Certified Public Accountant Quality Control & Assurance 2 — Questions and Answers
Question 1: Under SQCS No. 8, which element of a firm's quality control system addresses the acceptance and continuance of client relationships?
- Human resources
- Relevant ethical requirements
- Acceptance and continuance of client relationships and specific engagements (Correct answer)
- Monitoring
Correct answer: Acceptance and continuance of client relationships and specific engagements
SQCS No. 8 identifies acceptance and continuance of client relationships and specific engagements as a distinct quality control element.
Question 2: A CPA firm's monitoring procedures reveal that several audit files lack required supervisory review sign-offs. The firm should FIRST:
- Notify the PCAOB immediately
- Identify the root cause and remediate deficiencies in affected engagements (Correct answer)
- Terminate the responsible engagement partners
- Report the finding to the audit committee of affected clients
Correct answer: Identify the root cause and remediate deficiencies in affected engagements
When monitoring reveals deficiencies, the firm must understand the cause and take corrective action, including reassessing whether prior reports are appropriate.
Question 3: Which statement best describes the purpose of an engagement quality control review (EQCR)?
- To replace the engagement partner's responsibility for the engagement
- To provide an objective evaluation of significant judgments made by the engagement team (Correct answer)
- To satisfy the client's audit committee oversight requirements
- To document the firm's compliance with independence rules
Correct answer: To provide an objective evaluation of significant judgments made by the engagement team
An EQCR is designed to provide an objective second review of significant judgments before the report is issued.
Question 4: Under PCAOB standards, an engagement quality reviewer for a public company audit must have which characteristic?
- Must be from a different office than the engagement partner
- Must not have participated in the engagement during the period under review (Correct answer)
- Must be a current PCAOB-registered auditor
- Must hold a CPA license in the state of the issuer's incorporation
Correct answer: Must not have participated in the engagement during the period under review
The PCAOB requires that the engagement quality reviewer be independent of the engagement, meaning they did not participate in the audit being reviewed.
Question 5: A firm's quality control policy requires that all new audit clients be assessed for integrity. Which procedure best fulfills this requirement?
- Performing analytical procedures on the prospective client's financial statements
- Inquiring of the prospective client's legal counsel about pending litigation
- Contacting predecessor auditors and reviewing publicly available information about management (Correct answer)
- Confirming the prospective client's bank balances
Correct answer: Contacting predecessor auditors and reviewing publicly available information about management
Assessing client integrity typically involves communicating with the predecessor auditor and reviewing public records about management's reputation.
Question 6: Which of the following is a key difference between SQCS No. 8 (applicable to non-issuers) and PCAOB QC standards (applicable to issuers)?
- PCAOB standards require a documented engagement quality review on all engagements; SQCS No. 8 requires it only for audits
- PCAOB standards require concurrence by the engagement quality reviewer before the report is released; SQCS No. 8 does not mandate this (Correct answer)
- SQCS No. 8 requires annual independence confirmations; PCAOB does not
- SQCS No. 8 applies only to firms with more than 10 partners
Correct answer: PCAOB standards require concurrence by the engagement quality reviewer before the report is released; SQCS No. 8 does not mandate this
PCAOB standards require that the engagement quality reviewer concur before the audit report is issued, a more prescriptive requirement than SQCS No. 8.
Question 7: A CPA firm discovers that a quality control deficiency resulted in an audit report that may be inappropriate. The firm's MOST important immediate action is to:
- Withdraw from all current engagements
- Evaluate whether to withdraw the report or take other remedial action (Correct answer)
- File an amended report with the SEC automatically
- Assign a new engagement partner and re-issue the opinion
Correct answer: Evaluate whether to withdraw the report or take other remedial action
When a deficiency may have led to an inappropriate report, the firm must evaluate the situation and determine what remedial steps are required, including potential report withdrawal.
Certified Public Accountant Quality Control & Assurance 2
Under SQCS No. 8, which element of a firm's quality control system addresses the acceptance and continuance of client relationships?