AHI Semi-Senior Training

Welcome to your AHI Semi-Senior Quiz

Each annual tax guides is arranged to include:

Overview Update on Recent Tax Legislation

Calendar of Annual Tax Return Due Dates

Tax Rate Charts

Topical Index organized by Key Words

All of the above

Which are not reasons for the recodification and clarification of risk assessment standards that were issued in 2011?

To standardize best practices of highly effective audit firms

To establish a conceptual framework for linking overall risks to specific substantive area risks of material misstatement

To unify generally accepted auditing standards within the United States with the codified international auditing standards

To simplify the auditing standards research and documentation process

All above are reasons for the recodification of risk assessment standards

Audit engagement risk and detection risk is defined as what below?

The risk that our client will take us to court due to our audit opinion

The risk that the auditors will issue an unqualified opinion and there remain an uncorrected material misstatement

The risk that an internal control point is failing when our control tested out satisfactory

The risk of external forces outside of the clients control which would cause a misstatement

None above are the correct definition of engagement risk

What are the elements of a successfully performed client assurance engagement?

Satisfied client

Performance within a reasonable time budget

Work product meeting professional standards

All of the above

Only b & c

Which of the following is false concerning analytical procedures performed?

There is always a positive relationship between the extent of evidence documented and the risk of financial failure

There is a negative relationship between the engagement risk and level of analytical procedures required to be performed

Analytical procedures are required in the planning stages of audit engagements

Review engagements are restricted to only the use of inquiries and analytical procedures

There are four types of analytical procedures used as internal control procedures

What are the precautions of using computer-generated analytical procedures?

That the financial line assignment groupings may have classification errors

That the unadjusted trial balances has known adjusting entries to be posted

That the ratio requires non-financial data to be updated, keyed in, or captured by calculation

That the software or worksheet has a formula error due to an incomplete roll-forward

All of the above are precautions of using computer-generated analytical procedures

Which of the following is/are true statements?

Professional standards require representation letters for audits

Professional standards require representation letters for reviews

Professional standards require representation letters for compilations

All the above are true statements

Only a & b are true

If internal controls are in place and documented, what are the logical choices available to the auditor?

Place reliance on key controls, test internal controls, set materiality scopes higher, and reduce substantive testing

Place limited reliance on key controls, perform walk-thru’s of key controls, set materiality scopes higher, and reduce substantive testing

Place no reliance on key controls, perform walk-thru’s of key controls, set materiality scopes somewhat higher, and increase substantive testing

Place reliance on key controls, no testing of controls, set materiality scopes lower, and increase substantive testing

None above are correct

Writing meaningful footnotes requires which of the following considerations?

Irrelevant footnotes could be eliminated, but the semi-senior should involve the partner

Footnotes should always be presented in the proper order

All relevant footnotes are required to be included. Failure to include a necessary footnote can be a legal disaster.

Carry-forward information should be eliminated from each footnote

Only A & C

An annual tax guide should be used in the following circumstances:

As a handy source of taxation information

As a good starting point for tax research

As a helpful guide to check tax rates for tax calculations

As a resource to determine rates for depreciation and cost recovery calculations e. All of the above

All of the above

Which of the following are characteristics embodied within a financial statement?

Financial statements are designed to serve the common needs of a variety of users.

Information is classified and presented with the needs of users in mind.

The accrual basis rather than the cash basis is usually preferred.

None of the above

All of the above

What is an acceptable use of analytical procedures when planning to reduce substantive audit testing?

Conclusions on material variances of CY and PY by inquiry of management

Directional risk assessment of a low risk audit areas allows the use of analytical procedures to satisfy substantive evidence requirements

The additional use and documentation of analytical procedures in a first year audit engagement

Substituting inquiry, observation, inspection and re-performance as dual control tests and test of transactions

None of the above are acceptable uses of analytical procedures to reduce audit testing

Which of following steps are logical in performing client specific tax research with the use of a Tax Guide?

To recognize a potential tax problem/opportunity from reading a Tax Guide

Identify the correct keyword or words that summarize the client’s tax issue

Use the topical index in the annual tax guide to find a keyword or words

Study the topic(s) generally referred to in the annual update of the tax guide

Document the conclusions based solely on the use of the annual tax guide

Risk factors of material misstatement at the account balance and transaction class level include which of the following?

Assessment of inherent risk

Assessment of the risk of fraud

Assessment of control risk

All of the above

None of the above

Which codified audit standard refers the auditor to the combination of inherent and control risks?

AU-C 320

AU-C 200.14

AU-C 240

AU-C 315.A50

None of the above

Which of the following are true statements concerning analytical procedures?

Using analytical procedures in planning can identify where misstatements are most and least likely to occur

The early use of analytical procedures in an engagement is an inexpensive way to plan which accounts on the financial statement are most likely to be misstated.

The use of analytical procedures for a final common sense evaluation of the reasonableness of the statements can save the in-charge and the CPA firm embarrassment

None of the above are true statements

All of the above are true statements

Proper calculation and interpretation of analytical procedures can detect when a client’s business is trending towards the risk of financial problems and possible failure. Which of the following would be a ratio formula indicator of this risk?

