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AICPA CPA-Auditing Exam
CPA Auditing and Attestation (AUD) (Page 38 )

Updated On: 12-Feb-2026
Page 38 of 207
PDF with 1026 Questions

The primary purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to:

  1. Enable the CPA firm to attest to the reliability of the client.
  2. Satisfy the CPA firm's duty to the public concerning the acceptance of new clients.
  3. Minimize the likelihood of association with clients whose management lacks integrity.
  4. Anticipate before performing any fieldwork whether an unqualified opinion can be expressed.

Answer(s): C

Explanation:

Choice "c" is correct. Policies and procedures should be established for deciding whether to accept or continue a client in order to minimize the likelihood of association with a client whose management lacks integrity.
Choice "a" is incorrect. Suggesting that there should be procedures to decide whether to accept a client does not imply that a firm vouches for the integrity or reliability of a client. Choice "b" is incorrect. Suggesting that there should be procedures to decide whether to accept a client does not imply that a firm has a duty to anyone but itself with respect to the acceptance, rejection, or retention of clients.
Choice "d" is incorrect. The decision to express an unqualified opinion should be made after the completion of the audit, not upon client acceptance.



A CPA firm evaluates its personnel advancement experience to ascertain whether individuals meeting stated criteria are assigned increased degrees of responsibility. This is evidence of the firm's adherence to which of the following prescribed standards:

  1. Professional ethics.
  2. Supervision and review.
  3. Accounting and review services.
  4. Quality control.

Answer(s): D

Explanation:

Choice "d" is correct. The AICPA's Statements on Quality Control Standards assert that professional development policies and procedures should be established by the firm in order to provide reasonable assurance that personnel will have the knowledge required to perform their work and progress within the firm.
Choice "a" is incorrect. The auditors' responsibility is to the public and is defined in the "AICPA Code of Professional Conduct," which includes a set of mandatory rules and which derives its authority from the bylaws of the AICPA.
Choice "b" is incorrect. Supervision and review are part of GAAS fieldwork standards. Choice "c" is incorrect. Accounting and review services pertain to the unaudited financial statements of a nonpublic company.



The primary purpose of establishing quality control policies and procedures for deciding whether to accept new clients is to:

  1. Minimize the likelihood of association with clients whose management lacks integrity.
  2. Monitor significant deficiencies in the design and operation of the client's internal control.
  3. Identify noncompliance with aspects of contractual agreements that affect the financial statements.
  4. Provide reasonable assurance that personnel will be adequately trained to fulfill their assigned responsibilities.

Answer(s): A

Explanation:

Choice "a" is correct. Policies and procedures should be established for deciding whether to accept a new client in order to minimize the likelihood of association with a client whose management lacks integrity.
Choice "b" is incorrect. Policies and procedures established for deciding whether to accept a new client would not aid in monitoring internal control deficiencies. A review of internal control would not occur until after a new client was accepted.
Choice "c" is incorrect. Policies and procedures established for deciding whether to accept a new client would not aid in identifying noncompliance with contractual agreements. Reviewing the terms of contractual agreements would not occur until after a new client was accepted. Choice "d" is incorrect. Policies and procedures established for deciding whether to accept a new client would not aid in the adequate training of personnel. Personnel management policies would be used to ensure that training needs are met.



Jackson & Company, CPAs, plan to audit the financial statements of Perigee Technologies, an issuer as defined under the Sarbanes-Oxley Act of 2002.
Which of the following situations would impair Jackson's independence?

  1. Provision of personal tax services to Johnson, the accounts payable manager of Perigee.
  2. Preparation of Perigee's routine annual tax return, where Jackson's fee will be calculated as a percentage of the tax refund obtained.
  3. An audit of Perigee's internal control is performed contemporaneously with the annual financial statement audit.
  4. Discovering that Lowe, the chief financial officer of Perigee, started his accounting career ten years earlier as a staff accountant for Jackson & Company, and continues to maintain ties with current partners at the firm.

Answer(s): B

Explanation:

Choice "b" is correct. The provision of services involving contingent fee arrangements impairs the auditor's independence.
Choice "a" is incorrect. Personal tax services provided to employees do not impair the auditor's independence; however, personal tax services provided to corporate officers or their families would impair independence.
Choice "c" is incorrect. Independence is not impaired by the performance of an audit of Perigee's internal control; in fact, such services are required by PCAOB Auditing Standard No. 5 (covered in a later class).
Choice "d" is incorrect. The prohibition against auditing companies whose corporate officers worked for the auditing firm only applies if those officers worked on the audit during the preceding year.



Which of the following are true regarding communication requirements an auditor must follow when providing tax services to an audit client who is an issuer under the Sarbanes-Oxley Act of 2002?

I). The auditor must communicate to the audit committee, in writing, regarding the proposed tax services and related fees.
II0. The auditor must communicate to the audit committee, in writing, when the proposed tax services involve contingent fee arrangements.
III0. The auditor must discuss with the audit committee the potential effects of the proposed tax services on the firm's independence.

  1. I and II only.
  2. I, II, and III.
  3. I and III only.
  4. II and III only.

Answer(s): C

Explanation:

Choice "c" is correct. The auditor must communicate to the audit committee, in writing, regarding the proposed tax services and related fees, and must discuss with the audit committee the potential effects of the proposed tax services on the firm's independence. Tax services related to contingent fee arrangements, confidential tax transactions, and certain aggressive tax transactions are expressly prohibited.
Choices "a", "b", and "d" are incorrect, based on the above Explanation.
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