Audit Exam 1 (chapter 1-4)

What part of the unmodified opinion audit report does this belong to? The report is usually addressed to the​ company, its​ stockholders, or the board of directors.

Audit report address

Which of the following are elements of a CPA​ firm's quality control that should be considered in establishing its quality control policies and​ procedures?

Human resources, monitoring, engagement performance

State the type of auditor & type of audit: Federal income tax returns of a corporation to determine whether the tax laws have been followed

IRS ; compliance audit

State the type of auditor & type of audit: Federal income tax returns of an officer of the corporation to determine whether he or she has included all taxable income in his/her return

IRS ; compliance audit

What part of the unmodified opinion audit report does this belong to? Part of the standard report that states the​ auditor's conclusions based on the results of the audit.

Opinion paragraph

What circumstance would give rise to this opinion type? Standard unmodified

GAAP departure is immaterial

State the type of auditor & type of audit: Financial statements of a branch of the federal government to make sure that the statements present fairly the actual disbursements made during a period of time

GAO ; Financial audit

State the type of auditor & type of audit: Disbursements of a branch of the federal government for a special research project to determine whether the expenditures were consistent with the legislative bill that authorized the project

GAO ; compliance audit

State the type of auditor & type of audit: Operations of the IRS to determine whether the internal revenue agents using their time efficiently in conducting audits

GAO ; operational audit

An auditor who qualified an opinion because of an insufficiency of audit evidence should refer to the scope limitation in the.....

Opinion paragraph

Evaluation of the effectiveness of key measures used to assess an entity's success in achieving specific targets linked to an entity's strategic plan and vision

Assurance service that is not an attestation service

Indicate the type of service: A report on the effectiveness of internal controls at a company that provides payroll processing for other companies

Attestation service other than an audit service

Indicate the type of service: A report stating whether the company has complied with restrictive covenants related to officer compensation and payment of dividends contained in a bank loan agreement

Attestation service other than an audit service

Indicate the type of service: A review report that provides limited assurance about whether financial statements are fairly stated in accordance with GAAP

Attestation service other than an audit service

The auditor will most likely issue​ a(n) ____1________ when the scope limitation is beyond the​ client's control. This can occur when the engagement is ___________2_________ the​ client's year-end when it _________3_______ to physically observe inventories or ____4_____________.

1. Qualified opinion 2. not agreed upon until after 3. may not be possible 4. confirm receivables

Two additional paragraphs are added between the ______1____________ and ______2_________ paragraphs that define internal control and describe the inherent limitations of internal control.

1. Scope 2. Opinion

Indicate the type of service: A report about management's assertion on the effectiveness of controls over the availability, reliability, integrity and maintainability of its accounting information system

Attestation service other than audit service

Indicate the type of service: A report on the effectiveness of internal control over financial reporting as required by Section 404 of the SOX

Attestation service other than audit service

Indicate the type of service: Report indicating whether a governmental agency has complied with certain government regulations

Attestation service other than audit service

The AICPA Code of Professional Conduct states that a CPA shall not disclose any confidential client information obtained in the course of a professional engagement except with the consent of the client. In which one of the following situations would disclosure by a CPA be in violation of the Code​? 1. Disclosing confidential information to another accountant interested in purchasing the​ CPA's practice. 2. Disclosing confidential information during an​ AICPA-authorized peer review. 3. Disclosing confidential information in compliance with a subpoena issued by a court. 4. Disclosing confidential information in order to properly discharge the​ CPA's responsibilities in accordance with the​ profession's standards.

1.

The ___________1___________ is responsible for issuing standards in the U.S. to be used by auditors when auditing the financial statements of all entities other than U.S. publicly traded companies. The _______2__________ is responsible for issuing standards to be used by auditors when auditing a U.S. public company.

1. AICPA's Auditing Standards Board (ASB) 2. Public Company Accounting Oversight Board (PCAOB)

__________1__________________ involve preparing the​ client's financial statements from the​ client's records. __________2___________ include the preparation of the​ client's journals and ledgers as well as the financial statements.

1. Accounting services 2. Bookkeeping services

Compliance auditing often extends beyond audits leading to the expression of opinions on the fairness of financial presentation and includes audits of​ efficiency, economy,​ effectiveness, as well as 1. adherence to specific rules or procedures. 2. internal control. 3. accuracy. 4. evaluation.

1. Adherence to specific rules or procedures

​A(n) ________1________ states that the auditor believes the overall financial statements are so materially misstated or misleading that they do not present fairly in accordance with GAAP the financial​ position, results of​ operations, or cash flows.

1. Adverse opinion

Explain the relationships among audit​ services, attestation​ services, and other assurance and nonassurance services provided by​ CPA's: __1___ services are a form of attestation service, and attestation services are a form of _____2____ service. In a diagram, ____3____ services are located within the attestation service area and attestation services are located within the ___4_____ service area

1. Audit 2. Assurance 3. Audit 4. Assurance

AICPA Statements on Auditing Standards​ (SASs) are established by the ________1_______________​, and are applicable to ________2_________ entities within the United States. As a result of efforts by the _________3__________ to converge U.S. standards with international​ standards, AICPA auditing standards and International Standards on Auditing are similar in _____4_______ respects

1. Auditing Standards Board of the AICPA 2. Private 3. Auditing Standards Board of the AICPA 4. Most

The Public Company Accounting Oversight Board​ (PCAOB) has the duty to 1. conduct investigations concerning registered public accounting firms. 2. conduct disciplinary proceedings for nonpublic accounting firms. 3. establish rules related to the preparation of audit reports for nonissuers. 4. select the public accounting firm for the​ issuer's annual audit.

