Certified Public Accountant Communication & Stakeholder Relations 5 — Questions and Answers
Question 1: A CPA is asked by a client's lender to confirm the client's financial health orally over the phone without a written report. The CPA should:
- Provide the confirmation as a professional courtesy to facilitate the client's financing
- Decline and explain that professional standards require written reports for such communications (Correct answer)
- Provide the information after the client gives verbal permission
- Issue a written statement confirming only the items the lender specifically requests
Correct answer: Decline and explain that professional standards require written reports for such communications
Providing oral assurance or confirmation to third parties creates professional liability and violates attestation standards that require formal written reports for assurance on financial matters.
Question 2: When a CPA disagrees with a client's accounting policy that, while acceptable, is not the CPA's preferred method, the appropriate communication is to:
- Require the client to change the policy before issuing any report
- Discuss the preference with management but issue an unmodified opinion if the policy is acceptable under GAAP (Correct answer)
- Issue a qualified opinion disclosing the disagreement
- Remain silent since any acceptable GAAP policy requires no comment
Correct answer: Discuss the preference with management but issue an unmodified opinion if the policy is acceptable under GAAP
A CPA may express a preference while respecting management's right to select among acceptable GAAP alternatives; an unmodified opinion is appropriate when the chosen policy conforms to GAAP.
Question 3: An audit client asks the CPA to provide a reference letter for a key employee who is leaving the firm. The CPA should:
- Always decline to avoid any potential liability
- Provide only factually verifiable statements and avoid speculative assessments (Correct answer)
- Include personal character references to help the employee
- Write the letter only if the employee waives confidentiality in writing
Correct answer: Provide only factually verifiable statements and avoid speculative assessments
When providing reference letters, CPAs should limit statements to objectively verifiable facts to avoid defamation claims and misrepresentation, including only what they can substantiate.
Question 4: Under the Sarbanes-Oxley Act, which party must communicate internal control deficiencies to the audit committee of a public company?
- Only management, not the external auditor
- The external auditor, who must report directly to the audit committee (Correct answer)
- The CFO to the CEO only
- The internal audit department to the board of directors
Correct answer: The external auditor, who must report directly to the audit committee
SOX Section 204 requires external auditors of public companies to report critical accounting policies, alternative treatments, and material communications directly to the audit committee.
Question 5: A CPA firm's quality control partner reviews an engagement and disagrees with the audit conclusion. This review occurs BEFORE the report is issued. The engagement team should:
- Issue the report immediately before the review partner can intervene
- Resolve the disagreement before issuing the report (Correct answer)
- Document the disagreement and proceed with the majority view
- Escalate the disagreement to the client's management for resolution
Correct answer: Resolve the disagreement before issuing the report
PCAOB AS 2101 and AICPA quality control standards require that disagreements within the engagement team be resolved before the audit report is issued.
Question 6: A CPA receives a request from a journalist to comment on a client's financial condition for a news article. The MOST appropriate response is to:
- Provide factual publicly available information only
- Decline to comment and refer the journalist to the client (Correct answer)
- Confirm or deny whether the entity is a client
- Provide an overview of typical industry financial ratios as context
Correct answer: Decline to comment and refer the journalist to the client
Even confirming or denying a client relationship violates AICPA confidentiality rules; the CPA should decline all comment and direct inquiries to the client.
Question 7: A CPA preparing a business valuation report must include in the report a statement that:
- The valuation is guaranteed to be accepted by the IRS
- The assumptions and limiting conditions underlying the valuation are disclosed (Correct answer)
- All shareholders have reviewed and approved the conclusions
- The valuation was performed using the highest possible standard of assurance
Correct answer: The assumptions and limiting conditions underlying the valuation are disclosed
SSVS No. 1 requires valuation reports to include a description of the assumptions and limiting conditions that affected the analysis and conclusions.
Certified Public Accountant Communication & Stakeholder Relations 5
A CPA is asked by a client's lender to confirm the client's financial health orally over the phone without a written report.
The CPA should: