Deck 2: The Cpa Profession

Question 1

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.

Answer 1

A

Question 2

Many small,local accounting firms perform audits as their primary service to their clients.

Answer 2

False

Question 3

________ is one of the Big Four international CPA firms.

A)Deloitte
B)KPMG
C)Ernst & Young
D)All of the above are classified as Big Four international CPA firms.

Answer 3

D

Question 4

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

Question 5

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.

Question 6

In addition to attestation and assurance services,CPA firms provide other services to their clients.List three of these services.

Question 7

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

Question 8

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

Question 9

List and describe the three factors that influence the organizational structure of all CPA firms.What are the most common forms of CPA firm organization?

Question 10

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.

Question 11

All of the Big Four accounting firms and many of the smaller CPA firms now operate as limited liability partnerships.

Question 12

Limited liability companies are structured and taxed like a general partnership,but their owners have limited personal liability similar to that of a general corporation.

Question 13

In a CPA firm,the audit partner coordinates the performance of audit procedures.

Question 14

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.

Question 15

Sarbanes-Oxley and the Securities and Exchange Commission restrict auditors from providing many consulting services to their publicly traded audit clients.

Question 16

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.

Question 17

Assume the Public Company Accounting Oversight Board (PCAOB)identifies a violation during its inspection of a registered accounting firm.The PCAOB

A)
B)
C)
D)

Question 18

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

Question 19

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.

Question 20

List and describe the six organizational structures available to CPA firms.

Question 21

Discuss the purpose of the Securities and Exchange Commission and its influence on setting generally accepted accounting principles.

Question 22

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.

Question 23

The difference between the Securities Act of 1933 and the Securities Act of 1934 is that only the 1934 act requires audited financial statements.

Question 24

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.

Question 25

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.

Question 26

The overall purpose of the Securities and Exchange Commission is to assist in providing investors with reliable information upon which to make investment decisions.

Question 27

The Public Company Accounting Oversight Board (PCAOB)provides oversight to auditors of publicly traded and private companies.

Question 28

A CPA must meet continuing education requirements to maintain their license to practice.

Question 29

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.

Question 30

Membership in the AICPA is restricted to CPAs who are currently practicing as independent auditors.

Question 31

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.

Question 32

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.

Question 33

Which of the following are audit standards used in professional practice by audit firms?

A)
B)
C)
D)

Question 34

The Sarbanes-Oxley Act established the Public Company Accounting Oversight Board (PCAOB).What are the PCAOB's primary functions?

Question 35

The PCAOB requires annual inspections of accounting firms that audit more than ten public companies.

Question 36

What are the major functions of the AICPA?

Question 37

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.

Question 38

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

Question 39

Form 10-K must be filed with the SEC whenever a public company experiences a significant event.

Question 40

Membership in the AICPA is mandatory for all licensed practicing CPAs.

Question 41

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.

Question 42

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.

Question 43

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.

Question 44

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.

Question 45

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.

Question 46

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.

Question 47

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.

Question 48

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.

Question 49

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

Question 50

________ 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

Question 51

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.

Question 52

International Standards on Auditing are issued by the International Auditing and Assurance Standards Board (IAASB).

Question 53

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.

Question 54

The PCAOB considers International Standards on Auditing (ISA)when developing its standards.

Question 55

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

Question 56

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.

Question 57

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.

Question 58

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.

Question 59

The ASB has revised its audit standards to converge with international standards.

Question 60

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

Question 61

Discuss the relationship between quality control and generally accepted auditing standards.

Question 62

Professional skepticism must be maintained only if the auditor suspects fraud.

Question 63

The following are definitions of terms that are listed on the right.Match the definition with its associated term.Each term can be used once,more than once or not at all.

Question 64

Which one of the following is not True regarding the American Institute of Certified Public Accountants peer review requirement?

A)A CPA firm must develop and adhere to quality control standards.
B)Peer reviews are mandatory.
C)A CPA firm will lose AICPA eligibility if a peer review is not performed.
D)Firms required to be registered with and inspected by the PCAOB are exempt.

Question 65

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.

Question 66

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.

Question 67

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.

Question 68

Performance is one of the principles underlying an audit.List three performance responsibilities.

Question 69

The AU-C number identifies the order in which it was issued in relation to all other codified auditing standards.

Question 70

Statements on Auditing Standards (SASs)are issued by the Public Company Accounting Oversight Board.

Question 71

Principles related to the auditor's responsibilities in the audit stress three important personal qualities that the auditor should possess.List and discuss these three qualities.

Question 72

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.

Question 73

List the four principles underlying an audit.

Question 74

Which of the following is not an essential component of quality control?

A)policies and procedures to ensure that firm personnel are actively engaged in marketing strategies
B)policies and procedures to ensure that the work performed by firm personnel meet applicable professional standards
C)policies to ensure that personnel maintain their independence in fact and in appearance
D)policies that ensure that monitoring activities are effectively applied

Question 75

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.

Question 76

Listed below are policies or procedures that the Crystal Cove audit firm has in place.For each identified policy or procedure state if it is an auditing standard or a quality control standard.

Question 77

Which of the following is an element of the CPA's quality control system that should be considered in establishing its quality control policies and procedures?

A)considering audit risk and materiality
B)using statistical sampling techniques
C)assigning personnel to engagements
D)complying with laws and regulations

Question 78

List and describe the six elements of quality control.Who establishes the standards for quality control?

Question 79

________ 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

Question 80

Quality controls are established for the entire CPA firm whereas auditing standards are applicable to the individual engagement.