Chapter 1

Which of the following services provides the lowest level of assurance on a financial statement? A) A review B) An audit C) Neither service provides assurance on financial statements. D) Each service provides the same level of assurance on financial statements.

A) A review

Which of the following audits can be regarded as generally being a compliance audit? A) IRS agents' examinations of taxpayer returns B) GAO auditor's evaluation of the computer operations of governmental units C) An internal auditor's review of a company's payroll authorization procedures D) A CPA firm's audit of a public company

A) IRS agents' examinations of taxpayer returns

An examination of part of an organization's procedures and methods for the purpose of evaluating efficiency and effectiveness is what type of audit? A) Operational audit B) Compliance audit C) Financial statement audit D) Production audit

A) Operational audit

Three common types of attestation services are: A) audits of historical financial statements, reviews of historical financial statements, and audits of internal control over financial reporting. B) audits of historical financial information, verifications of historical financial information, and attestations regarding internal controls. C) reviews of historical financial information, verifications of future financial information, and attestations regarding internal controls. D) audits of historical financial information, reviews of controls related to investments, and verifications of historical financial information.

A) audits of historical financial statements, reviews of historical financial statements, and audits of internal control over financial reporting.

In "auditing" financial accounting data, the primary concern is with: A) determining whether recorded information properly reflects the economic events that occurred during the accounting period. B) determining if fraud has occurred. C) determining if taxable income has been calculated correctly. D) analyzing the financial information to be sure that it complies with government requirements.

A) determining whether recorded information properly reflects the economic events that occurred during the accounting period.

________ risk reflects the possibility that the information upon which the business decision was made was inaccurate. A) Client acceptance B) Information C) Business D) Control

B) Information

Attestation services on information technology include WebTrust services and SysTrust services. Which of the following statements most accurately describes SysTrust services? A) SysTrust services provide assurance on business processes, transaction integrity and information processes. B) SysTrust services provide assurance on system reliability in critical areas such as security and data integrity. C) SysTrust services provide assurance on internal control over financial reporting. D) SysTrust services provide assurance as to whether accounting personnel are following procedures prescribed by the company controller.

B) SysTrust services provide assurance on system reliability in critical areas such as security and data integrity.

Any service that requires a CPA firm to issue a report about the reliability of an assertion that is made by another party is a(n): A) accounting and bookkeeping service. B) attestation service. C) assurance service. D) tax service.

B) attestation service.

An audit to determine whether an entity is following specific procedures or rules set down by some higher authority is classified as a(n): A) audit of financial statements. B) compliance audit. C) operational audit. D) production audit.

B) compliance audit.

The most common way for users to obtain reliable information is to: A) have an internal audit. B) have an independent audit. C) verify all information individually. D) verify the information with management.

B) have an independent audit.

The use of the Certified Public Accountant title is regulated by: A) the federal government. B) state law through a licensing department or agency of each state. C) the American Institute of Certified Public Accountants through the licensing departments of the tax and auditing committees. D) the Securities and Exchange Commission.

B) state law through a licensing department or agency of each state.

The three requirements for becoming a CPA include all but which of the following? A) Uniform CPA examination requirement B) Educational requirements C) Character requirements D) Experience requirement

C) Character requirements

Which one of the following is more difficult to evaluate objectively? A) Presentation of financial statements in accordance with generally accepted accounting principles B) Compliance with government regulations C) Efficiency and effectiveness of operations D) All three of the above are equally difficult.

C) Efficiency and effectiveness of operations

The Sarbanes-Oxley Act prohibits a CPA firm that audits a public company from providing which of the following types of services to that company? A) Reviews of quarterly financial statements B) Preparation of corporate tax returns C) Most consulting services D) Tax services

C) Most consulting services

The Sarbanes-Oxley Act applies to which of the following companies? A) All companies B) Privately held companies C) Public companies D) All public companies and privately held companies with assets greater than $500 million

C) Public companies

Recording, classifying, and summarizing economic events in a logical manner for the purpose of providing financial information for decision making is commonly called: A) finance. B) auditing. C) accounting. D) economics.

C) accounting.

One objective of an operational audit is to: A) determine whether the financial statements fairly present the entity's operations. B) determine if the auditee is in compliance with GAAP. C) make recommendations for improving performance. D) report on the entity's relative success in attaining profit maximization.

C) make recommendations for improving performance.

An accountant: A) must possess expertise in the accumulation of audit evidence. B) must decide the number and types of items to test. C) must have an understanding of the principles and rules that provide the basis for preparing the accounting information. D) must be a CPA.

C) must have an understanding of the principles and rules that provide the basis for preparing the accounting information.

In the audit of historical financial statements, what accounting criteria is most common? A) Regulatory accounting principles B) Applicable international accounting standards C) Applicable U.S. accounting standards D) B and C E) All of the above

D) B and C

Which of the following is not a SysTrust Services principle as defined by the AICPA? A) Online privacy B) Availability C) Processing integrity D) Operational integrity

D) Operational integrity

The trait that distinguishes auditors from accountants is the: A) auditor's ability to interpret accounting principles generally accepted in the United States. B) auditor's education beyond the Bachelor's degree. C) auditor's ability to interpret FASB Statements. D) auditor's accumulation and interpretation of evidence related to a company's financial statements.

D) auditor's accumulation and interpretation of evidence related to a company's financial statements.

A correct relationship among the auditor, the client, and the external users is: A) management of a public company hires the independent auditor. B) the audit committee of a private company hires the independent auditor. C) the client provides capital to the external users. D) the external users can rely upon the auditor's report to reduce information risk.

D) the external users can rely upon the auditor's report to reduce information risk