Area I: Ethics & General Principles

An auditor is performing an audit of a nonissuer's financial statements. During the engagement, the auditor encounters a situation involving a threat to compliance with the Integrity and Objectivity Rule of the AICPA Code of Professional Conduct. The threat is not explicitly addressed by the Code's rules or interpretations. According to the Conceptual Framework for Members in Public Practice, which of the following steps should the auditor take FIRST?

A CPA firm is auditing the financial statements of an issuer, TechGlobal Inc. The lead audit partner, Sarah, has served in that capacity for five consecutive years ending December 31, Year 5. Under PCAOB rules and the Sarbanes-Oxley Act, which of the following roles may Sarah perform for the TechGlobal audit for the year ending December 31, Year 6?

An auditor is conducting an audit of a nonissuer in accordance with GAO Government Auditing Standards (the Yellow Book). The auditor has been asked to perform a non-audit service: preparing the entity's indirect cost proposal for a federal grant. Which of the following statements BEST describes the auditor's independence responsibilities?

An auditor is accepting an engagement to audit the financial statements of a new nonissuer client. The predecessor auditor's response to inquiries indicates that there were significant disagreements with management regarding accounting principles and audit procedures. Which of the following is the auditor's MOST appropriate initial course of action upon receiving this information?

An auditor is documenting the results of an audit of a nonissuer. The auditor has identified a complex accounting estimate regarding the fair value of Level 3 derivatives. Which of the following statements BEST describes the documentation requirement for the professional judgment exercised in this area?

An auditor is communicating with those charged with governance (the Audit Committee) of a nonissuer. The auditor has identified several significant deficiencies in internal control that are not material weaknesses. Which of the following statements regarding the required communication is CORRECT?

An auditor is preparing an engagement letter for the audit of a nonissuer. Which of the following is a REQUIRED component of the engagement letter under AU-C 210?

An auditor is performing a review of Management's Discussion and Analysis (MD&A) for a nonissuer. Which of the following statements is TRUE regarding this engagement?

An auditor is performing a preparation engagement under SSARS for a nonissuer. Which of the following is TRUE regarding the independence requirement?

An auditor is performing an audit of a nonissuer. The auditor identifies a significant deficiency in internal control. Which of the following is TRUE regarding the auditor's communication responsibility?

An auditor is performing a review of a nonissuer's financial statements. The auditor is not independent. Which of the following is the auditor's responsibility?

An auditor is auditing the financial statements of a nonissuer. The auditor identifies a fraud involving the theft of inventory by a warehouse employee. The amount is immaterial to the financial statements. To whom should the auditor report this fraud?

An auditor is auditing the financial statements of a nonissuer. The auditor identifies a material weakness in internal control. The auditor's report on the financial statements is unmodified. Which of the following is TRUE regarding the communication of the material weakness?

A CPA firm is performing an audit of a nonissuer in accordance with GAO Government Auditing Standards (the Yellow Book). The auditor has been asked to perform a non-audit service: preparing the entity's indirect cost proposal for a federal grant. The auditor has determined that this service creates a self-review threat. Which of the following statements BEST describes the auditor's responsibility regarding independence?

During the audit of an issuer, the engagement partner learns that the firm's tax partner, who provides 15 hours of tax services to the audit client annually, has a spouse who just purchased 50 shares of the client's stock. The stock is held in a blind trust. Under PCAOB and SEC independence rules, which of the following conclusions is CORRECT?

An auditor is conducting an audit of a nonissuer's financial statements. The auditor identifies a significant deficiency in internal control that is NOT considered a material weakness. Which of the following communications is REQUIRED?

Which of the following scenarios BEST illustrates a violation of the 'Integrity and Objectivity' rule of the AICPA Code of Professional Conduct?

Which of the following statements accurately describes the difference between a 'reportable condition' under the old standards and a 'significant deficiency' under current AU-C 265?

Scenario: During the audit of a nonissuer, the auditor identifies a material misstatement in the financial statements. Management corrects the misstatement. The auditor concludes that the misstatement was an isolated error and not indicative of a material weakness in internal control. <br/><br/>Does the auditor need to communicate this to those charged with governance?

Which of the following is a PRECONDITION for an audit of a nonissuer?

Under the AICPA Code of Professional Conduct, which of the following situations would NOT impair a covered member's independence?

Which of the following is a prohibited non-audit service for an auditor of an issuer (public company) under Sarbanes-Oxley and PCAOB rules?

Which of the following is a requirement for an auditor to accept an engagement to audit a nonissuer?

Scenario: An auditor is auditing the financial statements of a nonissuer. The auditor identifies a material weakness in internal control. The auditor's report on the financial statements is unmodified. The client requests that the auditor NOT communicate the material weakness to the audit committee because 'they already know about it'. <br/><br/>What is the auditor's responsibility?

Which of the following is a 'safeguard' created by the profession, legislation, or regulation under the AICPA Conceptual Framework?

A CPA firm is performing an audit of a nonissuer, TechInnovate Inc. The engagement partner's spouse recently inherited 50 shares of stock in TechInnovate Inc. The value of the stock is $2,500, which is considered immaterial to the spouse's net worth and the partner's net worth. The spouse plans to sell the stock within 30 days. According to the AICPA Code of Professional Conduct, which of the following statements is correct regarding the firm's independence?

An auditor is performing an audit of an issuer, Global Corp, in accordance with PCAOB standards. The auditor discovers that the client's Chief Financial Officer (CFO) was the lead engagement partner on the audit five years ago. The CFO left the CPA firm four years ago. Which of the following correctly describes the independence implications under SEC and PCAOB rules?

