Acct 4400

To audit fair value estimates, auditors can use all of the following approaches except _____

confirm management's estimate

The PCAOB regulates all accounting firms that audit _____ companies

public (issuer)

Without regard to theeffect of controls, _____ assertions are those that have a reasonable possibility of containing a misstatement that could cause the financial statement to be materially misstated

relevant

In a financial audit, auditors gather sufficient evidence to provide _____ _____ that the financial statements follow GAAP or some other appropriate accounting framework

reasonable assurance

Controls that mitigate or eliminate threats to independence are called _____

safeguards

Audit fees are composed of:

-profit -overhead -payroll taxes -staff salaries

Acceptable forms of advertising include _____ (4)

-types of services -certifications of members -fees charged for services -degrees of members

When auditors discover an illegal act that must be reported, the first communication should be to the _____

board of directors

CPA's are obligated to exercise _____________ _____________ care in all engagements, whether or not it is specifically outlined in the engagement letter.

due professional

T/F: Potential CPA liability may exceed that of other professions, such as physicians

true

T/F: The public accounting profession differs from other professions in that auditors do not directly interact with those they provide service for

true

T/F: While CPAs may not perform management functions or make nay management decisions for their clients, they are allowed to provide advice, research, and recommendations to assist their client decision-making

true

A sample of the CPA's fiirm's engagements is selected for review in _____

both system and engagement reviews

The working papers that pertain solely to this year's audit are called the ____ files.

current

A review of financial statements is designed to provide _____ _____ on the credibility of the statements

limited assurance

All shareholders and directors of a professional corporation _____

must be engaged in the practice of public accounting

When a successor auditor is offered an auditing engagement, the successor auditor _____

must obtain te client's consent before discussing confidential information with the predecessor auditor

Reviewing related party transactions to confirm that they are properly recorded is an example of verifying financial statement ________ of assets

presentation of

Standards that provide CPA firms with guidance to provice reasonable assurance that the firm's engagements are conducted in accordance with applicable professional standards are called:

quality control standards

Used to develop a more precise expectation of a financial statement balance that is not based on a statical model, a(n) _____ is similar to regression analysis

reasonableness test

The required understanding of the client is used to help plan the audit and assess the risks of material misstatement at the financial and _____ _____ levels

relevant assertion

Which of the following relates to the circumstances in which evidence is obtained?

reliability

Revenue, acquisitions, conversion and payroll are all typical _____ cycles

transaction

The development of common-size financial statements is also known as _____ _____

vertical analysis

Auditors obtain a representation letter from management:

when completing the audit

Audit evidence in paper or electronic form that is obtained through inspection of records is referred to as _____ evidence

documentary

T/F: When performing analytical procedures, the best data for developing an expectation is industry averages

false

Reckless disregard for one's professional responsibilities is considered ______________ negligence.

gross

Who is ultimately responsible for preparing financial statement for use by stockholders and creditors?

management

The record of the audit procedures performed, relevant audit evidence obtained, and the conclusions the auditors reach is called audit documentation or:

working papers

Auditors have the same responsibility regarding _____ as they have for material errors and fraud

laws having a direct effect on the financial statements

Even a small misstatement, such as a misstatement that affects a client's loan covenants, may be considered a(n) ______________ misstatement to the financial statements.

material

An audit report that included an unmodified (unqualified) opinion is generally referred to as a(n) _____ report

standard

A sophisticated expectation development technique using statistical models to quantify auditor expecatations is _____ analysis

regression analysis

CPAs provide a report on subject matter or an assertion about that subject matter in a(n) _____ engagement

attestation

Juries are permitted to examine the issues of causation and assess a percentage figure of fault to the CPAs, client and other defendants under the concept of _____

comparative negligence

The Compliance with _____ rule requires CPAs to adhere to professional standards promulgated by various technical bodies

standards

The relevant rule of the COde of Professional Conduct for other members (retired and unemployed) is _____

acts discreditable

Discussion(s) with audit team members about the susceptibility of the client's financial statements to material misstatements are _____

always required

Generally highly reliable evidence is available to substantiate _____

assets and liabilities

Responsibility for the appointment, compensation, and oversight of the auditors rests with the client's ___________

audit committee

The _____ principle keeps financial statements similar to and comparable with prior years

consistency

Without public confidence in the attestor, the attest function serves no purpose. Because the need for public confidence is so high, CPA's product is _____

credibility

No information may be discarded from the working papers after the _____ date

documentation completion

The confirmation of receivables with debtors to verify that all recorded receivables are legitimate is verifying the audit assertion _____________ assets.

existence of

Many of the Treadway Commission's recommendations lead to a group of Statements on Auditing Standards known as the ______ _____ standards

expectation gap

T/F: Oral client representations are generally considered sufficient audit evidence as long as the auditor does a careful evaluation

false

T/F: The AICPA requires specific quality control procedures

false

T/F: The procedures in an audit will be the same for the audit of a small retail store and a multinational corporation

false

An intentional misstatement of inventory to overstate net income is considered _____

fraud

CPAs are required to perform all CPA services with competence and professional care under the _____ standards rule

general

Auditors of public companies must wait _____ before accepting a CFO position with an SEC registrant

one year

A description of the nature, timing, and extent of the audit procedures to be performed is found in the audit _____

plan

A number of factors, including the predictability of the relationships and reliability of the underlying data used, determine an analytical procedure's _____

precision

The quantity of audit evidence needed is affected by the risk of misstatement and _____ of audit evidence

quality

which of the following is not a facet of the overall audit strategy?

seting a date when the final audit fees will be paid

The passage of the Sarbanes-Oxley Act _____ the AICPA's influence and responsiblity

significantly diminished

Usually organized around the balance sheet accounts, the _____ portion of the audit program is aimed at confirming financial statement amounts

substantive procedures

Inspections completed by the PCAOB performed to assess an accounting firm's compliance are provided for in _____

the Sarbanes-Oxley Act

A spreadsheet that combines Petty Cash with all the company's bank accounts is an example of a

1. lead schedule 2. summary schedule

Categories of traditional financial ratios include _____ ratios

1. leverage 2. activity

Data analytics _____

1. may assist in the assessment of risk of material misstatement 2. may involve testing entire populations instead of samples 3. results in a more detailed understanding of the client

T/F: The International Federation of Accountants (IFAC) is a global organization of individuals who work in professional accountancy

False

A CPA can be held liable to any third party the auditors could "reasonably foresee" as recipients of the statements for routine businsess purposes under the _____ approach

Rosenblum

When evaluating the overall attractiveness of the industry a client operates in, auditors consider ______

-bargaining power of suppliers -bargaining power of customers -barriers to entry -strength of competitors

Professional skepticism includes _____ (3)

-being alert to conditions that may indicate possible misstatement due to error -a questioning in mind -critical assessment of audit evidence

Potential significant business risks for a client include:

-competition -material price valotility -changes in government regulations -interest rate increases

The confidential relationship between the CPA and the client _____ (2)

-prevents release of information whose disclosure could financially injure the client -prevents the CPA from leaking information that could profit the CPA

A public company audit report states that the auditors are responsible for expressing an opinion on _____

the financial statements

Those charged with governance

-management -board of directors -audit committee

Representations in the representation letter include _____

1. all items requiring any disclosure are sufficiently disclosed 2. financial statements are complete and were prepared with the use of generally accepted accounting principles

Under section 18 of the 1934 Act, auditors may avoid liability by proving good faith which can normally be done unless they have been guilty of

1. fraud 2. gross negligence

When an unresolved difference of opinion arises _____

1. the opinion of the partner-in-charge will prevail in the audit report 2. all members of the audit team have the right to document the disagreement in the working papers

