2-16

ANSWER:

A.

INTERNATIONAL STANDARDS
ON AUDITING ARE ESTABLISHED
BY THE

CORRECT: (2) INTERNATIONAL AUDITING AND ASSURANCE

STANDARDS BOARD.

B.

WHICH OF THE FOLLOWING

BEST DESCRIBES WHAT IS
MEANT BY U.S. GENERALLY
ACCEPTED AUDITING
STANDARDS?

CORRECT: (2) MEASURES OF THE QUALITY OF THE

AUDITORS PERFORMANCE.

C.

THE GENERAL GROUP OF U.S.

GENERALLY ACCEPTED
AUDITING STANDARDS
INCLUDES A REQUIREMENT
THAT

CORRECT: (3) DUE PROFESSIONAL CARE BE EXERCISED

BY THE AUDITOR.

D.

WHAT IS THE GENERAL

CHARACTER OF THE THREE
GENERALLY ACCEPTED
AUDITING STANDARDS
CLASSIFIED AS STANDARDS OF
FIELD WORK?

CORRECT: (3) THE CRITERIA OF AUDIT PLANNING AND

EVIDENCE GATHERING.

2-17

ANSWER:

A.

A CPA FIRM IS REASONABLY ASSURED

OF MEETING ITS RESPONSIBILITY TO
PROVIDE SERVICES THAT CONFORM
WITH PROFESSIONAL STANDARDS BY

CORRECT: (2) HAVING AN APPROPRIATE SYSTEM

OF QUALITY CONTROL.

B.

THE NATURE AND EXTENT OF A CPA

FIRMS QUALITY CONTROL POLICIES
AND PROCEDURES DEPEND ON:

CORRECT: (1) YES, YES, YES

(CPA FIRMS SIZE, FIRMS PRACTICE, AND COSTBENEFIT)

C.

WHICH OF THE FOLLOWING ARE

ELEMENTS OF A CPA FIRMS QUALITY
CONTROL THAT SHOULD BE
CONSIDERED IN ESTABLISHING ITS
QUALITY CONTROL POLICIES AND
PROCEDURES?

CORRECT: (2) YES, YES, YES

(HUMAN RESOURCES, MONITORING, AND
ENGAGEMENT PERFORMANCE)

2-19

CORRECT ANSWER:

ENGAGEMENT PERFORMANCE

MONITORING

ACCEPTANCE AND CONTINUATION OF CLIENTS AND ENGAGEMENTS

ENGAGEMENT PERFORMANCE

ENGAGEMENT PERFORMANCE

ENGAGEMENT PERFORMANCE

RELEVANT ETHICAL REQUIREMENTS

HUMAN RESOURCES

HUMAN RESOURCES

LEADERSHIP

ANSWER:

2-20

(A )

WHAT FACTORS SHOULD OLSON AND RILEY CONSIDER BEFORE ACCEPTING THE
ENGAGEMENT?
THE CPA FIRM OLSON AND RILEY SHOULD CONSIDER FIRST EVALUATE WHETHER
THEY HAVE THE PROFESSIONAL COMPETENCE TO PERFORM ALL OF THE AUDIT WORK FOR
FILING WITH THE SEC, AND WHETHER THEY WISH TO ACCEPT THE RISK ASSOCIATED WITH
SUCH AN ENGAGEMENT. IN ADDITION, IF OLSON AND RILEY HAVE PERFORMED BOOKKEEPING
SERVICES OR CERTAIN CONSULTING SERVICES FOR HOWARD MOBILE HOME, THEY WILL NOT
BE INDEPENDENT UNDER PCAOB AND SEC INDEPENDENCE REQUIREMENTS. THE FIRM MUST
ALSO BE A REGISTERED FIRM WITH THE PCAOB.

( B)

LIST ADDITIONAL ISSUES CONFRONTING AUDITORS OF COMPANIES THAT FILE WITH THE
SEC AS COMPARED TO DEALING WITH A PRIVATE COMPANY AUDIT CLIENT.
THE FILING WITH THE SEC, IN ADDITION TO NORMAL AUDITED FINANCIAL
STATEMENTS, WILL REQUIRE COMPLETION AND REGISTRATION WITH THE SEC OF FORM S-1
WHICH INCLUDES AN AUDITED SUMMARY OF OPERATIONS FOR THE LAST FIVE FISCAL YEARS
AS WELL AS MANY ADDITIONAL SCHEDULES AND DESCRIPTIONS OF THE BUSINESS. EACH
QUARTER SUBSEQUENT TO THE FILING, FORM 10-Q MUST BE FILED; AND WITHIN 90 DAYS
OF THE END OF EACH FISCAL YEAR FORM 10-K MUST BE FILED WITH THE SEC.
IN ADDITION, FORM 8-K MUST BE FILED WHENEVER SIGNIFICANT EVENTS HAVE OCCURRED
WHICH ARE OF INTEREST TO PUBLIC INVESTORS. THESE FORMS MUST BE FILED IN
CONFORMITY WITH REGULATION S-X, WHICH REQUIRES CONSIDERABLE DISCLOSURES IN
ADDITION TO THOSE NORMALLY REQUIRED IN AUDITED FINANCIAL STATEMENTS.

