Certified Public Accountant Professional Standards & Competencies 3 — Questions and Answers
Question 1: Which type of audit opinion is issued when financial statements contain a material but not pervasive misstatement?
- Adverse opinion
- Disclaimer of opinion
- Qualified opinion (Correct answer)
- Unmodified opinion
Correct answer: Qualified opinion
A qualified opinion ('except for') is used when a misstatement or scope limitation is material but not pervasive enough to require an adverse or disclaimer.
Question 2: A CPA who simultaneously holds a financial interest in a client and audits that client violates which AICPA Rule?
- Rule 101 — Independence (Correct answer)
- Rule 102 — Integrity and Objectivity
- Rule 201 — General Standards
- Rule 301 — Confidential Client Information
Correct answer: Rule 101 — Independence
Rule 101 (ET Section 1.200) prohibits a CPA from having a direct financial interest in an attest client.
Question 3: The concept of 'professional skepticism' in auditing means the auditor should:
- Assume management is fraudulent until proven otherwise
- Obtain a legal opinion on every estimate
- Maintain a questioning mind and critically assess audit evidence (Correct answer)
- Require written representations on every transaction
Correct answer: Maintain a questioning mind and critically assess audit evidence
Professional skepticism involves a questioning mind and critical assessment of evidence without assuming dishonesty or unquestioned honesty.
Question 4: Under PCAOB AS 2201, an auditor's report on internal control over financial reporting must be based on:
- Management's assessment only
- An integrated audit performed alongside the financial statement audit (Correct answer)
- A limited review of key controls
- Self-assessment by the audit committee
Correct answer: An integrated audit performed alongside the financial statement audit
AS 2201 requires an integrated audit of both ICFR and the financial statements for public companies subject to SOX Section 404(b).
Question 5: A CPA in public practice who prepares tax returns must comply with which standard when determining a return position?
- SSARS
- Statements on Standards for Tax Services (SSTSs) (Correct answer)
- Circular 230 only
- AU-C Section 265
Correct answer: Statements on Standards for Tax Services (SSTSs)
The AICPA's Statements on Standards for Tax Services govern tax return preparation and advice by CPA members.
Question 6: Which element is NOT required in an engagement letter for an audit of a nonpublic entity?
- The objective and scope of the audit
- Responsibilities of management
- The expected audit fee (Correct answer)
- Limitations of the audit
Correct answer: The expected audit fee
AU-C Section 210 requires engagement letter content on objectives, scope, responsibilities, and limitations — fee is good practice but not mandated by the standard.
Question 7: The AICPA's Conceptual Framework for Independence uses a 'reasonable and informed third party' test. This party is best described as:
- The audit committee chair of the client
- A regulator with full access to work papers
- A knowledgeable person who weighs facts and circumstances objectively (Correct answer)
- An independent peer reviewer from another CPA firm
Correct answer: A knowledgeable person who weighs facts and circumstances objectively
The reasonable and informed third party is a hypothetical objective person aware of relevant information who would assess whether independence is maintained.
Certified Public Accountant Professional Standards & Competencies 3
Which type of audit opinion is issued when financial statements contain a material but not pervasive misstatement?