Auditng Module B

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Seifer
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145959
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Auditng Module B
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2012-04-22 15:35:55
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Auditing Assurance Module Professional Ethics
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Auditing Professional Ethics
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  1. Act-utilitarian
    (a moral philosophy): Emphasis on an individual as it is affected by the specific circumstances of a situation
  2. categorical imperative
    (a moral philosophy): Kant's specification of unconditional obligation, to act as one thinks others should act regardless of circumstances
  3. commission
    A percentage fee charged for professional services in connection with executing a transaction or performing some other business activity
  4. contingent fee
    A fee established for the performance of any service in the arrangement in which no fee will be charged unless a specific finding or result is attained or the fee otherwise depends on the result
  5. generalization argument
    (a moral philosophy): A judicious combination of the imperative and utilitarian principles, to act as one thinks others should act in a similar circumstance
  6. independence
    A mental attitude and appearance that the auditor is not influenced by others in judgements and decisions
  7. referral fees
    (1) Fees a CPA receives for recommending another CPA's services and (2) fees a CPA pays to obtain a client. Such fees may or may not be based on a percentage of the amount of any transactions
  8. rule-utilitarianism
    (a moral philosophy): Emphasis on the centrality of rules for ethical behavior while still maintaining the criterion of the greatest universal good
  9. self-regulation
    Quality control reviews and disciplinary actions conducted by fellow CPAs - professional peers
  10. Auditors are interested in having independence in appearance because

    A. They want to impress the public with their independence in fact
    B. They need to comply with the standards of field work of GAAS
    C. Audits should be planned and properly supervised
    D. They want the public at large to have confidence in the profession
    D. Appearance influences the public

    a. Independence in fact is a mental quality
    c. Standards of field work do not mention independence
    d. This is the first of the GAAS standards of field work
    (this multiple choice question has been scrambled)
  11. Assuring that the auditor is independent in appearance is the responsibility of

    A. The public accounting firm
    B. Senior management
    C. The audit committee
    D. The PCAOB
    C. Sarbanes-Oxley and PCAOB have placed the responsibility for ensuring that the external auditors are independent of those charged with governance (including the audit committe)
    (this multiple choice question has been scrambled)
  12. If a public accounting firm says it always follows the rule that requires adherence to FASB pronouncements in order to give a standard unqualified auditors' report, it is following a philosophy characterized by

    A. Reliance on members' collective conscience
    B. The generalization principle in ethics
    C. The imperative principle in ethics
    D. The utilitarian principle in ethics
    C. Imperative means that a rule is always followed

    b. Utilitarian means that some exceptions based on a calculation of good and bad outcomes is sometimes used
    c. This is the second best answer because generalization can resemble imperative thought
    d. the firm is following a rule, not listening for "inner voices"
    (this multiple choice question has been scrambled)
  13. Which of the following agencies issues independence rules for the auditors of public companies?

    A. Financial Accounting Standards Board (FASB)
    B. Governmental Accountability Office (GAO)
    C. Public Company Accounting Oversite Board (PCAOB)
    D. AICPA Accounting and Review Services Committee (ARSC)
    C. The PCAOB (in cooperation with SEC) makes independence rules for auditors of public companies

    a. FASB makes accounting principles (not independence rules)
    b. GAO makes auditing standards for government audits
    d. ARSC makes practice standards for accountants' work on unaudited financial statements
    (this multiple choice question has been scrambled)
  14. Audit independence in fact is most clearly lost when

    A. An audit team fails to discover the client's misleading omission of disclosure about permanent impairment of assets values
    B. A public accounting firm audits competitor companies in same industry the
    C. An auditor agrees to the argument of the client's financial vice president that deferring losses on debt refinancing is in accordance with GAAP
    D. A public accounting firm issues a standard unqualified report, but the reviewing partner fails to notice that the assistant's observation of inventory was woefully incomplete
    C. This item is written to imply that the auditor subordinated judgement to the client's officer

    a. Merely auditing competitors does not impair independence
    c. Lack of competence itself is not an impairment of independence. While facts may be misrepresented, the auditors didn't know it
    d. Another example of lack of competence. In this case the auditors misrepresented facts (giving the unqualified report when the audit was not entirely in conformity with GAAS), but they did not knowingly do so.
    (this multiple choice question has been scrambled)
  15. The audit committee's responsibility for auditor independence concerns

