AC 523 Ch. 2 Questions
Which of the following are true statements regarding audits and auditing standards?
- Audits require a great deal of professional judgment. - An audit never has sufficient evidence to guarantee statements are free from material misstatements. - Auditors often have to rely on persuasive rather than conclusive evidence.
Which of the following are standards produced by some of the several standing committees housed by the AICPA?
- Compilation and Review Standards. - Quality control and peer review Standards. - The Code of Professional Conduct. - Attestation Standards.
The PCAOB conducts a program of regular inspections to assess the degree of compliance of registered accounting firms with the rules and professional standards of the ______.
- Public Company Accounting Oversight Board (PCAOB). - Sarbanes-Oxley Act of 2002. - Securities and Exchange Commission (SEC).
Identify the four categories of principles underlying an audit conducted in accordance with generally accepted auditing standards.
- Purpose and premise of an audit. - Reporting. - Responsibilities. - Performance.
For a manufacturer, the inventory management process includes ______.
- accumulating and allocating costs to inventory. - making cost adjustments.
Businesses obtain capital through ______.
- borrowing. - soliciting investments.
According to "Principles Underlying an Audit", auditors must ______.
- comply with relevant ethical requirements. - ensure they are competent. - maintain an attitude of professional skepticism.
Management engages in the five business processes to ______.
- implement strategies. - achieve objectives.
A limited liability partnership ______.
- provides some personal protection against lawsuits. - is generally governed by laws applicable to general partnerships.
The financing process includes ______.
- providing a return on owners' investments. - borrowing and repaying funds. - investing in long term assets.
The Sarbanes-Oxley Act ______.
- requires public companies to obtain an integrated audit. - impacts the duties and practices of public companies.
An audit team generally includes ______.
- senior(s). - staff members. - partner. - manager.
When a significant event occurs that may be of interest to investors, the SEC requires a publicly traded company to file a(n) ______.
8K
The PCAOB ______.
- requires registration of all public accounting firms providing public company audits. - can impose sanctions for rule violations. - is overseen by the SEC.
Which group was established within the FASB to meet accountants' needs for timely guidance on accounting practices and methods?
Emerging Issues Task Force (EITF)
The Sarbanes Oxley-Act effectively transferred authority to set and enforce auditing standards for public company audits to the ______.
Public Company Accounting Oversight Board
Match the prescribed duties with with the appropriate audit team member. Responsible for assigning tasks of associates and directing the day-to-day performance of the audit.
Senior/In-charge
Organizations design and implement _______________ ________________ systems to capture the details of transactions involved in each business process.
accounting information
Primary responsibility for maintaining effective internal control and ensuring the fairness of the company's financial statements rests with the ______.
management
CPA firms may perform management advisory services for ______ only.
nonaudit clients
The underlying ASB principles of auditing standards apply ______.
to audits under any auditing standards
The most important function of the ______ is the promulgation of rules and standards that guide audits and related services provided to nonpublic companies, governmental, and other entities.
American Institute of Certified Public Accountants (AICPA)
Match the prescribed duties with with the appropriate audit team member. Responsible for preparing adequate and appropriate documentation of completed work.
Associate/Staff
All auditors, including those auditing public companies, must follow the AICPA's _____________ of ____________ ____________
Code of Professional Conduct
A privately funded body whose mission is to establish standards for financial accounting and reporting is known by the initials
FASB
True or false: Accounting firms that audit the financial statements of nonpublic entities in the United States are required to comply with the auditing standards established by the PCAOB.
False. Audits of nonpublic companies are governed by ASB standards.
True or false: In the purchasing process, businesses must sell goods and services to support their operations.
False. In the purchasing process, businesses acquire goods and services to support operations.
These types of reports summarize the effects of the organization's transactions on its account balances and are used to establish management accountability to outside owners.
Financial
This organization's auditors conduct audits of activities, financial transactions and accounts of the federal government and also assist Congress by performing special audits, surveys and investigations.
GAO. Government Accountability Office
The international counterpart to the FASB is the
IAASB
This organization is a part of the U.S. Treasury Department and its auditors examine and audit the books and records of organizations and individuals to determine their federal tax liability.
IRS
The AICPA's Auditing Standards Boards recently completed a major project to converge its auditing standards with the standards of the ______ to the extent possible.
International Auditing and Assurance Standards Board (IAASB)
Which organization issues International Standards on Auditing (ISA) and is the predominantly recognized international auditing standards setter outside the United States?
International Auditing and Assurance Standards Board (IAASB)
The IASB is responsible for the development and publication of ______.
International Financial Reporting Standards
Which type of organizational structure provides greater personal protection against lawsuits and ensures that partners are not personally responsible for liabilities arising from other partners' negligent acts?
Limited Liability Partnerships (LLP)
Match the prescribed duties with with the appropriate audit team member. Responsible for reviewing the working papers, financial statements and audit report.
