Vous êtes sur la page 1sur 23

Auditing and Assurance Services, 14e (Arens) Chapter 2 The CPA Profession Learning Objective 2-1

1) The legal right to perform audits is granted to a CPA firm by regulation of A) each state! ") the #inancial Accounting $tandards "oard %#A$")! C) the American &nstitute of Certified Public Accountants %A&CPA)! ') the Audit $tandards "oard! Ans(er A
Terms Legal rights to perform audits 'iff )oderate Objective LO 2-1 AAC$" *eflective thin+ing s+ills

2) The four categories for describing the si,e of audit firms include the "ig #our international firms- national firmsregional and local firms- and small firms! .hich of the follo(ing is not a characteristic of a small firm/ A) )ost have fe(er than 20 professionals! ") They perform audits on small and not-for-profit businesses! C) Ta1 services are more important to their practice than auditing! ') They do not audit publically traded companies! Ans(er '
Terms #our categories for describing si,e of audit firms 'iff )oderate Objective LO 2-1 AAC$" *eflective thin+ing s+ills

2) $arbanes-O1ley and the $ecurities 31change Commission restrict auditors from providing many consulting services to their publically traded audit clients! .hich of the follo(ing is true for auditors of publically traded companies/ &! They are restricted from providing consulting services to privately held companies! &&! There is no restriction on providing consulting services to non-audit clients! A) & only ") && only C) & and && ') 4either & or && Ans(er "
Terms $arbanes-O1ley and $ecurities 31change Commission restrictions 'iff )oderate Objective LO 2-1 AAC$" *eflective thin+ing s+ills Topic $O5

1 Copyright 6 2712 Pearson 3ducation8 &nc! publishing as Prentice 9all

:) .hich of the follo(ing statements is true as it relates to limited liability partnerships/ A) Only senior partners are liable for the partnership;s debts! ") Partners have no liability in a limited liability partnership arrangement! C) Partners are personally liable for the acts of those under their supervision! ') All partners must be A&CPA members! Ans(er C
Terms Limited liability partnerships 'iff Challenging Objective LO 2-1 AAC$" *eflective thin+ing s+ills

0) List and describe the three factors that influence the organi,ational structure of all CPA firms! .hat are the most common forms of CPA firm organi,ation/ Ans(er The three factors that influence the organi,ation of a CPA firm include 1! &ndependence from clients! &ndependence is important as it allo(s the auditors to remain unbiased in dra(ing conclusions on client financial statements! 2! Auditor Competency! Competency allo(s auditors to conduct audits and perform services effectively and efficiently! 2! Litigation! The increased litigation ris+ faced by auditors increases audit firm business ris+! Certain organi,ational structures allo( a degree of personal protection to individual firm members! Common forms of audit firm organi,ation include < Limited Liability Partnerships < Limited Liability Companies < Professional Corporations < =eneral Corporations < =eneral Partnerships < $ole Proprietorship
Terms #actors that influence that influence the organi,ational structure of CPA firms 'iff )oderate Objective LO 2-1 AAC$" *eflective thin+ing s+ills

2 Copyright 6 2712 Pearson 3ducation8 &nc! publishing as Prentice 9all

>) List and describe the si1 organi,ational structures available to CPA firms! Ans(er CPA firms can ta+e one of si1 organi,ational forms < Proprietorship. This form is limited to firms (ith only one o(ner! < General partnership! This form is similar to a proprietorship8 e1cept that it applies to multiple o(ners! < General corporation! ?nli+e a general partnership8 shareholders in a general corporation are liable only to the e1tent of their investment in the corporation! < Professional corporation! Professional corporations can have one or more shareholders! Personal liability protection for shareholders in professional corporations varies (idely from state to state! < Limited liability company! This form combines the most favorable attributes of a general corporation and a general partnership! LLCs are ta1ed li+e a general partnership8 but its o(ners have limited personal liability li+e shareholders of a general corporation! < Limited liability partnership! An LLP is structured and ta1ed li+e a general partnership! 9o(ever8 the personal liability protection of an LLP is less than that of a general corporation or an LLC8 but it is greater than a general partnership! )any accounting firms no( operate as LLPs!
Terms Organi,ational structures available to CPA firms 'iff )oderate Objective LO 2-1 AAC$" *eflective thin+ing s+ills

@) )any smallAlocal accounting firms do not perform audits as their primary services to their clients include accounting and ta1! A) True ") #alse Ans(er A
Terms $mall accounting firms do not perform audits 'iff 3asy Objective LO 2-1 AAC$" *eflective thin+ing s+ills

B) All of the "ig #our and many of the smaller CPA firms no( operate as Limited Liability Partnerships! A) True ") #alse Ans(er A
Terms Limited liability partnerships 'iff 3asy Objective LO 2-1 AAC$" *eflective thin+ing s+ills