A CPA is performing an audit of a county government entity that receives federal financial assistance. The audit is conducted in accordance with GAO Government Auditing Standards (the Yellow Book). The CPA also provides non-audit services to the county, specifically assisting in drafting the financial statements based on the trial balance provided by management. Which of the following is the auditor's responsibility regarding independence?

During the audit of an employee benefit plan subject to ERISA, the auditor discovers that the plan administrator has not filed the required Form 5500 with the Department of Labor (DOL). The auditor is concerned about the plan's compliance with laws and regulations. Under DOL independence rules, which of the following relationships would IMPAIR the auditor's independence with respect to the plan?

An auditor is evaluating the 'integrity' principle of the AICPA Code of Professional Conduct. Which of the following situations most clearly represents a violation of the integrity principle, rather than just the objectivity or due care principles?

During the planning phase of an audit of a nonissuer, the auditor is establishing an understanding with the client regarding the services to be performed. The client requests that the engagement be changed from an audit to a review due to a misunderstanding of the cost involved. Under AU-C 210, which of the following is the auditor's BEST course of action?

An auditor is documenting the engagement terms for the audit of a nonissuer. Which of the following matters is LEAST likely to be included in the engagement letter?

In an audit of a nonissuer, the auditor identifies a significant deficiency in internal control that is not considered a material weakness. Under AU-C 265, which of the following statements correctly describes the auditor's communication responsibility?

An auditor is finalizing the audit documentation for a nonissuer client. The audit report release date was March 15. According to AU-C 230, by what date must the auditor complete the assembly of the final audit file, and how long must it be retained?

Under the Quality Management standards (SQMS 1 / QM Section 10), a CPA firm must establish a risk-based approach to quality management. Which of the following is a NEW component introduced by SQMS 1 that was not explicitly a component in the previous QC standards?

REVISED Q10: Under the Quality Management standards (SQMS 1), which of the following represents a component that was explicitly added as a NEW component compared to the previous Quality Control standards to drive the risk-based approach?

Which of the following engagements is an 'Attestation' engagement governed by SSAE (Statements on Standards for Attestation Engagements)?

An auditor is planning the audit of a new client, a nonissuer. The auditor requests permission to contact the predecessor auditor. The client refuses to grant permission. What is the auditor's MOST appropriate response?

During the audit of a nonissuer, the auditor identifies a material weakness in internal control. The auditor's report on the financial statements is unmodified. Which of the following is correct regarding the reporting of this material weakness?

Which of the following scenarios represents a 'Self-Interest Threat' to independence under the AICPA Conceptual Framework?

An auditor is performing a 'review' of the Management's Discussion and Analysis (MD&A) of an issuer. This engagement is performed under which set of standards?

Which of the following is a 'Precondition for an Audit' that the auditor must establish with management before accepting the engagement?

Which of the following is an example of an 'Advocacy Threat' to independence?

An auditor is performing an audit of an issuer. The auditor discovers an illegal act (noncompliance with laws and regulations) that has a material effect on the financial statements. Management and the Audit Committee have failed to take appropriate remedial action. Under Section 10A of the Securities Exchange Act of 1934, what is the auditor's required next step?

A CPA firm is auditing the financial statements of a nonissuer, TechInnovate Inc. The lead engagement partner's spouse has recently been promoted to a position at TechInnovate. Under the AICPA Code of Professional Conduct, which of the following positions held by the spouse would NOT automatically impair the firm's independence?

During the audit of an issuer, Gamma Corp, the audit firm proposes to provide tax services to the company's CEO. Under PCAOB rules and the Sarbanes-Oxley Act, which of the following statements is correct regarding this proposed service?

An auditor is performing a Yellow Book audit (GAO Government Auditing Standards) for a state agency. The agency requests the auditor to prepare its financial statements in their entirety from the trial balance. Which of the following best describes the auditor's responsibility regarding independence?

A CPA is engaged to audit the financial statements of a nonissuer. During the audit, the CPA encounters a complex valuation issue involving a derivative. The CPA decides to use an auditor's specialist. To maintain the appropriate level of professional skepticism, the CPA should:

Before accepting an audit engagement for a new nonissuer client, the successor auditor is required to communicate with the predecessor auditor. If the predecessor auditor refuses to provide information regarding the reason for the change in auditors, the successor auditor should:

An auditor is documenting the results of an audit of a nonissuer. The auditor has identified a significant finding related to a material misstatement that was corrected by management. Regarding the documentation of this finding, which of the following is required by AU-C 230?

During the audit of a nonissuer, the auditor identifies a deficiency in internal control. The auditor determines that the deficiency is not a material weakness but is significant enough to merit attention by those charged with governance. Which of the following is the correct communication requirement?

A firm is designing its system of quality management. According to SQMS No. 1 (Statement on Quality Management Standards), which of the following is a required component of the system of quality management?

Which of the following matters is an auditor required to communicate to those charged with governance?

Which of the following is a 'precondition for an audit' that must be established before accepting an engagement?

Which of the following statements correctly describes the 'cooling-off' period for a lead audit partner of an issuer under Sarbanes-Oxley and PCAOB rules?

In the audit of a nonissuer, the auditor identifies a material weakness in internal control. The auditor's report on the financial statements is unmodified. The auditor is NOT engaged to audit internal control. The auditor must:

Which of the following scenarios represents a 'self-interest threat' under the AICPA Code of Professional Conduct?

An auditor is planning the audit of a new client. The auditor notes that the client operates in a highly regulated industry with complex environmental liabilities. The auditor does not have previous experience in this industry. The auditor should:

Which of the following is a key difference between a Review engagement and an Audit engagement regarding fraud?

Under Department of Labor (DOL) independence rules for auditing employee benefit plans, which of the following would impair independence?

An auditor is performing an audit of a nonissuer. The auditor identifies a fraud involving senior management. The fraud is not material to the financial statements. The auditor should communicate this matter to: