Mixed Deck — All CPA Topics Flashcards

What is the purpose of data analysis in CPA practice?

Answer: Transforming raw data into insights for informed decision-making

Data analysis examines, cleans, and models data to discover useful information and support decision-making.

What is accrual accounting?

Answer: Revenues and expenses are recognized when earned or incurred.

Accrual accounting is an accounting method where revenues and expenses are recorded when they are earned or incurred, regardless of when cash actually changes hands. This provides a more accurate picture of a company's financial performance over a period, as it matches revenues with the expenses that generated them. It contrasts with cash basis accounting, where transactions are recorded only when cash is received or paid.

How do regulations differ from standards in CPA practice?

Answer: Regulations are legally binding; standards are typically voluntary

Regulations are legally enforceable government rules; standards are industry-developed guidelines that may become requirements through adoption.

What is an internal control in CPA financial management?

Answer: A process providing assurance about financial reporting reliability

Internal controls safeguard assets, ensure accurate reporting, promote efficiency, and ensure compliance.

Under the concept of 'independence in appearance,' a CPA should:

Answer: Avoid situations that a reasonable observer might question as compromising objectivity

Independence in appearance means avoiding circumstances that a reasonable, informed third party would view as compromising the CPA's objectivity.

Under the AICPA Code of Professional Conduct, which threat to independence arises when an auditor has a loan from an audit client?

Answer: Self-interest threat

A financial relationship such as a loan from an audit client creates a self-interest threat because the auditor has a personal financial stake in the client's outcome.

The contribution margin ratio is calculated as:

Answer: Contribution margin divided by sales revenue

The contribution margin ratio equals contribution margin (sales minus variable costs) divided by sales revenue, showing what percentage of each sales dollar covers fixed costs and profit.

Which body has the authority to set auditing standards for audits of public company financial statements in the United States?

Answer: PCAOB

The Public Company Accounting Oversight Board (PCAOB) sets auditing standards for registered public accounting firms auditing SEC-registered companies.

What is active listening in CPA practice?

Answer: Fully concentrating on the speaker and providing thoughtful feedback

Active listening involves fully focusing on the speaker, processing the message, and providing thoughtful responses demonstrating understanding.

Which procedure provides the highest level of assurance about the existence of accounts receivable?

Answer: Sending positive confirmation requests to customers

Positive confirmations require the recipient to respond whether or not they agree, providing direct external evidence about existence.

When testing controls, an auditor finds 3 deviations in a sample of 60 items. The tolerable deviation rate is 5%. What should the auditor conclude?

Answer: The controls may not be effective; consider increasing substantive testing

A 5% sample deviation rate (3/60) equals the tolerable rate, and considering sampling risk, the auditor should increase substantive testing.

What is the balanced scorecard?

Answer: A framework for measuring organizational performance across multiple perspectives.

The balanced scorecard is a strategic performance management framework that measures organizational performance beyond just financial metrics. It provides a holistic view by evaluating performance across four key perspectives: financial, customer, internal business processes, and learning and growth. This helps align business activities with the organization's vision and strategy.

What is a budget variance?

Answer: The difference between budgeted costs and actual costs.

A budget variance represents the quantitative difference between a budgeted amount and the actual amount incurred or achieved. Specifically, it measures how much actual costs or revenues deviate from what was planned in the budget. Analyzing variances helps management understand performance and identify areas needing attention.

Which of the following best describes 'professional skepticism' as required by auditing standards?

Answer: A questioning mind and critical assessment of audit evidence

Professional skepticism involves a questioning mind and critical assessment of evidence, neither assuming dishonesty nor unquestioned acceptance of management claims.

Which accounting standard-setting body establishes accounting and financial reporting standards for state and local governments in the United States?

Answer: GASB

The Governmental Accounting Standards Board (GASB) is the authoritative standard-setter for state and local government financial reporting in the U.S.

What is an internal control in CPA financial management?

Answer: A process providing assurance about financial reporting reliability

Internal controls safeguard assets, ensure accurate reporting, promote efficiency, and ensure compliance.

Why is documentation critical in CPA compliance?

Answer: It provides evidence of compliance and defensible records

Documentation provides verifiable evidence that requirements are met and creates defensible records if compliance is questioned.

Which sampling method gives every item in the population an equal and nonzero chance of selection?

Answer: Simple random sampling

Simple random sampling ensures each item has an equal and nonzero probability of being selected, satisfying statistical sampling requirements.

What is financial forecasting in CPA practice?

Answer: Predicting future conditions based on historical data and trends

Forecasting uses historical data and trends to project future financial conditions, supporting strategic planning.

In a not-for-profit organization following FASB ASC 958, net assets are classified into which two categories?

Answer: With donor restrictions and without donor restrictions

ASU 2016-14 (FASB ASC 958) simplified net asset classification to two categories: with donor restrictions and without donor restrictions.