1. Conduct investigations concerning registered public accounting firms

When developing a new​ SAS, the ASB uses the _____1____________ as the base standard and then modifies it only when modifications are appropriate for the _________2_________.

1. ISAs 2. U.S. environment

The​ introductory, scope and opinion paragraphs are modified to ______________1________________ and the scope of the​ auditor's work and opinion on ______2_________________. The _________3_________ and ______4__________ paragraphs also refer to the __________5____________.

1. Include reference to management's report on internal control over financial reporting, 2. internal control over financial reporting 3. introduction 4. Opinion 5. framework used to evaluate internal control.

Which of the following attributes is likely to be unique to the audit work of CPAs as compared to the work performed by practitioners of other​ professions? 1. Independence. 2. Competence. 3. Due professional care. 4. Complex body of knowledge.

1. Independence

Audit and assurance services are ___________1_________________ that improve the quality of information for decision makers. Assurance services include __________2__________________, which are any services in which the CPA firm issues a report that expresses a conclusion about the reliability of an assertion that is the ___________3_______________________.

1. Independent professional services 2. Attestation services 3. Responsibility of another party

The​ auditor's report contains the​ following: "We did not audit the financial statements of​ EZ, Inc., a wholly owned​ subsidiary, which statements reflect total assets and revenues constituting 27 percent and 29​ percent, respectively, of the consolidated totals. Those statements were audited by other auditors whose report has been furnished to​ us, and our​ opinion, insofar as it relates to the amounts included for​ EZ, Inc., is based solely on the report of the other​ auditors." These sentences 1. indicate a division of responsibility. 2. assume responsibility for the other auditor. 3. are an improper form of reporting. 4. require a departure from an unmodified opinion.

1. Indicate a division of responsibility

As compared to an unmodified​ opinion, an opinion qualified due to a material departure from generally accepted accounting principles would 1. Indicate​ that, except for the problem​ noted, the financial statements are presented fairly. 2. include a slight modification to the introductory paragraph. 3. include an extra​ paragraph, following the opinion paragraph. 4. include a slight modification to the​ auditor's responsibility paragraph.

1. Indicate that, except for the problem noted, the financial statements are presented fairly

International Standards on Auditing​ (ISAs) are issued by the ________1_____________ and are designed to _____2__________ auditing practices and related services throughout the world.

1. International Auditing and Assurance Standards Board 2. improve the uniformity of

The ___________1_____________ of the ________2___________ is responsible for issuing _____________________3____________. These standards _________4_______________ override a specific​ country's regulations governing the audit of financial statements.

1. International Auditing and Assurance Standards Board (IAASB) 2. International Federation of Accountants (IFAC) 3. International Standards on Auditing (ISAs). 4. do not

When conducting an audit of a client that is listed on both a foreign stock exchange and a U.S. stock​ exchange, the auditor would have to satisfy both the relevant ________1____________ as well as the ____________2______________.This _____3__________ the auditor conducts two separate audits.

1. International auditing standards 2. PCOAB auditing standards 3. Does not mean

Which of the following best describes the operational​ audit? 1. It concentrates on seeking aspects of operations in which waste could be reduced by the introduction of controls. 2. It focuses on verifying the fair presentation of a​ company's results of operations. 3. It requires the constant review by internal auditors of the administrative controls as they relate to the operations of the company. 4. It concentrates on implementing financial and accounting control in a newly organized company.

1. It concentrates on seeking aspects of operations in which waste could be reduced by the introduction of controls

Six organizational structures available to CPA firms

1. Limited liability company 2. General partnership 3. Proprietorship 4. Limited liability partnership 5. General corporation 6. Professional corporation

There is a special need for professional conduct by CPAs to _______________________1___________________. The ethical requirements for CPAs are _______2_________ to the ethical requirements of other professions. _______3__________ are expected to be​ competent, perform services with due professional​ care, and recognize their responsibility to clients. _______4_________ are expected to be independent.

1. Maintain public confidence in the profession, and in the services provided by members of that profession 2. similar 3. All professionals 4. Typically, only CPAs

____________1_____________ enable clients to operate their businesses more effectively. ____________2________ range from suggestions to improve the​ client's accounting system to computer installations.

1. Management consulting services 2. Management consulting services

The ASB has revised _______1___________ of its standards to converge with the international standards. As a​ result, U.S. standards are ______2________ consistent with international​ standards, except for certain requirements that reflect unique characteristics of the U.S. environment.

1. Most 2. Mostly

What are the steps in the six-step approach to resolving an ethical dilemma?

1. Obtain relevant facts 2. Identify the ethical issues from the facts 3. Determine who is affected by the outcome of the dilemma and how each person or group is affected 4. Identify the alternatives available to the person who must resolve the dilemma 5. Identify the likely consequence of each alternative 6. Decide the appropriate action

In a financial statement​ audit, the auditor obtains a reasonable level of assurance about whether the financial statements are free of material misstatement in order to express an opinion. In order to obtain reasonable​ assurance, the auditor must 1. obtain sufficient audit evidence. 2. have prior experience in the industry in which the audit client operates. 3. test controls around significant transaction cycles. 4. examine all documents available that support the financial statements.

1. Obtain sufficient audit evidence

An auditor of an entity subject to the rules of the SEC must conduct the financial statement audit in accordance with 1. PCAOB standards. 2. International Auditing Standards. 3. Statements on Standards for Accounting and Review Services. 4. Generally Accepted Government Auditing Standards.