T/F: Due professional care is required by the audit firm only when it is specified in the engagement letter

false

If auditors test 20% of a population and find a $4,000 misstatement, the would estimate the entire population is misstated by about _____

$20,000

CPA firm independence from a client is required when providing _____

-audit services -other attestation and assurance services

For independence concerns, immediate family members under the restrictions as the covered member include _____ (3)

-dependents -spouse -spousal equivalent

To establish CPA liability, the injured party must prove _____

-duty -losses

If auditors identify fraud risks, the auditors may modify their overall approach to the audit by _____

-increasing third-party confirmation -adding specialized audit staff

Examples of risk a the financial statement level include _____

-ineffective control environment -a declining industry -lack of sufficient capital to continue operations

Before performing any nonattest services for an attest client, the CPA must establish and document the _____ (5)

-limitations of the engagement -client's responsibilities -services to be performed -objectives of the engagement -CPA's responsibilities

Place GAAS authoritative guidance in order from highest level of authority to lowest

1. Standards 2. Interpretive Publications 3. Other Auditing Publications

In 2010, to promote financial stability following the collapse of the subprime market and reversal of the housing boom, Congress passed the _____-_____ Act, also known as the Wall Street reform and Consumer Protection Act

Dodd-Frank

Which of the following statements is correct?

The SEC has oversight responsibility for the PCAOB

For situations not directly addressed in the Code of Professional Conduct, _____ _____ are included for CPAs in public practice and in business

conceptual framework

Effective in 2019 (large public companies) and 2020 (other public companies) the PCAOB requires the auditors to present _____ _____ matters in their report

critical audit

An audit procedure that serves as a test of controls and a substantive test of the details of the transactions that occurred during the year is known as a(n) _____________ ____________ procedure.

dual-purpose

CPA's engaging in compilation or review engagements have a liability to their client to exercise _____________ ___________ care

due professional

The nature and extent of the audit work to be performed on a particular engagement depend largely upon the _____

effectiveness of the client's internal control

The price that would be received to sell an asset or the amount that must be paid to transfer a liability in an orderly transaction between market participants is the definition of ____ value

fair

CPA firms are allowed to use fictitious names as long as they are not _____, misleading, or deceptive

false

T/F: A CPA firm that performs an audit or review for a client can recommend a product to the client and receive a commission as long as the fact is disclosed to the client

false

T/F: A client representation letter may be used as a substitute for performing other audit procedures

false

T/F: Physical examination of plant andequipmentverifies ownership

false

T/F: The only difference between a public company and nonpublic company standard audit report is the identification of the standards used to conduct the audit (PCAOB vs. GAAP)

false

Because of the various types of evidence obtained, it is appropriate for the auditors to state they have audited the _____ of a company

financial statements

Due to a CPA's responsibility to serve the public, _____ is perhaps the most important concept in the AICPA Code fo Professional Conduct

independence

These transactions involve activities that occur only periodcally, such as taking physical inventories or calculating depreciation expense

nonroutine

For related party transactions, auditors should be most concerned about obtaining evidence regarding _____

presentation and disclosure

Which of the following types of information related to the audit must be returned to the client if requested?

records provided by the client

An important term in any discussion regarding the impact of the SEC on accounting practice is _____ statement

registration

When auditors obtain evidence of fraud, they should _____ withdraw from the engagement

sometimes

Standards used in an attest engagement that are established or developed by groups composed of experts are referred to as _____ _____

suitable criteria

A peer review in which the evaluator considers the CPA firm's system of quality control to perform accounting and auditing work is called a(n) _____ review

system

Which of the following statements are correct? (2)

-IFRS generally requires more judgment application than GAAP -many professional believe audits of IFRS financial statements are more challenging than GAAP statements

Auditors should document several elements of risk assessment including:

-audit team discussion -understanding of the entity and its environment -nature, timing, and extent of further audit procedures

When performing nonattest services for an attest client, a CPA's independence can be impaired if the CPA _____ (3)

-authorizes a transaction for the client -sets policies for the client -has custody of a client's assets

The relevant rules of members in practice and members in business include _____ (2)

-integrity and objectivity -accounting principles

The report on the financial statements of a public company should _____ (2)

-state when the firm began serving as the auditor -be signed in the name of the CPA firm with address

In the early 20th century which of the following were recognized as good fraud protection techniques? (2)

-strong internal control -surety bonds

Inventory turnover and accounts receivable turnover are _____ ratios

activity

The reliability of customer sales invoices created by the client and held internally depends on the _____

effectiveness of internal control

T/F: All rules of the AICPA Code of Professional Conduct apply to CPAs in business

false

T/F: In performing risk assessment, auditors only focus on material misstatement at the financial statement level

false

Which of the following is not a component of the fraud risk triangle?

fear

A lack of sufficient capital to continue operations is considered a(n) _____ level risk

financial statement

The Code of Professional Conduct requires CPAs to be _____ from a client when providing audit or attestation services

independent

auditors are required to:

perform audit procedures that may identify noncompliance with other laws that may have a material effect on financial statements

Along with establishing standards and rules to guide CPAs, the AICPA also _____ (3)

-carries on a program of research and publication -promotes continuing professional education -contributes to the profession's self-regulation

An auditor can find guidance in SASs sections _____

-definitions of important terms -introduction, including scope -objectives

When auditors are aware of a fraud risk they may _____

-interview personnel involved in areas where risks are identified -increase sample sizes for substantive procedures -apply procedures that provide more reliable evidence

Auditors are required to:

1. evaluate the reasonableness of account estimates 2. ensure accounting estimates are properly accounted for and disclosed

Factors that can influence the level of audit documentation detail include:

1. risk of misstatement 2. extent of judgment involved 3. nature of auditing procedures

Under the Securities Act of 1933, the auditors can avoid liability for the plaintiffs' losses if they can prove:

1. the plaintiffs knew of the misstatement when they purchased the securities 2. they conducted the audit with due diligence 3. the statute of limitations has expired

John Jones, CPA has a 20 year old son in college who is still John's dependent. The son just purchased 10 shares of stock in a company John audits. Which of the following statements is correct?

This is a direct financial interest that impairs John's independence

To gain an understanding of the client, the auditors will identify methods used by the client to measure and review _____

performance

In order to be awarded a CPA certificate, candidates must _____ (3)

-pass all four parts of the uniform CPA exam -satisfy the experience requirements of the licensing state -satisfy the educational requirements of the licensing state

Workpapers may include _____

1. working trial balance 2. bank reconciliations 3. audit plans 4. representation letter

When financial statements are not fairly presented, the auditor will issue a(n) _____ opinion

adverse

The type of attest engagement in which the CPA and users of the information mutually decide on procedures the CPA will perform a(n) _____ engagement

agreed-upon procedures

Match the type of ratio analysis to its description 1. cross-sectional 2. horizontal analysis

1. comparison with similar firms (ex. industry) at a point in time 2. review of client financial statement amount over time

An auditor would consider hiring a specialist for assistance in _____

1. estimation of oil and gas reserves 2. determining the value of art pieces held by the company 3. determining the value of a diamond shop's inventory

Which of he following statements explains the relationship of attestation services to assurance services?

all attestation services are also assurance services

Members of the AICPA who are in public practice with an firm that performs accounting services in the scope of the AICPA's practice-monitoring standards _____

are required to practice in a firm enrolled in the AICPA Peer Review Program

To improve their capabilities to provide professional services, may CPA firms join a group of firms, typically structured as a(n) _____ which is a separate legal entity

association

It is critically important that accountants who perform attestation services have independence of both _____ and _____

-mind -appearance

The auditors perform a number of procedures near the ompletion of the audit including _____

-completing the search to identify contingencies -performing final analytical procedures -completing the review of minutes of meetings -obtaining a representation letter

An accounting firm can be sued for fraud if the firm:

1. knowingly misrepresented facts 2. caused the client financial loss

Which of the following statements is correct?

