Audit Chapter 2 Questions (NO TRUE FALSE)
1) Historically, auditing standards have been organized into three categories, including A) standards of field work. B) purpose of an audit. C) responsibilities of the auditor. D) proper planning and supervision.
Answer: A
1) Quality control for a CPA firm A) includes the organizational structure of the firm and the procedures it establishes. B) is tailored to each specific audit engagement. C) is a guarantee that auditing standards are followed. D) is required only for firms auditing SEC companies.
Answer: A
1) Statements on Standards for Accounting and Review Services (SSARS) are issued by the A) Accounting and Review Services Committee. B) Professional Ethics Executive Committee. C) Securities and Exchange Commission. D) Financial Accounting Standards Board.
Answer: A
1) The legal right to perform audits is granted to a CPA firm by regulation of A) each state. B) the Financial Accounting Standards Board (FASB). C) the American Institute of Certified Public Accountants (AICPA). D) the Auditing Standards Board.
Answer: A
10) The AICPA principles underlying an audit are organized around four principles. Which of the following is not one of those principles? A) fairness B) responsibilities C) reporting D) performance
Answer: A
2) The form that must be filed with the Securities and Exchange Commission whenever a company plans to issue new securities to the public is the A) Form S-1. B) Form 8-K. C) Form 10-K. D) Form 10-Q.
Answer: A
3) In 2017, the American Institute of CPAs joined with which of the following to form the Association of International Certified Public Accountants? A) the Chartered Institute of Management Accountants B) the Securities and Exchange Commission C) the Public Accounting Oversight Board D) the Japanese Institute of Certified Public Accountants
Answer: A
4) Which of the following does not describe a size category for a CPA firm? A) Big Four national firms B) Big Four international firms C) local firms D) national and regional firms
Answer: A
4) With respect to the SEC, A) the attitude of the SEC is generally considered in any major change proposed by the FASB. B) the SEC is the sole agency responsible for setting generally accepted accounting principles. C) the SEC requirements of greatest interest to CPAs are set forth in their enforcement regulations. D) the SEC has the power to establish rules for all CPAs.
Answer: A
5) The Statements on Auditing Standards issued by the Auditing Standards Board A) are regarded as authoritative literature. B) mandate the amount of evidence that must be obtained. C) must be followed in all situations. D) are optional guidelines which an auditor may choose to follow or not follow when conducting an audit.
Answer: A
5) ________ are referred to as U.S. generally accepted auditing standards (GAAS). A) AICPA auditing standards B) SEC auditing standards C) PCAOB auditing standards D) Sarbanes-Oxley standards
Answer: A
6) An auditor need not abide by a particular auditing standard if the auditor believes that A) the issue in question is immaterial in amount. B) more expertise is needed to fulfill the requirement. C) the requirement of the standard has not been addressed by the PCAOB. D) fraud is involved.
Answer: A
6) Which of the following is not an essential component of quality control? A) policies and procedures to ensure that firm personnel are actively engaged in marketing strategies B) policies and procedures to ensure that the work performed by firm personnel meet applicable professional standards C) policies to ensure that personnel maintain their independence in fact and in appearance D) policies that ensure that monitoring activities are effectively applied
Answer: A
7) ________ is not one of the National/Regional CPA Firms. A) PwC B) BDO USA C) Grant Thornton D) RSM US.
Answer: A
1) The form that must be completed and filed with the Securities and Exchange Commission whenever a company experiences a significant event that is of interest to public investors is the A) Form S-1. B) Form 8-K. C) Form 10-K. D) Form 10-Q.
Answer: B
11) Which of the following statements about Generally Accepted Audit Standards are true? I. They serve as broad guidelines to auditors for conducting an audit engagement. II. They are sufficiently specific to provide a meaningful guide to practitioners. III. They represent a framework upon which the AICPA can provide interpretations. A) I and II B) I and III C) II and III D) I, II and III
Answer: B
16) Which of the following is not true regarding the purpose of an audit performed on a set of financial statements in accordance with generally accepted auditing standards? A) to provide users of the financial statements with an opinion on the financial statements B) to provide users of the financial statements with absolute assurance that the financial statements contain no errors in them C) to provide financial statement users with an opinion on whether the financial statements are presented fairly or not D) to provide financial statement users with an opinion in accordance with the applicable financial reporting framework
Answer: B
17) In situations in which the CPA or the CPA's assistants are not qualified to perform the audit work, which of the following is not an option the CPA or the CPA firm has? A) The CPA and the CPA's assistants have a professional obligation to acquire the required knowledge and skills. B) The CPA and the CPA's assistants should simply rely more upon the client's representations when performing the audit. C) The CPA should suggest someone else or another CPA firm which is qualified to perform the work. D) The CPA should decline the audit engagement.
