ACCT 444
Week 1 Quiz and Homework
ACCT
444 Week 1 Quiz and Homework
ACCT
444 Week 1 Quiz
1. (TCO 3)
Prior to the passage of the Sarbanes-Oxley Act, which of the following was
responsible for establishing auditing standards? (Points: 3)
Public
Company Accounting Oversight Board
Securities
and Exchange Commission
National
Association of Accounting
Auditing
Standards Board
Chapter
2
2.
(TCO 1) Which one of the following is not one of the three
general standards? (Points: 3)
Proper
planning and supervision
Due
professional care
Adequate
training and proficiency
Independence
of mental attitude
Chapter
2
3. (TCO 1)
An independent auditor must have which of the following? (Points: 3)
A
pre-existing and well-informed point of view with respect to the audit
Technical
training that is adequate to meet the requirements of a professional
Experience
in taxation that is sufficient to comply with generally accepted auditing
standards
A
background in many different disciplines
4. (TCO 1)
Any service that requires a CPA firm to issue a report about the reliability of
an assertion that is made by another party is a(n) _____ (Points: 3)
assurance
service.
attestation
service.
tax
service.
accounting
and bookkeeping service.
Chapter
1
5. (TCO 1)
Which of the following statements is incorrect regarding the SEC’s partner
rotation rules? (Points: 3)
The lead
and concurring partners are subject to a 5-year time out period.
All
audit partners must rotate off the audit engagement after 5 years.
Other
audit partners are subject to a 2-year time out period.
Small
firms may be exempted from the partner rotation requirement.
6. (TCO 3)
Burrow & Co., CPAs, have provided annual audit and tax compliance services
to Mare Corp. for several years. Mare has been unable to pay Burrow in full for
services Burrow rendered 19 months ago. Burrow is ready to begin fieldwork for
the current year’s audit. Under the ethical standards of the profession, which
of the following arrangements will permit Burrow to begin the fieldwork on
Mare’s audit? (Points: 3)
Mare
engages another firm to perform the fieldwork, and Burrow is limited to
reviewing the workpapers and issuing the audit report.
Mare
sets up a 2-year payment plan with Burrow to settle the unpaid fee balance.
Mare
gives Burrow an 18-month note payable for the full amount of the past due fees
before Burrow begins the audit.
Mare
commits to pay the past due fee in full before the audit report is issued.
Chapter
2
7.
(TCO 3) Independence in auditing means (Points: 3)
remaining
aloof from a client.
taking
an unbaised and objective viewpoint.
not
being financially dependent on a client.
being an
advocate for a client.
Chapter
4
8.
(TCO 3) The financial interests of which of the following
parties would not be included as a direct financial interest of the CPA?
(Points: 3)
Dependent
child
Relative
supported by the CPA
Spouse
Sibling
living in the same city as the CPA
Chapter
4
9. (TCO 1)
The phrase U.S. generally accepted accounting principles is an accounting term
that (Points: 3)
encompasses
the conventions, rules, and procedures necessary to define U.S. accepted
accounting practice at a particular time.
provides
a measure of conventions, rules, and procedures governed by the AICPA.
is
included in the audit report to indicate that the audit has been conducted in
accordance with generally accepted auditing standards (GAAS).
includes
broad guidelines of general application but not detailed practices and
procedures.
Chapter
1
10. (TCO 1)
Which of the following statements best describes the ethical standard of the
profession pertaining to advertising and solicitation? (Points: 3)
A CPA
may advertise in any manner that is not false, misleading, or deceptive.
There
are no prohibitions regarding the manner in which CPAs may solicit new
business.
All
forms of advertising and solicitation are prohibited.
A CPA
may only solicit new clients through mass mailings.
1. (TCO 3)
The Sarbanes-Oxley Act applies to which of the following companies? (Points :
3)
Privately
held companies
All
companies
All
public companies and privately held companies with assets greater than $500
million
Public
companies
Chapter
1
Question
4. 4. (TCO 1) An operational audit has as one of its objectives to (Points : 3)
make
recommendations for improving performance.
determine
whether the financial statements fairly present the entity’s operations.
evaluate
the feasibility of attaining the entity’s operational objectives.
report
on the entity’s relative success in attaining profit maximization.
Chapter
1
Question
5. 5. (TCO 1) Which of the following services do not need to be preapproved by
the audit committee of an issuer? (Points : 3)
Nonaudit
services related to internal control over financial reporting
Tax
services
Nonaudit
services that are less than 5 % of total revenues from the audit client
Services
provided by the auditor on a recurring basis
Question
8. 8. (TCO 3) Several months after an unqualified audit report was issued, the
auditor discovered the financial statements were materially misstated. The
client’s CEO agrees that there are misstatements, but refuses to correct them.
She claims that confidentiality prevents the CPA from informing anyone. (Points
: 3)
The CEO
is incorrect, but because the audit report has been issued, it is too late.
The CEO
is correct and the auditor must maintain confidentiality.
The CEO
is correct, but to be ethically correct the auditor should violate the
confidentiality rule and disclose the error.
