Preplanning

Which of the following circumstances would most likely pose the greatest risk in

accepting a new audit engagement?

• Staff will need to be rescheduled to cover this new client

• There will be a client-imposed scope limitation

• The firm will have to hire a specialist in one audit area

• The client’s financial reporting system has been in place for 10 years

The following are the components of ISQM 1, except 

• Remediation of Violations and Monitoring 

• Relevant ethical requirements 

• Governance and Leadership 

• Acceptance and Continuance of Client Relationship 

The quality objectives in each component aid the firm in properly identifying and assessing quality risks. Quality objectives must be defined in each of the following components, except on: 

• Governance and leadership 

• Risk assessment process 

• Relevant ethical requirements 

• Engagement performance 

The following are true statements about ISQM 1, except 

• Only large firms with adequate resources, are required to comply with ISQM 1. 

• For some aspects of the SOQM, a smaller firm may determine that there is no need to establish firm-wide responses, and the firm may instead design and implement responses that operate concurrently with the engagement-level quality management. 

• The ISQM has eight (8) interrelated components. 

• If the firm currently complies with ISQC 1, it will already have policies and procedures in place that may still be relevant and appropriate for the firm’s new SOQM, or may need to be revised or enhanced to be appropriate for the new SOQM. 

When approached to perform an audit for the first time, the CPA should make inquiries of the predecessor auditor. This is a necessary procedure

because the predecessor may be able to provide the successor with information that

will assist the successor in determining whether

• the predecessor’s work should be used

• the company follows the policy of rotating its auditors

• in the predecessor’s opinion, internal control of the company has been satisfactory

• the engagement should be accepted

A successor would most likely make specific inquiries of the predecessor auditor

regarding

• specialized accounting principles of the client’s industry

• the competency of the client’s internal audit staff

• the uncertainty inherent in applying sampling procedures

• disagreements with management as to auditing procedures

When initiating communications with predecessor auditors, prospective auditors should expect

• To take responsibility for obtaining the client’s consent for the predecessor to give information

  about prior audits

• To conduct interviews with the partner and manager in charge of the predecessor public

  accounting firm’s engagement

• To obtain copies of some or all of the predecessor auditors’ audit documentation

• All of the above

The principle of professional behavior requires a professional accountant to

• Be straightforward and honest in performing professional services.

• Be fair and should not allow prejudice or bias, conflict of interest or influence of others to override objectivity.

• Perform professional services with due care, competence and diligence.

• Act in a manner consistent with the good reputation of the profession and refrain from any conduct which might bring discredit to the profession.

Which of the following least likely create “self-interest threat”

• Undue dependence on total fees from an assurance client.

• Concern about the possibility of losing the engagement.

• Having a close business relationship with an assurance client.

• Pressure to reduce inappropriately the extent of work performed in order to reduce fees.

In which one of the following situations would a CPA

be in violation of the Code of Professional Conduct in determining the audit fee?

• A fee is based on whether the CPA’s report on the client’s financial statements results in

  the approval of a bank loan.

• A fee is based on the outcome of a bankruptcy proceeding.

• A fee is based on the nature of the service rendered and the Professional

  Accountant’s expertise instead of the actual time spent on the engagement.

• A fee is based on the fee charged by the prior auditor.