ACCT 5125 Final Exam Newest
Update 2025 A+ Graded and Verified
with Well Elaborated Questions and
Correct Answers
Contingent Fees - Rule 302 - CORRECT ANSWER A member shall not
(1) Perform for a contingent fee any professional service for, or receive such a fee from,
a client for whom the member or the member's firm performs
an audit or review of a financial statement,
a compilation of a financial statement expected to be used by a third party if the
compilation report does not disclose a lack of independence, or
an examination of prospective financial information, or
(2) Prepare an original or amended tax return or claim for a tax refund for a contingent
fee for any client
Advertising and Other Forms of Solicitation - Rule 502 - CORRECT ANSWER A
member in public practice shall not seek to obtain clients by advertising or other forms
of solicitation in a manner that is false, misleading, or deceptive. Solicitation by the use
of coercion, over-reaching, or harassing conduct is prohibited
Commissions and Referral Fees - Rule 503 - CORRECT ANSWER Any member who
accepts a referral fee for recommending or referring any service of a CPA to any person
or entity or who pays a referral fee to obtain a client shall disclose such acceptance or
payment to the client
the occurrence of events that result in losses for users of the financial statements;
the investigation by plaintiff attorneys before filing suit to link the user losses with
allegations of material omissions or misstatements of financial statements;
the legal process that commences with the filing of the suit; and
the final resolution of the dispute - CORRECT ANSWER What are the four general
stages in the initiation and disposition of audit-related disputes:
Common Law
Statutory Law - CORRECT ANSWER what are the 2 classes of law
,common law - CORRECT ANSWER - Case law developed over time by judges
statutory law - CORRECT ANSWER Written law enacted by the legislative branch of
government
gross negligence - CORRECT ANSWER an extreme, flagrant, or reckless departure
from professional standards of due care. This is also referred to as constructive fraud
breach-of-contract liability - CORRECT ANSWER based on the auditor's failing to
complete the services agreed to in the contract with the client
Biggest defense against this is that the client didn't comply with you and give you
necessary information
A duty was owed to the client.
Failure to act in accordance with that duty.
A causal connection between the auditor's negligence and the client's damage.
Actual loss or damage to the client - CORRECT ANSWER for common law negligence,
a client must prove:
No duty was owed to the client.
The client was negligent.
The auditor's work was performed in accordance with professional standards.
The client suffered no loss.
Any loss was caused by other events.
The claim is invalid because the statute of limitations has expired - CORRECT
ANSWER to defend against common law negligence, an auditor can argue:
The auditor had a duty to the plaintiff to exercise due care.
The auditor breached that duty by failing to act with due professional care.
There was a direct causal connection between the auditor's negligence and the third
party's injury.
The 3rd party suffered an actual loss as a result. - CORRECT ANSWER Third party for
negligence must prove:
No duty was owed to the 3rd party (level of duty required depends on the case law
followed by the courts).
The 3rd party was negligent.
The auditor's work was performed in accordance with professional standards.
The 3rd party suffered no loss.
Any loss was caused by other events.
,The claim is invalid because the statute of limitations has expired - CORRECT
ANSWER to defend against third party negligence, an auditor can argue:
Majority rule - CORRECT ANSWER Duty is owed to clients and 3rrd party the CPA
knows will be relying on their work
minority rule - CORRECT ANSWER Duty is owed to clients and 3rrd party the CPA
intends to benefit from their work
A false representation by the CPA.
Knowledge or belief by the CPA that the representation was false.
The CPA intended to induce the 3rd party to rely on the false representation.
The 3rd party relied on the false representation.
The 3rd party suffered damages - CORRECT ANSWER for fraud, a third party must
prove:
securities act of 1933
Securities exchange act of 1934
Sarbanes Oxley Act of 2002 - CORRECT ANSWER what 3 statutes provide sources of
statutory liability for auditors
Must understand the business itself to understand the risk and manage them Perform
risk assessment procedures Identify business risk that may result in material
misstatement
Evaluate entity's risk assessment process to the business risks and obtain evidence of
implementation
Assess the risk of material misstatement and assertion levels - CORRECT ANSWER
What are the steps in the auditor’s risk assessment process?
