Audit Exam 1 - Multiple Choice 2022 Questions and Answers

Audit Exam 1 - Multiple Choice 2022 Questions and Answers Auditors accumulate evidence to A) defend themselves in the event of a lawsuit. B) determine if the financial statements are correct. C) satisfy the requirements of the Securities Acts of 1933 and 1934.D) reach a conclusion about the fairness of the financial statements. - Ans-D In the auditing process.... A) the types and amounts of evidence remain constant from audit to audit. B) the criteria for evaluating information will not vary depending on the information being audited. C) the audit report communicates the auditor's findings to users. D) records are gathered by the auditor to determine whether the audited information is stated in accordance with SEC standards. - Ans-C Which of the follow is considered audit evidence? A) Oral statements made by management, but not written communications or auditor observation B) Written communications and auditor observation, but not oral statements made by management C) Oral statements made by management, written communication, and auditor observation D) Auditor observation, but not oral statements or written communication - Ans-C Which of the following can be used as a criteria for evaluating information being audited? A) International Financial Reporting Standards (IFRS) B) Generally Accepted Accounting Principles (GAAP) C) Internal Revenue Code (IRC) D) all of the above - Ans-D 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 - Ans-C 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. - Ans-C When auditing accounting data, auditors focus on 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. - Ans-A 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 expertise in the accumulation and interpretation of audit evidence - Ans-D ________ 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 - Ans-B The possibility that a business may not be able to repay a bank loan because of an economic downturn is referred to as A) materiality risk. B) information risk. C) interest rate risk. D) business risk - Ans-D True or false: Auditing can have a significant effect on both information risk and business risk - Ans-False 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. - AnsD 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. - Ans-B External users of the financial statements A) value the auditor's report because of the auditor's independence from the client. B) look to the auditor's report as an indication of the statements' reliability. C) use the audited information on the assumption that it is reasonably complete, accurate, and unbiased. D) all of the above. - Ans-D In the audit of historical financial statements, management asserts that the financial statements are fairly stated in accordance with what standards? A) regulatory accounting principles B) applicable international accounting standards C) applicable U.S. accounting standards D) B and C - Ans-D 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. - Ans-B 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. - Ans-A Which of the following services provides the lowest level of assurance on a financial statement? A) review B) audit C) Neither service provides assurance on financial statements. D) Each service provides the same level of assurance on financial statements. - Ans-A Which of the following is an accurate statement regarding assurance services? A) Assurance services must be performed by a CPA. B) An attestation service is not a type of assurance service. C) Assurance services improve the quality of information for decision makers. D) Assurance services can only be performed on financial data. - Ans-C Audits A) are an assurance service, but not an attestation service. B) are designed to provide absolute assurance that the financial statements are free of material misstatement. C) are required for publicly traded companies in the United States. D) do not require the auditor to express their opinion in a written report. - Ans-C A high, but not absolute, level of assurance is called A) probable assurance. B) reasonable assurance. C) limited assurance. D) incomplete assurance. - Ans-B Which of the following is an accurate statement regarding the various types of other assurance services? A) Assurance services must be about the reliability of another party's assertion about compliance with specified criteria. B) Other assurance services must meet the definition of an attestation service. C) The primary purpose of a management consulting engagement is to improve the quality of information. D) The market for other forms of assurance services is open to non-CPA competitors. - Ans-D 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. - Ans-C 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 - Ans-A 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. - Ans-B 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. - Ans-C 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 - Ans-A Which of the following are required to have a written report regarding the assertion of another party? A) Financial statement audit, operational audit, compliance audit, attestation engagement, assurance engagement B) Financial statement audit, operational audit, compliance audit, attestation engagement C) Financial statement audit, operational audit, compliance audit D) Attestation engagement, assurance engagement - Ans-B In a financial statement audit, the auditor A) gathers evidence to determine whether the statements contain material errors or other misstatements. B) must have a thorough understanding of the entity and its environment. C) determines whether the financial statements are stated in accordance with specified criteria. D) all of the above. - Ans-D Internal auditors A) must be independent of the entity that employs them. B) generally report to the accounting department. C) are employed by all types of organizations. D) must be CPAs. - Ans-C Which type of auditor audits the financial information prepared by various federal government agencies before it is submitted to Congress? A) internal auditor B) revenue agent C) independent auditor D) GAO auditor - Ans-D The three requirements for becoming a CPA include all but which of the following? A) uniform CPA examination requirement B) education requirements C) character requirements D) experience requirement - Ans-C The use of the Certified Public Accountant title is regulated by A) the federal government. B) state law through the licensing departments 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. - Ans-B 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. - Ans-A Which of the following is not a characteristic of a small 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. - Ans-D 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 - Ans-B 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 - Ans-A 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 - Ans-B Which of the following statements is true as it relates to limited liability partnerships? A) Only senior partners are liable for the partnerships 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. - Ans-C 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 - Ans-B 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. - Ans-D 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. - Ans-D The Public Company Accounting Oversight Board A) performs inspections of the quality controls of firms that audit public companies. B) establishes auditing standards that must be followed by CPAs on all audits. C) oversees auditors of private companies. D) performs all of the above functions. - Ans-A Assume the Public Company Accounting Oversight Board (PCAOB) identifies a violation during its inspection of a registered accounting firm. The PCAOB I:can enforce disciplinary action against the accounting firm II:report the matter to the Securities and Exchange Commission III:suspend the license to practice of the CPA guilty of the violation A) I, II, III B) I, II C) I D) None - Ans-B 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. - Ans-B 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. - Ans-A 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. - Ans-D 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 the their enforcement regulations. D) the SEC has the power to establish rules for all CPAs - Ans-A 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. - Ans-A 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. - Ans-D 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 - Ans-C 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. - Ans-B 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. - Ans-C _______ 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 - Ans-A 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 - Ans-D 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 ISAs. D) Both B and C are correct - Ans-D 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 - Ans-A The "Principles Underlying an Audit in Accordance with Generally Accepted Auditing Principles" provides 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 - Ans-C Which of the following is not one of the responsibilities of an auditor under the principles underlying an audit? A) possess appropriate competence and capabilities B) comply with ethical requirements C) plan work and supervise assistants D) maintain professional skepticism and exercise professional judgment - Ans-C 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. - Ans-B 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 - Ans-A 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. - Ans-A 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 have an understanding of the client's business and industry - Ans-D 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 - Ans-C 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. - Ans-D 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 - Ans-A 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 any 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 - Ans-B 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. - Ans-C 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 SAS number identifies the order in which it was issued in relation to other SASs - Ans-D ________ 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 - Ans-C 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. - Ans-C 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. - Ans-A The methods used by a CPA firm to ensure that the firm meets is professional responsibilities to clients and others is A) continuing professional education. B) compliance with generally accepted reporting standards. C) quality control. D) peer review. - Ans-C 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. - Ans-C 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 - Ans-D Which of the following is an element of the CPA's quality control system that should be considered in establishing its quality control p