AUD chapter 1

Most states currently require students to take _______________ semester hours of college before receiving a CPA certificate, but many states allow students to take the CPA exam after only _______________ semester hours of college. (Enter your answers as whole numbers.)

150, 120

The new exam that is part of the CPA Evolution is scheduled to debut in which year? Multiple choice question. 2025 2024 2023

2024

Which of the following statements are correct? Multiple select question. Larger CPA firms usually provide more nonaudit and attestation services for their clients than smaller firms. Advisory services are the largest source of revenue for most of the Big 4 accounting firms. Traditional financial statement audits are the most frequent assurance engagement requested by most medium nonpublic companies. The level of auditing activity provided increases as the size of the public accounting firm decreases.

Advisory services are the largest source of revenue for most of the Big 4 accounting firms. Traditional financial statement audits are the most frequent assurance engagement requested by most medium nonpublic companies.

Which of the following would best be described as an attest engagement?

An engagement to assess the effectiveness of an internal control system.

Which of the following best describes the focus of the following engagements?

Auditing Engagement - Financial Statements Attestation Engagement - Financial Information Assurance Engagement - Any information Consulting Services Engagement - Advice and decision support

The Sarbanes-Oxley Act of 2002 prohibits public accounting firms from providing which of the following services to an audit client?

Bookkeeping services, Internal auditing services, Valuation services

Which of the following is a reason to obtain professional certification?

Certification provides credibility that an individual is technically competent., Certification often is a necessary condition for advancement and promotion within a professional services firm., Obtaining certification is often monetarily rewarded by an individual's employer.

True or false: A specific error in a financial statement affects only one management assertion.

False

True or false: Most skills are developed on the job so education is not as important once you receive your diploma. True False

False

True or false: When considering established criteria for effective communication, external auditors rely on financial and managerial models of efficiency and effectiveness.

False

Performance audits usually include:

Financial audits., Economy and efficiency audits., Program audits.

Identify the correct statements regarding CPA services. Multiple select question. Audits are rarely requested by nonpublic companies of any size. Financial statement audits are the most frequent assurance engagement requested by public companies. Some Big Four firms generate more revenue from consulting service than from auditing and assurance. Smaller firms do not provide any type of audit services for their clients.

Financial statement audits are the most frequent assurance engagement requested by public companies. Some Big Four firms generate more revenue from consulting service than from auditing and assurance.

The text emphasizes three pieces of "good news" regarding skill development. Which of the following is not one of the identified pieces? Multiple choice question. Learning and skill development continue over a lifetime, and no one expects you to know everything on the job. Professionals are expected to be knowledgeable in at least 75% of these areas upon graduation from college. No one expects you to know everything on the job.

Professionals are expected to be knowledgeable in at least 75% of these areas upon graduation from college.

The AICPA and the National Association of _____________ Boards of Accountancy came together on a joint initiative to redesign the CPA exam.

State

The CISA requires what education level? Multiple choice question. There is no specific degree requirement. Bachelor's degree or its educational equivalent is required. Master's degree in relevant field is required.

There is no specific degree requirement.

True or false: Understanding management assertions is a key component of planning an audit.

True

An auditor seeks to test the accuracy of the amount recorded as revenue on a contract with a customer under ASC 606. Which PCAOB assertion is most likely being tested?

Valuation or Allocation.

Operational audits are ______. Multiple select question. often provided by external auditors to their public audit clients as part of the annual audit a type of assurance service provided by public accounting firms integral to internal auditing performed by both internal and external auditors

a type of assurance service provided by public accounting firms integral to internal auditing performed by both internal and external auditors

The Sarbanes-Oxley Act of 2002 generally prohibits public accounting firms from:

acting in a managerial decision-making role for an audit client., auditing the firm's own work on an audit client., providing tax consulting to an audit client without audit committee approval.

In addition to entry-level education requirements, ______ certifying organizations have regulations about continuing professional education (CPE).

all

The appropriate percentage of an asset or liability balance being recorded on the income statement in accordance with GAAP or IFRS is referred to as ________________ and ________________ refers to the appropriate recording of related transactions.

allocation, accuracy

The Auditing and Attestation section of the CPA exam consists of multiple choice questions and task-based simulations that: Multiple choice question. are equally weighted. give more weight to the simulations. give more weight to the multiple choice questions.

are equally weighted.

The Auditing and Attestation section of the CPA exam consists of multiple choice questions and task-based simulations that: Multiple choice question. give more weight to the simulations. give more weight to the multiple choice questions. are equally weighted.

are equally weighted.

