Q&A Hero

Q: What is the size of most public accounting firms in Canada? A) fewer than 25 employees B) between 25 and 49 employees C) between 50 and 75 employees D) more than 75 employees

Q: How many public accounting firms are there in Canada that have more than 50 professional staff? A) 25 B) 50 C) 75 D) 100

Q: Most international and national accounting firms in Canada are comprised of professional accountants with the designations A) CGA or CMA. B) CMA or CIA. C) CA [CPA] or CGA. D) CIA or CISA.

Q: National accounting firms in 2012 are those with A) offices in most major cities and revenues over $100 million. B) international representation in most cities around the world. C) offices in all major cities in Canada and revenues over $75 million. D) national and international affiliations providing services in all major centres.

Q: One of the main advantages of a "big" public accounting firm is the A) lower professional fees due to economies of scale. B) ability to share knowledge and experience of similar companies they audit with the client. C) ability to serve all major international cities as globalization of businesses increases. D) increased reliance that can be placed on the audit report by financial statement users.

Q: 2.1 Describe the various organizational structures of public accounting firms

Q: [Note: If this question is used as part of an examination question, Figure 1-1. Audit of a Tax Return will need to be included as part of the examination.]Use your knowledge of the definition of auditing and Figure 1-1. Audit of a Tax Return, to explain how an auditor would conduct a privacy audit.

Q: We discuss four types of auditors: public accountants, government auditors, Canada Revenue Agency auditors and internal auditors. Briefly describe the work and responsibilities of each type.

Q: The internal audit group typically reports directly to the A) board of directors. B) management of the company. C) external auditor D) audit committee.

Q: To operate effectively, an internal auditor must be independent of the A) line functions of the organizations. B) entity that is being audited. C) employer-employee relationship which exists for other employees in the organization. D) outsourcing organizations used.

Q: The extent and the scope of the audits conducted by Auditors General are determined by A) legislation in the Auditor General's jurisdiction. B) audit partner planning audit program development. C) the Auditor General and his/her staff. D) the financial statement auditors of the client.

Q: Auditors General are responsible for auditing which types of organizations? A) Public companies with shares issued to investors B) Private companies that have loans outstanding to banks or other creditors C) Ministries, departments, agencies, and crown corporations D) Any organization that submits tax returns to the tax authorities

Q: Which of the following organizations establishes ethical standards and standards for the practice of Internal Auditing? A) (ISACA) Information Systems Audit and Control Association B) (IIA) Institute of Internal Auditors C) (SMAC) Society of Management Accountants of Canada D) (CICA) Canadian Institute of Chartered Accountants

Q: Who is responsible for developing financial statement audit and assurance standards in Canada? A) AASB (Auditing and Assurance Standards Board) B) Standards staff at the CICA (Canadian Institute of Chartered Accountants) C) National accounting bodies such as CGA Canada D) The accounting firms who conduct financial statement audits

Q: You, PA, have been asked to prepare the year-end financial statements of your sister. Betty is a photographer, and is the sole shareholder of a small company called Best Weddings Ltd. She photographs weddings, graduations and schools, earning about $75,000 per year. Betty has said that she only needs the financial statements for her tax returns, and would like you to prepare the tax returns too. Required: A) Would you be able to prepare the financial statements for your sister? Why or why not? B) If yes, what type of report would you prepare to accompany the financial statements? C) Would you be able to prepare the tax returns for your sister? Why or why not?

Q: Jordan set up a nonprofit corporation several years ago to provide scholarships to poor youth in his community. From a small start, Scholarships Get up and Go Foundation now has assets of over $5 million, and provides about ten university scholarships every year. Jordan is proud of the new doctors, dentists and other health care practitioners that his Foundation has funded. Jordan is thinking of starting another foundation in an old building that he has purchased. It would be a youth drop in centre, with music lessons, art facilities, basketball facilities in a gym, with linkages to local high schools so that there could be a homework club to encourage good grades. Required: A) Why should Jordan have the financial statements of both of these foundations audited? B) Who would be the users of the financial statements of the foundations? C) What other types of services could PAs provide to Jordan and the foundations?

Q: Mega Manufacturing Company (Mega) is thinking about acquiring Localized Small Producer Inc. (LSP), a small manufacturing company that produces related products. Mega has examined the financial statements of LSP, which show only a small profit in the last five years. Management of LSP has taken reasonable salaries, and cost of goods sold is higher than the industry average for LSP. Mega believes that it will be able to introduce operational efficiencies at LSP, improving the profitability of the small company, if acquired. Required: A) What type of engagement should be conducted to assess the operational efficiencies of LSP? Justify your response. B) Who should be engaged to conduct the engagement? C) What major problems might the auditors encounter when conducting the audit and writing the report?

