Deck 14: The Auditing Profession Glossary

Question 1

The fundamental principles of professional ethics are: responsibilities,the public interest,integrity,objectivity and independence,due care,and scope and nature of services.

Answer 1

True

Question 2

Failure to file a tax return or pay tax penalty is an interpretation of Rule 501 - Acts Discreditable to the Profession.

Answer 2

True

Question 3

In the Auditing and Attestation section of the CPA exam,candidates are expected to demonstrate knowledge and understanding of the professional standards and the skill to apply that knowledge to performing auditing tasks.Some of the tasks that candidates are expected to perform are

A)differentiate between audits,tax,and compilation services
B)differentiate between the professional standards for issuers and nonissuers
C)identify situations that might be illegal or a violation of professional standards,perform research and consultations as appropriate,and determine the appropriate action
D)recognize potentially illegal behavior of clients and determine the impact on the services performed
E)demonstrate the importance of identifying and following requirements,rules,and standards that are established by licensing board
F)both A and D
G)both B and E
H)both C and E

Answer 3

G

Question 4

An auditor who lacks independence may be viewed by management as representing the interests of outsiders only rather than considering the interests of management.

Question 5

The Financial Accounting and Reporting section of the exam tests the candidates' knowledge and understanding of the financial reporting framework.This includes standards issued by

A)the Financial Accounting Reporting Board
B)the International Accounting Standards Board
C)the Cost Accounting Standards Board
D)the U.S.Securities and Exchange Commission
E)the Governmental Accounting Reporting Board
F)both A and B
G)both B and D
H)both C and E

Question 6

An accountant may be hired by a client to perform an audit.This is the only level of service an accountant may perform for a client.

Question 7

In the Auditing and Attestation section of the CPA exam,candidates are expected to demonstrate knowledge and understanding of the professional standards and the skill to apply that knowledge to performing auditing tasks.Some of the tasks that candidates are expected to perform are

A)differentiate between audits,attestation and assurances services
B)differentiate between the accounting standards for issuers and nonissuers
C)identify situations that might be illegal or a violation of professional standards,perform research and consultations as appropriate,and determine the appropriate action
D)recognize potentially illegal behavior of clients and determine the impact on the services performed
E)demonstrate the importance of identifying and following requirements,rules,and standards that are established by licensing board
F)both A and E
G)both B and C
H)both D and E

Question 8

Which of the following is not a part of the CPA exam administered by the AICPA?

A)Auditing and Attestation
B)Financial Accounting and Reporting
C)Regulation and Evaluation
D)Regulation
E)Business Environment and Concepts

Question 9

In the Auditing and Attestation section of the CPA exam,candidates are expected to demonstrate knowledge and understanding of the professional standards and the skill to apply that knowledge to performing auditing tasks.Some of the tasks that candidates are expected to perform are

A)differentiate between audits,attestation and assurances services
B)differentiate between the accounting standards for issuers and nonissuers
C)identify situations that might be unethical or a violation of professional standards,perform research and consultations as appropriate,and determine the appropriate action
D)recognize potentially illegal behavior of clients and determine the impact on the services performed
E)demonstrate the importance of identifying and following requirements,rules,and standards that are established by the AICPA
F)both A and C
G)both B and D
H)both D and E

Question 10

The current audit methodology used by accounting firms is based on risk assessment and reliance on internal controls.

Question 11

Effective January 1,2011,candidates taking the Auditing and Attestation section of the CPA examination are expected to demonstrate an awareness of

A)the International Auditing Standards Board (IASB)and its role in establishing International Standards on Auditing (ISAs)and U.S.auditing standards
B)the differences between ISAs and U.S.auditing standards
C)the International Auditing and Assurance Standards Board (IAASB)and its role in establishing International Standards on Auditing (ISAs)and U.S.auditing standards
D)the differences between ISAs and AICPA auditing standards
E)the International Auditing and Assurance Standards Board (IAASB)and its role in establishing International Standards on Auditing (ISAs)and AICPA auditing standards

Question 12

Auditors are sometimes evaluated on whether they keep their clients happy.

Question 13

The AICPA accounting regulations determine who can take the CPA exam.

Question 14

One of the hallmarks of a profession is that a professional can be distinguished from a nonprofessional by the standards the professional follows.

Question 15

The international code of ethics is written by the International Financial Reporting Standards Board.

