Deck 2: Professional Standards

Question 1

Evidence is considered appropriate when it is both valid and relevant.

Answer 1

True

Question 2

The performance principle sets forth the quality criteria for conducting an audit.

Answer 2

True

Question 3

The concept of due care reflects the need to plan and perform the audit with an appropriate level of professional skepticism.

Answer 3

True

Question 4

Auditing Standards issued by the PCAOB are the sole source of guidance for audits of public entities.

Question 5

The reporting principle relates to a firm's system of quality control criteria for conducting an audit.

Question 6

Control risk is the probability that a material misstatement (error or fraud)could occur and not be prevented or detected on a timely basis by the auditors' substantive procedures.

Question 7

Attestation standards provide guidance for a wide variety of engagements different in scope than an audit.

Question 8

Auditors of public entities registered with the Securities and Exchange Commission are required to register with the Public Company Accounting Oversight Board.

Question 9

Under the performance principle,auditors are required to provide absolute assurance that the client's financial statements do not contain material misstatements.

Question 10

The purpose of a system of quality control is to provide reasonable assurance that the firm and its personnel issue reports that are appropriate under the circumstances.

Question 11

Auditors cannot effectively satisfy the responsibilities principle requiring due care if they have not also satisfied the performance principle.

Question 12

The auditors' report should either contain an expression of opinion on the financial statements taken as a whole or an assertion to the effect that an opinion cannot be expressed.

Question 13

Auditors may be independent in fact but not independent in appearance.

Question 14

Auditing procedures are the same as auditing standards.

Question 15

Generally accepted auditing standards must be followed on all audit engagements.

Question 16

An unqualified opinion indicates that the financial statements present the entity's financial condition,results of operations,and cash flows in conformity with GAAP.

Question 17

Substantive procedures performed by the audit team are most closely related to the risk of material misstatement.

Question 18

The contents of the auditors' report are guided by the performance principle of GAAS.

Question 19

The word appropriateness refers to the number of transactions or components of an account balance examined by auditors.

Question 20

To be considered material,an item must be one that would influence the decision of financial statement users.

Question 21

Control risk is

A) The probability that a material misstatement could not be prevented or detected by the entity's internal control policies and procedures.
B) The probability that a material misstatement could occur and not be detected by auditors' procedures.
C) The risk that auditors will not be able to complete the audit on a timely basis.
D) The risk that auditors will not properly control the staff on the audit engagement.

Question 22

Which of the following would most likely be a violation of the independence requirement found in the responsibilities principle under generally accepted auditing standards?

A) An auditor on the engagement has a distant relative who is employed by a vendor that does a significant amount of business with clients.
B) The client's chief executive officer graduated from the same university as the partner in charge of the accounting firm.
C) An auditor on the engagement owns a financial interest in the client's stock.
D) The client provides financial support to a number of charitable causes that also receive support from the accounting firm.

Question 23

Which of the following statements is generally correct about the appropriateness of audit evidence?

A) Auditors' direct personal knowledge obtained through observation and inspection is more persuasive than information obtained indirectly from independent outside sources.
B) To be reliable, audit evidence must be either valid or relevant but need not be both.
C) Client accounting data alone may be considered sufficient appropriate audit evidence to issue an unqualified opinion on client financial statements.
D) Appropriateness of audit evidence refers to the amount of corroborative evidence to be obtained.

Question 24

(Appendix)The AICPA attestation standards differ from the responsibilities principle,performance principle,and reporting principle in that:

A) The attestation standards contain no requirement to obtain an understanding of the entity and assess the risk of material misstatement.
B) The attestation standards do not require competence and capabilities.
C) The attestation standards do not require planning for attestation engagements or supervision of accountants and consultants who perform the work.
D) The attestation standards do not require a report that states the character of the engagement.

Question 25

An audit of the financial statements of Camden Corporation is being conducted by external auditors.The external auditors are expected to:

A) Certify the correctness of Camden's financial statements.
B) Make a complete examination of Camden's records and verify all of Camden's transactions.
C) Give an opinion on the fair presentation of Camden's financial statements in conformity with the applicable financial reporting framework (e.g., GAAP, IFRS).
D) Give an opinion on the attractiveness of Camden for investment purposes and critique the wisdom and legality of its business decisions.