1. many large accounting firms self-insure for professional liability 2. CPAs should approach every engagement with the prospect they may be required to defend their work 3. CPAs may be charged criminally for certain conduct during an audit

Match the technical body with their authority to issue generally accepted accounting principles 1. FASB 2. GASB 3. FASAB 4. IASB

1. for nongovernmental entities 2. for state and local governmental entities 3. for federal governmental entities 4. for international financial accounting and reporting principles

Auditors should investigate any significant differences between their prior expectations and the actual amounts on the client's financial statements. Which of the following are proper methods of investigation?

1. inquiry of management 2. expanding the tests of financial statements to determine materiality 3. reconsidering the factors and methods originally used in making the expectations

The Conceptual Framework section of the AICPA Code of Professional Conduct is applicable to _____ (2)

-members in public practice -members in business

Analytical procedures and tests of detail of account balances, transactions, and disclosures are _____ procedures

substantive

The Code of Professional Conduct suggests during ethical conflicts, CPAs should consider _____ (2)

-ethical issues involved -established internal procedures

The audit risk model is: AR=_____

IR x CR x DR

Complaints about a CPA's conduct with national interest are first referred to the:

Professional Ethics Division of the AICPA

Memoranda of the planning process and significant discussions with management are considered _____ working papers

administrative

Identify the types of further audit procedures performed

-confirmation -inquiry -inspection

The two types of peer review are _____ review and _____ review

-system -engagement

Lee needs to research an accounting issue for a company. The source he would most likely reference first would be the FASB _____

codification

Inherent risk is generally highest for _____ transactions because they involve management judgment or assumptions

estimation

A primary measure of the effectiveness of an analytical procedure is its _____

precision

comparing the price on an invoice to that on an approved price list is an example of the audit procedure of

reperformance

Auditors are given 60 days after the audit _____ date to complete the audit file

report release

If auditors obtain evidence of fraud they should evaluate the implications and _____

report the matter to a manager at least one level above the one involved

The Securities Act of 1933 is a _____ law

statutory

Put the following types of accounting firms in order from largest to smallest based on the typical number of employees in each firm

-Big 4 firm -national firm -regional firm -local firm

Further audit procedures include:

-tests of controls -substantive procedures

Planning materiality is commonly based on % of:

-total assets -net income -total revenues

auditing standards require that audit documentation provide evidence:

1. of the auditor's basis for concluding on the achievement of the audit's overall objectives 2. that the audit was planned and performed in accordance with GAAS

Conrol risk is a function of _____

1. operating effectiveness of internal control 2. design effectiveness of internal control

Data analytic techniques _____

1. reveal trends related to human behavior 2. can enhance operating efficiency 3. include the use of artificial intelligence

Match the amount of evidence needed to risk of misstatement and quality of evidence

More evidence needed: 1. greater the risk of misstatement 2. the lower quality of the evidence obtained Less evidence needed: 1. lower the risk of misstatement 2. the higher quality of the evidence obtained

T/F: Under the Private Securities Litigation Reform Act of 1995, an auditor who discovers illegal acts by a client is required to report them to the client's management team

false

T/F: Under the Private Securities Litigation Reform Act of 1995, an auditor who discovers illegal acts by a client is required to report them to the client's management team.

false

During the second stage of the audit process, auditors use ____________ ___________ procedures to gather information to assess the risks of material misstatement of the financial statements and to design the nature, timing and extent of further audit procedures.

risk assessment

To obtain the eunderstandingof the entity and its environment, auditors perform _____ _____ procedures

risk assessment

The auditors' duty is defined by:

1. the engagement letter 2. legal considerations 3. GAAS

The risk of material misstatement of an assertion without considering internal control is called ____ risk

inherent

Risk of material misstatement consists of two components, _____ risk and _____ risk

inherent, control

Reasonable assurance is achieved when _____ risk is at an acceptably low level

audit

Which of the following services provides assurance but does not involve attestation?

-CPA PrimePlus -XBRL services

The AICPA has assigned responsibility for issuing official pronouncements on auditing matters to the _____

ASB

Engagement reviews _____ (2)

-are of a lesser scope than system reviews -are only available for CPA firms that do not perform audits

The Code of Ethics for internal auditors was developed by the _____

Institute of Internal Auditors

In the United States the financial reporting framework most commonly used is _____

GAAP

If a covered member's independence is impaired, a firm's independence _____

is also impaired

Relationships between public accounting firm partners and clients _____ (2)

-may make it easier to resolve differences during an audit -may impair the appearance of independence

Match the Code of Professional Conduct component with its definition. 1. Principles 2. Rules 3. Interpretations

1. statements that provide overall framework of profession's responsibilities 2. requirements that are enforeable under the AICPA bylaws 3. issued by the AICPA to provide guidelines for the scope and application of the rules

Comparing a company's inventor turnover to industry standard rates is an example of _____

analytical procedures

Statutory law _____

1. includes the RICO Act 2. does not have the same latitude as common law

Many firms have developed a(n) ______ _______ that uses a combination of financial and nonfinancial performance measures to assess the organization

balanced scorecard

Due to the continuing litigation involving auditors, it is important for CPA firms to develop quality control policies for throughly investigating clients _____

before an engagement is accepted

A CPA firm that performs consulting services for a client may accept a commission fee if _____

disclosure is made to the client

The PCAOB _____ (3)

-performs inspections of audit practices of registered public accounting firms -may make referrals to the Justice Department to consider criminal cases -requires all firms that audit SEC registrants to register with them

When a CPA is found guilty of a professional ethics violation _____ (2)

-permanent expulsion from the AICPA may occur -AICPA membership may be suspended for up to two years

Common methods for auditors to determine related parties include _____

1. inquiries of management 2. reviewing SEC filings 3. conflict-of-interest statements

Auditors indirectly verify revenue, cost of goods sold and expenses by substantiating changes in the _____ and _____ accounts

asset ; liability

Certified public accountants (CPAs) provide a broad range of information enhancement services known as _____ services

assurance

Having a CPA provide a report about a firm's compliance with laws and regulations, is an example of a(n) _____ engagement

attest

The return envelope sent with confirmations should be addressed to the _____

auditor's office

Data analytics is the examination of large datasets or ____________ ____________ to uncover hidden patterns, unknown correlations, market trends and other useful business applications

big data

The Continental Vending Machine Corporation case set precedence that CPAs can face _____

both criminal and civil charges

Damage due to a CPA's negligent performance is _____

causation

The Securities Litigation Uniform Standards Act in 1998 established standards related to _____________ ______________ lawsuits

class action

In order to decrease the possibility of careless work or a lack of integrity that could lead to a negative view of the profession, the AICPA developed _____

code of conduct

When investors sue the audit firm for negligence, the audit firm is the _____

defendant

The three levels of service covered by the AICPA are _____, _____ and agreed upon procedures

examinations, reviews

Confirmations are generally effective at providing evidence for the _____ assertion

existence

T/F: If additional information is required, an auditor cannot issue an unmodified opinion

false

T/F: In most areas the current General Auditing Standards in use by the PCAOB differ significantly from AICPA standards

false

Determining whether the balance sheet and related statements of income, retained earnings, and cash flows have been prepared in accordance with GAAP is the goal of a(n) _____ audit

financial

In 1996, the AICPA issued guidance to auditors requiring an explicit assessment of the risk of material misstatement in financial statements due to _____ on all audits

fraud

If a group of partners and staff that are not covered members together own more than 5% of an attest client's outstanding equity securities, the public accounting firm's _____ is impaired

independence

The time interval from the beginning of audit work to the balance sheet date is called the ____ period

interim

During the second stage of the audit process, auditors must obtain an understanding of the nature of _____ _____ because it allows them to identify accounts and classes of transactions that may be misstated and to tailor audit procedures to the existing system

internal control

In order to sign the preparer's declaration page on a tax return a CPA must _____

investigate unreasonable or contradictory information

Under international standards, the valuation of financial statements and goodwill are considered to be _____ _____ matters.