C) $arbanes-O1ley and the $ecurities 31change Commission restrict auditors from providing many consulting services to their publically traded audit clients! A) True ") #alse Ans(er "
Terms $arbanes-O1ley and $ecurities 31change Commission restrict auditors 'iff 3asy Objective LO 2-1 AAC$" *eflective thin+ing s+ills Topic $O5

2 Copyright 6 2712 Pearson 3ducation8 &nc! publishing as Prentice 9all

17) Limited liability companies are structured and ta1ed li+e a general partnership8 but their o(ners have limited personal liability similar to that of a general corporation! A) True ") #alse Ans(er A
Terms Limited liability companies 'iff )oderate Objective LO 2-1 AAC$" *eflective thin+ing s+ills

Learning Objective 2-2


1) The organi,ation that is responsible for providing oversight for auditors of public companies is called the DDDDDDDD! A) Auditing $tandards "oard! ") American &nstitute of Certified Public Accountants! C) Public Oversight "oard! ') Public Company Accounting Oversight "oard! Ans(er '
Terms Organi,ation responsible for providing oversight for auditors of public companies 'iff 3asy Objective LO 2-2 AAC$" *eflective thin+ing s+ills Topic $O5

2) )embers of the Public Company Accounting Oversight "oard are appointed and overseen by A) the ?!$! Congress! ") the American &nstitute of Certified Public Accountants! C) the Auditing $tandards "oard! ') the $ecurities and 31change Commission! Ans(er '
Terms )embers of Public Company Accounting Oversight "oard 'iff 3asy Objective LO 2-2 AAC$" *eflective thin+ing s+ills Topic $O5

2) The Public Company Accounting Oversight "oard A) perform inspections of the Euality controls at audit firms that audit public companies! ") establish auditing standards that must be follo(ed by CPAs on all audits! C) oversee auditors of private companies! ') perform any of the above functions! Ans(er A
Terms Public Company Accounting Oversight "oard 'iff )oderate Objective LO 2-2 AAC$" *eflective thin+ing s+ills Topic $O5

: Copyright 6 2712 Pearson 3ducation8 &nc! publishing as Prentice 9all

:) Assume the Public Company Accounting Oversight "oard %PCAO") identifies a violation during its inspection of a registered accounting firm! The PCAO" A) can enforce disciplinary report the matter to the suspend the license to action against the $ecurities and 31change practice of the CPA guilty accounting firm Commission of the violation Fes Fes Fes ") can enforce disciplinary action against the accounting firm Fes C) can enforce disciplinary action against the accounting firm Fes ') can enforce disciplinary action against the accounting firm 4o Ans(er "
Terms Public Company Accounting Oversight "oard inspection violations 'iff )oderate Objective LO 2-2 AAC$" *eflective thin+ing s+ills Topic $O5

report the matter to the suspend the license to $ecurities and 31change practice of the CPA guilty Commission of the violation Fes 4o report the matter to the suspend the license to $ecurities and 31change practice of the CPA guilty Commission of the violation 4o 4o report the matter to the suspend the license to $ecurities and 31change practice of the CPA guilty Commission of the violation 4o 4o

0) The $arbanes-O1ley Act established the Public Company Accounting Oversight "oard %PCAO")! .hat are the PCAO";s primary functions/ .ho performed these functions prior to the PCAO"/ Ans(er The PCAO" has responsibility for providing oversight to auditors of public companies8 establishing auditing and Euality control standards for public company audits and performing inspections of the Euality controls at audit firms performing those audits! These functions (ere formerly the responsibility of the American &nstitute of Certified Public Accountants!
Terms $arbanes-O1ley Act- Public Company Accounting Oversight "oard primary functions 'iff )oderate Objective LO 2-2 AAC$" *eflective thin+ing s+ills Topic $O5

0 Copyright 6 2712 Pearson 3ducation8 &nc! publishing as Prentice 9all

>) The Public Company Accounting Oversight "oard %PCAO") provides oversight to auditors of publically traded and private companies! A) True ") #alse Ans(er "
Terms Public Company Accounting Oversight "oard 'iff 3asy Objective LO 2-2 AAC$" *eflective thin+ing s+ills

@) All CPA firms registered (ith the PCAO" are reEuired to undergo a peer revie( annually! A) True ") #alse Ans(er "
Terms PCAO" reEuirement for peer revie( 'iff )oderate Objective LO 2-2 AAC$" *eflective thin+ing s+ills Topic $O5

Learning Objective 2-2


1) The form that must be completed and filed (ith the $ecurities and 31change Commission (henever a company e1periences a significant event that is of interest to public investors is the A) #orm $-1! ") #orm B-G! C) #orm 17-G! ') #orm 17-H! Ans(er "
Terms $ec form B-+8 reporting significant events 'iff )oderate Objective LO 2-2 AAC$" *eflective thin+ing s+ills

