Scenarios
Principles & Standards
The Report
Grab Bag
PotPurri
100
Another CPA firm audits a wholly owned subsidiary of your client (5% of total assets) and you decide to accept full responsibility. No other issues/problems
unqualified, no additional paragraph
100
Which of the following situations would most likely be in conflict with the reporting principle? a) Auditors did not use the level of due prfessional care expected of prudent auditors b) Auditors obtain expertise in their client's industry only after starting the audit examination c) Auditors issued an adverse opinion (non-public client) because the client refused to provide sufficient, competent evidence for company's FB estimate of marketable securities d) Auditors fail to document their assessed levels of planning/performance e) Intro, scope, and opinion paragraphs are combined into a single, grammatically incorrect paragraph
C
100
In which of the following circumstances would auditors most likely express an adverse opinion on the financial statements? a) The CEO refuses to provide the auditors access to minutes of the BOD meetings b) Tests of controls show that while the entity's internal control are effective, they are not to be relied upon c) The financial statements are in conformity with GAAP regarding the capitalization of leases. Leases represent a very material portion of total assets d) Information comes to the auditors' attention that raises substantial doubt about the entity's ability to continue as going concern e) Management refuses to disclose information on a very material related party transaction
e) Management refuses to disclose information on a very material related party transaction
100
Whitman & Co. CPAs audits Hill Corp, an electric power company HQ'd in Dallas. Whitman has offices in each major city in TX. Bill is the engagement partner in the Dallas office. Which of the following would be considered a covered member under Rule 101? a) Jason, a college roommate of a member of the attest engagement team. Jason also works at Whitman but out of the Houston office b) Adam, a tax partner, provided 2 hours of tax service to Hill during the year of the audit and works out of hte Waco office c) Ben is the managing partner (the boss) of Whitman's Dallas office. However, Ben is not a member of the engagement team D) Julie, a jr. manager in Whitman & Co., works in the San Antonio office. Julie is not on the engagement but may be assigned next season e) Bob, Bill's son, was offered but rejected the controller's position at Hill's corporate HQ
c) Ben is the managing partner (the boss) of Whitman's Dallas office. However, Ben is not a member of the engagement team
100
The auditor will obtain an attorney's letter as part of their assessment of the risk of material misstatement as well as to determine the completeness of the required contingency footnote disclosure arising from litigation claims. The attorney's letter will provide a) A list comparing litigation cases settled in the current year with litigation cases settled in the prior year b) An evaluation of the likelihood of an unfavorable outcome of all asserted and unasserted claims c) An explanation of the litigation cases that the client lost prior to the end of the fiscal year d) The attorney's evaluation of auditor independence e) a & b
b) An evaluation of the likelihood of an unfavorable outcome of all asserted and unasserted claims
200
WILD CARD: What is the name of the print Dorothy Gale wears in the movie, The Wizard of Oz?