Inquire of management and others
Analytical procedures
Observation or inspection to obtain an understanding of the business and its
environment - CORRECT ANSWER What are the risk assessment procedures?
Trend analysis
Ratio analysis
Reasonableness analysis - CORRECT ANSWER What are the types of analytical
procedures?
Allowance for auditing risk - CORRECT ANSWER What do auditing standards refer to
precision as
, Determine the test objectives
Define the population, sampling pop, sampling unit, control deviation conditions
Determine sample size using inputs - CORRECT ANSWER What are the steps in
planning audit sampling
obtain an understanding of the entity's internal control
identify key controls
identify the types of potential misstatements
design tests of controls and substantive procedures - CORRECT ANSWER What does
the auditor use risk assessment procedures for?
Organization specifies objectives with clarity to enable identification and assessment of
risks relating to objectives
Organization identifies risk to achievement of its objectives across the entity and
analyzes risks as basis for determining how they should be managed
Organization considers potential for fraud in assessing risk to achievement of objectives
Organization identifies and assess changes that could significantly impact the system of
IC - CORRECT ANSWER What characteristics do we want to see in entity risk
assessment procedures?
Organization selects and develops control activities that contribute to mitigation of risks
to the achievement of objectives to an acceptable level
Organization selects and develops general control activities over tech to support
objectives
Organization deploys control activities through policies that establish expectations and
procedures that put policy into action - CORRECT ANSWER Characteristics of strong
control activities?
Identify potential misstatements
Design test of controls and substantive procedures
Pinpoint factors that affect risk of material misstatement - CORRECT ANSWER What
do we do in obtaining an understanding of IC?
Plan audit of ICFR
Identify controls to test using a top-down risk based approach
Test design and operating effectiveness of selected controls
Evaluate identified control deficiencies
Form an opinion on the effectiveness of ICFR - CORRECT ANSWER What are the
steps in auditors audit of ICFR
Update 2025 A+ Graded and Verified
with Well Elaborated Questions and
Correct Answers
Contingent Fees - Rule 302 - CORRECT ANSWER A member shall not
(1) Perform for a contingent fee any professional service for, or receive such a fee from,
a client for whom the member or the member's firm performs
an audit or review of a financial statement,
a compilation of a financial statement expected to be used by a third party if the
compilation report does not disclose a lack of independence, or
an examination of prospective financial information, or
(2) Prepare an original or amended tax return or claim for a tax refund for a contingent
fee for any client
Advertising and Other Forms of Solicitation - Rule 502 - CORRECT ANSWER A
member in public practice shall not seek to obtain clients by advertising or other forms
of solicitation in a manner that is false, misleading, or deceptive. Solicitation by the use
of coercion, over-reaching, or harassing conduct is prohibited
Commissions and Referral Fees - Rule 503 - CORRECT ANSWER Any member who
accepts a referral fee for recommending or referring any service of a CPA to any person
or entity or who pays a referral fee to obtain a client shall disclose such acceptance or
payment to the client
the occurrence of events that result in losses for users of the financial statements;
the investigation by plaintiff attorneys before filing suit to link the user losses with
allegations of material omissions or misstatements of financial statements;
the legal process that commences with the filing of the suit; and
the final resolution of the dispute - CORRECT ANSWER What are the four general
stages in the initiation and disposition of audit-related disputes:
Common Law
Statutory Law - CORRECT ANSWER what are the 2 classes of law
,common law - CORRECT ANSWER - Case law developed over time by judges
statutory law - CORRECT ANSWER Written law enacted by the legislative branch of
government
gross negligence - CORRECT ANSWER an extreme, flagrant, or reckless departure
from professional standards of due care. This is also referred to as constructive fraud
breach-of-contract liability - CORRECT ANSWER based on the auditor's failing to
complete the services agreed to in the contract with the client
Biggest defense against this is that the client didn't comply with you and give you
necessary information
A duty was owed to the client.
