• The risk of incorrect acceptance and the likelihood of assessing control risk too low relate to the:
  1. Preliminary estimates of materiality levels.
  2. Allowable risk of tolerable misstatement.
  3. Efficiency of the audit.
  4. Effectiveness of the audit.

• Which of the following best describes the effect of a contingent fee arrangement on the auditor’s independence?
  1. The contingent fee arrangement does not impair independence if it is consistent with the registered public accounting firm’s quality control policies.
  2. The contingent fee arrangement impairs independence unless approved by the client’s audit committee.
  3. The contingent fee arrangement does not impair independence unless more than half of the fee is subject to contingencies.
  4. The contingent fee arrangement impairs independence.

• A CPA in charge of the external audit received an unexpected inheritance that includes 100 shares of the audit client’s common stock. Which of the following actions should the CPA take to avoid violating independence rules?
  1. Sell the stock.
  2. Resign from the audit firm.
  3. Petition the AICPA for an independence exception.
  4. Decline to accept the inheritance.