Diablo Valley CollegeBUSACBUSAC 283

Homework Question Which of the following organizations is the primary organization that performs inspections of registered external audit firms that audit public companies? a. PCAOB With regard to client acceptance/ ...

Homework Question Which of the following organizations is the primary organization that performs inspections of registered external audit firms that audit public companies? a. PCAOB With regard to client acceptance/continuance decisions, which of the following is false? b. The primary driver of the client acceptance/continuance decision is the level of audit fees that can be charged to the client. c. Correct Response AICPA Sets audit standards for auditors of privately held companies and administers the CPA exam., PCAOB Sets audit standards for auditors of public companies and regulates and enforces the external audit profession for auditors of public companies listed on U.S. stock exchanges., IAASB Sets audit standards for auditors of public companies internationally., COSO Provides guidance on internal control, enterprise risk management, and fraud deterrence., Center for Audit Quality Works to enhance investor confidence and trust in the financial markets; is affiliated with the AICPA., Congress Passed Sarbanes-Oxley Act of 2002., SEC Regulates and provides enforcement of the capital market system participants, including external auditors and public companies; has the authority to establish GAAP. Weller, CPA is conducting an audit of Wadd, LLC. Weller wishes to independently perform procedures to validate assumptions inherent in certain reserve accounts on Wadd's balance sheet. The CEO of Wadd asks if Weller could rely primarily on Wadd's own internal support for the accounts, citing a pressing need to provide audited financial statements to prospective investors as soon as possible, and as a sign of Wadd's gratitude, presents Weller with valuable tickets to a sporting event. What category of threat to independence is Weller being subjected to? d. Undue influence threat.Which of the following expectations can users of the audit report reasonably expect with regard to the audited financial statements? a. The financial statements are presented fairly in accordance with GAAP. Retired Employees Protect employees from surprises concerning pensions and other post-retirement benefits., Bondholders Buy or sell bonds., Financial Institutions Evaluate loan decisions, considering interest rates, terms, and risk., Labor Unions Make collective bargaining decisions., Stockholders Buy or sell stock., Regulatory Agencies Develop regulations and monitor compliance., Management Review performance, make operational decisions, report results to capital markets., Vendors Assess credit risk., Taxing Authorities Determine taxable income and tax due. Which of the following parties are involved in preparing and auditing financial statements? a. Management. b. Internal audit function. c. Audit committee. d. All of these choices are correct. e. External auditor. Which organization developed the framework most commonly used by the auditing profession for benchmarking internal controls of non-issuers? d. The Committee of Sponsoring Organizations of the Treadway Commission The AICPA remains a valuable organization to the external auditing profession because of its continuing involvement in which of the following activities? b. Education and administration of the CPA exam Which of the following factors is an example of a risk relevant to the client continuance decision? a. Third party/due diligence risk factors. b. Client entity characteristics.c. All of these choices are correct. d. Independence risk factors External auditors are expected to meet society's demands for unbiased financial reporting and internal control information. The news media focuses its attention on auditors that appear to have failed to meet this expectation. Textbook authors and authors of manuscripts published in professional journals speak directly to the matter of meeting society's expectations in this regard. While textbooks and journal articles are useful and possibly interesting, the auditor is obliged to follow the relevant authoritative auditing guidance consisting mainly of the AU sections published by the Audit Standards Board or the Audit Standards (AS) published by the Public Company Accounting Oversight Board (PCAOB). 1.1 ?Identify the set of audit standards that should be applied in the following auditsa. ?A privately owned manufacturer of hog feeder containers. AU b. ?A software development company whose shares are actively traded on a public stock exchange.AS 1.2 ?Identify the AU section that prescribes the overall objectives of the independent auditor. AU200 1.3 ?Fill in the missing word or words that state the objective of external auditing. a. ?The overall objectives of the auditor, in conducting an audit of financial statements, are to obtain Reasonable assurance about whether the financial statements as a whole are free from material misstatement. b. ?The overall objectives of the auditor, in conducting an audit of financial statements, are to report on the financial statements, and Communicate as required by GAAS , in accordance with the auditor's findings. c. ?In the context of item a above, the audit standard does not differentiate between material misstatements that are caused by Error and Fraud. In terms of technical knowledge and expertise, which of the following should external auditors be able to do? a. Develop industry and client-specific knowledge. b. None of these choices are correct. c. All of these choices are correct. d. Develop and apply computer skills. e. Understand accounting and auditing authoritative literature. In which of the following categories do Big 4 audit firms operate? Multinational firms Which of the following factors is not a driver of audit quality as discussed by the FRC? Skills and personal qualities of client management Which of the following statements would be least likely to be included in an audit engagement letter? We will not disclose any advice provided under the terms of this engagement letter to third