Audit Exam 1 (Ch. 1-7)
why is an independent auditor asked to express an opinion on fair presentation of financial statements?
- Answer-company may not be objective with respect to own financial statements
attestation engagement in relation to professional services - Answer-engagement to report on
compliance with statutory requirements
unique to audit work of CPA's as compared to work performed by practitioners of other professions -
Answer-independence
operational audits generally conducted by internal auditors and government agencies but may be
performed by CPA's -- primary purpose is? - Answer-measure of management performance in meeting
organizational goals
an operational audit - Answer-concentrates on seeking aspects of operations in which waste could be
reduced by introduction of controls
compliance auditing often extends beyond audits leading to the expression of opinions on the fairness of
financial presentation and includes audits of efficiency, economy, effectiveness, as well as - Answer-
adherence to specific rules or procedures
which of the following best describes what is meant by U.S. auditing standards? - Answer-measures of
the quality of the auditor's performance
the responsibilities principle underlying AICPA auditing standards includes a requirement that - Answer-
professional judgment be exercised by the auditor
,what is the general character of the responsibilities characterized by the performance principles? -
Answer-the criteria of audit planning and evidence gathering
the nature and extent of a CPA firm's quality control policies and procedures depend on - Answer-CPA
firm size - yes
nature of CPA firms practices - yes
cost-benefit considerations - yes
which of the following are elements of a CPA firm's quality control that should be considered in
establishing its quality control policies and procedures? - Answer-human resources - yes
monitoring - yes
engagement performance - yes
one of a CPA firm's basic objectives is to provide professional services that conform with professional
standards. Reasonable assurance of achieving this objective is provided through - Answer-a system of
quality control
the auditor must possess the competency and capabilities to perform the audit - Answer-it was
inappropriate for Holmes to hire the two students to conduct the audit. The audit must be conducted by
persons with proper education and experience in the field of auditing. Although a junior assistant has
not completed his formal education, he may help in the conduct of the audit as long as there is proper
supervision and review
the auditor must comply with ethical requirements which include maintaining independence in mental
attitude in all matters relating to the audit - Answer-because of the financial interest in whether the
bank loan is granted to Ray, Holmes is independent in neither fact nor appearance with respect to the
assignment undertaken
the auditor must maintain professional skepticism and exercise professional judgment in the
performance of the audit and the preparation of the report - Answer-maintaining professional
, skepticism and exercising professional judgment require critical review at every level of supervision of
the work done and the judgments exercised by those assisting in the audit. Holmes did not review the
work or the judgments of the assistants
the auditor must adequately plan the work and must properly supervise any assistants - Answer-Holmes
accepted the engagement without considering the availability of competent staff. In addition, Holmes
failed to supervise the assistants
the auditor must identify and assess the risks of material misstatement based on a sufficient
understanding of the entity and its environment, including its internal control, to design the nature,
timing, and extent of further audit procedures - Answer-Holmes did not obtain an understanding of the
entity or its internal control, nor did the assistants obtain such an understanding
the auditor must obtain sufficient appropriate audit evidence by performing audit procedures to afford a
reasonable basis for an opinion regarding the financial statements under audit - Answer-Holmes
acquired no evidence that would support the financial statements. Holmes merely checked the
mathematical accuracy of the records and summarized the accounts. Standard audit procedures and
techniques were not performed
the auditor must assess whether the financial statements are presented in accordance with the financial
reporting framework - Answer-Holmes' improper audit would not enable him to determine whether
generally accepted accounting principles were followed. Holmes' report should make no reference to
the consistent application of accounting principles. Management is primarily responsible for adequate
disclosures in the financial statements, but when the statements do not contain adequate disclosures
the auditor should make such disclosures in the auditor's report. In this case both the statements and
the auditor's report lack adequate disclosures
the auditor must express an opinion in a written report about whether the financial statements are
presented in accordance with the applicable financial reporting framework - Answer-Holmes' report
made no reference to generally accepted accounting principles. Because Holmes did not conduct a
proper audit, the report should state that no opinion can be expressed as to the fair presentation of the
financial statements in accordance with generally accepted accounting principles
why is an independent auditor asked to express an opinion on fair presentation of financial statements?
