Audit 6

Question 1

Who can revoke or suspend your CPA license?

Answer 1

The state board and ONLY the state board

Question 2

AICPA code of professional conduct

Answer 2

• applicable to all AICPA members
• distinguishing mark of the profession
• high degree of responsibility towards the public

Question 3

Covered member

Answer 3

= audit team and office/boss “chain of command”

Question 4

Immediate family

Answer 4

= spouse and dependents

Question 5

Close relatives

Answer 5

= parents, siblings, and adult kids

Question 6

Instances when independence is NOT impaired

Answer 6

1. fully collateralized car loans
2. cash advance or credit card balances not exceeding $10,000
3. bank account that is fully insured
4. passbook loan

Question 7

Independence impaired by FINANCIAL interests

Answer 7

1. direct material financial interest
2. material indirect financial interest
3. covered member or immediate family has a loan to or from client
4. acceptance of a gift > token gift
5. close relative has financial interest that the covered member knows & material or significant influence

Question 8

Independence impaired by EMPLOYMENT relationships

Answer 8

1. former client employee is on the engagement team (if covers period of employment)
2. immediate family in key position
3. partner or professional leaves firm and is employed by client in a key position
4. audit member seeking or discussing employment with client

Question 9

Independence impaired by BUSINESS relationships

Answer 9

1. make management decisions for client
2. if client is over 1 year overdue on payment
3. actual or threatened litigation MAY impair

** acting as an honorary trustee or being in the same trade association / country club does not impair indpendence

Question 10

Professional competence

Answer 10

knowledge or technical subject matter of ability to obtain knowledge

Question 11

What are the exceptions to the rule that you cannot disclose confidential client info?

Answer 11

1. subpoena
2. quality/ peer review
3. inquiry by state CPA society
4. your legal defense team needs it cause they’re suing you

Question 12

When are contingent fees permitted?

Answer 12

1. fixed by courts
2. tax matters with regard to a court proceeding
3. compilations to be used by third party if disclose lack of independence

Question 13

What is the most highly tested in the “Acts Discredible Rule”?

Answer 13

Failure to return records to a client after they have demanded them

Question 14

What type of advertising and solicitation is not allowed?

Answer 14

Any that is False, Misleading or Deceptive

Question 15

Adverse interest threat

Answer 15

objectivity impaired- opposing interests

Question 16

Advocacy threat

Answer 16

objectivity and independence compromised- promote client’s interests/position

Question 17

Familiarity threat

Answer 17

sympathetic or too accepting

Question 18

Management participation threat

Answer 18

acting as management

Question 19

Self-interest threat

Answer 19

get benefits

Question 20

Self-review threat

Answer 20

evaluating your own work

Question 21

Undue influence threat

Answer 21

subordinate judgment

Question 22

What are the PCAOB’s duties?

Answer 22

1. register public accounting firms
2. establish rules for audits of issuers
3. conduct inspections, investigations and disciplinary proceedings

Question 23

PCAOB inspection rules for auditors of issuers

Answer 23

Once a year if > 100 issuers

Every 3 years if less than or = 100

Question 24

Audit partner rotation rule (SOX)

Answer 24

lead and concurring partner-must rotate every 5 years for 5 years (5 on- 5 off)
other audit partners- 7 years (2 year time-out)

Question 25

How long is the "cool off" period?

Answer 25

ONE year

Question 26

When is pre-approval of non-audit services not required?

Answer 26

1. services don't exceed 5% of total revenues from client AND 2. promptly brought to attention of the audit committee AND 3. approved before completion of audit

Question 27

With regard to tax services, what can an audit firm not do?

Answer 27

1. tax services involving certain confidential or aggressive tax transactions 2. tax returns for officers or immediate family members (of client)

Question 28

What are the three broad categories of misconduct?

Answer 28

1. while performing accounting services 2. outside the scope of accounting services 3. criminal conviction

Question 29

What 5 penalties can the state accountancy board impose?

Answer 29

1. suspension or revocation of license 2. monetary fine 3. reprimand or censure 4. probation 5. CPE requirement

Question 30

Audit documentation should...

Answer 30

- indicate that accounting records = financial statement compliance with standards - be prepared enough for an experienced auditor with no previous connection to understand

Question 31

How long must work papers be kept?

Answer 31

5 years or SAS | 7 years for PCAOB

Question 32

How long does the auditor have to complete the workpapers?

Answer 32

``` SAS = 60 days after report release PCAOB = 45 days after report release ```

Question 33

What does the permanent file include?

Answer 33

audit documentation that has a continuing interest from year to year Examples: contracts, pension plans, leases, stock options, bylaws, articles of incorp., minutes, bond indentures, internal info

Question 34

What does the current file include?

Answer 34

all audit documentation applicable to the year under audit Examples: audit plan, financial statements, working trial balance, letters of confirm, letters of rep, analyses, worksheets, abstracts or copies of docs, summaries of significant audit findings/issues, records of tests of controls, etc.

Question 35

Transaction tagging

Answer 35

electronically mark specific transactions and follow them through the client's system

Question 36

Embedded Audit modules

Answer 36

sections of the application programs code that collect transaction data for the auditor -usually built into the application program

Question 37

Test data

Answer 37

process a set of test data using the client's system, but off-line and under the auditor's control - you already know the result that you should get - test things such as invalid #'s, excess pay rate, excess hours

Question 38

Integrated test facility

Answer 38

test data is commingled with live data - don't tell the client - on-line

Question 39

Parallel simulation

Answer 39

Reperformance test | -re-process some of client's data using own software and compare results

Question 40

What are the government auditing standards?

Answer 40

GAGAS Generally accepted government auditing standards **These are also called the yellow book standards

Question 41

Audit risk of noncompliance

Answer 41

= RMM x DR | risk of material noncompliance * detection risk

Question 42

Risk of material noncompliance

Answer 42

= Inherent risk x Control risk

Question 43

Quality control and assurance necessary for performing GAGAS audits

Answer 43

1. maintain a system of quality control | 2. have an external peer review every 3 years

Question 44

Quality control elements

Answer 44

``` "HELP ME" Human resources Engagement/ client acceptance and continuance Leadership responsibilities Performance of the engagement Monitoring Ethical requirements ```

Question 45

Does failed quality control = failed GAAS

Answer 45

NOPE