CPA Regulatory Compliance & Standards 2 — Questions and Answers
Question 1: Under the Sarbanes-Oxley Act, how long must audit workpapers be retained by a registered public accounting firm?
- 3 years
- 5 years
- 7 years (Correct answer)
- 10 years
Correct answer: 7 years
SOX Section 802 requires audit workpapers to be retained for 7 years.
Question 2: Which body sets auditing standards for audits of non-public (private) companies in the United States?
- PCAOB
- FASB
- AICPA Auditing Standards Board (Correct answer)
- SEC
Correct answer: AICPA Auditing Standards Board
The AICPA Auditing Standards Board issues Statements on Auditing Standards (SAS) for private company audits.
Question 3: A CPA discovers a material misstatement in a client's previously issued financial statements. Under AU-C Section 560, what is the primary required action?
- Issue a qualified opinion on the next audit
- Advise the client to restate and reissue the financial statements (Correct answer)
- Withdraw from the engagement immediately
- Notify the SEC directly
Correct answer: Advise the client to restate and reissue the financial statements
AU-C 560 requires the auditor to advise the client to make appropriate disclosure and restate prior period financials when a material misstatement is discovered.
Question 4: Under PCAOB AS 2201, an auditor's report on internal control over financial reporting must be integrated with which other report?
- The tax compliance report
- The management discussion and analysis
- The audit report on financial statements (Correct answer)
- The audit committee communication
Correct answer: The audit report on financial statements
AS 2201 requires the ICFR report to be integrated with the audit report on the financial statements for public companies.
Question 5: Which Treasury Circular governs the practice of CPAs, attorneys, and enrolled agents before the IRS?
- Circular 230 (Correct answer)
- Circular 170
- Circular 31
- Circular 570
Correct answer: Circular 230
Treasury Department Circular 230 regulates practitioners who practice before the IRS, including CPAs.
Question 6: Under GAAS, the concept of 'professional skepticism' primarily means the auditor should:
- Assume management is dishonest until proven otherwise
- Apply a questioning mind and critically assess audit evidence (Correct answer)
- Refuse all client explanations without corroboration
- Increase sample sizes by 50% on every engagement
Correct answer: Apply a questioning mind and critically assess audit evidence
Professional skepticism requires a questioning mind and critical assessment of evidence rather than assuming either honesty or dishonesty.
Question 7: The AICPA Code of Professional Conduct Rule 1.700.001 addresses which fundamental ethical issue?
- Contingent fees
- Confidential client information (Correct answer)
- Advertising and solicitation
- Independence requirements
Correct answer: Confidential client information
Rule 1.700.001 (Confidential Client Information Rule) prohibits CPAs from disclosing confidential client information without consent.
CPA Regulatory Compliance & Standards 2
Under the Sarbanes-Oxley Act, how long must audit workpapers be retained by a registered public accounting firm?