parties unless instructed to do so.3. ?Read textbook chapter 1 reference section: The Need for Unbiased Reporting and Independent Assurance. There are 4 factors identified in chapter 1 that create a demand for an independent external audit services. Complete the following consideration descriptions below: a. ?Potential Bias in providing information. b. ? Remoteness between a user and the organization or trading partner. c. ? Complexity in the transaction, information, or processing systems such that it is difficult to determine their proper presentation without a review by an independent expert. d. ?Need to limit negative Consequences that arise from relying on inaccurate information. Choose the correct statement(s) regarding the Public Company Accounting Oversight Board (PCAOB): Public accounting firms must register with the PCAOB in order to perform audits of public companies. The PCAOB is a private, nonprofit organization established in 1933. Two of the five board members of the PCAOB must be CPAs. c. I only Read the following narrative AND review the AU section you identified in question 1. The word "material" appears repeatedly in the AU sections and AS. Fill in the missing word or words that define the term "material." In general, misstatements, including omissions, are considered to be material if, individually or in the aggregate, they could reasonably be expected to influence the Economic decisions 6. ?Refer to textbook page 6 the Auditing in Practice feature "Why Is Owning Stock in an Audit Client Unacceptable?" and ET 101. 1. ?Select the item that best describes the unethical actions of Susan Birket. Susan Birkert had a friend purchase $5,000 of stock in the company that she was auditing. She lied to KPMG when responding to the firm's yearly written requirements to comply with the firm's independence policies. Susan Birkert purchased as a gift for a friend $5,000 of stock in the company that she was auditing. She didn't report this transaction to KPMG when responding to the firm's yearly written requirements to comply with the firm's independence policies because this was a gift. Susan Birkert had a friend purchase $5,000 of stock in the company that she was auditing. She reported the transaction to KPMG when responding to the firm's yearly written requirements to comply with the firm's independence policies. Susan Birkert had a friend purchase $5,000 of stock in the company that she was auditing. She told her supervisor about the transaction but forgot to report the transaction to KPMG when responding to the firm's yearly written requirements to comply with the firm's independence policies. The correct answer is: A Select the item that provides the most accurate comparison of independence in fact and independence in appearance in the context of the textbook page 6 case. Independence in fact means that while Susan might have actually not behaved in a biased manner on the engagement because of the stock she owned, external users may perceive an independence conflict, thus causing the auditor to not be independent in appearance. Independence in appearance means that while Susan might have actually not behaved in abiased manner on the engagement because of the stock she owned, external users may perceive an independence conflict, thus causing the auditor to not be independent in fact. Independence in fact and independence in appearance have the same meaning within the context of Susan's case. Independence in fact means that Susan was actually biased in the manner in which she conducted the engagement because of the stock she owned. Since Susan was clearly not independent in fact, the determination of whether she was independent in appearance is irrelevant. The correct answer is:A Identify the correct statement regarding integrated audits. An integrated audit involves providing an opinion on the financial statements and the internal control effectiveness of a company In deciding whether or not to accept a prospective audit client, which of the following would have the biggest impact on the auditor's decision? The client's predecessor auditor indicated that the client's management lacks integrity. Adverse opinion Should be expressed when the auditor believes that the financial statements taken as a whole are not presented fairly in conformity with GAAP or when the auditor believes that the client's internal control over financial reporting is not effective., American Institute of Certified Public Accountants (AICPA) As the primary professional organization for CPAs, it has a number of committees to develop professional standards for the conduct of nonpublic company audits and other services performed by its members and to self-regulate the profession., Audit quality Performing an audit in accordance with generally accepted auditing standards (GAAS) to provide reasonable assurance that the audited financial statements and related disclosures are presented in accordance with GAAP and providing assurance that those financial statements are not materially misstated whether due to errors or fraud., Center for Audit Quality (CAQ) An organization affiliated with the AICPA that is dedicated to enhancing investor confidence and trust in the financial markets., Client acceptance decision The process by which a new client is evaluated by the audit firm and individual engagement partner prior to being accepted into the audit firm's portfolio of clients. Client continuance decision The process by which existing clients for which the audit firm provided services in the preceding period are evaluated by the audit firm and the individual engagement partner at the completion of the audit to determine whether the audit firm should continue to provide services again in the next period., Committee of Sponsoring Organizations of the Treadway Commission (COSO) An organization that provides thought leadership and guidance on enterprise risk management,internal control, and fraud deterrence., Concurring partner review Occurs when an audit partner not otherwise involved in the audit independently reviews each audit to make sure that documented evidence supports the audit