supplementary study guide/syllabus to accompany the...

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Supplementary Study Guide/Syllabus to Accompany theQuarterly CPE Exam on

Topics Addressed in the Journal of Accountancy

Third Quarter (July – September), 2019

Instructions: Before you start a section of the CPE Final Exam, complete the corresponding section of this

Supplementary Study Guide. Do NOT submit answers to the Review Questions.

Purpose: To provide an interactive learning experience by listing

Learning Objectives and Review Questions with Suggested Answers and Explanations.

OUTLINE: The section numbers of the Study Guide correspond to section numbers of the Final Exam. The page numbers below refer to the first page of each article in the printed version of the JofA.

Sections I - III Relate to the Journal of Accountancy of July 2019:

Section I. 5 Missteps to Avoid When Evaluating Internal Controls (6)

Section II. Lease Accounting: A Private Company Perspective (Page 32)

Section III. Broadened Definition of Sec. 152 Dependents (Page 44)

Sections IV - VII Relate to the Journal of Accountancy of August 2019:

Section IV. Sales Tax Compliance Post-Wayfair (Page 16)

Section V. What I Learned Building a Blockchain Business (Page 26)

Section VI. Eliminating Bias that Jeopardizes Audit Quality (Page 42)

Section VII. What's Your Fraud IQ? (Page 50)

Sections VIII - X Relate to the Journal of Accountancy of September 2019:

Section VIII. Housekeeping Tips to Mitigate Data Security Risk (Page 18)

Section IX. Keeping an Eye Out for Money Mules (Page 46)

Section X. Child and Dependency Claims by Noncustodial Parents (Page 54)

The Learning Objectives are stated in each of the following sections.

Section I. 5 Missteps to Avoid When Evaluating Internal Controls (Page 16)

Section I Assignment:1. Study the articles (reference text) in the Journal of Accountancy, paying particular attention to our

Learning Objectives stated below. 2. Answer our Review Questions that have been designed to provide an interactive learning experience.3. Study the Solutions and Suggested Responses to the Review Questions.4. Answer Final Exam questions 1 through 5.

Section I Learning Objectives:1. Learn the five missteps auditors can make when evaluating internal controls.2. Learn through the author's examples practical approaches and procedures to avoid the missteps.

Section I Review Questions: 1. Auditors must understand and evaluate internal controls:

a. Only if the entity is complex.b. Regardless of the size of the entity.c. Only if the entity is publicly-held.d. Only if the client has requested that service as part of the audit engagement.e. Only if the auditor believes the controls are reliable.

2. AU-C Section 315 and AU-C Section 330 require auditors to understand the entity and its environment, assess risks and perform audit procedures in response to the risks. A survey of AICPA Peer Reviewer revealed:a. Very few failed to comply fully with these standards.b. The only firms failing to comply were auditing small, less complex entities.c. Nearly half failed to comply because they did not document their assessment of risk. d. Nearly half failed to design audit procedures to address their risk assessment.e. Nearly half did not properly obtain an understanding of the relevant controls.

3. If a client had no controls in place:a. The auditor would increase other audit work to reduce risk to an acceptable level.b. The auditor would focus on bank reconciliations, billing and collection activities.c. There would be no way to prevent or detect and correct a material misstatement and so the

auditor could not perform enough audit work to reduce risk to an acceptable level.d. The auditor could reduce risk with the client representation letter.

4. Once the auditor identifies controls relevant to the audit, the next step is to: a. Evaluate the design effectiveness of the controls.b. Assess risk based upon the perceived effectiveness.c. Determine whether the controls are implemented (using various audit procedures).d. a, b and c.e. a and c only.

5. As part of evaluating the design effectiveness of controls, procedures such as observing, inspecting documents and tracing transactions will be undertaken to verify implementation. Oncethat is complete:a. No further testing of controls s necessary.b. The auditor may consider the controls reliable and design procedures accordingly.c. The auditor will still need to test the controls to determine “operating effectiveness” for the

audit period.d. With no other testing, the auditor can conclude the controls have “operating effectiveness.”e. The auditor can default to “maximum” risk assessment.

Section I Solutions and Suggested Responses to Review Questions appear on the next page.

Section I Solutions and Suggested Responses to Review Questions:

Review Question 1. (Please see page 17 of July JofA.) a. Incorrect. Auditors must understand and evaluate internal controls in all audit engagements.b. Correct. Auditors must understand and evaluate internal controls in all audit engagements.c. Incorrect. Auditors must understand and evaluate internal controls in all audit engagements.d. Incorrect. Auditors must understand and evaluate internal controls in all audit engagements.e. Incorrect. The auditor has to understand and test the controls before concluding they are unreliable.

Review Question 2. (Please see page 17 of July JofA.) a. Incorrect. Nearly half did not properly obtain an understanding of the relevant controls. b. Incorrect. Nearly half did not properly obtain an understanding of the relevant controls.c. Incorrect. Nearly half did not properly obtain an understanding of the relevant controls.d. Incorrect. Nearly half did not properly obtain an understanding of the relevant controls.e. Correct. Nearly half did not properly obtain an understanding of the relevant controls.

Review Question 3: (Please see page 18 of July JofA.) a. Incorrect. Without controls, the auditor couldn't perform enough audit work. See answer c.b. Incorrect. Without controls, the auditor couldn't perform enough work. See answer c.c. Correct. There would be no way to prevent or detect and correct a material misstatement and so

the auditor could not perform enough audit work to reduce risk to an acceptable level.d. Incorrect. A representation letter doesn't replace internal controls. See answer c.