key audit

The professional ultimately responsible for assuring the audit is performed in accordance with applicable professional standards is the _____

lead partner

In a lawsuit for losses against a CPA, a third party must establish _____

losses resulted from the CPA's performance AND the CPA breached a duty of professional care

The professional responsible for determining the audit procedures applicable to specific audits and for maintaining uniform standards of fieldwork is the _____

manager

The fact that some matters are important to the fair presentation of financial statements while others are not is recognized by the conept of _____

materiality

T/F: Auditors are not required to use analytical procedures as substantive procedures to provide evidence about financial statement assertions

true

T/F: One way to verify opening balances is to work with predecessor auditors to review working papers related to these accounts

true

T/F: When performing tax engagements for a client, CPAs have a responsibility to the both the client and the public

true

More effective audit procedures are performed by auditors at:

year-end

The SEC Rule of Practice 102(e) gives the SEC the power of:

1. disbarment 2. suspension

The planning materiality amount that will require the auditors to gather the most audit evidence is:

$10,000

the audit risk model is a function of _____ risk

1. inherent 2. control 3. detection

The FASB's power has ben designated by the _____ (2)

-SEC -AICPA

The Code of Professional Conducts requires CPAs in public practice to be independent when performing _____ (2)

-assurance services -audits

The AICPA code of conduct provides _____ (3)

-practical guidance to members in maintaining a professional attitude -assurance to clients and the public that the profession intends to maintain high standards -assurance the profession will enforce compliance to the code by individual members

The PCAOB may conduct investigations of audit firms and may assess _____

1. monetary damages 2. suspension of firms

Match the term with its example 1. direct financial interest 2. indirect financial interest 3. financial interest

1. owning capital stock in a client 2. owning shares of a mutual fund that owns shares of stock in a client 3. owning equity or debt security in a client directly or indirectly

Generally accepted auditing standards are established by the _____

AICPA

The voluntary national organization that establishes standards and rules to guide CPAs in their conduct of professional services is the _____

AICPA

In order for third parties to recover losses due to a CPA's ordinary negligence, the Rosenblum approach requires the third party be _____

a recipient using the statements for routine business purposes

Auditor review of subsequent period invoices to verify all receivables are recorded is verification of ___________ of assets.

completeness

Inherent risk may be high for _____ transactions because they are not part of the normal flow of transactions and specialized skills may be needed to perform the activity

nonroutine

When a public accounting firm has been negligent in rendering services it will:

not be liable for plaintiff losses unless thenegligence caused the loss

According the professional standards, audit documentation should be retained for _____ years

not less than five

AICPA's Auditing Standards are identified under _____ (2)

-SAS number (dates) -AU-C number (topic)

The accounting profession suffered credibility crises in the early 2000's due to _____ (3)

-a record number of restated prior-period financial statements -accounting irregularities at Enron -accounting fraud at WorldCom

CPAs are not allowed to receive a contingent fee for performing services for a client that also engages the CPA to perform _____ (3)

-a review -an examination of prospective financial information -an audit

If auditors identify fraud risks, the auditors may modify their overall approach to the audit by:

-adding specialized audit staff -increasing third-party confirmations

The Sarbanes-Oxley Act of 2002 makes it unlawful for a registered public accounting firm that audits a public company to provide _____ to that client (3)

-bookkeeping or accounting services -internal audit outsourcing services -financial information systems design and implementation

The auditors perform a number of procedures near the completion of the audit including _____

-completing the search to identify contingencies -completing thereview of minutes of meetings -obtaining a representation letter -performing final analytical procedures

In many ethical dilemmas faced by professional accountants, there are _____ (3)

-conflicts between an individual's self-interest and with his or her ethical beliefs -no accounting standards that specifically apply to them -gray areas with no obvious answers

Auditors provide credibility to information for outsiders such as: (3)

-creditors -stockholders -government regulators

The auditors opinion paragraph _____ (2)

-does not guarantee accuracy -is based on an informed opinion, not absolute fact

Which of the following are PCAOB Attestation General Standards? (2)

-due professional care shall be exercised in the planning and performance of the engagement -the engagement shall be performed by a practitioner having adequate knowledge of the subject matter

Significant risks often relate to transactions that are _____

-estimation -nonroutine

The engagement letter should include information regarding _____

-expected form and content of the reports -applicable financial reporting framework -inherent limitation of the audit

Audits are often viewed as falling into three major categories: _____ audits, _____ audits and operational audits

-financial -compliance

Successor auditors seek information from predecessor auditors on communication with the client and those charged with governance regarding:

-fraud and noncompliance with laws and regulations -internal control deficiencies and material weaknesses

Public accounting firm consulting services _____ (3)

-have tended to become more operational in nature in recent years -include performing executive search services -are designed to improve the effectiveness and efficiency of clients' operations

The Code of Professional Conduct includes which of the following conceptual frameworks for situations not explicitly addressed by the Code of Professional Conduct? (3)

-independence for CPAs in public practice -overall for CPAs in public practice -overall for CPAs in business

To gain an understanding of the client, its environment, and internal controls, audits will review the _____

-industry, regulatory, and other external factors affecting the client -nature of the client including the client's application of accounting policies -the client's objectives and strategies and related business risks

Risk assessment procedures include _____

-inquiry of external parties -observation and inspection -analytical procedures

Actions that will not help cpas withstand threats of possible lawsuits include

-maintaining a close personal relationship with client managment -only accepting clients that have been in business for more than one year

Advantages of interim audit work include:

-more uniform workload for the CPA firm -timely release of audited financial statements -increased assessment of internal control

To identify fraud risks, auditors perform a number of procedures including _____

-performing analytical procedures -inquiries of management -considering fraud risk factors

To obtain reasonable assurance, the auditor should: (2)

-plan the work and properly supervise assistants -determine and apply appropriate materiality levels throughout the audit

Then general standards rule requires compliance with the standards and interpretations of _____ (3)

-planning and supervision -due professional care -professional competence

Internal auditors should report to the _____ (2)

-president or high-level executive -audit committee

The auditors' understanding of the nature of the client includes _____

-product lines -competitive position -organizational structure -accounting policies

CPA firms may perform attest services as _____ (4)

-professional corporations -partnerships -sole practitioners -limited liability partnership

When evaluating the significance of a threat, members should consider _____ (3)

-quantitative factors -qualitative factors -safeguards

The PCAOB has the responsibility to (3)

-register public accounting firms that audit public companies -perform inspections of the practices of registered firms -conduct investigations and disciplinary proceedings of registered firms

FOr recurring audits, revision in the terms of the audit engagement may be indicated when there is a change is _____

-reporting requirements -the size of the client -senior management

During an audit, evidence is gathered to show that the _____ (3)

