Audit Quiz Solutions

The form that must be completed and filed with the Securities and Exchange Commission whenever a company experiences a significant event that is of interest to public investors is the

8-K

What is an example of an illustration of liability under the federal securities acts?

A combined group of stockholders sues the auditor for not discovering materially misstated financial statements

When the auditor determines that the financial statements are fairly stated, but there is a non-independent relationship between the auditor and the client, the auditor should issue

A disclaimer of opinion

An auditor's independence is considered impaired if the auditor has:

A joint, closely held business investment with the client that is material to the auditor's net worth

According to the Conceptual Framework of Independence, an action or other measure that is put in place to try and eliminate or reduce a threat to an acceptable level is

A safeguard

CPA firm will lose its independence if:

A staff auditor providing audit services to the client acquires stock in that client

Which two audits does an "integrated audit" combine? A. A financial statement audit and the audit of the effectiveness of the ICFR. B. A financial statement audit and a compliance audit. C. A compliance audit and the audit of the effectiveness of the ICFR. D. An operational audit and a compliance audit.

A- A financial statement audit and the audit of the effectiveness of the ICFR.

Which of the following standards and guidelines provide CPA firms guidance on policies and procedures to ensure they comply with professional standards and legal and regulatory requirements? A. QC B. ET C. AS D. AU-C

A- QC

20. Nicole, CPA, is planning the audit engagement of Slater Industries. An understanding needs to be established regarding Slater and Nicole's responsibilities. The following task has been discussed. Who is the responsible party for the task indicated? Preparation of the financial statements A. Management only is responsible B. Auditor only is responsible C. Both management and auditor are responsible D. Neither auditor or management are responsible

A- management is only responsible

Nicole, CPA, is planning the audit engagement of Slater Industries. An understanding needs to be established regarding Slater and Nicole's responsibilities. The following task has been discussed. Who is the responsible party for the task indicated? Following generally accepted accounting principles A. Management only is responsible B. Auditor only is responsible C. Both management and auditor are responsible D. Neither auditor or management are responsible.

A- management is only responsible

What is an example of an investment held by a CPA in a corporate client that is an indirect financial interest?

An investment held through a regulated mutual fund

What engagement provides the highest level of assurance?

Audit

Which of the following standards provide AICPA members with guidelines for behavior in the conduct of their professional affairs? A. QC B. ET C. AR-C D. AT

B- ET

The elements of Quality Control Standards include all of the following EXCEPT A. Relevant Ethical Requirements B. Fraud Evaluation C. Engagement Performance D. Monitoring

B- Fraud Evaluation

Auditors of publicly traded companies are required to perform a(n)_______________ for their clients. A. Compliance audit B. Integrated audit C. Internal audit D. Operational audit.

B- Integrated audit

The federal legislation that provides governance of security transactions on the secondary market and regulates the exchange of broker-dealers in order to protect the investing public is A. the Sarbanes-Oxley Act. B. the Securities Exchange Act of 1934 C. the Securities Act of 1933 D. the International Standards on Auditing

B- The Securities Act of 1934

The PCAOB recently adopted a new auditor reporting standard. The standard was approved by the SEC on October 23, 2017. The standard includes two significant changes to the auditor's report for public companies. Which of the following is NOT one of these changes? A. The communication of critical audit matters in the audit report. B. The inclusion of the lead partners name in the auditor's report. C. The inclusion of auditor tenure in the auditor's report. D. None of the choices describe the changes in the new standard adopted by the PCAOB.

B- The inclusion of the lead partners name in the auditor's report

Which of the following standards and guidelines would apply to an audit of annual historical financial statements for an issuer (public company) ? A. AU-C B. AT C. AS D. AT

C- AS

Under the Sarbanes Oxley Act of 2002, which of the following is NOT a stated responsibility of the Public Company Accounting Oversight Board? A. Conducting inspections of registered public accounting firms. B. Overseeing the registration of the public accounting firms. C. Issuing accounting standards that must be followed by public companies only in financial reporting. D. Issuing auditing standards that must be followed by registered public accounting firms in the audit of the financial statement of issuers.

C- Issuing accounting standards that must be followed by public companies only in financial reporting.

What is the appropriate date for an audit report? A. The date the auditors were hired. B. The date of the balance sheet. C. The conclusion of the gathering of sufficient appropriate audit evidence. D. The date required by the regulators.

C- The conclusion of the gathering of sufficient appropriate audit evidence

The risk that reflects the possibility that the information upon which a business decision was made was inaccurate is A. Fraud Risk B. Audit Risk C. Information Risk D. Inherent Risk

C- information risk

Which of the following is NOT a characteristic of an assurance service? A. the engagement is conducted by an independent professional. B. The service lends credibility to information. C. The subject matter is limited to financial information. D. The service is useful for decision makers.

C- the subject matter is limited to financial information

Which of the following services would NOT be considered an "other assurance service"? A. Assessing the risks and related controls over electronic data storage. B. Certifying a company's compliance with ISO 9000 quality control standards. C. The written assurance about a company's compliance with the financial provisions of a loan agreement. D. Performing anonymous mystery shopping to assess sales personnel dealings with customers and procedures they follow.