Review Question 4. (Please see pages 18 of July JofA.) a. Incorrect. This is part of but not the most complete answer.b. Incorrect. Risk is assessed after testing the effectiveness.c. Incorrect. This is part of but not the most complete answer.d. Incorrect. a and c are correct, but not b .e. Correct. a and c are correct, but not not b.

Review Question 5. (Please see page 18 of July JofA.) a. Incorrect. The auditor must still test the controls. See answer c.b. Incorrect. The auditor must still test the controls. See answer c.c. Correct. The auditor must test the controls for “operating effectiveness” during the audit period.d. Incorrect. The auditor must test for “operating effectiveness.”e. Incorrect. The auditor must must have a basis supporting a risk assessment conclusion.

=========================================End of Section I.

Section II. Lease Accounting: A Private Company Perspective (Page 32)

Section II Assignment:1. Study the article (reference text) in the Journal of Accountancy, paying particular attention to our

Learning Objectives stated below.2. Answer our Review Questions that have been designed to provide an interactive learning experience.3. Study the Solutions and Suggested Responses to the Review Questions.4. Answer Final Exam questions 6 through 10.

Section II Learning Objectives:1. To gain a general understanding of the various challenges to overcome for successful

implementation of Topic 842.2. Learn from the author's examples some of the resources, information, practical planning tips,

and strategies available for successful implementation.3. Consider how the new lease accounting rules affect the financial statements in ways

unanticipated by certain loan covenants or other agreements using financial measures.

Section II Review Questions:1. Public companies in the United States, were required to adopt the new lease accounting standards

(ASC Topic 842) on:a. Jan. 1, 2018.b. Dec. 31, 2018.c. Jan. 1, 2019.d. Dec. 31, 2020.e. Jan. 1, 2020.

2. The effect of ASC Topic 842 is to move measurements of operating leases from the footnotes to:a. The income statements.b. The statement of cash flows.c. The balance sheet (as assets and liabilities).d. The schedule of supplementary information.

3. In working with a Fortune 100 company to implement Topic 842 requirements, the auditors found one major challenge to be:a. Explaining detail requirements to the client.b. Determining the detail journal entries to record the lease information.c. Drafting the footnote to explain the change in accounting.d. Scanning the lease agreements into their lease accounting software.e. Locating and organizing all relevant documents.

4. The FASB eased some of the challenges of implementing Topic 842 by: a. Allowing companies to elect out of the rules entirely.

b. Allowing companies to delay implementation until Jan. 1, 2022.c. Issuing a package of “practical expedients” that provided a type of “hall pass” from certain

lease accounting requirements.d. Issuing a package of “practical expedients” that allows all payments under all existing leases to

be expensed when paid.e. Requiring only public companies to comply.

5. Lease arrangements can be hidden in other contracts. These are referred to as:a. Capital leases.b. Operating leases.c. Financing leases.d. Expedient leases.e. Embedded leases.

Section II Solutions and Suggested Responses to Review Questions appear on the next page.

Section II Solutions and Suggested Responses to Review Questions:

Review Question 1. (Please see page 33 of July JofA.) a. Incorrect. Public companies had to adopt Topic 842 on Jan. 1, 2019.b. Incorrect. Public companies had to adopt Topic 842 on Jan. 1, 2019.c. Correct. Public companies had to adopt Topic 842 on Jan. 1, 2019.d. Incorrect. Public companies had to adopt Topic 842 on Jan. 1, 2019.e. Incorrect. Public companies had to adopt Topic 842 on Jan. 1, 2019.

Review Question 2. (Please see page 33 of July JofA.) a. Incorrect. Operating leases are reflected as assets and liabilities on the balance sheet.b. Incorrect. Operating leases are reflected as assets and liabilities on the balance sheet.c. Correct. Operating leases are reflected as assets and liabilities on the balance sheet.d. Incorrect. Operating leases are reflected as assets and liabilities on the balance sheet.

Review Question 3. (Please see page 33 of July JofA.) a. Incorrect. Locating and organizing all relevant documents was a major challenge.b. Incorrect. Locating and organizing all relevant documents was a major challenge.c. Incorrect. Locating and organizing all relevant documents was a major challenge.d. Incorrect. Locating and organizing all relevant documents was a major challenge.e. Correct. Locating and organizing all relevant documents was a major challenge.

Review Question 4. (Please see pages 34 of July JofA.) a. Incorrect. Companies cannot elect out of implementation.b. Incorrect. Implementation was not delayed to Jan. 1, 2022.c. Correct. A package of “practical expedients” was issued that eased certain requirements.d. Incorrect. The package of “practical expedients” doesn't provide for expensing all lease payments.e. Incorrect. Private companies must comply with Topic 842.

Review Question 5. (Please see page 34 of July JofA .) a. Incorrect. Embedded leases can be hidden in other contracts. b. Incorrect. Embedded leases can be hidden in other contracts. c. Incorrect. Embedded leases can be hidden in other contracts.d. Incorrect. Embedded leases can be hidden in other contracts.e. Correct. Embedded leases can be hidden in other contracts.

=========================================End of Section II.

Section III. Broadened Definition of Sec. 152 Dependents (Page 44)

Section III Assignment:1. Study the articles (reference text) in the Journal of Accountancy, paying particular attention to our

Learning Objectives stated below.2. Answer our Review Questions that have been designed to provide an interactive learning experience.3. Study the Solutions and Suggested Responses to the Review Questions.4. Answer Final Exam questions 11 through 15.

Section III Learning Objectives:1. To learn the tax advantages of filing as a “surviving spouse” and how to qualify.2. To learn how the definition of “dependent” was expanded in 2004 and how that affects those

considering surviving spouse status.