1. PCAOB standards

A member is____________1_____________ a service for a contingent fee if the member of the​ member's firm​ performs: A. a compilation of a financial statement when the member​ expects, or reasonably might​ expect, that a third party will use the financial statement and the​ member's compilation report does not disclose a lack of independence B. an audit or review of a financial statement C. an examination of prospective financial information D. All of the above

1. Prohibited from performing D. All of the above

The _________________ is necessary to help maintain the ____________ of the CPA in performing audits and other attest services.

1. Prohibition 2. Objectivity

The report may be ____1___________ if the principal auditor is not willing to assume any responsibility for the work of the other auditor. A disclaimer may be issued if the segment audited by the other CPA is _______2___________.

1. Qualified 2. Highly material

Which of the following engagements is most likely to be considered an operational​ audit? 1. The auditor evaluates the​ organizations efficiency in processing payments. 2. The auditor examines information presented in an​ entity's financial statements to determine whether the financial statements are presented fairly in accordance with the applicable financial reporting framework. 3. The auditor determines whether the organization is following provisions of laws and regulations. 4. The auditor assists the client in preparation of financial statements.

1. The auditor evaluates the organizations efficiency in processing payments

The most important information in the opinion paragraph includes:

1. The words "in our opinion" which indicate that the conclusions are based on professional judgment 2. A statement about whether the financial statements were presented fairly and in accordance with GAAP 3. A restatement of the financial statements that have been audited and the dates or a reference to the introductory paragraph.

Ways to reduce information risk? (3)

1. User verifies information 2. User shares information risk with management 3. Audited financial statements are provided

One of a CPA​ firm's basic objectives is to provide professional services that conform with professional standards. Reasonable assurance of achieving this objective is provided through 1. a system of quality control. 2. a system of peer review. 3. compliance with generally accepted reporting standards. 4. continuing professional education.

1. a system of quality control

The PCAOB _____1_______ its standards. While the PCAOB considers existing international​ standards, it does not start with the _____2_________ standard as the base standard.

1. develops and issues 2. ISA

​A(n) _________1___________ states that the auditor has been unable to satisfy him or herself as to whether or not the overall financial statements are fairly presented because of a significant limitation of the scope of the​ audit, or a​ non-independent relationship under the _______2_______ between the auditor and the client.

1. disclaimer of opinion 2. Code of Professional Conduct

The auditor will most likely issue​ a(n) ________1________ when the client imposes restrictions on the audit. To issue​ a(n) disclaimer of opinion the scope limitation is ______2________ that the auditor cannot determine if the ________3___________ are fairly presented. This occurs when the client ______4___________ permit the auditor to ___________5________ or physically observe inventories.

1. disclaimer of opinion 2. so material 3. overall financial statements 4. Will not 5. confirm material receivables

PCAOB Auditing Standards apply only to U.S. ________1______________ ​However, given that the PCAOB initially adopted existing standards established by the ___________2____________ as interim auditing​ standards, standards for audits of U.S. public and private companies are _____3________ similar.

1. publicly traded companies and other SEC registrants, including broker-dealers 2. Auditing Standards Board of the AICPA 3. Mostly

​A(n) _______1_________ states that there has been either a limitation on the scope of the audit or a departure from GAAP in the financial​ statements, but that the auditor believes that the overall financial statements are fairly presented. This type of opinion may not be used if the auditor believes the exceptions being reported upon are extremely​ material, in which case​ a(n) _____2_______ or ______3________ opinion would be used.

1. qualified opinion 2. Disclaimer 3. adverse

In which one of the following situations would a CPA be in violation of the AICPA Code of Professional Conduct in determining the audit​ fee? 1. A fee based on the fee charged by the prior auditor. 2. A fee based on whether the​ CPA's report on the​ client's financial statements results in the approval of a bank loan. 3. A fee based on the outcome of a bankruptcy proceeding. 4. A fee based on the nature of the service rendered and the​ CPA's expertise instead of the actual time spent on the engagement.

2.

An auditor strives to achieve independence in appearance to 1. maintain an unbiased mental attitude. 2. maintain public confidence in the profession. 3. comply with the auditing standards related to audit performance. 4. become independent in fact.

2. Maintain public confidence in the profession

If a principal auditor decides to refer in his or her report to the audit of another​ auditor, he or she is required to disclose the 1. nature of the inquiry into the other​ auditor's professional standing and extent of the review of the other​ auditor's work. 2. portion of the financial statements audited by the other auditor. 3. name of the other auditor. 4. reasons for being unwilling to assume responsibility for the other​ auditor's work.

2. Portion of the financial statements audited by the other auditor

Which of the following provides authoritative guidance for the auditor of a nonpublic​ company? 1. Information obtained from continuing professional education programs 2. Statements on Auditing Standards 3. An article in the Journal of Accountancy that discusses new audit requirements 4. Publication from state CPA societies that provides questions and answers on frequently asked audit questions

2. Statements on Auditing Standards

Which of the following services can be offered to public company audit clients under SEC requirements and the Sarbanes-Oxley ​Act? 1. Bookkeeping and other accounting services 2. Tax planning not involving tax shelters 3. Tax services for executives involved in financial reporting 4. Internal audit outsourcing

2. Tax planning not involving tax shelters

An entity changed from the​ straight-line method to the​ declining-balance method of depreciation for all newly acquired assets. This change has no material effect on the current​ year's financial statements but is reasonably certain to have a substantial effect in later years. If the change is disclosed in the notes to the f inancial​ statements, the auditor should issue a report with​ a(n) 1. qualified opinion with explanatory paragraph regarding consistency. 2. unmodified opinion. 3. qualified opinion. 4. unmodified opinion with explanatory paragraph.