Question 26

A vendor's invoice received and held by the client would be considered what type of evidence?

A) External.
B) Internal.
C) External-internal.
D) Written representation.

Question 27

Audit evidence is usually considered sufficient when

A) It is reliable.
B) There is enough quantity to afford a reasonable basis for an opinion on financial statements.
C) It has the qualities of being relevant, objective, and free from unknown bias.
D) It has been obtained through random selection methods.

Question 28

An important role of the Public Company Accounting Oversight Board is to oversee the

A) Issuance of statements by the Financial Accounting Standards Board.
B) Preparation and grading of the Uniform CPA Examination.
C) Peer review of member firms of the Private Companies Practice Section.
D) Regulation of firms that audit public entities.

Question 29

The preparation of an audit plan prior to the beginning of fieldwork is appropriately considered documentation of

A) Planning.
B) Supervision.
C) Information evaluation.
D) Quality assurance.

Question 30

Which of the following is an element of a system of quality control that should be considered by a public accounting firm in establishing its quality control policies and procedures?

A) Lending credibility to a client's financial statements.
B) Using statistical sampling techniques.
C) Accepting and continuing client relationships and specific engagements.
D) Obtaining membership in the Center for Public Company Audit Firms.

Question 31

The standard auditors' report refers to standards of the PCAOB and GAAP in which paragraph?

A) Standards of the PCAOB: Scope only; GAAP: Opinion only
B) Standards of the PCAOB: Introductory only; GAAP: Scope and opinion
C) Standards of the PCAOB: Introductory and scope; GAAP: Opinion only
D) Standards of the PCAOB: Introductory only; GAAP: All paragraphs

Question 32

Which of the following procedures would provide the most reliable audit evidence?

A) Inquiries of the client's accounting staff held in private.
B) Inspection of prenumbered client shipping documents.
C) Inspection of bank statements obtained directly from the client's financial institution.
D) Analytical procedures performed by auditors on the client's trial balance.

Question 33

Auditors try to achieve independence in appearance in order to:

A) Maintain public confidence in the profession.
B) Become independent in fact.
C) Comply with the responsibilities principle.
D) Maintain an unbiased mental attitude.

Question 34

Which of the following is not considered a type of audit evidence?

A) Entity's trial balance.
B) Auditors' calculations.
C) Physical observation.
D) Verbal statements made by client personnel.

Question 35

Which of the following is not included in the auditors' standard report representing an unqualified opinion?

A) A brief indication of the responsibility of auditors and management for the financial statements.
B) An indication that all appropriate disclosures have been made and included in the financial statements.
C) An indication that the audit was conducted in accordance with standards established by the PCAOB.
D) The auditors' opinion on the fairness of the financial statements.

Question 36

The responsibilities principle under generally accepted auditing standards does not include which of the following?

A) Competence and capabilities.
B) Independent attitude.
C) Due care.
D) Planning and supervision.

Question 37

Which of the following presumptions does not relate to the reliability of audit evidence?

A) The more effective the client's internal control, the more assurance it provides about the accounting data and financial statements.
B) The auditors' opinion, to be economically useful, is formed within a reasonable time and based on evidence obtained at a reasonable cost.
C) Evidence obtained from independent sources outside the entity is more reliable than evidence secured solely within the entity.
D) The independent auditors' direct personal knowledge, obtained through observation and inspection, is more persuasive than information obtained indirectly.

Question 38

Which of the following types of auditors' reports does not require an explanatory paragraph to support the opinion?

A) Unqualified opinion.
B) Adverse opinion.
C) Qualified opinion.
D) Disclaimer of opinion.

Question 39

(Appendix)Which of the following is not an attestation standard?

A) The practitioner must obtain sufficient evidence to provide a reasonable basis for the conclusion expressed in the report.
B) The practitioner must identify the subject matter or the assertion being reported on and state the character of the engagement.
C) The practitioner must adequately plan the work and must properly supervise any assistants.
D) A sufficient understanding of the client's internal controls shall be obtained to plan the engagement.

