What are the major functions of audit working papers?
> Distinguish between ordinary negligence and gross negligence within the context of the CPAs’ work.
> Rogers and Green, CPAs, admit they failed substantially to follow generally accepted auditing standards in their audit of Martin Corporation. “We were overworked and understaffed and never should have accepted the engagement,” said Rogers. Does this situ
> Comment on the following statement: While engagement letters are useful for audit engagements, they are not necessary for compilation and review engagements.
> What are the principal use and significance of an audit report to a large corporation with securities listed on a stock exchange? To a small family-owned enterprise?
> Describe a situation in which a set of audit working papers might be used by third parties to support a charge of gross negligence against the auditors.
> In the 1136 Tenants’ Corporation case, what was the essential difference in the way the client and the CPAs viewed the work to be done in the engagement?
> How does the SEC regulate auditors who appear and practice before the commission?
> Why did Congress enact the Racketeer Influenced and Corrupt Organizations Act? Why has it been of concern to auditors? What subsequent developments have reduced this concern?
> How was the Continental Vending case unusual with respect to penalties levied against auditors?
> Why was the Ernst & Ernst v. Hochfelder decision considered a “victory” for the accounting profession?
> State briefly a major distinction between the Securities Act of 1933 and the Securities Exchange Act of 1934 with respect to the type of transactions regulated.
> Compare the rights of plaintiffs under common law with the rights of persons who purchase securities registered under the Securities Act of 1933 and sustain losses. In your answer, emphasize the issue of who must bear the burden of proof.
> Contrast joint and several liability with proportionate liability.
> Explain why the potential liability of auditors for professional “malpractice” exceeds that of physicians or other professionals.
> Three months ago, a national public accounting firm hired Greg Scott to work as a staff auditor in its New York office. Yesterday, Scott’s father was hired to be the chief financial officer of one of the public accounting firm’s New York office clients.
> Audit working papers are the property of the auditors, who may destroy the papers, sell them, or give them away.” Criticize this quotation.
> What is the most common type of attest engagement? What is most frequently being “asserted” by management on this type of engagement?
> Bill Scott works as a manager in the Phoenix office of an international public accounting firm. His father has just taken a position as a purchasing agent for one of the public accounting firm’s Phoenix clients. Has Bill’s independence been impaired with
> Explain how a CPA might have an indirect financial interest in an audit client. Does the AICPA Code of Professional Conduct prohibit such interests?
> How does the AICPA Code of Professional Conduct relate, if at all, to Statements on Auditing Standards?
> List the broad categories of threats to independence included in the AICPA Conceptual Framework for Independence Standards.
> Describe the relationships among the AICPA Code of Professional Conduct’s principles, rules, and interpretations.
> What is the basic purpose of a code of ethics for a profession?
> Since internal auditors are employees, they have no ethical responsibilities to others beyond their employers.” Comment on this statement.
> What board establishes international ethical standards for accountants? How do these standards compare to the AICPA Code of Professional Conduct?
> In preparing a client’s income tax return, a CPA feels that certain expenses are unreasonably high and probably are overstated. Explain the CPA’s responsibilities in this situation.
> List the major types of audit working papers and give a brief explanation of each. For example: One type of audit working paper is an account analysis. This working paper shows the changes that occurred in a given account during the period under audit. B
> Describe several business situations that would create a need for a report by an independent public accountant concerning the fairness of a company’s financial statements.
> In what circumstances are the various conceptual frameworks within the Code of Professional Conduct considered by accountants?
> Define assurance services. What are the two distinct types?
> The AICPA Code of Professional Conduct includes rules in various areas. Which of those rules apply to CPAs not in public practice but in business or other positions (e.g., retired or unemployed)?
> Must a CPA maintain independence and an impartial mental attitude when preparing a client’s income tax return? Explain.
> In what organizational forms may CPAs practice public accounting?
> What are the two major types of constraints on decisions that involve ethical issues? Provide examples of each type.
> Laura Clark, wife of Jon Clark, CPA, is a life insurance agent. May Jon Clark refer audit clients needing officer life insurance to Laura Clark or to another life insurance agent who will share a commission with Laura Clark? Explain.
> Sandy Schultz, CPA, has performed a consulting services job in which she made recommendations that ultimately resulted in one of her audit clients purchasing a computer manufactured by the AMZ Computer Corporation. Shortly thereafter, Ms. Schultz was sur
> Jian Zhang is a CPA who often serves as an expert witness in court cases. Is it proper for Zhang to receive compensation in a damage suit based on the amount awarded to the plaintiff? Discuss.