2. Unmodified opinion

The date of the​ CPA's opinion on the financial statements of the client should be the date of the 1. finalization of the terms of the audit engagement. 2. submission of the report to the client. 3. completion of all important audit procedures. 4. closing of the​ client's books.

3. Completion of all important audit procedures

An adverse opinion and a disclaimer of opinion 1. may be used interchangeably. 2. both require modification of the introductory paragraph. 3. indicate situations in which there are material departures from the standards. 4. result in the​ auditor's withdrawal from the engagement.

3. Indicate situations in which there are material departures from the standards

The Responsibilities principle underlying AICPA auditing standards includes a requirement that 1. the​ auditor's report state whether or not the financial statements conform to generally accepted accounting principles. 2. the audit be adequately planned and supervised. 3. professional judgment be exercised by the auditor. 4. informative disclosures in the financial statements be reasonably adequate.

3. Professional judgment be exercised by the auditor

A​ CPA's retention of client records as a means of enforcing payment of an overdue audit fee is an action that is 1. a violation of generally accepted auditing standards. 2. acceptable if sanctioned by the state laws. 3. prohibited under the AICPA rules of conduct. 4. not addressed by the AICPA Code of Professional Conduct.

3. Prohibited under the AICPA rules of conduct

What is the general character of the responsibilities characterized by the Performance​ principles? 1. Criteria for the content of the​ auditor's report on financial statements and related footnote disclosures 2. The need to maintain an independence in mental attitude in all matters pertaining to the audit 3. The criteria of audit planning and evidence gathering 4. The​ competence, independence, and professional care of persons performing the audit

3. The criteria of audit planning and evidence gathering

Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial​ statements? 1. It is​ management's responsibility to seek available independent aid in the appraisal of the financial information shown in its financial statements. 2. It is difficult to prepare financial statements that fairly present a​ company's financial​ position, operations, and cash flows without the expertise of an independent auditor. 3. The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements. 4. It is a customary courtesy that all stockholders of a company receive an independent report on​ management's stewardship of the affairs of the business.

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

Operational audits generally have been conducted by internal auditors and governmental audit agencies but may be performed by certified public accountants. A primary purpose of an operational audit is to provide 1. aid to the independent​ auditor, who is conducting the audit of the financial statements. 2. the results of internal examinations of financial and accounting matters to a​ company's top-level management. 3. a means of assurance that internal accounting controls are functioning as planned. 4. a measure of management performance in meeting organizational goals.

4. A measure of management performance in meeting organizational goals

Which of the following professional services is an attestation​ engagement? 1. A consulting service engagement to provide​ computer-processing advice to a client. 2. The preparation of financial statements from a​ client's financial records. 3. An income tax engagement to prepare federal and state tax returns. 4. An engagement to report on compliance with statutory requirements.

4. An engagement to report on compliance with statutory requirements

Which of the following is considered an assurance​ engagement? 1. Bookkeeping 2. Preparation 3. Compilation 4. Audit

4. Audit

Which of the following best describes what is meant by U.S. auditing​ standards? 1. Audit objectives generally determined on audit engagements 2. Procedures to be used to gather evidence to support financial statements 3. Acts to be performed by the auditor 4. Measures of the quality of the​ auditor's performance

4. Measures of the quality of the auditor's performance

Which of the following is not a required element of a standard unmodified opinion audit report issued in accordance with AICPA auditing​ standards? 1. The city and state of the audit firm issuing the report. 2. A statement explaining​ management's responsibilities for the financial statements. 3. A title that emphasizes the report is from an independent auditor. 4. The signature of the engagement partner.

4. Signature of the engagement partner

What is the meaning of the rule that requires the auditor be​ independent? 1. The​ auditor's sole obligation is to third parties. 2. The auditor may have a direct ownership interest in the​ client's business if it is not material. 3. The auditor must adopt a critical attitude during the audit. 4. The auditor must be without bias with respect to the client under audit.

4. The auditor must be without bias with respect to the client under audit

When the financial statements are fairly stated but the auditor concludes there is substantial doubt whether the client can continue in​ existence, the auditor should issue​ a(n) 1. adverse opinion. 2. unmodified opinion. 3. qualified opinion only. 4. unmodified opinion with explanatory paragraph.

4. Unmodified opinion with explanatory paragraph

Indicate the type of service: An auditor's report on whether the financial statements are fairly presented in accordance with IFRS

Audit of historical financial statements

Explain how materiality differs for failure to follow GAAP and for lack of independence. A. Materiality for lack of independence in audit reporting is easiest to define. If the auditor lacks independence as defined by the Code of Professional Conduct​, it is always considered highly material and therefore a disclaimer of opinion is always necessary. That​ is, either the CPA is independent or not independent. For failure to follow​ GAAP, there are three levels of​ materiality: immaterial,​ material, and highly material. B. Materiality for lack of independence in audit reporting is hardest to define. If the auditor lacks independence as defined by the Code of Professional Conduct​, there are three levels of​ materiality: immaterial,​ material, and highly material. For failure to follow​ GAAP, the level of materiality does not matter and therefore a disclaimer of opinion is always necessary. C. For materiality for lack of​ independence, if the auditor lacks independence as defined by the Code of Professional Conduct​, it is always considered highly material and therefore a disclaimer of opinion is always necessary. For failure to follow​ GAAP, there are two levels of​ materiality: material and highly material. Therefore only a qualified opinion is necessary. D. None of the above.

A.