Question 40

(Appendix)The attestation standards do not require the attestation report to include a statement that

A) Provides a conclusion whether the subject matter is presented in conformity with established or stated criteria.
B) Indicates that the practitioner has significant reservations about the engagement.
C) Identifies the subject matter or assertion being reported on.
D) Indicates that the accountant assumes no responsibility to update the report.

Question 41

The primary purpose of the auditors' study of internal control for a nonpublic entity is:

A) To provide constructive suggestions to the client for improving its internal control.
B) To report on internal control as required by Auditing Standard No. 5.
C) To identify and detect fraud and irregularities perpetrated by client personnel.
D) To determine the nature, timing, and extent of substantive procedures.

Question 42

The performance principle would include all of the following except

A) The auditors' determination of materiality levels.
B) The auditors' evaluation of independence with respect to their clients.
C) The auditors' evaluation of the risk of material misstatement.
D) The auditors' determination of the nature, timing, and extent of substantive tests.

Question 43

Which of the following is not a concept from the performance principle under generally accepted auditing standards?

A) The auditor must plan the work and properly supervise any assistants.
B) The auditor must express an opinion in accordance with the auditor's findings.
C) The auditor must obtain sufficient appropriate evidence about whether material misstatements exist.
D) The auditor must determine and apply an appropriate materiality level throughout the audit.

Question 44

Which of the following is most closely associated with the responsibilities principle?

A) Due care.
B) Planning.
C) Qualified audit opinion.
D) Risk of material misstatement.

Question 45

Which reporting options do auditors have if the client's financial statements are not presented according to the applicable financial framework (e.g.,GAAP,IFRS)?

A) Unqualified opinion or disclaimer of opinion.
B) Qualified opinion or disclaimer of opinion.
C) Unqualified opinion or adverse opinion.
D) Qualified opinion or adverse opinion.

Question 46

As it relates to audit evidence,appropriateness refers to the

A) Originality of evidence gathered.
B) Quality of evidence gathered.
C) Quantity of evidence gathered.
D) Timeliness of evidence gathered.

Question 47

A periodic review of an audit firm's system of quality control by the PCAOB is referred to as a(n):

A) Inspection.
B) Peer review.
C) Principles review.
D) Quality review.

Question 48

Which of the following statements describes an appropriate relationship with respect to the reliability of audit evidence?

A) Receiving confirmation from third parties as to the existence of securities is more reliable than the auditors' personal inspection of those securities.
B) Verbal inquiries received from the client regarding sales made to customers are more reliable than sales invoices prepared by the client for its customers.
C) A bank confirmation received directly by the auditor is more reliable than a bank confirmation initially received by the client and forwarded to the auditor.
D) Evidence drawn from a document prepared by the client is more reliable than evidence drawn from a document prepared by an external party that is forwarded to the auditor by the client.

Question 49

Which of the following statements is not true with respect to the responsibility for establishing generally accepted auditing standards?

A) The PCAOB issues auditing standards for the audit of public entities subject to SEC approval.
B) Standards issued by the Auditing Standards Board after 2003 apply to the audits of both public and private entities.
C) If not superseded by the PCAOB, Statements on Auditing Standards issued prior to 2003 are applicable to the audit of public entities.
D) Prior to the Sarbanes-Oxley Act, the Auditing Standards Board issued auditing standards for the audits of both public and private entities.

Question 50

Which of the following concepts is least related to the risk of material misstatement?

A) Control risk.
B) Detection risk.
C) Inherent risk.
D) Materiality.

Question 51

Internal evidence

A) Is obtained directly from third parties independent of the client.
B) Originates outside the client's system but has been received and processed by the client.
C) Consists of documents that are produced, used, and stored within the client's information system.
D) Consists of representations made by the client's officers, directors, owners, and employees.

Question 52

Which of the following situations would most likely be in conflict with the responsibilities principle?

A) Auditors perform the engagement with the performance level expected of prudent auditors but not expert auditors.
B) Auditors obtain expertise in their client's industry as they are conducting the audit examination.
C) Auditors are directly involved with a client manager in a strategic decision-making capacity.
D) Auditors fail to document their assessment of control risk following their study of internal control.

