Certified Public Accountant Professional Standards & Competencies 2 — Questions and Answers
Question 1: Under AICPA rules, a CPA who discovers a material error in a previously issued audit report must first:
- Withdraw the report and issue a corrected version immediately
- Notify the client and advise them to disclose the error to affected parties (Correct answer)
- Notify the SEC before contacting the client
- File a Form 8-K on behalf of the client
Correct answer: Notify the client and advise them to disclose the error to affected parties
AU-C Section 560 requires the auditor to notify management and those charged with governance so appropriate disclosure is made to parties relying on the report.
Question 2: Which GAAS standard requires the auditor to obtain sufficient appropriate audit evidence?
- General Standard — due care
- Fieldwork Standard — evidence (Correct answer)
- Reporting Standard — disclosures
- General Standard — independence
Correct answer: Fieldwork Standard — evidence
The fieldwork standard on evidence (AU-C Section 500) requires sufficient appropriate audit evidence to support the opinion.
Question 3: A CPA firm's quality control policies under SQCS No. 8 must address all of the following EXCEPT:
- Human resources
- Engagement performance
- Client fee negotiations (Correct answer)
- Monitoring
Correct answer: Client fee negotiations
SQCS No. 8 covers leadership, ethics, acceptance/continuance, human resources, engagement performance, and monitoring — not fee negotiations.
Question 4: The AICPA Code of Professional Conduct's 'objectivity' principle requires a CPA to:
- Maintain physical separation from client management
- Be free from conflicts of interest and avoid subordinating judgment to others (Correct answer)
- Obtain a second opinion on all major conclusions
- Disclose all fee arrangements in the audit report
Correct answer: Be free from conflicts of interest and avoid subordinating judgment to others
Objectivity prohibits conflicts of interest and requires CPAs to avoid subordinating their professional judgment to the interests of others.
Question 5: When a CPA performs a compilation engagement under AR-C Section 80, the compilation report must include a statement that the CPA:
- Expresses no assurance on the financial statements (Correct answer)
- Obtained limited assurance that no material modifications are needed
- Audited the underlying records
- Verified the accuracy of all disclosures
Correct answer: Expresses no assurance on the financial statements
A compilation report explicitly states that the CPA does not express an opinion or provide any assurance on the financial statements.
Question 6: Under the Sarbanes-Oxley Act, which body has oversight authority over public company auditors?
- AICPA Peer Review Board
- FASB
- Public Company Accounting Oversight Board (PCAOB) (Correct answer)
- SEC Division of Corporation Finance
Correct answer: Public Company Accounting Oversight Board (PCAOB)
SOX Section 101 created the PCAOB to oversee audits of public companies and set auditing standards for those engagements.
Question 7: A CPA accepts a gift valued at $75 from an audit client. Under the AICPA Code, this most likely:
- Is permissible because it is below the $150 threshold
- Is always prohibited regardless of value
- Impairs independence only if the CPA is the engagement partner
- May be accepted if it is clearly inconsequential (Correct answer)
Correct answer: May be accepted if it is clearly inconsequential
The AICPA Code allows acceptance of gifts that are clearly inconsequential, but even small gifts can impair independence if not trivial in context.
Certified Public Accountant Professional Standards & Competencies 2
Under AICPA rules, a CPA who discovers a material error in a previously issued audit report must first: