Chapter 2 Connect

Which of the following is not considered a type of audit evidence? a. The entity's trial balance. b. Verbal statements made by client personnel. c. Auditors' calculations. d. Physical observation.

a

Which of the following represent audit quality guides that remain stable over time and are applicable for all audits? a. Auditing standards. b. Auditing procedures. c. Due care. d. System of quality control.

a

Which of the following statements is not true with respect to the responsibility for establishing generally accepted auditing standards? a. Standards issued by the Auditing Standards Board after 2003 apply to the audits of both issuers and non-issuers. b. The Auditing Standards Board currently issues auditing standards for the audit of non-issuers. c. Prior to the Sarbanes-Oxley Act, the Auditing Standards Board issued auditing standards for the audits of both issuers and non-issuers. d. The PCAOB issues auditing standards for the audit of issuers, subject to SEC approval.

a

Which reporting options do auditors have if the client's financial statements are not presented according to the applicable financial framework (e.g., GAAP, IFRS)? a. Qualified opinion or adverse opinion. b. Unmodified opinion or disclaimer of opinion. c. Unmodified opinion or adverse opinion. d. Qualified opinion or disclaimer of opinion.

a

A periodic review of an audit firm's system of quality control by the PCAOB is referred to as a(n): a. quality review. b. inspection. c. peer review. d. principles review.

b

An important role of the Public Company Accounting Oversight Board is to oversee the a. issuance of statements by the Financial Accounting Standards Board. b. regulation of firms that audit issuers. c. peer review of member firms of the Private Companies Practice Section. d. preparation and grading of the Uniform CPA Examination.

b

As it relates to audit evidence, appropriateness refers to the a. timeliness of evidence gathered. b. quality of evidence gathered. c. originality of evidence gathered. d. quantity of evidence gathered.

b

Control risk is a. the risk that auditors will not properly control the staff on the audit engagement. b. the probability that a material misstatement could not be prevented or detected by the entity's internal control policies and procedures. c. the probability that a material misstatement could occur and not be detected by auditors' procedures. d. the risk that auditors will not be able to complete the audit on a timely basis.

b

Generally accepted auditing standards are a. legal requirements auditors must observe during the audits of issuers. b. standards that guide the conduct of an audit examination. c. standards used by entities in deciding whether to engage or retain the services of auditors. d. specific actions performed by auditors during an examination.

b

The Public Company Accounting Oversight Board was established by which of the following? a. The Financial Accounting Standards Board. b. The Sarbanes-Oxley Act of 2002. c. The American Institute of Certified Public Accountants. d. The International Accounting Standards Board.

b

The standard auditors' report refers to standards of the PCAOB and GAAP in which section(s)? a. Standards of the PCAOB: Basis for Opinion; GAAP: Opinion on the Financial Statements. b. Standards of the PCAOB: Opinion on the Financial Statements and Basis for Opinion; GAAP: Opinion on the Financial Statements. c. Standards of the PCAOB: Opinion on the Financial Statements; GAAP: Opinion on the Financial Statements and Basis for Opinion. d. Standards of the PCAOB: Opinion on the Financial Statements; GAAP: Opinion on the Financial Statements.

b

The state of mind that characterizes the auditors' appropriate questioning and critical assessment of audit evidence is referred to as: a. professional judgment. b. professional skepticism. c. independence in appearance. d. due care.

b

Which of the following concepts is least related to the risk of material misstatement? a. Control risk. b. Detection risk. c. Materiality. d. Inherent risk.

b

Which of the following is not a concept from the performance principle under generally accepted auditing standards? a. The auditor must plan the work and properly supervise any assistants. b. The auditor must express an opinion in accordance with the auditor's findings. c. The auditor must determine and apply an appropriate materiality level throughout the audit. d. The auditor must obtain sufficient appropriate evidence about whether material misstatements exist.

b

Which of the following is not included in the auditors' standard report representing an unmodified opinion? a. A brief indication of the responsibility of auditors and management for the financial statements. b. An indication that all appropriate disclosures have been made and included in the financial statements. c. The auditors' opinion on the fairness of the financial statements. d. An indication that the audit was conducted in accordance with standards established by the PCAOB.