Question 16

The Financial Accounting and Reporting section of the exam tests the candidates' knowledge and understanding of the financial reporting framework.This includes standards issued by

A)the Financial Accounting Standards Board
B)the National Accounting Standards Board
C)the Cost Accounting Standards Board
D)the U.S.Securities and Examination Commission
E)the Governmental Accounting Standards Board
F)both A and E
G)both B and C
H)both D and E

Question 17

In the Auditing and Attestation section of the CPA exam,candidates are expected to demonstrate knowledge and understanding of the professional standards and the skill to apply that knowledge to performing auditing tasks.Some of the tasks that candidates are expected to perform are

A)differentiate between audits,tax and compilation services
B)differentiate between the professional standards for issuers and nonissuers
C)identify situations that might be illegal or a violation of professional standards,perform research and consultations as appropriate,and determine the appropriate action
D)recognize potentially unethical behavior of clients and determine the impact on the services performed
E)demonstrate the importance of identifying and following requirements,rules,and standards that are established by the AICPA
F)both A and C
G)both B and D
H)both D and E

Question 18

A legal contract establishes the relationship between the company and the auditor for the performance of an audit.

Question 19

A defense of "non-negligent performance" could be used by an auditor when he believes he has complied with the requirements of the auditing standards.

Question 20

In the Auditing and Attestation section of the CPA exam,candidates are expected to demonstrate knowledge and understanding of the professional standards and the skill to apply that knowledge to performing auditing tasks.Some of the tasks that candidates are expected to perform are

A)differentiate between audits,tax,and compilation services
B)differentiate between the accounting standards for issuers and nonissuers
C)identify situations that might be unethical or a violation of professional standards,perform research and consultations as appropriate,and determine the appropriate action
D)recognize potentially unethical behavior of clients and determine the impact on the services performed
E)demonstrate the importance of identifying and following requirements,rules,and standards that are established by the AICPA
F)both A and B
G)both C and D
H)both D and E

Question 21

When the accountant performs a compilation or a review in the U.S.

A)he follows the guidelines of the profession listed in Statements on Auditing Standards
B)he follows the guidelines of the profession issued by the Public Companies Accounting and Oversight Board
C)he follows the guidelines of the profession listed in Statements on Standards for Accounting and Review Services
D)he follows the guidelines of the profession listed in Statements on Standards for Attestation Engagements

Question 22

In which of the following ways may an accountant be hired by a client?

A)to perform an audit
B)to provide testing services
C)to do a compilation
D)to perform a review with no evidence gathered
E)both A and C
F)both B and D
G)both D and E

Question 23

An attestation engagement may be related to a number of issues.These include

A)an opinion on historical or prospective performance
B)physical characteristics
C)an opinion on historical events
D)an opinion on break-even analyses
E)systems and processes
F)both A and D
G)both B and E
H)both C and E

Question 24

In the Auditing and Attestation section of the CPA exam,candidates are expected to demonstrate knowledge and understanding of the professional standards and the skill to apply that knowledge to performing auditing tasks.Some of the tasks that candidates are expected to perform are

A)apply professional requirements in theory
B)exercise due care in the performance of work
C)demonstrate an appropriate level of professional competence in the performance of work
D)maintain independence in mental attitude in all matters relating to the audit
E)research reliable professional literature
F)both A and C
G)both B and D
H)both D and E

Question 25

Managers face pressure from

A)their bosses
B)the SEC
C)the board of directors and the shareholders
D)the PCAOB

Question 26

When the accountant performs an attest engagement in the U.S.

A)he follows the guidelines of the profession listed in Statements on Auditing Standards
B)he follows the guidelines of the profession issued by the Public Companies Accounting and Oversight Board
C)he follows the guidelines of the profession listed in Statements on Standards for Accounting and Review Services
D)he follows the guidelines of the profession listed in Statements on Standards for Attestation Engagements

Question 27

An attestation engagement may be related to a number of issues.These include

A)historical or prospective performance
B)an opinion on physical characteristics
C)an opinion on historical events
D)analyses
E)an opinion on systems and processes
F)both A and D
G)both B and E
H)both C and E

Question 28

The most serious limitation of internal controls is

A)internal controls frequently cost more than the benefit derived
B)there is no causal relationship between good internal controls and good financial statements
C)internal control testing requires a skill set that is costly
D)internal controls have limited use in automated systems

Question 29

When the accountant performs an audit that involves a public client in the U.S.

A)he follows the guidelines of the profession listed in Statements on Auditing Standards
B)he follows the guidelines of the profession issued by the Public Companies Accounting and Oversight Board
C)he follows the guidelines of the profession listed in Statements on Standards for Accounting and Review Services
D)he follows the guidelines of the profession listed in Statements on Standards for Attestation Engagements

Question 30

When the accountant performs an audit of a private company in the U.S.