2) The form that must be filed (ith the $ecurities and 31change Commission (henever a company plans to issue ne( securities to the public is the A) #orm $-1! ") #orm B-G! C) #orm 17-G! ') #orm 17-H! Ans(er A
Terms #orm must be completed and filed (ith $ecurities and 31change Commission (hen company plans to issue ne( securities 'iff )oderate Objective LO 2-2 AAC$" *eflective thin+ing s+ills

> Copyright 6 2712 Pearson 3ducation8 &nc! publishing as Prentice 9all

2) The A&CPA has authority to establish standards and rules in all but (hich of the follo(ing areas/ A) Auditing standards applicable to financial statements of private companies ") Compilation and revie( standards C) Professional conduct ') Auditing standards applicable to financial statements of private and public companies Ans(er '
Terms A&CPA has authority to establish standards and rules 'iff Challenging Objective LO 2-2 AAC$" *eflective thin+ing s+ills

:) 'iscuss the purpose of the $ecurities and 31change Commission and its influence on setting generally accepted accounting principles! Ans(er The overall purpose of the $3C is to assist in providing investors (ith reliable information upon (hich to ma+e investment decisions! As a result of its authority for specifying financial reporting reEuirements8 the $3C has considerable influence in setting generally accepted accounting principles! Although the $3C has ta+en the position that accounting principles should be set by the profession %#A$")8 the $3C;s opinion is generally considered in any major change in =AAP proposed by the #A$"!
Terms $ecurities and 31change Commission influence on setting generally accepted accounting principles 'iff )oderate Objective LO 2-2 AAC$" *eflective thin+ing s+ills

0) The difference bet(een the $ecurities Act of 1C22 and the $ecurities Act of 1C2: is that only the 1C2: act reEuires audited financial statements! A) True ") #alse Ans(er "
Terms $ecurities Acts of 1C22 and 1C2: 'iff 3asy Objective LO 2-2 AAC$" *eflective thin+ing s+ills

>) #orm 17-G must be filed (ith the $3C (henever a public company e1periences a significant event! A) True ") #alse Ans(er "
Terms #orm 17-G- $3C 'iff )oderate Objective LO 2-2 AAC$" *eflective thin+ing s+ills

@) The overall purpose of the $ecurities and 31change Commission is to assist in providing investors (ith reliable information upon (hich to ma+e investment decisions! A) True ") #alse Ans(er A
Terms $ecurities and 31change Commission 'iff )oderate Objective LO 2-2 AAC$" *eflective thin+ing s+ills

Learning Objective 2-:


1) $tatements on $tandards for Accounting and *evie( $ervices are issued by the A) Accounting and *evie( $ervices Committee! ") Professional 3thics 31ecutive Committee! C) $ecurities and 31change Commission! @ Copyright 6 2712 Pearson 3ducation8 &nc! publishing as Prentice 9all

') #inancial Accounting $tandards "oard! Ans(er A


Terms $tatements on $tandards for Accounting and *evie( $ervices %$$A*$) 'iff )oderate Objective LO 2-: AAC$" *eflective thin+ing s+ills

2) .hich of the follo(ing is not an essential component of Euality control/ A) Policies and procedures to ensure that firm personnel are actively engaged in mar+eting strategies! ") Policies and procedures to ensure that the (or+ performed by firm personnel meet applicable professional standards! C) Policies to ensure that personnel maintain their independence in fact and in appearance! ') Policies that ensure that monitoring activities are effectively applied! Ans(er A
Terms Component of Euality control 'iff )oderate Objective LO 2-: AAC$" *eflective thin+ing s+ills

2) .hat are the major functions of the A&CPA/ Ans(er )ajor functions of the A&CPA include < 3stablishing standards and rules that practicing CPAs must follo(! These standards consist of auditing standards for auditors of private companies8 compilation and revie( standards8 other attestation standards8 and the Code of Professional Conduct! < *esearch and publication on many different subjects related to accounting8 auditing8 attestation and assurance services8 management consulting services8 and ta1es! A&CPA publications include the Journal of Accountancy8 industry audit guides8 periodic updates of the Codification of Statements on Auditing Standards8 and the Code of Professional Conduct! < Promoting the accounting profession through organi,ing national advertising campaigns! < 'eveloping specialist certifications to help mar+et and ensure the Euality of services in speciali,ed practice areas! < .riting and grading the uniform CPA e1amination! < Providing continuing education seminars for its members!
Terms )ajor functions of A&CPA 'iff )oderate Objective LO 2-: AAC$" *eflective thin+ing s+ills

B Copyright 6 2712 Pearson 3ducation8 &nc! publishing as Prentice 9all

:) )embership in the A&CPA is restricted to CPAs (ho are currently practicing as independent auditors! A) True ") #alse Ans(er "
Terms )embership in A&CPA 'iff 3asy Objective LO 2-: AAC$" *eflective thin+ing s+ills

