True or false: Independent audits of today place more emphasis on sampling than did the audits of the 19th century.
True
True or false: The American Institute of Certified Public Accountants issues CPA certificates and permits CPAs to practice.
False
True or false: A company is either audited by the GAO or internal auditors, but not both.
False
True or false: The SEC does not pass on the merits of the securities that are registered with the agency.
True
True or false: The American Institute of Certified Public Accountants has the primary authority to establish accounting standards.
False
True or false: An annual peer review is a requirement of the AICPA.
False
True or false: Many small companies elect to have their financial statements reviewed by a CPA firm, rather than incur the cost of an audit.
True
True or false: Staff assistants in CPA firms generally are responsible for planning and coordinating audit engagements.
False
True or false: The Sarbanes-Oxley Act requires that auditors of publicly traded companies in the United States perform an integrated audit that includes providing assurance on both the financial statements and on compliance with laws and regulations.
False
True or false: Auditing is frequently only a small part of the practice of local CPA firms.
True
A summary of findings rather than assurance is most likely to be included in a(n):
a) agreed-upon procedures report
b) compilation report
c) examination report
d) review report
a) agreed-upon procedures report
The Statements on Auditing Standards have been issued by the:
a) Auditing Standards Board
b) Financial Accounting Standards Board
c) Securities and Exchange Commission
d) Federal Bureau of Investigation
a) Auditing Standards Board
The risk associated with a company's survival and profitability is referred to as:
a) business risk
b) information risk
c) detection risk
d) control risk
a) business risk
Historically, which of the following has the AICPA been MOST concerned with providing?
a) professional standards for CPAs
b) professional guidance for regulating financial markets
c) standards guiding the conduct of internal auditors
d) staff support to Congress
a) professional standards for CPAs
The organization charged with protecting investors and the public by requiring full disclosure of financial information by companies offering securities to the public is the:
a) Auditing Standards Baord
b) Financial Accounting Standards Board
c) Government Accounting Standards Boards
d) Securities and Exchange Commission
d) Securities and Exchange Commission
An engagement in which a CPA firm arranges for a critical review of its practices by another CPA firm is referred to as a(n):
a) Peer Review Engagement
b) Quality Control Engagement
c) Quality Assurance Engagement
d) Attestation Engagement
a) Peer Review Engagement
The serially-numbered pronouncements issued by the Auditing Standards Board over a period of years are known as:
a) Auditing Statements of Position (ASPs)
b) Accounting
Series Releases (ASRs)
c) Statements on Auditing Standards (SASs)
d) Statements on Auditing Principles (SAPs)
c) Statements of Auditing Standards (SASs)
The Government Accountability Office (GAO):
a) is primarily concerned with rapid processing of all accounts payable incurred by the federal government
b) conducts operational audits and reports the results to Congress
c) is a multinational
organization of professional accountants
d) is primarily concerned with budgets and forecasts approved by the SEC
b) conducts operational audits and reports the results to Congress
The risk that information is misstated is referred to as:
a) information risk
b) inherent risk
c) relative risk
d) business risk
a) information risk
The risk that a company will NOT be able to meet its obligations when they become due is referred to as:
a) information risk
b) inherent risk
c) relative risk
d) business risk
d) business risk
Which of the following attributes most clearly differentiates a CPA who audits management's financial statements as contrasted to management?
a) Integrity
b) Competence
c)
Independence
d) Keeping informed on current professional developments
c) Independence
The attest function:
a) is an essential part of every engagement by the CPA, whether performing auditing, tax work, or other services
b) includes the preparation of a report of the CPA's findings
c) requires a consideration of internal control
d) requires a complete review of all transactions during the period
under examination
b) includes the preparation of a report of the CPA's findings
Attestation risk is limited to a low level in which of the following engagement(s)?
a) Both examinations and reviews
b) Examinations, but not reviews
c) Reviews, but not examinations
d) Neither examinations nor reviews
b) Examinations, but not reviews
When compared to an audit performed prior to 1900, an audit today:
a) is more likely to include tests of compliance with laws and regulations
b) is less likely to include consideration of the effectiveness of internal control
c) has bank loan officers as the primary financial statement user group
d) includes a more detailed examination of all individual transactions
a) is more likely to include tests of compliance with laws and regulations
Which of the following are issued by the Securities and Exchange Commission?
