BA 427 – Assurance and Attestation Services Exam 2

 10:00 Mean34.3 Median35 Range  12:00 Mean33.0 Median34 Range

10:00: Question #1 Who must follow the AICPA Professional Code of Conduct? All members of the AICPA, although some sections apply only to members in public practice. Also, CPAs who are not members of the AICPA usually have to follow these rules.

10:00: Question #2 What are the duties and activities of the PCAOB? Register auditing firms that audit public companies. Set auditing standards for audits of public companies. Conduct inspections of these auditing firms. Conduct disciplinary proceedings.

10:00: Question #3 Describe how auditors’ responsibilities for detecting fraud have evolved. SAS 16: Plan the audit to look for fraud. SAS 53: Reasonable assurance to detect errors and irregularities. SAS 82: Specifically addresses fraud, and includes reporting requirements. SAS 99: Provides more detailed guidance.

10:00: Question #4 Distinguish a self-regulatory rule-making body from a private regulatory rule- making body. What are the relative advantages of these two alternative structures for rule-making? Self-regulatory and private regulatory are both distinguished from government regulatory bodies, such as the SEC

10:00: Question #4 Distinguish a self-regulatory rule-making body from a private regulatory rule- making body. What are the relative advantages of these two alternative structures for rule-making? Self-regulatory: most or all of the members come from the profession, and the profession might set the agenda and/or the budget.

10:00: Question #4 Distinguish a self-regulatory rule-making body from a private regulatory rule- making body. What are the relative advantages of these two alternative structures for rule-making? Self-regulatory bodies possess the expertise, but might not be perceived as independent.

10:00: Question #5 Describe the ways in which auditors can minimize risks from litigation. Follow GAAS and due diligence standards Hire qualified personnel, train and supervise them adequately. Understand the client and the industry. Ensure client management has integrity. Purchase malpractice insurance. Contact an attorney promptly.

10:00: Question #6 Describe the POB Established in 1979 A private regulatory body funded by the profession. Provided oversight over the SEC Practice Section of the AICPA The POB had five members, not eight. Many of you said the POB dissolved in 2001, but it was 2002.

10:00: Question #7 What types of topics are covered under the AICPA Professional Ethics Standards? How have ethics evolved over time? Independence, integrity, objectivity, due care, confidential client information, contingent fees, acts discreditable Solicitation and advertising

10:00: Question #8 Identify 5 red flags indicating a higher- than-usual risk of fraud, and for each red flag, provide a real-world example where this flag was present in connection with a well-known instance of fraud or theft. Average score was 3.75 out of 4 Red flags are not fraud itself

10:00: Question #10 Describe the various ways in which a public accountant might be affiliated with a set of historical financial statements in a professional capacity. Audit Review Compilation

12:00: Question #1 The AICPA Code of Conduct consists of Rules, Principles, Interpretations and Rulings. How do the components of the code relate to each other? Principles are aspirational Rules are enforceable, and set minimum standards. Rulings are applied to specific situations Interpretations are additional guidance

12:00: Question #1 The AICPA Code of Conduct consists of Rules, Principles, Interpretations and Rulings. How do the components of the code relate to each other? Principles and Rules constitute “the Code”, and are voted on by the AICPA membership. The Executive Committee of the Ethics Division of the AICPA issues rulings and interpretations.

12:00: Question #2 How does the audit of a public company differ from the audit of a private company? PCAOB standards versus ASB standards Section 404 internal controls attestation report Different independence rules Registration and inspection by the PCAOB

12:00: Question #3 Describe auditors’ incentives to be affiliated only with F/S that are fairly presented. Threat of litigation Sanctions by the SEC, PCAOB, State Boards of Accountancy, and the AICPA Reputation Peer review

12:00: Question #4 Describe how the accounting profession and regulators responded to well-known instances of failures to identify fraud. McKesson & Robbins, new GAAS for A/R confirmations and inventory observation S&L Crisis: FDICIA and SAS 53. Enron, WorldCom, etc.: SOX and SAS 99

12:00: Question #5 Identify and describe as many types of professional standards as you can. ASB (AICPA) issues SASs (GAAS) PCAOB issues Auditing Standards Executive Committee of the Ethics Division of the AICPA issues ethics standards GAO issues GAGAS FASB issues SFASs (GAAP)

12:00: Question #6 Compare and contrast the POB with the PCAOB The POB had five members, not eight. Many of you said the POB dissolved in 2001, but it was 2002.

12:00: Question #7 Describe the circumstances in which auditors are defendants in legal proceedings. Identify the plaintiff, what the plaintiff must prove, and how the auditor can defend against the action. Client, third party F/S users, the SEC Contract law, law of torts, securities laws Due diligence, contributory negligence, lack of causality, foreseeable users

12:00: Question #7 Describe the circumstances in which auditors are defendants in legal proceedings. Identify the plaintiff, what the plaintiff must prove, and how the auditor can defend against the action. Only under the 1933 Securities Act does the auditor, as defendant, have the burden of proof! This is most unusual.

12:00: Question #8 Compare and contrast audit services, attestation services, and assurance services.  Assurance: Independent professional services that improve the quality of information for decision-making.  Attestation: The practitioner issues an examination report, review report, or agreed- upon procedures report on subject matter, or an assertion about the subject matter, that is the responsibility of another party.  Audit: Expression of an opinion on F/S.

12:00: Question #10 How did SOX affect the institutional setting in which GAAP are established? Changed the funding mechanism. The lowest scoring question on the exam: average score was 36%