Indicate the type of service: An examination report stating whether a company's statement of greenhouse gas emissions is presented in conformity with standards issued by the World Business Council for Sustainable Development and the World Resources Institute

Attestation service other than an audit service

Explain the conceptual framework for the Rules of Conduct and how it should be applied. A.The conceptual framework for the Rules of Conduct is designed to assist members in situations where the interpretations of the rules do not address a threat to compliance with the rules. Using the conceptual​ framework, the member identifies​ threats, evaluates the significance of the​ threat, and identifies and applies safeguards to eliminate the threat or reduce it to an acceptable level. B. The conceptual framework for the Rules of Conduct is designed to assist members in situations where the interpretations of the rules address a threat to compliance with the rules. Using the conceptual​ framework, the member can research a​ threat, and identify and apply safeguards to eliminate the threat or reduce it to an acceptable level. C. The conceptual framework for the Rules of Conduct describe ethical requirements for CPAs. The ethical requirements for CPAs are similar to the ethical requirements of other professions. All professionals are expected to be​ competent, perform services with due professional​ care, and recognize their responsibility to clients. The major difference between other professional groups and CPAs is independence. Because CPAs have a responsibility to financial statement​ users, it is essential that auditors be independent in fact and appearance. D. The conceptual framework for the Rules of Conduct describe characteristics required of a CPA. The rules indicate the​ profession's responsibilities to the​ public, clients, and professional colleagues. The rules are designed to guide members in the performance of their professional responsibilities and meet the basic requirements of ethical and professional conduct.

A.

What is the purpose of the Principles of Professional​ Conduct? A. The Principles of Professional Conduct describe characteristics required of a CPA. The principles indicate the​ profession's responsibilities to the​ public, clients, and professional colleagues. The principles are designed to guide members in the performance of their professional responsibilities and meet the basic requirements of ethical and professional conduct. B. The Principles of Professional Conduct describe ethical requirements for CPAs. The ethical requirements for CPAs are similar to the ethical requirements of other professions. All professionals are expected to be​ competent, perform services with due professional​ care, and recognize their responsibility to clients. The major difference between other professional groups and CPAs is independence. Because CPAs have a responsibility to financial statement​ users, it is essential that auditors be independent in fact and appearance. C. The Principles of Professional Conduct are core ethical values. The principles guide CPAs and other professional colleagues when they are faced with an ethical dilemma. The principles give a formal framework to help resolve ethical dilemmas. D. The Principles of Professional Conduct describe characteristics that are​ desired, but not​ required, in a CPA. The principles indicate the​ profession's responsibilities to the​ public, clients, and professional colleagues. The principles are designed to guide members in the performance of their professional responsibilities and meet the basic requirements of ethical and professional conduct.

A.

When should the auditor include an explanatory paragraph in an unmodified opinion audit​ report? A. The auditor should include an explanatory paragraph in an unmodified opinion audit report when the audit is completed with satisfactory results and the financial statements are fairly​ presented, but the auditor believes it is important to draw the​ reader's attention to certain matters or the auditor is required to provide additional information. B. The auditor should include an explanatory paragraph in an unmodified opinion audit report when the audit is completed with satisfactory results and the financial statements are fairly​ presented, and the auditor feels that no additonal diclosure is necessary. C. The auditor should include an explanatory paragraph in an unmodified opinion audit report when the audit is completed with unsatisfactory results and the financial statements are not fairly​ presented, and the auditor believes it is important to draw the​ reader's attention the matters concerning the auditor. D. The auditor should include an explanatory paragraph in an unmodified opinion audit report when the auditor is not independent but the audit was completed with satisfactory results and the financial statements are fairly​ presented,

A.

Why is ethics important to the conduct of business in a marketdash-based ​economy? A. Ethics is important to the conduct of business because it is difficult to transact with others without confidence that they will conduct business in an ethical manner. B. Ethics is important to the conduct of business because it is difficult to do business with someone if they do not share your exact ethical outlook. C. Ethics is not important to the conduct of business in a market-based economy. Using ethics is a personal choice and has nothing to do with business. D. Ethics is not important to the conduct of business in a market-based economy. Ethics is only important when dealing with small businesses and proprietorships.

A.

Indicate the type of service: Evaluating the voting process and certifying the outcome for Rolling Stone Magazine's "Greatest Singer of All Time" Poll

Attestation service other than an audit service

Identify the major causes of information risks A. Remoteness of information B. Decrease in governmental regulations C. Biases and motives of the provider D.Low risk financing options E. Voluminous data F.Complex exchange transactions

A. Remoteness of information C. Biases and motives of the provider E. Voluminous data F. Complex exchange transactions

What type of opinion should be issued? Highly material departure from GAAP

Adverse opinon

Indicate the type of service: An engagement to help a company structure a merger transaction to minimize the taxes of the combined entities

Assurance or nonassurance service that is not an attestation service

What part of the unmodified opinion audit report does this belong to? The appropriate date for the report is the one on which the auditor completed the auditing procedures needed to obtain sufficient appropriate evidence to support the opinion.

Audit report date

What part of the unmodified opinion audit report does this belong to? This section of the report includes three paragraphs.