    A. Ensuring that non-audit services provided by the auditor do not impair independence
    B. Ensuring that all non-audit non-audit non-audit are provided by auditors who do not provide the financial statements audit
    C. Ensuring that partners of the public accounting firm are not stockholders in the company
    D. Reporting on auditor independence to the PCAOB
    A. Sarbanes-Oxley and the PCAOB have placed the responsibility for auditors' independence on the audit committee. Primary in this responsibility is the monitoring of all engagements contracted with the external auditors to ensure that the auditors are not performing any assignments that are prohibitive by PCAOB standards or otherwise impair the auditor's independence
    (this multiple choice question has been scrambled)
  16. AICPA members who work in industry and government must always uphold which two of the following AICPA rules of conduct?

    A. Rule 301 - Confidential Client Information
    B. Rule 101 - Independence
    C. Rule 102 - Integrity and Objectivity
    D. Rule 501 - Acts Discreditable
    C. Integrity and objectivity are required of all members

    a. Rule 101 begins "A member in public practice..."
    c. Rule 301 begins "A member in public practice..."
    d. Prohibition of discreditable acts applies to all members
    (this multiple choice question has been scrambled)
  17. A public accounting firm's independence is impaired when members of the audit engagement team perform which of the following services for a public company audit client?

    A. Preparation of actuarial assumptions used by the client's actuaries for life insurance actuarial liability determination
    B. Outsourced internal audit work on the client's financial accounting control monitoring
    C. Preparation of special purpose orders for active plutonium in secure national defense installations
    D. Operational internal audit assignments under the directions of the client's director of internal auditing
    e. All of the above would impair the public accounting firm's independence
    D. Independence is not impaired for non-financial statement related internal audit services when the client has its own Director of Internal Auditing in charge

    a. Independence is impaired by this type of bookkeeping service
    c. Independence is impaired when the audit firm performs more than 40% of financial-related internal audit work (for clients with more than $200 million assets)
    d. Independence is impaired when auditors perform important actuarial work, they audit their own work product (the client's actuarial calculations based on the audit team-prepared assumptions).
    (this multiple choice question has been scrambled)
  18. When the public accounting firm audits FUND-A in a mutual fund complex that has sister funds FUND-B and FUND-C, independence for the audit of FUND-A is not impaired when

    A. The wife of the FUND-A audit engagement partner owns shares in FUND-C (an audit client of another of the firm's offices) and these shares are held through the wife's employee benefit plan funded by her employer, the AllSteelFence Company
    B. Manager-level professionals located in the office where the engagement audit partner is located but who are not on the engagement team who shares in FUND-B, which is not an audit client
    C. Neither (a) nor (b)
    D. Both (a) and (b)
    D. Independence is not impaired in both (a) and (b)

    a. The answer is both (a) and (b). Independence is not impaired in (a) Managers not on the engagement can own shares in non-client sister funds

    b. The answer is both (a) and (b). Independence is not impaired in (b). Independence is not impaired. Close family members of audit partners can own shares in audit client sister funds not audited by the close family member's employee benefit plan
    d. Independence is not impaired in both (a) and (b)
    (this multiple choice question has been scrambled)
  19. Which of the following is considered a close relative (but not an immediate family member) as defined by the AICPA?

    A. Spouse
    B. Parent
    C. Spousal equivalent
    D. Uncle
    B. A parent is defined as a close relative, but is not an immediate family member

    a. A spouse is defined as an immediate family member
    b. A spousal equivalent is defined as an immediate family member
    d. An uncle is neither an immediate family member nor a close relative
    (this multiple choice question has been scrambled)
  20. Which of the following is true if an auditor performs nonaudit services for a government entity?

