Audit Exam 1
The legal right to perform audits is granted to a CPA firm by regulation of: A) each state. B) the Financial Accounting Standards Board (FASB). C) the American Institute of Certified Public Accountants (AICPA). D) the Audit Standards Board.
A
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: A) Form S-1. B) Form 8-K. C) Form 10-K. D) Form 10-Q.
B
The introductory paragraph of the auditor's report states that the auditor is responsible for the preparation, presentation and opinion on financial statements. A) True B) False
B
The management's responsibility section of the standard audit report for a non-public company states that the financial statements are: A) the responsibility of the auditor. B) the responsibility of management. C) the joint responsibility of management and the auditor. D) none of the above.
B
The most common way for users to obtain reliable information is to: A) have an internal audit. B) have an independent audit. C) verify all information individually. D) verify the information with management.
B
The only modified unqualified opinion that does not include an explanatory paragraph is when other auditors are involved. In this case only the introductory paragraph is modified. A) True B) False
B
The phrase "Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material error" is included in the auditor's opinion section of an audit report. A) True B) False
B
The phrase "auditing standards generally accepted in the United States of America" can be found in the opinion paragraph of a standard, unqualified audit report for a non-public company. A) True B) False
B
The primary purpose of a compliance audit is to determine whether the financial statements are prepared in compliance with generally accepted accounting principles. A) True B) False
B
The primary role of the United States General Accounting Office is the enforcement of the federal tax laws as defined by Congress and interpreted by the courts. A) True B) False
B
The term "explanatory paragraph" was replaced in the AICPA auditing standards with: A) going concern paragraph. B) emphasis-of-matter paragraph. C) departure from principles paragraph. D) consistency paragraph.
B
The Sarbanes-Oxley Act applies to which of the following companies? A) All companies B) Privately held companies C) Public companies D) All public companies and privately held companies with assets greater than $500 million
C
The Sarbanes-Oxley Act prohibits a CPA firm that audits a public company from providing which of the following types of services to that company? A) Reviews of quarterly financial statements B) Preparation of corporate tax returns C) Most consulting services D) Tax services
C
Which of the following is not a SysTrust Services principle as defined by the AICPA? A) Online privacy B) Availability C) Processing integrity D) Operational integrity
D
Which of the following modifications of the auditor's report does not include an explanatory paragraph? A) A qualified report is due to a GAAP departure. B) The report includes an emphasis of a matter. C) There is a very material scope limitation. D) A principal auditor accepts the work of an other auditor
D
Which of the following statements best describes the primary purpose of Statements on Auditing Standards? A) They are guides intended to set forth auditing procedures that are applicable to a variety of situations. B) They are procedural outlines that are intended to narrow the areas of inconsistency and divergence of auditor opinion. C) They are authoritative statements, enforced through the Code of Professional Conduct, and are intended to limit the degree of auditor judgment. D) They are interpretations that are intended to clarify the meaning of "generally accepted auditing standards."
D
Which of the following statements is true? I. The auditor is required to issue a disclaimer of opinion in the event of a material uncertainty. II. The auditor is required to issue a disclaimer of opinion in the event of a going concern problem. A) I only B) II only C) I and II D) Neither I nor II
D
Which one of the following is not true regarding the American Institute of Certified Public Accountants peer review requirement? A) A CPA firm must develop and adhere to quality control standards. B) Peer reviews are mandatory. C) A CPA firm will lose AICPA eligibility if a peer review is not performed. D) Firms required to be registered with and inspected by the PCAOB are exempt
D
List the four principles underlying an audit.
Purpose of an audit • Responsibilities • Performance • Reporting
A lack of independence will override any other scope limitations and requires a disclaimer of opinion. A) True B) False
A
A modified unqualified audit report arises when the auditor believes the financials are fairly stated but also believes additional information should be provided. A) True B) False
A
A pervasive exception is one that affects different parts of the financial statements. A) True B) False
A
A qualified report can take the form of a qualification of both the scope and the opinion or of the opinion alone. A) True B) False
A
AICPA auditing standards provide uniform wording for the auditor's report to enable users of the financial statements to understand the audit report. A) True B) False
A
Academic research is underway to study the effectiveness of communications provided by auditors in the audit report. A) True B) False
A
All of the Big Four accounting firms and many of the smaller CPA firms now operate as Limited Liability Partnerships. A) True B) False
A
An audit provides a high level of assurance, but is not a guarantee that a material misstatement will exist in the financial statements. A) True B) False
A
An auditor must be competent and have an independent mental attitude. A) True B) False
A
An auditor need not abide by a particular auditing standard if the auditor believes that: A) the issue in question is immaterial in amount. B) more expertise is needed to fulfill the requirement. C) the requirement of the standard has not been addressed by the PCAOB. D) any of the above three are correct.
A
An examination of part of an organization's procedures and methods for the purpose of evaluating efficiency and effectiveness is what type of audit? A) Operational audit B) Compliance audit C) Financial statement audit D) Production audit
A
An item with a "psychic" effect (e.g., where the item maintains an increasing earnings trend) is a qualitative factor that may affect the auditors decision regarding materiality. A) True B) False
A
Any public accounting firm can be a member of the AICPA if the firm meets the membership requirements. A) True B) False
A
Auditing standards in the United States allow an auditor to perform an audit of a U.S. entity in accordance with both generally accepted auditing standards in the U.S. and the ISAs. A) True B) False
A
Auditing standards require that the audit report must be titled and that the title must: A) include the word "independent." B) indicate if the auditor is a CPA. C) indicate if the auditor is a proprietorship, partnership, or corporation. D) indicate the type of audit opinion issued.
A
Auditors should issue a disclaimer of opinion when there is a highly material client-imposed scope restriction. A) True B) False
A
Examples of unqualified opinions which contain modified wording (without adding an explanatory paragraph) include: A) the use of other auditors. B) material uncertainties. C) substantial doubt about the audited company (or the entity) continuing as a going concern. D) lack of consistent application of GAAP
A
Hansen Corporation's stock is listed on a national stock exchange and registered with the Securities and Exchange Commission. Hansen's management hires a CPA to perform an independent audit of Hansen's financial statements. The primary objective of this audit is to provide assurance to the: A) investors in Hansen Corporation's stock. B) stock exchange. C) Securities and Exchange Commission. D) management of Hansen Corporation.
