Question 1

Which of the following situations best describes a familiarity threat?

Accepted Answer

A) design and implementation of a new payroll system 
B) preparation and entry of bookkeeping transactions 
C) completion of corporate transactions for subsidiary companies 
D) PA has been working with this client for ten years,first as a manager,now as a partner 
A) design and implementation of a new payroll system 
B) preparation and entry of bookkeeping transactions 
C) completion of corporate transactions for subsidiary companies 
D) PA has been working with this client for ten years,first as a manager,now as a partner

Question 2

One of the lessons learned from accounting scandals such as Enron's is that generally accepted accounting principles (now under an acceptable financial reporting framework)cannot be relied upon exclusively in deciding whether financial statements are fairly presented.Why is this the case?

Accepted Answer

Student answers may vary.
-GAAP and acco

Question 3

In the auditing environment,failure to meet generally accepted auditing standards is often

Accepted Answer

A) an accepted practice. 
B) a suggestion of negligence. 
C) strong evidence of negligence. 
D) tantamount to criminal behaviour. 
A) an accepted practice. 
B) a suggestion of negligence. 
C) strong evidence of negligence. 
D) tantamount to criminal behaviour.

Question 4

In connection with the examination of financial statements,an auditor could be responsible for failure to detect a material fraud if

Accepted Answer

A) statistical sampling techniques were not used on the audit engagement. 
B) the auditor planned the work in a hasty and ineffective manner. 
C) accountants performing important parts of the work failed to discover a close relationship between the treasurer and the cashier. 
D) the fraud was perpetrated by one client employee who circumvented the existing internal controls. 
A) statistical sampling techniques were not used on the audit engagement. 
B) the auditor planned the work in a hasty and ineffective manner. 
C) accountants performing important parts of the work failed to discover a close relationship between the treasurer and the cashier. 
D) the fraud was perpetrated by one client employee who circumvented the existing internal controls.

Question 5

How is use of an applicable accounting framework enforced via legislation?

Accepted Answer

A) The Canada Business Corporations Act and many provincial incorporating acts require that financial statements be prepared in accordance with CAS as set out in the CPA Canada Handbook. 
B) PAs who do not prepare financial statements in accordance with such frameworks are expelled from their professional association. 
C) tax authorities may sue corporations who do not prepare their financial statements in accordance with such frameworks. 
D) financial executives may be sued if the financial statements prepared by their company are not in conformance with such frameworks. 
A) The Canada Business Corporations Act and many provincial incorporating acts require that financial statements be prepared in accordance with CAS as set out in the CPA Canada Handbook. 
B) PAs who do not prepare financial statements in accordance with such frameworks are expelled from their professional association. 
C) tax authorities may sue corporations who do not prepare their financial statements in accordance with such frameworks. 
D) financial executives may be sued if the financial statements prepared by their company are not in conformance with such frameworks.

Question 6

Formal frameworks have been developed to help people resolve ethical dilemmas.After obtaining the relevant facts and identifying the ethical issues from the facts,what is the next step in the five-step ethical framework described in the chapter?

Accepted Answer

A) Decide on the appropriate action to be taken in resolving the ethical dilemma. 
B) Identify the likely consequences of actions that will be taken. 
C) Identify who is affected and how each is affected. 
D) Identify the alternatives available to the person who must resolve the dilemma. 
A) Decide on the appropriate action to be taken in resolving the ethical dilemma. 
B) Identify the likely consequences of actions that will be taken. 
C) Identify who is affected and how each is affected. 
D) Identify the alternatives available to the person who must resolve the dilemma.

Question 7

Society has attached a special meaning to the term professional.A professional is

Accepted Answer

A) someone who has passed a qualifying exam to enter the job market. 
B) any person who receives pay for the services performed. 
C) a person who is expected to conduct himself or herself at a higher level than the requirements of society's laws or regulations. 
D) someone who has both an education in the trade and on-the-job experience received under an experienced supervisor. 
A) someone who has passed a qualifying exam to enter the job market. 
B) any person who receives pay for the services performed. 
C) a person who is expected to conduct himself or herself at a higher level than the requirements of society's laws or regulations. 
D) someone who has both an education in the trade and on-the-job experience received under an experienced supervisor.