-sales on the income statement actually occurred -balance sheet contains al the liabilities of the company -financial statement amounts are properly classified

Auditors are required to report illegal acts when _____ (2)

-senior management and the Board of Directors do not take appropriate remedial action -the failure to take remedial action is expected to lead to auditor resignation

examples of acts discreditable include _____ (3)

-signing a document containing materially false and misleading information -making materially incorrect entries in a client's financial statements or records -failing to correct financial statements that are materially false or misleading

An Independent Auditors' Report conducted in accordance with International Standards on Auditing may be signed by _____ (2)

-the firm -the auditor

Which of the following items are the same for public and nonpublic company standard audit reports? (3)

-the name used to sign the report -the word "independent" in included in the title -the rules for proper dating of the report

Te PCAOB audit "Basis for Opinion" paragraph describes or alludes to _____ (3)

-the nature of a PCAOB audit -independence requirements -registration requrements

Accountants face ethical dilemmas when a senior auditor _____ (3)

-under reports the number of hours worked on an audit engagement to stay within the time budgeted for the job -is aware that management of the audit client has decided to pollute the environment -accepts tickets to a baseball game from an audit client

Which of the following are items that are identified by the text as conditions indicative of fraud.

-unsupported transactions -unwillingness to allow auditor access to files or testing -missing documents

Relevant assertions include:

-valuation or allocation -completeness -existence of occurrence

Match the appropriate type of entity to the appropriate standard used for audit guidance. 1. Nonpublic companies in the United States 2 Public Company in the United States 3. International companies

1. AICPA Standards 2. PCAOB Standards 3. IAASB Standards

What are covered members?

1. An individual that is part of an attest engagement 2. An individual in the position to influence the attest engagement 3. A partner who provides more than 10 hours of non-attest services

Match the independence concept with its description 1. independence of mind 2. independence in appearance

1. CPA is capable of performing an attest service without being affected by influences that might compromise professional judgment 2. requires the avoidance of circumstances that might cause a reasonable and informed third party, aware of all relevant infomration, including safeguards applied, to reasonably conclude that the integrity, objectivity, or professional skepticism of an audit firm or member of the attest engagement has been compromised

Place in order the highest level of GAAP Authorityfor Federal Governmental entities to the lowest level

1. FASB Statements 2. FASAB Concepts Statements 3. FASAB Technical Bulletins

Place the levels of GAAP Authority for Federal Governmental entities in order from highest to lowest authority

1. GASB Statements 2. GASB Technial Bulletins 3. Accounting textbooks

Match the following elements of Quality Control to the appropriate statements: 1. Monitoring 2. Leadership Responsibilities for Quality 3. Acceptance of Client Relationships

1. The policies and procedures related to quality control are relevant, adequate andoperating efficiently 2. Promotes an internal culture based on the recognition that quality is essential in performing engagements 3. The firm will undertake engagements only where the firm is competent to perform the engagement

Place the following sections of the auditor's report for a nonpublic company in the appropriate order.

1. Title 2. Management's Responsibility 3. Audior's Responsibility 4. Opinion

The advantages of using computer-generated working papers include _____

1. a nearly "paperless" audit can be performed 2. an adjustment can be carried through the current file quicker 3. documents can be scanned

Factors that affect inherent risk include the nature of the:

1. account 2. client 3. client's environment

Sophisticated data analytic skills _____

1. and techniques must be applied on a client-by-client basis 2. must not replace the need to exercise professional judgment

Recalculations _____

1. are used to prove the accuracy of client calculations such as earnings per share 2. include making certain that accounting records agree with the financial statements

Match the assertion with its definition 1. existence or occurrence 2. rights an dobligations 3. completeness 4. cutoff 5. valuation, allocation or accuracy 6. presentation and disclosure

1. assets, liabilities and equity interests exist and recorded transactions and events have occurred 2. company holds rights to the assets , and liabilities are the obligation of the company 3. all assets, liabilities, equity interests, and transactions that should have been recorded have been recorded 4. transactions andevents have been recorded in the correct accounting period 5. all transactions, assets, liabilities, and equity interests are included in the financial statements at proper amounts 6. accounts are described and classified in accordance with GAAP and financial statement notes are complete, appropriate, and clearly expressed

Using the choices provided in Section B, choose the classification of reporting that would most likely be used in the situations given in Section A 1. At year-end a special revenue fund has a $50,000 fund balance on which there are no constraints. 2. Allentown has a $1,000,000 emergency reserve fund it set aside. According to the town ordinance, funds can only be used from this fund with approval of two-thirds of the governing body, which is the town council. 3. Allentown determined that the General Fund has $22,000 in inventory it should report on its fund financial statements. 4. Allentown issued bonds that sold at a premium. Using the authority allowed her by the town council, the city manager made the decision to set aside the $100,000 premium to pay the principal on the debt when it comes due in a future period. 5. The federal government has provided a grant for emergency housing assistance that can only be used for low-income families. Allentown determined $250,000 of the grant funds remained at year-end. 6. Allentown had a balance in its prepaid insurance account of $464,000 at the end of the fiscal year. 7. At the end of the reporting period, Allentown's General Fund statement of revenues, expenditures, and changes in fund balances reported a net change in fund balances of $154,238. 8. Allentown's mayor indicated that he was setting aside $25,000 of funds for the future purchase of land for a town park. 9. The Allentown council passed an ordinance requiring that 5% of the town's sales tax revenue be set aside for economic development; this year that amount was $24,650. 10. The capital projects fund ended the reporting period with a negative fund balance.

1. assigned 2. committed 3. nonspendable 4. assigned 5. restricted 6. nonspendable 7. unassigned 8. assigned 9. committed 10. unassigned

Match the technical body with their primary authority. 1. PCAOB 2. AICPA Auditing Standards Board 3. AICPA Accounting and Review Services Committee 4. FASB

1. auditing and attestation standards for public companies 2. auditing and attestation standards for nonpublic companies 3. compilations, reviews, and attestation standards for services related to unaudited information of nonpublic companies 4. accounting standards for nongovernmental entities

In a breach of contract action, the client must establish the CPA's duty was breached. This can be shown by establishing the:

1. auditor's performance did not meet professional standards 2. auditor did not perform the obligations listed in the engagement letter

Match the test of details type with the example 1. test of account balance 2. test of class of transaction 3. test of disclosure

1. confirmation of accounts receivable balance 2. tests of inventory purchases to determine of properly accounted for

Match the following terms to the correct definitions 1. fraudulent financial reporting 2. misapropriation of assets 3. inherent risk

1. material misstatement of financial statements by management with the intent to mislead financial statement users 2. theft of client assets by an employee or officer of the organization 3. risk of material misstatement of an assertion about an account without considering internal controls

Match the Principle from the AICPA Code of Professional Conduct with its definition 1. responsibilities 2. public interest 3. integrity 4. objectivity and independence 5. due care 6. scope and nature of services

1. members should exercise sensitive professional and moral judgments in all their activities 2. members should accept the obligation to act in a way that will serve the public interest, honor the public trust, and demonstrate commitment to professionalism 3. to maintain and broaden public confidence, members should perform all professional responsibilities with the highest sense of integrity 4. a member should maintain objectivity and be free of conflicts of interest in discharging professional responsibilties. A member in public practice should be independent in fact and appearance when providing auditing and other attestation services 5. member should observe the profession's technical and ethical standards, strive continually to improve competence and the quality of services, and discharge professional responsibilities to the best of the member's ability 6. member in public practice should observe the Principles of the Code of Professional Conduct in determining the scope and nature of services to be provided

Auditing standards require auditors to perform analytical procedures _____

1. near the conclusion of the audit 2. during the risk management

Match the following terms to the correct statements 1. systems portion of the audit 2. substantive test portion of the audit 3. overall audit strategy

1. procedures to assess the effectiveness of the internal controls 2. tests of financial statement account balances 3. defines audit scope, reporting objectives, timing, etc.