The CEO
is incorrect, and the auditor has an obligation to issue a revised audit
report, even if the CEO will not correct the financial statements.
Chapter
4
Question
9. 9. (TCO 1) Which of the following terms identifies a requirement for audit
evidence? (Points : 3)
Adequate
Disconfirming
Reasonable
Appropriate
Chapter
1
Question
10. 10. (TCO 1) The auditor of an issuer may provide which of the following tax
services? (Points : 3)
Tax
services for immediate family members of corporate officers
Tax
planning services
Tax
services for officers of the issuer
Services
related to confidential tax transactions
5. (TCO 1)
Jackson & Company, CPAs, plan to audit the financial statements of Perigee
Technologies, an issuer as defined under the Sarbanes-Oxley Act of 2002. Which
of the following situations would impair Jackson’s independence? (Points : 3)
Discovering
that Lowe, the chief financial officer of Perigee, started his accounting
career 10 years earlier as a staff accountant for Jackson & Company and
continues to maintain ties with current partners at the firm
Provision
of personal tax services to Johnson, the accounts payable manager of Perigee
Audit of
Perigee’s internal control is performed contemporaneously with the annual
financial statement audit
Preparation
of Perigee’s routine annual tax return, where Jackson’s fee will be calculated
as a percentage of the tax refund obtained
ACCT
444 Week 1 Homework
Chapter
1
1-18
(Objectives 1-3, 1-4, 1-5) Consumers
Union is a nonprofit organization that provides information and counsel on
consumer goods and services. A major part of its function is the testing of
different brands of consumer products that are purchased on the open market and
then the reporting of the results of the tests in Consumer
Reports, a monthly publication. Examples of the types of products
it tests are middle-sized automobiles, residential dehumidifiers, flat-screen
TVs, and boys’ jeans.
Required
1. In
what ways are the services provided by Consumers Union similar to assurance
services provided by CPA firms?
2. Compare
the concept of information risk introduced in this chapter with the information
risk problem faced by a buyer of an automobile.
3. Compare
the four causes of information risk faced by users of financial statements as
discussed in this chapter with those faced by a buyer of an automobile.
4. Compare
the three ways users of financial statements can reduce information risk with
those available to a buyer of an automobile.
Chapter
2
2-19
(Objective 2-7) For each
of the following procedures taken from the quality control manual of a CPA
firm, identify the applicable element of quality control from Table
2-4 on page
38.
1. Appropriate
accounting and auditing research requires adequate technical reference
materials. Each firm professional has online password access through the firm’s
Internet Web site to electronic reference materials on accounting, auditing,
tax, SEC, and other technical information, including industry data.
2. Each
office of the firm shall be visited at least annually by review persons
selected by the director of accounting and auditing. Procedures to be
undertaken by the reviewers are illustrated by the office review program.
3. All
potential new clients are reviewed before acceptance. The review includes
consultation with predecessor auditors, and background checks. All new clients
are approved by the firm management committee, including assessing whether the
firm has the technical competence to complete the engagement.
4. Each
audit engagement must include a concurring partner review of critical audit
decisions.
5. Audit
engagement team members enter their electronic signatures in the firm’s
engagement management software to indicate the completion of specific audit
program steps. At the end of the audit engagement, the engagement management
software will not allow archiving of the engagement file until all audit
program steps have been electronically signed.
6. At
all stages of any engagement, an effort is made to involve professional staff
at appropriate levels in the accounting and auditing decisions. Various
approvals of the manager or senior accountant are obtained throughout the
audit.
7. No
employee will have any direct or indirect financial interest, association, or
relationship (for example, a close relative serving a client in a
decision-making capacity) not otherwise disclosed that might be adverse to the
firm’s best interest.
8. Individual
partners submit the nominations of those persons whom they wish to be
considered for partner. To become a partner, an individual must have exhibited
a high degree of technical competence; must possess integrity, motivation, and
judgment; and must have a desire to help the firm progress through the
efficient dispatch of the job responsibilities to which he or she is assigned.
9. Through
our continuing employee evaluation and counseling program and through the
quality control review procedures as established by the firm, educational needs
are reviewed and formal staff training programs modified to accommodate
changing needs. At the conclusion of practice office reviews, apparent
accounting and auditing deficiencies are summarized and reported to the firm’s
director of personnel.
10. The
firm’s mission statement indicates its commitment to quality, and this
commitment is emphasized in all staff training programs
Chapter
4
4-22
(Objectives 4-6, 4-7) Each of
the following situations involves possible violations of the AICPA’s Code
of Professional Conduct. For each situation, state whether it is a
violation of the Code. In those
cases in which it is a violation, explain the nature of the violation and the
rationale for the existing rule.
1. The
audit firm of Miller and Yancy, CPAs has joined an association of other CPA
firms across the country to enhance the types of professional services the firm
can provide. Miller and Yancy share resources with other firms in the
association, including audit methodologies and audit manuals, and common IT
systems for billing and time reporting. One of the partners in Miller and Yancy
has a direct financial interest in the audit client of another firm in the
association.
.
