ACCT 460 CH 1 Multiple Choice

The Sarbanes-Oxley Act of 2002 generally prohibits public accounting firms from: A. Acting in a managerial decision-making role for an audit client. B. Auditing the firm's own work on an audit client. C. Providing tax consulting to an audit client without audit committee approval. D. All of the choices are correct.

D. All of the choices are correct.

The Sarbanes-Oxley Act of 2002 prohibits public accounting firms from providing which of the following services to an audit client? A. Bookkeeping services. B. Internal auditing services. C. Valuation services. D. All of the choices are correct.

D. All of the choices are correct.

What requirements are usually necessary to become licensed as a certified public accountant? A. Successful completion of the Uniform CPA Examination. B. Experience in the accounting field. C. Education. D. All of the choices are correct.

D. All of the choices are correct.

Which of the following is a reason to obtain professional certification? A. Certification provides credibility that an individual is technically competent. B. Certification often is a necessary condition for advancement and promotion within a professional services firm. C. Obtaining certification is often monetarily rewarded by an individual's employer. D. All of the choices are correct.

D. All of the choices are correct.

The primary objective of compliance auditing is to: A. Give an opinion on financial statements. B. Develop a basis for a report on internal control. C. Perform a study of effective and efficient use of resources. D. Determine whether client personnel are following laws, rules, regulations, and policies.

D. Determine whether client personnel are following laws, rules, regulations, and policies.

The organization primarily responsible for ensuring that public officials are using public funds efficiently, economically, and effectively is the: A. Governmental Internal Audit Agency (GIAA). B. Central Internal Auditors (CIA). C. Securities and Exchange Commission (SEC). D. Government Accountability Office (GAO).

D. Government Accountability Office (GAO).

Jones, CPA, is planning the audit of Rhonda's Company. Rhonda verbally asserts to Jones that all expenses for the year have been recorded in the accounts. Rhonda's representation in this regard: A. Is sufficient evidence for Jones to conclude that the completeness assertion is supported for expenses. B. Can enable Jones to minimize the work on the gathering of evidence to support Rhonda's completeness assertion. C. Should be disregarded because it is not in writing. D. Is not considered a sufficient basis for Jones to conclude that all expenses have been recorded.

D. Is not considered a sufficient basis for Jones to conclude that all expenses have been recorded.

The Sarbanes-Oxley Act of 2002: A. Requires the Public Company Accounting Oversight Board (PCAOB) be composed of seven members. B. Requires the Public Company Accounting Oversight Board (PCAOB) have CPAs for a majority of its members. C. Changes rules on auditor independence, adopting a more flexible, principles-based approach rather than one based on prohibitions of certain types of non-audit services to audit clients D. Mandates integrated audits for public companies

D. Mandates integrated audits for public companies

Which of the following would be considered an assurance engagement? A. Giving an opinion on a prize promoter's claims about the amount of sweepstakes prizes awarded in the past. B. Giving an opinion on the conformity of the financial statements of a university with generally accepted accounting principles. C. Giving an opinion on the fair presentation of a newspaper's circulation data. D. Giving assurance about the average drive length achieved by golfers with a client's golf balls. E. All of the choices are correct.

E. All of the choices are correct.

It is always a good idea for auditors to begin an audit with the professional skepticism characterized by the assumption that: A. A potential conflict of interest always exists between the auditor and the management of the enterprise under audit. B. In audits of financial statements, the auditor acts exclusively in the capacity of an auditor. C. The professional status of the independent auditor imposes commensurate professional obligations. D. Financial statements and financial data are verifiable.

A. A potential conflict of interest always exists between the auditor and the management of the enterprise under audit.

Audits of which of the following organizations are subject to the Sarbanes-Oxley Act? A. All public companies. B. All public companies and private companies with annual revenues of $100 million or more. C.All public companies and private companies with assets of $100 million or more. D. All public companies and private companies with equity of $100 million or more.

A. All public companies.

Which of the following best describes the relationship between auditing and attestation engagements? A. Auditing is a subset of attestation engagements that focuses on the certification of financial statements. B. Attestation is a subset of auditing that provides lower assurance than that provided by an audit engagement. C. Auditing is a subset of attestation engagements that focuses on providing clients with advice and decision support. D. Attestation is a subset of auditing that improves the quality of information or its context for decision makers.

A. Auditing is a subset of attestation engagements that focuses on the certification of financial statements.

When auditing merchandise inventory at year-end, the auditor performs audit procedures to ensure that all goods purchased before year-end are received before the physical inventory count. This audit procedure provides assurance about which management assertion? A. Cutoff. B. Existence. C. Valuation and allocation. D. Rights and obligations. E. Occurrence.

A. Cutoff.

Independent auditors of financial statements perform audits that reduce: A. Business risks faced by investors. B. Information risk faced by investors. C. Complexity of financial statements. D. Timeliness of financial statements.

B. Information risk faced by investors.

According to the AICPA, the purpose of an audit of financial statements is to: A. Enhance the degree of confidence that intended users can place in the financial statements. B. Express an opinion on the fairness with which they present financial position, results of operations, and cash flows in conformity with accounting standards promulgated by the Financial Accounting Standards Board. C. Express an opinion on the fairness with which they present financial position, results of operations, and cash flows in conformity with accounting standards promulgated by the U.S. Securities and Exchange Commission. D. Obtain systematic and objective evidence about financial assertions and report the results to interested users.

A. Enhance the degree of confidence that intended users can place in the financial statements.

During an audit of a company's cash balance on a company with operations in only one country, the auditor is most concerned with which management assertion? A. Existence. B. Rights and Obligations. C. Valuation or Allocation. D. Occurrence.

A. Existence.

When auditing the accounts receivable account on the Balance Sheet, an auditor's procedures most likely would focus primarily on management's assertion of: A. Existence. B. Completeness. C. Presentation and disclosure. D. Rights and obligations.

A. Existence.

Performance audits usually include (Select all that apply.) A. Financial audits. B. Economy and efficiency audits. C. Compliance audits. D. Program audits.

A. Financial audits. C. Compliance audits.

In an audit of a company's financial statements, which of the following is NOT considered a disclosure in regards to which the auditor is specifically required to provide positive assurance? A. Management Discussion and Analysis (MD&A). B. The fact that certain material amounts are classified as current liabilities. C. Parenthetical notations contained within the financial statements. D. The notes to the financial statements.

A. Management Discussion and Analysis (MD&A).

Which of the following is a true statement about the Public Company Accounting Oversight Board (PCAOB): A. Public accounting firms must register with the PCAOB before performing audits of public companies. B. The PCAOB is a private, nonprofit organization established in 1933. C. Two of the five board members of the PCAOB must be CPAs. D. The PCAOB reports the results of disciplinary proceedings to the SEC to sanction registered CPA firms not passing inspection.

A. Public accounting firms must register with the PCAOB before performing audits of public companies.

The risk to investors that a company's financial statements may be materially misleading is called: A. Client acceptance risk. B. Information risk. C. Moral hazard. D. Business risk.

B. Information risk.

An auditor selected items for test counts from the client's warehouse during the physical inventory observation. The auditor then traced these test counts into the detailed inventory listing that agreed to the financial statements. This procedure most likely provided evidence concerning management's assertion of: A. Rights and obligations. B. Completeness. C. Existence. D. Valuation.

B. Completeness.

Cutoff tests designed to detect valid sales that occurred before the end of the year but have been recorded in the subsequent year would provide assurance about management's assertion of: A. Presentation and Disclosure. B. Completeness. C. Rights and Obligations. D. Existence.

B. Completeness.

In auditing the accrued liabilities account on the Balance Sheet, an auditor's procedures most likely would focus primarily on management's assertion of: A. Existence or occurrence. B. Completeness. C. Presentation and disclosure. D. Valuation or allocation.

B. Completeness.

When an auditor reviews additions to the equipment (fixed asset) account to make sure that fixed assets are not overstated, she wants to obtain evidence as to management's assertion regarding: A. Completeness. B. Existence. C. Valuation and allocation. D. Rights and obligations. E. Occurrence.

B. Existence.

Which of the following audit procedures probably would provide the most reliable evidence related to the entity's assertion of rights and obligations for the inventory account? A. Trace test counts noted during physical count to the summarization of quantities. B. Inspect agreements for evidence of inventory held on consignment. C. Select the last few shipping advices used before the physical count and determine whether the shipments were recorded as sales. D. Inspect the open purchase order file for significant commitments to consider for disclosure.

B. Inspect agreements for evidence of inventory held on consignment.

In an attestation engagement, a CPA practitioner is engaged to: A. Compile a company's financial forecast based on management's assumptions without expressing any form of assurance. B. Prepare a written report containing a conclusion about the reliability of a management assertion. C. Prepare a tax return using information the CPA has not audited or reviewed. D. Give expert testimony in court on particular facts in a corporate income tax controversy.

B. Prepare a written report containing a conclusion about the reliability of a management assertion.

According to Title III of the Sarbanes-Oxley Act of 2002, the CEO and CFO of a public company must explicitly certify in each annual or quarterly report they have: A. Reviewed all material communications between the auditor and the audit committee. B. Reviewed the report. C. Evaluated the effectiveness of internal controls 30 days prior to the report. D. Cooperated fully with the auditor.

B. Reviewed the report.

As specified in Title I of the Sarbanes-Oxley Act of 2002, which organization has oversight and enforcement authority over the Public Company Accounting Board (PCAOB) and its decisions? A. The AICPA B. The SEC C. The FASB D. The Treasury Department

B. The SEC

In deciding whether to accept a prospective audit client, which of the following would have the biggest impact on the auditor's decision? A. The auditor is not familiar with the industry in which the client operates. B. The client's predecessor auditor indicated that the client's management lacks integrity. C. The client's accounting department is staffed by two people who perform many overlapping duties that should be segregated. D. The client's controller is a former manager of the auditing firm.

