2013 Pearson Canada Inc.

1 © 2013 Pearson Canada Inc.Auditing, 12e (Arens) Chapter 2 The Public Accounting Profession

2.1 Describe the various organizational structures of public accounting firms

1) One of the main advantages of a "big" public accounting firm is the

• lower professional fees due to economies of scale.
• ability to share knowledge and experience of similar companies they audit with the client.
• ability to serve all major international cities as globalization of businesses increases.
• increased reliance that can be placed on the audit report by financial statement users.

Answer: C

Diff: 2 Type: MC Page Ref: 27 Learning Obj.: 2-1 Describe the various organizational structures of public accounting firms

2) National accounting firms in 2012 are those with

• offices in most major cities and revenues over $100 million.
• international representation in most cities around the world.
• offices in all major cities in Canada and revenues over $75 million.
• national and international affiliations providing services in all major centres.

Answer: A

Diff: 3 Type: MC Page Ref: 27 Learning Obj.: 2-1 Describe the various organizational structures of public accounting firms

3) Most international and national accounting firms in Canada are comprised of professional accountants with the designations

• CGA or CMA.
• CMA or CIA.
• CA [CPA] or CGA.
• CIA or CISA.

Answer: C

Diff: 2 Type: MC Page Ref: 27 Learning Obj.: 2-1 Describe the various organizational structures of public accounting firms

4) How many public accounting firms are there in Canada that have more than 50 professional staff?

• 25
• 50
• 75

D) 100

Answer: B

Diff: 3 Type: MC Page Ref: 28 Learning Obj.: 2-1 Describe the various organizational structures of public accounting firms

Auditing The Art and Science of Assurance Engagements Canadian Twelfth Edition Canadian 12th Edition Arens Test Bank Visit TestBankDeal.com to get complete for all chapters

2 © 2013 Pearson Canada Inc.5) What is the size of most public accounting firms in Canada?

• fewer than 25 employees
• between 25 and 49 employees
• between 50 and 75 employees
• more than 75 employees

Answer: A

Diff: 3 Type: MC Page Ref: 28 Learning Obj.: 2-1 Describe the various organizational structures of public accounting firms 6) The most common organizational form used by public accounting firms is

• sole proprietorship or partnership.
• professional corporation.
• corporation.
• co-operative.

Answer: A

Diff: 1 Type: MC Page Ref: 28 Learning Obj.: 2-1 Describe the various organizational structures of public accounting firms

7) What are the three main factors that influence the organizational structure of all Public Accounting firms?

Answer:

• The need for independence from clients. Independence permits auditors to remain unbiased in

drawing conclusions about their client's financial statements.

• The importance of a structure to encourage competence. The ability of the structure to

encourage competence permits auditors to conduct audits and perform other services efficiently and effectively.

• The increased litigation risk faced by auditors. Firms continue to experience increases in

litigation-related costs from lawsuits. Some organizational structures afford a degree of protection to individual firm members.Diff: 2 Type: ES Page Ref: 28 Learning Obj.: 2-1 Describe the various organizational structures of public accounting firms

3 © 2013 Pearson Canada Inc.

2.2 Link the market forces that help ensure that audit and assurance engagements are completed to high standards of quality

1) What is one of the ways that high-profile business failures such as Enron, WorldCom and Nortel have affected the auditing profession?

• raised the cost of hiring accounting firm professionals
• resulted in a need for decreased paperwork on audits
• lowered the number of professionals working on an audit engagement
• created an increasing focus on standards and high-quality audits

Answer: D

Diff: 1 Type: MC Page Ref: 29 Learning Obj.: 2-2 Link the market forces that help ensure that audit and assurance engagements are completed to high standards of quality

2) How has the Canada Business Corporation Act given authority to Canadian accounting and auditing standard setters? By stating that financial statements

• must be compiled in accordance with International Financial Reporting Standards.
• should be prepared in accordance with the standards in the CICA Handbook.
• must be audited by accountants that reside in Canada.
• should be prepared in accordance with local financial reporting standards.

Answer: B

Diff: 2 Type: MC Page Ref: 30 Learning Obj.: 2-2 Link the market forces that help ensure that audit and assurance engagements are completed to high standards of quality 3) When the criteria to be used in the financial statement audit is established, the auditor's responsibility is to

• evaluate the reporting framework used.
• select the acceptable financial reporting framework.
• make a recommendation to management for selecting the framework.
• create and document the framework used.

Answer: A

Diff: 2 Type: MC Page Ref: 30 Learning Obj.: 2-2 Link the market forces that help ensure that audit and assurance engagements are completed to high standards of quality

4) The reason for adopting the CASs is to

• comply with the requirement from the Canada Business Corporations Act.
• respond to the increased litigation risks faced by the auditors.
• be consistent with the international standards of auditing.
• to simplify the auditing process.

Answer: C

Diff: 2 Type: MC Page Ref: 31 Learning Obj.: 2-2 Link the market forces that help ensure that audit and assurance engagements are completed to high standards of quality

4 © 2013 Pearson Canada Inc.5) Independence is assessed in the eyes of external users and regulators. Which of the following is a tool that helps the auditor identify whether the auditor is independent for a particular audit engagement?

• completion of independence forms at time of employment
• the use of an independence threat analysis
• audit risk model assessment for each engagement
• professional skepticism when assessing control risks

Answer: B

Diff: 2 Type: MC Page Ref: 30-31 Learning Obj.: 2-2 Link the market forces that help ensure that audit and assurance engagements are completed to high standards of quality

6) The implementation of the Sarbanes-Oxley requirements in the US resulted in the creation of the PCAOB to oversee listed companies' auditors and develop audit standards. The impact of this requirement in Canada was the

• creation of new auditing standards to ensure better quality control of the audit.
• revisions of the rules of professional conduct for CAs.
• additional training requirements to become an auditor.
• creation of the CPAB to oversee Canadian audit professionals.

Answer: D

Diff: 3 Type: MC Page Ref: 32 Learning Obj.: 2-2 Link the market forces that help ensure that audit and assurance engagements are completed to high standards of quality 7) The implementation of the Sarbanes-Oxley requirements in the US resulted in increased independence requirements for the auditors. The impact of this requirement in Canada was

• creation of the CPAB to oversee Canadian audit professionals.
• revisions of the rules of professional conduct for PAs.
• additional training requirements to become an auditor.
• modification of the type of opinion provided in an assurance engagement by the auditor.

Answer: B

Diff: 3 Type: MC Page Ref: 32 Learning Obj.: 2-2 Link the market forces that help ensure that audit and assurance engagements are completed to high standards of quality

8) What is the auditor required to do with respect to the financial reporting framework at a client?

• assess whether the framework selected by management is suitable
• select an applicable framework for use with the financial statements
• make sure that ASPE or ASNPO are in use for publicly listed companies
• select the accounting principles to be used as part of the reporting framework

Answer: A

Diff: 2 Type: MC Page Ref: 32 Learning Obj.: 2-2 Link the market forces that help ensure that audit and assurance engagements are completed to high standards of quality