a) Accounting Research Studies
b) Accounting Trends and Techniques
c) Industry Audit Guides
d) Financial Reporting Releases
d) Financial Reporting Releases
Which of the following is not correct relating to the Sarbanes-Oxley Act?
a) It toughens
penalties for corporate fraud
b) It restricts the types of consulting CPAs may perform for audit clients
c) It created the Public Company Accounting Oversight Board (PCAOB) as a replacement for the Financial Accounting Standards Board
d) It eliminates a significant portion of the accounting profession's system of self-regulation
c) It created the Public Company Accounting Oversight Board (PCAOB) as a replacement for the Financial Accounting Standards Board
An operational audit differs many ways from an audit of financial statements. Which of the following is the best example of one of these differences?
a) The usual audit of financial statements covers the four basic statements, whereas the operational audit is usually limited to either the balance sheet or the income statement
b) The boundaries of an operational audit are often drawn from an organization chart and are not
limited to a single accounting period
c) Operational audits do not ordinarily result in the preparation of a report
d) The operational audit deals with pre-tax income
b) The boundaries of an operational audit are often drawn from an organization chart and are not limited to a single accounting period
The review of a company's financial statements by a CPA firm:
a) is substantially less in scope of
procedures than an audit
b) requires detailed analysis of the major accounts
c) is of similar scope as an audit and adds similar credibility to the statements
d) culminates in issuance of a report expressing the CPA's opinion as to the fairness of the statements
a) is substantially less in scope of procedures than an audit
Which statement is correct with respect to continuing professional education (CPE) requirements of members of the AICPA?
a) Only members employed by the AICPA are required to take such courses
b) Only members in public practice are required to take such courses
c) Members, regardless of whether they are in public practice, are required to meet such requirements
d) There is no requirement for members to participate in CPE
c) Members, regardless of whether they are in public practice, are required to meet such requirements
The FDIC Improvement Act requires that management of large financial institutions engage auditors to attest to assertions by management about the effectiveness of the institution's internal controls over:
a) compliance with laws and regulations
b) financial reporting
c) effectiveness of operations
d) efficiency of operations
b) financial reporting
Passage of the Sarbanes-Oxley Act led to the establishment of the:
a) Auditing Standards Board
b) Accounting Enforcement Releases Board
c) Public Company Accounting Oversight Board
d) Securities and Exchange Commission
c) Public Company Accounting Oversight Board
Which of the following professionals has primary responsibility for the performance of an audit?
a) The managing partner
of the firm
b) The senior assigned to the engagement
c) The manager assigned to the engagement
d) The partner in charge of the engagement
d) The partner in charge of the engagement
Which of the following types of services is generally provided only by CPA firms?
a) Tax audits
b) Financial statement audits
c) Compliance audits
d) Operational audits
b) Financial statement audits
The right to practice as a CPA is given by which of the following organizations?
a) State Boards of Accountancy
b) The AICPA
c) The SEC
d) The General Accounting Office
a) State Boards of Accountancy
Which of the following terms best describes the audit of a taxpayer's tax return by an IRS auditor?
a) Operational
audit
b) Internal audit
c) Compliance audit
d) Government audit
c) Compliance audit
Inquiries and analytical procedures ordinarily form the basis for which type of engagement?
a) agree-upon procedures
b) audit
c) examination
d) review
d) review
Which of the following best describes the reason why independent auditors report on the financial statements?