- Answer-company may not be objective with respect to own financial statements
attestation engagement in relation to professional services - Answer-engagement to report on
compliance with statutory requirements
unique to audit work of CPA's as compared to work performed by practitioners of other professions -
Answer-independence
operational audits generally conducted by internal auditors and government agencies but may be
performed by CPA's -- primary purpose is? - Answer-measure of management performance in meeting
organizational goals
an operational audit - Answer-concentrates on seeking aspects of operations in which waste could be
reduced by introduction of controls
compliance auditing often extends beyond audits leading to the expression of opinions on the fairness of
financial presentation and includes audits of efficiency, economy, effectiveness, as well as - Answer-
adherence to specific rules or procedures
which of the following best describes what is meant by U.S. auditing standards? - Answer-measures of
the quality of the auditor's performance
the responsibilities principle underlying AICPA auditing standards includes a requirement that - Answer-
professional judgment be exercised by the auditor
,what is the general character of the responsibilities characterized by the performance principles? -
Answer-the criteria of audit planning and evidence gathering
the nature and extent of a CPA firm's quality control policies and procedures depend on - Answer-CPA
firm size - yes
nature of CPA firms practices - yes
cost-benefit considerations - yes
which of the following are elements of a CPA firm's quality control that should be considered in
establishing its quality control policies and procedures? - Answer-human resources - yes
monitoring - yes
engagement performance - yes
one of a CPA firm's basic objectives is to provide professional services that conform with professional
standards. Reasonable assurance of achieving this objective is provided through - Answer-a system of
quality control
the auditor must possess the competency and capabilities to perform the audit - Answer-it was
inappropriate for Holmes to hire the two students to conduct the audit. The audit must be conducted by
persons with proper education and experience in the field of auditing. Although a junior assistant has
not completed his formal education, he may help in the conduct of the audit as long as there is proper
supervision and review
the auditor must comply with ethical requirements which include maintaining independence in mental
attitude in all matters relating to the audit - Answer-because of the financial interest in whether the
bank loan is granted to Ray, Holmes is independent in neither fact nor appearance with respect to the
assignment undertaken
the auditor must maintain professional skepticism and exercise professional judgment in the
performance of the audit and the preparation of the report - Answer-maintaining professional
, skepticism and exercising professional judgment require critical review at every level of supervision of
the work done and the judgments exercised by those assisting in the audit. Holmes did not review the
work or the judgments of the assistants
the auditor must adequately plan the work and must properly supervise any assistants - Answer-Holmes
accepted the engagement without considering the availability of competent staff. In addition, Holmes
failed to supervise the assistants
the auditor must identify and assess the risks of material misstatement based on a sufficient
understanding of the entity and its environment, including its internal control, to design the nature,
timing, and extent of further audit procedures - Answer-Holmes did not obtain an understanding of the
entity or its internal control, nor did the assistants obtain such an understanding
the auditor must obtain sufficient appropriate audit evidence by performing audit procedures to afford a
reasonable basis for an opinion regarding the financial statements under audit - Answer-Holmes
acquired no evidence that would support the financial statements. Holmes merely checked the
mathematical accuracy of the records and summarized the accounts. Standard audit procedures and
techniques were not performed
the auditor must assess whether the financial statements are presented in accordance with the financial
reporting framework - Answer-Holmes' improper audit would not enable him to determine whether
generally accepted accounting principles were followed. Holmes' report should make no reference to
the consistent application of accounting principles. Management is primarily responsible for adequate
disclosures in the financial statements, but when the statements do not contain adequate disclosures
the auditor should make such disclosures in the auditor's report. In this case both the statements and
the auditor's report lack adequate disclosures
the auditor must express an opinion in a written report about whether the financial statements are
presented in accordance with the applicable financial reporting framework - Answer-Holmes' report
made no reference to generally accepted accounting principles. Because Holmes did not conduct a
proper audit, the report should state that no opinion can be expressed as to the fair presentation of the
financial statements in accordance with generally accepted accounting principles