A
Historically auditing standards have been organized into three categories, including: A) Standards of field work. B) Purpose of an audit. C) Responsibilities of the auditor. D) Proper planning and supervision
A
If an auditor of a public company cannot find guidance issued by the PCAOB on a particular audit matter, the auditor should generally seek guidance from which of the following sources? A) Statements on Auditing Standards B) Statements on Standards for Accounting and Review Services C) Regulations issued by the Securities and Exchange Commission D) The AICPA Code of Professional Conduct
A
In "auditing" financial accounting data, the primary concern is with: A) determining whether recorded information properly reflects the economic events that occurred during the accounting period. B) determining if fraud has occurred. C) determining if taxable income has been calculated correctly. D) analyzing the financial information to be sure that it complies with government requirements.
A
In the case of a disclaimer due to lack of independence, the entire scope paragraph is excluded from the report. A) True B) False
A
Indicate which changes would require an explanatory paragraph in the audit report. A) Correction of an error by changing from an accounting principle that is not generally acceptable to one that is generally acceptable Change from LIFO to FIFO Yes Yes B) Correction of an error by changing from an accounting principle that is not generally acceptable to one that is generally acceptable Change from LIFO to FIFO No No C) Correction of an error by changing from an accounting principle that is not generally acceptable to one that is generally acceptable Change from LIFO to FIFO Yes No D) Correction of an error by changing from an accounting principle that is not generally acceptable to one that is generally acceptable Change from LIFO to FIFO No Yes
A
Indicate which changes would require an explanatory paragraph in the audit report. A) The CPA concludes there is substantial doubt about the entity's ability to continue as a going concern Change from FIFO to LIFO Yes Yes B) The CPA concludes there is substantial doubt about the entity's ability to continue as a going concern Change from FIFO to LIFO No No C) The CPA concludes there is substantial doubt about the entity's ability to continue as a going concern Change from FIFO to LIFO Yes No D) The CPA concludes there is substantial doubt about the entity's ability to continue as a going concern Change from FIFO to LIFO No Yes
A
International Standards on Auditing are issued by the International Auditing and Assurance Standards Board. A) True B) False
A
Items that materially affect the comparability of the financial statements generally require disclosure in the footnotes. A) True B) False
A
Limited liability companies are structured and taxed like a general partnership, but their owners have limited personal liability similar to that of a general corporation. A) True B) False
A
Many small, local accounting firms do not perform audits as their primary services to their clients include accounting and tax. A) True B) False
A
Materiality is essential when an auditor considers his/her determination of the appropriate report for a given set of circumstances. A) True B) False
A
Most public companies' audited financial statements are available on the SEC's EDGAR database. A) True B) False
A
Quality controls are established for the entire CPA firm whereas GAAS are applicable to the individual engagement. A) True B) False
A
Results of compliance audits are typically reported to the company's management rather than to a broad spectrum of outside users. A) True B) False
A
Sarbanes-Oxley and the Securities Exchange Commission restrict auditors from providing many consulting services to their publicly traded audit clients. A) True B) False
A
Section 404 of the Sarbanes-Oxley Act requires public companies to have an external auditor attest to their internal control over financial reporting. A) True B) False
A
Statements on Standards for Accounting and Review Services are issued by the: A) Accounting and Review Services Committee. B) Professional Ethics Executive Committee. C) Securities and Exchange Commission. D) Financial Accounting Standards Board.
A
The PCAOB considers International Standards on Auditing (ISAs) when developing its standards. A) True B) False
A
The Public Company Accounting Oversight Board: A) performs inspections of the quality controls of audit firms that audit public companies. B) establishes auditing standards that must be followed by CPAs on all audits. C) oversees auditors of private companies. D) performs any of the above functions.
A
The SAS number identifies the order in which it was issued in relation to all other SASs. A) True B) False
A
The Sarbanes-Oxley Act is widely viewed as having ushered in sweeping changes to auditing and financial reporting. A) True B) False
A
The Statements on Auditing Standards issued by the Auditing Standards Board: A) are regarded as authoritative literature. B) are the equivalent of laws for audit practitioners. C) must be followed in all situations. D) are optional guidelines which an auditor may choose to follow or not follow when conducting an audit.
A
The audit report date is the date the auditor completed audit procedures in the field. A) True B) False
A
The criteria by which an auditor evaluates the information under audit may vary with the information being audited. A) True B) False
A
The date of the auditor's report is indicative of the last day of the auditor's responsibility for the review of significant events occurring after the balance sheet date. A) True B) False
A
The final step in the auditor's decision process for audit reports is to write the audit report. A) True B) False
A
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: A) Form S-1. B) Form 8-K. C) Form 10-K. D) Form 10-Q.
A
The introductory paragraph of the standard audit report for a non-public company performs which functions? I. It states the CPA has performed an audit. II. It lists the financial statements being audited. III. It states the financial statements are the responsibility of the auditor. A) I and II B) I and III C) II and III D) I, II and III
A
The most common case in which conditions beyond the client's and auditor's control cause a scope restriction in an engagement is when the: A) auditor is not appointed until after the client's year-end. B) client won't allow the auditor to confirm receivables for fear of offending its customers. C) auditor doesn't have enough staff to satisfactorily audit all of the client's foreign subsidiaries. D) client is going through Chapter 11 bankruptcy.
A
The overall purpose of the Securities and Exchange Commission is to assist in providing investors with reliable information upon which to make investment decisions. A) True B) False
A
The phrase "generally accepted accounting principles" can be found in the opinion paragraph of a standard unqualified report. A) True B) False
A
The scope paragraph of the auditor's responsibility section of the audit report issued for financial statements of a non-public company should refer to generally accepted auditing standards . A) True B) False
A
The standard unqualified audit report: A) is sometimes called a clean opinion. B) can be issued only with an explanatory paragraph. C) can be issued if only a balance sheet and income statement are included in the financial statements. D) is sometimes called a disclaimer report.
A
Three common types of attestation services are: A) audits of historical financial statements, reviews of historical financial statements, and audits of internal control over financial reporting. B) audits of historical financial information, verifications of historical financial information, and attestations regarding internal controls. C) reviews of historical financial information, verifications of future financial information, and attestations regarding internal controls. D) audits of historical financial information, reviews of controls related to investments, and verifications of historical financial information.
A
To emphasize the fact that the auditor is independent, a typical addressee of the audit report could be: A) Company Controller Shareholders Board of Directors No Yes Yes B) Company Controller Shareholders Board of Directors No No Yes C) Company Controller Shareholders Board of Directors Yes Yes No D) Company Controller Shareholders Board of Directors Yes No No
A
When accounting principles are not consistently applied, and the materiality level is immaterial, the auditor will issue a(n): A) unqualified opinion. B) unqualified opinion with an explanatory paragraph. C) adverse opinion. D) disclaimer opinion.