1. Bruce
Sullivan, CPA, is the audit partner on the engagement of Xylium Corporation,
which is a public company. In structuring the agreement with the audit
committee for the audit of Xylium’s financial statements, Sullivan included a
clause that limits the liability of Sullivan’s firm so that shareholders of
Xylium are prohibited from suing Sullivan and the firm for performance issues
related to the audit.
1. Jennifer
Crowe’s audit client has a material investment in Polex, Inc. Jennifer’s
nondependent parents also own shares in Polex and Polex is not an attest client
of Jennifer’s firm. The amount of her parent’s ownership in Polex is not
significant to Jennifer’s net worth.
.
1. Joe
Stokely is a former partner in Bass and Sims, CPAs. Recently, Joe left the firm
to become the chief operating officer of Lacy Foods, Inc., which is an audit
client of Bass and Sims. In his new role, Joe has no responsibilities for
financial reporting. Bass and Sims made significant changes to the audit plan
for the upcoming audit.
.
1. Odonnel
Incorporated has struggled financially and has been unable to pay the audit fee
to its auditor, Seale and Seale, CPAs, for the 2009 and 2010 audits. Seale and
Seale is currently planning the 2011 audit.
1. Connor
Bradley is the partner in charge of the audit of Southern Pinnacle Bank.
Bradley is in the process of purchasing a beach condo and has obtained mortgage
financing from Southern Pinnacle.
.
1. Jessica
Alma has been serving as the senior auditor on the audit of Carolina BioHealth,
Inc. Because of her outstanding work, the head of internal audit at Carolina
BioHealth extended her an offer of employment to join the internal audit
department as an audit manager. When the discussions with Carolina BioHealth
began, Jessica informed her office’s managing partner and was removed from the
audit engagement.
.
1. Lorraine
Wilcox is a CPA and professor of accounting at a major state university. One of
her former students recently sat for the Audit section of the CPA exam. One
day, the student dropped by Lorraine’s office and told her about many of the
questions and simulation content on the exam. Lorraine was grateful for the
information, which will be helpful as she prepares the course syllabus for the
next semester.
1. Audrey
Glover is a financial analyst in the financial reporting department of
Technologies International, a privately held corporation. Audrey was asked to
prepare several journal entries for Technologies International related to
transactions that have not yet occurred. The entries are reflected in financial
statements that the company recently provided to the bank in connection with a
loan outstanding due to the bank.
1. Austin
and Houston, CPAs, is performing consulting services to help management of
McAlister Global Services streamline it production operations. Austin and
Houston structured the fee for this engagement to be a fixed percentage of
costs savings that result once the new processes are implemented. Austin and
Houston perform no other services for McAlister Global.
.
Chapter
26
26-25
(Objectives 26-25, 26-1, 26-4) Weston Corporation has an internal audit
department operating out of the corporate headquarters. Various types of audit
assignments are performed by the department for the eight divisions of the
company. The following findings resulted from recent audits of Weston
Corporation’s White Division:
1. One of
the departments in the division appeared to have an excessive turnover rate.
Upon investigation, the personnel department seemed to be unable to find enough
workers with the specified skills for this department. Some workers are trained
on the job. The departmental supervisor is held accountable for labor
efficiency variances but does not have qualified staff or sufficient time to
train the workers properly. The supervisor holds individual workers responsible
for meeting predetermined standards from the day they report to work. This has
resulted in a rapid turnover of workers who are trainable but not yet able to
meet standards.
2. The
internal audit department recently participated in a computer feasibility study
for this division. It advised and concurred on the purchase and installation of
a specific computer system. Although the system is up and operating, the
results are less than desirable. The software and hardware meet the
specifications of the feasibility study, but there are several functions unique
to this division that the system has been unable to accomplish. Linking of
files has been a problem. For example, several vendors have been paid for
materials not meeting company specifications. A revision of the existing
software is probably not possible, and a permanent solution probably requires
replacing the existing computer system with a new one.
3. One of
the products manufactured by this division was recently redesigned to eliminate
a potential safety defect. This defect was discovered after several users were
injured. At present, there are no pending lawsuits because none of the injured
parties has identified a defect in the product as a cause of the injury. There
is insufficient information to determine whether the defect was a contributing
factor.
The
director of internal auditing and assistant controller is in charge of the
internal audit department and reports to the controller in corporate
headquarters. Copies of internal audit reports are sent routinely to Weston’s
board of directors.
Required
1. Explain
the additional steps in terms of field work, preparation of recommendations,
and operating management review that ordinarily should be taken by Weston
Corporation’s internal auditors as a consequence of the audit findings in the
first situation (excessive turnover).
.
1. Discuss
whether there are any objectivity problems with Weston Corporation’s internal
audit department as revealed by the audit findings. Include in your discussion
any recommendations to eliminate or reduce an objectivity problem, if one
exists.
.
1. The
internal audit department is part of the corporate controllership function, and
copies of the internal audit reports are sent to the board of directors.
·
Evaluate the appropriateness of the location
of the internal audit department within Weston’s organizational structure.
.
·
Discuss who within Weston should receive the
reports of the internal audit department.
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