Deck 5: Professional Auditing Standards and the Audit Opinion Formulation Process

Question 1

The standards of the PCAOB encompass three broad categories including: general standards,fieldwork standards and reporting standards.

Answer 1

True

Question 2

Without independence,the value of the auditor's attestation function would be nil.

Answer 2

True

Question 3

The process of understanding the client includes the preparation of the audit program.

Answer 3

True

Question 4

The standards of the PCAOB consist of seven principles.

Question 5

An auditor must be independent in fact and in appearance.

Question 6

The AICPA's fundamental principles can be divided into four sections: purpose of the audit,responsibility of the auditor,performance of the audit,and reporting of the results.

Question 7

An audit must be performed by persons who can make sound judgments relating to complex accounting issues.

Question 8

The Generally Accepted Auditing Standards represent the minimum standards for performing an audit.

Question 9

The PCAOB's general standards provide guidance to audit firms in selecting and training their professionals.

Question 10

The auditing standards issued by the PCAOB are identical to the auditing standards issued by the AICPA.

Question 11

Auditing standards requires technical knowledge in auditing but not in the client's business.

Question 12

The auditor needs to obtain absolute assurance as to whether the financial statements are free from material misstatement.

Question 13

The PCAOB requires the audit be conducted with due professional care,which is a standard of care that would be expected of a reasonably prudent auditor.

Question 14

Generally accepted auditing standards are the cornerstone for the interpretation of financial accounting.

Question 15

Auditors are responsible for having the appropriate competence and capabilities to perform the audit,should comply with ethical requirements,and maintain professional skepticism throughout the audit.

Question 16

According to the AICPA,the purpose of an audit is to enhance the degree of confidence that users can place in the financial statement.

Question 17

The reporting standard of the PCAOB includes consistency,disclosure,and due professional care.

Question 18

The PCAOB's second fieldwork standard requires auditors develop an understanding of the client's controls as an important prerequisite to developing specific audit tests.

Question 19

Audit firms use close supervision and review of audit work to ensure that audits are conducted with due professional care.

Question 20

Part of the understanding the client process of an audit is identifying factors that may require extension or modification of the audit tests,such as potential related-party transactions or the possibility of material misstatements.

Question 21

The first stage in an audit is performing a risk assessment.

Question 22

The purpose of the audit program is to list the audit procedures to be followed in gathering audit evidence and to help those in charge of the audit to monitor the progress and supervise the work.

Question 23

The Public Company Accounting Oversight Board (PCAOB)does not set specific standards for audits of public companies.

Question 24

The standards of fieldwork include the responsibility of the auditor to exercise due professional care.

Question 25

Audit procedures can be classified as risk assessment procedures,test of controls or substantive tests.

Question 26

Recalculation involves independently performing procedures or controls that were originally performed by the client,such as reperforming a bank reconciliation.

Question 27

Assertions about existence address whether assets and liabilities exist and assertions about occurrence address whether recorded transactions,such as sales transactions,have occurred

Question 28

A component of the reporting standards is the requirement that an opinion always be rendered on the subject matter.

Question 29

Inherent risk refers to the susceptibility of an assertion about a class of transaction,account balance,or disclosure to a misstatement that could be immaterial,either individually or when aggregated with other misstatements,before consideration of any related controls.

Question 30

Scanning is a type of analytical procedure which involves reviewing accounting data to identify significant or unusual items,such as examining a credit balance in an account that typically has a debit balance.

Question 31

Evidence is required to be sufficient and appropriate in order to provide a reasonable basis for audit conclusions.

Question 32

Audit documentation is frequently called working papers.

Question 33

Planning is not required in an audit as long as an audit program has been developed.

Question 34

Developing an understanding of the client's business and industry is essential to proficiency as discussed in the PCAOB's general standards.

Question 35

The Public Company Accounting Oversight Board obtains its authority to set audit standards for public companies from the U.S.Congress.

Question 36

The PCAOB's fieldwork standards include planning and supervision,understanding the entity and its internal control structure,and obtaining sufficient appropriate audit evidence.