B. The client's predecessor auditor indicated that the client's management lacks integrity.

The primary difference between operational auditing and financial auditing is that in operational auditing: A. The operational auditor is not concerned with whether the audited activity is generating information in compliance with financial accounting standards. B. The operational auditor is seeking to help management use resources in the most effective manner possible. C. The operational auditor starts with the financial statements of an activity being audited and works backward to the basic processes involved in producing them. D. The operational auditor can use analytical skills and tools that are not necessary in financial auditing.

B. The operational auditor is seeking to help management use resources in the most effective manner possible.

An auditor's purpose in auditing the information contained in the pension footnote most likely is to obtain evidence concerning management's assertion about: A. Rights and obligations. B. Existence. C. Presentation and disclosure. D. Valuation.

C. Presentation and disclosure.

The objective in an auditor's review of credit ratings of a client's customers is to obtain evidence related to management's assertion about: A. Completeness. B. Existence. C. Valuation and allocation. D. Rights and obligations. E. Occurrence.

C. Valuation and allocation.

When auditing an investment in another company, an auditor most likely would seek to conduct which audit procedure to help satisfy the valuation assertion? A. Inspect the stock certificates evidencing the investment. B. Examine the audited financial statements of the investee company. C. Review the broker's advice or canceled check for the investment's acquisition. D. Obtain market quotations from The Wall Street Journal or another independent source.

D. Obtain market quotations from The Wall Street Journal or another independent source.

A determination of cost savings obtained by outsourcing cafeteria services is most likely to be an objective of: A. Environmental auditing. B. Financial auditing. C. Compliance auditing. D. Operational auditing.

D. Operational auditing.

Substantial equivalency refers to: A. An auditor's tendency not to believe management's assertions without sufficient corroboration. B. Providing consulting work for another firm's audit client in exchange for the other firm's providing consulting services to one of your clients. C. The waiving of certification exam parts for an individual holding an equivalent certification from another professional organization. D. Permitting a CPA to practice in another state without having to obtain a license in that state.

D. Permitting a CPA to practice in another state without having to obtain a license in that state.

During an audit of an entity's stockholders' equity accounts, the auditor determines whether there are restrictions on retained earnings resulting from loans, agreements, or state law. This audit procedure most likely is intended to verify management's assertion of: A. Existence or occurrence. B. Completeness. C. Valuation or allocation. D. Presentation and disclosure.

D. Presentation and disclosure.

Watt & Foster LLC is a CPA firm that wants to ensure that it only associates with clients whose management has integrity. To achieve this, Watt & Foster need not: A. Communicate with a potential client's predecessor auditor. B. Establish quality control policies and procedures for accepting client relationships. C. Establish quality control policies and procedures for continuing client relationships. D. Refuse to accept a client who has been issued an adverse opinion sometime during the last three years.

D. Refuse to accept a client who has been issued an adverse opinion sometime during the last three years.

When auditing merchandise inventory at year-end, the auditor performs audit procedures to obtain evidence that no goods held on consignment are included in the client's ending inventory balance. This audit procedure provides assurance about which management assertion? A. Completeness. B. Existence. C. Valuation and allocation. D. Rights and obligations. E. Occurrence.

D. Rights and obligations.

According to Title II of the Sarbanes Oxley Act (SOX) of 2002, which of the following nonaudit services is not prohibited from being performed for an audit client by a registered public accounting firm? A. Bookkeeping services. B. Appraisal or valuation services. C. Internal audit services D. Tax services.

D. Tax services.

As specified in Title II of the Sarbanes Oxley Act (SOX), which of the following non-audit services to audit clients are NOT prohibited from being performed by a registered public accounting firm if the preapproved by the audit committee and disclosed to the SEC? A. Legal services or expert services unrelated to the audit. B. Human resource services. C. Internal audit outsourcing services. D. Tax services.

D. Tax services.

Bankers who are processing loan applications from companies seeking large loans will probably ask for financial statements audited by an independent CPA because: A. Financial statements are too complex for the bankers to analyze themselves. B. They are too far away from company headquarters to perform accounting and auditing themselves. C. The consequences of making a bad loan are very undesirable. D. They generally see a potential conflict of interest between company managers who want to get loans and the bank's needs for reliable financial statements.

D. They generally see a potential conflict of interest between company managers who want to get loans and the bank's needs for reliable financial statements.

According to the AICPA Code of Professional Conduct, which of the following nonaudit services is a CPA prohibited from performing for an audit client? Tax Advocacy Bookkeeping a. Prohibited Allowed b. Allowed Prohibited c. Prohibited Prohibited d. Allowed Allowed

a. Prohibited Allowed