Multiple Choice 1. Which of the following statements best explains why public accounting, as a profession, promulgates

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Multiple Choice
1. Which of the following statements best explains why public accounting, as a profession, promulgates ethical standards and establishes means for ensuring their observance?
a. Vigorous enforcement of an established code of ethics is the best way to prevent unscrupulous acts.
b. Ethical standards that emphasize excellence in performance over material rewards establish individual reputations for competence and character.
c. Ethical standards are established so that users of accounting services know what to expect and accounting professionals know what behaviors are acceptable, and so that discipline can be applied when necessary.
d. A requirement for a profession is to establish ethical standards that primarily stress responsibility to entities and colleagues.

2. All of the following non-audit services are identified by the SEC as generally impairing an auditor’s independence except
a. Information systems design and implementation.
b. Human resource services.
c. Management functions.
d. Some specific tax services.
e. All of the above are seen by the SEC as impairing independence.

3. Under the SEC’s rules regarding independence, which of the following must an entity disclose?
a. Only fees for the external audit.
b. Only fees for internal and external audit services provided by the audit firm.
c. Fees for the external audit, audit- related fees, tax fees, and fees for other non-audit services performed by the audit firm.
d. Only fees for systems implementation and design and non-audit services performed by the audit firm.

4. The AICPA Code of Professional Conduct contains both general ethical principles that are aspirational in character and a
a. List of violations that would cause the automatic suspension of a CPA’s license.
b. Set of specific, mandatory rules describing minimum levels of conduct a CPA must maintain.
c. Description of a CPA’s procedures for responding to an inquiry from a trial board.
d. List of specific crimes that would be considered as acts discreditable to the profession.

5. In which of the following situations would a CPA’s independence be considered impaired according to the Code of Professional Conduct?
1. The CPA has a car loan from a bank that is an audit entity. The loan was made under the same terms available to all customers.
2. The CPA has a direct financial interest in an audit entity, but the interest is maintained in a blind trust.
3. The CPA owns a commercial building and leases it to an audit entity. The rental income is material to the CPA.
a. 1 and 2.
b. 2 and 3.
c. 1 and 3.
d. 1, 2, and 3.

6. An audited entity company has not paid its 2013 audit fees. According to the AICPA Code of Professional Conduct, for the auditor to be considered independent with respect to the 2014 audit, the 2013 audit fees must be paid before the
a. 2013 report is issued.
b. 2014 fieldwork is started.
c. 2014 report is issued.
d. 2015 fieldwork is started.

7. Which of the following legal situations would be considered to impair the auditor’s independence?
a. An expressed intention by the present management to commence litigation against the auditor, alleging deficiencies in audit work for the entity, although the auditor considers that there is only a remote possibility that such a claim will be filed.
b. Actual litigation by the auditor against the entity for an amount not material to the auditor or to the financial statements of the entity arising out of disputes as to billings for management advisory services.
c. Actual litigation by the auditor against the present management, alleging management fraud or deceit.
d. Actual litigation by the entity against the auditor for an amount not material to the auditor or to the financial statements of the entity arising out of a dispute as to billings for tax services.

8. A violation of the profession’s ethical standards is least likely to occur when a CPA
a. Purchases another CPA’s accounting practice and bases the price on a percentage of the fees accruing from entities over a three- year period.
b. Receives a percentage of the amounts invested by the CPA’s audit entities in a tax shelter with the entities’ knowledge and approval.
c. Has a public accounting practice and is president and sole stockholder of a corporation that engages in data processing services for the public. The CPA often refers his attest entities to the data processing company.
d. Forms an association— not a legally binding partnership— with two other sole practitioners and calls the association Adams, Betts & Associates.

9. Rick, an independent CPA, must make an ethical judgment related to the audit of an entity. If he primarily focuses on whether his decision might yield unfair advantages for some at the expense of others, he is using
a. A utilitarian perspective.
b. A rights- based approach.
c. A justice- based perspective.
d. Rule- based AICPA guidelines.

10. During the audit of Moon Co., the auditor disagrees with management’s esti-mation of collectible accounts receivable. The possible misstatement amount is material. Which of the statements below should weigh more heavily for the auditor in this instance?
a. Moon management has the right to make company estimates.
b. Requiring an adjustment to the allowance for doubtful accounts would give stockholders access to fair and adequate information.
c. Accounts Receivable as stated by Moon Co. might turn out to be fully collectible.
d. The interests of Moon Co., the auditor, and the public should be weighed equally in the decision.

11. Without the consent of the entity, a CPA should not disclose confidential entity information contained in working papers to a (n)
a. Authorized quality control review board.
b. CPA firm that has been engaged to audit a former audit entity.
c. Federal court that has issued a valid subpoena.
d. Disciplinary body created under state statute.

12. One of a CPA firm’s basic objectives is to provide professional services that conform with professional standards. Reasonable assurance of achieving this basic objective is provided through
a. A system of quality control.
b. A system of peer review.
c. Continuing professional education.
d. Compliance with generally accepted reporting standards.

13. In connection with the element of engagement performance, a CPA firm’s system of quality control should ordinarily include procedures covering all of the following except a. Performance evaluation.
b. Engagement performance.
c. Supervision responsibilities.
d. Review responsibilities.

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Auditing and Assurance Services A Systematic Approach

ISBN: 978-1259162343

9th edition

Authors: William Messier, Steven Glover, Douglas Prawitt

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