0) )embership in the A&CPA is mandatory for all licensed practicing CPAs! A) True ") #alse Ans(er "
Terms )embership in A&CPA 'iff 3asy Objective LO 2-: AAC$" *eflective thin+ing s+ills

>) Any public accounting firm can be a member of the A&CPA if the firm meets the membership reEuirements! A) True ") #alse Ans(er A
Terms )embership in A&CPA 'iff 3asy Objective LO 2-: AAC$" *eflective thin+ing s+ills

C Copyright 6 2712 Pearson 3ducation8 &nc! publishing as Prentice 9all

Learning Objective 2-0


1) .hich of the follo(ing are audit standards used in professional practice by audit firms/ A) &nternational PCAO" Auditing $tandards ?!$! =enerally Accepted $tandards on Auditing Auditing $tandards Fes 4o 4o ") &nternational $tandards on Auditing Fes C) &nternational $tandards on Auditing Fes ') &nternational $tandards on Auditing 4o Ans(er C
Terms $tandards used in professional practice 'iff 3asy Objective LO 2-0 AAC$" *eflective thin+ing s+ills

?!$! =enerally Accepted Auditing $tandards Fes

PCAO" Auditing $tandards 4o PCAO" Auditing $tandards Fes PCAO" Auditing $tandards Fes

?!$! =enerally Accepted Auditing $tandards Fes

?!$! =enerally Accepted Auditing $tandards Fes

2) #or privately held companies (ho of the follo(ing is responsible for establishing auditing standards/ A) $ecurities and 31change Commission ") Public Company Accounting Oversight "oard C) Auditing $tandards "oard ') 4ational Association of Accounting Ans(er C
Terms 3stablishing auditing standards for privately held companies 'iff 3asy Objective LO 2-0 AAC$" *eflective thin+ing s+ills

17 Copyright 6 2712 Pearson 3ducation8 &nc! publishing as Prentice 9all

2) $tandards issued by the Public Company Accounting Oversight "oard must be follo(ed by CPAs (ho audit A) both private and public companies! ") public companies only! C) private companies8 public companies8 and nonprofit entities! ') private companies only! Ans(er "
Terms Public Company Accounting Oversight "oard $tandards 'iff )oderate Objective LO 2-0 AAC$" *eflective thin+ing s+ills Topic $O5

:) The Audit $tandards "oard of the A&CPA has underta+en the Clarity I Convergence Project to ma+e =AA$ easier to read understand and apply- as (ell as converge =AA$ (ith the &nternational $tandards on Auditing %&$As)! .hich of the follo(ing statements concerning the Clarity I Convergence Project is%are) true/ &! The J=eneralJ standards of =AA$ (ill be termed J*esponsibilitiesJ! &&! The J#ield(or+J standards (ill be termed JPerformanceJ! &&&! The J*eportingJ standards (ill be termed JCommunicationsJ! A) & and && ") & and &&& C) && and &&& ') &8 && and &&& Ans(er '
Terms Clarity and Convergence Project 'iff )oderate Objective LO 2-0 AAC$" *eflective thin+ing s+ills

0) &f an auditor of a public company cannot find guidance issued by the PCAO" on a particular audit matter8 the auditor should generally see+ guidance from (hich of the follo(ing sources/ A) $tatements on Auditing $tandards ") $tatements on $tandards for Accounting and *evie( $ervices C) *egulations issued by the $ecurities and 31change Commission ') The A&CPA Code of Professional Conduct Ans(er A
Terms =uidance issued by PCAO" 'iff Challenging Objective LO 2-0 AAC$" *eflective thin+ing s+ills Topic $O5

11 Copyright 6 2712 Pearson 3ducation8 &nc! publishing as Prentice 9all

>) The Auditing $tandards "oard of the A&CPA has underta+en a Clarity and Convergence Project (hose aim is to ma+e =AA$ easier to read8 apply and converge (ith &nternational Audit $tandards! As a result the =AA$ (ill become JAuditing PrinciplesJ! The principles (ill be consistent (ith the three categories of =AA$! Accordingly8 (hich of the follo(ing is true/ & The =eneral $tandards (ill be termed *esponsibilities Principles! &&! The #ield(or+ $tandards (ill be termed Performance Principles! &&&! The *eporting $tandards (ill be termed Communication Principles! A) & and && ") & and &&& C) && and &&& ') &8 && and &&& Ans(er A
Terms Clarity and Convergence Project 'iff Challenging Objective LO 2-0 AAC$" *eflective thin+ing s+ills

@) Auditors of public companies should8 in the absence of guidance issued by the PCAO"8 follo( auditing standards issued by the $3C! A) True ") #alse Ans(er "
Terms Auditors of pubic companies- PCAO" and $3C 'iff 3asy Objective LO 2-0 AAC$" *eflective thin+ing s+ills Topic $O5