Match the following terms to the correct statements. 1. Systems portion of the audit 2. Substantive test portion of the audit 3. overall audit strategy

1. procedures to assess the effectiveness of the internal controls 2. tests of financial statement account balances 3. defines audit scope, reporting objectives, timing, etc.

Match the following statements to the AICPA Generally Acepted Auditing Standards underlying principle: 1. purpose of an audit 2. premise of an audit 3. reporting results of an audit

1. provide financial statement users with an opinion by the auditor on whether the financial statements are presented fairly 2. management is responsible for the preparation of financial statements and must provide auditor with all related reports and documentation 3. auditors express in the form of a written report an opinion whether the statements are presented fairly, in all material respects, in accordance with financial framework

Auditors must:

1. provide reasonable assurance that the financial statements are free of material errors 2. exercise due care and professional skepticism in planning the audit procedures

In evaluating the appropriateness of audit evidence, auditors consider both its ______ and its ______

1. relevance 2. reliability

Match the accounting profession's attribute with the characteristics of a profession 1. CPA is representative of the public 2. abundance of authoritative pronouncements governing financial reports 3. CPA license requires education, experience and passing the CPA exam 4. CPA's product is credibility

1. responsibility to serve the public 2. complex body of knowledge 3. standards of admission to the profession 4. need for public confidence

Match the reviewer with its purpose 1. senior 2. manager 3. in-charge partner 4. second partner review

1. review of work performed by staff assistant to make sure audit procedures performed properly and conclusions are clearly expressed 2. review of work done by staff and senior auditors near the end of the audit to make sure working papers "tie together" 3. review of entire set of working papers to determine audit was performed in accordance with GAAS and provide support for audit report 4. quality review to provide assurance that the CPA firm's in-house quality control policies have been complied with

Actions that will help CPAs withstand threats of possible lawsuits include _____

1. screening potential clients 2. understanding a new client's business 3. using an engagement letter

Significant audit findings or issues that need to be documented include:

1. selection of appropriate accounting principles 2. issues related to accounting estimates 3. accounting for complex and unusual transactions

The Public Company Accounting Oversight Boards requires that auditors emphasize _____

1. significant unusual transactions 2. relationships and transactions with related parties

Under the Securities Act of 1933, the plaintiff (investor) needs to prove that:

1. they sustained a loss 2. the registration statement was misleading

Audit evidence gathered from oral or written inquiries made by the auditor can include _____

1. written representations from company personnel 2. written representations from outside parties 3. oral representations from company personnel

Identify each of the following items as true of the 1933 Act, the 1934 Act or both the 1933 and 1934 Acts

1933 Act: 1. requires auditors to prove due diligence 2. provides protection for initial investors 1934 Act: 1. Offers recourse to any buyer or seller of a security 2. requires auditors to prove good faith Both Acts: 1. Requires proof the financial statements were misleading 2. shifts the burden of proof from plaintiffs to defendants

Firm Independence is impaired if a partner or any professional employee of the CPA firm or immediate family own more than _____ of an attest client's outstanding equity securities

5%

Which of the following is not included in the current PCAOB framework?

AICPA Auditing Standards

AICPA Generally Accepted Auditing Standards recently adopted a numbering system that organizes standards by topic. This system is known as the _____ number

AU-C

The agency that creates generally accepted accounting principles that form the suitable criteria used in a financial statement audit is the _____

FASB

For each of the following fund types, indicate the fund category by selecting either Governmental funds, Proprietary funds, or Fiduciary funds for each item. 1. Custodial fund 2. Permanent fund 3. Debt service fund 4. Internal service fund 5. Pension (and other employee benefit trust fund) 6. Special revenue fund 7. Enterprise fund 8. General Fund 9. Investment trust fund 10. Capital projects fund 11. Private-purpose trust fund

Fund Category 1. Fiduciary 2. Governmental 3. Governmental 4. Proprietary 5. FIduciary 6. Governmental 7. Proprietary 8. Governmental 9. Fiduciary 10. Governmental 11. Fiduciary

Indepedence requirements for audits of entities that receive federal financial assistance are developed by the _____

GAO

The most frequently used financial reporting framework in the United States is _____

Generally Accepted Accounting Principles

For each fund or government-wide category, select the letter(s) of the applicable fund type or characteristic. Multiple letters may apply to each category. (Select all that apply.) Fund Type or Characteristic a. Operational accountability b. Modified accrual c. Custodial funds d. Statement of cash flows e. Fiscal accountability f. Debt service funds g. Current and noncurrent assets and liabilities h. Internal service funds i. Integrated budgetary accounts j. Revenues and expenses k. Additions and deductions

Governmental funds: b, e, f, i Proprietary funds: a, d, g, h, j Fiduciary funds: a, c, g, k Governmental activities: a, g, h, j Business-type activities: a, g, j

A client still owes the public accounting firm the audit fee for professional services rendered last year and the firm is ready to issue the current year report. Is the CPA firm independent?

No, the public accounting firm's independence is considered tampered

Which of the following statements is correct?

Not all entities undergoing a financial stateement audit have audit commitees

The Sarbanes-Oxley Act of 2002 created the _____ to regulate audits and auditors of public companies

PCAOB

The Auditing Standards Board (ASB) of the AICPA issues auditing standards for the audits of nonpublic companies called _____

Statement on Auditing Standards (SASs)

If a CPA's father owns a material amount of stock in an attest client, which of the following factors is also needed to impair a covered member's firm independence?

The CPA must have knowledge of the stock investment

Choose the type of fund that would most likely be reported in the examples given. a. Construction of public buildings. b. Costs of a central purchasing and warehouse function. c. Gifts in which the principal must be invested and preserved, while the investment earnings must be used to provide scholarships to children of police officers who died in the line of duty. d. Administrative expenses of the city manager's office. e. Assets held for external government participants in the government's investment pool for the purpose of earning investment income. f. Gifts in which the principal must be invested and preserved but the investment earnings can be used for public purposes. g. Costs of operating a municipal swimming pool. h. Taxes collected on behalf of another government unit. i. Assets held in trust to provide retirement benefits for municipal workers. j. Principal and interest payments on general long-term debt. k. Grant revenues restricted for particular operating purposes.

a. capital projects b. internal service c. private-purpose trust d. general e. investment trust f. permanent g. enterprise h. custodial i. pension (and other employee benefit) trust j. debt service k. special revenue

The auditors' opinion paragraph in a public company audit report addresses _____

accounting principles

All of the following are reasons financial statements may depart from GAAP except _____

adherence to accounting principles

Memoranda of the planning process and significant discussions with management are considered _____

administrative working papers

When a publicly traded company purchase a public accounting firm, the organization structure is referred to as a(n) _____

alternative practice

Ron oversees inventory reporting at A+ Fabricating. Ron unintentionally forgets to record a receipt of inventory on December 30, right before the comany's year-end causing an understatement in net income. This oversight is considered _____

an error

Direct evidence as to the reasonableness of various revenues and expenses is provided by the auditor's _____ procedures

analytical

Evaluations of financial statement information by a study of relationships among financial and non-financial data is the basis of (Blank) procedures

analytical

Tests that involve comparisons of financial data of the current year to the prior years, budgets, and industry averages are called ____________ procedures.