When audit procedures are specified, the evidence produced by each procedure must relate to one or more specific management ____________________

assertions

External auditors define operational auditing as a type of ________________ service offered by public accounting firms.

assurance

The broadest category of independent professional accounting services intended to help decision makers by improving the quality or context of information they use are ______ services. Multiple choice question. assurance attest auditing

assurance

Financial statement auditing and _____________ services are both types of assurance services, but _________________ services are not.

attestation, consulting

Generally accepted government auditing standards define and describe three broad types of audits that may be performed: financial audits, _________________ engagements and ________________ audits.

attestation, performance

The U.S. Government Accountability Office (GAO) ______. Multiple select question. is an agency of the United States Federal Judicial Branch auditors may be considered the highest level of internal auditors for the federal government is headed by the U.S. Comptroller General is organizationally independent of the agencies it audits

auditors may be considered the highest level of internal auditors for the federal government is headed by the U.S. Comptroller General is organizationally independent of the agencies it audits

Professional skepticism ______. Multiple select question. causes adversarial or confrontational relationships between auditors and management causes auditors to search for errors and fraud with a material effect on financial statements is important when making professional judgments is required because of misdeeds perpetrated by just a few people

causes auditors to search for errors and fraud with a material effect on financial statements is important when making professional judgments is required because of misdeeds perpetrated by just a few people

Once a candidate passes the exam and satisfies state requirements for education and experience, a CPA ____________ is received from the state board of accountancy and the new CPA pays a fee to obtain a state _______________ to practice of work for a CPA firm.

certificate, license

Designations for accountants within public accounting other than a CPA include ______. Multiple select question. certified internal auditor certified fraud examiner certified management accountant certified forensic accountant

certified internal auditor certified fraud examiner certified forensic accountant

The most appropriate certifications for accountants working outside of public accounting include ______. Multiple select question. certified management accountant certified information systems security professional certified information technology professional certified forensic accountant

certified management accountant certified information technology professional

Analyzing repair and maintenance expenses to ensure they should not have been capitalized test for the assertion of proper ______. Multiple choice question. allocation cutoff classification rights and obligations

classification

Preparing financial statements from a client's books and records without performing any evidence-gathering work is a(n) ______. Multiple choice question. type of audit assurance service review compilation

compilation

The most common attestation engagements are _____________ and __________________.

compilations, reviews

In auditing the accrued liabilities account on the Balance Sheet, an auditor's procedures most likely would focus primarily on management's assertion of:

completeness.

Environmental conditions that increase user demand for relevant and reliable information include ________________ , remoteness, time sensitivity and __________________ .

complexity, consequences

A potential _________________ of interest always exists between the auditors and the management of the company being audited.

conflict

The incentive for company management to provide overly optimistic information results in a potential ______ between information providers and users. Multiple choice question. conflict of interest audit risk information risk natural skepticism

conflict of interest

Environmental conditions that increase user demand for relevant and reliable information include ______. Multiple select question. closeness consequences time sensitivity complexity

consequences time sensitivity complexity

Sarbanes-Oxley prohibits public accounting firms from performing Multiple select question. consulting services for companies they do not audit consulting services that require auditors to make managerial decisions services that would result in a firm auditing its own work any type of consulting services to public companies

consulting services that require auditors to make managerial decisions services that would result in a firm auditing its own work

The PCAOB prohibits an accounting firm from providing auditing services to a public company if the accounting firm ______. Multiple select question. consults on "listed" transaction tax strategies accepts fees that are based on tax outcomes provides tax services for key company executives provides normal tax advice to the company

consults on "listed" transaction tax strategies accepts fees that are based on tax outcomes provides tax services for key company executives

Under the concept of substantial __________________, CPAs can practice across state lines as long as certain requirements are met.

equivalency

_________________ asserts that each of the balance sheet and income statement balances actually exist, while __________________ asserts that each of the income statement events and transactions actually did occur in the proper period.

existence, occurrence

GAO auditors ______. Multiple choice question. are the highest level of external auditors for the government and do not act as internal auditors are the highest level of internal auditors for the government and do not act as external auditors fill roles that have similarities with both internal and external auditors

fill roles that have similarities with both internal and external auditors

Services that public accounting firms are prohibited from providing to audit clients under Sarbanes-Oxley include Blank______. Multiple select question. financial information system design and implementation appraisal or valuation services bookkeeping and related services tax return preparation advice management or human resource services

financial information system design and implementation appraisal or valuation services bookkeeping and related services management or human resource services

Providing balance sheets, income statements, and statements of shareholders' equity, comprehensive income and cash flow is the function of __________________ _________________________ .

financial reporting

The ownership assertion ______. Multiple choice question. includes capitalized lease property only includes assets for which the company holds the title does not extend to accounting liabilities the company is not yet obligated to pay does not apply to intangible assets

includes capitalized lease property

The completeness assertion ______. Multiple select question. includes determining if all expenses are recorded requires the auditor to obtain persuasive evidence may be verified by management representation only

includes determining if all expenses are recorded requires the auditor to obtain persuasive evidence

The probability that data circulated by a company will be false or misleading is ______ risk. Multiple choice question. consequence business information reliability

information

There is an expectation that information professionals serve the role of ______ who lend credibility to the given information. Multiple choice question. primaries technicians intermediaries

intermediaries

"An independent, objective assurance and consulting activity designed to add value and improve an organization's operations" is the definition of ______________ auditing.

internal

"An independent, objective assurance and consulting activity designed to add value and improve an organization's operations" is the definition of _____________________ auditing.