B) &nternational $tandards on Auditing are issued by the &nternational Auditing Practices Committee! A) True ") #alse Ans(er A
Terms &nternational $tandards on Auditing- &nternational Auditing Practices Committee 'iff )oderate Objective LO 2-0 AAC$" *eflective thin+ing s+ills

12 Copyright 6 2712 Pearson 3ducation8 &nc! publishing as Prentice 9all

Learning Objective 2->


1) .hich one of the follo(ing is not one of the three =eneral $tandards/ A) Proper planning and supervision! ") &ndependence of mental attitude! C) AdeEuate training and proficiency! ') 'ue professional care! Ans(er A
Terms =eneral standards 'iff 3asy Objective LO 2-> AAC$" *eflective thin+ing s+ills

2) .hich one of the follo(ing is not a #ield .or+ $tandard/ A) AdeEuate planning and supervision! ") 'ue professional care! C) ?nderstand the entity and its environment including internal control! ') $ufficient appropriate audit evidence! Ans(er "
Terms #ield .or+ $tandards 'iff 3asy Objective LO 2-> AAC$" *eflective thin+ing s+ills

2) The generally accepted auditing standard that reEuires JAdeEuate technical training and proficiencyJ is normally interpreted as reEuiring the auditor to have A) formal education in auditing and accounting! ") (or+ed for an entity similar to the entity being audited! C) independence in mental attitude! ') a graduate degree in a business field! Ans(er A
Terms =eneral accepted auditing standards- AdeEuate technical training and proficiency 'iff 3asy Objective LO 2-> AAC$" *eflective thin+ing s+ills

:) .hich of the follo(ing statements most accurately captures the intent of the standards of field (or+/ A) #ield (or+ standards are primarily concerned (ith personal attributes necessary during the conduct of the audit! ") #ield (or+ standards provide e1tensive guidance regarding the conduct of an audit! C) #ield (or+ standards are primarily directed at the auditor;s planning8 understanding of internal control8 and evidence accumulation! ') #ield (or+ standards are primarily concerned (ith the conduct of substantive testing as opposed to testing of internal controls! Ans(er C
Terms $tandards of field (or+ 'iff 3asy Objective LO 2-> AAC$" *eflective thin+ing s+ills

12 Copyright 6 2712 Pearson 3ducation8 &nc! publishing as Prentice 9all

0) The $tatements on Auditing $tandards issued by the Auditing $tandards "oard A) interpret generally accepted auditing standards! ") are the eEuivalent of la(s for audit practitioners! C) must be follo(ed in all situations! ') are optional guidelines (hich an auditor may choose to follo( or not follo( (hen conducting an audit! Ans(er A
Terms $tatements on Auditing $tandards 'iff )oderate Objective LO 2-> AAC$" *eflective thin+ing s+ills

>) An auditor need not abide by a particular auditing standard if the auditor believes that A) the issue in Euestion is immaterial in amount! ") more e1pertise is needed to fulfill the reEuirement! C) the reEuirement of the standard has not been addressed by the PCAO"! ') any of the above three are correct! Ans(er A
Terms Auditor need not abide by a particular auditing standard 'iff )oderate Objective LO 2-> AAC$" *eflective thin+ing s+ills

@) ?nder =AA$8 (hich of the follo(ing reflects a concept from the general group/ A) The confirmation of accounts receivable! ") Completing an internal control Euestionnaire! C) The initial planning of the audit (ith the audit partner8 manager8 senior8 staff and client personnel! ') The assignment of audit personnel to an engagement (here they have no financial interest! Ans(er '
Terms =AA$8 general standards 'iff )oderate Objective LO 2-> AAC$" *eflective thin+ing s+ills

B) The third general standard states that due care is to be e1ercised in the performance of an audit! This standard is generally interpreted to reEuire A) objective revie( of the adeEuacy of the technical training of firm personnel! ") thorough revie( of the e1isting internal control structure! C) critical revie( of (or+ done at every level of supervision! ') periodic revie( of a CPA firm;s Euality control procedures! Ans(er C
Terms Third general standard- 'ue care 'iff )oderate Objective LO 2-> AAC$" *eflective thin+ing s+ills

1: Copyright 6 2712 Pearson 3ducation8 &nc! publishing as Prentice 9all

C) .hich of the follo(ing statements best describes the primary purpose of $tatements on Auditing $tandards/ A) They are guides intended to set forth auditing procedures that are applicable to a variety of situations! ") They are procedural outlines that are intended to narro( the areas of inconsistency and divergence of auditor opinion! C) They are authoritative statements8 enforced through the Code of Professional Conduct8 and are intended to limit the degree of auditor judgment! ') They are interpretations that are intended to clarify the meaning of Jgenerally accepted auditing standards!J Ans(er '
Terms Purpose of $tatements on Auditing $tandards 'iff )oderate Objective LO 2-> AAC$" *eflective thin+ing s+ills