analytical

Calculating days sales in ending accounts receivable and comparing it to the prior year would be an example of _____

analytical procedure

The risk that auditors may unknowingly fail to appropriately modify their opinion on financial statements that are materially misstated is called ___________ risk.

audit

NYSE, ASE, and NASDAQ all require listed companies to establish a(n) _____ _____ that consists of at least three independent and financially literate individuals and that increases the auditors' ability to deal independently with management

audit committee

The representation should be dated the same as the date of the _____

auditor's report

Audit working papers are the property of the _____

auditors

During the planning of an audit, auditors must assess the risk of material misstatements due to _____

both errors and fraud

The Securities Exchange Act of 1934 allows _____ to sue the auditors if the audited financial reports are materially misstated

both sellers of stock and subsequent investors

If an accounting firm fails to complete a review according to the engagement letter, which causes the client to suffer financial losses, the client may sue the firm for _______

breach of contract

Many inherent risk arise because of _____ risks faced by management, such as the possibility of material misstatemtndue to fraud

business

Damage to another that is directly attributable to a wrongdoers's act is known as _____

causation

Leo needs to research an accounting issue for a company. The source he would most likely reference first would be the FASB _____

codification

Preparation of financial statements by CPA's based on representations of management, with the expression of no assurance concerning the statements' compliance with generally accepted accounting principles is called a(n) ________________.

compilation

Nonprofit organizations that receive financial assistance from the federal government must arrange for a(n) _____ audit to determine whether the financial assistance is spent in accordance with applicable laws and regualations

compliance

The Code of Professional Conduct includes _____ that address threats to compliance when the COde itself has no specific related guidance

conceptual frameworks

The members of the public accounting profession developed a code of _____ to guide individuals in maintaining a professional attitude and provide assurance of high standards to the public

conduct

The communications between CPAs and their client are _____ but not privileged under common law

confidential

working papers need to be safeguarded because they contain _____ information

confidential client

All of the following are acceptable methods to evaluate the reaonableness of accounting estimates except _____

confirm the estimate with a third party

Fraud that does not involve a misrepresentation with intent to deceive is known as ________________ fraud

constructive

A CPA may redesign a client's payroll system and charge a fee calculated as 25% of the next four years' cost savings, which is called a(n) _____ fee

contingent

As a defense an accounting firm can try to demonstrate the client's _________________ negligence in order to prove the auditor's negligence was not the sole cause of the loss.

contributory

If inherent risk is assessed as low and internal controls seem able to prevent or detect and correct misstatements, the auditors may decide to perform tests of support an assessment that _____ risk is low

control

Further audit procedures include a combination of additional tests of _____ and _____ procedures

controls ; substantive

Documents that substantiate representations contained in theclient's financial statements such as audit confirmations, minutes of director's meetings and client representation letter are known as _____ documents

corroborating

Documents that substantiate representations contained in the client's financial statements such as audit confirmations, minutes of director's meetings and client representation letter are known as _____

corroborating documents

Items that relate to financial statement accounts or disclosures and involve especially challenging, subjective, or complex auditor judgment are called _____ _____ matters.

critical audit

Auditors vouch cash receipt transactions occurring near period end to verify _____ of transactions

cutoff

For a given level of audit risk, __________ risk varies inversely with the risk of material misstatement.

detection

The international audit report is _____ the ASB nonpublic company audit report

different from

If the auditors are unable to determine the overall fairness of the financial statements, they will issue a(n) _____ of opinion

disclaimer of

First Company relies on one customer for the majority of its revenues each year. First Company's financial statements must acknowledge this relationship to financial statement users under the concept of adequate _____

disclosure

Whenever misstatements due to error or fraud are later found to exist in audited financial statements, it _____ that the auditors were negligent

does not imply

E-mail ordering is an example of EDI or _____ _____ interchange

electronic data

A peer review in which the evaluator selects a sample of the CPA firm's actual accounting work to evaluate whether the reports are procedures are appropriate is called a(n) _____ review

engagement

The overall risk of association with a particular business is often referred to as ______________ risk.

engagement

These transactions generally have the highest level of inherent risk

estimation

The moral principles and values that govern the actions and decisions of an individual or group is known as _____

ethics

The highest form of assurance that CPAs can offer is provided by a(n) _____ engagement

examination

If the auditors' objective is to test _____, they follow the stream of evidence back to its source

existence

Inspections of tangible assets provide high-quality evidence as to the _____ assertion

existence

The audit committee is responsible for appointment, compensation, and oversight of _____

external auditors

Increasingly generally accepted accounting principles require assets to be valued at _____

fair value

Management makes assertions for financial statements regarding all of the following except:

fairness of the audit

T/F: CPA firms may not advertise their services

false

T/F: Data analytics is not used in most audits because it is often an inefficient procedure that falls the cost-benefit test

false

Forensic accounting services include the investigation of suspected or known _____

fraud

Generally accepted accounting principles _____

have various requirements for the valuation of assets

Obtaining evidence about opening balances is necessary _____

in the first audit of a client

Due to the CPA's responsibility to serve the public, _____ is perhaps the most important concept in the AICPA Code of Professional Conduct

independence

Grace Chin serves on the board of director's of Bliss Company. The standard that prohibits Grace from also auditing the financial statements of Bliss is known as _____

independence

When a covered member is offered employment with an audit client, the CPA firm should remove the CPA from all engagements for that client because it may affect _____

independence

Investors who have sustained large losses can __________ the CPA is at fault:

initiate a lawsuit against a CPA whether or not they believe

The best source of information about the nature of the client is likely to be obtained by _____

inquiries of management and other personnel

A review of a public accounting firm by the PCAOB to ensure compliance with the Sarbanes-Oxley Act of 2002 is called a(n) _____

inspection

Assurance is provided on both the financial statements and the effectiveness of internal control over financial statements in a(n) _____ audit

integrated

Government Accountability Office (GAO) auditors typically perform all of the following type of audits except _____

integrated

Auditors of large publicly traded companies perform a(n) _____ audit which includes providing assurance on both the financial statements and the effectiveness of _____ _____ over financial reporting

integrated, internal control

A covered member's husband is employed by an attest client. The covered member and the CPA firm can still be independent and perform the audit if the husband _____ the attest client

is not in a key position at

In an international audit report, _____ _____ matters are basically equivalent to critical audit matters in a PCAOB report

key audit

PCAOB Standard No. 5 requires _____ to assess and report on company internal controls

management

Many of the duties assigned to partners in smaller firms are performed by _____ in large public accounting firms

managers

Information risk includes an inherent possibility that the financial statements of a client may contain _____ departures from generally accepted accounting principles

material

The auditor's opinion in the Independent Auditors' Report states that "In our opinion, the financial statements referred to above present fairly, in all _____ respects, the financial position of the Company..."