Using an analytical ratio that identifies a financial statement classification in its denominator

Negative comparisons of client analytics against reported industry standards

Violation of default covenants stated in the debt documents

Gross profit percentages less than 15%

None of the above are indicators of the risk of financial problems or failure

The most important factor in properly ordering footnotes properly is:

The needs of the clients users of financial statements

Following Balance Sheet order

Following income statement order

Any order can be acceptable, once the Summary Accounting Policies as been presented

All of these above

Who has the responsibility for completing a client assurance engagement?

The managing partner

The manager who holds the CPA designation

The in-charge assigned to the engagement

The partner who signs the engagement letter

None of the above

If an in-charge feels that their partner or manager is violating the CPA code of professional ethics, they have which of the following course of action?

Complete a difference of professional opinion checklist and submit it to a neutral partner as instructed in the firm’s quality control document

Discuss the issue directly with the partner or manager, then accept their direction

Resign from the engagement immediately and begin search for a new job

Report the alleged violation to the State Board of Accountancy

Write a memo and report it to be archived in their personnel file

AU-C 320 requires that the auditor establish a preliminary judgment about materiality for every audit. Doing so helps the audit team to know how extensively to audit and provides guidance in evaluating the results of tests. The various levels of materiality includes:

Passed adjusting journal entry scope

Tolerable misstatement

Individually significant item amount

Global planning materiality

All above are acceptable definitions of audit materiality

When drafting financial statements, critical steps would include:

Modify formatted financial statements

Read and complete the firm’s reporting and disclosure checklist

Research any unfamiliar disclosure requirements

Prepare a cash flow statement working paper

All of the above

A high-risk review engagement has a high probability that the financial statements contain:

Incorrect, incomplete, or otherwise unsatisfactory information

Mathematical or clerical errors

Mistakes in the application of generally accepted accounting principles, including footnote preparation

All of the above

None of the above

How do compilation engagements differ from review engagements?

Both reviews and compilations require management representations

Reviews require analytical procedures to be performed along with management inquiries and compilations prevent any accountant inquiries and analytical procedures from being executed

Reviews require all required disclosures to be presented and compilations can omit financial footnote presentation

All of the above

Only a. & c.

Steps to prepare a financial statement include which of the following?

Summarize account balances into financial statement classifications, or lead sheets on the working trial balance

Refer to and use the firm’s financial statement format and disclosure checklist

Consider the needs of financial statement users

Research FASB and AICPA Professional Standards and applicable industry or regulatory agency accounting and reporting reference materials

All of the above

How does a review differ from an audit?

Audits provide a reasonable level of assurance and review provide limited assurance in relation to material misstated financial statements

Audits require independence and reviews can be performed with an impairment of independence so long as this is disclosed

Audits require the documentation and consideration of testing of internal controls and reviews require an understanding of the client’s business and accounting system

All of the above

Only a. & c.

Written communications are required in the following engagement circumstances?

Management communications of required communications

Engagement letters

Management representations

All of the above

Only b & c above

Which codified audit standard refers the auditor to the five components of internal control?

AU-C 320

AU-C 200.14

AU-C 240

AU-C 315.A50

None of the above

Which of the following are permanent tax differences?

Depreciation differences between tax and internal book

Key-Man life insurance premiums

50% non-deductible portion of Meals and Entertainment

Accrual basis adjustments to Cash Basis for tax

Only b. & c.

The reading material identifies an 11 step approach for competing an engagement. Which of the following is not one of these steps?

Understand the client’s business

Understand the client’s accounting system

Decide materiality and assess risks

Test the control points of the accounting system

Perform appropriate analytical procedures

When having to write a new footnote, what are the available resources for a Semi-Senior?

Firm report manuals or find similar footnotes from other clients

Preparing an initial outline of the footnote content

Use current year client data, and pro-formed data if comparative statements are being used

Use professional writing skills from college writing classes and prior job experiences

All of the above

Financial statements are embodied with which of the following characteristics?

The economic substance of transactions should usually prevail over legal form

Financial statements are prepared on a conservative basis

Estimates and informed judgments are often used in financial statements

The estimates and judgments are to be derived from verifiable events

All of the above

Prioritize the importance of the following in preparation of financial statements, most important to lesser importance: A) client’s needs; B) firm policy; C) professional standards; D) professional judgment

D, B, C, A

A, C, D, B

C, A, B, D

C, B, D, A

B, D, A, C

The assessment of the risk of fraud requires the auditor to document the following as it relates to critical accounting systems and transaction cycles:

Concerns that offer opportunity due to the lack of oversight and segregation of duties

Concerns of pressure or incentive exerted on management and key employees

The nature of individual and management’s attitudes and rationalization

None of the above

All of the above

If a heightened fraud risk factor is identified, the auditor must:

Modify the audit program as a response to the identified fraud risk

Involve more experienced staff in areas of increased fraud risk

Conduct more extensive and corroborative interviews of management higher in authority than the fraud risk identified

Communicate findings and suggestions of significant deficiencies or reportable conditions

All of the above

New semi-seniors are assigned to reviews to demonstrate the ability to do an entire job from start to finish. Typically, these engagements will be:

a new client to the firm that doesn’t require an audit

a repeat engagement rather than a new client with prior year working papers to follow

a new client that has never been audited nor reviewed

a repeat engagement that had a going concern assessment issued in PY’s

none of the above

Which of the following statements are true concerning GAAS?

