Ch 2 HW and Quiz

Which of the following is not explicitly included in an audit report with an unqualified opinion for a nonpublic company? The CPA's opinion that the financial statements comply with generally accepted accounting principles. That generally accepted auditing standards were followed during the audit. That all material instances of fraud have been identified. An identification of the financial statements audited.

That all material instances of fraud have been identified. he report, while stating that reasonable assurance is obtained about whether the financial statements are free from material misstatements (due to error or fraud), makes no statement indicating that all instances of fraud have been identified. The CPA's opinion that the financial statements comply with generally accepted accounting principles, That generally accepted auditing standards were followed during the audit, and An identification of the financial statements audited are all explicitly set forth in an audit report with an unqualified opinion.

Which of the following organizations can revoke the right of an individual to practice as a CPA? The Public Company Accounting Oversight Board. The American Institute of Certified Public Accountants. The Securities and Exchange Commission. The applicable state board of accountancy.

The applicable state board of accountancy. Because the license to practice as a CPA is granted by the state, the applicable state, through its state board of accountancy, has the right to revoke the right of an individual to practice as a CPA. Students are sometimes confused by the fact that while the CPA examination is administered nationally, it is the individual states that award CPA certificates.

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. The report indicates that the financial statements are the responsibility of management. The report indicates that the auditors have also audited the effectiveness of the company's internal control. The report is signed in the name of the CPA firm.

The report states that the audit was performed in accordance with AICPA standards. An integrated audit report on the financial statements of a public company states that the audit was performed in accordance with Public Company Accounting Oversight Board standards, not AICPA standards.

When the auditors are unable to determine the overall fairness of the financial statements, the most likely type of audit opinion is: qualified disclaimer unmodified adverse

disclaimer

Audit firms that are subject to inspections by the PCAOB staff include: .All audit firms. Audit firms that are registered with the SEC. Audit firms that are registered with the PCAOB. Audit firms that are registered with a state board of accountancy.

Audit firms that are registered with the PCAOB. The PCAOB staff performs inspections of audit firms that are registered with the PCAOB. In order to perform an audit of a public client an audit firm must be registered.

The AICPA over time has played an important role in standards setting. Which of the following standards are currently established by the AICPA? Accounting standards applicable to nonpublic companies. Auditing standards applicable to audits of nonpublic companies. Quality control standards applicable to audits of public companies. Standards for reviews of the interim financial information issued by public companies.

Auditing standards applicable to audits of nonpublic companies. The AICPA has authority to establish auditing standard for nonpublic companies. The Financial Accounting Standards board has authority for accounting standards of both public and nonpublic companies. The Public Company Accounting Oversight Board has authority to establish standards for audits and reviews of public companies, and quality controls for firms that audit public companies.

Which of the following is not one of the forms of attestation presented in the AICPA Statements on Standards for Attestation Services: Agreed-Upon Procedures. Examination. Inspection. Review.

Inspection. Inspection is not a form of attestation, but a function performed in PCAOB review of CPA firms; the term is also used as an audit/attest procedure (e.g., inspection of assets). Agreed-upon procedures engagements, examinations, and reviews are all attestation services.

A procedure in which a quality control partner periodically tests the application of quality control procedures is most directly related to which quality control element? Leadership responsibilities for quality with the firm. Human resources. Monitoring. Engagement performance.

Monitoring.

When a Statement on Auditing Standards uses the word "should" relating to a requirement, it means that the auditor: Must fulfill the responsibilities under all circumstances. Must comply with requirements unless the auditor demonstrates and documents that alternative actions are sufficient to achieve the objectives of the standards. Should consider whether to follow the advice based on the exercise of professional judgment in the circumstances. May choose to change responsibilities relating to various professional standards that remain under consideration.

Must comply with requirements unless the auditor demonstrates and documents that alternative actions are sufficient to achieve the objectives of the standards.

