Audit

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 clients application for bank financing

Which of the following business characteristics is not indicative of high inherent risk?

A large amount of assets

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

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

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

A partners checking account, which is fully insured by the Federal Deposit Insurance Corporation, is held at a financial situation 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 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 planning and performing an audit, auditors are concerned about risk factors for two distinct types of fraud, fraudulent financial reporting and misappropriation of assets. Which of the following is a risk factor for misappropriation of assets.

An unreliable accounting system,

Which of the following is not a function of audit working papers?

Assist management in illustrating that the financial statements are in accordance with generally accepted accounting principles

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

In using the work of a specialist, the auditors referred to the specialists findings in their report. This would be an appropriate reporting practice if the:

Auditors, as a result of the specialists findings, give a qualified opinion on the financial statements

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

Both attest and assurance services require independence

Which of the following has primary responsibility for the fairness of 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

Which of the following is not a primary approach to auditing an accounting estimate?

Confirm the amounts

Of the following, which is the least reliable type of audit evidence?

Copies of sales invoices inspected by the auditors

A difference of opinion concerning accounting and auditing matters relative to a particular phase of the audit arises between an assistant auditor and the auditor responsible for the engagement. After appropriate consultation, the assistant auditor asks to be disassociated from the resolution of the matter. The working papers would probably:

Document the assistant auditor's position and how the difference of opinion was resolved

Which of the following is not a financial statement assertion made by management?

Effectiveness of internal controls

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 bas been found or is suspected

An audit provides reasonable assurance of detecting material misstatement due to:

Fraudulent Financial Reporting and Misappropriation of Assets

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

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

PCAOB

In what section of the audit working papers would a long-term agreement be filed?

Permanent working paper file

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

Preparation of the company's tax return

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

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

Reasonable

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 client?

Relevant ethical requirements

The Sarbanes-Oxley Act created the PCAOB. Which of the following is not one of the responsibilities of that board?

Review financial reports filed with the SEC

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

Statements of Responsibilities for Assurance Services

Bill 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

three conditions generally are present when fraud occurs. Selection the one below that is not one of these conditions

Supervisionary position

A primary purpose of the audit working papers is to:

Support the auditors opinion

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 FASAB

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

The applicable state board of accountancy

The general group of the 10 PCAOB Auditing standards requires that

The auditors maintain an independent mental attitude

Which of the following is not a difference noted when comparing the AICPA audit report to the international audit report?

The international audit report includes an opinion on internal control

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?

The substance of related party transactions may differ from their form

What best describes the purpose of the auditor's 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?

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

Analytical procedures are most likely to detect:

Unusual transactions

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 should not normally be included in the engagement letter for an audit?

a listing of the client's branch office selected for testing

the primary objective of tests of details of transactions performed as substantive procedures is to:

detect material misstatements in the financial statements

The risk that the auditors will conclude, based on substantive procedures, that a material misstatement does not exist in an account balance when, in fact, such misstatement doesnt exist is referred to as

detection risk

Which of the following best describes what is meant by the term "fraud risk factor"

factors often observed in circumstances where frauds have occurred

which of the following should the auditors obtain from the predecessor auditors before accepting an audit engagement

facts that might bear on the integrity of management

Which of the following elements underlies the application of generally accepted auditing standards, particularly the standards of fieldwork and reporting?

materiality and audit risk

The audit committee of a company must be made up of:

members of the board of directors who are not officers or employees

As one step in testing sales transactions, a CPA traces a random sample of sales journal entries to debits in the accounts receivable subsidiary ledger. This test provides evidence as to whether:

recorded sales have been properly posted to customer accounts

which portion of an audit is least likely to be completed before the balance sheet date

substantive procedures

Which of the following is most likely to be an overall response to fraud risks identified in an audit?

use less predictable audit procedures