Auditor's responsibility

Describe what constitutes​ "ethics" and highlight the challenges of developing a set of rules and guidance to increase ethical behavior in society. A. Ethics are a set of moral principles or values. There are limited challenges to developing a set of rules and guidance to increase ethical behavior in society. Each individual has their own set of​ values, but different groups define ethical values in pretty similar ways. Most ethical values can be defined well enough to be enforced. B. Ethics are a set of moral principles or values. There are several challenges to developing a set of rules and guidance to increase ethical behavior in society. Each individual has their own set of​ values, and different groups define ethical values in different ways.​ Also, many ethical values cannot be defined well enough to be enforced. C. Ethics are a set of professional principles or values. Many of us use ethics daily. It is relatively easy to develop a set of rules and guidance to increase ethical behavior in society. Each individual has their own set of​ values, and different groups define ethical values in different ways. Many ethical values can be defined well enough to be enforced. D. Ethics are a set of professional principles or values. It is relatively easy to develop a set of rules and guidance to increase ethical behavior in society. There is a different set of ethical values for each​ profession, but ethical values are defined similarly across the board. Ethical values are defined well enough to be enforced.

B

Identify the circumstances under which a CPA can disclose confidential information without client permission. ​(Select all that​ apply.) A. An auditor can share confidential information with any other professional firm the client does business dealings​ with, even if that firm is not engaged in services that require the audit papers. B. Subpoena or summons or compliance with laws and regulations. C. Under PCAOB​ rules, an auditor can provide confidential information to shareholders without client permission if the client is an SEC client. D. Participation in peer review. E.Obligations related to technical standards. F.An auditor must provide all information​ (including confidential) to any audit firm that becomes the new auditors of a client to ensure continuity of the audit procedures. G. Response to AICPA Ethics Division. H. There are no circumstances under which a CPA can disclose confidential information without client permission.

B, D, E, G

Identify the six principles. A. ​1) The Public​ Interest; 2) Scope and Nature of​ Services; 3) Compliance with​ Standards; 4)​ Integrity; 5) Accounting​ Principles; and​ 6) Independence B. 1) Responsbilities;​ 2) The Public​ Interest; 3)​ Integrity; 4) Objectivity and​ Independence; 5) Due​ Care; and​ 6) Scope and Nature of Services C. 1) Due​ Care; 2) Independence and​ Integrity; 3)​ Responsibilities; 4) The Public​ Interest; 5) Compliance with​ Standards; and​ 6) General Standards D. 1) Accounting​ principcles; 2)​ Responsibilities; 3) Objectivity and​ Independence; 4) General​ Standards; 5) Due​ Care; and​ 6) Integrity

B.

What conditions will affect the​ auditor's determination of​ materiality? A. ​(1) nature of the​ item, (2) scope​ limitation, (3) effect on potential users of the financial statements. B. ​(1) dollar amounts compared with a​ base, (2) effect on potential users of the financial​ statements, (3) nature of the item. C. ​(1) dollar amounts compared with a​ base, (2) effect on potential users of the financial​ statements, (3) scope limitation. D. (1) effect on potential users of the financial​ statements, (2) do not overshadow the financial statements as a​ whole, (3) nature of the item.

B.

What is meant by reports involving the use of other​ auditors? A. The auditing CPA firm has more than one professional working on the audit. B. Another CPA firm has performed part of the audit. C. The auditing CPA firm is not independent so another firm is brought in to finish the audit. D. The CPA performing the audit needs help and brings another CPA firm in to help.

B. Another CPA firm has performed part of the audit

What are common rationalizations individuals use to justify their unethical​ behavior? A. The belief that the unethical behavior will not be​ detected; the unethical behavior does not adversely affect​ me; and it is my life and I can do what I want. B. It is my life and I can do what I​ want; the behavior is not explicitly​ illegal; and the unethical behavior does not adversely affect me. C. Others are doing the same​ thing; the behavior is not explicitly​ illegal; and the belief that the unethical behavior will not be detected. D. Others are doing the same​ thing; the behavior is not explicitly​ illegal; and the unethical behavior does not adversely affect me.

C

State the type of auditor & type of audit: Statements for bankers and other creditors when the client is too small to have an audit staff

CPA ; financial audit

Distinguish between independence of mind and independence in appearance. A. Independence of mind requires audit partner to rotate to help maintain and keep​ independence, whereas independence in appearance maintains that the work produced is mainly for support of the client and that relationship. B. Independence of mind is a code of professional ethics where auditors remain skeptical of the information they receive throughout the​ audit, whereas independence in appearance is a code of professional conduct that allows any CPA firm to sign the financials of a company. C. Independence of mind exists when the auditor is actually able to maintain an unbiased attitude throughout the​ audit, whereas independence in appearance is dependent on​ others' interpretation of this independence and hence their faith in the auditor. D. Independence of mind is dependent upon the board of directors maintaining a professional level with the​ auditors, whereas independence in appearance provides for restrictions on employment of former audit firm employees by a client.

C.

Explain the role of the audit committee in enhancing auditor independence. A. The members of the audit committee are not required to be independent. All of the audit committee activities help maintain auditor effectiveness. The audit committee is responsible for the oversight work of the​ auditor, except for resolution of disagreements involving financial reporting between management and the auditor. B. The members of the audit committee are not required to be independent. Several audit committee activities help maintain auditor independence. The audit committee is responsible for the​ appointment, compensation, and oversight of the work of the auditor. The audit committee does not have to preapprove any audit or nonaudit​ services, but is responsible for oversight of the work of the​ auditor, including resolution of disagreements involving financial reporting between management and the auditor. C. All members of the audit committee are required to be independent. Several audit committee activities help maintain auditor independence. The audit committee is responsible for the​ appointment, compensation, and oversight of the work of the auditor. The audit committee must preapprove all audit and nonaudit​ services, and is responsible for oversight of the work of the​ auditor, including resolution of disagreements involving financial reporting between management and the auditor. D. Some members of the audit committee are required to be independent. One audit committee activity helps maintain auditor effectiveness. The audit committee is responsible for the oversight work of the​ auditor, except for resolution of disagreements involving financial reporting between management and the auditor.