a) A management fraud may exist and it is more likely to be detected by independent auditors
b) Different interests may exist between the company preparing the statements and the persons using the statements
c) A misstatement of account balances may exist and is generally corrected as the result of the independent auditors' work
d) Poorly designed internal control may be in existence
b) Different interests may exist between the company preparing the statements and the persons using the statements
Governmental auditing often extends beyond examinations leading to the expression of opinion on the fairness of financial presentation and includes audits of efficiency, economy, effectiveness, and also:
a) accuracy
b) evaluation
c) compliance
d) internal control
c) compliance
Operational auditing is primarily oriented toward:
a) future improvements to accomplish the goals of management
b) the accuracy of data reflected in management's financial records
c) the verification that a company's financial statements are fairly presented
d) past protection provided by existing internal control
a) future improvements to accomplish the goals of management
A typical objective of an operational audit is for the auditor to:
a) determine whether the financial statements fairly present the entity's operations
b) evaluate the feasibility of attaining the entity's operational objectives
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 integrated audit performed under the Sarbanes-Oxley Act requires that auditors report on:
a) both financial statements and internal control
b) financial statements, but not internal control
c) internal control, but not financial statements
d) neither financial statements nor internal control
a) both financial statements and internal control
Which of the following best describes the relationship between assurance services and attest services?
1) While attest services involve financial data, assurance services involve nonfinancial data
2) While attest services require objectivity, assurance services do not require objectivity
3) Both attest and assurance services require independence
4) Attest and assurance services are different terms referring to the same types of of services
3) Both attest and assurance services require independence
Which of the following has primary responsibility for the fairness of the representations made in financial statements?
1) Client's management
2) Independent auditor
3) Audit committee
4) AICPA
1) Client's management
The most important benefit of having an annual audit by a public accounting firm is to:
1) Provide
assurance to investors and other outsiders that the financial statements are reliable
2) Enable officers and directors to avoid personal responsibility for any misstatements
3) Meet the requirements of government agencies
4) Provide assurance that illegal acts, if any exist, will be brought to light
1) Provide assurance to investors and other outsiders that the financial statements are reliable
The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board (PCAOB). Which of the following is NOT one of the responsibilities of that board?
1) Establish independence standards for auditors or public companies
2) Review financial reports filed with the SEC
3) Establish auditing standards for audits of public companies
4) Sanction registered audit firms
2) Review financial reports filed with the SEC
Which of these organizations has the responsibility to perform inspections of auditors of public companies?
1) American Institute of Certified Public Accountants
2) Securities and Exchange Commission
3) Financial Accounting Standards Board
4) Public Company Accounting Oversight Board
4) Public Company Accounting Oversight Board
Governmental auditing, in addition to including audits of financial statements, often includes audits of efficiency, effectiveness, and:
1) Adequacy
2) Evaluation
3) Accuracy
4) Compliance
4) Compliance
In general, internal auditors' independence will be greatest when they report directly to the:
1) Financial vice president
2) Corporate controller
3) Audit committee of the board of directors
4) Chief executive officer
3) Audit committee of the board of directors
Which of the following did NOT precipitate the passage of the Sarbanes-Oxley Act of 2002 to regulate public accounting firms:
1) Disclosures related to accounting irregularities at Enron and WorldCom
2) Restatements of financial statements by a number of public companies
3) Conviction of the accounting firm of Arthur Andersen LLP
4) Ethical scandals at the AICPA
4) Ethical scandals at the AICPA
Which of the following organizations establishes accounting standards for US government agencies?
1) The Financial Accounting Standards Board
2) The Governmental Accounting Standards Board
3) The Federal Accounting Standards Advisory Board
4) The Public Company Accounting Oversight Board
3) The Federal Accounting Standards Advisory Board
Which of the following is correct about forensic audits?
1) All audit engagements are forensic in nature
2) Forensic audits are performed by law firms; they are not performed by CPA firms
3) Forensic audits are equivalent to compliance audits
4) Forensic audits are usually performed in situations in which fraud has been found or is suspected
4) Forensic audits are usually performed in situations in which fraud has been found or is suspected
What best describes the purpose of the auditors' consideration of internal control in a financial statement audit for a nonpublic company?
1) To determine the nature, timing, and extent of audit testing
2) To make recommendations to the client regarding improvements in internal control
3) To train new auditors on accounting and control systems
4) To identify opportunities for fraud
within the client's operations
1) To determine the nature, timing, and extent of audit testing
Which of the following is an example of a compliance audit?
1) An audit of financial statements
2) An audit of a company's policies and procedures for adhering to environmental laws and regulations
3) An audit of a company's internal control over financial reporting
4) An audit of the efficiency and
effectiveness of a company's legal department
2) An audit of a company's policies and procedures for adhering to environmental laws and regulations