C- the written assurance about a company's compliance with the financial provisions of a loan agreement

Which of the following statements best defines the term "reasonable assurance"? A. a substantial level of assurance to allow an auditor to detect a material misstatement. B. A significant level of assurance to allow an auditor to detect a material misstatement. C. An absolute level of assurance to allow an auditor to detect a material misstatement. D. A high, but not absolute, level of assurance to allow an auditor to detect a material misstatement.

D- A high, but not absolute, level of assurance to allow an auditor to detect a material misstatement

Which of the following is a TRUE statement regarding auditing standards? A) Prior to the passage of Sarbanes-Oxley, the FASB established auditing principles for U.S. public companies. B) PCAOB auditing standards are applicable to entities outside the U.S. C) There are no similarities between PCAOB standards and International Standards on Auditing. D) The Auditing Standards Board has revised most of its standards to converge with the international standards.

D- The Auditing Standards Board has revised most of its standards to converge with the international standards.

Which of the following statements is FALSE? A. GAAP is an example of an applicable financial reporting framework. B. A review of financial forecasts is considered an attestation service. C. Private companies, or non-issuers, are not required by the U. S. government to have an annual financial statement audit. D. The auditor would issue an adverse audit report when there has been a material limitation on the auditor's ability to gather sufficient appropriate audit evidence.

D- The auditor would issue an adverse audit report when there has been a material limitation on the auditor's ability to gather sufficient appropriate audit evidence.

Under the provisions of the Sarbanes Oxely Act of 2002, the lead audit partner and the reviewing partner must rotate off the audit

Every five years

The board responsible for the International Standards on Auditing is the

IAASB

In connection with the audit of financial statements, an independent auditor could be responsible for failure to detect a material fraud if

If the auditor planned the audit in a negligent manner

A public accounting firm wishes to audit ABC Co., a private company, on a contingent fee basis. Is this permitted?

No

A public accounting firm wishes to do ABC Company's original tax return on a contingent fee basis. ABC is an audit client. Is this permitted?

No

Jason Alexander is an audit manager with Reese & Co., CPAs. Jason owns 100 share of common stock in one of the firm's audit clients, but he does not provide any audit or non-audit services to the company.

No

Rules issued under the Sarbanes Oxley Act of 2002 restrict former members of an engagement team from immediately accepting employment as a chief executive, chief financial officer, chief accounting officer or controller of an audit client that files with the SEC. How many annual audit period(s) must be completed before such employment can be accepted?

One

"Absence of reasonable care that can be expected of a person in a set of circumstances" defines

Ordinary negligence

According to SEC regulations, each of the following non-audit services will impair an auditor's independence EXCEPT

Preparing an audit client's tax return

Susanna knows that her audit firm should not perform management responsibilities for audit clients. Which of the following is an example of a permitted

Recommending a job description for a position that the client needs to fill

The confidentiality rule of the AICPA's Code of Professional Conduct requires CPAs to maintain the confidentiality of client information. This rule would be violated if a CPA disclosed information without a client's consent as a result of a:

Request by the clients largest stakeholder

According to the AICPA Code of Professional Conduct, which of the following actions by a CPA most likely would involve an act discreditable to the profession?

Retaining client records after the client demands their return

The form that must be filed with the Securities and Exchange Commission whenever a company plans to issue new securities to the public is the

S-1

Identify the type of threat described by the following scenario: The auditor performs bookkeeping services for the client and then performs an audit of those financial statements:

Self-review

Which of the following parties would NOT be included as an immediate family member of the CPA?

Sibling living in the same city as the CPA

Laws that have been passed by the U.S. Congress and other governmental units are

Statutory

The regulatory board that issues auditing standards for non-issuers (private companies) is

The ASB

What is a violation of the AICPA Code of Professional Conduct?

The CPA makes the audit files available to the​ client's bank without the permission of the client.

Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements?

The opinion of an independent party is needed because a company is not likely to be considered objective with respect to its own financial statements.

Under common law, an individual or company that (1) does not have a contract with an auditor, (2) is known by the auditor in advance of the audit, and (3) will use the auditor's report to make decisions about the client company has:

The same rights against an auditor as a client

Identify the type of threat described by the following scenario: A client indicates that they will not award additional engagements to the firm if the firm continues to disagree with the client on an accounting matter

Undue influence

If the board of accountancy in the state in which a CPA firm is licensed has independence rules that are different than the AICPA's rules, the CPA firm must follow:

Whichever rules are more restrictive

Professional skepticism

an attitude that includes a questioning mind, being alert to conditions that might indicate possible misstatements due to fraud or error, and a critical assessment of audit evidence

An audit to determine whether an entity is following specific procedures or rules set down by some higher authority is classified as a(n)

compliance audit

The quarterly reports submitted to the SEC by the client:

do not have to be audited, but the CPA firm which does the annual audit must review the quarterly statements before they are submitted to the SEC.

The International Standards on Auditing (ISA)

has many of the same standards as the Auditing Standards Board (ASB)

One objective of an operational audit is to

make recommendations for improving performance

The Public Company Accounting Oversight Board:

performs inspections of the quality controls of firms that audit public companies

Quality control policies and procedures that are established to decide whether to accept a new client should provide the CPA firm with reasonable assurance that

the likelihood of associating with clients whose managements lacks integrity is minimized