Gingham
200
Which of the following is not a requirement of the performance principle? a) auditors are required to prepare a written audit planning during the planning stages of first-year audits as well as for continuing audits b) audit teams consider materiality in planning the audit, performing the audit, and evaluating the effect of material misstatements on teh entity's financial statements c) in assessing the risk of material misstatements, the audit team considers the effectiveness of the entity's internal controls in correcting misstatements d) auditors are required to consider only the efficiency of evidence in evaluating whether the evidence they've gathered is appropriate
D) auditors are required to consider only the efficiency of evidence in evaluating whether the evidence they've gathered is appropriate
200
In which of the following circumstances may auditors issue a standard unqualified report with modifications on a non-public entity's financial statements? a) The auditors wish to emphasize that the client refused to correct the financial statements, which were not in accordance with GAAP b) The financials are affected by a departure from a GAAP, which could be justified under Rule 203 of the AICPA Code of Professional Conduct c) The client changed accounting principles, which had an immaterial effect on the company's financial position, results of operations, and cash flows d) The auditors have not been able to audit a substantial portion of the balance sheet because of a circumstance-imposed scope limitation
b) The financials are affected by a departure from a GAAP, which could be justified under Rule 203 of the AICPA Code of Professional Conduct
200
Long and Short, CPAs were auditing Island Corp for the year ended Dec 31, 2012. On March 15, 2013, a major customer of Island Corporation declared bankruptcy. The bakruptcy was the end result of an uninsured loss caused by a major warehouse fire on November 8, 2013. Because of the bankruptcy the accounts receivable from the customer was determined to be uncollectible. The customer's balance was consider material. Fieldwork was completed on March 25, 2013. Long and Short, CPA should a) Require the client to record the loss on uncollectible accounts as a routine transaction in the FYE 2013 b) Require client to treat loss as a Type I subsequent event and adjust the 2012 statements to record the loss on uncollectable accounts c) Require the client to file a lawsuit agains the customer in hopes of collecting some of the money owed to the client d) Require the client to treat the loss as a Type II subsequent event and provide footnote disclosure in the 2012 financial statements e) Dual-date the audit report
c) Require the client to file a lawsuit agains the customer in hopes of collecting some of the money owed to the client
200
According to auditing standards, financial statements presented on a special purpose framework (SPF) should a) Be accompanied by qualified report/opinion because the SPF was followed instead of GAAP b) use the same terms used in GAAP to describe the separate financials C) Contain a note discussing, in general, the audit work performed on all specified line items such as cash, accounts receivable, and inventory d) Contain a footnote describing the agreed upon procedures e) Contain a note discussing, in general, the difference between the assets based on the SPF and the assets based on GAAP
e) Contain a note discussing, in general, the difference between the assets based on the SPF and the assets based on GAAP
300
Your client is a nonpublic company whose financials contain a material departure from GAAP because, due to unusual circumstances, the statements would otherwise be misleading. You agree with your client's position and have not requested them to adjust the financial statements/
Unqualified, explanatory paragraph
300
With respect to the materiality concept, which one of the following statements is false? a) Materiality depends on a qualitative and quantitative assessment of the impact of potential misstatements on the financial statements b) materiality could depend on the nature of a transaction as well as engagement circumstances c) materiality can only be properly determined by reference to AICPA and PCAOB guidelines d) Materiality is a matter of professional judgment
c) materiality can only be properly determined by reference to AICPA and PCAOB guidelines
300
Suppose the comparative financial statements include teh financial statements of the prior year that were audited by predecessor auditors whose report on those financial statements is not presented. If the predecessor's report was qualified, the successor should a) indicate in the intro paragraph of the auditors' report the substantive reasons for the qualification issued by predecessor auditors. No other modifications necessary b) Request the entity to reissue the predecessor's report on the entity's financial statements c) Issue an updated comparative auditors report on the entity's financials, indicating the division of responsibility in the separate paragraphs d) Express an opinion only on the current year's financial statements and make no reference to the prior years' financial statements or opinion
a) indicate in the intro paragraph of the auditors' report the substantive reasons for the qualification issued by predecessor auditors. No other modifications necessary
300
In an agreed-upon procedures engagement, an accountant must a) Include a "positive assurance" opinion explicitly in the report b) Include an "adverse assurance" opinion explicitly in the report c) Reach a clear understanding with teh client about the procedures to be performed d) Follow the attestation standards related to internal control
c) Reach a clear understanding with teh client about the procedures to be performed
300
An engagement letter should normally include which of the following matters of agreement between the auditor and the client? a) Client's positive representations that they have made all board of director minutes available to the auditors b) Methods of statistical sampling the auditor will use, particularly if it is not hte "haphazard" method c) Schedules and analyses to be prepared by the client d) The type of assurance services (e.g., audit, tax, or review) that will be provided e) c & d