Section III Review Questions:

1. The Tax Cuts and Jobs Act (TCJA) revised the child tax credit to:a. Make the credit non-refundable.b. Make the credit available to more taxpayers.c. Make the credit available to fewer taxpayers.d. A maximum of $500 per qualifying child.e. A maximum of $1,400 per qualifying child.

2. The Working Families Tax Relief Act of 2004 (WFTRA) made changes that have become important to taxpayers considering the child tax credit. Those changes include:a. Lowering the per-child credit to pre-2000 levels of $600.b. Limiting the amount of income a dependent child could earn to $1,000, the child tax credit at

the time.c. Removing all income limits for a dependent child.d. Expanding the definitions of qualifying children and qualifying relatives.e. Limiting the definition of qualifying children to exclude grandchildren.

3. The WFTRA also relaxed three dependency requirements which can affect those taxpayers qualifying to file as:a. A surviving spouse.b. Married filing separately.c. Single.d. A surviving dependent.e. A non-spousal dependent.

4. How many tax years after the year of the spouse's death may the remaining spouse qualify for “surviving spouse” status?a. One.b. Two.c. Three.d. Five.e. Unlimited.

5. Other than surviving spouse status, what other tax code sections refer to dependency definitions?a. Sec. 21 - Expenses for Household and Dependent Care.b. Sec. 125 - Cafeteria Plans.c. Sec. 213 - Medical Expenses.d. Sec. 221 - Interest on Education Loans.e. All of the above.

Section III Solutions and Suggested Responses to Review Questions appear on the next page.

Section III Solutions and Suggested Responses to Review Questions:

Review Question 1. (Please see page 45 of July JofA.) a. Incorrect. The TCJA actually made part of the child tax credit refundable.b. Correct. The child tax credit is available to more taxpayers as a result of the TCJA.c. Incorrect. The child tax credit is available to more taxpayers as a result of the TCJA.d. Incorrect. The $500 credit is for other dependents as opposed to a qualifying child.e. Incorrect. The TCJA increased the child credit to $2,000, of which $1,400 is refundable.

Review Question 2. (Please see page 45 of July JofA.)a. Incorrect. The WFTRA expanded the definitions of “qualifying children” and “qualifying relatives.”b. Incorrect. The WFTRA expanded the definitions of “qualifying children” and “qualifying relatives.”c. Incorrect. The WFTRA expanded the definitions of “qualifying children” and “qualifying relatives.”d. Correct. The WFTRA expanded the definitions of “qualifying children” and “qualifying relatives.”e. Incorrect. The WFTRA expanded the definitions of “qualifying children” and “qualifying relatives.”

Review Question 3: (Please see page 45 of July JofA.)a. Correct. The WFTRA relaxed the rules for surviving spouse.b. Incorrect. The WFTRA relaxed the rules for surviving spouse.c. Incorrect. The WFTRA relaxed the rules for surviving spouse.d. Incorrect. The WFTRA relaxed the rules for surviving spouse.e. Incorrect. The WFTRA relaxed the rules for surviving spouse.

Review Question 4. (Please see page 46 of July JofA.) a. Incorrect. Surviving spouse status is available for two years after the year of the spouse's death.b. Correct. Surviving spouse status is available for two years after the year of the spouse's death.c. Incorrect. Surviving spouse status is available for two years after the year of the spouse's death.d. Incorrect. Surviving spouse status is available for two years after the year of the spouse's death.e. Incorrect. Surviving spouse status is available for two years after the year of the spouse's death.

Review Question 5. (Please see page 50 of July y JofA.)a. Incorrect. This is part of but not the most complete answer.b. Incorrect. This is part of but not the most complete answer.c. Incorrect. This is part of but not the most complete answer.d. Incorrect. This is part of but not the most complete answer.e. Correct. All of the above tax code sections refer to dependency definitions.

----------------------------------------------------End of Section III.

Section IV. Sales Tax Compliance Post-Wayfair (Page 16)

Section IV Assignment:1. Study the article (reference text) in the Journal of Accountancy, paying particular attention to our

Learning Objectives stated below. 2. Answer our Review Questions that have been designed to provide an interactive learning

experience.3. Study the Solutions and Suggested Responses to the Review Questions.4. Answer Final Exam questions 16 through 20.

Section IV Learning Objectives:1. Refresh your understanding of the old “physical presence” rules under the Quill decision. 2. Learn the new “economic nexus” rules adopted in the Wayfair decision.3. Consider the various compliance issues Wayfair may present to your clients or company.

Section IV Review Questions:1. Prior to a 2018 Supreme Court decision, the criteria to determine whether an out of state seller

could be required to collect sales tax was established by:a. The 1992 Supreme Court decision South Dakota v. Wayfair, Inc.b. Any of the 10,000 individual sales tax jurisdictions.c. A collective of states that drafted a “Uniform Commercial Code” for sales tax.d. The 1992 Supreme Court decision Quill Corp. v. North Dakota.e. Jointly by California and New York, which the remaining states quickly adopted.

2. By requiring a physical presence, how did the Quill decision affect companies' sales tax compliance?a. It became much more difficult to determine their obligation.b. It became much more difficult to determine the meaning of “presence.”c. It became very easy: a company only had to collect sales tax for sales in the state where the

company was headquartered. d. It became more difficult to determine what qualifies as a “sale.”e. It became easy: collect sales tax for states where you have a “presence.”

3. After Quill and before Wayfair, states began experiencing declines in sales tax revenue due to:a. An explosion of catalog mail-order business, such as L.L. Bean.b. A booming economy and states lowering sales tax rates.c. Growth in internet sellers physically located outside of most states and so, not required to

collect sales tax in most states.d. Economic recession with resulting decline in sales and related sales tax. e. A changing of economies from a product-based to more service-based.