Question 8

You are the senior in charge of the accounts receivable section of the audit of a large clothing manufacturer downtown in the clothing district.The client sells to local clothing stores as well as to other retailers in the province.
Accounts receivables seem to be deteriorating,with many more accounts in the over 90 days column than in the past.You sent out twenty accounts receivable confirmations,but only six were returned.Of these six,only three confirmed the balance as in agreement with the client,while the others indicated that they kept their records on an open item basis (rather than a balance forward basis)and were unable to respond to the confirmation request.When you looked at the prior year's file,it seemed that the same thing had happened last year.
When you phoned the supervisor in charge of the audit engagement,she told you to not bother with follow up,as the engagement was already over budget and costs need to be kept down.You were concerned that you would be unable to state a conclusion with respect to the fairness of the accounts receivable balance and she was really angry with you,saying that she would have to sign off for you then.
Required:
Discuss the ethical and quality issues raised by this audit engagement.

Accepted Answer

The engagement indicates a lack of plann

Question 9

For listed clients,the audit committee should approve both the appointment of the auditor and

Accepted Answer

A) all services that the PA firm provides to the client. 
B) an engagement that might affect the appearance of independence,such as design of control systems. 
C) any services that are provided for senior management. 
D) the material that is included in the management letter by the PA firm. 
A) all services that the PA firm provides to the client. 
B) an engagement that might affect the appearance of independence,such as design of control systems. 
C) any services that are provided for senior management. 
D) the material that is included in the management letter by the PA firm.

Question 10

PA has been asked to accept the audit engagement of BarneyBlues Corporation.PA sent a letter to the predecessor auditor asking whether there was any reason why he should not accept the engagement.Assuming that the prior year audit went smoothly,what would be an appropriate response by the predecessor auditor?

Accepted Answer

A) Provide a brief statement that there is no reason of which he or she is aware that would prevent accepting the engagement. 
B) Send a copy of the entire working paper file to PA. 
C) Telephone PA and say that PA should not take the engagement because the fee charged was too large. 
D) Send a copy of the tax returns and tax assessments to PA. 
A) Provide a brief statement that there is no reason of which he or she is aware that would prevent accepting the engagement. 
B) Send a copy of the entire working paper file to PA. 
C) Telephone PA and say that PA should not take the engagement because the fee charged was too large. 
D) Send a copy of the tax returns and tax assessments to PA.

Question 11

An example of an audit failure is when the

Accepted Answer

A) auditor issues an erroneous audit opinion as the result of a failure to comply with the requirements of CAS. 
B) audit opinion is qualified. 
C) company files for bankruptcy less than 12 months after receiving an unqualified opinion. 
D) auditor issues an erroneous audit opinion as the result of an undiscovered fraud that took place in the period being audited. 
A) auditor issues an erroneous audit opinion as the result of a failure to comply with the requirements of CAS. 
B) audit opinion is qualified. 
C) company files for bankruptcy less than 12 months after receiving an unqualified opinion. 
D) auditor issues an erroneous audit opinion as the result of an undiscovered fraud that took place in the period being audited.

Question 12

A)Describe some of the steps the CPA and the accounting profession as a whole can and are taking to reduce practitioners' exposure to lawsuits.B)Describe some of the steps individual practising auditors can take to minimize their legal liability.

Accepted Answer

A)Steps the profession is taking to redu

Question 13

Which one of the following situations is a violation of the professional rules of conduct? PA

Accepted Answer

A) looked the other way when he noticed that one of his firm's accounting staff accepted money from client management. 
B) resigned so that he could accept a position on the Board of Directors at a major client. 
C) prepared personal and corporate tax returns for a client and all of its executive officers. 
D) placed an advertisement in the local paper indicating that she conducted audit engagements for five major insurance companies. 
A) looked the other way when he noticed that one of his firm's accounting staff accepted money from client management. 
B) resigned so that he could accept a position on the Board of Directors at a major client. 
C) prepared personal and corporate tax returns for a client and all of its executive officers. 
D) placed an advertisement in the local paper indicating that she conducted audit engagements for five major insurance companies.