Q: Two types of services provided by public accounting firms are audits and reviews. Discuss the similarities and differences between these two types of services. Which type provides the most assurance?

Q: To do an audit, it is necessary to have information in a verifiable form and some criteria by which the auditor can evaluate the information. Required: A) What information and criteria would a public accounting firm use when auditing a company's financial statements? B) What information and criteria would a Canada Revenue Agency auditor use when auditing that same company's tax return? C) What information and criteria would an internal auditor use when performing an operational audit to evaluate whether the company's computerized payroll processing system is operating efficiently and effectively?

Q: Why might the decisions about materiality and risks be different for the internal auditor than for the external auditor when conducting an audit of a system? A) the auditors are applying different skills during the conduct of the audit B) external auditors have different expectations with respect to quality control C) internal auditors will focus only on the potential for dollar errors internally D) external users may have different needs than management

Q: What is the primary difference between internal and external auditors? The A) methodology used to conduct financial statement audits. B) level of competence required. C) parties to whom the auditor is responsible. D) level of objectivity required.

Q: Which of the following is an example of a financial statement audit? A) determining whether ABC's financial statements overall do not violate any debt covenants B) determining whether ABC's overall financial statements are stated in conformity with IFRS C) evaluating the effectiveness and efficiency of internal controls used to create account balance D) evaluating the effectiveness and efficiency of internal controls used to record transactions

Q: Which of the following audits can be regarded as being solely "compliance" audits? A) Canada Revenue Agency's examinations of the returns of taxpayers B) the Auditor General's evaluation of the computer operations of governmental units C) an internal auditor's review of his employer's payroll authorization procedures D) a public accounting firm's audit of the local school district

Q: A typical objective of an operational audit is for the auditor to A) determine whether the financial statements fairly present the entity's operations. B) evaluate the feasibility of attaining the entity's operational objectives. C) evaluate the effectiveness of an internal process. D) report on the entity's relative success in attaining profit maximization.

Q: Which one of the following is more difficult to evaluate objectively? A) efficiency and effectiveness of operations B) compliance with government regulations C) presentation of financial statements in accordance with a generally accepted accounting framework D) internal controls in use at a small company.

Q: A review of any part of an organization's procedures and methods for the purpose of evaluating efficiency and effectiveness is classified as a(n) A) audit of financial statements. B) compliance audit. C) operational audit. D) production audit.

Q: Big Bank requires, as part of its loan agreement, that only accounts receivable less than 60 days old be used as collateral. An auditor has been engaged to provide assurance that the accounts receivable on the list provided to the bank are indeed less than 60 days old. What type of engagement is the auditor conducting? A) financial statement B) compliance C) operational D) review

Q: Blader Ng. Inc. has recently placed into production new air-cleaning systems in their smoke-stacks to meet clean-air quality regulations. PA has been engaged to assess air quality and compare results to legislated requirements. What type of audit or engagement is PA conducting? A) financial statement B) compliance C) operational D) review

Q: When a compilation engagement is performed, the report attached is called a A) Compilation Report. B) Notice to Reader. C) No Assurance Report. D) Auditor's Report.

Q: Herbert Zora is having financial statements prepared by his PA to accompany his tax return. His primary concern is cost. Of the following, the lowest cost engagement that the PA can perform for Zora's financial statements is A) compilation. B) review. C) audit. D) WebTrust.

Q: Which of the following services provides no assurance about the client's financial statements? A) compilation B) review C) audit D) SysTrust

Q: PA is attempting to sell a service to his clients that will provide assurance on information systems reliability. PA is attempting to sell a(n) A) WebTrust service. B) compilation service. C) SysTrust service. D) audit engagement.

Q: Which of the following services results in the placement of an electronic seal affixed to the web site? A) review engagement B) internal controls assessment C) SysTrust D) WebTrust

Q: The purpose of a WebTrust service is to assure the user that A) criteria related to business practices, transaction integrity, and information processes have been met. B) information systems are reliable in areas such as security, data integrity, and program quality. C) controls over information systems implemented by the company are used consistently and reliably. D) there will not be any unauthorized access to the web site or other systems used by the client organization.

Q: There is an increasing demand for assurance about computer controls surrounding financial information transacted electronically and the security of the information related to the transaction. This is in large part due to A) the increasing presence of internet sales in many businesses. B) the use of computer assisted auditing tools. C) the many transactions and information shared online and in real time by companies. D) client's uncertainty about the proper functioning of their computer system.

Q: The reasoning behind the requirements of the Sarbanes Oxley Act's section 404 (attestation on internal control over financial reporting) is that A) effective controls result in greater profits to organizations, reducing business failures. B) effective controls reduce the likelihood of future misstatements in the financial statements. C) better internal controls can be implemented at lower cost, improving product quality. D) automated controls improve customer service, resulting in higher product sales.