4. The Wayfair decision established the requirement that a company must collect sales tax for any state for which the company has $100,000 of sales or 200 transactions in a calendar year.a. The statement is true.b. The statement is false, the requirement is both $100,000 of sales and 200 transactions.c. The statement is true for South Dakota-based companies only.d. False. The court allowed the South Dakota thresholds to stand but did not require them for

all states. Each state sets their own thresholds.

5. In addition to deciding when and how to register in other states to become sales tax compliant, the authors remind us to:a. Also consider the obligation for other state tax filings, such as income and franchise tax.b. Expect in the coming years audits of reports filed in these “new” jurisdictions.c. If you are a CPA firm performing audits, consider how to address the potential for sales tax

liabilities resulting from Wayfair.d. a and b.e. a, b and c.

Section IV Solutions and Suggested Responses to Review Questions follow on the next page.

Section IV Solutions and Suggested Responses to Review Questions:

Review Question 1. (Please see page 17 of August JofA.) a. Incorrect. The 1992 Supreme Court decision in Quill Corp. v. North Dakota established criteria.b. Incorrect. The 1992 Supreme Court decision in Quill Corp. v. North Dakota established criteria.c. Incorrect. The 1992 Supreme Court decision in Quill Corp. v. North Dakota established criteria.d. Correct. The 1992 Supreme Court decision in Quill Corp. v. North Dakota established criteria.e. Incorrect. The 1992 Supreme Court decision in Quill Corp. v. North Dakota established criteria.

Review Question 2. (Please see page 17 of August JofA.)a. Incorrect. Compliance was easier with the established “physical presence” criteria.b. Incorrect. Compliance was easier with the established “physical presence” criteria.c. Incorrect. Compliance was easier with the established “physical presence” criteria.d. Incorrect. Compliance was easier with the established “physical presence” criteria.e. Correct. Compliance was easier with the established “physical presence” criteria.

Review Question 3. (Please see page 17 of August JofA.)a. Incorrect. States lost sales tax revenue due to growth of internet sellers based in other states who

were not required to collect sales tax. b. Incorrect. States lost sales tax revenue due to growth of internet sellers based in other states who

were not required to collect sales tax.c. Correct. States lost sales tax revenue due to growth of internet sellers based in other states who

were not required to collect sales tax.d. Incorrect. States lost sales tax revenue due to growth of internet sellers based in other states who

were not required to collect sales tax.e. Incorrect. States lost sales tax revenue due to growth of internet sellers based in other states who

were not required to collect sales tax.

Review Question 4. (Please see page 18 of August JofA.)a. Incorrect. False. The court allowed the South Dakota thresholds to stand but did not require them

for all states. Each state sets their own thresholds.b. Incorrect. False. The court allowed the South Dakota thresholds to stand but did not require them

for all states. Each state sets their own thresholds.c. Incorrect. False. The court allowed the South Dakota thresholds to stand but did not require them

for all states. Each state sets their own thresholds.d. Correct. False. The court allowed the South Dakota thresholds to stand but did not require them

for all states. Each state sets their own thresholds.

Review Question 5. (Please see page 20 of August JofA.) a. Incorrect. This is part of but not the most complete answer.b. Incorrect. This is part of but not the most complete answer.c. Incorrect. This is part of but not the most complete answer.d. Incorrect. This is part of but not the most complete answer.e. Correct. All of the above statements are correct.

===================================== End of Section IV.

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Section V. What I Learned Building a Blockchain Business (Page 26)

Section V Assignment:1. Study the article (reference text) in the Journal of Accountancy, paying particular attention to our


Section V Learning Objectives:

1. To gain a basic level understanding of blockchain.2. To learn about some applications that use blockchain.3. Consider how a blockchain client may affect audit planning and procedures.

Section V Review Questions:

1. The author notes that prior to blockchain technology, information was traditionally stored:a. In paper format in one location.b. In clusters of decentralized servers.c. On centralized servers.d. On cloud-based storage.e. On external disk drives.

2. In preparing to audit her first blockchain client, the author realized to assess risk and design procedures, the team first needed to:a. Update the engagement letter for expanded procedures.b. Review prior-year workpapers.c. Take a “deep dive” to understand blockchain technology, how it works and digital assets,

such as bitcoin.d. Minimize risk by expanding the client representation letter.e. All of the above.

3. Blockchain is:a. A cloud-based accounting software.b. Used only for bitcoin transactions.c. A network to transmit record to a single server.d. A distributed ledger that stores transactions in multiple computers connected to a network.e. A security program used to block email spam.

4. What is the difference between public and private blockchains?a. Public blockchain requires an invitation while private does not, as all the users are

members.b. Private blockchain requires an invitation once the party is validated while public, such as

bitcoin, anyone can join.c. Pubic blockchains are for many uses while private blockchains are for bitcoin transaction

only.d. Public blockchains are free while private blockchains charge a subscription fee.e. Pubic blockchains are administered by state or local governments while private blockchains

are run by large telecommunication businesses.

5. Regarding blockchain technology, the author advises:a. CPA's generally should not devote resources to understanding it because very few entities

use blockchain.b. It is a fleeting technology that will be obsolete very soon.c. Wait for regulatory guidance to be issued before considering blockchain clients.d. There are opportunities and challenges that CPA's need to evaluate and prepare for

accordingly.e. Audit planning and procedures will not be affected.

Section V Solutions and Suggested Responses to Review Questions appear on the next page.

