UNIT 3 AUDITING D215 UPDATED
ACTUAL Exam Questions and CORRECT
Answers
level of expertise - CORRECT ANSWER - Professional athletes are often referred to as
"pros" because of their skill and level of expertise
concern for the public interest - CORRECT ANSWER - •The cornerstone of the public
accounting profession is that the work done by Certified Public Accountants (C P A s) serves the
public interest.
•The terms "professional," or a "profession," relate to a profession's responsibility and concern
for the public interest.
•To protect public interest and ensure C P A s are truly qualified and competent, State
governments regulate the licensing of CPAs.
In order to be recognized and practice as a C P A, individuals must: - CORRECT
ANSWER - •(1) complete education requirements, (2) pass a professional examination
(the CPA exam), and (3) complete an experience requirement. Many States also require the
applicant to (4) pass an ethics exam.
NOTE**•State governments monitor, regulate, and support C P A s through state boards of
accountancy.
The Sarbanes-Oxley Act of 2002 (S O X) - CORRECT ANSWER - created the Public
Company Accounting Oversight Board (P C A O B), under the Securities and Exchange
Commission (S E C), to provide oversight of the auditors of public companies
AICPA's Code of Professional Conduct (the Code) - CORRECT ANSWER - provides
guidance to all members of the AICPA with respect to performance of their professional
responsibilities.
1.Principles -express the basic tenets of ethical conduct and provide the framework for the rules
that govern the performance of a member's professional responsibilities.
2.Rules of Conduct -establish minimum standards of acceptable conduct in the performance of
professional services.
, 3.Interpretations- provide additional guidance regarding the scope and applicability of the rules
of conduct.
Conceptual Framework for Members in Public Practice - CORRECT ANSWER - Step 1:
Identify threats. CPA s interact with clients in a number of circumstances that can create the
following threats.
Step 2: Evaluate the significance of threats.•CPAs should evaluate identified threats both
individually and in aggregate.
Step 3: Identify and apply safeguards. The following are three basic types of safeguards:
•safeguards created by the profession
•safeguards implemented by a client
•safeguards within the firm
•Step 4: Evaluate the effectiveness of safeguards. If a C P A concludes that threats are at an
acceptable level after applying the identified safeguards, then the C P A may proceed with the
professional service.
•Step 5: Document threats and safeguards. (PLease see flash cards below)
Adverse interest threat: - CORRECT ANSWER - 1.ACPA may not act with objectivity
when the CPA's interests are opposed to the client's interests.
Advocacy threat: - CORRECT ANSWER - 1.ACPA may promote a client's interests or
position to the point that the CPA 's objectivity or independence is compromised. Example- A
CPA firm has provided services to a client for the last two years, and the revenue received equals
50 percent of the total revenue for the CPA firm.During the current year, the client asks the CPA
to serve as an expert witness in a court case for which a customer is suing over the quality of
their products. The CPA agrees to testify while continuing to provide professional services to the
client.
Familiarity threat: - CORRECT ANSWER - 1.Due to a long or close relationship with a
client, a C P A may become too sympathetic to the client's interests, or too accepting of the
client's work or product.
ACTUAL Exam Questions and CORRECT
Answers
level of expertise - CORRECT ANSWER - Professional athletes are often referred to as
"pros" because of their skill and level of expertise
concern for the public interest - CORRECT ANSWER - •The cornerstone of the public
accounting profession is that the work done by Certified Public Accountants (C P A s) serves the
public interest.
•The terms "professional," or a "profession," relate to a profession's responsibility and concern
for the public interest.
•To protect public interest and ensure C P A s are truly qualified and competent, State
governments regulate the licensing of CPAs.
In order to be recognized and practice as a C P A, individuals must: - CORRECT
ANSWER - •(1) complete education requirements, (2) pass a professional examination
(the CPA exam), and (3) complete an experience requirement. Many States also require the
applicant to (4) pass an ethics exam.
NOTE**•State governments monitor, regulate, and support C P A s through state boards of
accountancy.
The Sarbanes-Oxley Act of 2002 (S O X) - CORRECT ANSWER - created the Public
Company Accounting Oversight Board (P C A O B), under the Securities and Exchange
Commission (S E C), to provide oversight of the auditors of public companies
AICPA's Code of Professional Conduct (the Code) - CORRECT ANSWER - provides
guidance to all members of the AICPA with respect to performance of their professional
responsibilities.
1.Principles -express the basic tenets of ethical conduct and provide the framework for the rules
that govern the performance of a member's professional responsibilities.
2.Rules of Conduct -establish minimum standards of acceptable conduct in the performance of
professional services.
, 3.Interpretations- provide additional guidance regarding the scope and applicability of the rules
of conduct.
Conceptual Framework for Members in Public Practice - CORRECT ANSWER - Step 1:
Identify threats. CPA s interact with clients in a number of circumstances that can create the
following threats.
Step 2: Evaluate the significance of threats.•CPAs should evaluate identified threats both
individually and in aggregate.
Step 3: Identify and apply safeguards. The following are three basic types of safeguards:
•safeguards created by the profession
•safeguards implemented by a client
•safeguards within the firm
•Step 4: Evaluate the effectiveness of safeguards. If a C P A concludes that threats are at an
acceptable level after applying the identified safeguards, then the C P A may proceed with the
professional service.
•Step 5: Document threats and safeguards. (PLease see flash cards below)
Adverse interest threat: - CORRECT ANSWER - 1.ACPA may not act with objectivity
when the CPA's interests are opposed to the client's interests.
Advocacy threat: - CORRECT ANSWER - 1.ACPA may promote a client's interests or
position to the point that the CPA 's objectivity or independence is compromised. Example- A
CPA firm has provided services to a client for the last two years, and the revenue received equals
50 percent of the total revenue for the CPA firm.During the current year, the client asks the CPA
to serve as an expert witness in a court case for which a customer is suing over the quality of
their products. The CPA agrees to testify while continuing to provide professional services to the
client.
Familiarity threat: - CORRECT ANSWER - 1.Due to a long or close relationship with a
client, a C P A may become too sympathetic to the client's interests, or too accepting of the
client's work or product.