Question 53

Which of the following represent(s)audit quality guides that remain stable over time and are applicable for all audits?

A) Auditing procedures.
B) Auditing standards.
C) Due care.
D) System of quality control.

Question 54

Which of the following would normally be considered earliest in the audit examination?

A) Determination of materiality levels to use during the audit.
B) Consideration of the ability of the entity's internal control to prevent or detect errors.
C) Preparation of a written audit plan.
D) Evaluation of the type of audit opinion to be issued based on the auditor's findings.

Question 55

Which of the following statements is not true with respect to the evidence that would be gathered when assessments of control risk are high?

A) Auditors would be required to rely on external (rather than internal) forms of evidence.
B) Auditors would be required to perform procedures at interim periods rather than at year-end.
C) Auditors would be required to confirm a larger number of customer accounts receivable balances.
D) Auditors would be required to obtain more evidence through direct personal observation.

Question 56

The auditors' responsibility to express an opinion on the financial statements is

A) Implicitly represented in the auditors' standard report.
B) Explicitly represented in the introductory paragraph of the auditors' standard report.
C) Explicitly represented in the scope paragraph of the auditors' standard report.
D) Explicitly represented in the opinion paragraph of the auditors' standard report.

Question 57

Which of the following presumptions is correct about the reliability of audit evidence?

A) Information obtained indirectly from outside sources is the most reliable form of audit evidence.
B) To be reliable, audit evidence should be convincing rather than persuasive.
C) Reliability of audit evidence refers to the amount of corroborative evidence obtained.
D) An effective system of internal control provides more assurance about the reliability of audit evidence.

Question 58

Under generally accepted auditing standards,which of the following relates to the responsibilities principle?

A) The initial planning of the audit engagement.
B) The confirmation of accounts receivable.
C) The completion of an internal control questionnaire.
D) Maintaining professional skepticism and exercising professional judgment.

Question 59

Which of the following statements is true with respect to the persuasiveness of audit evidence?

A) Persuasiveness is related to the relevance of evidence but not the reliability of evidence.
B) Evidence is considered more persuasive when gathered prior to year-end than following year-end.
C) Evidence obtained under environments of stronger internal control is more persuasive than evidence obtained under environments of weaker internal control.
D) In evaluating persuasiveness, sufficiency of evidence is of more importance than appropriateness of evidence.

Question 60

Which of the following information would not be included in the auditors' standard report?

A) The names of the financial statements audited.
B) A description of the nature of an audit.
C) An indication that all necessary disclosures have been presented.
D) An opinion on the entity's financial statements.

Question 61

Which of the following topics is not addressed in the auditors' report for a public entity?

A) Responsibilities of the auditor and management in the financial reporting process.
B) Absolute assurance regarding the fairness of the entity's financial statements in accordance with GAAP.
C) A description of an audit engagement.
D) A summary of the auditors' opinion on the effectiveness of the entity's internal control over financial reporting.

Question 62

The state of mind that characterizes the auditors' appropriate questioning and critical assessment of audit evidence is referred to as:

A) Due care.
B) Independence in appearance.
C) Professional judgment.
D) Professional skepticism.

Question 63

The evidence considered most appropriate by auditors is best described as

A) Internal documents such as sales invoice copies produced under conditions of strong internal control.
B) Written representations made by the president of the entity.
C) Documentary evidence obtained directly from independent external sources.
D) Direct personal knowledge obtained through physical observation and mathematical recalculation.

Question 64

Which of the following procedures would provide the most reliable audit evidence?

A) Inquiries of the client's internal audit staff.
B) Inspection of prenumbered client purchase orders filed in the vouchers payable department.
C) Inspection of vendor sales invoices received from client personnel.
D) Inspection of bank statements obtained directly from the client's financial institution.

Question 65

Which of the following concepts is least related to the standard of due care?

A) Independence in fact.
B) Professional skepticism.
C) Prudent auditor.
D) Reasonable assurance.

Question 66

Which of the following is most closely related to the responsibilities principle?

A) The auditors' responsibility to issue a report as a result of their examination.
B) The requirement that auditors gather sufficient, appropriate evidence upon which to base an opinion on the financial statements.
C) The auditors' compliance with relevant ethical requirements of independence and due care.
D) The auditors' responsibility to plan the audit and properly supervise assistants.