Section V Solutions and Suggested Responses to Review Questions:

Review Question 1. (Please see page 27 of August JofA.) a. Incorrect. Traditionally, information was stored on centralized servers.b. Incorrect. Traditionally, information was stored on centralized servers.c. Correct. Traditionally, information was stored on centralized servers.d. Incorrect. Traditionally, information was stored on centralized servers.e. Incorrect. Traditionally, information was stored on centralized servers.

Review Question 2. (Please see page 27 of August JofA.) a. Incorrect. The author took a “deep dive” to understand blockchain and how it works.b. Incorrect. The author took a “deep dive” to understand blockchain and how it works.c. Correct. The author took a “deep dive” to understand blockchain and how it works.d. Incorrect. The author took a “deep dive” to understand blockchain and how it works.e. Incorrect. The author took a “deep dive” to understand blockchain and how it works.

Review Question 3. (Please see page 27 of August JofA.)a. Incorrect. Blockchain is a distributed ledger that stores transactions in multiple computers connected

to a network.b. Incorrect. Blockchain is a distributed ledger that stores transactions in multiple computers connected

to a network.c. Incorrect. Blockchain is a distributed ledger that stores transactions in multiple computers connected

to a network.d. Correct. Blockchain is a distributed ledger that stores transactions in multiple computers connected

to a network.e. Incorrect. Blockchain is a distributed ledger that stores transactions in multiple computers connected

to a network.

Review Question 4: (Please see page 28 of August JofA.)a. Incorrect. Private blockchain requires an invitation once the party is validated while public, such as

bitcoin, anyone can join.b. Correct. Private blockchain requires an invitation once the party is validated while public, such as

bitcoin, anyone can join. c. Incorrect. Private blockchain requires an invitation once the party is validated while public, such as

bitcoin, anyone can join.d. Incorrect. Private blockchain requires an invitation once the party is validated while public, such as

bitcoin, anyone can join. e. Incorrect Private blockchain requires an invitation once the party is validated while public, such as

bitcoin, anyone can join.

Review Question 5: (Please see page 28 of August JofA.)a. Incorrect. The author believe blockchain will present significant opportunities for CPA's.b. Incorrect. The author sees block chain as technology that will growth and expand.c. Incorrect. Entities are using blockchain aren't waiting for guidance, so CPA's can't wait either.d. Correct. There are opportunities and challenges CPA's need to evaluate and prepare for.e. Incorrect. Audit planning and procedures will be affected.

===================================== End of Section V.


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Section VI. Eliminating Biases that Jeopardizes Audit Quality (Page 42)

Section VI Assignment:1. Study the article (reference text) in the Journal of Accountancy, paying particular attention to our


Section VI Learning Objectives:1. To refresh your understanding of the importance of professional skepticism in audit engagements.2. To learn about “cognitive bias” and how it can affect professional skepticism.3. Learn some techniques to overcome cognitive biases.

Section VI Review Questions:

1. Auditing standards state that inquiry alone ____________ sufficient evidence regarding the lackof material misstatement.a. typically providesb. always providesc. does not provided. when testing internal controls, providese. a and d only.

2. The author references an article in Contemporary Accounting Research noting that as many as __________ of auditors may not always follow-up to corroborate client-provided explanations for an unexpected material issue.a. one-fourthb. one-thirdc. one-halfd. two-thirdse. three-fourths

3. The PCAOB (2012) states that auditor skepticism can be hindered by:a. Working on the same audit clients too many years.b. Offering certain consulting services to audit clients.c. Insufficient audit time budgets.d. Cognitive dissonancee. Cognitive bias.

4. Cognitive biases include:a. Motivated reasoning.b. Source credibility and complex business environments.c. The nature of the auditor's listening activity.d. a and b.e. a, b and c.

5. To counter the cognitive biases an auditor might experience, the authors suggest the use of:a. Prior years workpapers.b. Bias simulation.c. Mental modeling.d. Analytical procedures.e. Cognitive modeling.

Section VI Solutions and Suggested Responses to Review Questions appear on the next page.

Section VI Solutions and Suggested Responses to Review Questions:

Review Question 1: (Please see page 43 of August JofA.) a. Incorrect. Inquiry alone does not provide sufficient evidence.b. Incorrect. Inquiry alone does not provide sufficient evidence.c. Correct. Inquiry alone does not provide sufficient evidence.d. Incorrect. Inquiry alone does not provide sufficient evidence.e. Incorrect. Inquiry alone does not provide sufficient evidence.

Review Question 2. (Please see page 43 of August JofA.) a. Incorrect. As many as one-third of auditors may not always corroborate client explanations.b. Correct. As many as one-third of auditors may not always corroborate client explanations.c. Incorrect. As many as one-third of auditors may not always corroborate client explanations.d. Incorrect. As many as one-third of auditors may not always corroborate client explanations.e. Incorrect. As many as one-third of auditors may not always corroborate client explanations. Review Question 3. (Please see page 43 of August JofA.) a. Incorrect. Perhaps working on the same audit clients too long could hinder skepticism, however, it

was not mentioned by the authors.b. Incorrect. Offering consulting services wasn't listed as a hindrance to skepticism. (Note: if

consulting services are offered, auditor independence should be maintained.)c. Incorrect. Cognitive bias can hinder auditor skepticism.d. Incorrect. Cognitive bias can hinder auditor skepticism.e. Correct. Cognitive bias can hinder auditor skepticism.

Review Question 4. (Please see page 44-45 of August JofA.) a. Incorrect. This is part of but not the most complete answer.b. Incorrect. This is part of but not the most complete answer.c. Incorrect. This is part of but not the most complete answer.d. Incorrect. This is part of but not the most complete answer.e. Correct. a, b and c are all correct.