Failure to act in accordance with that duty.
A causal connection between the auditor's negligence and the client's damage.
Actual loss or damage to the client - CORRECT ANSWER for common law negligence,
a client must prove:
No duty was owed to the client.
The client was negligent.
The auditor's work was performed in accordance with professional standards.
The client suffered no loss.
Any loss was caused by other events.
The claim is invalid because the statute of limitations has expired - CORRECT
ANSWER to defend against common law negligence, an auditor can argue:
The auditor had a duty to the plaintiff to exercise due care.
The auditor breached that duty by failing to act with due professional care.
There was a direct causal connection between the auditor's negligence and the third
party's injury.
The 3rd party suffered an actual loss as a result. - CORRECT ANSWER Third party for
negligence must prove:
No duty was owed to the 3rd party (level of duty required depends on the case law
followed by the courts).
The 3rd party was negligent.
The auditor's work was performed in accordance with professional standards.
The 3rd party suffered no loss.
Any loss was caused by other events.
,The claim is invalid because the statute of limitations has expired - CORRECT
ANSWER to defend against third party negligence, an auditor can argue:
Majority rule - CORRECT ANSWER Duty is owed to clients and 3rrd party the CPA
knows will be relying on their work
minority rule - CORRECT ANSWER Duty is owed to clients and 3rrd party the CPA
intends to benefit from their work
A false representation by the CPA.
Knowledge or belief by the CPA that the representation was false.
The CPA intended to induce the 3rd party to rely on the false representation.
The 3rd party relied on the false representation.
The 3rd party suffered damages - CORRECT ANSWER for fraud, a third party must
prove:
securities act of 1933
Securities exchange act of 1934
Sarbanes Oxley Act of 2002 - CORRECT ANSWER what 3 statutes provide sources of
statutory liability for auditors
Must understand the business itself to understand the risk and manage them Perform
risk assessment procedures Identify business risk that may result in material
misstatement
Evaluate entity's risk assessment process to the business risks and obtain evidence of
implementation
Assess the risk of material misstatement and assertion levels - CORRECT ANSWER
What are the steps in the auditor’s risk assessment process?
Inquire of management and others
Analytical procedures
Observation or inspection to obtain an understanding of the business and its
environment - CORRECT ANSWER What are the risk assessment procedures?
Trend analysis
Ratio analysis
Reasonableness analysis - CORRECT ANSWER What are the types of analytical
procedures?
Allowance for auditing risk - CORRECT ANSWER What do auditing standards refer to
precision as
, Determine the test objectives
Define the population, sampling pop, sampling unit, control deviation conditions
Determine sample size using inputs - CORRECT ANSWER What are the steps in
planning audit sampling
obtain an understanding of the entity's internal control
identify key controls
identify the types of potential misstatements
design tests of controls and substantive procedures - CORRECT ANSWER What does
the auditor use risk assessment procedures for?
Organization specifies objectives with clarity to enable identification and assessment of
risks relating to objectives
Organization identifies risk to achievement of its objectives across the entity and
analyzes risks as basis for determining how they should be managed
Organization considers potential for fraud in assessing risk to achievement of objectives
Organization identifies and assess changes that could significantly impact the system of
IC - CORRECT ANSWER What characteristics do we want to see in entity risk
assessment procedures?
Organization selects and develops control activities that contribute to mitigation of risks
to the achievement of objectives to an acceptable level
Organization selects and develops general control activities over tech to support
objectives
Organization deploys control activities through policies that establish expectations and
procedures that put policy into action - CORRECT ANSWER Characteristics of strong
control activities?
Identify potential misstatements
Design test of controls and substantive procedures
Pinpoint factors that affect risk of material misstatement - CORRECT ANSWER What
do we do in obtaining an understanding of IC?
Plan audit of ICFR
Identify controls to test using a top-down risk based approach
Test design and operating effectiveness of selected controls
Evaluate identified control deficiencies
Form an opinion on the effectiveness of ICFR - CORRECT ANSWER What are the
steps in auditors audit of ICFR