> Use the AICPA Code of Professional Conduct (available at pub.aicpa.org/code of conduct) to identify the circumstances under which a CPA may not perform professional services on a contingent fee basis. Cut and paste the most directly relevant rule from th
> Why are the prior year’s audit working papers a useful reference to staff assistants during the current audit?
> Comment on the following: In performing a consulting engagement for a client, a CPA may perform any services that the client requests.
> Which rules of the AICPA Code of Professional Conduct recognize the PCAOB as a body authorized to issue technical standards?
> In late 2001 through 2002, the accounting profession faced a “crisis of credibility.” Describe the events that led up to this crisis.
> How do the rules for the audit of public versus nonpublic companies differ with respect to the independence of a CPA who performs routine accounting services for a client?
> Describe what is meant by the term “covered member.”
> With respect to ethics, what are the responsibilities of the Public Company Accounting Oversight Board? What is the source of the Board’s authority?
> Sara Kole, CPA, has been requested by the president of Noyes Company, a closely held corporation and audit client, to cosign Noyes Company checks with the Noyes treasurer when the president is away on business trips. Use the Code of Professional Conduct
> What is meant by the term ethical dilemma? Describe an ethical dilemma that you have faced.
> Draft the standard form of audit report commonly issued after a satisfactory audit of a public client’s financial statements. Assume that the auditors issued a separate report on internal control and that the company is not required to present critical a
> Pike Company has had an annual audit performed by the same firm of certified public accountants for many years. The financial statements and copies of the audit report are distributed to stockholders each year shortly after completion of the audit. Who i
> Evaluate the following quotation: “If a CPA firm completes a nonpublic company audit of Adam Company’s financial statements following AICPA generally accepted auditing standards and is satisfied with the results of the audit, an unmodified audit report m
> Explain briefly the auditors’ responsibility for detecting noncompliance with laws by clients.
> In the context of an audit of financial statements, explain what is meant by professional skepticism.
> You are the partner on the audit of Datasave, Inc., a small publicly held corporation that manufactures high-speed disk drives for the computer industry. The audit of Datasave had been progressing satisfactorily until you were about a month away from iss
> What relationship exists between AICPA generally accepted auditing standards (GAAS) and the Statements on Auditing Standards (SASs)?
> What is a financial reporting framework? Why is a financial reporting framework important to a financial statement audit?
> Comment on the following: The SEC's acceptance of the use of International Financial Reporting Standards in filings replaces use of PCAOB Auditing Standards for audits of international companies.
> Distinguish between the system review and the engagement review types of peer reviews.
> What are the duties and responsibilities of the Public Company Accounting Oversight Board?
> Do the AICPA’s Statements on Quality Control Standards require every CPA firm to implement similar quality control procedures? Explain.
> Evaluate the following statement: “Identifying related parties and obtaining a client representation letter are two required audit procedures normally performed on the last day of fieldwork.”
> Explain the basic objective of establishing quality control procedures in the following areas. a. Engagement performance. b. Human resources. c. Monitoring.
> What is the difference between generally accepted accounting principles (GAAP) and AICPA generally accepted auditing standards (GAAS)?
> What is the meaning of quality control and peer review as these terms relate to the operation of a CPA firm? Is peer review mandatory? Explain.
> Do the AICPA attestation standards supersede any of the AICPA generally accepted auditing standards? Explain.
> The International Bank of Commerce (IBC) is an audit client of your public accounting firm. IBC is a multinational financial institution that operates in 23 countries. During the current year’s audit, you have discovered the following problems: a. Improp
> Explain how the auditors determine whether a client’s accounting is appropriate when the FASB Codification includes no specific guidance with respect to accounting for a particular type of transaction.
> What is a “material” amount from the perspective of auditors? Give an example of how that amount may differ based on the nature of the item.
> Harris Fell, CPA and member of the AICPA, was engaged to audit the financial statements of Wilson Corporation. Fell had half-completed the audit when he had a dispute with the management of Wilson Corporation and was discharged. Hal Compton, CPA, was pro
> If a CPA firm has performed a thorough professional audit of a client’s financial statements, should it not be able to issue a report dealing with facts rather than the mere expression of an opinion? Explain.
> A CPA firm does not guarantee the financial soundness of a client when it renders an opinion on financial statements, nor does the CPA firm guarantee the absolute accuracy of the statements. Yet the CPA firm’s opinion is respected and accepted. What is e
> What disclosures should be made in the financial statements regarding material related party transactions?