internal

Helping an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes is the objective of _________________ auditing.

internal

High-quality information to make educated financial decisions is demanded by ______. Multiple choice question. auditors information professionals investors and creditors

investors and creditors

The function of producing financial report ______ included in auditing. Multiple choice question. is may or may not be is not

is not

Work experience ______. Multiple select question. is required to become certified must be obtained in a CPA firm is required to sit for a professional exam requirements vary across states

is required to become certified requirements vary across states

Services that public accounting firms are prohibited from providing to audit clients under Sarbanes-Oxley include _____. Multiple select question. legal and expert services corporate tax return preparation services internal audit outsourcing investment services actuarial services

legal and expert services internal audit outsourcing investment services actuarial services

The existence of cash is always relevant, and valuation ______ a relevant assertion for the cash account Multiple choice question. is never may not be is always

may not be

Although not required to sit for a professional exam, ______ states require experience to become certified. Multiple choice question. most a few all

most

Procedures performed to ensure recorded sales transactions actually happened are done to test the ______ assertion. Multiple choice question. presentation and disclosure occurrence valuation and allocation existence

occurrence

Auditors complete procedures to ensure reported sales transactions were not created to fraudulently inflate profits to in order to test the ______________ and __________________ assertions.

occurrence, cutoff

As a general rule the _________________ assertion relates to events, transactions, presentations and footnote disclosures and the _______________ assertion relates to account balances.

occurrence, existence

Helping managers discharge their management responsibilities and improve profitability is the goal of ______________ auditing.

operational

Helping managers discharge their management responsibilities and improve profitability is the goal of _________________ auditing.

operational

The study of business activities for the purpose of making recommendations about the efficient and effective use of resources, effective achievement of business objectives and compliance with company policies is ______ auditing. Multiple choice question. internal operational governmental regulatory

operational

The CPA exam: Multiple select question. places emphasis on critical thinking. includes 102 multiple-choice questions in the AUD section. includes task-based activities.

places emphasis on critical thinking. includes task-based activities.

In an attestation engagement, a CPA practitioner is engaged to:

prepare a written report containing a conclusion about the reliability of a management assertion.

An auditor's purpose in auditing the information contained in the pension footnote most likely is to obtain evidence concerning management's assertion about:

presentation and disclosure.

The U.S. Government Accountability Office (GAO) ______. Multiple select question. provides a wide range of performance audits emphasizes the accountability of public officials in regards to public funds and other resources performs attestation engagements but not financial audits provides a compliance audit function with respect to laws and regulations

provides a wide range of performance audits emphasizes the accountability of public officials in regards to public funds and other resources provides a compliance audit function with respect to laws and regulations

The PCAOB argues that auditor independence would be impaired if the firm ______. Multiple choice question. prepares the company's corporate tax return provides any type of tax advice to the company provides tax services to key executives

provides tax services to key executives

IRS agents and state and federal bank examiners are examples of _______________ auditors.

regulatory

If there is a "reasonable possibility" that a material misstatement exists related to an assertion for the significant account being audited, the assertion is considered to be __________________ .

relevant

When a CPA performs a(n) ________________, limited-evidence gathering work is done, but the scope is narrower than in an audit.

review

Internal auditors ______. Multiple select question. review the effectiveness of achieving results compared to established objectives examine evidence and issue an opinion on the fairness of financial statements review internal control systems to ensure compliance with company policies perform audits of financial reports for limited external distribution

review the effectiveness of achieving results compared to established objectives review internal control systems to ensure compliance with company policies perform audits of financial reports for limited external distribution

If there is a reasonable possibility that an account or disclosure could contain a misstatement that is material, the account or disclosure is identified as ___________________

significant

The auditor considers the relevance of each financial statement assertion, one at a time, after the ______________ _______________ and disclosures have been identified.

significant accounts

Internal auditing work is ______ the work performed by external auditors. Multiple choice question. always similar to sometimes similar to always different from

sometimes similar to

CPA certificates and licenses to practice are issued by ______. Multiple choice question. the AICPA state boards

state boards

Today activist shareholders are increasingly pressuring boards and upper management teams regarding social responsibility, the environment and other issues related to ___________________ .

sustainability

According to the American Accounting Association, auditing is a(n) _________________ _________________ of objectively obtaining and evaluating evidence.

systematic process

To minimize business risk and take advantage of opportunities, CEOs demand information that is ______. Multiple select question. timely relevant reliable positive

timely relevant reliable

How many years of experience are required for the CFE certification? two years three years five years

two years

According to SFAC No. 2, "Qualitative Characteristics of Accounting Information", _________________ is "the quality of information that enables users to perceive its significance."

understandability

Considering whether disclosures have been written in plain English tests the assertion of ______. Multiple choice question. completeness presentation understandability existence

understandability

Comparing vendor invoices to inventory prices, obtaining lower of cost or market data and recalculating deprecation schedules relate to the ______ assertion. Multiple choice question. occurrence rights and obligations valuation and allocation presentation and disclosure

valuation and allocation