AUDITING THEORY QUESTIONS AND
CORRECT ANSWERS
Contingent fees ANSW✅✅These are fees calculated on a predetermined basis relating to the
outcome or result of a transaction or the result of the work performed.
(Auditing Theory: The CPA'S Professional Responsibility)
Self-interest or intimidation threat ANSW✅✅Which of the following threats to independence may
be created when litigation takes place, or appears likely, between the firm or a member of the
assurance team the assurance client?
(Auditing Theory: The CPA'S Professional Responsibility)
Advertising ANSW✅✅As defined in the Code of Ethics, __________ is the communication to the
public of information as to the services or skills provided by professional accountants in public
practice with a view to procuring professional business.
(Auditing Theory: The CPA'S Professional Responsibility)
Publicity ANSW✅✅As defined in the Code of Ethics, __________ is the communication to the
public of facts about a professional accountant which are not designed for the deliberate promotion
of that professional accountant.
(Auditing Theory: The CPA'S Professional Responsibility)
B. Professional accountants who author books or articles on professional subjects may state their
name and professional qualifications; give the name of their organization; and give any information
as to the services that the firm provides. ANSW✅✅Which of the following statements concerning
publicity is incorrect?
,A. Booklets and other documents bearing the name of a professional accountant and giving technical
information for the assistance of staff or clients may be issued to such persons, other professional
accountants or other interested parties.
B. Professional accountants who author books or articles on professional subjects may state their
name and professional qualifications; give the name of their organization; and give any information
as to the services that the firm provides.
C. Appropriate newspapers or magazines may be used to inform the public of the establishment of a
new practice, of changes in the composition of a partnership of professional accountants in public
practice, or of any alteration in the address of a practice.
D. A professional accountant may develop and maintain a website in the Internet in such suitable
length and style which may also include announcements, press releases, publications and such other
necessary and factual information.
(Auditing Theory: The CPA'S Professional Responsibility)
5 ANSW✅✅The holding of media-covered events undertaken only to commemorate a
professional accountant's anniversaries in public practice does not violate the rules on advertising
and solicitation provided that such undertaking should be done only every _____ years of
celebration.
(Auditing Theory: The CPA'S Professional Responsibility)
Inform interested parties through any medium that a partnership or salaried employment of an
accountancy nature is being sought. ANSW✅✅A professional accountant in public practice is
allowed to
(Auditing Theory: The CPA'S Professional Responsibility)
D. Withdraw from, or refuse to accept, the assurance engagement. ANSW✅✅After evaluating the
significance of the threat created by an actual or threatened litigation, the following safeguards
should be applied to reduce the threat to an acceptable level, except
,A. Disclosing to the audit committee, or others charged with governance, the extent and nature of
the litigation.
B. If the litigation involves a member of the assurance team, removing that individual from the
assurance team.
C. Involving an additional professional accountant in the firm who was not a member of the
assurance team to review the work or otherwise advise as necessary.
D. Withdraw from, or refuse to accept, the assurance engagement.
(Auditing Theory: The CPA'S Professional Responsibility)
C. Both I and II ANSW✅✅When a firm obtains an assurance engagement at a significantly lower
fee level than that charged by the predecessor firm, or quoted by other firms, the self-interest threat
created will not be reduced to an acceptable level unless
I. The firm is able to demonstrate that appropriate time and qualified staff are assigned to the task.
II. All applicable assurance standards, guidelines, and quality control procedures are being complied
with.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
(Auditing Theory: The CPA'S Professional Responsibility)
Self-interest threat ANSW✅✅What threat to independence may be created when the fees
generated by the assurance client represent a large proportion of the revenue of an individual of the
firm?
, (Auditing Theory: The CPA'S Professional Responsibility)
A. The provision of legal services to an audit client involving matters that would not be expected to
have a material effect on the financial statements may create a self-review threat. ANSW✅✅The
following statements relate to the provision of legal services to an audit client. Which is incorrect?
A. The provision of legal services to an audit client involving matters that would not be expected to
have a material effect on the financial statements may create a self-review threat.
B. Legal services to support an audit client in the execution of a transaction (e.g., contract support)
may create a self-review threat.
C. Acting for an audit client in the resolution of a dispute or litigation in such circumstances when the
amounts involved are material in relation to the financial statements of the audit client would create
advocacy and self-review threats so significant no safeguards could reduce the threats to an
acceptable level.
D. The appointment of a partner or an employee of the firm or network firm as General Counsel for
legal affairs to an audit client would create self-review and advocacy threats that are so significant
no safeguards could reduce the threats to an acceptable level.
(Auditing Theory: The CPA'S Professional Responsibility)
D. I, II, and III ANSW✅✅When a close family member of a member of the assurance team is a
director, an officer, or an employee of the assurance client in a position to exert direct and
significant influence over the subject matter information of the assurance engagement, threats to
independence may be created. If the threats are other than clearly insignificant, which of the
following safeguards can be applied to reduce the threats to an acceptable level?
I. Removing the individual from the
assurance team.
II. Where possible, structuring the responsibility of the assurance team so that the professional does
not deal with matters that are within the responsibility of the close family member.