17) 9ansen Corporation;s stoc+ is listed on a national stoc+ e1change and registered (ith the $ecurities and 31change Commission! 9ansen;s management hires a CPA to perform an independent audit of 9ansen;s financial statements! The primary objective of this audit is to provide assurance to the A) investors in 9ansen Corporation;s stoc+! ") stoc+ e1change! C) $ecurities and 31change Commission! ') management of 9ansen Corporation! Ans(er A
Terms Primary objective of audit to provide assurance 'iff )oderate Objective LO 2-> AAC$" *eflective thin+ing s+ills

11) .hich of the follo(ing statements about =enerally Accepted Audit $tandards are true/ &! They serve as broad guidelines to auditors for conducting an audit engagement! &&! They are sufficiently specific to provide any meaningful guide to practitioners! &&&! They represent a frame(or+ upon (hich the A&CPA can provide interpretations!! A) & and && ") & and &&& C) && and &&& ') &8 && and &&& Ans(er "
Terms =enerally Accepted Audit $tandards 'iff Challenging Objective LO 2-> AAC$" *eflective thin+ing s+ills

10 Copyright 6 2712 Pearson 3ducation8 &nc! publishing as Prentice 9all

12) =enerally Accepted Auditing $tandards %=AA$) and $tatements on Auditing $tandards %$A$) should be loo+ed upon by practitioners as A) ideals to (or+ to(ards8 but (hich are not achievable! ") ma1imum standards that denote e1cellent (or+! C) minimum standards of performance that must be achieved on each audit engagement! ') benchmar+s to be used on all audits8 revie(s8 and compilations! Ans(er C
Terms =enerally Accepted Auditing $tandards %=AA$) and $tatements on Auditing $tandards %$A$) 'iff Challenging Objective LO 2-> AAC$" *eflective thin+ing s+ills

12) $tatements on Auditing $tandards issued by the A&CPA;s Auditing $tandards "oard are A) part of the generally accepted auditing standards under the A&CPA Code of Professional Conduct! ") interpretations of generally accepted auditing standards and departures from such statements must be justified! C) interpretations of generally accepted auditing standards and such standards must be follo(ed in every engagement! ') generally accepted auditing procedures that are not covered by the A&CPA Code of Professional Conduct! Ans(er "
Terms $tatements on Auditing $tandards 'iff Challenging Objective LO 2-> AAC$" *eflective thin+ing s+ills

1:) List the ten generally accepted auditing standards and divide them into their proper category! Ans(er =eneral $tandards < AdeEuate technical training and proficiency! < &ndependence in mental attitude! < 'ue professional care! $tandards of #ield(or+ < AdeEuate planning and supervision! < ?nderstand the entity and its environment including internal control! < $ufficient appropriate audit evidence! $tandards of *eporting < .hether statements (ere prepared in accordance (ith =AAP! < Circumstances (hen =AAP (as not consistently follo(ed! < AdeEuacy of informative disclosures! < 31pression of opinion on financial statements as a (hole!
Terms =enerally Accepted Auditing $tandards 'iff )oderate Objective LO 2-> AAC$" *eflective thin+ing s+ills

1> Copyright 6 2712 Pearson 3ducation8 &nc! publishing as Prentice 9all

10) 'istinguish bet(een generally accepted auditing standards %=AA$) and generally accepted accounting principles %=AAP)! .hat professional organi,ation establishes =AA$/ .hat professional organi,ation establishes =AAP/ Ans(er =enerally accepted auditing standards are general guidelines to help auditors meet their professional responsibilities in the audit of historical financial statements! The general standards stress the important personal Eualities that the auditor should possess! The standards of field (or+ concern evidence accumulation and other activities during the actual conduct of the audit! The reporting standards reEuire the auditor to prepare a report on the financial statements ta+en as a (hole8 stating (hether the statements are prepared in accordance (ith =enerally Accepted Accounting Principles %=AAP)! They are considered to be the minimum standards of performance for auditors to follo( and are established by the Auditing $tandards "oard of the American &nstitute of Certified Public Accountants for private companies and by the Public Company Accounting Oversight "oard for public companies! =enerally accepted accounting principles are the guidelines (hich an entity;s management normally follo(s (hen preparing historical financial statements! =AAP is established by the #inancial Accounting $tandards "oard!
Terms =enerally Accepted Auditing $tandards 'iff 3asy Objective LO 2-0 and LO 2-> AAC$" *eflective thin+ing s+ills

1>) $tatements on Auditing $tandards are considered authoritative literature! A) True ") #alse Ans(er A
Terms $tatements on Auditing $tandards 'iff 3asy Objective LO 2-> AAC$" *eflective thin+ing s+ills