C.

How do the eight parts of a standard unmodified opinion audit report for nonpublic companies differ from those found in a qualified opinion​ report? A. Everything is the same for both a qualified opinion report and a standard unmodified opinion audit report except the auditor does not need to include the list of internal controls for a standard unmodified opinion audit report. B. The same eight parts are found in a qualified opinion report as in a standard unmodified opinion audit report. There is one additional paragraph detailing the lack of internal controls for a qualified report. C. The same eight parts are found in a qualified opinion report as in a standard unmodified opinion audit report. There are also often one or more additional paragraphs explaining reasons for the​ qualifications, in addition to the term​ "except for" being added to the opinion paragraph. D. Everything is the same for both a qualified opinion report and a standard unmodified opinion audit report except the date of the audit report for a qualified report is the last day of audit fieldwork.

C.

Identify the three alternative opinions that may be appropriate when the​ client's financial statements are not in accordance with GAAP. A. (1) qualified scope and​ opinion, (2) adverse​ opinion, (3) disclaimer of opinion B. (1) unmodified​ opinion, (2) disclaimer of​ opinion, (3) qualified as to opinion only C. (1) unmodified​ opinion, (2) qualified as to opinion​ only, (3) adverse opinion D. ​(1) adverse​ opinion, (2) unmodified​ opinion, (3) qualified scope and opinion

C.

Select the choice that best explains changes that affect comparability but not consistency of the financial statements. A. Comparability refers to items such as changes in​ estimates, presentation​, and events rather than changes in accounting principles. For​ example, a change in the format and presentation of financial information will affect the comparability of the statements. In that​ case, an explanatory paragraph for lack of consistency is needed but the information may require disclosure in the statements. B. Comparability refers to items such as changes in​ estimates, presentation, and events rather than changes in accounting principles. For​ example, endeavors in research and development or the sale of a subsidiary will affect the comparability of the statements. In that​ case, an explanatory paragraph for lack of consistency is needed and the information will require disclosure in the statements. C. Comparability refers to items such as changes in​ estimates, presentation, and events rather than changes in accounting principles. For​ example, a change in the estimated life of a depreciable asset will affect the comparability of the statements. In that​ case, no explanatory paragraph for lack of consistency is needed because the same method of depreciation is used in both​ years, but the information may require disclosure in the statements. D. None of the above.

C.

The four major types of services CPAs perform​ are: A. (1) Accounting and bookkeeping​ services, (2) Tax​ services, (3) Audit and assurance​ services, and​ (4) Information technology advisory services. B. (1) Business​ valuation, (2) Financial​ planning, (3) Audit and assurance​ services, and​ (4) Tax services. C. ​(1) Audit and assurance​ services, (2) Accounting and bookkeeping​ services, (3) Tax​ services, and​ (4) Management consulting services. D. (1) Audit and assurance​ services, (2) Financial​ planning, (3) Tax​ services, and​ (4) Management consulting services.

C.

Identify an activity that may not affect independence of mind but is likely to affect independence in appearance. A. Payment of high audit fees dependent upon profitable financials. B. Engagement of the CPA and payment of audit fees by a third party. C. Dependence upon a client for a large percentage of audit fees. D. Performance of valuation services and actuarial services for the same company. E. Ownership of an immaterial indirect financial interest in the audited client.

C. Dependence upon a client for a large percentage of audit fees

James Burrow is the loan officer for the National Bank of Dallas. National has a loan of​ $325,000 outstanding to Regional Delivery​ Service, a company specializing in delivering products of all types on behalf of smaller companies.​ National's collateral on the loan consists of 25 small delivery trucks with an average original cost of​ $24,000. What is the information with which the auditor is​ concerned? A. loan B. report C. trucks D.dealerships

C. Trucks

Determining the degree of correspondence between information and established criteria is determining​ whether: A. the established criteria is accurate. B. a given set of information is accurate. C. a given set of information is in accordance with the established criteria. D. a given set of information is not in accordance with the established criteria.

C. a given set of information is in accordance with the established criteria

State the type of auditor & type of audit: Financial statements for use by stockholders when there is an internal audit staff

CPA ; financial audit

Reference James Burrow situation above: List the established criteria which must be evaluated and reported by Altman. A. existence, ownership,​ collectability, fair market value B. ownership, collectability, physical​ condition, delivery C. existence, delivery,​ ownership, collectability D. existence, ownership, physical​ condition, fair market value

D

The purpose of the opinion paragraph​ is: A. to state the​ auditor's conclusions based upon absolute fact. B. to state the​ auditor's conclusions and report that there is no risk associated with the financial statements. C. to state the​ auditor's conculsions and report the specific risk associated with the financial statements. D. to state the​ auditor's conclusions based upon the results of the audit evidence.

D.

What is the role of the Public Company Accounting Oversight Board​ (PCAOB)? A. The PCAOB provides oversight for auditors of private​ companies, including establishing auditing and quality control standards for private company​ audits, and performing inspections of the quality controls at audit firms performing those audits. B. The PCAOB is responsible for ensuring that public companies comply with generally accepted accounting principles​ (GAAP). C. The PCAOB is tasked with overseeing auditors of public​ companies, including establishing standards and reports to ensure compliance with SEC requirements. D. The PCAOB provides oversight for auditors of public​ companies, including establishing auditing and quality control standards for public company​ audits, and performing inspections of the quality controls at audit firms performing those audits.

D.