Question 67

Which of the following elements of a system of quality control is related to firms receiving independence confirmations from its professionals with respect to clients?

A) Acceptance and continuance of client relationships and specific engagements.
B) Engagement performance.
C) Monitoring.
D) Relevant ethical requirements.

Question 68

Which of the following is least related to the concept of independence in appearance?

A) The auditors' objectivity and ability to act impartially toward the client.
B) The perceptions of individuals who rely on the financial statements and auditors' opinion on the financial statements.
C) The ownership of a financial interest in a client by the auditor.
D) The employment of the auditor's family member in an important position with the client.

Question 69

To exercise due care,an accountant should

A) Take continuing professional education classes.
B) Report whether the financial statements are in accordance with GAAP.
C) Gather enough audit evidence to have complete assurance that there is enough support for the opinion on the financial statements.
D) Conduct the engagement in accordance with GAAS and ensure that the engagement is completed on a timely basis.

Question 70

Auditors' understanding of the internal control in an entity contributes information for

A) Determining whether members of the audit team have the required competence and capabilities to perform the audit.
B) Ascertaining the independence in mental attitude of members of the audit team.
C) Planning the professional development courses the audit staff needs to keep up to date with new auditing standards.
D) Planning the nature, timing, and extent of substantive procedures on an audit.

Question 71

Ordinarily,what source of evidence should least affect audit conclusions?

A) External documentary evidence.
B) Inquiry of management.
C) Documentation prepared by the audit team.
D) Inquiry of entity legal counsel.

Question 72

The primary purpose for obtaining an understanding of the entity's environment (including its internal control)in a financial statement audit is

A) To determine the nature, timing, and extent of substantive procedures to be performed.
B) To make consulting suggestions to the management.
C) To obtain direct sufficient appropriate audit evidence to afford a reasonable basis for an opinion on the financial statements.
D) To determine whether the entity has changed any accounting principles.

Question 73

Kramer,CPA consulted an independent appraiser regarding the valuation of fine art for a not-for-profit museum.Consultation with a specialist in this case would

A) Be considered as exercising proper due care.
B) Be considered a failure to follow GAAS because Kramer should have known how to value fine art before accepting the engagement.
C) Not be considered a violation of GAAS because GAAS does not apply to not-for-profit entities.
D) None of the above.

Question 74

Which of the following categories of principles is most closely related to gathering audit evidence?

A) Performance.
B) Reasonable assurance.
C) Reporting.
D) Responsibilities.

Question 75

Breaux & Co.,CPAs require that all audit documentation indicate the identity of the preparer and the reviewer.This procedure provides evidence relating to which of the following?

A) Independence.
B) Adequate competence and capabilities.
C) Adequate planning and supervision.
D) Gathering sufficient appropriate evidence.

Question 76

The most persuasive evidence regarding the existence of newly acquired computer equipment is

A) Inquiry of management.
B) Documentation prepared externally.
C) Observation of auditee's procedures.
D) Physical observation.

Question 77

One of an accounting firm's basic objectives is to provide professional services that conform to professional standards.Reasonable assurance of achieving this objective can be obtained by following

A) Generally accepted auditing standards (GAAS).
B) Standards within a system of quality control.
C) Generally accepted accounting practices (GAAP).
D) International auditing standards.

Question 78

Which concept recognizes that a GAAS audit may fail to detect all material misstatements?

A) Absolute assurance.
B) Due care.
C) Reasonable assurance.
D) Risk of material misstatement.

Question 79

Which of the following recognizes that an audit conducted under generally accepted auditing standards may not detect all material misstatements?

A) Absolute assurance.
B) Professional judgment.
C) Persuasiveness of audit evidence.
D) Reasonable assurance.

Question 80

Which of the following best demonstrates the concept of professional skepticism?

A) Relying more extensively on external evidence rather than internal evidence.
B) Focusing on items that have a more significant quantitative effect on the entity's financial statements.
C) Critically assessing verbal evidence received from the entity's management.
D) Evaluating potential financial interests held by auditors in the client.