A
When comparing misstatements with a measurement base, the auditor must consider the pervasiveness of the misstatement. Of the following examples, the most pervasive misstatement is a(n): A) understatement of inventory. B) understatement of retained earnings caused by a miscalculation of dividends payable. C) misclassification of notes payable as a long-term liability when it should be current. D) misclassification of salary expense as a selling expense.
A
When other auditors are involved in the audit and they qualify their portion of the audit, the principal auditor must decide if the amount in question is material to the financial statements as a whole. A) True B) False
A
Whenever an auditor issues a qualified report, he or she must use the term "except for " in the opinion paragraph. A) True B) False
A
Which of the following audits can be regarded as generally being a compliance audit? A) IRS agents' examinations of taxpayer returns B) GAO auditor's evaluation of the computer operations of governmental units C) An internal auditor's review of a company's payroll authorization procedures D) A CPA firm's audit of a public company
A
Which of the following is false concerning the principal CPA firm's alternatives when issuing a report when another CPA firm performs part of the audit? A) Issue a joint report signed by both CPA firms. B) Make no reference to the other CPA firm in the audit report, and issue the standard unqualified opinion. C) Make reference to the other auditor in the report by using modified wording (a shared opinion or report). D) A qualified opinion or disclaimer, depending on materiality, is required if the principal auditor is not willing to assume any responsibility for the work of the other auditor.
A
Which of the following is least likely to cause uncertainty about the ability of an entity to continue as a going concern? A) The entity is suing a competitor for a minor patent infringement. B) The entity has lost a major customer. C) The entity has significant recurring operating losses. D) The entity has working capital deficiencies.
A
Which of the following is not an essential component of quality control? A) Policies and procedures to ensure that firm personnel are actively engaged in marketing strategies B) Policies and procedures to ensure that the work performed by firm personnel meet applicable professional standards C) Policies to ensure that personnel maintain their independence in fact and in appearance D) Policies that ensure that monitoring activities are effectively applied
A
Which of the following services provides the lowest level of assurance on a financial statement? A) A review B) An audit C) Neither service provides assurance on financial statements. D) Each service provides the same level of assurance on financial statements.
A
In most audits, the auditor issues a: A) qualified audit report. B) unqualified audit report. C) scope limited audit report. D) adverse audit report.
B
A misstatement in the financial statements can be considered material if knowledge of the misstatement will affect a decision of: A) the PCAOB. B) a reasonable user of the financial statements. C) an accountant. D) the SEC.
B
A qualified audit report is issued when all auditing conditions have been met, no significant misstatements have been discovered, and it is the auditor's opinion that the financial statements are fairly stated in accordance with GAAP. A) True B) False
B
A qualified opinion can be issued for which of the following? I. When a limitation on the scope of the audit has occurred II. When the auditor lacks independence III. When generally accepted accounting principles have not been used
B
After the auditor determines whether any conditions exist which require a departure from a standard unqualified report, the next step in the decision process for audit reports is to: A) write the report. B) decide the materiality for each condition. C) decide the appropriate type of report for the condition. D) discuss the report with management.
B
All CPA firms registered with the PCAOB are required to undergo a peer review annually. A) True B) False
B
All of the following are causes for the addition of an explanatory paragraph under both AICPA and PCAOB standards except for: A) emphasis of a matter. B) reports involving other auditors. C) lack of consistent application of generally accepted accounting principles. D) auditor agrees with a departure from promulgated accounting principles..
B
All of the following would require an emphasis of matter paragraph except for: A) the existence of material related party transactions. B) the lack of auditor independence. C) important events occurring subsequent to the balance sheet date. D) material uncertainties disclosed in the footnotes.
B
An audit to determine whether an entity is following specific procedures or rules set down by some higher authority is classified as a(n): A) audit of financial statements. B) compliance audit. C) operational audit. D) production audit.
B
An auditor should issue a qualified opinion with an explanatory paragraph whenever there is a material uncertainty affecting the financial statements. A) True B) False
B
Any service that requires a CPA firm to issue a report about the reliability of an assertion that is made by another party is a(n): A) accounting and bookkeeping service. B) attestation service. C) assurance service. D) tax service.
B
Assume the Public Company Accounting Oversight Board (PCAOB) identifies a violation during its inspection of a registered accounting firm. The PCAOB: A) can enforce disciplinary action against the accounting firm report the matter to the Securities and Exchange Commission suspend the license to practice of the CPA guilty of the violation Yes Yes Yes B) can enforce disciplinary action against the accounting firm report the matter to the Securities and Exchange Commission suspend the license to practice of the CPA guilty of the violation Yes Yes No C) can enforce disciplinary action against the accounting firm report the matter to the Securities and Exchange Commission suspend the license to practice of the CPA guilty of the violation Yes No No D) can enforce disciplinary action against the accounting firm report the matter to the Securities and Exchange Commission suspend the license to practice of the CPA guilty of the violation No No No
B
Attestation services on information technology include WebTrust services and SysTrust services. Which of the following statements most accurately describes SysTrust services? A) SysTrust services provide assurance on business processes, transaction integrity and information processes. B) SysTrust services provide assurance on system reliability in critical areas such as security and data integrity. C) SysTrust services provide assurance on internal control over financial reporting. D) SysTrust services provide assurance as to whether accounting personnel are following procedures prescribed by the company controller.
B
Auditors of public company financial statements must issue separate reports on internal control over financial reporting. A) True B) False
B
CPA firms are never allowed to provide bookkeeping services for clients. A) True B) False
B
Changes in accounting estimates requires the auditor to issue a modified unqualified audit report with a consistency paragraph inserted after the opinion paragraph. A) True B) False
B
Changes in an estimate, such as a change in the estimated useful life of an asset for depreciation purposes, affect consistency but not comparability, and therefore require an explanatory paragraph in the audit report. A) True B) False
B
Changes in reporting entities, such as the inclusion of an additional company in combined financial statements, affect comparability but not consistency, and therefore do not require an explanatory paragraph in the audit report. A) True B) False
B
Client imposed restrictions on the audit always require a disclaimer of opinion. A) True B) False
B
Financial statement users are typically more concerned with an unqualified report with explanatory paragraphs than they are with a disclaimer of opinion. A) True B) False
B
Form 10-K must be filed with the SEC whenever a public company experiences a significant event. A) True B) False
B
If the financial statements include an income statement and a balance sheet but exclude the statement of cash flows, the auditors: A) can issue an unqualified report. B) should issue a qualified opinion due to the departure from GAAP. C) should issue a qualified opinion because the missing statement of cash flows constitutes a scope limitation. D) should include the statement of cash flows, modify the report and issue an unqualified opinion.