    A. The scope of the audit cannot be reduced because the nonaudit work was performed by the public accounting firm
    B. Nonaudit work in areas directly related to the production of accounting information is prohibited
    C. The scope of the audit must be reduced so that the auditor does not audit the area for which the nonaudit work was performed
    D. The senior members of the government entity must document their review of the nonaudit service and indicate why it is appropriate for the auditors to perform this service
    A. The scope of the audit work cannot be reduced because of the nonaudit services

    a. The audit organization may not reduce the scope of its audit
    b. There are restrictions concerning where in the organization the nonaudit work can be performed
    c. The audit organization must document why the nonaudit service does not affect the independence; not the government organization
    (this multiple choice question has been scrambled)
  21. Which of the following is true?

    A. Audit team members who leave the public accounting firm for employment with audit clients can provide audit efficiencies (next year) because they are very familiar with the firm's audit plans
    B. Members of an audit engagement team cannot speak with audit client officers about employment possibilities with the client while the audit work is in progress
    C. Audit team partners who leave the public accounting firm for employment with audit clients can retain variable annuity retirement accounts established in the person's former firm retirement plan
    D. The public accounting firm must discuss with the audit client's board or its audit committee the independence implications of the client's having hired the audit engagement team manager as its financial vice president
    D. Discussion of former firm employees now employed in accounting and reporting roles in the client is a matter for the independence reporting to the board

    a. Auditors freedom to talk with clients about employment is not denied. The audit firm simply must compensate for the threat to quality audit work
    b. Maybe a second-best answer, but the "efficiencies" are offset by the extra review the audit firm is obligated to perform
    c. Former audit partners can retain material retirement accounts only if they are fixed as to amount and timing. (The "variable" word in the question is supposed to negate the "fixed" requirement)
    (this multiple choice question has been scrambled)
  22. Which of the following "bodies designated by Council" have been authorized to promulgate general standards enforceable under Rule 201 of the AICPA Code of Professional Conduct?

    A. AICPA Division of Professional Ethics
    B. Government Accounting Standards Board
    C. Financial Accounting Standards Board
    D. Accounting and Review Service Committee
    D. Along with the ASB and MCS Executive Committee
    (this multiple choice question has been scrambled)
  23. Which of the following "bodies designated by Council" have been authorized to promulgate accounting principles enforceable under Rule 203 of the AICPA Code of Professional Conduct?

    A. Accounting and Review Services Committee
    B. Consulting Services Executive Committee
    C. Auditing Standards Board
    D. Federal Accounting Standards Advisory Board
    D. Along with the FASB and GASB
    (this multiple choice question has been scrambled)
  24. Phil Greb has a thriving practice in which he assists attorneys in preparing litigation dealing with accounting and auditing matters. Phil is "practicing public accounting" if he

    A. Never lets his clients know that he is a CPA
    B. Is in partnership with another CPA
    C. Practices in a professional corporation with other CPAs
    D. Uses his CPA designation on his letterhead and business card
    D. He is "holding out" as a CPA and performing services other CPAs perform

    b. Mere partnership with another CPA is not enough if the other CPA does not "hold out"
    c. same idea as b
    d. If he does not "hold out" as a CPA, he is not in public accounting according to the AICPA
    (this multiple choice question has been scrambled)
  25. The AICPA removed its general prohibition of CPAs taking commissions and contingent fees because

    A. Objectivity is not always necessary in accounting and auditing services
    B. Commissions and contingent fees enhance audit independence
    C. Nothing is inherently wrong about the form of fees charged to nonaudit clients
    D. CPAs prefer more price competitive to less
    C. The FTC dragged the AICPA kicking and screaming into the agreement

    a. CPAs generally prefer to compete on the basis of quality of service rather than price
    b. The conventional wisdom is the opposite
    d. The AICPA "principles" statements assert that objectivity is always necessary
    (this multiple choice question has been scrambled)
  26. CPA Rambo is the auditor of Ajax Corporation. Her audit independence will not be considered impaired if she