> When a CPA firm completes an audit of a nonpublic business and issues a report, does it express an opinion on the client’s accounting records, financial statements, or both? Give reasons.
> Alan Weston, CPA, completed an audit of Kirsten Manufacturing Company and issued a standard audit report. What does this tell us about the extent of the auditing procedures included in the audit?
> State the principal assertions made by the auditors in the “Opinion on the Financial Statements” section of the PCAOB auditors’ standard report. Assume that the auditors issued a separate report on internal control.
> Davis & Co., Certified Public Accountants, after completing an audit of Samson Company, decided that it would be unable to issue an unmodified opinion. What circumstances might explain this decision?
> Contrast the roles of the AICPA and the PCAOB in the development of auditing standards.
> You are a partner in the Denver office of a national public accounting firm. During the audit of Mountain Resources, you learn that this audit client is negotiating to sell some of its unproved oil and gas properties to SuperFund, a large investment comp
> What is the International Auditing and Assurance Standards Board? What is the purpose of its pronouncements? Do these pronouncements establish standards that override a member nation’s auditing standards?
> What characteristics make an accounting association an accounting network?
> List three of the more important responsibilities of a partner in a public accounting firm.
> Describe the various levels or positions of accounting personnel in a large public accounting firm.
> Identify and describe the two components of the risk of material misstatement.
> Public accounting firms are sometimes grouped into categories of local firms, regional firms, national firms, and international firms. Explain briefly the characteristics of each. Include in your answer the types of services stressed in each group.
> How does a professional corporation differ from a traditional corporation?
> Will Williams, a college senior, has begun the interviewing process. He has discovered a great variety of organizations in search of “accounting majors.” He finds that various public accounting firms, corporations, the GAO, and the IRS are all interviewi
> What are the advantages of organizing a public accounting firm as a partnership rather than a sole proprietorship?
> Hide-It (HI), a family-owned business based in Tombstone, Arizona, builds custom homes with special features, such as hidden rooms and hidden wall safes. Hide-It has been an audit client for three years. You are about to sign off on a “clean” opinion on
> Houseco, an audit client of Jones, CPA, for the past five years, is a manufacturer of various household products. Approximately four years ago, Houseco developed a better toaster than had been available and sales took off, especially during the most rece
> You are the partner-in-charge of a large metropolitan office of a regional public accounting firm. Two members of your professional staff have come to you to discuss problems that may affect the firm’s independence. Neither of these situations has been s
> The issue of whether the performance of nonattest (consulting) services for audit clients impairs independence of the auditors has been widely debated within the public accounting profession. Restrictions on the performance of consulting are a major aspe
> The following appeared in a brief article in a major business newspaper: A local court is in the process of ruling on whether the public accounting firm of James Willis and Co., CPAs, PC, should be required to pay all or part of $16 million in damages re
> Bart James, a partner in the CPA firm of James and Day, received the following memorandum from John Gray, president of Gray Manufacturing Corporation, an audit client of many years. Dear Bart: I have a new type of engagement for you. You are familiar wit
> What are related party transactions?
> In a discussion between Peters and Ferrel, two auditing students, Peters made the following statement: “A CPA is a professional person who is licensed by the state for the purpose of providing an independent expert opinion on the fairness of financial st
> Feller, the sole owner of a small hardware business, has been told that the business should have its financial statements audited by an independent CPA. Feller, having some bookkeeping experience, has personally prepared the company’s financial statement
> Joe Rezzo, a college student majoring in accounting, helped finance his education with a parttime job maintaining all accounting records for a small business, White Company, located near the campus. Upon graduation, Rezzo passed the CPA examination and j
> Meglow Corporation, a closely held manufacturer of dresses and blouses, sought a loan from Busch Factors. Busch had previously extended $50,000 credit to Meglow but refused to lend any additional money without obtaining copies of Meglow’s audited financi
> Apart from auditing, what other professional services are offered by public accounting firms?
> Risk Capital Limited, a publicly held Delaware corporation, was considering the purchase of a substantial amount of the treasury stock held by Florida Sunshine Corporation, a closely held corporation. Initial discussions with the Florida Sunshine Corpora
> Audit risk should be considered when planning and performing an audit of financial statements in accordance with generally accepted auditing standards. Required: a. Define audit risk. b. Describe its components of inherent risk, control risk, and detect