B
In the scope paragraph of the audit report issued for financial statements of a non-public company, the auditor expresses an opinion about the internal controls of the company. A) True B) False
B
In which of the following circumstances would an auditor most likely express an adverse opinion? A) The CEO refuses to let the auditor have access to the board of director meeting minutes. B) The financial statements are not in conformity with the FASB statement on loss contingencies. C) Information comes to the auditor's attention that raises substantial doubt about the ability for the client to continue as a going concern. D) Tests of controls show that the internal control structure is so poor that the auditor has to assess control risk at the maximum.
B
Indicate which changes would require an explanatory paragraph in the audit report. A) Change in the estimated life of an asset Variation in the format of the financial statements Yes Yes B) Change in the estimated life of an asset Variation in the format of the financial statements No No C) Change in the estimated life of an asset Variation in the format of the financial statements Yes No D) Change in the estimated life of an asset Variation in the format of the financial statements No Yes
B
Membership in the AICPA is mandatory for all licensed practicing CPAs. A) True B) False
B
Membership in the AICPA is restricted to CPAs who are currently practicing as independent auditors. A) True B) False
B
Most auditors believe that financial statements are "presented fairly" when the statements are in accordance with GAAP, and that it is also necessary to: A) determine that they are not in violation of FASB statements. B) examine the substance of transactions and balances for possible misinformation. C) review the statements using the accounting principles promulgated by the SEC. D) assure investors that net income reported this year will be exceeded in the future.
B
Professional skepticism must be maintained only if the auditor suspects fraud. A) True B) False
B
Sarbanes-Oxley and the Securities Exchange Commission restrict auditors from providing many consulting services to their publicly traded audit clients. Which of the following is true for auditors of publicly traded companies? I. They are restricted from providing consulting services to privately held companies. II. There is no restriction on providing consulting services to non-audit clients. A) I only B) II only C) I and II D) Neither I or II
B
Section 404(b) of the Sarbanes Oxley Act requires that the auditor of a public company attest to management's report on the efficiency of internal controls over financial reporting. A) True B) False
B
Standards issued by the Public Company Accounting Oversight Board must be followed by CPAs who audit: A) both private and public companies. B) public companies only. C) private companies, public companies, and nonprofit entities. D) private companies only
B
Statements on Auditing Standards (SASs) are issued by the Public Company Accounting Oversight Board. A) True B) False
B
Statements on Auditing Standards issued by the AICPA's Auditing Standards Board are: A) part of the generally accepted auditing standards under the AICPA Code of Professional Conduct. B) interpretations of generally accepted auditing standards and departures from such statements must be justified. C) interpretations of generally accepted auditing standards and such standards must be followed in every engagement. D) generally accepted auditing procedures that are not covered by the AICPA Code of Professional Conduct.
B
Subsequent to the close of Spacely Sprockets fiscal year ending October 31, 2012, a major debtor has declared bankruptcy due to a series of events. The receivable is significantly material in relation to the financial statements, and recovery is doubtful. The debtor had confirmed the full amount due to Spacely Sprocket at the balance sheet date. Because the account was confirmed at the balance sheet date, Spacely refuses to disclose any information in relation to this subsequent event. The CPA believes that all other accounts were stated fairly at the balance sheet date. In addition, Spacely changed their method of inventory valuation from FIFO to LIFO. This change was disclosed in Note X to the financial statements. Accordingly, what type of opinion should be expressed? A) Unqualified with an explanatory paragraph. B) Qualified due to a GAAP departure. C) Qualified due to a scope limitation. D) A combination of B and C.
B
The Public Company Accounting Oversight Board (PCAOB) provides oversight to auditors of publicly traded and private companies. A) True B) False
B
The Sarbanes-Oxley Act establishes standards related to the audits of privately held companies. A) True B) False
B
The audit report is normally addressed to the company's president or chief executive officer. A) True B) False
B
The criteria used by an external auditor to evaluate published financial statements are known as generally accepted auditing standards. A) True B) False
B
The difference between the Securities Act of 1933 and the Securities Act of 1934 is that only the 1934 act requires audited financial statements. A) True B) False
B
The dollar amount of some misstatements cannot be accurately measured. For example, if the client were unwilling to disclose an existing lawsuit, the auditor must estimate the likely effect on: A) net income. B) users of the financial statements. C) the auditor's exposure to lawsuits. D) management's future decisions
B
The explanatory paragraph for a qualified opinion would: A) precede the scope paragraph. B) follow the scope paragraph. C) follow the opinion paragraph. D) either precede or follow the opinion paragraph depending on the materiality.
B
The use of the Certified Public Accountant title is regulated by: A) the federal government. B) state law through a licensing department or agency of each state. C) the American Institute of Certified Public Accountants through the licensing departments of the tax and auditing committees. D) the Securities and Exchange Commission.
B
To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, the auditor must fulfill several performance responsibilities, including: A) verifying that all audit work is performed by a CPA with a minimum of three years experience. B) obtaining sufficient, appropriate audit evidence. C) exercising professional judgment. D) providing an opinion on the financial statements.
B
Users of the financial statements rely on the auditor's report because of the absolute assurance the report provides. A) True B) False
B
When a qualified opinion is issued, an explanatory paragraph is added immediately after the opinion paragraph to explain the nature of the qualification that affects the opinion. A) True B) False
B
When a qualified or adverse opinion is issued, the qualifying paragraph is inserted: A) between the introductory and scope paragraphs. B) between the scope and opinion paragraphs. C) after the opinion paragraph, as a fourth paragraph. D) immediately after the address, as the first paragraph
B
When an adverse opinion is issued, a scope paragraph would be: A) qualified. B) unchanged. C) deleted. D) expanded to identify the additional procedures which the auditor performed.
