AICPA Exam CPA-Auditing Topic 1 Question 94 Discussion

Actual exam question for AICPA's CPA-Auditing exam

Question #: 94
Topic #: 1

Which of the following factors most likely would cause a CPA to decide not to accept a new audit engagement?

AThe CPA's lack of understanding of the prospective client's internal auditor's computer-assisted audit techniques.

BManagement's disregard of its responsibility to maintain an adequate internal control environment.

CThe CPA's inability to determine whether related party transactions were consummated on terms equivalent to arm's-length transactions.

DManagement's refusal to permit the CPA to perform substantive tests before the year-end.
Explanation
Choice 'b' is correct. The control environment is the foundation for all other components of internal control. Management's disregard of its responsibility to maintain an adequate internal control environment therefore compromises its ability to provide reasonable assurance regarding reliable financial reporting. The auditor may conclude that the risk of misrepresentation in the financial statements is great enough that an audit should not be conducted.
Choice 'a' is incorrect. The CPA does not need to understand the internal auditor's techniques in order to accept a new audit engagement.
Choice 'c' is incorrect. Related party transactions (by definition) are not considered to be arm's-length transactions, and evaluation of such transactions does not affect the CPA's decision regarding acceptance of new clients.
Choice 'd' is incorrect. Substantive tests are generally performed after year-end, since prior to that time the financial statements have not been finalized.

Show Suggested Answer

Suggested Answer: A

Choice 'a' is correct. The auditor should disclaim an opinion as to management's cost-benefit statement (i.e., 'We do not express an opinion or any other form of assurance on management's cost-benefit statement.').

Choice 'b' is incorrect. The CPA should disclaim an opinion regarding management's representation.

Choice 'c' is incorrect. The CPA's report on internal control is not restricted as to use.

Choice 'd' is incorrect. The CPA does not need to withdraw the opinion as long as a disclaimer on management's cost-benefit statement is presented.

by Amalia at Aug 05, 2024, 11:09 PM

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Naomi

2 days ago

I think the answer is B.

upvoted 0 times

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