Audit Test 1 HW's

a. Which of the following is not a financial statement assertion made by management? Multiple Choice Existence of recorded assets and liabilities. Completeness of recorded assets and liabilities. Valuation of assets and liabilities. Effectiveness of internal control.

Effectiveness of internal control.

Which of the following did not precipitate the passage of the Sarbanes-Oxley Act of 2002 to regulate public accounting firms:

Ethical scandals at the AICPA.

Which of the following does the FASB consider a source of nonauthoritative guidance for use when there is no authoritative guidance available?

FASB Concepts Statements.

Which of the following is correct about forensic audits?

Forensic audits are usually performed in situations in which fraud has been found or is suspected.

An audit provides reasonable assurance of detecting material

Fraudulent Financial reporting

The AICPA Code of Professional Conduct states that a CPA shall not disclose any confidential information obtained in the course of a professional engagement except with the consent of the client. This rule may preclude a CPA from responding to an inquiry made by:

A CPA-shareholder of the client corporation.

In which of the following situations would a public accounting firm have violated the AICPA Code of Professional Conduct in determining its fee?

A fee is based on whether or not the public accounting firm's audit report leads to the approval of the client's application for bank financing.

Which of the following business characteristics is not indicative of high inherent risk? Operating results that are highly sensitive to economic factors. Large likely misstatements detected in prior audits. Substantial turnover of management. A large amount of assets.

A large amount of assets.

A public accounting firm would least likely be considered in violation of the AICPA Independence Rule in which of the following instances?

A partner's checking account, which is fully insured by the Federal Deposit Insurance Corporation, is held at a financial institution for which the public accounting firm performs attest services.

A basic objective of a CPA firm is to provide professional services that conform with professional standards. Reasonable assurance of achieving this basic objective is provided through:

A system of quality control.

Which of the following is not one of the forms of attestation presented in the AICPA Statements on Standards for Attestation Services:

Inspection.

Which of the following is most likely to be a violation of the AICPA rules of conduct by Bill Jones, a sole practitioner with no other employees?

Jones names his firm Jones and Smith, CPAs.

An auditor has concluded that the financial statements are not fairly presented in that they are pervasively misstated. The most appropriate type of audit opinion is:

Adverse

Which of the following is not prohibited by the AICPA Code of Professional Conduct

Advertising in newspapers.

Which of the following is an example of a compliance audit?

An audit of a company's policies and procedures for adhering to environmental laws and regulations.

In general, internal auditors' independence will be greatest when they report directly to the:

Audit committee of the board of directors

Audit firms that are subject to inspections by the PCAOB staff include:

Audit firms that are registered with the PCAOB.

The AICPA over time has played an important role in standards setting. Which of the following standards are currently established by the AICPA?

Auditing standards applicable to audits of nonpublic companies.

a. Which of the following best describes the relationship between assurance services and attest services?

Both attest and assurance services require independence.

b. Which of the following has primary responsibility for the fairness of the representations made in financial statements?

Client's management.

Governmental auditing, in addition to including audits of financial statements, often includes audits of efficiency, effectiveness, and:

Compliance.

Of the following, which is the least reliable type of audit evidence? Multiple Choice Confirmations mailed by outsiders to the auditors. Correspondence between the auditors and suppliers. Copies of sales invoices inspected by the auditors. Correct Canceled checks returned in the year-end bank statement directly to the client.

Copies of sales invoices inspected by the auditors.

Which of the following nonattest services may be performed by the auditors of a public company?

Preparation of the company's tax return.

c. The most important benefit of having an annual audit by a public accounting firm is to:

Provide assurance to investors and other outsiders that the financial statements are reliable.

Which of these organizations has the responsibility to perform inspections of auditors of public companies?

Public Company Accounting Oversight Board.

Financial statement audits performed under PCAOB requirements are designed to provide which type(s) of assurance with respect to the detection of material misstatements due to errors or fraud?

Reasonable not absolute

Which AICPA quality control standard would most likely be satisfied when a CPA firm maintains records indicating which partners or employees of the firm were previously employed by the CPA firm's clients?

Relevant ethical requirements.

d. The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board (PCAOB). Which of the following is not one of the responsibilities of that board?

Review financial reports filed with the SEC.

The Compliance with Standards Rule requires CPAs to adhere to all of the following applicable standards, except:

Statements on Responsibilities for Assurance Services.

ill Adams, CPA, accepted the audit engagement of Kelly Company. During the audit, Adams became aware of his lack of competence required for the engagement. What should Adams do?

Suggest that Kelly Company engage another CPA to perform the audit.

Which of the following is not explicitly included in a standard report for a nonpublic company?

That internal control of the client was satisfactory.

Which of the following organizations establishes accounting standards for U.S. government agencies?

The Federal Accounting Standards Advisory Board.

Which of the following organizations can revoke the right of an individual to practice as a CPA?

The applicable state board of accountancy.

Which of the following is not included in an integrated audit report on the financial statements of a public company?

The report states that the audit was performed in accordance with AICPA standards.

Which of the following is implied when a CPA signs the preparer's declaration on a federal income tax return?

The return is not misleading based on all information of which the CPA has knowledge.

Which of the following statements best describes why auditors investigate related party transactions? Multiple Choice Related party transactions generally are illegal acts. The substance of related party transactions may differ from their form. All related party transactions must be eliminated as a step in preparing consolidated financial statements. Related party transactions are a form of management fraud.

The substance of related party transactions may differ from their form.

What best describes the purpose of the auditors' consideration of internal control in a financial statement audit for a nonpublic company?

To determine the nature, timing, and extent of audit testing.

As part of their audit, auditors obtain a representation letter from their client. Which of the following is not a valid purpose of such a letter? Multiple Choice To increase the efficiency of the audit by eliminating the need for other audit procedures. Correct To remind the client's management of its primary responsibility for the financial statements. To document in the audit working papers the client's responses to certain verbal inquiries made by the auditors during the engagement. To provide evidence in those areas dependent upon management's future intentions.

To increase the efficiency of the audit by eliminating the need for other audit procedures.

In providing nonattest services to an attest client, a CPA is allowed to perform which of the following functions?

Training client employees.

Which of the following provisions is not included in The Institute of Internal Auditors Code of Ethics?

Use of appropriate sampling methods to select areas for audit.

Which of the following is not a covered member for an attest engagement under the Independence Rule of the AICPA Code of Professional Conduct?

partner in the national office of the firm that performs marketing services.