Review Question 5. (Please see page 44-45 of August JofA.) a. Incorrect. The author advises mental modeling to counter cognitive biases.b. Incorrect. The author advises mental modeling to counter cognitive biases.c. Correct. The author advises mental modeling to counter cognitive biases.d. Incorrect. The author advises mental modeling to counter cognitive biases.e. Incorrect. The author advises mental modeling to counter cognitive biases.

======== End of Section VI

Section VII. What's Your Fraud IQ? (Page 50)

Section VII Assignment:1. Study the article (reference text) in the Journal of Accountancy, paying particular attention to our


Section VII Learning Objectives:1. To learn about publicly available information and how to access it.2. Learn from examples offered how public information can be useful in various scenarios.

Section VII Review Questions:

1. To provide valuable context to audits or due diligence procedures, the authors suggest:a. Reviewing client documents.b. Reviewing in-house (firm) documents.c. Consulting with the predecessor firm.d. Researching publicly available documents. e. Reviewing prior year workpapers.

2. In the author's example, the CPA reviewed the client's list of employees and vendors and identified some names for followup. By searching publicly available information, what was sheattempting to discover?a. Undisclosed relationships between employees.b. Undisclosed relationships between customers and employees.c. Undisclosed relationships between vendors and employees.d. Whether employees had any legal or financial issues (such as judgments, liens, legal

proceedings) that would cause concern.e. Whether vendors had undisclosed relationships with other vendors.

3. Where can you find information related to real estate transactions? a. Business filings at the office of the secretary of state.b. County property tax records.c. County deed records.d. a and c.e. b and c.

4. Regarding information that is publicly visible on a social media account or profile:a. You will need consent from the owner before viewing.b. You may seek approval directly from the social media provider if you meet certain criteria.c. This information can only be viewed by members of the same group or “social circle”

established within the social media.d. Publicly visible information is considered “public”, no consent is required.e. While it is public, it is only displayed and available for 24 hours.

5. Where are probate records located?a. The federal district courthouse that serves the county where the person died.b. The executor of the estate retains these.c. The revenue department of the state where the person died.d. The Internal Revenue Service.e. The county level, generally the probate court serving the county where the person lived.

Section VII Solutions and Suggested Responses to Review Questions appear on the next page.

Section VII Solutions and Suggested Responses to Review Questions:

Review Question 1: (Please see page 50 of August JofA.) a. Incorrect. The authors suggest researching publicly available documents.b. Incorrect. The authors suggest researching publicly available documents.c. Incorrect. The authors suggest researching publicly available documents.d. Correct. The authors suggest researching publicly available documents.e. Incorrect. The authors suggest researching publicly available documents.

Review Question 2. (Please see page 51 of August JofA.) a. Incorrect. Undisclosed relationships between vendors and employees.b. Incorrect. Undisclosed relationships between vendors and employees.c. Correct. Undisclosed relationships between vendors and employees.d. Incorrect. Undisclosed relationships between vendors and employees.e. Incorrect. Undisclosed relationships between vendors and employees.

Review Question 3. (Please see page 52 of August JofA.) a. Incorrect. Business filings at best could provide a business address, but not transactions.b. Incorrect. This is part of but not the most complete answer.c. Incorrect. This is part of but not the most complete answer.d. Incorrect. c is correct, but not a.e. Correct. b and c are correct.

Review Question 4. (Please see page 52 of August JofA.) a. Incorrect. Consent is not necessary to view publicly visible information.b. Incorrect. Approval from the provider is not necessary to view publicly visible information.c. Incorrect. Publicly visible information is available to all, regardless of group affiliation.d. Correct. Consent is not necessary to view publicly visible information.e. Incorrect. This was not mentioned by the authors.

Review Question 5. (Please see page 53 of August JofA.) a. Incorrect. Probate is not handled by federal courts.b. Incorrect. While an executor should have copies of probate records resulting from handling the

estate, their records are not public.c. Incorrect. State revenue departments generally do not handle probate.d. Incorrect. The IRS does not handle probate nor makes public copies of filings.e. Correct. Probate records are generally maintained at the probate court of the county where the

deceased lived.

====================================== End of Section VII


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Section VIII. Housekeeping Tips to Mitigate Data Security Risk (Page 18)

Section VIII Assignment:1. Study the article (reference text) in the Journal of Accountancy, paying particular attention to our

Learning Objectives.2. Answer our Review Questions that have been designed to provide an interactive learning experience.3. Study the Solutions and Suggested Responses to the Review Questions.4. Answer Final Exam questions 36 through 40.

Section VIII Learning Objectives:1. To get a sense of the extent of the occurrence of some common data breach events. 2. To learn some common scenarios that can compromise data security.3. To learn some routine reviews or procedures to help maintain data security.

Section VIII Review Questions:

1. For CPA firms in the AICPA Professional Liability Insurance program, what percentage of privacy events claims in 2018 were the result of an external breach to the system?a. 5%.b. 8%.c. 13%.d. 18%.e. 47%.

2. In addition to directly causing a privacy event, internal human error:a. Is difficult to detect.b. Is difficult to prevent.c. Can assist an external bad actor in causing a privacy event.d. Can help prevent an external bad actor from causing a privacy event.e. Is easy to prevent.

3. According to Verizon's 2018 Data Breach Investigations Report, phishing and pretexting:a. Rarely caused a data breach.b. Were very easy to detect and disable.c. Represented 47% of data breaches sourced through emails.d. Represented 93% of data breaches sourced through emails.e. Only affect individuals and not businesses..