e) c & d
400
Because they were appointed to the engagement after the date of the financial statements, the auditors were unable to observe the physical inventory and therefore didn't perform the required standard auditing procedures. The account(s) affected (inventory and COGS) are material adn pervasive to the financial statements. They haven't been able to satisfy themselves as to the fairness of the related account balances and classes of transactions using any other alternative procedure
Disclaimer; explanatory paragraph
400
The AICPA Independence Rules and Interpretations (Rule 101) do not allow covered members to: a) Hold an unknown immaterial indirect interest in a client b) Have loans from a bank-client that are collateralized by cash deposits held by the bank-client c) retain home mortgages with a recurring bank client if they were grandfathered in d) Be a voting trustee of a client pension or profit sharing trust fund
D) Be a voting trustee of a client pension or profit sharing trust fund
400
See typed problem (Test question 24)
E. Be a one-paragraph disclaimer stating only that you are not independent with respect to the company and therefore you cannot and do not express an opinion
400
Which of the following statements included in the advertising for a CPA firm is permissible according to Rule 502, Advertising and Other Forms of Solicitation a) "We have never had a dissatisfied client." b) Bob Bullet, CEO of A-One Corp, states in a TV commercial that his auditors are the "best gosh-darn auditors his company has ever used; we have never had a qualified opinion. They work hard for their fee and are worth every penny" c) "We have several tax partners who work closely with judge and IRS attorneys on high-profile legal issues to provide the best results for our clients" d) "We audit the five largest manufacturing companies in the state" e) "We provide the best audit coverage of any firm in the state"
d) "We audit the five largest manufacturing companies in the state"
400
When initiating communications with predecessor auditors, the successor auditors should expect a) To take responsibility for obtaining the client's consent for the predecessor to give information about prior audits b) To conduct interviews with the first year staff on the prior year engagement c) To obtain copies of some of the predecessor auditors' internal training videos d) The predecessor auditor to refuse to discuss the prior audit and refuse to reissue their prior year report
a) To take responsibility for obtaining the client's consent for the predecessor to give information about prior audits
500
Evidence gathered during teh audit examination and the inquiry of the client's management revealed substantial doubt about the client's ability to continue in existence. The auditors believe that the client has appropriately disclosed the going-concern uncertainties in its financial statements and footnotes
Unqualified; emphasis paragraph necessary
500
The completeness assertion for assets refers to whether a) The company actually owns the assets b) The company's assets were understated in the financial statements as of the fiscal year-end c) The company's assets were accounted for correctly d) The company's assets were accounted for and recorded in the proper period e) The company's assets were overstated in the financial statements as of the fiscal year-end
b) The company's assets were understated in the financial statements as of the fiscal year-end
500
Which of the following would be included in the scope paragraph of an auditors' standard report representing a qualified opinion (scope limitation) for a public company a) An indication that all appropriate disclosures have been made and included in financial statements b) An indication that the effectiveness of the company's internal controls over financial reporting was also audited in accordance with standards established by teh PCAOB c) The auditors' believe their audit and the audit of other auditors provides a reasonable basis for their opinion on teh fairness of the financial statements d) The first sentence of the scope paragraph would include the phrase "except as discussed in the following paragraph" e) An indication of the responsibility of auditors and management during the financial statement reporting process
d) The first sentence of the scope paragraph would include the phrase "except as discussed in the following paragraph"
500
The accountant's standard report for a compilation service would NOT include a statement that a) A compilation service consists primarily of inquiries of company personnel and analytical procedures applied to financial data b) The financial statement information is the representation of the owners of the business c) A compilation service has been performed in accordance with standards established by AICPA d) The financials have not been audited or reviewed and the accountant doesn't express an opinion or any other form of assurance
a) A compilation service consists primarily of inquiries of company personnel and analytical procedures applied to financial data
500
Following the audit report release date, auditors become aware of material facts existing at the report date that could've affected their report. Which of the following would be the most likely initial course of action taken by the auditor? a) Determine whether there are investors relying on or likely to rely on the financial statements adn whether they are likely to file a lawsuit b) Take this opportunity to request a substantial increase in the audit fee to compensate for auditing the newly discovered information c) Request management to issue revised financial statements taking into consideration the newly discovered information if necessary d) Determine the validity of the facts and if necessary, request the client to give public notice that the financial statements will be revised and reissued
d) Determine the validity of the facts and if necessary, request the client to give public notice that the financial statements will be revised and reissued
M
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