The order of presentation of sections in a public company financial statement audit report is: Critical Audit Matters, Basis for Opinion, Opinion. Basis for Opinion, Critical Audit Matters, Opinion. Basis for Opinion, Opinion, Critical Audit Matters. Opinion, Basis for Opinion, Critical Audit Matters.

Opinion, Basis for Opinion, Critical Audit Matters.

An audit provides reasonable assurance of detecting material Fraudulent Financial Reporting Misappropriation of Assets (1) Yes Yes (2) Yes No (3) No Yes (4) No No

Option (1) An audit provides reasonable assurance of detecting misstatements due to fraud, regardless of whether due to fraudulent financial reporting or misappropriation of assets.

Financial statement audits performed under PCAOB requirements are designed to provide which type(s) of assurance with respect to the detection of material misstatements due to errors or fraud? Reasonable Absolute (1) Yes Yes (2) Yes No (3) No Yes (4) No No

Option (2) Financial statement audits provide reasonable, not absolute assurance.

Audits of financial statements are designed to obtain reasonable assurance of detecting misstatement due to: Fraudulent Financial Reporting Misappropriation of Assets A. Yes Yes B. Yes No C. No Yes D. No No

Option A

An attitude that includes a questioning mind, being alert to conditions that may indicate possible misstatements, and a critical assessment of audit evidence is referred to as: Audit neutralism. Auditing mindset. Reasonable assurance. Professional skepticism.

Professional skepticism.

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 clients? Professional relationship. Engagement performance. Relevant ethical requirements. Monitoring.

Relevant ethical requirements. Such a quality control policy is designed to assure that personnel assigned to an engagement are independent to perform the work, an ethical requirement.

An auditor has concluded that the financial statements are not fairly presented in that they are pervasively misstated. The most appropriate type of audit opinion is: Adverse. Disclaimer. Qualified. Unmodified.

Adverse. An adverse opinion is appropriate when financial statements are pervasively misstated.

An investor reading the financial statements of The Fairbury Corporation observes that the statements are accompanied by an unmodified auditors' report. From this, the investor may conclude that: Informative disclosures in the financial statements but not necessarily in the footnotes are to be regarded as reasonably adequate. Any disputes over significant accounting issues have been settled to the auditors' satisfaction. The auditors have ascertained that Fairbury's financial statements are free from error. The auditors are satisfied that Fairbury is operationally efficient.

Any disputes over significant accounting issues have been settled to the auditors' satisfaction.

When compared with a nonpublic audit report, the public company audit report is most likely to have a section with the title of: Type of Conclusion. Management Responsibilities. Shareholder Responsibilities. Critical Audit Matters.

Critical Audit Matters.

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: Compliance with generally accepted reporting standards. A system of quality control. A system of peer review. Continuing professional education.

A system of quality control. The quality control standards were established to provide reasonable assurance that professional services conform with professional standards. Compliance with generally accepted reporting standards is incomplete since many standards in addition to reporting standards must be followed. A system of peer review is incorrect because a peer review monitors whether a firm's quality control standards are being met. Continuing professional education is incorrect because continuing professional education is only one part of a system of quality control.

An engagement review form of peer review is least likely to include a peer reviewer's detailed analysis of: Documentation of procedures followed on a review. Compilation reports. CPA firm quality checkpoint analysis program. Audit reports.

CPA firm quality checkpoint analysis program.

Which of the following does the FASB consider a source of nonauthoritative guidance for use when there is no authoritative guidance available? SEC Rules. The FASB Codification. SEC Interpretive Releases. FASB Concepts Statements.

FASB Concepts Statements. FASB Concepts Statements are considered nonauthoritative guidance. The other options all represent authoritative guidance.

Which of the following does the FASB consider a source of nonauthoritative guidance for use when there is no authoritative guidance available? The FASB Codification. FASB Concepts Statements. SEC Rules. SEC Interpretive Releases.

FASB Concepts Statements. FASB Concepts Statements are considered nonauthoritative guidance. The other options all represent authoritative guidance.