1@) $tatements on Auditing $tandards %$A$s) are issued by the Public Company Accounting Oversight "oard! A) True ") #alse Ans(er "
Terms $tatements on Auditing $tandards %$A$)- Public Company Accounting Oversight "oard 'iff 3asy Objective LO 2-> AAC$" *eflective thin+ing s+ills

1B) $tatements on Auditing $tandards %$A$s) are considered to be interpretations of the ten generally accepted auditing standards! A) True ") #alse Ans(er A
Terms $tatements on Auditing $tandards %$A$)- =enerally accepted auditing standards 'iff )oderate Objective LO 2-> AAC$" *eflective thin+ing s+ills

1@ Copyright 6 2712 Pearson 3ducation8 &nc! publishing as Prentice 9all

Learning Objective 2-@


1) .hich of the follo(ing is not true for audit firms (ho audit publically traded companies/ A) They must undergo a PCAO" inspection on an annual basis if they audit more than 177 issuers ") They must have an A&CPA peer revie( on all audit clients! C) They must have an A&CPA peer revie( on all non-publically traded clients! ') The audit firm can choose (hich CPA firm they (ish to conduct their A&CPA peer revie(! Ans(er "
Terms Audit firms (ho audit publically traded companies 'iff )oderate Objective LO 2-@ AAC$" *eflective thin+ing s+ills

2) A basic objective of a CPA firm is to provide professional services to conform to professional standards! *easonable assurance of achieving this basic objective is provided through A) continuing professional education! ") compliance (ith generally accepted reporting standards! C) a system of Euality control! ') a system of peer revie(! Ans(er C
Terms Professional standards 'iff )oderate Objective LO 2-@ AAC$" *eflective thin+ing s+ills

2) .ithin the conte1t of Euality control8 the primary purpose of continuing professional education and training activities is to enable a CPA firm to provide its personnel (ith A) technical training that assures proficiency as a valuation e1pert! ") professional education that is reEuired in order to perform (ith due professional care! C) +no(ledge reEuired to fulfill assigned responsibilities! ') +no(ledge reEuired to perform a peer revie(! Ans(er C
Terms Huality control- Continuing professional education and training activities 'iff )oderate Objective LO 2-@ AAC$" *eflective thin+ing s+ills

:) The purpose of establishing Euality control policies and procedures to accept or continue a client relationship is to A) provide reasonable assurance that personnel are adeEuately trained to fulfill their responsibilities! ") monitor the ris+ factors concerning misstatements that arise from the misappropriation of assets! C) document objective criteria for the CPA firm;s peer revie(! ') minimi,e the li+elihood of associating (ith client;s (hose management may lac+ integrity! Ans(er '
Terms Purpose of Euality control policies and procedures to accept or continue client relationship 'iff )oderate Objective LO 2-@ AAC$" *eflective thin+ing s+ills

1B Copyright 6 2712 Pearson 3ducation8 &nc! publishing as Prentice 9all

0) .hich of the follo(ing is an element of the CPA;s Euality control system that should be considered in establishing it;s Euality control policies and procedures/ A) Considering audit ris+ and materiality! ") ?sing statistical sampling techniEues! C) Assigning personnel to engagements! ') Complying (ith la(s and regulations! Ans(er C
Terms Huality control policies and procedures 'iff )oderate Objective LO 2-@ AAC$" *eflective thin+ing s+ills

>) .hich one of the follo(ing is not true regarding the American &nstitute of Certified Public Accountants peer revie( reEuirement/ A) A CPA firm must develop and adhere to Euality control standards! ") Peer revie(s are mandatory! C) A CPA firm (ill lose A&CPA eligibility if a peer revie( is not performed! ') #irms reEuired to be registered (ith and inspected by the PCAO" are e1empt! Ans(er '
Terms A&CPA peer revie( 'iff Challenging Objective LO 2-@ AAC$" *eflective thin+ing s+ills

@) 'iscuss the relationship bet(een Euality control and generally accepted auditing standards! Ans(er #or a CPA firm8 Euality control encompasses the methods used to ma+e sure that the firm meets its professional responsibilities to clients! Huality control is closely related to8 but distinct from8 =AA$! The standards recogni,e that a Euality control system can provide only reasonable assurance8 not a guarantee that auditing standards are follo(ed! A CPA firm must ma+e sure that =AA$ are follo(ed on every audit! Huality controls are the procedures used by the entire CPA firm that help it meet reEuirements demanded by =AA$ on every engagement in a consistent manner!
Terms *elationship bet(een Euality control and generally accepted auditing standards 'iff 3asy Objective LO 2-@ AAC$" *eflective thin+ing s+ills

