Week 2
4-18 (Objective 4-6) The following questions concern independence and the Code of Professional Conduct or GAAS. Choose the best response.
a. What is the meaning of the generally accepted auditing standard that requires the auditor be independent?
(1) The auditor must be without bias with respect to the client under audit.
(2) The auditor must adopt a critical attitude during the audit.
(3) The auditor’s sole obligation is to third parties.
(4) The auditor may have a direct ownership interest in the client’s business if it is not material.
b. The independent audit is important to readers of financial statements because it
(1) determines the future stewardship of the management of the company whose financial statements are audited.
(2) measures and communicates financial and business data included in financial statements.
(3) involves the objective examination of and reporting on management-prepared statements.
(4) reports on the accuracy of all information in the financial statements.
c. An auditor strives to achieve independence in appearance to
(1) maintain public confidence in the profession.
(2) become independent in fact.
(3) comply with the generally accepted auditing standards of field work.
(4) maintain an unbiased mental attitude.
4-19 (Objective 4-7) The following questions concern possible violations of the AICPA Code of Professional Conduct. Choose the best response.
a. In which one of the following situations would a CPA be in violation of the AICPA Code of Professional Conduct in determining the audit fee?
(1) A fee based on whether the CPA’s report on the client’s financial statements results in the approval of a bank loan.
(2) A fee based on the outcome of a bankruptcy proceeding.
(3) A fee based on the nature of the service rendered and the CPA’s expertise instead of the actual time spent on the engagement.
(4) A fee based on the fee charged by the prior auditor.
b. The AICPA Code of Professional Conduct states that a CPA shall
a. What is the meaning of the generally accepted auditing standard that requires the auditor be independent?
(1) The auditor must be without bias with respect to the client under audit.
(2) The auditor must adopt a critical attitude during the audit.
(3) The auditor’s sole obligation is to third parties.
(4) The auditor may have a direct ownership interest in the client’s business if it is not material.
b. The independent audit is important to readers of financial statements because it
(1) determines the future stewardship of the management of the company whose financial statements are audited.
(2) measures and communicates financial and business data included in financial statements.
(3) involves the objective examination of and reporting on management-prepared statements.
(4) reports on the accuracy of all information in the financial statements.
c. An auditor strives to achieve independence in appearance to
(1) maintain public confidence in the profession.
(2) become independent in fact.
(3) comply with the generally accepted auditing standards of field work.
(4) maintain an unbiased mental attitude.
4-19 (Objective 4-7) The following questions concern possible violations of the AICPA Code of Professional Conduct. Choose the best response.
a. In which one of the following situations would a CPA be in violation of the AICPA Code of Professional Conduct in determining the audit fee?
(1) A fee based on whether the CPA’s report on the client’s financial statements results in the approval of a bank loan.
(2) A fee based on the outcome of a bankruptcy proceeding.
(3) A fee based on the nature of the service rendered and the CPA’s expertise instead of the actual time spent on the engagement.
(4) A fee based on the fee charged by the prior auditor.
b. The AICPA Code of Professional Conduct states that a CPA shall