Question 14

A code of professional conduct typically includes principles,rules of conduct,and interpretations or examples.What is the purpose of the principles?

Accepted Answer

A) to state what a practitioner must do for each audit engagement conducted 
B) to provide discussions of the rules of conduct and how they relate to practical situations 
C) to provide minimum standards of ethical conduct stated specifically 
D) to provide ideal standards of ethical conduct aimed to serve the public interest 
A) to state what a practitioner must do for each audit engagement conducted 
B) to provide discussions of the rules of conduct and how they relate to practical situations 
C) to provide minimum standards of ethical conduct stated specifically 
D) to provide ideal standards of ethical conduct aimed to serve the public interest

Question 15

Xiao,PA,is the auditor of Minkle Credit Union,a medium-sized credit union.Xiao has prepared a management letter with several serious control weaknesses.Management agrees with the facts,but does not want to present the letter with the weaknesses to the audit committee or the board of directors.Management has implied that they will request a change of auditors if your firm presents the management letter to the board.
Required: Discuss the actions that Xiao should take.Justify your response.

Accepted Answer

Xiao is being faced with an intimidation

Question 16

Ethical behavior is considered to be a cornerstone for trust in everyday life as well as in business practices.Ethics are

Accepted Answer

A) beliefs that we have about our own behaviour. 
B) a set of moral principles or values. 
C) rules in society that help us to do the right thing. 
D) laws that govern how businesses should behave. 
A) beliefs that we have about our own behaviour. 
B) a set of moral principles or values. 
C) rules in society that help us to do the right thing. 
D) laws that govern how businesses should behave.

Question 17

The underlying reason for a high level of professional conduct,such as exemplified in a code of conduct,for any profession is

Accepted Answer

A) the need for public confidence in the quality of service of the profession. 
B) that it provides a safeguard to keep unscrupulous people out. 
C) that it is required by federal legislation. 
D) that it allows licensing agencies to have a standard to measure deficient performance. 
A) the need for public confidence in the quality of service of the profession. 
B) that it provides a safeguard to keep unscrupulous people out. 
C) that it is required by federal legislation. 
D) that it allows licensing agencies to have a standard to measure deficient performance.

Question 18

What is the difference between auditors and lawyers with respect to privileged information?

Accepted Answer

Public accountants do not have the right

Question 19

An intimidation threat occurs when

Accepted Answer

A) it is difficult to believe the actions of management because there is a suspicion of irregular activity in the recording of transaction activity. 
B) the auditor suspects that fraud has occurred at the middle management level of the organization. 
C) the auditor has been working on a client engagement for many years and has trouble believing that management would deceive the auditors. 
D) a client threatens the firm or its staff with respect to the content of the financial statements or with respect to the conduct of the audit. 
A) it is difficult to believe the actions of management because there is a suspicion of irregular activity in the recording of transaction activity. 
B) the auditor suspects that fraud has occurred at the middle management level of the organization. 
C) the auditor has been working on a client engagement for many years and has trouble believing that management would deceive the auditors. 
D) a client threatens the firm or its staff with respect to the content of the financial statements or with respect to the conduct of the audit.

Question 20

Some independence rules apply to all assurance engagements,while others apply only to a listed entity.For the purposes of assessing the independence rules,a listed entity is defined as

Accepted Answer

A) an organization with share capital exceeding $10 million that has public accountability. 
B) an entity whose debt or shares are listed on a stock exchange,with market capitalization and total assets greater than $10 million. 
C) any organization that has shares or debt listed on a stock exchange. 
D) an organization that has shares or debt listed on a stock exchange,and that has redeemed shares. 
A) an organization with share capital exceeding $10 million that has public accountability. 
B) an entity whose debt or shares are listed on a stock exchange,with market capitalization and total assets greater than $10 million. 
C) any organization that has shares or debt listed on a stock exchange. 
D) an organization that has shares or debt listed on a stock exchange,and that has redeemed shares.

Which of the following situations best describes a familiarity threat?

One of the lessons learned from accounting scandals such as Enron's is that generally accepted accounting principles (now under an acceptable financial reporting framework)cannot be relied upon exclusively in deciding whether financial statements are fairly presented.Why is this the case?