1C Copyright 6 2712 Pearson 3ducation8 &nc! publishing as Prentice 9all

B) List and describe the si1 elements of Euality control! .ho establishes the standards for Euality control/ Ans(er < Leadership responsibilities for quality within the firm - #irm should promote that Euality is essential in performing engagements and should establish policies and procedures that support that culture! < Rele ant ethical requirements - Personnel on engagement should maintain independence in fact and in appearance8 perform all professional responsibilities (ith integrity and maintain objectivity in performing their professional responsibilities! < !uman Resources - Policies and procedures should be established to provide the firm (ith reasonable assurance that all ne( personnel are Eualified to perform their (or+8 (or+ is assigned to personnel (ho have adeEuate training8 and personnel should participate in continuing professional education! < Acceptance and continuation of clients and engagements - Policies and procedures should be established for deciding (hether to accept or continue a client relationship! These policies should minimi,e the ris+ of associating (ith a client (hose management lac+s integrity! < "ngagement performance - Policies and procedures should e1ist to ensure that engagement personnel perform (or+ that meets applicable professional standards and the firm;s standards of Euality! < #onitoring - Policies and procedures should e1ist to ensure that the other four Euality control elements are being effectively applied! Huality control standards are established by the Auditing $tandards "oard for auditors of private companies and by the Public Company Accounting Oversight "oard for auditors of public companies!
Terms 3lements of Euality controls 'iff )oderate Objective LO 2-@ AAC$" *eflective thin+ing s+ills

27 Copyright 6 2712 Pearson 3ducation8 &nc! publishing as Prentice 9all

C) Listed belo( are policies or procedures that the Crystal Cove audit firm has in place! #or each identified policy or procedure state if it is a =enerally Accepted Audit $tandard %=AA$) or a Huality Control $tandard! $tandards Category a! =AAP $tandards Audit firm Policy or Procedure b! Huality Control $tandards 1! &ndependence in mental attitude! 2! A client evaluation form! 2! All personnel participate in continuing professional education! :! Conducting the audit (ith professional s+epticism! 0! Ans(ering an independence Euestionnaire! >! ?nderstand the client industry! @! Audit staff (or+papers are revie(ed by audit seniors8 then managers! B! Audit staff are supervised! Ans(er 1! a 2! b 2! b :! a 0! b >! a @! b B! a
Terms =enerally Accepted Audit $tandards %=AA$) and Huality Control $tandards 'iff )oderate Objective LO 2-> and LO 2-@ AAC$" *eflective thin+ing s+ills

21 Copyright 6 2712 Pearson 3ducation8 &nc! publishing as Prentice 9all

17) The follo(ing are definitions of terms that are listed on the right! )atch the definition (ith its associated term! 3ach term can be used once8 more than once or not at all! Audit Term 'efinition 1! An organi,ational structure (here professional services are a! A&CPA b! PCAO" provided by one or more shareholders! c! $ecurities 31change Commision 2! The grantor of the right to practice public accounting! d! #orm 17-+ 2! A report filed to indicate a significant event! e! &AA$" :! $ets professional standards and rules for auditors! f! #orm $-1 0! Oversees accounting firms (ho audit public companies! >! An organi,ational structure (here the o(ners are ta1ed li+e g! 'ue professional care a partnership and have limited personal liability! h! Limited Liability Partnership @! A report that is filed (hen a company (ishes to issue ne( i! Professional Corporation securities! j! Limited Liability Company B! The methods used to ensure the firm meets its professional +! Peer revie( responsibilities to clients and others! l! 1C22 $ecurities Act C! Assists in providing investors (ith reliable information! m! 1C2: $ecurities Act 17! *eEuires annual inspections of accounting firms auditing n! #orm B-+ > 177 issuers! o! $tate *egulation 11! Practice monitoring by a CPA firm for another CPA firm! p! Code of Professional Conduct 12! #ulfilling duties diligently and carefully! E! Huality Control $tandards 12! *eEuires a registration statement! r! =AA$ $tandards Ans(er 1! i 2! o 2! n :! a 0! b >! j @! f B! E C! c 17! b 11! + 12! g 12! l
Terms A&CPA- PCAO"- $ecurities 31change Commission- #orm $-1- #orm B-G- 'ue professional care- Professional Corporation- Limited Liability Company- Peer revie(- 1C22 $ecurities Act- $tate *egulation- Huality Control $tandards 'iff )oderate Objective LO 2-18 LO 2-28 LO 2-28 LO 2->8 and LO 2-@ AAC$" *eflective thin+ing s+ills

22 Copyright 6 2712 Pearson 3ducation8 &nc! publishing as Prentice 9all

11) Huality controls are established for the entire CPA firm (hereas =AA$ are applicable to the individual engagement! A) True ") #alse Ans(er A
Terms Huality controls and =AA$ 'iff )oderate Objective LO 2-@ AAC$" *eflective thin+ing s+ills

22 Copyright 6 2712 Pearson 3ducation8 &nc! publishing as Prentice 9all