1;points;Question;26;The purpose of establishing quality control;policies and procedures for deciding whether to accept or continue a client;relationship is to;A.;Document objective criteria for the CPA;firm?s responses to peer review comments.;B.;Provide reasonable assurance that personnel;are adequately trained to fulfill their responsibilities.;C.;Minimize the likelihood of associating with;clients whose management lacks integrity.;D.;Monitor the risk factors concerning misstatements;arising from the misappropriation of assets.;1;points;Question;27;Which of the following acts by a CPA is a;violation of professional standards regarding the confidentiality of client;information?;A.;Releasing financial information to a local;bank with the approval of the client?s mail clerk.;B.;Allowing a review of professional practice;without client authorization.;C.;Responding to an enforceable subpoena.;D.;Faxing a tax return to a loan officer at;the request of the client.;1;points;Question;28;Which of the following best describes;?competence? as defined in the AICPA Code of Professional Conduct?;A.;Infallible judgment that cannot;subsequently be called into question.;B.;Possessing an advanced college degree in;the relevant professional subject matter.;C.;Rigid adherence to the professional;standards of engagement performance.;D.;The application of skill and knowledge with;reasonable care and diligence.;1;points;Question;29;Under the AICPA Code of Professional;Conduct, which of the following is required to be independent in fact and;appearance when discharging professional responsibilities?;A.;All CPAs.;B.;A CPA in public practice providing tax and;management advisory services.;C.;A CPA not in public practice.;D.;A CPA in public practice providing auditing;and other attestation services.;1;points;Question;30;Meagan Whittier, CPA, was offered the;engagement to audit Rosemont Corporation for the year ended June 30, 2012. She has served as a director of Rosemont;Corporation until June 30, 2011, her spouse currently owns 10 of the 10,000;outstanding shares of Rosemont Corporation, and her sister works for Rosemont;Corporation as a sales manager. Under;the AICPA Code of Professional Conduct, she should;A.;Refuse the engagement because she had;served as a director.;B.;Refuse the engagement because of her;sister?s position as a sales manager.;C.;Refuse the engagement because of her;spouse?s stock ownership.;D.;Accept the engagement.;1;points;Question;31;CPAs within each state have formed state;societies or associations of CPAs. Which;one of the following statements about these associations is false?;A.;Most associations have their own codes of;professional ethics that closely parallel the AICPA Code of Professional;Conduct.;B.;Members of state associations may also be;members of the AICPA.;C.;The state societies are independent of the;AICPA.;D.;All CPAs in the state must be members of;the state association or society.;1;points;Question;32;To;make effective ethical decisions, CPAs need to be able to;A.;Refer matters to the AICPA ethics hotline.;B.;Recognize an ethical issue.;C.;Comply with competence and technical;standards.;D.;Consider rules of other regulators.;1;points;Question;33;An attest engagement is one in which a CPA;is engaged to;A.;Provide tax advice or prepare a tax return;based on financial information the CPA has not audited or reviewed.;B.;Assemble prospective financial statements;based on the assumptions of the entity?s management without expressing any;assurance.;C.;Testify as an expert witness in accounting;auditing, or tax matters, given certain stipulated facts.;D.;Issue an examination, a review, or an;agreed-upon procedures report on subject matter, or an assertion about subject;matter that is the responsibility of another party.;1;points;Question;34;GAAS require the auditor to be independent;in mental attitude. An auditor is;independent if he or she is;A.;Independent in fact and in appearance.;B.;Consistent and independent in fact.;C.;Intelligent.;D.;Logical and intellectually honest.


Paper#52074 | Written in 18-Jul-2015

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