In the auditing environment,failure to meet generally accepted auditing standards is often

In connection with the examination of financial statements,an auditor could be responsible for failure to detect a material fraud if

How is use of an applicable accounting framework enforced via legislation?

Formal frameworks have been developed to help people resolve ethical dilemmas.After obtaining the relevant facts and identifying the ethical issues from the facts,what is the next step in the five-step ethical framework described in the chapter?

Society has attached a special meaning to the term professional.A professional is

For listed clients,the audit committee should approve both the appointment of the auditor and

An example of an audit failure is when the

A)Describe some of the steps the CPA and the accounting profession as a whole can and are taking to reduce practitioners' exposure to lawsuits.B)Describe some of the steps individual practising auditors can take to minimize their legal liability.

Which one of the following situations is a violation of the professional rules of conduct? PA

A code of professional conduct typically includes principles,rules of conduct,and interpretations or examples.What is the purpose of the principles?

Ethical behavior is considered to be a cornerstone for trust in everyday life as well as in business practices.Ethics are

The underlying reason for a high level of professional conduct,such as exemplified in a code of conduct,for any profession is

What is the difference between auditors and lawyers with respect to privileged information?

An intimidation threat occurs when

Some independence rules apply to all assurance engagements,while others apply only to a listed entity.For the purposes of assessing the independence rules,a listed entity is defined as

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Audit Responsibilities and Objectives

Audit Evidence

Client Acceptance,Planning,and Materiality

Assessing the Risk of Material Misstatement

Internal Control and COSO Framework

Assessing Control Risk and Designing Test of Controls

Develop Risk Response: Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters

Exam 3: Professional Ethics and Legal Liability

Which of the following situations best describes a familiarity threat?

One of the lessons learned from accounting scandals such as Enron's is that generally accepted accounting principles (now under an acceptable financial reporting framework)cannot be relied upon exclusively in deciding whether financial statements are fairly presented.Why is this the case?

In the auditing environment,failure to meet generally accepted auditing standards is often

In connection with the examination of financial statements,an auditor could be responsible for failure to detect a material fraud if

How is use of an applicable accounting framework enforced via legislation?

Formal frameworks have been developed to help people resolve ethical dilemmas.After obtaining the relevant facts and identifying the ethical issues from the facts,what is the next step in the five-step ethical framework described in the chapter?

Society has attached a special meaning to the term professional.A professional is

For listed clients,the audit committee should approve both the appointment of the auditor and

An example of an audit failure is when the

A)Describe some of the steps the CPA and the accounting profession as a whole can and are taking to reduce practitioners' exposure to lawsuits.B)Describe some of the steps individual practising auditors can take to minimize their legal liability.

Which one of the following situations is a violation of the professional rules of conduct? PA

A code of professional conduct typically includes principles,rules of conduct,and interpretations or examples.What is the purpose of the principles?

Ethical behavior is considered to be a cornerstone for trust in everyday life as well as in business practices.Ethics are

The underlying reason for a high level of professional conduct,such as exemplified in a code of conduct,for any profession is

What is the difference between auditors and lawyers with respect to privileged information?

An intimidation threat occurs when

Some independence rules apply to all assurance engagements,while others apply only to a listed entity.For the purposes of assessing the independence rules,a listed entity is defined as

The Demand for Audit and Other Assurance Services

The Public Accounting Profession and Audit Quality

Audit Responsibilities and Objectives

Audit Evidence

Client Acceptance,Planning,and Materiality

Assessing the Risk of Material Misstatement

Internal Control and COSO Framework

Assessing Control Risk and Designing Test of Controls

Develop Risk Response: Audit Strategy and Audit Program

Audit Sampling Concepts

Audit of the Revenue Cycle

Audit of the Acquisition and Payment Cycle

Audit of the Inventory and Distribution Cycle

Audit of the Human Resources and Payroll Cycle

Audit of the Capital Acquisition and Repayment Cycle

Audit of Cash Balances

Completing the Audit

Audit Reports on Financial Statements

Other Assurance and Nonassurance Services

Filters