ch03 - Chapter 3 Multiple Choice 3-1 3-2 3-3 3-4 3-5 3-6...

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Chapter 3 Multiple Choice 3-1. B 3-2. A 3-3. D 3-4. C 3-5. A 3-6. D 3-7. B 3-8. C 3-9. D 3-10. C 3-11. A 3-12. D 3-13. C 3-14. A 3-15. D 3-16. B 3-17. D 3-18. C 3-19. D 3-20. A Discussion Questions 3-21. [LO 1,5] Do you think it is necessary to prohibit all of the services on the “prohibited services” list in order to protect the public interest? Are there any on the list that you would permit, and why? Student answers may vary, but they should explain why their choices do not: 1. have the potential to put the audit firm in a position of auditing its own work, 2. cause the audit firm to make or advise client decisions that are the responsibility of client management, and 3. require the audit firm to be an advocate for the client. 3-22. [LO 1,5] Should tax services be a “prohibited service” for a firm that is conducting an audit? Consider whether performing more services for a client may increase the audit firm’s knowledge of the client. Also consider whether additional services may make the audit firm more economically dependent on the client. Performing more services can help an auditor know the client more thoroughly and as a result reduce the possibility of missing something on the audit. However the argument 1
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against tax services is the concern that independence will be compromised on the audit because the auditor wants to retain the fees from the tax engagement. This argument is the same, whether the additional services are tax or consulting services. An additional concern for combining tax an audit is that aggressive (not illegal) tax positions might need to be disclosed as contingent liabilities. If the auditor has worked on the corporate tax engagement he or she intimately knows the tax positions, opening up the door for conflict with the client regarding disclosure in the financial statements. 3-23. [LO 2] Can you choose the philosophical position discussed in this chapter with which your views are closest? Which one is furthest from your views? Student answers may vary, but students should reflect on the influences that have shaped his or her personal value structure. Family, community, faith or religion, national culture, laws and courts, as well as personal experiences, all influence the value structures used in every decision. 3-24. [LO 1, 3, 5] Some people have said that auditing is no longer self-regulated because of the Sarbanes Oxley mandated registration and inspection process of the PCAOB, and because the PCAOB now sets auditing standards. Does this loss of some of its self regulation diminish the profession, or does it just increase public confidence? Why? Student answers may vary, but could focus on issues of quality control and the importance of trust from the view point of clients who contract for accounting services. SOX addresses the issue of quality control standards for firms by requiring the
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This note was uploaded on 02/02/2012 for the course BUSINESS 101 taught by Professor - during the Spring '11 term at Mississippi Valley State University.

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ch03 - Chapter 3 Multiple Choice 3-1 3-2 3-3 3-4 3-5 3-6...

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