Manager
To deter possible recurrence of rule violations and to enhance the quality and reliability of future audits, the ______ can impose sanctions on registered firms.
PCAOB
Match the prescribed duties with with the appropriate audit team member. Responsible for ensuring that the audit is properly planned and conducted in accordance with applicable auditing standards.
Partner
Which act regulates ongoing reporting by companies whose companies securities are listed and traded on a stock exchange or that possess assets greater than $10 million and its equity securities are held by 500 or more persons?
Securities Exchange Act of 1934
Which of the following statements regarding accounting firms and auditing standards is correct?
The ASB establishes standards for nonpublic entities and the PCAOB establishes standards for SEC registrants.
Which act prohibits external auditors from providing many forms of non-audit services and consulting work to public companies for which the auditor also provides a financial statement audit?
The Sarbanes-Oxley Act of 2002
True or false: CPAs can offer a variety of services that provide assurance but are not considered auditing or attestation.
True. An example is assurance to a family that another family member's asset are protected.
True or false: The context provided by the entity's business is a primary aspect of the environment in which financial statement auditing is conducted.
True. It greatly impacts the auditor and the nature of the audit.
True or false: If an auditor fails to exercise due professional care, he or she can be held liable for civil damages or even criminal penalties.
True. The auditor must have an attitude that includes a questioning mind and a critical assessment of audit evidence.
Under ASB and PCAOB standards, the word "should" indicates to the auditor ______.
a responsibility to comply unless alternative actions are sufficient to achieve the objectives of the requirement
Auditing and attestation are specialized forms of the general category of _________ services
assurance
Assertions companies make about sustainability has led to promising new area of __________ services for auditors.
attest
When an auditor is hired to certify or authenticate a certain business process or account balance, the auditor is providing __ services.
attest
The body that oversees the internal and external auditing work done for the organization is the ______.
audit committee
An audit of internal control is ______ for private entities.
available but not required
All the people, processes and activities in place to help ensure proper stewardship over an entity's assets is the definition of
corporate governance
A system or code of conduct based on moral duties and obligations that indicate how we should behave is referred to as
ethics
All professions operate under some type of code of ______________ or code of _____________
ethics or conduct
Independent auditors are also called ______ auditors.
external
Financial statements for publicly traded and private companies, partnerships, municipalities, individuals and other types of entities are audited by __________ or _________ auditors
external or independent
Auditors specially trained in detecting, investigating, and deterring fraud and white-collar crime are called ______ auditors.
forensic
Business or employee fraud, criminal investigations involving assets or matrimonial disputes involving the division of assets are examples of situations that may call for a(n)____________ audit to be conducted.
forensic
Reconstructing incomplete or damaged accounting records and probing money-laundering activities are examples of situations that often involve
forensic
The overall purpose of a(n) ______ audit is detecting or deterring fraudulent activities.
forensic
The context provided by the entity's business _____ the auditor and the nature of the audit.
greatly impacts
Business organizations hire personnel to perform various functions in accordance with the enterprise's mission and strategy in the ______ process.
human resource management
An independent, objective assurance and consulting activity designed to add value and improve an organization's operations is the definition of ______ auditing.
internal
Auditors who are employees of individual companies, government agencies and other entities are called ______ auditors.
internal
Auditors who are employees of individual companies or government agencies are called
internal auditors
The SOX Act of 2002 required public companies to engage an external auditor to provide an opinion on the effectiveness of
internal control
Management ensures that the organization's system of ____________ ___________ over financial reporting mitigates financial reporting risks to acceptably low levels.
internal controls
The ______ process varies widely between different types of businesses.
inventory management
While auditors must exercise professional skepticism and due care in their work, the financial statements are ultimately the responsibility of ______.
management
Providing assistance concerning an entity's organization is an example of a(n) ______ service.
management advisory
Which of the following words indicate unconditional responsibilities with which the auditor must comply?
must, shall, and required
An entity hiring auditors to assess the efficiency and effectiveness of its use of IT resources is an example of a(n) ______ audit.
operational
The purpose of a(n) _________ audit is to assess performance, identify areas for improvement, and develop recommendations.
operational
The main transaction in the human resource management process that affects the financial statements is a(n) __________ transaction.
payroll
An attitude that includes a questioning mind and a critical assessment of audit evidence is the definition of
professional skepticism
Auditors are responsible to maintain an attitude of ___________ ___________ which includes having a questioning mind and a willingness to challenge management's assertions.
professional skepticism
The Sarbanes-Oxley Act prohibits external auditors from ______.
providing many types of consulting work for its auditing clients
The SEC requires that the auditor signing an audit report for a public company be a certified ______.
public accountant
Businesses acquire goods and services to support their operations in the ______ process.
purchasing
The body that is primarily responsible for management oversight in the U.S. corporations is ______.
the board of directors