Answer: B
2) Which staff level in a CPA firm performs most of the detailed audit work? A) partner B) staff assistant C) senior auditor D) senior manager
Answer: B
3) Sarbanes-Oxley and the Securities and Exchange Commission restrict auditors from providing many consulting services to their publicly traded audit clients. Which of the following is true for auditors of publicly traded companies? I. They are restricted from providing consulting services to privately held companies. II. There is no restriction on providing consulting services to non-audit clients. A) I only B) II only C) I and II D) Neither I nor II
Answer: B
3) Standards issued by the Public Company Accounting Oversight Board must be followed by CPAs who audit A) both private and public companies. B) public companies only. C) private companies, public companies, and nonprofit entities. D) private companies only.
Answer: B
4) To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, the auditor must fulfill several performance responsibilities, including A) verifying that all audit work is performed by a CPA with a minimum of three years' experience. B) obtaining sufficient, appropriate audit evidence. C) exercising professional judgment. D) providing an opinion on the financial statements.
Answer: B
5) Has audit quality improved since the passage of Sarbanes-Oxley Act (SOX)? Which of the following statements is true with regards to audit quality since the passage of SOX? A) The frequency of financial statement restatements has increased since SOX. B) PCAOB audit engagement findings continue to document a high level of audit deficiencies. C) Finally, the auditing professions agrees on the definition of audit quality. D) No progress has been made on the definition of what are called "Audit Quality Indicators" since SOX.
Answer: B
6) In which type of service does the CPA assemble the financial statements but provide no assurance to third parties? A) audit B) compilation C) review D) bookkeeping
Answer: B
8) Which of the following is not an accurate definition or description of a local CPA firm? A) Some local CPA firms have several offices. B) Local CPA firms do not compete for clients with the Big Four CPA firms. C) Some local CPA firms are affiliated with other CPA firms to share resources. D) Many local CPA firms provide primarily accounting and tax services to their clients only.
Answer: B
1) Which of the following statements is true as it relates to limited liability partnerships? A) Only senior partners are liable for the partnership's debts. B) Partners have no liability in a limited liability partnership arrangement. C) Partners are personally liable for the acts of those under their supervision. D) All partners must be AICPA members.
Answer: C
12) The AICPA principles and the auditing standards should be viewed by practitioners as A) ideals to work towards, but which are not achievable. B) maximum standards that denote excellent work. C) minimum standards of performance that must be achieved on each audit engagement. D) benchmarks to be used on all audits, reviews, and compilations.
Answer: C
14) ________ is an attitude that includes a questioning mind, being alert to conditions that might indicate possible misstatements due to fraud or error, and a critical assessment of audit evidence. A) Reasonableness B) Diligence C) Professional skepticism D) Competence
Answer: C
15) To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, the auditor fulfills several performance responsibilities, including A) complying with the AICPA Code of Professional Conduct. B) issuing a written report on the financial statements. C) determining and applying materiality levels. D) having the appropriate competence to perform the audit.
Answer: C
2) The "Principles Underlying an Audit in Accordance with Generally Accepted Auditing Principles" provide a framework to help auditors A) understand the ten GAAS standards. B) obtain complete assurance that the financial statements are free from any error. C) report on the financial statements. D) prevent fraud.
Answer: C
2) The method used by a CPA firm to ensure that the firm meets its professional responsibilities to clients and others is A) continuing professional education. B) compliance with generally accepted reporting standards. C) quality control. D) peer review.
Answer: C
2) Who is responsible for establishing auditing standards for privately held companies? A) Securities and Exchange Commission B) Public Company Accounting Oversight Board C) Auditing Standards Board D) National Association of Accounting
Answer: C
3) Which of the following is not one of the responsibilities of an auditor under the principles underlying an audit of financial statements? A) possess appropriate competence and capabilities B) comply with relevant ethical requirements C) plan work and supervise assistants D) maintain professional skepticism and exercise professional judgment
Answer: C
3) Within the context of quality control, the primary purpose of continuing professional education and training activities is to enable a CPA firm to provide its personnel with A) technical training that assures proficiency as a valuation expert. B) professional education that is required in order to perform with due professional care. C) knowledge required to fulfill assigned responsibilities. D) knowledge required to perform a peer review.
Answer: C
4) The International Standards on Auditing (ISA) A) are issued by the AICPA. B) override a country's regulations governing the audit of a company. C) has many of the same standards as the Auditing Standards Board (ASB). D) must be followed by companies whose stock is traded in the U.S.
Answer: C
5) Which of the following is an element of the CPA's quality control system that should be considered in establishing its quality control policies and procedures? A) considering audit risk and materiality B) using statistical sampling techniques C) assigning appropriately experienced personnel to engagements D) complying with laws and regulations
Answer: C
8) How often is the AICPA Peer Review Program performed of an AICPA member CPA firm administered by a State CPA Society under the overall direction of the AICPA Peer Review Board? A) every year B) every 2 years C) every 3 years D) every 5 years
Answer: C
8) In order to properly plan and perform an audit, an important fact for both the auditor and the client to understand is that A) the internal control policies and procedures are developed by the auditors. B) the purpose of an audit is to prevent fraud. C) management is responsible for the preparation of the financial statements. D) management can restrict the auditor's access to important information relevant to the financial statements.