A)he follows the guidelines of the profession listed in Statements on Auditing Standards
B)he follows the guidelines of the profession issued by the Public Companies Accounting and Oversight Board
C)he follows the guidelines of the profession listed in Statements on Standards for Accounting and Review Services
D)he follows the guidelines of the profession listed in Statements on Standards for Attestation Engagements

Question 31

An attestation engagement may be related to a number of issues.These include

A)an opinion on historical or prospective performance
B)physical characteristics
C)an opinion on historical events
D)analyses
E)an opinion on systems and processes
F)both A and D
G)both B and D
H)both C and E

Question 32

An attestation engagement may be related to a number of issues.These include

A)an opinion on historical or prospective performance
B)an opinion on physical characteristics
C)historical events
D)an opinion on break-even analyses
E)systems and processes
F)both A and D
G)both B and E
Both C and E

Question 33

In the Auditing and Attestation section of the CPA exam,candidates are expected to demonstrate knowledge and understanding of the professional standards and the skill to apply that knowledge to performing auditing tasks.Some of the tasks that candidates are expected to perform are

A)apply professional requirements in practice
B)exercise due care in the evaluation of work
C)demonstrate an appropriate level of professional skepticism in the performance of work
D)maintain independence in appearance in all matters relating to the audit
E)research reliable professional literature
F)both A and C
G)both B and E
H)both D and E

Question 34

In the Auditing and Attestation section of the CPA exam,candidates are expected to demonstrate knowledge and understanding of the professional standards and the skill to apply that knowledge to performing auditing tasks.Some of the tasks that candidates are expected to perform are

A)apply professional requirements in theory
B)exercise due care in the performance of work
C)demonstrate an appropriate level of professional competence in the performance of work
D)maintain independence in appearance in all matters relating to the audit
E)research relevant professional literature
F)both A and C
G)both B and E
H)both D and E

Question 35

An attestation engagement may be related to a number of issues.These include

A)historical or prospective performance
B)an opinion on physical characteristics
C)historical events
D)an opinion on break-even analyses
E)an opinion on systems and processes
F)both A and C
G)both B and D
H)both D and E

Question 36

In the Auditing and Attestation section of the CPA exam,candidates are expected to demonstrate knowledge and understanding of the professional standards and the skill to apply that knowledge to performing auditing tasks.Some of the tasks that candidates are expected to perform are

A)apply professional requirements in practice
B)exercise due care in the evaluation of work
C)demonstrate an appropriate level of professional competence in the performance of work
D)maintain independence in appearance in all matters relating to the audit
E)research relevant professional literature
F)both A and E
G)both B and C
H)both D and E

Question 37

In which of the following ways may an accountant be hired by a publicly owned company?

A)to perform an audit with no assurance
B)to prepare and audit the financial statements
C)to provide attest services
D)to do an audit compilation
E)to perform a review
F)both A and D
G)both B and E
Both C and E

Question 38

In the Auditing and Attestation section of the CPA exam,candidates are expected to demonstrate knowledge and understanding of the professional standards and the skill to apply that knowledge to performing auditing tasks.Some of the tasks that candidates are expected to perform are

A)apply professional requirements in theory
B)exercise due care in the evaluation of work
C)demonstrate an appropriate level of professional competence in the performance of work
D)maintain independence in mental attitude in all matters relating to the audit
E)research reliable professional literature
F)both A and E
G)both B and C
Both C and D

Question 39

Which of the following best describes the auditor and internal controls?

A)controls in systems can be easily identified
B)controls in systems can be easily tested
C)auditor's knowledge of internal control systems has not increased over the past thirty years
D)auditor's understanding of internal controls for an audit client is usually as good as management's understanding of internal controls
E)today,auditors are required to understand internal controls that are relevant to the audit
F)both A and D
G)both B and E
Both C and E

Question 40

Which of the following emerge as a problem when auditors rely on internal control evidence rather than engage in detail testing when performing an audit?

A)internal controls rarely apply to management activities or decisions
B)companies use internal controls for estimation transactions
C)auditors who rely on internal controls may neglect transactions that are routine
D)management can often override internal controls
E)both A and D
F)both B and E
G)both C and E

Question 41

The accountant is expected to use the principles of the professional code of conduct to

A)determine whether to accept a client
B)determine the testing to perform
C)determine the type of report to issue
D)determine both the scope and nature of the services he performs

Question 42

Which of the following are principles that establish the basic framework for the professional code of conduct in the U.S.?