    A. Has a sister who is the financial vice president of Ajax
    B. Owns $1,000 worth of the stock of Pericles Corporation, which is controlled by Ajax as a result of Ajax's ownership of 40% of Pericles' stock, and Pericles contributes 3 percent of the total assets and income in Ajax's financial statements
    C. Owns $1,000 work of Ajax stock
    D. Has a husband who owns $1,000 worth of Ajax stock
    B. This is a situation of having an immaterial financial interest in a nonclient investee that is immaterial to the client's financial statements

    a. Independence is impaired by the direct financial interest in the client
    b. Independence is impaired by the attribution of the financial interest of the spouse
    c. Independence is impaired by having a nondependent close relative in an audit-sensitive position with the client
    (this multiple choice question has been scrambled)
  27. When a client's financial statements contain a material departure from an FASB Statement on Accounting Standards and the public accounting firm believes the departure is necessary to ensure that the statements are not misleading

    A. The public accounting firm must give an adverse auditors' report
    B. The public accounting firm can give the standard unqualified auditors' report with an unqualified opinion paragraph
    C. The public accounting firm can explain why the departure is necessary and then give an unqualified opinion paragraph in the auditors' report
    D. The public accounting firm must qualify the auditors' report for a departure from GAAP
    C. Rule 203 permits the explanation and the unqualified opinion

    a. "Must" is wrong. The public accounting firm can explain why the departure is necessary and then give an unqualified opinion in the auditors' report
    c. "Must" is wrong. The public accounting firm can explain why the departure is necessary and then give an unqualified opinion paragraph in the auditors' report
    d. The opinion paragraph can be unqualified, but with the explanation, the report is not "standard"
    (this multiple choice question has been scrambled)
  28. Which of the following would not be considered confidential information obtained in the course of an engagement for which the client's consent would be needed for disclosure?

    A. The actuarial assumptions used by a tax client in calculating pension expense
    B. Information about material contingent liabilities relevant for audited financial statements
    C. Information about whether a consulting client has paid the CPA's fees on time
    D. Management's strategic plan for next year's labor negotiations
    B. Client permission is not needed for information required by GAAP in audited financial statements

    a. You cannot even tell a credit agency about the client's payment record
    b. The actuarial assumptions are not required to be disclosed by GAAP or GAAS in tax engagements
    c. Plans of this nature are not required by GAAP or GAAS
    (this multiple choice question has been scrambled)
  29. Which of the following would probably not be considered an "act discreditable to the profession"?

    A. Filing a fraudulent tax return for a client in a severe financial difficulty
    B. Numerous moving traffice violations
    C. Refusing to hire Asian Americans in an accounting practice
    D. Failing to file the CPA's own tax return
    B. These are generally considered outside the reach of professional conduct rules

    b. Failing to file one's own tax return is discreditable
    c. Filing a fraudulent tax return, even for a client in financial difficulty, is discreditable under AICPA interpretation
    d. Employment discrimination is discreditable
    (this multiple choice question has been scrambled)
  30. According to the AICPA Code of Conduct, which of the following acts is generally forbidden to CPAs to public practice?

    A. Having a commission arrangement with an accounting software developer to receive 4 percent of the price of programs recommended and sold to audit clients
    B. Being the author of a "TaxAid" newsletter promoted and sold by a publishing company
    C. Engaging a marketing firm to obtain new financial planning clients for a fixed fee of $1,000 for each successful contact.
    D. Purchasing bookkeeping software from a hi-tech development company and reselling it to tax clients
    A. Rule 503 prohibits commission compensation for referring products or services to clients for whom the CPA performs attest services

    a. Selling products for profit is not forbidden by any rule
    b. Authorship itself is not forbidden
    d. Rule 503 permits CPAs to pay fees to obtain clients. (This answer is "close" to correct - Forbidden - because the CPA must also disclose the fee payment to the new client.)
    (this multiple choice question has been scrambled)
  31. A CPA's legal license to practice public accounting can be revoked by the

    A. American Institute of Certified Public Accountants
    B. State board of accountancy
    C. Auditing Standards Board
    D. State Society of CPAs
    B. The state board is the regulatory agency that grants a license to practice and can revoke one

    a. The AICPA does not grant licenses to practice
    b. The state CPA societies do not grant licenses
    c. The ASB does not grant licenses
    (this multiple choice question has been scrambled)
  32. According to Rule 501, which of the following is not a "discreditable act"?