B
When an auditor discovers a highly material GAAP violation in the financial statements and the client refuses to correct it, the auditor should issue a disclaimer of opinion. A) True B) False
B
When an auditor relies upon a different CPA firm to perform part of the audit and chooses to issue a shared opinion, only the auditor's responsibility paragraph should be modified. A) True B) False
B
When the auditor determines that the financial statements are fairly stated, but there is a nonindependent relationship between the auditor and the client, the auditor should issue: A) an adverse opinion. B) a disclaimer of opinion. C) either a qualified opinion or an adverse opinion. D) either a qualified opinion or an unqualified opinion with modified wording
B
When there is uncertainty about a company's ability to continue as a going concern, the auditor's concern is the possibility that the client may not be able to continue its operations or meet its obligations for a "reasonable period of time." For this purpose, a reasonable period of time is considered not to exceed: A) six months from the date of the financial statements. B) one year from the date of the financial statements. C) six months from the date of the audit report. D) one year from the date of the audit report.
B
Which of the following are required to have a written report regarding the assertion of another party? A) Financial Statement Audit Operational Audit Compliance Audit Attestation Engagement Assurance Engagement Y Y Y Y Y B) Financial Statement Audit Operational Audit Compliance Audit Attestation Engagement Assurance Engagement Y Y Y Y N C) Financial Statement Audit Operational Audit Compliance Audit Attestation Engagement Assurance Engagement Y Y Y N N D) Financial Statement Audit Operational Audit Compliance Audit Attestation Engagement Assurance Engagement N N N Y Y
B
Which of the following is a correct statement regarding materiality? A) There are well-defined guidelines that enable auditors to determine if something is material. B) Misstatements must be compared with some benchmark before a decision can be made about the materiality level of the failure of a company to follow GAAP. C) Pervasiveness is not considered when comparing potential misstatements with a base or benchmark. D) To evaluate overall materiality, the auditor does not combine all unadjusted misstatements
B
Which of the following is not explicitly stated in the standard unqualified audit report? A) The financial statements are the responsibility of management. B) The audit was conducted in accordance with generally accepted accounting principles. C) The auditors believe that the audit evidence provides a reasonable basis for their opinion. D) An audit includes assessing the accounting estimates used.
B
Which of the following is not true for audit firms who audit publicly traded companies? A) They must undergo a PCAOB inspection on an annual basis if they audit more than 100 issuers. B) They must have an AICPA peer review on all audit clients. C) They must have an AICPA peer review on all non-publicly traded clients. D) The audit firm can choose which CPA firm they wish to conduct their AICPA peer review
B
Which of the following statements about Generally Accepted Audit Standards are true? I. They serve as broad guidelines to auditors for conducting an audit engagement. II. They are sufficiently specific to provide any meaningful guide to practitioners. III. They represent a framework upon which the AICPA can provide interpretations.. A) I and II B) I and III C) II and III D) I, II and III
B
Which of the following statements are true for the audit report of a non-public entity? I. The introductory paragraph states that management is responsible for the preparation and content of the financial statements. II. The scope paragraph states that the auditor evaluates the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management. A) I only B) II only C) I and II D) Neither I nor II
B
________ risk reflects the possibility that the information upon which the business decision was made was inaccurate. A) Client acceptance B) Information C) Business D) Control
B
) Generally Accepted Auditing Standards (GAAS) and Statements on Auditing Standards (SAS) should be looked upon by practitioners as: A) ideals to work towards, but which are not achievable. B) maximum standards that denote excellent work. C) minimum standards of performance that must be achieved on each audit engagement. D) benchmarks to be used on all audits, reviews, and compilations.
C
A CPA may wish to emphasize specific matters regarding the financial statements even though an unqualified opinion will be issued. Normally, such explanatory information is: A) included in the scope paragraph. B) included in the opinion paragraph. C) included in a separate paragraph in the report. D) included in the introductory paragraph.
C
After the balance sheet date but prior to issuance of the auditor's report the auditor learns that the client's facility in a foreign country has been expropriated. Management refuses to disclose this information in a financial statement footnote or present pro-forma data as to the effect of the event. The auditor should: A) add a footnote to the financial statements. B) disclaim an opinion due to the client imposed scope limitation. C) provide the information in the report and modify the opinion. D) issue an unqualified opinion but provide the information in the auditor report.
C
An accountant: A) must possess expertise in the accumulation of audit evidence. B) must decide the number and types of items to test. C) must have an understanding of the principles and rules that provide the basis for preparing the accounting information. D) must be a CPA.
C
An auditor can express a qualified opinion due to a: A) Departure from GAAP Lack of Consistency Lack of Sufficient Evidence Yes No No B) Departure from GAAP Lack of Consistency Lack of Sufficient Evidence No Yes No C) Departure from GAAP Lack of Consistency Lack of Sufficient Evidence Yes No Yes D) Departure from GAAP Lack of Consistency Lack of Sufficient Evidence Yes Yes Yes
C
Auditing standards for public companies are established by the: A) SEC. B) FASB. C) PCAOB. D) IRS.
C
For privately held companies who is responsible for establishing auditing standards? A) Securities and Exchange Commission B) Public Company Accounting Oversight Board C) Auditing Standards Board D) National Association of Accounting
C
For the report containing a disclaimer for lack of independence, the disclaimer is in the: A) second or scope paragraph. B) third or opinion paragraph. C) first and only paragraph. D) fourth or explanatory paragraph
C
If most or all users' decisions that are based on the financial statements are likely to be significantly affected, the materiality level is: A) unrestricted. B) material. C) pervasive. D) risky.
C
If the balance sheet of a private company is dated December 31, 2011, the audit report is dated February 8, 2012, and both are released on February 15, 2012, this indicates that the auditor has searched for subsequent events that occurred up to: A) December 31, 2011. B) January 1, 2012. C) February 8, 2012. D) February 15, 2012.
C
If there is a deviation in the statements' preparation in accordance with GAAP and another accounting principle was applied on a basis that was not consistent with that of the preceding year: A) the auditor must choose which modification to include in the audit report. B) only the most material modification can be disclosed. C) more than one modification should be included in the report. D) none of the above.
C
In order to properly plan and perform an audit, an important fact for both the auditor and the client to understand is that: A) the internal control policies and procedures are developed by the auditors. B) the purpose of an audit is to prevent fraud. C) management is responsible for the preparation of the financial statements. D) management can restrict the auditor's access to important information relevant to the financial statements.