Q: The Sarbanes-Oxley Act requires the auditor to attest to the A) accuracy of the financial statements. B) efficiency of the internal controls in financial reporting. C) effectiveness of internal controls. D) compliance of the company with the generally accepted accounting framework.

Q: Which of the following is an advantage of a review engagement as compared to an audit engagement? For the review engagement A) information risk is reduced more than for an audit. B) the documentation to be provided by the client is greater. C) the financial statements assessed will have more detail. D) it requires considerably less work, so is less costly.

Q: Which of the following services provides a moderate level of assurance about the client's financial statements? A) Forecasts and projections B) Compliance C) Review D) Audit

Q: A reason for a not-for-profit organization to be audited is A) complying with the laws requiring them to be audited. B) meeting requirements of lenders or funding sources. C) having a professional accountant perform their bookkeeping. D) ensuring that their financial statement do not contain errors.

Q: What type of information is available from www.sedar.com (System for Electronic Document Analysis and Retrieval)? Documents such as A) minutes of shareholders and directors meetings. B) transaction reports from major credit card companies. C) annual reports and management discussion and analysis. D) listings of all of the shareholders on record.

Q: A shareholder of a public Canadian firm can have access to the audited financial statements A) on the internet. B) by calling the accounting department of the company. C) requesting a copy from the auditors. D) if he holds more than 1% of the shares of the company.

Q: In Canada, publicly traded companies are A) required to have audits. B) strongly encouraged to have audits. C) not required to have an audit if they have a review. D) not required to have an audit.

Q: A major type of assurance service performed by large public accounting firms is A) audit. B) review. C) compilation. D) management consulting.

Q: What impact is the presence of factors such as real-time information (such as via the Internet) expected to have upon the demand for assurance services? Demand is expected to A) decline, due to the lack of adequate resources. B) grow, due to the increase in large corporations. C) grow, due to the need for forward-looking information. D) decline, as small businesses use the Internet more.

Q: For how many years will assurance engagements be required by individuals or organizations? A) usually only when organizations obtain debt or other loans B) for five years from the start of an organization until debt is retired C) only when historical such as financial information needs to be audited D) on an ongoing basis, as organizations and society's needs evolve

Q: Which of the following is an example of an attestation engagement? A) Accounting and bookkeeping services for the accounts B) An audit of internal controls over financial reporting C) Preparation of the annual financial statements, with notes D) Completion of provincial and federal tax returns

Q: The No-Name Advertising Rating Agency conducts independent surveys to determine the sources of purchases by consumers (e.g. newspaper ad, magazine ad, television ad). This information is then used by those media (i.e. newspapers, magazines, and television broadcasters) to indicate to purchasers of advertising the breadth of coverage that they have. For example, Small Local Newspaper can say that 10% of the purchasers of soap products made their decisions based upon their ads. This helps in selling advertising. What type of service is No-Name providing? A) Assurance B) Attest C) Review D) Compilation

Q: Frederic is an account manager at a large Canadian bank. Frederic has to decide if the bank will make a loan to Frost Corp, a snow removal company. Further, Frederic has to decide how much they will lend to Frost and at what rate. Assuming that Frederic makes the loan, what factors will he use to decide the rate of interest? What factors are impacted by auditing and how?

Q: Discuss the differences and similarities between the roles of accountants and auditors. What additional expertise must an auditor possess beyond that of an accountant?

Q: What is the most appropriate method for an organization to lower information risk related to its financial statements? To have A) good bookkeeping work completed on the accounts. B) a high quality software package keep track of information. C) an independent financial statement audit conducted. D) an independent operational audit conducted on effectiveness.

Q: How does a financial statement audit affect a bank manager's decision in providing loans to a corporate client? A) Information risk could be reduced, so the bank manager may lower the interest rate charged. B) The bank manager will lower the risk-free interest rate that applies to the corporation. C) The business risk for the client will be reduced, so the borrowing costs will decline. D) The business risk for the client will be increased, so the borrowing costs will be lowered.

Q: An accountant records information. When conducting an audit, the auditor must possess A) an ability to interpret generally accepted accounting frameworks. B) an education beyond the bachelor's degree. C) an ability to classify transactions by type. D) an ability to organize and summarize economic events.

Q: Which of the following is an example of auditing rather than accounting? A) recording purchase amounts in the expense accounts B) posting the daily sales totals to the general ledger C) recording cash received in the customer account files D) evaluating whether accounts receivable are collectible

Q: In "auditing" accounting data, the concern is with A) determining whether recorded information properly reflects the economic events that occurred during the accounting period. B) determining if fraud has occurred. C) determining if taxable income has been calculated correctly. D) analyzing the financial information to be sure that it complies with government requirements.

