ACCT 444 Week 1 Quiz and Homework
ACCT 444 Week 1 Quiz
- (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
- (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
- (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
- (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)
accounting and bookkeeping service.
- (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.
- (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.
- (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.
- (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)
Relative supported by the CPA
Sibling living in the same city as the CPA
- (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.
- (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.
- (TCO 3) The Sarbanes-Oxley Act applies to which of the following companies? (Points : 3)
Privately held companies
All public companies and privately held companies with assets greater than $500 million
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.
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
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.
Question 9. 9. (TCO 1) Which of the following terms identifies a requirement for audit evidence? (Points : 3)
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
- (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
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.
- In what ways are the services provided by Consumers Union similar to assurance services provided by CPA firms?
- Compare the concept of information risk introduced in this chapter with the information risk problem faced by a buyer of an automobile.
- 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.
- Compare the three ways users of financial statements can reduce information risk with those available to a buyer of an automobile.
- 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.
- 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.
- 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.
- Each audit engagement must include a concurring partner review of critical audit decisions.
- 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.
- 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.
- 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.
- 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.
- 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.
- The firm’s mission statement indicates its commitment to quality, and this commitment is emphasized in all staff training programs
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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
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:
- 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.
- 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.
- 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.
- 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).
- 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.
- 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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