Question 37

An auditor must obtain an adequate amount of evidence and the evidence must be of the appropriate quality.

Question 38

Control risk refers to the risk that a misstatement could occur in an assertion about a class of transaction,account balance,or disclosure and that could be material,either individually or when aggregated with other misstatements,will not be prevented,or detected and corrected,on a timely basis by the entity's internal control.

Question 39

Test of controls are a type of substantive procedure.

Question 40

Physically examining a client's assets is an audit procedure.

Question 41

Which one of the following attributes is not required of an auditor?

A)Independence.
B)Bias.
C)Integrity.
D)Technical competence.

Question 42

All audit evidence is the result of the application of audit procedures.

Question 43

What are the PCAOB standards that present guidance in testing assertions and planning for the audit are known as?

A)General standards.
B)Fieldwork standards.
C)Reporting standards.
D)None of the above.

Question 44

The PCAOB does not currently have a mandate for convergence with other auditing standards.

Question 45

Assertions are relevant to the audit process because they are the representations of management embodied in the financial statements.

Question 46

Which auditing standards apply to private companies?

A)The AICPA Standards.
B)The IASSB Standards.
C)The Standards of the PCAOB.
D)All of the above.

Question 47

The AICPA includes which of the following categories that guide the conduct of an audit?

A)Purpose of an audit and premise upon which an audit is conducted.
B)Responsibilities.
C)Performance.
D)All of the above.

Question 48

The American Institute of Certified Public Accountants no longer retains the right to set audit standards for any engagements as the Securities Exchange Commission has relinquished such power.

Question 49

The PCAOB requires that the auditor will express an opinion on the financial statements as a whole.

Question 50

What is the scope of applicability of the auditing standards of the AICPA?

A)Nonpublic companies traded in non-U.S.markets.
B)Nonpublic companies in the U.S.
C)Public companies traded in non-U.S.markets.
D)Public companies traded in the U.S.

Question 51

To satisfy the fieldwork standards,what must an auditor do?

A)Act with due care.
B)Gather sufficient appropriate evidence.
C)Be independent in mental attitude.
D)Have adequate knowledge about the client's industry.
E)All of the above.

Question 52

What are the PCAOB standards that cover the essential elements of communication,the criteria against which the assertions were tested,and an explanation of the basis for the auditor's opinion are known as?

A)General standards.
B)Standards of fieldwork.
C)Standards of reporting.
D)None of the above.

Question 53

The PCAOB has authority over the AICPA.

Question 54

The first general standard of the PCAOB requires that an audit be performed by which type of person?

A)An auditor with seasoned judgment in varying degrees of supervision and review.
B)An auditor with appropriate technical training and proficiency.
C)An auditor with adequate knowledge of the standards of field work and reporting.
D)An auditor satisfying the independence standards.

Question 55

The AICPA requires that auditor expresses an opinion as to whether the financial statements are free of material misstatement or states that an opinion cannot be expressed.

Question 56

AICPA standards are frequently called ISAs.

Question 57

Which one of the following organizations provides auditing standards for public companies?

A)GAO.
B)AICPA.
C)GAAP.
D)PCAOB.

Question 58

Presentation and disclosure assertions imply that all transactions and balances are properly presented,disclosures represent what actually happened,and the footnote disclosures are appropriate and adequate.

Question 59

The AICPA,IASSB,and PCAOB have conceptually the same sets of financial statement assertions,but the technical wording varies among the standards.

Question 60

The standards of competence,independence,and due professional care are covered by what standards?

A)General standards.
B)Standards of fieldwork.
C)Reporting standards.
D)None of the above.

Question 61

The proper supervision of audit assistants is a requirement of which of the Generally Accepted Auditing Standards?

A)General Standards.
B)Standards of Fieldwork.
C)Standards of Reporting.
D)Standards of Quality Control.
E)None of the above.

Question 62

Which concept is referred to as the cornerstone of auditing?

A)Due professional care.
B)Independence.
C)Technical training.
D)None of the above.

Question 63

Which of the following is not required under the general standards of GAAS?