opinion. Otherwise known as an engagement quality review., Due professional care A standard of care expected to be demonstrated by a competent professional in his or her field of expertise, set by GAAS but supplemented in specific implementation instances by the standard of care expected by a reasonably prudent auditor., Engagement letter A communication between the audit firm and the audit committee that states the scope of the work to be done on the audit so that there can be no doubt in the mind of the client, external auditor, or the court system as to the expectations agreed to by the external auditor and the client. Which of the following is not a threat to auditor independence? a. Regulatory interest threat. The PCAOB performs external inspections of external audit firms registered to audit publicly traded companies. Which of the following statements is accurate regarding the timing of those inspections? Inspections occur once a year for audit firms that conduct over 100 public clients in a given year. Which of the following are the responsibilities of the external auditor in auditing financial statements? a. Maintaining internal controls and preparing financial reports. b. Providing internal oversight of the reporting process. c. All of these choices are correct. d. None of these choices are correct. e. Providing internal assurance on internal control and financial reports. Watt & Foster LLC is a CPA firm that wants to ensure that it only associates with clients whose management has integrity. To achieve this, Watt & Foster should: Establish quality control policies and procedures for accepting and continuing client relationships. Communicate with a potential client's predecessor auditor. Refuse to accept a client who has been issued an adverse opinion sometime during the last three years. a. I and II only Identify the correct statement(s) regarding threats to independence: The management participation threat involves a risk of the auditor essentially reviewing the reports indicating the results of decisions that the auditor participated in when serving in an attest client management role. The advocacy threat involves an appearance of preferentially serving the audit firm and its interests over the interests of the client and the investing public. The AICPA requires audit partner rotation every three years as a safeguard to independence c. I onlyPublic Company Accounting Oversight Board (PCAOB) A quasipublic board, appointed by the SEC, to provide oversight of the firms that audit public companies registered with the SEC. It has the authority to set auditing standards for the audits of public companies., Sarbanes-Oxley Act of 2002 Broad legislation mandating new standard setting for audits of public companies and new standards for corporate governance., Securities and Exchange Commission (SEC) The governmental body with the oversight responsibility to ensure the proper and efficient operation of capital markets in the United States., Unqualified audit report The standard audit report that describes the auditor's work and communicates the auditor's opinion that the financial statements are fairly presented in accordance with GAAP. Internal Auditor Provides internal assurance on internal controls and reports., External Auditor Provides independent audit of internal controls and financial statements., Management Maintains internal controls and prepares reports., Audit Committee Provides oversight of the reporting process and other parties. Which of the following is not one of the seven categories of threats to independence identified by the AICPA in its conceptual framework on independence? c. Conflict of interest threat. Engagement quality review Occurs when an audit partner not otherwise involved in the audit independently reviews each audit to make sure that documented evidence supports the audit opinion. Otherwise known as a concurring partner review., Financial statement audit A systematic process of objectively obtaining evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users., Generally accepted accounting principles (GAAP) The criteria may be developed by either the FASB or the IASB. It has general acceptance and provides criteria by which to assess the fairness of a financial statement presentation., Generally accepted auditing standards (GAAS) It refers to professional external auditing standards that are followed by auditors when conducting a financial statement audit. Throughout the text, when we refer to professional external auditing standards, we will use this term. We recognize that it is set by several bodies, including the AICPA, the IAASB, andthe PCAOB., Integrated audit Type of audit provided when an external auditor is engaged to perform an audit of the effectiveness of internal control over financial reporting (the audit of internal control over financial reporting) that is integrated with an audit of the financial statements. International Accounting Standards Board (IASB) This organization issues International Financial Reporting Standards (IFRS) and is working to be the one provider of accounting standards around the world., International Auditing and Assurance Standards Board (IAASB) A part of the International Federation of Accountants that is responsible for issuing auditing and assurance standards. Its goal is to harmonize auditing standards on a global basis., International Standards for Auditing (ISAs) Standards issued by the IAASB for all auditors who are following international auditing standards., Interoffice review A review of one office of the audit firm by professionals from another office to assure that the policies and procedures established by the firm are being followed., Professional skepticism An attitude that includes a questioning mind and critical assessment of audit evidence. Audit quality involves which of the following? d. Performing an audit in accordance with GAAS to provide reasonable assurance that the audited financial statements and related disclosures are presented in accordance with GAAP and providing assurance that those financial statements are not materially misstated whether due to errors or fraud.