3-23

ANSWER:

CORRECT: (2) THE REPORT INCLUDES ADDITIONAL PARAGRAPHS FOR THE

DEFINITION AND LIMITATIONS OF INTERNAL CONTROL.

CORRECT:

(3)

COMPLETION OF ALL IMPORTANT AUDIT PROCEDURES.

CORRECT:
AUDITOR.

(3)

PORTION OF THE FINANCIAL STATEMENTS AUDITED BY THE OTHER

3-25

ANSWER:

CORRECT:

CORRECT: (2) MANAGEMENT DOES NOT PROVIDE REASONABLE JUSTIFICATION FOR A CHANGE
IN ACCOUNTING PRINCIPLES.

CORRECT:

3-26
Q

(3)

(3)

A QUALIFIED

EXCEPT

FOR OPINION OR ADVERSE OPINION.

QUALIFIED OPINION.

ANSWER:

PHRASES USE IN AN UNQUALIFIED REPORTS

EXPLANATIONS

THE

FINANCIAL STATEMENTS REFERRED TO

ABOVE PRESENT FAIRLY IN ALL MATERIAL
RESPECTS THE FINANCIAL POSITION RATHER
THAN THE FINANCIAL STATEMENTS MENTIONED
ABOVE ARE CORRECTLY STATED.

IT IS BECAUSE "CORRECTLY STATED" IMPLIES

ABSOLUTE ACCURACY, WHEREAS THE
ALTERNATIVE REPORT STATES THAT THERE IS
NO MATERIAL MISSTATEMENTS EXIST.

IN

CONFORMITY WITH ACCOUNTING

PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED STATES OF AMERICA RATHER THAN
ARE PROPERLY STATED TO REPRESENT THE
TRUE ECONOMIC CONDITIONS.

THIS HAS BEEN REFER TO GAAP SPECIFIES

RULES THAT WERE FOLLOWED IN
ACCOUNTING FOR THE TRANSACTIONS TO
DATE; WHEREAS "THE TRUE ECONOMIC
CONDITIONS" DOES NOT IDENTIFY THE
SPECIFIC ACCOUNTING PROCEDURES
APPLIED.

IN

THE OPINION PARAGRAPH IS NOT INTENDED

TO BE A CERTIFICATION OR A GUARANTEE OF
THE ACCURACY AND CORRECTNESS OF THE
FINANCIAL STATEMENTS, BUT RATHER IT IS
INTENDED TO BE AN EXPRESSION OF
PROFESSIONAL JUDGMENT BASED UPON A

OUR OPINION, THE FINANCIAL STATEMENTS

PRESENT FAIRLY RATHER THAN THE
FINANCIAL STATEMENTS PRESENT FAIRLY.

REASONABLE AUDIT OF THE STATEMENTS

AND UNDERLYING RECORDS.
D

BROWN &

PHILLIPS, CPAS (FIRM NAME),

RATHER THAN JAMES E. BROWN, CPA
(INDIVIDUAL PARTNERS NAME).

THE NAME
THE NAME OF THE CPA FIRM
(BROWN & PHILIPHS, CPAS) RATHER THAN
THAT OF THE INDIVIDUAL PRACTITIONER
SHOULD APPEAR ON THE ACCOUNTANT'S
REPORT BECAUSE IT IS THE ENTIRE FIRM
THAT ACCEPTS RESPONSIBILITY FOR THE
REPORT ISSUED.

WE

"OUR

CONDUCTED OUR AUDIT IN ACCORDANCE

WITH AUDITING STANDARDS GENERALLY
ACCEPTED IN THE UNITED STATES OF AMERICA
RATHER THAN OUR AUDIT WAS PERFORMED
TO DETECT MATERIAL MISSTATEMENTS IN THE
FINANCIAL STATEMENTS.

AUDIT WAS PERFORMED TO DETECT

MATERIAL MISSTATEMENTS IN THE FINANCIAL
STATEMENTS" IS FLAWED BECAUSE THE
PURPOSE OF THE AUDIT IS TO DETERMINE
WHETHER FINANCIAL STATEMENTS ARE
FAIRLY STATED, NOT TO SPECIFICALLY
SEARCH FOR MATERIAL ERRORS AND FRAUD.
IT ALSO FAILS TO RECOGNIZE THE AUDIT
STANDARDS FOLLOWED BY THE AUDITOR.
"WE CONDUCTED OUR AUDIT IN
ACCORDANCE WITH AUDITING STANDARDS
GENERALLY ACCEPTED IN THE UNITED STATES
OF AMERICA" IDENTIFIES THE AUDITOR'S
RESPONSIBILITIES FOR THE CONDUCT OF THE
AUDIT, ACCUMULATION OF EVIDENCE, AND
REPORTING REQUIREMENTS. IT IS A MUCH
BROADER STATEMENT THAN THE
ALTERNATIVE CLAUSE. IT ALSO IMPLIES THAT
IF THE AUDITOR HAS CONDUCTED THE AUDIT
IN ACCORDANCE WITH GENERALLY ACCEPTED
AUDITING STANDARDS BUT DOES NOT
UNCOVER CERTAIN MATERIAL ERRORS OR
FRAUD, THE AUDITOR IS UNLIKELY TO HAVE
RESPONSIBILITY FOR FAILING TO DO SO.