C
Indicate which changes would require an explanatory paragraph in the audit report. A) A departure from GAAP which, due to unusual circumstances, does not require a qualified or adverse opinion. The CPA makes reference to the work of another auditor to indicate shared responsibility in an unqualified opinion. Yes Yes B) A departure from GAAP which, due to unusual circumstances, does not require a qualified or adverse opinion. The CPA makes reference to the work of another auditor to indicate shared responsibility in an unqualified opinion. No No C) A departure from GAAP which, due to unusual circumstances, does not require a qualified or adverse opinion. The CPA makes reference to the work of another auditor to indicate shared responsibility in an unqualified opinion. Yes No D) A departure from GAAP which, due to unusual circumstances, does not require a qualified or adverse opinion. The CPA makes reference to the work of another auditor to indicate shared responsibility in an unqualified opinion. No Yes
C
Items that materially affect the comparability of financial statements generally require disclosure in the footnotes. If the client refuses to properly disclose the item, the auditor will most likely issue: A) a disclaimer. B) an unqualified opinion. C) a qualified opinion. D) an adverse opinion.
C
One objective of an operational audit is to: A) determine whether the financial statements fairly present the entity's operations. B) determine if the auditee is in compliance with GAAP. C) make recommendations for improving performance. D) report on the entity's relative success in attaining profit maximization.
C
Recording, classifying, and summarizing economic events in a logical manner for the purpose of providing financial information for decision making is commonly called: A) finance. B) auditing. C) accounting. D) economics.
C
The "Principles Underlying an Audit in Accordance with Generally Accepted Auditing Principles" provides a framework to help auditors: A) understand the ten GAAS standards. B) obtain complete assurance that the financial statements are free from any error. C) report on the financial statements. D) prevent fraud.
C
The International Standards on Auditing (ISAs): A) are issued by the AICPA. B) override a country's regulations governing the audit of a company. C) has many of the same standards as the Auditing Standards Board (ASB). D) must be followed by companies whose stock is traded in the U.S.
C
The appropriate audit report date for a standard nonqualified audit report for a non-public entity should be the: A) date the financial statements are given to the Board of Directors. B) date of the financial statements. C) date the auditor completed the auditing procedures in the field. D) 60 days after the date of the financial statements as required by the SEC
C
The auditor's responsibility section of the standard audit report states that the auditor is: A) responsible for the financial statements and the opinion on them. B) responsible for the financial statements. C) responsible for the opinion on the financial statements. D) jointly responsible for the financial statements with management.
C
The first step to be followed when deciding the appropriate audit report in a given set of circumstances is to: A) decide the appropriate type of report for the condition. B) write the report. C) determine whether any conditions exists requiring a departure from a standard unqualified report. D) decide the materiality for each condition
C
The independent auditor must issue a qualified opinion when which of the financial(s) are missing? I. Balance Sheet II. Income Statement III. Statement of Cash Flows A) I only B) II only C) III only D) I, II, and III
C
The methods used by a CPA firm to ensure that the firm meets is professional responsibilities to clients and others is: A) continuing professional education. B) compliance with generally accepted reporting standards. C) quality control. D) peer review.
C
The standard unqualified audit report for a non-public entity must: A) have a report title that includes the word "CPA." B) be addressed to the company's stockholders and creditors. C) be dated. D) include an explanatory paragraph.
C
The standard unqualified audit report for public entities includes the following three paragraphs: A) introductory, scope and management's responsibility. B) materiality, scope and report. C) introductory, scope and opinion. D) scope, fieldwork and conclusion
C
The three requirements for becoming a CPA include all but which of the following? A) Uniform CPA examination requirement B) Educational requirements C) Character requirements D) Experience requirement
C
Under AICPA auditing standards, the primary auditor issuing the opinion on the financial statements is called the: A) component auditor. B) principal auditor. C) group engagement partner. D) majority auditor.
C
When an auditor is trying to determine how changes can affect consistency and and/or comparability, he should keep in mind that: A) changes that affect comparability but not consistency require an explanatory paragraph. B) items that materially affect the comparability of financial statements requires a disclaimer of opinion. C) changes that affect consistency require an explanatory paragraph if they are material. D) changes that involve either comparability or consistency only need to be mentioned in the footnotes.
C
When the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern, the appropriate audit report could be: I. an unqualified opinion with an explanatory paragraph. II. a disclaimer of opinion. A) I only B) II only C) I or II D) Neither I nor II
C
When there is a justified departure from GAAP which is considered material, the auditor should issue a(n): A) standard unqualified audit report. B) disclaimer of opinion. C) unqualified audit report with an explanatory paragraph. D) adverse opinion.
C
Whenever an auditor issues an audit report for a public company, the auditor can choose to issue a report in which of the following forms? I. A combined report on financial statements and internal control over financial reporting II. Separate reports on financial statements and internal control over financial reporting A) I only B) II only C) Either I or II. D) Neither I nor II.
C
Whenever the client imposes restrictions on the scope of the audit, the auditor should be concerned that management may be trying to prevent discovery of misstatements. In such cases, the auditor will likely issue a: A) disclaimer of opinion in all cases. B) qualification of both scope and opinion in all cases. C) disclaimer of opinion whenever materiality is in question. D) qualification of both scope and opinion whenever materiality is in question.
C
Which of the following are audit standards used in professional practice by audit firms? A) International Standards on Auditing U.S. Generally Accepted Auditing Standards PCAOB Auditing Standards Yes No No B) International Standards on Auditing U.S. Generally Accepted Auditing Standards PCAOB Auditing Standards Yes Yes No C) International Standards on Auditing U.S. Generally Accepted Auditing Standards PCAOB Auditing Standards Yes Yes Yes D) International Standards on Auditing U.S. Generally Accepted Auditing Standards PCAOB Auditing Standards No Yes Yes
C
Which of the following is an element of the CPA's quality control system that should be considered in establishing its quality control policies and procedures? A) Considering audit risk and materiality B) Using statistical sampling techniques C) Assigning personnel to engagements D) Complying with laws and regulations
C
Which of the following is considered audit evidence? A) Oral statements made by management Written Communications Auditor Observation Y N N B) Oral statements made by management Written Communications Auditor Observation N Y Y C) Oral statements made by management Written Communications Auditor Observation Y Y Y D) Oral statements made by management Written Communications Auditor Observation N N Y
C
Which of the following is incorrect concerning scope limitations? A) If client imposed, the auditor should be concerned about the client trying to prevent discovery of a material misstatement. B) An unqualified opinion can result if auditors can perform alternative procedures and are satisfied that the information is fairly stated. C) The most common circumstance imposed scope restriction is due to the client changing their auditors. D) The most common circumstance imposed scope limitation is when the auditor is appointed after the balance sheet date.
