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Total questions: 20
Worksheet time: 10mins
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.
Auditors are interested in having independence in appearance because
They want to impress the public with their independence in fact.
They want the public at large to have confidence in the profession.
They need to comply with the fundamental principles of GAAS.
Audits should be planned and properly supervised.
Audit independence in fact is most clearly lost when
A public accounting firm audits competitor companies in the same industry (e.g., Coca-Cola
and Pepsi).
An auditor agrees to the argument made by the client’s financial vice president that deferring
losses on debt refinancing is in accordance with generally accepted accounting principles.
An audit team fails to discover the client’s misleading omission of disclosure about permanent
impairment of asset values.
A public accounting firm issues a standard unmodified report, but the reviewing partner
fails to notice that the assistant’s observation of inventory was woefully incomplete.
A firm took on a new client in the
uranium mining industry. Most of the firm’s clients operate in the retail service sector, and the
firm had until then never dealt with any business operating in the uranium sector. The audit
fees for the new client are significant, and the partner has indicated that “the staff assigned to
the audit should be quickly able to learn the ins and outs of uranium and be able to perform a quality audit.”
Which Rule of Professional Conduct has most likely been violated in the following
situation?
Association with false and misleading information
Contingent fees
Advertising and solicitation
Competence
CPA Kara Rambo is the auditor of Ajax Corporation. Her audit independence will not be
considered impaired if she
Owns P50,000 worth of Ajax stock
Has a husband who owns P50,000 worth of Ajax stock
Has a sister who is the financial vice president of Ajax.
Owns P50,000 worth of the stock of Pericles Corporation, which is controlled by Ajax as
a result of Ajax’s ownership of 40 percent of Pericles’ stock, and Pericles contributes
3 percent of its total assets and income in Ajax’s financial statements.
Which of the following is least likely included in an audit engagement letter?
The objective of financial reporting
Management responsibility for the financial statements.
The form of any reports or other communication of the results of the engagement
Arrangement concerning the involvement of other auditors or experts in some aspects of
the audit
An audit engagement letter least likely includes
A reference to the inherent limitation of an audit that some material misstatements may
remain undiscovered.
Identification of specific audit procedures that the auditor needs to undertake.
Description of any letters or reports that the auditor expects to submit to the client.
Arrangements concerning the involvement of internal auditors and other client’s staff
Which of the following least likely requires the auditor to send a new engagement letter?
An indication that the client misunderstands the objective and scope of the audit.
Any revised or special terms of the engagement.
A recent change in the audit firm’s management
Legal requirements and other government agencies’ pronouncements.
According to PSA 210, which of the following statements is correct?
The auditor and the client need not agree on the terms of the engagement
Where the terms of the engagement are changed, the auditor and the client need not
agree on the new terms if they already agreed on the old terms.
The engagement letter assists in the supervision and review of the audit work.
The auditor may agree to a change of engagement where there is reasonable justification
for doing so.
Which of the following is a NOT valid reason for a change of the engagement to a lower “level
of assurance”?
Change in circumstances affecting the need for the service.
Restriction on the scope of the engagement.
Misunderstanding as to the nature of the engagement originally requested.
The client’s need is satisfied by an engagement that provides lower level of assurance
When a change in the type of engagement from higher to lower level of assurance is
reasonably justified, the report based on the revised engagement
Should contain a separate paragraph that refers to the original engagement
Should always refer to any procedures that may have been performed in the original
engagement.
Should qualify the opinion due to scope limitation
Omits reference to the original engagement