b

Which of the following presumptions is correct about the reliability of audit evidence? a. To be reliable, audit evidence should be convincing rather than persuasive. b. An effective system of internal control provides more assurance about the reliability of audit evidence. c. Reliability of audit evidence refers to the amount of corroborative evidence obtained. d. Information obtained indirectly from outside sources is the most reliable form of audit evidence.

b

A level of performance that would be exercised by reasonable auditors in similar circumstances is referred to as a. professional judgment. b. independence. c. due care. d. professional skepticism.

c

Audit evidence is usually considered sufficient when a. it is reliable. b. it has the qualities of being relevant, objective, and free from unknown bias. c. there is enough quantity to afford a reasonable basis for an opinion on financial statements. d. it has been obtained through random selection methods.

c

Auditors try to achieve independence in appearance in order to: a. maintain an unbiased mental attitude. b. comply with the responsibilities principle. c. maintain public confidence in the profession. d. become independent in fact.

c

Which of the following statements is generally correct about the appropriateness of audit evidence? a. Appropriateness of audit evidence refers to the amount of corroborative evidence to be obtained. b. To be reliable, audit evidence must be either valid or relevant, but need not be both. c. Auditors' direct personal knowledge, obtained through observation and inspection, is of higher quality than information obtained indirectly from independent outside sources. d. Client accounting data alone may be considered sufficient appropriate audit evidence to issue an unmodified opinion on client financial statements.

c

Which of the following types of auditors' reports does not require additional information to support the opinion? a. Adverse opinion. b. Disclaimer of opinion. c. Unmodified opinion. d. Qualified opinion.

c

A list of procedures auditors need to perform to obtain evidence is called an a. Audit procedure. b. Audit standard. c. Audit budget. d. Audit plan.

d

The concept of _____ recognizes that a GAAS audit may fail to detect all material misstatements. a. absolute assurance b. due care c. risk of material misstatement d. reasonable assurance

d

The responsibilities principle under generally accepted auditing standards does not include which of the following? a. Competence and capabilities. b. Independent attitude. c. Due care. d. Planning and supervision.

d

To be appropriate, evidence must be all of the following except: a. Unbiased. b. Reliable. c. Relevant. d. Sufficient.

d

Which of the following statements is true with respect to the quality of audit evidence? a. Quality is related to the relevance of evidence, but not the reliability of evidence. b. In evaluating quality, sufficiency of evidence is of greater importance than appropriateness of evidence. c. Evidence is considered of higher quality when gathered prior to year-end than following year-end. d. Evidence obtained under environments of stronger internal control is of higher quality than evidence obtained under environments of weaker internal control.

d

For each of the following, identify whether it is most appropriately associated with independence in fact (Fact), independence in appearance (Appearance), both (B), or neither (N). A distant relative of a partner within the firm occupies an entry-level position within the client of the firm. (The audit is conducted by another office of the firm with which the partner has infrequent contact).

Neither

For each of the following, identify whether it is most appropriately associated with independence in fact (Fact), independence in appearance (Appearance), both (B), or neither (N). A staff member within the firm owns shares of stock of one of that firm's clients. (She is not a member of the engagement team serving that client.)

Neither

For each of the following, identify whether it is most appropriately associated with independence in fact (Fact), independence in appearance (Appearance), both (B), or neither (N). Relates to others' perceptions of the auditors' independence.

Appearance

For each of the following, identify whether it is most appropriately associated with independence in fact (Fact), independence in appearance (Appearance), both (B), or neither (N). The auditors' firm provides extensive consulting services to the client; these services provide revenues to the firm that exceed revenues received from the audit engagement.

Appearance

For each of the following, identify whether it is most appropriately associated with independence in fact (Fact), independence in appearance (Appearance), both (B), or neither (N). The spouse of the partner in charge of the audit engagement occupies an executive-level position within the client.

Both

For each of the following, identify whether it is most appropriately associated with independence in fact (Fact), independence in appearance (Appearance), both (B), or neither (N). Reflects an unbiased and impartial perspective with respect to the financial statement audit.

Fact

For each of the following, identify whether it is most appropriately associated with independence in fact (Fact), independence in appearance (Appearance), both (B), or neither (N). Relates to the auditors' "state of mind."

Fact