4. According to one study of the cost of data breaches, one of the highest cost savings contributers to the per capita cost of a data breach is:a. Use of password generation software.b. Use of cloud-based software.c. Employee training.d. Employee background checks.e. Use of verified system backups.

5. According to one report, 41% of companies have more than 1,000 sensitive files open to all employees while 34% of users and/or accounts:a. Lack basic password protection.b. Do not have virus protection.c. Are inactive.d. Are active but not in use.e. Are duplicates.

Section VIII Solutions and Suggested Responses to Review Questions appear on the next page.

Section VIII Solutions and Suggested Responses to Review Questions.

Review Question 1: (Please see page 18 of September JofA.) a. Incorrect. External data breaches were the cause of 47% of privacy events claims.b. Incorrect. External data breaches were the cause of 47% of privacy events claims.c. Incorrect. External data breaches were the cause of 47% of privacy events claims.d. Incorrect. External data breaches were the cause of 47% of privacy events claims.e. Correct. External data breaches were the cause of 47% of privacy events claims.

Review Question 2: (Please page 18 of September JofA.)a. Incorrect. Internal human error can assist a bad actor in causing a privacy event.b. Incorrect. Internal human error can assist a bad actor in causing a privacy event.c. Correct. Internal human error can assist a bad actor in causing a privacy event.d. Incorrect. Internal human error can assist a bad actor in causing a privacy event.e. Incorrect. Internal human error can assist a bad actor in causing a privacy event.

Review Question 3: (Please see page 18 of September JofA.) a. Incorrect. Phishing and pretexting represented 93% data breaches sourced through email.b. Incorrect. Phishing and pretexting represented 93% data breaches sourced through email.c. Incorrect. Phishing and pretexting represented 93% data breaches sourced through email.d. Correct. Phishing and pretexting represented 93% data breaches sourced through email.e. Incorrect. Phishing and pretexting represented 93% data breaches sourced through email.

Review Question 4. (Please see pages 18-19 of September JofA.) a. Incorrect. Employee training was a high cost-saving contributor.b. Incorrect. Employee training was a high cost-saving contributor.c. Correct. Employee training was a high cost-saving contributor.d. Incorrect. Employee training was a high cost-saving contributor.e. Incorrect. Employee training was a high cost-saving contributor.

Review Question 5: (Please page 19 of September JofA.) a. Incorrect. 34% of users and/or accounts were active but not in use.b. Incorrect. 34% of users and/or accounts were active but not in use.c. Incorrect. 34% of users and/or accounts were active but not in use.d. Correct. 34% of users and/or accounts were active but not in use.e. Incorrect. 34% of users and/or accounts were active but not in use.

====================================== End of Section VIII.

Section IX. Keeping an Eye Out for Money Mules (Page 46)

Section IX Assignment:1. Study the article (reference text) in the Journal of Accountancy, paying particular attention to our


Section IX Learning Objectives:1. To learn the elements of a money mule scam and how victims can become involved. 2. To learn to identify certain warning signs indicating a scam.3. Consider the ways a CPA can help others facing potential Money Mule schemes.

Section IX Review Questions:

1. A “money mule” is:a. A person paid to transport illegal drugs.b. The person financing drug smuggling.c. Generally a drug cartel agent responsible for counting and securing enormous quantities of

currency that can't enter the banking system. d. A person who wittingly or not, accepts illegal deposits in their bank accounts and then

transfers those amounts to a third party.e. A bad actor scanning dating sites to entice a love interest in a money laundering scheme.

2. Bad actors often target dating sites for victims. The Better Business Bureau estimates there are up to one million romance fraud victims in the United States and _______ of those were moneymule schemesa. 5% to 10%.b. 10% to 20%.c. 20% to 30%.d. 30% to 40%.e. 40% to 50%.

3. In money laundering schemes involving a money mule, the money mule is unwittingly participating in a crime.a. True, unfortunately.b. False. Sometimes the money mule is fully aware but takes the risk in return for money.

4. The author notes that as people age, they can become easier targets because:a. They have more money to lose.b. They can have a harder time identifying reasonable requests as a fraud.c. Physical limitations can prevent them from seeking advice.d. Their internet skills slowly diminish.e. They often refuse to consult a family member about financial decisions.

5. In a case in Oregon, a man over several years acted as a money mule by receiving funds from victims of romance fraud and sending those funds overseas to the fake love interests. Which of the following is true?a. He had no idea this was a fraudulent scheme.b. When first informed, he was genuinely remorseful and stopped immediately.c. After detected and warned, he stopped all activity and was allowed 30 days to return any

money remaining in the account .d. The scheme was discovered because he thought something “didn't seem right” and contacted

the police.e. He continued to forward money and open new accounts after repeated warnings by federal

authorities.

Section IX Solutions and Suggested Responses to Review Questions appear on the next page.

Section IX Solutions and Suggested Responses to Review Questions.

Review Question 1: (Please see page 45 of September JofA.) a. Incorrect. A money mule is one who wittingly or not accepts illegal deposits in their bank account

and then transfers those amounts to a third party.b. Incorrect. A money mule is one who wittingly or not accepts illegal deposits in their bank account

and then transfers those amounts to a third party.c. Incorrect. A money mule is one who wittingly or not accepts illegal deposits in their bank account

and then transfers those amounts to a third party.d. Correct. A money mule is one who wittingly or not accepts illegal deposits in their bank account

and then transfers those amounts to a third party. e. Incorrect. A money mule is one who wittingly or not accepts illegal deposits in their bank account

and then transfers those amounts to a third party.

