Certified Public Accountant Regulatory Frameworks & Compliance 2 — Questions and Answers
Question 1: Under the Dodd-Frank Act, which entity has primary authority to regulate systemically important financial institutions (SIFIs)?
- Financial Industry Regulatory Authority (FINRA)
- Financial Stability Oversight Council (FSOC) (Correct answer)
- Public Company Accounting Oversight Board (PCAOB)
- Office of the Comptroller of the Currency (OCC)
Correct answer: Financial Stability Oversight Council (FSOC)
The Financial Stability Oversight Council (FSOC), created by Dodd-Frank, designates and oversees systemically important financial institutions.
Question 2: A CPA discovers that a client's financial statements contain a material misstatement that the client refuses to correct. Under AICPA ethics rules, what is the CPA's appropriate action regarding an audit engagement?
- Issue an unmodified opinion with a separate emphasis paragraph
- Issue a qualified or adverse opinion, or withdraw from the engagement (Correct answer)
- Report the misstatement directly to the SEC without notifying the client
- Continue issuing an unmodified opinion until the next audit cycle
Correct answer: Issue a qualified or adverse opinion, or withdraw from the engagement
When a client refuses to correct a material misstatement, the auditor must modify their opinion (qualified or adverse) or withdraw from the engagement.
Question 3: Which SEC regulation requires companies to disclose information about off-balance-sheet arrangements and contractual obligations in their annual reports?
- Regulation S-X
- Regulation S-K Item 303 (MD&A) (Correct answer)
- Regulation FD
- Regulation A+
Correct answer: Regulation S-K Item 303 (MD&A)
Regulation S-K Item 303 (Management's Discussion and Analysis) requires disclosure of off-balance-sheet arrangements and contractual obligations.
Question 4: Under the Bank Secrecy Act (BSA), what is the threshold for filing a Currency Transaction Report (CTR)?
- $5,000
- $7,500
- $10,000 (Correct answer)
- $25,000
Correct answer: $10,000
Financial institutions must file a CTR for cash transactions exceeding $10,000 in a single business day.
Question 5: The PCAOB's AS 2201 standard primarily governs which aspect of an audit engagement?
- Audit sampling methodologies
- Auditing internal control over financial reporting (Correct answer)
- Independence requirements for audit firms
- Quality control systems at audit firms
Correct answer: Auditing internal control over financial reporting
AS 2201 (formerly AS 5) establishes requirements for auditing internal control over financial reporting integrated with the audit of financial statements.
Question 6: Which provision of Sarbanes-Oxley makes it a criminal offense for an audit partner to destroy, alter, or conceal documents related to a federal investigation?
- Section 201
- Section 302
- Section 802 (Correct answer)
- Section 404
Correct answer: Section 802
SOX Section 802 imposes criminal penalties for destroying, altering, or concealing documents in federal investigations or bankruptcy proceedings.
Question 7: A public company CPAs must retain audit workpapers for a minimum of how many years under SEC rules?
- 3 years
- 5 years
- 7 years (Correct answer)
- 10 years
Correct answer: 7 years
SEC rules require auditors of public companies to retain audit documentation for at least 7 years from the completion of the engagement.
Certified Public Accountant Regulatory Frameworks & Compliance 2
Under the Dodd-Frank Act, which entity has primary authority to regulate systemically important financial institutions (SIFIs)?