C
Which of the following is not one of the responsibilities of an auditor under the principles underlying an audit? A) Possess appropriate competence and capabilities B) Comply with ethical requirements C) Plan work and supervise assistants D) Maintain professional skepticism and exercise professional judgment
C
Which of the following requires recognition in the auditor's opinion as to consistency? A) The correction of an error in the prior year's financial statements resulting from a mathematical mistake in capitalizing interest. B) A change in the estimate of provisions for warranty costs. C) The change from the cost method to the equity method of accounting for investments in common stock. D) A change in depreciation method which has no effect on current year's financial statements but is certain to affect future years.
C
Which of the following scenarios does not result in a qualified opinion? A) A scope limitation prevents the auditor from completing an important audit procedure. B) Circumstances exist that prevent the auditor from conducting a complete audit. C) The auditor lacks independence with respect to the audited entity. D) An accounting principle at variance with GAAP is used.
C
Which of the following statements is true as it relates to limited liability partnerships? A) Only senior partners are liable for the partnership's debts. B) Partners have no liability in a limited liability partnership arrangement. C) Partners are personally liable for the acts of those under their supervision. D) All partners must be AICPA members.
C
Which one of the following is more difficult to evaluate objectively? A) Presentation of financial statements in accordance with generally accepted accounting principles B) Compliance with government regulations C) Efficiency and effectiveness of operations D) All three of the above are equally difficult.
C
William Gregory, CPA, is the principal auditor for a multi-national corporation. Another CPA has examined and reported on the financial statements of a significant subsidiary of the corporation. Gregory is satisfied with the independence and professional reputation of the other auditor, as well as the quality of the other auditor's examination. With respect to his report on the consolidated financial statements, taken as a whole, Gregory: A) must not refer to the examination of the other auditor. B) must refer to the examination of the other auditor. C) may refer to the examination of the other auditor. D) must refer to the examination of the other auditors along with the percentage off consolidated assets and revenue that they audited.
C
Within the context of quality control, the primary purpose of continuing professional education and training activities is to enable a CPA firm to provide its personnel with: A) technical training that assures proficiency as a valuation expert. B) professional education that is required in order to perform with due professional care. C) knowledge required to fulfill assigned responsibilities. D) knowledge required to perform a peer review.
C
A client has changed their method of valuing inventory from FIFO to LIFO and the change has a material effect on the financial statements. If the auditor does not concur with the appropriateness of the change, the auditor should issue a(n): A) disclaimer. B) adverse opinion. C) unqualified opinion. D) qualified opinion.
D
A company has changed its method of inventory valuation from an unacceptable one to one in conformity with generally accepted accounting principles. The auditor's report on the financial statements of the year of the change should include: A) no reference to consistency. B) a reference to a prior period adjustment in the opinion paragraph. C) an explanatory paragraph that justifies the change and explains the impact of the change on reported net income. D) an explanatory paragraph explaining the change.
D
A correct relationship among the auditor, the client, and the external users is: A) management of a public company hires the independent auditor. B) the audit committee of a private company hires the independent auditor. C) the client provides capital to the external users. D) the external users can rely upon the auditor's report to reduce information risk.
D
An adverse opinion is issued when the auditor believes: A) some parts of the financial statements are materially misstated or misleading. B) the financial statements would be found to be materially misstated if an investigation were performed. C) the auditor is not independent. D) the overall financial statements are so materially misstated that they do not present fairly the financial position or results of operations and cash flows in conformity with GAAP.
D
An audit of historical financial statements most commonly includes the: A) balance sheet, statement of retained earnings, and the statement of cash flows. B) income statement, the statement of cash flows, and the statement of net working capital. C) statement of cash flows, balance sheet, and the statement of retained earnings. D) balance sheet, income statement, statement of cash flows, and the statement of changes in stockholders' equity.
D
An auditor determines the financial statements include at least a material departure from GAAP. Which type of opinion may be issued? A) Disclaimer Qualified Adverse Yes No No B) Disclaimer Qualified Adverse No Yes No C) Disclaimer Qualified Adverse Yes No Yes D) Disclaimer Qualified Adverse No Yes Yes
D
An auditor who issues a qualified opinion because sufficient appropriate evidence was not obtained should describe the limitations in an explanatory paragraph. The auditor should also modify the: A) Scope paragraph Opinion paragraph Notes to the financial statements Yes No Yes B) Scope paragraph Opinion paragraph Notes to the financial statements No Yes Yes C) Scope paragraph Opinion paragraph Notes to the financial statements No Yes No D) Scope paragraph Opinion paragraph Notes to the financial statements Yes Yes No
D
As a result of management's refusal to permit the auditor to physically examine inventory, the auditor must depart from the unqualified audit report because: A) the financial statements have not been prepared in accordance with GAAP. B) the scope of the audit has been restricted by circumstances beyond either the client's or auditor's control. C) the financial statements have not been audited in accordance with GAAS. D) the scope of the audit has been restricted.
D
If the auditor lacks independence, a disclaimer of opinion must be issued: A) if the client requests it. B) only if it is highly material. C) only if it is material but not pervasive. D) in all cases.
D
If the phrase "except for" is present in the opinion paragraph of the audit report, the auditor has issued a(n): A) adverse opinion. B) disclaimer of opinion. C) unqualified opinion. D) qualified opinion
D
In the audit of historical financial statements, what accounting criteria is most common? A) Regulatory accounting principles B) Applicable international accounting standards C) Applicable U.S. accounting standards D) B and C E) All of the above
D
In which of the following situations would the auditor most likely issue an unqualified report? A) The client valued ending inventory by using the replacement cost method. B) The client valued ending inventory by using the Next-In-First-Out (NIFO) method. C) The client valued ending inventory at selling price rather than historical cost. D) The client valued ending inventory by using the First-In-First-Out (FIFO) method, but showed the replacement cost of inventory in the Notes to the Financial Statements.
D
In which situation would the auditor be choosing between "except for" qualified opinion and an adverse opinion? A) The auditor lacks independence. B) A client-imposed scope limitation C) A circumstance imposed scope limitation D) Lack of full disclosure within the footnotes
D
Members of the Public Company Accounting Oversight Board are appointed and overseen by: A) the U.S. Congress. B) the American Institute of Certified Public Accountants. C) the Auditing Standards Board. D) the Securities and Exchange Commission
D
Misstatements must be compared with some measurement base before a decision can be made about materiality. A commonly accepted measurement base includes: A) net income. B) total assets. C) working capital. D) all of the above.