Answer: C
1) The organization that is responsible for providing oversight for auditors of public companies is called the A) Auditing Standards Board. B) American Institute of Certified Public Accountants. C) Public Oversight Board. D) Public Company Accounting Oversight Board.
Answer: D
13) Which of the following is an accurate statement regarding principles and auditing standards? A) The principles underlying an audit give specific guidance to an auditor when a problem arises in an audit. B) The principles underlying an audit state that the only objective of an audit is to provide financial statement users with an opinion. C) All auditing standards issued by the PCAOB are given two classification numbers. D) The Statement on Auditing Standard (SAS) number identifies the order in which it was issued in relation to other SASs.
Answer: D
2) Members of the Public Company Accounting Oversight Board are appointed and overseen by the A) U.S. Congress. B) American Institute of Certified Public Accountants. C) Auditing Standards Board. D) Securities and Exchange Commission.
Answer: D
2) The American Institute of Certified Public Accountants (AICPA) A) is responsible for issuing licenses to new CPAs. B) restricts its membership to CPAs who are independent auditors. C) sets auditing standards for both public and private companies. D) sets rules of conduct that CPAs are required to meet.
Answer: D
2) Which of the following is not a characteristic of a small local CPA firm? A) Most small firms have fewer than 25 professionals. B) Small firms perform audits on small and not-for-profit businesses. C) Tax services are more important than auditing services to the small firm. D) Small firms are prohibited by the SEC from auditing publicly traded companies.
Answer: D
3) Which of the following is a correct statement regarding the SEC? A) The Securities Act of 1934 requires most companies planning to issue new securities to the public to submit a registration statement to the SEC for approval. B) All public companies must file monthly statements with the SEC. C) The Form 10-K must be filed within 30 days after the close of the fiscal year. D) The SEC has the power to establish rules for any CPA associated with audited financial statements submitted to the commission.
Answer: D
3) Which staff level in a CPA firm manages the overall relationship with the client and manages the audit, in general? A) the audit partner B) the audit staff assistant C) the senior or in-charge auditor with 2-5 years' experience D) the audit manager
Answer: D
4) The purpose of establishing quality control policies and procedures to accept or continue a client relationship is to A) provide reasonable assurance that personnel are adequately trained to fulfill their responsibilities. B) monitor the risk factors concerning misstatements that arise from the misappropriation of assets. C) document objective criteria for the CPA firm's peer review. D) minimize the likelihood of associating with a client whose management may lack integrity.
Answer: D
5) Which of the following is not a publication issued by the Securities and Exchange Commission? A) Accounting and Auditing Enforcement Actions B) Accounting Series Releases C) Regulation S-X D) State Board of Accountancy Enforcement Actions
Answer: D
5) ________ is one of the Big Four international CPA firms. A) Deloitte B) KPMG C) Ernst & Young D) All of the above are classified as Big Four international CPA firms.
Answer: D
6) Which of the following is a true statement regarding auditing standards? A) Prior to the passage of Sarbanes-Oxley, the FASB established auditing principles for U.S. public companies. B) PCAOB auditing standards are applicable to entities outside the U.S. C) There are no similarities between PCAOB standards and International Standards on Auditing. D) The Auditing Standards Board has revised most of its standards to converge with the international standards.
Answer: D
7) When assessing the risk of material misstatements in the financial statements, A) inadequate internal control procedures will mitigate client business risk. B) GAAS specifies in detail how much and what types of evidence the auditor needs to obtain. C) company management is responsible for determining materiality levels. D) the auditor must understand the client's business and industry.
Answer: D
7) Which of the following is true with regards to the various auditing standards? A) Statements on Auditing Standards (SASs) are issued by the PCAOB. B) The ASB Clarity Project was intended to make the U.S. auditing standards easier to read, understand, and apply. C) The ASB redrafted existing AICPA auditing standards to align them with respective International Standards on Auditing (ISA's). D) Both B and C are correct.
Answer: D
7) Which one of the following is not true regarding the American Institute of Certified Public Accountants peer review requirement? A) A CPA firm must develop and adhere to quality control standards. B) Peer reviews are mandatory. C) A CPA firm will lose AICPA eligibility if a peer review is not performed. D) Firms required to be registered with and inspected by the PCAOB are exempt.
Answer: D
8) Which of the following is not one of the main sets of auditing standards around the world today? A) AICPA Auditing Standards B) International Standards on Auditing C) PCAOB Auditing Standards D) Securities and Exchange Commission Auditing Standards
Answer: D
9) The principles underlying an audit A) contain the procedures that must be followed during an audit. B) carry the same authority as AICPA auditing standards. C) only apply to the audits of public companies. D) provide structure for the clarified Codification.
Answer: D
9) Which of the following is not a purpose of the Center for Audit Quality which is affiliated with the AICPA? A) to serve the capital markets B) to serve public company auditors C) to serve investors D) to serve the International Accounting Standards Board (IASB)
Answer: D