Q: Which of the following is an example of accounting rather than auditing? A) gathering evidence about the quality of accounts receivable B) entering sales transactions into the sales order system C) reviewing sales invoices to see if they have been calculated correctly D) comparing bank deposit documents to the recorded cash received

Q: Joe is recording sales transactions in the accounting system so that they can be summarized in a logical manner for the purpose of providing financial information for decision-making. Joe is performing A) accounting. B) auditing. C) review. D) management consulting.

Q: In the audit of a corporate tax return, the report provided by the Canada Revenue Agency auditor would describe A) an opinion on the likelihood of tax return error. B) the likely accounting errors that could contribute to tax errors. C) management issues with respect to accurately reporting taxes. D) corporate income tax overages or income tax under payments.

Q: In the audit of an individual's tax return, the criteria used would be A) an accounting framework. B) the Income Tax Act. C) the client's policies for taxable income. D) the auditor's judgment.

Q: In the audit of an individual's tax return, the auditor should demonstrate competence in the use of A) external databases that contain economic statistics. B) standard personal and corporate tax preparation software. C) the Income Tax Act and accompanying regulations. D) database management software for the use of client based research.

Q: The independent auditor's report is the A) communication of the result of the audit to the users. B) set of audited financial statements. C) invoice of the auditor detailing the work they have performed. D) report presented to management about the possible improvements.

Q: Because an external auditor is paid a fee by a client company, he or she A) is absolutely independent and may conduct an audit. B) may be sufficiently independent to conduct an audit. C) is never considered to be independent. D) must receive approval of the relevant provincial securities commission before conducting an audit.

Q: It is important for the auditor to be independent because A) the auditor would not charge a fair rate to the client. B) the auditor might not be as knowledgeable of the subject matter and the criteria. C) this will prevent bias in accumulating and evaluating evidence. D) the Canadian Tax Authorities require that the auditor be independent.

Q: One of the reasons that an auditor must be competent is to be able to A) select the type and amount of evidence to accumulate. B) explain how the bookkeeping should be done to his staff. C) record the transactions properly for the underlying records. D) capture the information properly in the computer files.

Q: One of the reasons that an auditor must be competent is to be able to A) understand the engagement risks and the criteria used by the client. B) explain how the bookkeeping should be done to his staff. C) record the transactions properly for the underlying records. D) capture the information properly in the computer files.

Q: George had a conversation with the accounting personnel and documented information about how the accounting systems function. He has also placed copies of accounting forms in his files. George is performing which task? A) accounting procedures B) evidence gathering C) tax audit D) audit report preparation

Q: The auditor and the entities should agree on the criteria to be used in the audit A) before the audit starts. B) after the audit planning has been done. C) as they progress with the audit as they can determine which criteria is more suitable. D) at the end of the audit.

Q: A large PA firm has assessed evidence collected during an engagement. Criteria used to assess the financial statements were International Financial Reporting Standards (IFRS). A high level of assurance was obtained. The type of engagement conducted was a(n) A) audit. B) review. C) management consulting. D) compilation.

Q: In the audit of historical financial statements by PA firms, the criteria used are A) generally accepted auditing standards. B) generally accepted accounting principles. C) regulations of the Canada Revenue Agency. D) regulations of the provincial securities commissions.

Q: Which of the following illustrates the definition of auditing with respect to the reporting process? A) accumulation and evaluation of evidence about balance sheet accounts B) reporting on the degree of correspondence between financial statements and ASPE C) writing an operational audit report that is tailored to the client's situation D) making sure that the auditor is competent and understands evidence gathering

Q: Auditing should be done by a qualified A) chartered accountant. B) certified management accountant. C) competent and independent person. D) professional accountant.

Q: Which of the following illustrates the definition of auditing with respect to the evidence analysis process? A) accumulation and evaluation of evidence about balance sheet accounts B) learning about different types of computing technology, such as mainframes C) writing an operational audit report that is tailored to the client's situation D) making sure that the auditor is competent and understands evidence gathering

Q: 1.1 Identify the components of an audit and explain why there is a demand for audits

Q: What are the major shortcomings of CEO compensation?

Q: Explain what is meant by stock options and how these options work and are typically used within a corporation.

Q: Describe the typical duties of boards of directors for U.S. corporations.

Q: Discuss some of the provisions of the Dodd-Frank Act.

Q: List three provisions that were set forth in the Sarbanes-Oxley Act.

Q: Discuss the advantages that management has over shareholders.

Q: (p. 636) Explain the flow of authority granted by the powers of a charter of a corporation.