Auditing standards require communication of reportable conditions to those charged with governance

Auditing standards require written representations from management

Auditing standards require documentation of planning and an engagement letter

Auditing standards require a minimal understanding of the accounting systems and a single walk-thru testing of identified internal control points

All of the above

How can you eliminate footnotes that were included on last year’s statements or that you believe are applicable but not material and not get criticized for failure to do quality work by your reviewer?

Unilaterally, review all footnotes and evaluate whether or not YOU believe they are necessary

If you consider certain footnotes inappropriate, either write them up and make a note to the partner that you believe they are unnecessary or, if the manager or partner is available, you should identify the potential footnote item that you are considering deleting

The partner or manager should make the decision as to whether the footnote should be deleted

Only b. & c.

None of the above

Which of the following is/are correct statements in relation to Long-Term Planning for taxes?

Preparers should review the tax accounting methods used for items such as inventory and long-term contracts. A change of method may create a deferral of taxable income.

They should determine if fringe benefits are currently being offered to employees and owners of the business. There may be additional benefits available to save taxes. Cafeteria and retirement plans should also be considered

The Semi-Senior should review the business entity choice. Evaluate whether the business should be a proprietorship, partnership, limited liability company, or corporation.

Consider whether an election to be taxed as an S corporation would be beneficial.

All of the above

What item(s) should the in-charge keep on a list for the engagement executive or partner’s attention?

New transactions that will require financial footnote disclosure

Personal interests &/or circumstances of the client’s family

Specific inquires of management concerning employee benefit plans, tax strategy and asset purchase planning

Debt covenant exposure &/or violations

None of the above

To identify practical things the Semi-Senior can do on engagements to make sure that the terminology on financial statements are correct, and grouping and formatting are proper, a Semi-Senior should:

Correctly add and link new general ledger accounts to correct leads/groupings followed by comparing current year balances to last year to make sure they are consistently handled.

Read the technical and updated standards prior to the engagement

Read firm policy manual, if one exists

Ask for technical assistance of more experienced associates

All of the above

For repeat review engagements, the independent accountant is allowed to:

Take advantage of the information and approach previously followed

Assume that all analytical procedures perform will be the same

Start the engagement blind to PY information so that an unbiased conclusions can be determined

All of the above

Only c. above

Which of the following are examples of using nonfinancial information in preparing analytical procedures?

Units produced or sold

Average hours worked to produce a product

Number of sales personnel

Square feet of the plant

All of the above are examples of nonfinancial information

Which of the following is MOST important for the Semi-Senior in handling tax preparation for companies or clients?

Tax compliance issues

Strategic tax planning

Current year-end projections

AMT tax preferences

All of the above

What constitutes a temporary tax difference that can be planned for?

Officers’ bonuses so long as they are paid by the 2nd Month

Deferring deposits of billing and accelerating client deductible disbursements at FYE

Purchasing production equipment that can qualify for Sec. 179 &/or Bonus treatment

Formally writing off uncollectible accounts receivables

Both b. & c.

Which components of a control environment are preventative verses detective?

Management’s Risk Assessment & Monitoring

Control Activities & Information and Communications

Management’s Risk Assessment & Control Activities

Information and Communication & Monitoring

Control Activities & Monitoring

What are the key elements of documenting the client’s agreement through a signed engagement letter?

Insure collectability of CPA firm’s fees and billings for the services provided

Helps to educate clients about the nature of our CPA firm’s services

Identify client responsibilities for financial information and working paper preparation

Document required communications between the firm and those charged with governance

All of the above

What are the various substantive test available to the auditor in each audit program and transaction class?

Tests of controls

Substantive tests of transactions

Analytical procedures

Tests of details of balances

All of the above

Which of the following is/are the most important step(s) in applying analytical procedures?

Develop an independent expectation of the current year’s balance

Compare the actual balance to the expected balance

Identify possible causes of the difference between actual and expected balances

Decide upon the appropriate follow up action

All of the above are equally important steps

Which of the following is/are correct statements in relation to preparing taxes?

Tax Compliance — preparing tax returns for a client in a manner that meets the requirements of the Internal Revenue Code and various state tax requirements.

Tax Savings Opportunities — changing tax methods to maximize tax deferrals with client consent

Reconciling beginning retained earnings balance on the current year’s financial statements to the ending balance on the prior year’s tax return is a mandatory first step

Reviewing the prior-year tax return, especially Schedule M,for items to amend both +/-

1) & 4)

1) & 3)

3) & 4)

None of the above

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