These are the automatically computed results of your exam. Grades for essay questions, and comments from your instructor, are in the "Details" section
... [Show More] below. Date Taken: 1/31/2016
Time Spent: 1 h , 40 min , 36 secs
Points Received: 183 / 200 (91.5%)
Question Type: # Of Questions: # Correct:
Multiple Choice 11 8
Matching 1 1
Short 7 N/A
Grade Details - All Questions
Page: 1 2
Question 1. Question : (TCO A) Match the following definitions to the appropriate terms.
Student Answer: : Standards of fieldwork » 2 : Sufficient understanding of internal control
: General standards
» 1 : Due professional care
: Standards of reporting » 3 : Adequacy of informative disclosures
Points Received: 5 of 5
Comments:
Question 2. Question : (TCO B) The following is a portion of a qualified audit report issued for a private company.
To the shareholders of Tamarak Corporation,
We have audited the accompanying balance sheet of Tamarak Corporation as of October 31, 2009, and the related statements of income, retained earnings, and cash flows for the past year. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
The company has included in property and debt in the accompanying balance sheet certain lease obligations that, in our opinion, should be expensed in order to conform with generally accepted accounting principles. If these lease obligations were capitalized, property would be decreased by $4,000,000, long-term debt by $2,000,000, and retained earnings by $180,000 as of October 31, 2009, and net income and earnings per share would be decreased by $180,000 and $0.62, respectively, for the past year.
Required: Complete the above qualified audit report by preparing the opinion paragraph. Do not date or sign the report.
Student Answer: In our opinion, except for the effects of capitalizing lease obligations, as conversed in the previous section, the financial statements referred to above are present fairly and honestly, in all material respects, the financial position of Tamarak Corporation as of October 31, 2009, and these results of its operations and its cash flows for the past year follow generally accepted accounting principles.
Instructor Explanation: See Chapter 3, page 61.
In our opinion, except for the effects of capitalizing lease obligations, as discussed in the preceding paragraph, the financial statements referred to above present fairly, in all material respects, the financial position of Tamarak Corporation as of October 31, 2009, and the results of its operations and its cash flows for the past year in conformity with generally accepted accounting principles.
Points Received: 20 of 20
Comments:
Question 3. Question : (TCO C) The following situation involves a possible violation of the AICPA's code of professional conduct. For this situation, (1) determine the applicable rule number from the code, (2) decide whether or not the code has been violated, and (3) briefly explain how the situation violates (or does not violate) the code. Your answer should be set up something like this:
Rule # _____ Violation? Yes or No.
Provide a one- or two-line explanation.
Auditor Tex Gato of the CPA firm Smackey and Smackey, CPAs, enjoyed auditing his favorite client, Super Pup Dog Food, because the client would allow him to take home to his dog a variety of dog food samples that amounted to a year's worth of dog food.
Student Answer: Rule # 102 Violation? Yes Reason: A year's worth of dog food is not just a small sample that is negligible in value. The audit basically gives him free dog food for the year between audits. This is a conflict of interest in that the client is subsidizing the auditor and so the auditor may feel reluctant to irritate the client and cut off the doggie supplies. This could reduce his objectivity towards the audit.
Instructor Explanation: See Chapter 4, page 95.
This is a violation of Rule #102, integrity and objectivity. The auditor is receiving more than a gratuitous gift ($25 or less) , and his objectivity and integrity are impaired.
Points Received: 10 of 10
Comments:
Question 4. Question : (TCO C) The following situation involves a possible violation of the AICPA's code of professional conduct. For this situation, (1) determine the applicable rule number from the code, (2) decide whether or not the code has been violated, and (3) briefly explain how the situation violates (or does not violate) the code. Your answer should be set up something like this:
Rule # _____ Violation? Yes or No.
Provide a one- or two-line explanation.
Howard Cunningham & Co., CPAs, designates its firm as Members of the American Institute of Certified Public Accountants. All of the partners of the firm are CPAs. However, one of the partners has recently chosen to allow her membership to lapse because of personal reasons.
Student Answer: Rule # 502 Violation? Yes In order to advertise that the firm and it's members or partners are a member of the AICPA, all partners must be members of the AICPA. Because one of the partners allowed their membership to lapse causes the firm to not be able to say that they are a member of the AICPA.
Instructor Explanation: See Chapter 4, page 101.
This is a violation of Rule #505. A firm may not designate itself as Members of the American Institute of Certified Public Accountants unless all of its owners are members of the Institute.
Points Received: 10 of 10
Comments:
Question 5. Question : (TCO C) Under the provisions of the Sarbanes-Oxley Act of 2002 (SOX), the audit committee of a public company has specific guidelines to which employees must adhere. Discuss some of the mandated features of the audit committee of a public company under SOX.
Student Answer: An audit committee is a selected number of members of a company's board of directors whose responsibilities include helping auditors remain independent of management. SOX requires that all members of the audit committee be independent and companies must disclose whether or not the audit committee includes at least one member who is a financial expert. SOX further requires the audit committee of a public company to be responsible for the appointment, compensation, and oversight of the work of the auditor. The audit committee must pre-approve all audit and non-audit services and is responsible for oversight of the work of the auditor, including resolution of disagreements involving financial reporting between management and the auditor. Auditors are responsible for communicating all significant matters identified during the audit to the audit committee.
