ACC499 Final Exam Part 2/ACC499 Final Exam Part 2

Question 1

A CPA firm is considered independent when it performs which of the following services for a publicly traded audit client?

  1. tax return preparation as approved by the board of directors
  2. basic accounting recordkeeping and financial statement preparation
  3. accounting information system design and implementation
  4. both B and C
  5. none of the above

Question 2

Which of the following is not an aspect of Rule 201 of the General Standards of the Code of Professional Conduct?

  1. A member must not take on an engagement that is beyond the member’s professional competence.

    b. A member must exercise duties prudently and professionally.

    c. A member must adequately plan and supervise the performance of professional services.

    d. A member firm must not advertise services to competing clients.

Question 3

A member of the AICPA must safeguard the confidentiality of client information. Auditors, however, must disclose information to non-clients for the following reasons except to:

  1. discuss information relating to inadequate disclosure in an audit report.
  2. comply with a validly issued and enforceable subpoena or summons.
  3. accommodate the review of client audit workpapers under AICPA, PCAOB, or State Board of Accountancy authority.
  4. explain to members of the press the financial viability of a client

Question 4

Which one of the following is an example of a conflict of interest for a CPA?

  1. performing tax services and a compilation engagement for a client

    b. serving as legal counsel and an auditor for a client

    c. providing an audit on internal financial controls and financial statements for a client

    d. being employed as a chief financial officer while serving as a member of the board of directors for the same company

Question 5

Which of the following represents a situation in which the auditors may disclose client information to outside parties?

  1. Bringing working papers to a professional CPA workshop as an example of quality work.

    b. Complying with a validly issued and enforceable subpoena or summons.

    c. Showing the client’s bank statement to a neighbor who is a shareholder to emphasize its cash position.

    d. Explaining to the local television news station why the client is likely to miss payroll in the forthcoming periods.

Question 6

Rule 201, dealing with General Standards that are applicable to all CPAs no matter the type of services that are rendered, does not include which factor?

  1. Due professional care.

    b. Integrity and objectivity.

    c. Planning and supervision.

    d. Sufficient relevant data.

  2. Integrity and objectivity

Question 7

In determining the types of activities, engagements and interactions an auditor should have with a client, the CPA and the audit firm must do which of the following?

  1. only assess the relationships of clients that pay audit fees that are material to their firm.

    b. assess all of their relationships with every client to ensure that independence is intact.

    c. focus on client satisfaction above all other considerations.

    d. realize that ethics are only guidelines and a matter of personal judgment.

Question 8

Independence is not required for which of the following types of services?

  1. Audits.

    b. Reviews.

    c. Consulting.

    d. Attestation.

Question 9

Which of the following suggests a weakness in the internal control environment?

  1. the firm has an up-to-date organizational chart
  2. monthly reports comparing actual performance to budget are distributed to managers
  3. performance evaluations are prepared every three years
  4. the audit committee meets quarterly with the external auditors

Question 10

The importance to the accounting profession of the Sarbanes-Oxely Act is that

  1. bribery will be eliminated
  2. management will not override the company’s internal controls
  3. management are required to certify their internal control system
  4. firms will not be exposed to lawsuits

Question 11

Control activities under SAS 109/COSO include

  1. IT Controls, preventative controls, and Corrective controls
  2. physical controls, preventative controls, and corrective controls.
  3. general controls, application controls, and physical controls.
  4. transaction authorizations, segregation of duties, and risk assessment

Question 12

Control risk is

  1. the probability that the auditor will render an unqualified opinion on financial statements that are materially misstated
  2. associated with the unique characteristics of the business or industry of the client
  3. the likelihood that the control structure is flawed because controls are either absent or inadequate to prevent or detect errors in the accounts
  4. the risk that auditors are willing to take that errors not detected or prevented by the control structure will also not be detected by the auditor

Question 13

Which of the following is a preventive control?