What roles are played by the American Institute of Certified Public Accountants for its​ members? A. The AICPA is the organization that sets professional requirements for CPAs. B. The AICPA prepares and grades the CPA examinations and provides continuing education to its members. C. The AICPA conducts research and publishes materials on many different subjects related to​ accounting, auditing, management advisory​ services, and taxes. D. All of the above. E. None of the above.

D. All of the above

Select the choice that best explains changes that affect the consistency of the financial statements. A. Changes that affect the consistency of the financial statements may involve a change in accounting principle. An example of a change that affects consistency would be a change in the method of computing depreciation from straight line to an accelerated method. A separate explanatory paragraph is required if the amounts are material. B. Changes that affect the consistency of the financial statements may involve a change in reporting entity. An example of a change that affects consistency would be a change in the method of computing depreciation from straight line to an accelerated method. A separate explanatory paragraph is required if the amounts are material. C. Changes that affect the consistency of the financial statements may involve a corrections of errors involving accounting principles. An example of a change that affects consistency would be a change in the method of computing depreciation from straight line to an accelerated method. A separate explanatory paragraph is required if the amounts are material. D. All of the above.

D. all of the above

The option​ "no reference is made to the other​ auditor" should be used​ when: A. the other auditor audited an immaterial portion of the statement. B. the other auditor is known or closely supervised. C. the principal auditor has thoroughly reviewed the other​ auditor's work. D. All of the above.

D. all of the above

Why do individuals act​ unethically? A. Selfishness B. Individual has different values than society C. Greed D. All of the above E. None of the above

D. all of the above

What circumstance would give rise to this opinion type? Adverse

Deviation from GAAP is highly material

What circumstance would give rise to this opinion type? Qualified as to opinion only

Deviation from GAAP is material but not highly material

What type of opinion should be issued? Lack of independence by the auditor

Disclaimer

What type of opinion should be issued? Material physical inventories not observed and the inventory cannot be verified through other procedures

Disclaimer

The option to​ "issue a shared opinion in which reference is made to the other​ auditor" should be used​ when: A. the auditors agree that a disclaimer of opinion is needed. B. the portion of the financial statements audited by the other CPA is immaterial in relation to the total. C. it is practical to review the work of the other auditor. D. All of the above. E. None of the above.

E. none of the above

State the type of auditor & type of audit: The computer operations of a large corporation to evaluate whether the internal controls are likely to prevent misstatements in accounting and operating data

Internal or CPA ; Financial audit

State the type of auditor & type of audit: A bond indenture agreement to make sure a company is following all requirements of the contract

Internal/CPA ; Compliance audit

State the type of auditor & type of audit: Internal controls at a casino to ensure the casino is in compliance with federal and state regulations

Internal/CPA ; Compliance audit

State the type of auditor & type of audit: Annual statements for the use of management

Internal/CPA ; Financial audit

State the type of auditor & type of audit: Computer operations of a corporation to evaluate whether the computer center is being operated as efficiently as possible

Internal/CPA ; Operational audit

What part of the unmodified opinion audit report does this belong to? Makes the simple statement that the CPA firm has done an audit.​ Second, it lists the financial statements that were​ audited, including the balance sheet dates and the accounting periods for the income statement and statement of cash flows.

Introductory paragraph

What part of the unmodified opinion audit report does this belong to? This part indicates who is responsible for the financial​ statements, including selecting appropriate accounting principles and maintaining internal control over financial reporting.

Management's responsibility

CPA audit responsibilities

Perform audits in accordance with auditing standards of financial statements prepared in accordance with U.S. GAAP or IFRS

IRS agents audit responsibilities

Perform compliance audits to enforce the federal tax laws as defined by Congress, interpreted by the courts and regulated by the IRS

Internal Auditors' audit responsibilities

Perform compliance or operational audits in order to assure management or the board of directors that controls and policies are properly and consistently developed, applied and evaluated

Government Accountability Office Auditors (GAO) audit responsibilities

Perform compliance or operational audits in order to assure the Congress of the expenditure of public funds in accordance with its directives and the law

What type of opinion should be issued? Inability of confirm the existence of an asset which is material but not extremely material in value

Qualified opinion

What part of the unmodified opinion audit report does this belong to? Auditing standards require that the report be titled and that the title includes the word independent.

Report title

What part of the unmodified opinion audit report does this belong to? It identifies the CPA firm or practitioner who performed the​ audit, and the city and state where the auditor is located.

Signature and address of CPA firm

The nature and extent of a CPA​ firm's quality control policies and procedures depend on...

The CPA firm size, the nature of the CPA firm's practice, Cost-benefit considerations

What circumstance would give rise to this opinion type? Unmodified with explanatory paragraph

The auditor agrees with the client's departure from GAAP

What is the criteria for an audit of a​ company's financial​ statements? For an audit of a​ company's financial statements the information is the criteria are the...

U.S. GAAP or IFRS

What are the three options available to the primary auditor responsible for the opinion​ (principal auditor), and when should each be​ used? A. (1) No reference is made to the other​ auditor, (2) Issue a shared opinion or​ report, (3) Qualify the opinion B. (1) Qualify the​ opinion, (2) No reference is made to the other​ auditor, (3) Issue an adverse opinion C. (1) Issue a shared opinion or​ report, (2) Issue an adverse​ opinion, (3) No reference is made to the other auditor D. (1) Issue a shared opinion or​ report, (2) Qualify the​ opinion, (3) Issue a disclaimer of opinion

a.

Tax services include preparation of _____________________________ as well as tax planning assistance

corporate, individual and estate returns

CPA firms are typically not organized as a general partnership because a general partnership _______________________________ relative to other structures such as a limited liability partnership.

offers less protection from legal liability