D
More than one modification should be included in the audit report when: A) the auditor is not independent and the auditor knows that the company has not followed generally accepted accounting principles. B) there is substantial doubt about the going concern of the company and information about the causes of the uncertainties is not adequately disclosed in the footnotes. C) there is a scope limitation and there is substantial doubt about the company's ability to continue as a going concern. D) all of the above.
D
No reference is made in the auditor's report to other auditors who perform a portion of the audit when: I. The other auditor audited an immaterial portion of the audit. II. The other auditor is well known or closely supervised by the principle auditor. III. The principle auditor has thoroughly reviewed the work of the other auditor. A) I and II B) I and III C) II and III D) I, II and III
D
The AICPA has authority to establish standards and rules in all but which of the following areas? A) Auditing standards applicable to financial statements of private companies B) Compilation and review standards C) Professional conduct D) Auditing standards applicable to financial statements of private and public companies
D
The audit report date on a standard unqualified report indicates: A) the last day of the fiscal period. B) the date on which the financial statements were filed with the Securities and Exchange Commission. C) the last date on which users may institute a lawsuit against either client or auditor. D) the last day of the auditor's responsibility for the review of significant events that occurred after the date of the financial statements.
D
The auditor's responsibility section of the standard unqualified audit report states that the audit is designed to: A) discover all errors and/or irregularities. B) discover material errors and/or irregularities. C) conform to generally accepted accounting principles. D) obtain reasonable assurance whether the statements are free of material misstatement.
D
The four categories for describing the size of audit firms include: the Big Four international firms; national firms; regional and local firms; and small firms. Which of the following is not a characteristic of a small firm? A) Most have fewer than 25 professionals. B) They perform audits on small and not-for-profit businesses. C) Tax services are more important to their practice than auditing. D) They do not audit publicly traded companies.
D
The organization that is responsible for providing oversight for auditors of public companies is called the ________. A) Auditing Standards Board B) American Institute of Certified Public Accountants C) Public Oversight Board D) Public Company Accounting Oversight Board
D
The purpose of establishing quality control policies and procedures to accept or continue a client relationship is to: A) provide reasonable assurance that personnel are adequately trained to fulfill their responsibilities. B) monitor the risk factors concerning misstatements that arise from the misappropriation of assets. C) document objective criteria for the CPA firm's peer review. D) minimize the likelihood of associating with a client whose management may lack integrity.
D
The standard audit report for non-public entities refers to GAAS and GAAP in which sections? A) GAAS GAAP Auditor's responsibility Auditor's responsibility B) GAAS GAAP Auditor's responsibility Introductory paragraph C) GAAS GAAP Management's responsibility and Opinion paragraph Management's responsibility and Introductory paragraph D) GAAS GAAP Auditor's responsibility Management's responsibility and Opinion paragraph
D
The trait that distinguishes auditors from accountants is the: A) auditor's ability to interpret accounting principles generally accepted in the United States. B) auditor's education beyond the Bachelor's degree. C) auditor's ability to interpret FASB Statements. D) auditor's accumulation and interpretation of evidence related to a company's financial statements.
D
When a client fails to follow GAAP, the audit report can be unqualified, qualified, or adverse depending on the materiality. What factors affect materiality that an auditor should consider? A) The dollar amount in comparison to a base B) If the misstatement can be measured C) The nature of the item D) All the above are factors an auditor should consider regarding materiality.
D
When a company's financial statements contain a departure from GAAP with which the auditor concurs, the departure should be explained in: A) the scope paragraph. B) an explanatory paragraph that appears before the opinion paragraph. C) the opinion paragraph. D) an explanatory paragraph after the opinion paragraph.
D
When a pervasive scope limitation exists: A) a disclaimer of opinion rather than a qualified opinion is generally required. B) the auditor's responsibility paragraph is modified to indicate that the auditor was not able to obtain sufficient appropriate evidence to express an audit opinion. C) sections of the auditor's responsibility paragraph are eliminated to avoid stating anything that might lead readers to believe that other parts of the financial statements might be fairly stated. D) all of the above.
D
When an auditor issues a qualified report due to a scope limitation an explanatory paragraph is normally added. Which, if any, of the following paragraphs are also modified? A) Introductory Scope Opinion Yes Yes Yes B) Introductory Scope Opinion Yes Yes No C) Introductory Scope Opinion No Yes No D) Introductory Scope Opinion No Yes Yes
D
When assessing the risk of material misstatements in the financial statements, A) inadequate internal control procedures will mitigate client business risk. B) GAAS specifies in detail how much and what types of evidence the auditor needs to obtain. C) company management is responsible for determining materiality levels. D) the auditor must have an understanding of the client's business and industry.
D
When dealing with materiality and scope limitation conditions: A) a disclaimer of opinion must be issued. B) it is easier to evaluate the materiality of potential misstatements resulting from a scope limitation than for failure to follow GAAP. C) scope limitations imposed by the client are always considered material. D) a unqualified opinion may still be issued depending on the materiality of the scope limitation.
D
When the client fails to make adequate disclosure in the body of the statements or in the related footnotes, it is the responsibility of the auditor to: A) inform the reader that disclosure is not adequate, and to issue an adverse opinion. B) inform the reader that disclosure is not adequate, and to issue a qualified opinion. C) present the information in the audit report and issue an unqualified or qualified opinion. D) present the information in the audit report and to issue a qualified or an adverse opinion.
D
When there is a scope restriction, what type of audit report can be issued? A) Unqualified opinion B) Qualification of scope and opinion C) Disclaimer of opinion D) Any of the above
D
Which of the following are changes that affect the comparability of financial statements but not the consistency and therefore, do not have to be included in the auditor's report? A) Error corrections not involving principles B) Changes in accounting estimates C) Variations in the format and presentation of financial information D) All of the above
D
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
Explain what is meant by information risk, and list the four causes of this risk
Information risk reflects the possibility that the information upon which the business risk decision was made was inaccurate. Four causes of information risk are: • remoteness of information, • biases and motives of the provider, • voluminous data, and • complex exchange transactions.
What are the five categories of attestation services?
The five categories of attestation services include: • Audit of historical financial statements • Audit of internal control over financial reporting • Review of historical financial statements • Attestation services on information technology • Other attestation services that may be applied to a broad range of subject matter
Evidence is paramount to audit and attestation engagements. List the four basic types of audit evidence.
The four types of audit and attestation evidence include: 1. Electronic and documentary data about transactions 2. Written and electronic communications with outsiders 3. Observations by the auditor 4. Oral testimony of the auditee (client)