A)Technical training of the professionals.
B)Independence of the auditor in fact and appearance.
C)Conduct of an audit with the skill and care of a professional.
D)Review of the all of work and audit documentation of the audit staff.
E)None of the above are required.

Question 64

How many auditing standards has the PCAOB issued?

A)7.
B)16.
C)22.
D)5.

Question 65

Which of the following is not a type of audit procedure?

A)Analytical procedures.
B)Scanning.
C)Reviewing.
D)Observation.

Question 66

Which of the following assertions would the auditor usually consider most relevant for accounts payable?

A)Existence.
B)Valuation.
C)Disclosure.
D)Completeness.

Question 67

Which of the following is not a typical accounting cycle?

A)Revenue.
B)Inventory.
C)Cash.
D)Internal Controls.

Question 68

Rather than keeping the ten standards,what did the AICPA develop?

A)Seven Standards.
B)Seven Concepts.
C)Seven Fundamental Principles.
D)Seven Governing Principles.

Question 69

Which of the following factors influence the risk of material misstatement?

A)The business risks.
B)Management incentives.
C)IT risks.
D)All of the above.

Question 70

Which of the following is a use of audit documentation?

A)Assisting the engagement team in planning and performing the audit.
B)Assisting members of the engagement team responsible for supervising and reviewing the audit work.
C)Retaining a record of matters of continuing significance to future audits of the same organization.
D)All of the above.

Question 71

Which assertion addresses whether the financial statements items are properly classified in the financial statements?

A)Completeness.
B)Existence.
C)Valuation.
D)Presentation and Disclosure.

Question 72

Which of the following is a reason why an auditor needs an understanding of internal controls?

A)To provide individual comments on internal control non-compliance.
B)To become comfortable that the client will pay its audit bills.
C)To assess materiality.
D)To assess the risk of possible misstatements in the financial statements.

Question 73

Which of the following statements about assertions is true?

A)All assertions are equally important for all accounts.
B)The importance of an assertion depends upon the account.
C)Assertions are not related to accounts.
D)None of the above.

Question 74

Which of the following groups are committed to the convergence of the auditing standards?

A)IAASB.
B)PCAOB.
C)AICPA.
D)Both A and C.
E)All of the above.

Question 75

Which of the following is not a reason why an auditor obtains an understanding of internal controls?

A)Understanding the entity's internal control is a requirement of GAAS.
B)The auditor must use the information to assess the risk of material misstatements arising from the lack of internal control.
C)It is the primary basis for the audit report.
D)It assists the auditor in designing the nature,timing and extent of further audit procedures.

Question 76

Which assertion addresses whether all transactions and accounts that should be included in the financial statements are included?

A)Existence.
B)Valuation.
C)Completeness.
D)Rights and Obligations

Question 77

What does business risk include?

A)Economic factors.
B)Competitive factors.
C)Regulatory risk.
D)All of the above.

Question 78

Which of the following statements about the auditing standards issued by the AICPA is true?

A)The auditing standards issued by the AICPA are no longer recognized by the PCAOB.
B)The auditing standards issued by the AICPA are no longer recognized by the profession because the AICPA voted itself out of existence.
C)The auditing standards issued by the AICPA continue to be issued by that organization for audits of public companies.
D)The auditing standards issued by the AICPA were used by the PCAOB as a starting point.

Question 79

What does the quality of the evidence an auditor collects depend upon?

A)The nature of the procedures.
B)The extent of the procedures.
C)The timing of the procedures.
D)Both A and C.
E)All of the above.

Question 80

Which one of the following is a reporting standard requirement?

A)The auditor will state explicitly whether the financial statements are fairly presented in accordance with the applicable financial reporting framework.
B)The auditor will identify in the auditor's report,those circumstances in which auditing principles have not been consistently observed in the current period in comparison to the preceding period.
C)The auditor will review adjusting journal entries for accuracy,and if the auditor concludes those entries are not reasonable accurate,the auditor must so state in the auditor's report.
D)The auditor will express an unqualified opinion on the financial statements,or will conduct additional audit procedures until such an opinion can be expressed.