Discuss AICPA CPA-Auditing Exam Topic 1 Question 94

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.

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.

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37 comments · newest first

Jordan 10 months ago

Yeah, if management won't let you test controls, why even bother?

Kristin 11 months ago

I thought understanding internal audit techniques was important?

Matthew 11 months ago

Wait, are we sure about that? Seems like there could be other factors too.

Cecilia 11 months ago

Totally agree, that's a dealbreaker for sure.

Arlette 11 months ago

Management's disregard for internal controls is a huge red flag!

Shay 12 months ago

I thought related party transactions were important, but I guess they don't really affect the decision to accept a client? That’s a bit confusing.

Dortha 12 months ago

I practiced a similar question where management's refusal to allow tests was a big deal. It seems like that would be a major reason to walk away from an engagement.

Eden 12 months ago

I’m not entirely sure, but I think the CPA's understanding of internal audit techniques isn’t as critical as management’s control environment.

Eric 1 year ago

I remember discussing how management's responsibility for internal controls is crucial. If they disregard it, it definitely raises red flags for the CPA.

Mabel 1 year ago

Definitely the management's disregard of internal controls. That's a huge red flag that would make me very hesitant to accept the engagement. The other options don't seem as directly relevant to the CPA's decision-making process.

Vallie 1 year ago

Hmm, this is a good question. I'd say the management's disregard of internal controls is the biggest issue. That really compromises the reliability of the financial reporting, which is a huge risk factor for the CPA.

Pearline 1 year ago

The key here is understanding the importance of the control environment. If management isn't taking responsibility for maintaining adequate internal controls, that's a major concern that would likely cause me to decline the engagement.

Dolores 1 year ago

This is a tricky one. I'd need to really think through the factors that could lead a CPA to decline an audit engagement. Management's disregard of internal controls seems like the most significant red flag here.

Rusty 1 year ago

Hmm, I'm a bit unsure about the Exponential distribution here. I'll need to double-check if that's part of the generalized extreme value family.

Alison 1 year ago

Related party transactions? More like 'related party shenanigans' if the client tries to hide them from the auditor!

Suzi 1 year ago

↳ replying to Alison

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Geraldo 1 year ago

↳ replying to Alison

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William 1 year ago

↳ replying to Alison

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Garry 1 year ago

Wait, so they can't do substantive tests before year-end? That's like trying to finish your homework the night before it's due!

Lashon 1 year ago

↳ replying to Garry

Doing substantive tests before year-end could lead to inaccurate results.

Helaine 1 year ago

↳ replying to Garry

It's important to have accurate information before conducting those tests.

Erinn 1 year ago

↳ replying to Garry

That's right, they need the financial statements to be finalized before performing substantive tests.

Celestina 1 year ago

I guess the auditor doesn't need to understand the internal auditor's techniques, as long as they can still do their job effectively.

Carol 1 year ago

↳ replying to Celestina

C: It's important for the CPA to have confidence in the client's internal controls before starting an audit.

Rodrigo 1 year ago

↳ replying to Celestina

B: Yeah, that could definitely make a CPA think twice about taking on a new audit engagement.

Gladys 1 year ago

↳ replying to Celestina

A: Management's disregard of its responsibility to maintain an adequate internal control environment is a big red flag.

Kirby 1 year ago

I'd be wary of a client who doesn't take internal controls seriously. That's a red flag for potential misstatements.

Diego 1 year ago

↳ replying to Kirby

It's important to have a strong control environment for accurate financial statements.

Aleisha 1 year ago

↳ replying to Kirby

The CPA might decide not to take on the audit engagement in that case.

Sanjuana 1 year ago

↳ replying to Kirby

Yeah, that could lead to unreliable financial reporting.

Lore 1 year ago

↳ replying to Kirby

It's definitely a concern if management doesn't care about internal controls.

Naomi 1 year ago

Exactly. It's important for the CPA to ensure reliable financial reporting.

Yuki 1 year ago

Hmm, this question really highlights the importance of the control environment. I'll make sure to review that thoroughly in my studies.

Lisha 1 year ago

↳ replying to Yuki

Definitely, management's responsibility in maintaining internal controls cannot be overlooked.

Julio 1 year ago

↳ replying to Yuki

Yes, the control environment is crucial for ensuring reliable financial reporting.

Rolland 2 years ago

I agree. If management doesn't take internal control seriously, it's a red flag.

Naomi 2 years ago

I think the answer is B.

AICPA CPA-Auditing Exam - Topic 1 Question 94 Discussion