Chapter 1 Multiple Choice Questions

Independent CPAs perform audits on the financial statements of issuers. This type of auditing can best be described as

A discipline that attests to financial information presented by management

An audit of the financial statements of Camden Corporation is being conducted by an external auditor. The external auditor is expected to a. Express an opinion as to the fairness of Camden's financial statements b. Express an opinion as to the attractiveness of Camden for investment purposes and critique the wisdom and legality of its business decisions c. Certify the correctness of Camden's financial statements d. Make a 100% examination of Camden's records

A.

Who establishes generally accepted auditing standards? a. auditing standards board and the public company accounting oversight board b. Financial Accounting Standards Board and the Governmental Accounting Standards Board. c. State Boards of Accountancy. d. Securities and Exchange Commission

A.

Brandnew Company is going public, and its stock will be listed on a stock exchange. Audited financial statement are required to be filed with the SEC. Who is expected to be the primary user of the audited financial statements? A. The stock exchange B. Brandnew Company's investors C. THE SEC D. Brandnew Company's board of directors

B.

Notes that are included with financial statements are the responsibility of the A. SEC B. Company's management C. Independent Auditor D. Internal Auditor

B.

Users of an issuer's financial statements demand independent audits because a. Users demand assurance that fraud does not exist. B. Management may not be objective in reporting C. Users expect auditors to correct management errors. D. Management relies on the auditor to improve internal control

B.

With which of the following is the AICPA least concerned? A) Professional standards for CPAs B) Research and development of accounting standards C) Standards guiding the conduct of internal auditors D) Self-regulation of the accounting profession

C)

In performing a financial statement audit, which of the following would an auditor be least likely to consider? A) Internal control B) Compliance with GAAP C) Fairness of the financial statement amounts D) Quality of management's business decisions

D)

The primary reason for an audit by an independent, external audit firm is to

Provide increased assurance to users as to the fairness of the financial statements

The most important benefit of having an annual audit by a public accounting firm is to: a. Provide assurance to investors and other outsiders that the financial statements are reliable b. Enable officers and directors to avoid personal responsibility for any misstatements in the financial statements c. Meet the requirements of government agencies d. Provide assurance that illegal acts, if any exist, will be brought to light

a.

What best describes the purpose of the auditors' consideration of internal control in a financial statement audit for a nonpublic company? a. To determine the nature, timing, and extent of audit testing b. to make recommendations to the client regarding improvements in internal control c. To train new auditors on accounting and control systems d. To identify opportunities for fraud within the client's operations

a.

Which of the following has primary responsibility for the fairness of the representations made in financial statements? a. Client's management b. Independent Auditor c. Audit Committee d. AICPA

a.

Match the following definitions to appropriate service a. An attest engagement in which the CPAs agree to perform procedures for a specified third party and issue a report that is restricted to use by that party. b. An engagement designed to express limited assurance relating to subject matter or an assertion. c. An engagement in which the CPAs issue an examination, a review, or an agreed-upon procedures report on subject matter or an assertion about subject matter that is the responsibility of another party (e.g. management) d. An examination designed to provide an opinion that is the CPA's highest level of assurance that the financial statement follow generally accepted accounting. e. As required by the SOX act and the PCAOB, an audit that includes providing assurance on both the financial statement and internal control over financial reporting. f. Professional Services that enhance the quality of information, or its context, for decision makers. g. An attest engagement designed to provide the highest level of assurance that CPAs provide on an assertion.

a. Agreed-Upon Procedures b. Review c. Attest engagement d. Audit of financial statements e. Integrated Audit f. Assurance Services g. Examination

For each of the following statements, indicate whether it relates to an examination, review, or agreed-upon procedures. If the statement does not relate to examinations, reviews, or agreed-upon procedures, reply N. a. When financial statements are involved, this is referred to as an audit b. The term "We are not aware of any material modifications that should be made" is often included in the report. c. The report issued provides a summary of procedures followed and findings. d. The report issued provides "reasonable assurance". e. The procedures involved are generally limited to inquiry and analytical procedures. f. The report issued provides 'absolute assurance". g. The report issued provides "limited assurance". h. The procedures followed are agreed upon with the specified users or users. i. This type of engagement provides more assurance than review. j. The CPA need not be independent to perform this service

a. Examination b. Review c. Agreed-Upon Procedures d. Examination e. Review f. N g. Review h. Agreed-Upon Procedures i. Examination j. N

The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board(PCAOB). Which of the following is not one of the responsibilities of that board? a. Establish independence standards for auditors of public companies b. Review financial reports filed with the SEC. c. Establish auditing standards for audits of public companies d. Sanction registered audit firms

b.

Which of the following is an example of a compliance audit? a. An audit of financial statements b. an audit of a company's policies and procedures for adhering to environmental laws and regulations c. An audit of a company's internal controls over financial reporting d. an audit of the efficiency and effectiveness of a company's legal department

b.

In general, internal auditors' independence will be greatest when they report directly to the: a. financial vice president b. corporate controller c. audit committee of the board of directors d. chief executive officer

c.

Which of the following best describes the relationship between assurance services and attest services? a. While attest services involve financial data, assurance services involve nonfinancial data. b.while attest services require objectivity, assurance services do not require objectivity c. Both attest and assurance services require independence d. Attest and assurance services are different terms referring to the same types of services

c.

Which of the following organizations establishes accounting standards for US Government agencies? a. The financial Accounting Standards Board b. The Governmental Accounting Standards Board c. The Federal Accounting Standards Advisory Board d. The PCAOB

c.

Governmental auditing, in addition to including audits of financial statements, often includes audits of efficiency, effectiveness, and: a. Adequacy b. Evaluation c. Accuracy d. Compliance

d.

Which of the following did not precipitate the passage of the Sarbanes Oxley Act of 2002 to regulate public accounting firms: a. Disclosures related to accounting irregularities at Enron and WorldCom b. Restatements of financial statements by a number of public companies c. Conviction of the accounting firm of Arthur Andersen LLP d. Ethical scandals at the AICPA

d.

Which of the following is correct about forensic Audits? a. All audit engagements are forensic in nature. b. Forensic audits are performed by law firms; they are not performed by CPA firms c. Forensic audits are equivalent to compliance audits d. Forensic audits are usually performed in situations in which fraud has been found or is suspected

d.

Which of these organizations has the responsibility to perform inspections of auditors of public companies? a. American Institute of Certified Public Accountants b. Securities and Exchange Commission c. Financial Accounting Standards Board d. Public Company Accounting Oversight Board

d.