    A. Advertising that indicated the firm can reduce IRS penalties
    B. Failing to follow requirements of the PCAOB during the audit of an SEC client
    C. Withholding a client's sales records
    D. Failing to file or remit tax payments
    A. Violating the advertising standards is a violation of rule 502 not rule 501 "acts discreditable"

    a. Withholding client records is an "acts discreditable"
    b. Failing to file or remit tax payments is a felony and as such is an "acts discreditable"
    c. Failure to follow standards during an SEC audit is "acts discreditable"
    (this multiple choice question has been scrambled)
  33. An auditor's independence would not be considered impaired if he had

    A. Served as the company's treasurer for six months during the year covered by the audit but resigned before the company became a client
    B. Sold short the common stock of an audit client while working on the audit engagement
    C. Owned common stock of the audit client but sold it before the company became a client
    D. Performed the bookkeeping and financial statement preparation for the company, which had no accounting personnel and for which the president had no understanding of accounting principles.
    C. A direct financial interest disposed before the audit-client relationship arises does not impair independence

    b. A short sale creates the commitment to acquire the client's stock which impairs independence
    c. Service in the capacity of management during the period covered by the financial statements impairs independence
    d. Performing accounting services and preparing financial statements when the client cannot take responsibility for them impairs independence
    (this multiple choice question has been scrambled)
  34. When a CPA knows that a tax client has skimmed cash receipts and not reported the income in the federal income tax return but signs the return as a CPA who prepared the return, the CPA has violated which of the following AICPA Rules of Conduct

    A. Rule 102 - Integrity and Objectivity
    B. Rule 203 - Accounting Principles
    C. Rule 301 - Confidential Client Information
    D. Rule 101 - Independence
    A. Rule 102 - Integrity and Objectivity. The CPA knowingly misrepresented facts

    a. Rule 301 - Confidential client Information is not relevant because the CPA did not tell anyone else about the omission
    c. Rule 101 - Independence. Independence is not required in tax practice
    d. Rule 203 - Accounting Principles is not relevant because the CPA is not giving an opinion on financial statements' conformity with GAAP
    (this multiple choice question has been scrambled)
  35. An auditor recommends a local computer company to a client that is trying to upgrade its computerized sales records. The client purchases $25,000 worth of equipment and sends a check to the auditor for 5 percent of the total sales. This is an example of a

    A. Nonaudit fee
    B. Contingent fee
    C. Referral fee
    D. Commission
    D. This is a commission - a percentage paid in connection with a business activity
    (this multiple choice question has been scrambled)
  36. Which of the following ownership situations is permissable for a public accounting firm?

    A. A partner of the firm is responsible for fraud issues related to audits and audit clients. He owns 20 percent of the firm and is not a CPA
    B. Because the firm now specializes in fraud auditing and fraud investigation, the managing partner of the firm has a background in law enforcement and fraud investigation. he is not a CPA
    C. A partner of the firm is responsible for fraud issues related to audits and audit clients. He owns 50 shares of stock in an audit client of the firm
    D. A partner of the firm is responsible for fraud issues related to audits and audit clients. He has 20 years of experience in law enforcement and fraud investigation. He began his career as a police office after receiving a law enforcement degree from a local community college.
    A. A non-CPA can be a partner if he or she does not have a majority interest and does not have ultimate responsibility for the firm's services

    b. A CPA must have ultimate responsibility for the firm's services. A CPA cannot be the managing partner
    c. A majority owner and partner in the firm cannot own stock in an audit client
    d. Non-CPA owners of the firm must hold a bachelor's degree and 150 credit hours
    (this multiple choice question has been scrambled)

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