material

The term _____ is defined as "sufficiently important to influence decisions made by reasonable users of financial statements

material

Inherent risk and control risk are the two components of the risk of _____ _____

material missstatement

When one or more employees or partners in a firm are not independent with respect to a client or potential client, the firm itself _____ lack independence

may or may not

To determine if the ending financial statement balance is correct, auditors _____

may test controls over transactions or test the ending balance directly

In comparing Government Auditing standards regarding independence to those issued by the AICPA, the Governmental Auditing standards are _____

more

John Jones, CPA is a partner in a local firm. His wife works as an administrative assistant for one of the firm's audit clients and holds an immaterial investment in the company's stock through an employee benefit plan. The firm's independence is _____

not impaired because she does not hold a key position

All members of the AICPA and all services provided by the CPA are subject to the integrity and _____ rules

objectivity

watching a process or procedure being performed by others is the definition of _____

observation

Auditors are responsible to obtain reasonable assurance that clients are in compliance with _____

only laws having a direct effect on financial statements

The study of a specific unit of an organization for the purpose is measuring its performance is a(n)

operational

The most reliable piece of documentary evidence created within the client's organization is ordinarily a _____

paid check

In 1993, the U.S. Supreme Court held that accountants cannot be held liable under the RICO act unless they:

participated in the operation or management

A critical evaluation of one public accounting firm's practices by another public accounting firm is called a(n) _____

peer review

When materiality is allocated to a particular account, it is referred to _____ materiality

performance

Much of the information contained in the ______ file is gathered during the course of the first audit of a client's records

permanent

Recent changes are presented in the _____ section of the AICPA Code of Professional Conduct

preface

The fact that rules of conduct apply to all professional services performed except when otherwise stated is made clear in the _____ section of the AICPA Code of Professional Conduct

preface

The profession's recognition of its responsibilities to the public, to clients and to colleagues are addressed in the Code of Professional Conduct _____

principles

CPAs are not liable to any party if they can prove they performed their services with due _____________ ________________

professional care

An auditor's personal responsibility to maintain a questioning mind, be alert to conditions that may indicate possible misstatement due to fraud or error, and a critical assessment of audit evidence is called _____

professional skepticism

A concept used by certain courts to allocate damages between negligent parties based on the degree to which each party is at fault. The allocation of damages is referred to as _____ liability

proportionate

The Private Securities Litigation Reform Act of 1995 amended the 1934 Act by establishing:

proportionate liability

Under the due diligence standard of the 1933 Act, auditors must:

prove their innocence

Unlike auditors of nonpublic companies, auditors of large public companies are required to _____

provide assurance on the effectiveness of internal controls

The auditors states that there is a limitation on the scope of the audit, but not so far as to overshadow an overall opinion when issuing a(n) _____ opinion

qualified

When an item in the financial statements is not presented in accordance with applicable accounting principles, but not significant or material enough to overshadow an overall opinion or misstate the financial statements, the auditor will issue a(n) _____ opinion

qualified

As alternatives to a report with an unmodified or unqualified opinion, auditors may issue a report with a(n) _____ opinion, a(n) _____ or a disclaimer of opinion

qualified, adverse

In performing an audit, the auditors determine that the allowance for uncollectible accounts is not sufficient. If management does not agree, the auditors will likely:

qualify their opinion

To prove the arithmetical accuracy of the client's analyses and records, auditors make independent _____

recalculations

For items that are correctly recorded but not fairly presented in the client's financial statements, auditors develop ______ Journal entries

reclassification

The Securities Act of 1933 requires that all companies intending to offer securities for sale to the public to file a(n) __________________ statement, and submit audited financial statements to the SEC

registration

A sophisticated expectation development technique using statistical models to quantify auditor expectations is _____ analysis

regression

In that an explicit expectation is computed for the financial statement amount using financial or nonfinancial data, a reasonableness test is similar to _____ _____

regression analysis

The use of statistical models to quantify the auditors' expectation about a financial statement amount or ratio is called _____ _____

regression analysis

Individuals or entities that may have dealings with the client in which one party is significantly influenced by the other such that it may not pursue its separate interests are known as _____ parties

related

Several specific items, such as the fact that all known liabilities are reflected in the financial statements, are included in the written _____ _____ the CPAs obtain from client officers at the conclusion of the audit

representation letter

The approach that expands auditor liability for ordinary negligence to include third parties who are foreseen users of audited financial statements is:

restatement

Performing consulting services for public company audit clients is

restricted

Because manipulation is one of the most common techniques used in fraudulent financial reporting, professional standards require the auditor to perform risk assessment analytical procedures related to _____

revenue

A type of accounting engagement where the CPA provides limited assurance that the financial statements are in accordance with generally accepted accounting principles is called a(n) _____

review

Which attest engagement is designed to provide only a moderate degree of assurance?

review

The auditors may use the statement of cash flows while obtaining n understanding of the client, as part of _____ analytical procedures

risk assessment

sufficient audit evidence is affected by:

risk of misstatement and reliability of evidence

(1) Incentive or pressure, (2) opportunity and (3) attitude to rationalize the act are the three fundamental conditions of the fraud _____ _____

risk triangle

These transactions involve recurring financial statement activities recorded in the accounting records in the normal course of business restricting inherent risk

routine

The audit procedure that requires an auditor to use professional judgment as they review accounting data to identify significant unusual item is called _____

scanning

The Ernst & Ernst V. Hochfelder case required the plaintiffs to prove _____, or the intent to deceive, manipulate, or defraud on the part of the auditors.

scienter

At the planning stage of an audit, auditors consider materiality to determine their:

scope of the audit

Which of the following is NOT a step involved in making any decision?

select the least costly course of action

The most technical audit working paper review is performed by the _____

senior

On-the-job staff training is one of the major responsibilities of the _____

senior "in-charge" auditor

Preventing the accumulation of excessive staff hours on inconsequential matters is one of the responsibilities of the _____

senior "in-charge" auditor

An approach to liability that requires a defendant found guilty to pay their proportionate share and the share of any defendants that are unable to pay is called joint and _____ liability

several

Silver Corporation is seeking a new auditor due to a disagreementwith the current audit firm regarding a financial statement disclosure. Silver is looking for a new auditor who will provide a clean opinion on the statements. This is known as ______

shopping for accounting principles

An individual or company that has a certain expertise in a field of knowledge other than accounting and auditing is called a(n) _____

specialist

The first position of a college graduate entering the public accounting profession is that of _____ _____

staff accountant

When a governmental unit passes laws and regulations that impose potential liability upon CPA's, __________ liability is developed

statutory

Written law, created by state or federal legislative bodies is called _____ law

statutory

Test of account balances and transactions designed to detect any material misstatements in the financial statements are called _____

substantive procedures

The demand for audits of tax returns is created because

tax returns are self-prepared and may be biased

In a situation in which there is a risk of non-compliance that is not directly addressed in the Code of Professional Conduct, a CPA in business should use _____

the conceptual framework

A plaintiff's losses or damages are dependent upon:

the natre of the engagement performed

During an audit, Jose becomes aware that the client has violated anenvironmental law by disposing of waste inapproriately. jose feels that the violation is intentional and material; and therefore has an obligation to communicate the matter to _____

those charged with governance

As audit working papers are prepared, auditors use several symbols or _____ to identify specific steps in the work performed

tick marks

A basis for estimating fees, communicating areas of high risk and measuring the efficiency of staff is provided by the ____ _____

time budget

The application of performance materiality to a particular audit procedures is _____ ______

tolerable misstatement

Both clients and third parties may sue CPA's for the _____________ of negligence.

tort

The sequence of procedures applied by the company (client) in processing a particular type of recurring event is called a(n) _____ cycle

transaction

The review of changes in an account balance over time is called _____ _____

trend analysis

T/F: Industry specialization is common in large public accounting firms

true

T/F: The two type of assurance services are those that increase the reliability of information and those that involve putting information in a form or context that facilitates decision making

true

T/F: the client's staff can assist the auditors by preparing workingpaers, such as an analysis of accounts receivable written off

true

The most widely cited common law precedent is based on:

ultramares

CPA's may face criminal prosecution:

under security laws and other statutes

A possible fraud concern management _____ of the allowance for doubtful accounts

understatement

Audit procedures _____

vary considerably from one engagement to another

The backbone of the working papers (which is ordinarily an electronic spreadsheet) is the _____

working trial balance