AC 412 Lecture Notes - Lecture 5: Accounting, Financial Statement
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2-30 | 2â30. Multiple Choice Questions | |||||||
Select the best answer for each of the following items and give reasons for your choice. | ||||||||
A | a. Which of the following organizations can revoke the right of an individual to practice as a | |||||||
CPA? | ||||||||
(1) The Public Company Accounting Oversight Board. | ||||||||
(2) The American Institute of Certifi ed Public Accountants. | ||||||||
(3) The Securities and Exchange Commission. | ||||||||
(4) The applicable state board of accountancy. | ||||||||
B | b. The AICPA over time has played an important role in standards setting. Which of the following | |||||||
standards are currently established by the AICPA? | ||||||||
(1) Accounting standards applicable to nonpublic companies. | ||||||||
(2) Auditing standards applicable to audits of nonpublic companies. | ||||||||
(3) Quality control standards applicable to audits of public companies. | ||||||||
(4) Standards for reviews of the interim fi nancial information issued by public companies. | ||||||||
C | c. Which of the following does the FASB consider a source of nonauthoritative guidance for | |||||||
use when there is no authoritative guidance available? | ||||||||
(1) The FASB Codifi cation. | ||||||||
(2) FASB Concepts Statements. | ||||||||
(3) SEC Rules. | ||||||||
(4) SEC Interpretive Releases | ||||||||
D | d. Financial statement audits performed under PCAOB requirements are designed to provide | |||||||
which type(s) of assurance with respect to the detection of material misstatements due to | ||||||||
errors or fraud? | ||||||||
Reasonable | Absolute | |||||||
1 | Yes | Yes | ||||||
2 | Yes | No | ||||||
3 | No | Yes | ||||||
4 | No | No | ||||||
E | e. A basic objective of a CPA fi rm is to provide professional services that conform with professional | |||||||
standards. Reasonable assurance of achieving this basic objective is provided through: | ||||||||
(1) Compliance with generally accepted reporting standards. | ||||||||
(2) A system of quality control. | ||||||||
(3) A system of peer review. | ||||||||
(4) Continuing professional education. | ||||||||
F | f. Which of the following is not explicitly included in a standard report for a nonpublic | |||||||
company? | ||||||||
(1) The CPAâs opinion that the fi nancial statements comply with generally accepted | ||||||||
accounting principles. | ||||||||
(2) That generally accepted auditing standards were followed during the audit. | ||||||||
(3) That internal control of the client was satisfactory. | ||||||||
(4) An identifi cation of the fi nancial statements audited. | ||||||||
G | g. The general group of the 10 PCAOB Auditing Standards requires that: | |||||||
(1) The auditors maintain an independent mental attitude. | ||||||||
(2) The audit be conducted in conformity with generally accepted accounting | ||||||||
principles. | ||||||||
(3) Assistants, if any, be properly supervised. | ||||||||
(4) The auditors obtain an understanding of internal control. | ||||||||
H | h. Which AICPA quality control standard would most likely be satisfi ed when a CPA fi rm | |||||||
maintains records indicating which partners or employees of the fi rm were previously | ||||||||
employed by the CPA fi rmâs clients? | ||||||||
(1) Professional relationship. | ||||||||
(2) Engagement performance. | ||||||||
(3) Relevant ethical requirements. | ||||||||
(4) Monitoring. | ||||||||
I | i. An audit provides reasonable assurance of detecting material: | |||||||
Fraudulent Financial | Misappropriation | |||||||
Reporting | of Assets | |||||||
1 | Yes | Yes | ||||||
2 | Yes | No | ||||||
3 | No | Yes | ||||||
4 | No | No | ||||||
J | j. Which of the following is not included in an integrated audit report on the fi nancial statements | |||||||
of a public company? | ||||||||
(1) The report states that the audit was performed in accordance with AICPA standards. | ||||||||
(2) The report indicates that the fi nancial statements are the responsibility of management. | ||||||||
(3) The report indicates that the auditors have also audited the effectiveness of the companyâs | ||||||||
internal control. | ||||||||
(4) The report is signed in the name of the CPA fi rm. | ||||||||
K | k. Audit fi rms that are subject to inspections by the PCAOB staff include: | |||||||
(1) All audit fi rms. | ||||||||
(2) Audit fi rms that are registered with the SEC. | ||||||||
(3) Audit fi rms that are registered with the PCAOB. | ||||||||
(4) Audit fi rms that are registered with a state board of accountancy. | ||||||||
