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A CPA firm should establish procedures for conducting and supervising work at all organizational levels to provide reasonable assurance that the work performed meets the firm's standards of quality. To achieve this goal, the firm most likely would establish procedures for:
Choice 'b' is correct. Procedures for reviewing audit documentation and engagement reports are established to ensure that the work performed meets the firm's quality standards. This relates to the quality control element of engagement performance.
Choice 'a' is incorrect. Evaluations of prospective and continuing client relationships are performed to minimize the likelihood of association with a client whose management lacks integrity. This relates to the quality control element of acceptance and continuance of clients and engagements. Such evaluations do not ensure that the work performed meets the firm's quality control standards Choice 'c' is incorrect. Requiring personnel to adhere to the applicable independence rules relates to the quality control element of independence, integrity, and objectivity. Such requirements are established to provide independence, but they do not ensure that the work performed meets the firm's quality control standards.
Choice 'd' is incorrect. Maintaining personnel files and periodic evaluations of personnel are part of the quality control element of personnel management. Such policies are established to provide for appropriate hiring, assignment, development, and advancement of employees, but they would not ensure that the work performed meets the firm's quality control standards.
This question will represent a statement, question, excerpt, or comment taken from various parts of an auditor's documentation file. Letter choices A-P represent a list of the likely sources of the statement, question, excerpt, or comment. Select, as the best answer for each item, the most likely source. Select only one source for each item.
As discussed in Note 4 to the financial statements, the company experienced a net loss for the year ended July 31, 20XX, and is currently in default under substantially all of its debt agreements. In addition, on September 25, 20XX, the company filed a prenegotiated voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code. These matters raise substantial doubt about the company's ability to continue as a going concern.
Choice 'L' is correct. When there is substantial doubt about an entity's ability to continue as a going concern, the auditor would state his or her concerns in an explanatory paragraph of the auditor's report.
With respect to the audit of a nonissuer, significant deficiencies are matters that come to an auditor's attention that should be communicated to an entity's management and those charged with governance because they represent:
Choice 'd' is correct. Significant deficiencies in the design or operation of internal control should be communicated to management and those charged with governance because there is more than a remote likelihood that they will result in a financial statement misstatement that is more than inconsequential.
Choice 'a' is incorrect. Manipulation or falsification of accounting records may not represent an internal control deficiency (e.g., if such fraud occurs through collusion).
Choice 'b' is incorrect. Information indicative of a going concern problem is not an internal control deficiency.
Choice 'c' is incorrect. Irregularities or illegal acts may not represent deficiencies in internal control (e.g., if such acts occur through collusion).
An auditor issued an audit report that was dual dated for a subsequent event occurring after the original date of the auditor's report. The auditor's responsibility for events occurring subsequent to the original date was:
Choice 'c' is correct. When an auditor issues a report that is dual dated for a subsequent event occurring after the original date of the auditor's report, the auditor's responsibility for events occurring subsequent to the original date of the auditor's report is limited to the specific event referenced.
Choices 'a', 'b', and 'd' are incorrect. The auditor takes responsibility for only the specific event noted in the dual dating and for no other event occurring subsequent to the original date of the auditor's report.