Instructor Explanation: See Chapter 4, pages 88–89.
•Audit committees help auditors remain independent.
•Members must be independent.
•Each member of the audit committee must a member of the board of directors of the company.
•There must be disclosure whether at least one member is a financial expert.
•Noncompliant companies are prohibited from being listed on the national securities exchanges and national securities associations.
•Audit comittees are responsible for the oversight committee's appointment, compensation, and oversight of the work of the auditor.
•They are responsible for preapproval for all audit and nonaudit work.
•They are responsible for the resolution of auditor and management disagreements involving the financial statements.
Points Received: 25 of 25
Comments:
Question 6. Question : (TCO D) Discuss some of the steps the AICPA and the accounting profession as a whole can and are taking to reduce practitioners' exposure to lawsuits. You answer should provide at least five steps.
Student Answer: Steps the profession is taking to reduce practitioners' exposure to lawsuits include the following: · Research in auditing · Standard and rule setting and revisions to meet the changing needs of the profession · Setting requirements to protect auditors · Establishing peer review requirements · Opposing lawsuits · Educating investors and other users of financial statements as to the meaning of the auditor's report and the nature of the auditor's work · Sanctioning members for improper conduct · Lobbying for changes in laws
Instructor Explanation: See Chapter 5, page 130.
Steps the profession is taking to reduce practitioners' exposure to lawsuits include the following.
•Research in auditing
•Standard and rule setting and revisions to meet the changing needs of the profession
•Setting requirements to protect auditors
•Establishing peer review requirements
•Opposing lawsuits
•Educating investors and other users of financial statements as to the meaning of the auditor's report and the nature of the auditor's work
•Sanctioning members for improper conduct
•Lobbying for changes in laws
Points Received: 25 of 25
Comments:
Question 7. Question : (TCO F) Match nine of the terms (A–K) with the definitions provided below (1–9).
A - Foot
B - Compute
C - Scan
D - Inquire
E - Count
F - Trace
G - Recompute
H - Read
I - Examine
J - Observe
K - Compare
_____ 1: A calculation done by the auditor independent of the client
_____ 2: Addition of a column of numbers to determine if the total is the same as the client's
_____ 3: A comparison of information in two different locations
_____ 4: A use of the senses to assess certain activities
_____ 5: Following details of transactions from original documents to journals
_____ 6: A less detailed examination of a document or record to determine if there is something unusual warranting further investigation
_____ 7: Obtaining information from the client in response to specific questions
_____ 8: A determination of assets on hand at a given time
_____ 9: An examination of written information to determine facts pertinent to the audit
Student Answer: 1. G 2. A 3. K 4. J 5. F 6. C 7. D 8. E 9. H
Instructor Explanation: See Chapter 7, page 187.
-B: A calculation done by the auditor independent of the client
-A: Addition of a column of numbers to determine if the total is the same as the client's
-K: A comparison of information in two different locations
-J: A use of the senses to assess certain activities
-F: Following details of transactions from original documents to journals
-C: A less detailed examination of a document or record to determine if there is something unusual warranting further investigation
-D: Obtaining information from the client in response to specific questions
-E: A determination of assets on hand at a given time
-H: An examination of written information to determine facts pertinent to the audit
Points Received: 23 of 25
Comments:
Question 8. Question : (TCO G) Discuss the essential activities involved in the initial planning of an audit.
Student Answer: There are four essential activities involved in the initial planning of an audit. These are: 1. Client acceptance or continuation. In the case of a new client, the auditor must determine whether the client is one with which (s)he wishes to be associated. In the case of a continuing client, an auditor must determine whether continuing the relationship is appropriate and in the firm’s best interest. 2. Determine reason for the audit. The auditor should determine the reason for the audit as soon as practical. The remainder of the planning activities may be impacted by the client’s reason for requesting the audit. 3. Obtain an understanding with the client. An understanding with the client should be obtained to avoid misunderstandings. Auditors are required to obtain an understanding with their clients. This understanding must be written. 4. Develop an overall audit strategy. The strategy should consider the reasons for the audit, including areas where there is greater risk of significant misstatements. Setting a strategy helps the auditor determine the resources required for the engagement.
Instructor Explanation: See Chapter 8, page 211.
There are four essential activities involved in the initial planning of an audit. These are as follows.
•Client acceptance or continuation: In the case of a new client, the auditor must determine whether the client is one with which she or he wishes to be associated. In the case of a continuing client, an auditor must determine whether continuing the relationship is appropriate and in the firm's best interest.
•Determine reason for the audit: The auditor should determine the reason for the audit as soon as practical. The remainder of the planning activities may be impacted by the client's reason for requesting the audit.
•Obtain an understanding with the client: An understanding with the client should be obtained to avoid misunderstandings. Auditors are required to obtain an understanding with their clients. This understanding must be written.
•Develop an overall audit strategy: The strategy should consider the reasons for the audit, including areas where there is greater risk of significant misstatements. Setting a strategy helps the auditor determine the resources required for the engagement.
Points Received: 25 of 25
Comments: [Show Less]