  1. credit check before approving a sale on account
  2. bank reconciliation
  3. physical inventory count
  4. comparing the accounts receivable subsidiary ledger to the control account

Question 14

The fundamental difference between internal and external auditing is that

  1. internal auditors represent the interests of the organization and external auditors represent outsiders
  2. internal auditors perform IT audits and external auditors perform financial statement audits
  3. internal auditors focus on financial statement audits and external auditors focus on operational audits and financial statement audits
  4. external auditors assist internal auditors but internal auditors cannot assist external auditors

Question 15

The office manager forgot to record in the accounting records the daily bank deposit. Which control procedure would most likely prevent or detect this error?

  1. segregation of duties
  2. independent verification
  3. accounting records
  4. supervision

Question 16

Tests of controls include

  1. confirming accounts receivable
  2. counting inventory
  3. completing questionnaires
  4. counting cash

Question 17

An accounting system that maintains an adequate audit trail is implementing which internal control procedure?

  1. access controls
  2. segregation of functions
  3. independent verification
  4. accounting records

Question 18

Music, Inc., a domestic corporation, owns 100% of Vinyl, Ltd., a foreign corporation and Digital, Inc., a domestic corporation. Music also owns 12% of Record, Inc., a domestic corporation. Music receives no distributions from any of these corporations. Which of these entities’ net income are included in Music’s income statement for current year financial reporting purposes?

  1. a. Music, Vinyl, Digital, and Record.
  2. b. Music, Vinyl, and Digital.
  3. c. Music, Vinyl, and Record.
  4. d. Music, Digital, and Record.
  5. e. None of the above

Question 19

Which of the following taxes are included in the total income tax expense of a corporation reported on its Federal tax return?

  1. State income taxes
  2. Federal income taxes
  3. Foreign income taxes
  4. Local income taxes
  5. All the above

Question 20

Which of the following represent temporary book-tax differences?

  1. Compensation-related expenses
  2. Municipal bond interest
  3. Meals and entertainment expense deduction
  4. Nondeductible penalties
  5. All the above

Question 21

Which of the following items are not included in the income tax note for a publicly traded company?

  1. Breakdown income between foreign and domestic
  2. Analysis of deferred tax assets and liabilities
  3. Breakdown of income among States
  4. Rate recognition
  5. Analysis of total tax expense components

Question 22

How are deferred tax liabilities and assets categorized on the balance sheet?

  1. Capital and ordinary
  2. Domestic and foreign
  3. Current and non-current
  4. Positive and negative
  5. None of the above

Question 23

Larson, Inc., hopes to report a total book tax expense of $160,000 in the current year. This $160,000 expense consists of $240,000 in current tax expense and an $80,000 tax benefit related to the expected future use of an NOL by Larson. If the auditors determine that a valuation allowance of $30,000 must be placed against Larson’s deferred tax assets, what is Larson’s total book tax expense?

  1. $160,000
  2. $130,000
  3. $190,000
  4. $240,000

Question 24

Hot, Inc.’s primary competitor is Cold, Inc. When comparing relative deferred tax asset and liability accounts with Cold, which of the following should Hot do?

  1. Scale the deferred tax assets and liabilities by total sales or total assets
  2. Compare raw dollars amount of deferred tax assets and liabilities
  3. Ignore deferred tax assets and liabilities and focus on overall effective tax rate.
  4. Ignore all tax information other than the current tax expense
  5. None of the above

Question 25

Paint, Inc., a domestic corporation, owns 100% of Blue, Ltd., a foreign corporation and Yellow, Inc., a domestic corporation. Paint also owns 40% of Green, Inc., a domestic corporation. Paint receives no distributions from any of these corporations. Which of these entities’ net income are included in Paint’s income statement for current year financial reporting purposes?

  1. Paint, Blue, Yellow and Green
  2. Paint, Blue, and Yellow
  3. Paint, Blue, and Green
  4. Paint, Yellow, and Green
  5. None of the above

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