Review Question 2: (Please page 45 of September JofA.) a. Incorrect. An estimated 20% to 30% of romance fraud in the US was a money mule scheme.b. Incorrect. An estimated 20% to 30% of romance fraud in the US was a money mule scheme.c. Correct. An estimated 20% to 30% of romance fraud in the US was a money mule scheme.d. Incorrect. An estimated 20% to 30% of romance fraud in the US was a money mule scheme.e. Incorrect. An estimated 20% to 30% of romance fraud in the US was a money mule scheme.

Review Question 3: (Please see page 46 of September JofA.)a. Incorrect. The “victim” sometimes is a willing participant.b. Correct. Sometimes the money mule is fully aware but takes the risk in return for money.

Review Question 4. (Please see page 46 of September JofA.) a. Incorrect. This is could be the reason they become targets, but not why they can be easy targets.b. Correct. They can have a harder time identifying reasonable requests as a fraud.c. Incorrect. Perhaps, but not a reason cited by the author.d. Incorrect. Internet skills are not cited as a contributing factor.e. Incorrect. Perhaps, but not a reason cited by the author.

Review Question 5: (Please page 47 of September JofA.) a. Incorrect. The money mule continued to forward money and open new accounts after repeated

warnings by federal authorities.b. Incorrect. The money mule continued to forward money and open new accounts after repeated

warnings by federal authorities.c. Incorrect. The money mule continued to forward money and open new accounts after repeated

warnings by federal authorities.d. Incorrect. The money mule continued to forward money and open new accounts after repeated

warnings by federal authorities.e. Correct. The money mule continued to forward money and open new accounts after repeated

warnings by federal authorities.

Section X. Child and Dependency Claims by Noncustodial Parents (Page 54)

Section X Assignment:1. Study the article (reference text) in the Journal of Accountancy, paying particular attention to our


Section X Learning Objectives:1. To learn the tax benefits available to a noncustodial parent who can claim a dependent. 2. To learn how a custodial parent can properly release their claim to claim a dependent to the

noncustodial parent.

Section X Review Questions:

1. The special rule of Sec. 152(e):a. Allows a noncustodial parent to claim a child as a dependent.b. Reduces personal exemptions to zero.c. Reduces the child tax credit to $500 per child. d. Reduces the child tax credit to $1,000 per child.e. Limits dependent care credit to one person.

2. Sec. 152(e) applies to parents:a. Who are divorced, legally separated or living apart the last six months of the calendar year.b. Who provided more than one-half of the child's support for the year.c. One of whom had custody of the child for more than one-half of the year.d. a and c.e. a, b and c.

3. If the provisions of Sec. 152(e) are satisfied:a. The noncustodial parent may release the right to claim the dependency exemption to the

noncustodial parent.b. The custodial parent may release the right to claim the dependency exemption to the

noncustodial parent.c. Each parent may claim the dependency exemption.d. Each parent may claim one-half of the child credit.e. The noncustodial parent may claim the dependency exemption but not any child tax credit.

4. To release the dependency claim, the custodial parent must prepare either a written declaration or:a. IRS Form 843.b. IRS Form 941.c. IRS Form 8332.d. IRS Form 8606.e. IRS Form 8825.

5. As a result of the TCJA, why is the dependency exemption for the noncustodial parent even more valuable?a. It allows a single parent to file as head of household.b. It provides an extra exemption deduction.c. The child tax credit increased from $1,000 to $2,000 per child.d. The child tax credit was reinstated at $1,000 per child.e. The child tax credit was expanded to include children up to age 24, if a full time student.

Section X Solutions and Suggested Responses to Review Questions.

Review Question 1: (Please see page 54 of September JofA.) a. Correct. Sec. 152(e) can allow a noncustodial parent to claim a dependency exemption.b. Incorrect. Sec. 152(e) can allow a noncustodial parent to claim a dependency exemption.c. Incorrect. Sec. 152(e) can allow a noncustodial parent to claim a dependency exemption.d. Incorrect. Sec. 152(e) can allow a noncustodial parent to claim a dependency exemption. e. Incorrect. Sec. 152(e) can allow a noncustodial parent to claim a dependency exemption.

Review Question 2: (Please page 54 of September JofA.) a. Incorrect. This is part of but not the most complete answer.b. Incorrect. This is part of but not the most complete answer.c. Incorrect. This is part of but not the most complete answer.d. Incorrect. a, b and c are correct.e. Correct. a, b and c are correct.

Review Question 3: (Please see page 54 of September JofA.)a. Incorrect. The custodial parent can release the dependency exemption to the noncustodial parent.b. Correct. The custodial parent can release the dependency exemption to the noncustodial parent.c. Incorrect. The exemption cannot be divided.d. Incorrect. The child tax credit cannot be divided.e. Incorrect. The sole tax benefit to the noncustodial parent of the dependency exemption is to claim

the child tax credit.

Review Question 4. (Please see page 54 of September JofA.) a. Incorrect. The custodial parent must prepare a written declaration or IRS Form 8332.b. Incorrect. The custodial parent must prepare a written declaration or IRS Form 8332.c. Correct. The custodial parent must prepare a written declaration or IRS Form 8332.d. Incorrect. The custodial parent must prepare a written declaration or IRS Form 8332.e. Incorrect. The custodial parent must prepare a written declaration or IRS Form 8332.

Review Question 5: (Please page 55 of September JofA.) a. Incorrect. The child tax credit increased from $1,000 to $2,000 per child.b. Incorrect. The child tax credit increased from $1,000 to $2,000 per child.c. Correct. The child tax credit increased from $1,000 to $2,000 per child.d. Incorrect. The child tax credit increased from $1,000 to $2,000 per child.e. Incorrect. The child tax credit increased from $1,000 to $2,000 per child.

====================================== End of Section X.

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