L | l. Which of the following is not a difference noted when comparing the AICPA audit report | |||||||
to the international audit report? | ||||||||
(1) The international audit report may use the phrase âtrue and fair view.â | ||||||||
(2) The international audit report may be signed using the personal name of the audit | ||||||||
partner, the audit fi rm, or both. | ||||||||
(3) The international audit report requires inclusion of the city of the CPA fi rm offi ce that | ||||||||
performed the audit. | ||||||||
(4) The international audit report includes an opinion on internal control. |
The independent auditor is allowed to use a specialist for evaluating a complicated financial transaction provided the specialist is
knowledgeable and independent of the audit client. |
approved by the client's board of directors. |
all of the above. |
acceptable to the PCAOB. |
Inappropriately dating transfers of funds between bank accounts to cover shortages of cash is properly referred to as
lapping. |
reconciling. |
kiting. |
embezzling. |
Cash equivalents
represent current assets that can be converted to cash within a year or an operating cycle, whichever is shorter. |
include only cash and highly liquid investments that are virtually free of risk. |
should be reported as investments and not be included as cash on the balance sheet. |
typically exclude money market funds and treasury bills. |
A cut-off bank statement primarily is used to
determine whether reconciling items on the year-end bank reconciliation have cleared the bank. |
prepare a year-end bank reconciliation. |
test for kiting. |
confirm the year-end balance of cash. |
An imprest cash account
typically is used for many large miscellaneous disbursements. |
typically earns large amounts of interest. |
is another name for the general cash account of an organization. |
is an account containing a stipulated amount of money to be used for a specific purpose. |
An auditor may estimate the appropriate amount of interest expense to be recorded by an audit client by multiplying the average debt by the average interest rate. If the auditor's estimate is considerably larger than the client's recorded interest expense this would be evidence of a potential
failure of the client to accrue interest expense at year end. |
the violation of significant loan covenants. |
overstatement of recorded interest expense. |
understatement of long-term debt. |
Internal controls over fixed assets in a smaller entity
usually include authorization by the board of directors. |
typically will be very similar to internal controls over other assets within the entity. |
must be the same as in larger entities. |
are of little importance since fixed assets are not subject to theft or misuse. |
A change in depreciation methods employed by an audit client resulting in a material change in depreciation expense
is not necessarily a violation of generally accepted accounting principles. |
requires disclosure by the audit client in the footnotes to the financial statements. |
must be noted in the audit opinion due to lack of consistency. |
is properly described by all of the listed statements. |
Auditors typically assess inherent risk for material accounts requiring significant estimates as
low. |
high. |
zero. |
moderate. |
Which of the following loans from an audit client, which is a financial institution, made in accordance with the normal lending practices of the financial institution would impair the CPA's independence?
A loan fully secured by certificates of deposit from the same financial institution. |
A credit card loan in which the balance carried forward each month does not exceed $9,000. |
An automobile loan secured by the automobile. |
A home loan equal to less than 50% of the home's value and collateralized by the home. |
A CPA has obtained some original records from a client during the course of an audit engagement. At the completion of her audit according to the proper professional standards the client fired the CPA and demanded that the CPA return all of his original records immediately. Under these circumstances which of the following statements is most correct according to the AICPA Code of Professional Conduct?
The CPA may hold the original records she obtained until the client pays for the services she has completed. |
The CPA must return only the original records of the client upon demand regardless of the circumstances. |
The CPA must return all original records and all copies of original records of the client upon demand regardless of the circumstances. |
This is a matter of state law and not a matter covered by the AICPA Code of Professional Conduct. |