Which of the following is not a change that affects consistency and, therefore, does not require an explanatory paragraph?
Change in accounting principle, such as a change from LIFO to FIFO.
Change in reporting entity, such as the inclusion of an additional company in combined financial statements.
Change in an estimate, such as a decrease in the life of an asset for depreciation purposes.
Correction of errors by changing from non-GAAP to GAAP.
When a disclaimer is issued because the auditor lacks independence:
no report title is included on the report.
a one-paragraph audit report is issued.
the only reason cited for issuing the disclaimer is the lack of independence
all of the above are correct.
Society has attached a special meaning to the term “professional.” A professional is:
someone who has passed a qualifying exam to enter the job market.
a person who is expected to conduct himself or herself at a higher level than the requirements of society’s laws or regulations.
any person who receives pay for the services performed.
someone who has both an education in the trade and on-the-job experience received under an experienced supervisor.
An example of an “indirect ownership interest in a client” would be ownership of a client’s stock by a member’s:
dependent child.
spouse.
non-dependent grandfather.
All of the above are examples of indirect ownership.
Which one of the following statements is false?
The auditor’s responsibility to follow PCAOB standards is greater than the responsibility for confidentiality.
Information that a CPA obtains from a client is generally not privileged.
When a CPA firm conducts an AICPA-authorized peer review of the quality controls of another CPA firm, permission of the client is not needed to examine audit documentation.
A CPA firm which observes substandard audit documentation of another firm can initiate a complaint of substandard performance with the AICPA Ethics Division trial board notwithstanding the confidentiality rule.
Four of the six Ethical Principles in the AICPA’s Code of Professional Conduct are equally applicable to all members of the AICPA. Which of the following principles applies only to members in public practice
Scope and Nature of Services.
Integrity.
Due Care
The Public Interest
Interpretations of rules of conduct in the Code of Professional Conduct are not officially enforceable and practitioners need not justify departure from them.
Which of the following is required for a firm to designate itself “Member of the American Institute of Certified Public Accountants” on its letterhead?
At least one of the partners must be a member of the AICPA.
All partners must be members of the AICPA.
The partners whose names appear in the firm name must be members of the AICPA.
A majority of the partners must be members of the AICPA
If the board of accountancy in the state in which a CPA firm is licensed has rules that are different than the AICPA’s rules, the CPA firm must follow:
whichever rules are less restrictive.
whichever rules are more restrictive.
the rules of the AICPA.
the rules of the state’s board of accountancy.
Which of the following statements is correct?
Non-audit services that are not prohibited by Sarbanes-Oxley or the SEC rules must be approved by management of the client.
Non-audit services that are not prohibited by Sarbanes-Oxley or the SEC rules must be approved by staff of the PCAOB.
Non-audit services that are not prohibited by Sarbanes-Oxley or the SEC rules must be approved by staff of the PCAOB and the SEC.
Non-audit services that are not prohibited by Sarbanes-Oxley or the SEC rules must be approved by the company’s audit committee.
The Securities and Exchange Commission has authority to:
prescribe specific auditing procedures to detect fraud concerning inventories and accounts receivable of companies engaged in interstate commerce.
deny lack of privity as a defense in third-party actions for gross negligence against the auditors of public companies.
determine accounting principles for the purpose of financial reporting by companies offering securities to the public.
require a change of auditors of governmental entities after a given period of years as a means of ensuring auditor independence.
One of the changes in auditing procedure which was brought about as a result of the 1136 Tenants case was that auditors were encouraged to begin using:
letters of representation
confirmation letters
engagement letters.
billet doux letters
A third-party beneficiary is one which:
has failed to establish legal standing before the court.
does not have privity of contract and is unknown to the contracting parties.
does not have privity of contract, but is known to the contracting parties and intended to benefit under the contract.
may establish legal standing before the court after a contract has been consummated.
In third-party suits, which of the auditor’s defenses contends lack of privity of contract?
Lack of duty.
Non-negligent performance.
Contributory negligence.
Absence of causal connections.
There are a number of things that the AICPA, representing the profession as a whole, can do to reduce the CPA’s exposure to lawsuits. One of them is to:
sanction members for improper conduct and performance.
deal only with clients possessing integrity.
hire qualified auditors and train and supervise them.
perform quality audits.
Which of the following most accurately describes constructive fraud?
Absence of reasonable care.
Lack of slight care.
Knowledge and intent to deceive.
Extreme or unusual negligence without the intent to deceive.
Historically, most major lawsuits against CPA firms have dealt with:
disputes over income tax preparation services.
disputes arising in the performance of MAS contracts
disputes over the accuracy of bookkeeping services.
audited and unaudited financial statements.
A major purpose of federal securities regulations is to:
provide sufficient reliable information to the investing public who purchases securities in the marketplace.
establish the qualifications for accountants who are members of the profession.
eliminate incompetent attorneys and accountants who participate in the registration of securities to be offered to the public.
provide a set of uniform standards and tests for accountants, attorneys, and others who practice before the Securities and Exchange Commission.
In a qualified, adverse, or disclaimer report, the auditor
a. has not performed a satisfactory audit.
b. is not satisfied that the financial statements are presented fairly.
c. either a or b.
d. none of these.
