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Saved Which one of the following is the BEST example of an agency cost? Question 1 options: a) Atlantica Inc. engaged a consultant to perform due diligence procedures over Maritime Inc’s financial statements before entering into acquisition negotiations. b) Excel Inc. engaged an auditor to perform a financial statement audit to increase the Board of Director’s confidence in their financial information. c) DPT Inc. added stock options to their compensation package for executive members of the management team to motivate them to make decisions in the best possible interest of the investors. d) Parsons Inc. has invested in a new top of the line accounting information system to reduce reporting errors.
Saved ZZ Corp. is a shipping company operating across Canada. In 2020, ZZ received a grant from the federal government for its use of electric engines throughout ZZ’s fleet of trucks. A requirement of the grant agreement is that ZZ must obtain limited assurance on its annual financial statements. Which one of the following engagements would be the MOST appropriate for ZZ to fulfil the assurance requirement of the grant agreement? Question 2 options: a) An audit of the annual financial statements b) A review of the annual financial statements c) A compilation of the annual financial statements d) A report on the results of applying specified auditing procedures to financial information
Saved Jessup Jogging Apparel (JJA) is a sports clothing company that has recently expanded across Western Canada. To maintain JJA’s line of credit, the company must provide audited annual financial statements to the bank, starting for the year ending December 31, 2020. JJA has never been audited before and the owner does not understand the role of an auditor. Which one of the following is a role of the auditor that could be explained to the owner of JJA? Question 3 options: a) The auditor is responsible for implementing the internal controls of the company. b) The auditor is responsible for checking compliance with all laws and regulations. c) The auditor is responsible for detecting all instances of fraud. d) The auditor is responsible for addressing the risks of material misstatement of the financial statements.
Saved Toy World Corporation (TWC), has received a letter in the mail from TWC’s bank, requesting that TWC provide the bank with reasonable assurance regarding TWC’s inventory balance as at December 31, 2020, for collateral purposes. TWC has historically prepared annual notice-to-reader financial statements. Which of the following sections of the assurance standards would a practitioner apply in performing this engagement? Question 4 options: a) CSRE 2400 b) CSAE 3000 c) CASs 200 to 810 d) Section 9100
The provincial CPA governing bodies in Canada have requirements that all members complete a minimum number of hours of learning and development, in alignment with the standards of the International Federation of Accountants. To meet these requirements, the learning and development completed by an individual CPA needs to be relevant and appropriate to the member’s work and professional responsibilities as a CPA. This is an example of which of the following fundamental principles that apply to all professional accountants? Question 5 options: a) Professional competence b) Integrity and due care c) Professional behaviour d) Objectivity
A lawsuit has been launched against Raymond and Real’s LLP’s audit client, Green Grass Ltd. (GGL). GGL has asked that the firm provide a statement supporting its position. This is an example of which of the following threats to independence? Question 6 options: a) Self-interest b) Self-review c) Advocacy d) Familiarity
An audit team is nearing completion of the year end audit of Local Maritime Bank (LMB). As a result of audit procedures performed over interest income, the team has identified a material misstatement. After presenting the misstatement to management, the CEO stated that “we wouldn’t have this issue if we switched to having JPJ LLP as our auditor.” This is an example of which of the following threats to independence? Question 7 options: a) Self-interest b) Advocacy c) Familiarity d) Intimidation
PLM Ltd. has been an audit client of Davidson LLP for the past five years. The engagement partner has just been informed that the current engagement manager’s spouse has accepted a position at PLM as Controller. What is the best course of action for Davidson considering this information? Question 8 options: a) Davidson should resign from the audit engagement of PLM. b) The engagement partner should rotate off the PLM engagement and a new partner should lead the engagement. c) The current engagement manager should be removed from the engagement team and a new individual from Davidson should fill the role. d) No change is required. The existing engagement team can continue to perform the year-end audit of PLM.
BDP LLP is the auditor of Books and Things Ltd. The engagement partner, Melinda, wants to acknowledge and celebrate the CFO of Books and Things Ltd.’s birthday. Which gift is the MOST appropriate to celebrate the audit client’s birthday? Question 9 options: a) A designer watch b) Tickets to an upcoming, highly anticipated rock concert c) A $200 gift card to their favourite local restaurant for a nice meal out. d) A birthday cake and a greeting card signed by all members of the engagement team
NB Machinery Corp. (NBM) is an audit client that designs and builds custom machinery for customers. Train Track Maintenance Ltd. (TTM) is NBM’s largest customer and makes up 45% of NBM’s total annual revenue. TTM is reliant on custom machinery built by NBM to operate its business. As a result, TTM is worried about NBM’s ability to stay in business and built a clause into its most recent purchase agreement to allow TTM to request a copy of any audited financial information. Does the auditor of NBM’s financial statements have a duty of care to TTM? Question 10 options: a) Yes, because the auditor has a duty of care to all third parties that have ongoing contracts with NBM b) Yes, because the auditor ought to have reasonably known that the audited financial statements would be shown to TTM c) No, because it is not reasonable for the auditor to have known that the audited financial statements would be shown to TTM d) No, because the purpose for which TTM intended to rely on the audited financial statements was not known at the time the audit report was prepared
Tall Trees Investment Fund (TTIF) is an audit client of White & Snow LLP (WS). WS has performed TTIF’s annual December 31 financial statement audit for the past two years. Three days ago, TTIF contacted WS about obtaining an audit opinion on the value of its investments as at March 31, 2021. What is the first step WS should take before commencing audit procedures on the March 31, 2021, investment balance? Question 11 options: a) Obtaining a signed engagement letter for the audit of investments as at March 31, 2021 b) Preparing the detailed time budget for the audit and allocating specific staff c) Developing the audit strategy for the investments balance as at March 31, 2021 d) Reviewing the prior year-end audit file to determine what work was performed over investments as at December 31, 2020