Chapter 1 & 2 Quiz

Which of the following statements best explains why the CPA professional has found it essential to promulgate ethical standards and to establish means for ensuring their observance?

A distinguishing mark of a profession is its acceptance of responsibility to the public.

The Curry Audit Firm audits the Hartsell Corporation. Both firms are located in Seattle, though Curry also has a branch in Chicago. Among the following, who are "covered members" who must comply with AICPA independence rules? a. Lou, who is on Curry's audit team for Hartsell b. Joe, who is a tax manager in Curry's Seattle office who does no work for Hartsell c. Mick, who answers phones in Curry's Seattle office d. Babe, who is a tax partner in Curry's Chicago office

A.

Which of the following is a direct financial interest? a. One owned directly by the covered member (even if managed by others) b. An interest owned by others and not under ones control c. One beneficially owned by the covered member through an investment vehicle, estate, trust, or intermediary when the beneficiary neither controls the intermediary nor has authority to supervise or participate in its investment decisions d. An interest where the individual is not the record owner but has a right to some or all of the underlying benefits of ownership.

A.

The PCAOB has authority to establish which of the following relating to public. companies?

Attestation Standards- Yes Independence Standards- Yes

Lynn is on the attest engagement team for Whillikers Manufacturing Corporation (WMC). Which of the following financial arrangements would not create an independence problem for Lynn? a. Lynn borrows $1,000 from Sam, an officer of WMC b. Lynn consider taking WMC's CEO for a loan, but decides not to c. Lynn loans $2,000 to Gonzo, an investor who owns 22% of WMC's outstanding shares d. Lynn borrows $5,000 from WMC

B.

All of the following are reasons why users would demand an audit of financial statements except: a. complexity b. reliability c. cost d. remoteness

C.

An independent auditor must have which of the following? a. experience in taxation that is sufficient to comply with generally accepted auditing standards b. a preexisting and well informed point of view with respect to the audit c. a background in many different disciplines d. technical training that is adequate to meet the requirements of a professional

D.

Auditors can only provide reasonable assurance that the financial statements are presented fairly because a. sampling techniques are used to gather evidence b. some items in the financial statements are subjective c. an audit must be completed in a reasonable amount of time d. all of these answer choices are correct

D.

Under the Sarbanes-Oxley Act of 2002, which of the following is not a stated responsibility of the Public Company Accounting Oversight Board (PCAOB)? a. overseeing the registration of public accounting firms b. conducting inspections of registered public accounting firms. c. issuing auditing standards that must be followed by registered public accounting firms in auditing the financial statement of issuers. d. issuing accounting standards that must be followed by issuers in financial reporting.

D.

Which of the following circumstances most likely would cause an auditor to consider whether material misstatements exist in an entity's financial statements? a. clerical errors are listed on a monthly computer-generated exception report b. differences are discovered during the clients annual physical inventory count c. significant deficiencies previously communicated have not been corrected d. supporting records that should be readily available are frequently not produced when requested

D.

Which of the following is a "self review" threat to member independence? a. An engagement team member has a direct financial interest in the attest client b. A second partner review is required on all attest engagements c. An engagement team member has a spouse that serves as a CEO of the attest client d. An engagement team member prepares invoices for the attest client.

D.

Which of the following is not a primary responsibility of an auditor? a. Provide creditors with an opinion on whether financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. b. Provide investors with an opinion by the auditor on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. c. Provide regulators with an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework. d. Provide management with an opinion on whether the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.

D.

Management is responsible for which of the following?

Designing, implementing, and maintaining internal control relevant to the preparation of the financial statements.

Auditors of publicly traded companies are required to perform a(n) ___________ for their clients.

Integrated audit

Section 404 of SOX requires each annual report of an issuer to include which of the following?

Management's assessment of the effectiveness of internal control over financial reporting.

A cooling-off period of how many years is required before a member of an issuer's audit engagement team may begin working for a the registrant in a key position?

One year.

Which of the following organization issues auditing standards for the audits of public companies?

PCAOB

The independent audit's plan for an examination in accordance with generally accepted auditing standards is influenced by the possibility of material misstatements. The auditor with therefore conduct the examination with an attitude of

Professional skepticism.

A financial statement audit report issued for a public company states that the audit was performed in accordance with which of the following standards?

Public Company Accounting Oversight Board (PCAOB)

Which of the following acts by a CPA is a violation of professional standards regarding the confidentiality of client information?

Releasing financial information to a local bank with the approval of the client's mail clerk.

The organization charged with protecting investors and the public by requiring full disclosure of financial information by companies offering securities to the public is the:

Securities and Exchange Commission (SEC)

Which of the following underlies the application of generally accepted auditing standards, particularly the standards for obtaining sufficient appropriate audit evidence?

The elements of materiality and audit risk.

Operational (performance) audits are useful because they:

are concerned with the economy, efficiency, and effectiveness of an organizations activities.

When a threat to independence arises that is not specifically considered in the Code of Professional Conduct an auditor should consider

available safeguards to independence

The phrase "generally accepted accounting principles" is an accounting term that

encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time.

With regard to financial statements, the auditor is required to obtain reasonable assurance, which is a level of assurance that is _______.

high, but not absolute

Generally accepted accounting standards (GAAS) are

pronouncements issued by the Auditing Standards Board

The role of COSO is to:

provide guidance in the area of internal control and risk management.

Which of the following services cannot be performed for a nonissuer attest client?

signing payroll checks

The function of internal audit is determined by:

those charged with governance and management

When auditors determine that the financial statements of a private firm are presented fairly in accordance with the applicable financial reporting framework, they issue the standard ________ report, which is often referred to as a "_______" report.

unmodified; clean

The audit expectation gap occurs when:

users beliefs do not align with what professional standards and regulations expect of auditors.