CORRECT ANSWERS
Contingent fees ANSW✅✅These are fees calculated on a predetermined basis relating to the
outcome or result of a transaction or the result of the work performed.
(Auditing Theory: The CPA'S Professional Responsibility)
Self-interest or intimidation threat ANSW✅✅Which of the following threats to independence may
be created when litigation takes place, or appears likely, between the firm or a member of the
assurance team the assurance client?
(Auditing Theory: The CPA'S Professional Responsibility)
Advertising ANSW✅✅As defined in the Code of Ethics, __________ is the communication to the
public of information as to the services or skills provided by professional accountants in public
practice with a view to procuring professional business.
(Auditing Theory: The CPA'S Professional Responsibility)
Publicity ANSW✅✅As defined in the Code of Ethics, __________ is the communication to the
public of facts about a professional accountant which are not designed for the deliberate promotion
of that professional accountant.
(Auditing Theory: The CPA'S Professional Responsibility)
B. Professional accountants who author books or articles on professional subjects may state their
name and professional qualifications; give the name of their organization; and give any information
as to the services that the firm provides. ANSW✅✅Which of the following statements concerning
publicity is incorrect?
,A. Booklets and other documents bearing the name of a professional accountant and giving technical
information for the assistance of staff or clients may be issued to such persons, other professional
accountants or other interested parties.
B. Professional accountants who author books or articles on professional subjects may state their
name and professional qualifications; give the name of their organization; and give any information
as to the services that the firm provides.
C. Appropriate newspapers or magazines may be used to inform the public of the establishment of a
new practice, of changes in the composition of a partnership of professional accountants in public
practice, or of any alteration in the address of a practice.
D. A professional accountant may develop and maintain a website in the Internet in such suitable
length and style which may also include announcements, press releases, publications and such other
necessary and factual information.
(Auditing Theory: The CPA'S Professional Responsibility)
5 ANSW✅✅The holding of media-covered events undertaken only to commemorate a
professional accountant's anniversaries in public practice does not violate the rules on advertising
and solicitation provided that such undertaking should be done only every _____ years of
celebration.
(Auditing Theory: The CPA'S Professional Responsibility)
Inform interested parties through any medium that a partnership or salaried employment of an
accountancy nature is being sought. ANSW✅✅A professional accountant in public practice is
allowed to
(Auditing Theory: The CPA'S Professional Responsibility)
D. Withdraw from, or refuse to accept, the assurance engagement. ANSW✅✅After evaluating the
significance of the threat created by an actual or threatened litigation, the following safeguards
should be applied to reduce the threat to an acceptable level, except
,A. Disclosing to the audit committee, or others charged with governance, the extent and nature of
the litigation.
B. If the litigation involves a member of the assurance team, removing that individual from the
assurance team.
C. Involving an additional professional accountant in the firm who was not a member of the
assurance team to review the work or otherwise advise as necessary.
D. Withdraw from, or refuse to accept, the assurance engagement.
(Auditing Theory: The CPA'S Professional Responsibility)
C. Both I and II ANSW✅✅When a firm obtains an assurance engagement at a significantly lower
fee level than that charged by the predecessor firm, or quoted by other firms, the self-interest threat
created will not be reduced to an acceptable level unless
I. The firm is able to demonstrate that appropriate time and qualified staff are assigned to the task.
II. All applicable assurance standards, guidelines, and quality control procedures are being complied
with.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
(Auditing Theory: The CPA'S Professional Responsibility)
Self-interest threat ANSW✅✅What threat to independence may be created when the fees
generated by the assurance client represent a large proportion of the revenue of an individual of the
firm?
, (Auditing Theory: The CPA'S Professional Responsibility)
A. The provision of legal services to an audit client involving matters that would not be expected to
have a material effect on the financial statements may create a self-review threat. ANSW✅✅The
following statements relate to the provision of legal services to an audit client. Which is incorrect?
A. The provision of legal services to an audit client involving matters that would not be expected to
have a material effect on the financial statements may create a self-review threat.
B. Legal services to support an audit client in the execution of a transaction (e.g., contract support)
may create a self-review threat.
C. Acting for an audit client in the resolution of a dispute or litigation in such circumstances when the
amounts involved are material in relation to the financial statements of the audit client would create
advocacy and self-review threats so significant no safeguards could reduce the threats to an
acceptable level.
D. The appointment of a partner or an employee of the firm or network firm as General Counsel for
legal affairs to an audit client would create self-review and advocacy threats that are so significant
no safeguards could reduce the threats to an acceptable level.
(Auditing Theory: The CPA'S Professional Responsibility)
D. I, II, and III ANSW✅✅When a close family member of a member of the assurance team is a
director, an officer, or an employee of the assurance client in a position to exert direct and
significant influence over the subject matter information of the assurance engagement, threats to
independence may be created. If the threats are other than clearly insignificant, which of the
following safeguards can be applied to reduce the threats to an acceptable level?
I. Removing the individual from the
assurance team.
II. Where possible, structuring the responsibility of the assurance team so that the professional does
not deal with matters that are within the responsibility of the close family member.