A)reliability
B)the public interest
C)relevance
D)proficiency
E)due care
F)both A and D
G)both B and E
H)both C and E

Question 43

During a compilation engagement in the U.S.

A)the practitioner will perform limited control testing to review the financial statements
B)the auditor will perform extensive procedures to review the financial statements
C)the practitioner will perform limited procedures to review the financial statements
D)the auditor will perform no procedures to review the financial statements

Question 44

Which of the following are principles that establish the basic framework for the professional code of conduct in the U.S.?

A)responsibility
B)reliability
C)relevance
D)proficiency
E)due care
F)both A and E
G)both B and C
H)both D and E

Question 45

Rule 202 of the AICPA Code of Professional Conduct- requires the accountant to follow the accounting standards.Rule 202

A)gives the accounting standards clear guidelines for members to follow
B)gives the accounting standards the force of law for the profession
C)gives the accounting standards a measurement for due professional care
D)gives the accounting standards an exception if the financial statements are not in accordance with GAAP

Question 46

According to Interpretation 101-1,independence is impaired if the auditor has any direct or material indirect financial interest in the client.A direct financial interest includes

A)a material financial interest in a company associated with the client
B)stock ownership in the client
C)stock ownership in the client by a distant cousin
D)a loan to or from the client
E)an investment in a mutual fund that owns shares of stock in the company
F)both A and C
G)both B and D
H)both D and E

Question 47

Section 203 of the Sarbanes-Oxley Act requires that accounting firms rotate audit partners on the engagement after

A)three years
B)four years
C)five years
D)six years

Question 48

Title II - Auditor Independence of the Sarbanes-Oxley Act lists services that an auditor is prohibited from performing.They include

A)financial information systems testing
B)tax services
C)internal audit services
D)management or human resource services
E)legal services and expert services related to the audit
F)both A and D
G)both B and E
Both C and D

Question 49

Section 206 of the Sarbanes-Oxley Act makes it unlawful for an accounting firm to perform an audit if all but which of the following officers are employed by the accounting firm and participated in the audit during the one-year period preceding the start of the audit?

A)chief executive officer
B)chief accounting officer
C)controller
D)accounts payable manager
E)security officer
F)both A and D
G)both B and C
Both D and E

Question 50

An accounting firm in the U.S.may engage in audit and nonaudit services only if

A)management preapproves the activity
B)the audit committee preapproves the activity
C)management requested the activity
D)the audit committee approved the final activity

Question 51

Which of the following are principles that establish the basic framework for the professional code of conduct in the U.S.?

A)reliability
B)relevance
C)integrity
D)objectivity and independence
E)proficiency
F)both A and D
G)both C and D
H)both D and E

Question 52

Section 300 - "Responsibilities to Clients" of the AICPA Code of Professional Conduct includes Rule 302 which prohibits

A)an accountant from preparing tax returns for a contingent fee
B)an accountant from performing actuarial for a contingent fee
C)an accountant from preparing fairness opinions for a contingent fee
D)an accountant from performing valuation services for a contingent fee

Question 53

Which of the following are principles that establish the basic framework for the professional code of conduct in the U.S.?

A)reliability
B)the public interest
C)relevance
D)objectivity and independence
E)proficiency
F)both A and D
G)both B and D
H)both C and E

Question 54

During a review engagement in the U.S.

A)the practitioner will perform limited control testing to review the financial statements
B)the auditor will perform extensive procedures to review the financial statements
C)the practitioner will perform limited procedures to review the financial statements
D)the auditor will perform no procedures to review the financial statements

Question 55

The objective of a compilation engagement in the U.S.is to

A)express limited assurance that there are no material modifications that should be made to the financial statements in order for the statements to be in conformity with GAAP
B)present in the form of financial statements,information that is the representation of management while expressing limited assurance on the financial statements
C)express limited assurance that there are no material misstatements in the financial statements
D)present in the form of financial statements,information that is the representation of management without expressing any assurance on the financial statements

Question 56

The objective of a review engagement in the U.S.is to

A)express limited assurance that there are no material modifications that should be made to the financial statements in order for the statements to be in conformity with GAAP
B)present in the form of financial statements,information that is the representation of management while expressing limited assurance on the financial statements
C)express limited assurance that there are no material misstatements in the financial statements
D)present in the form of financial statements,information that is the representation of management without expressing any assurance on the financial statements

Question 57

According to Interpretation 101-1,independence is impaired if the auditor has any direct or material indirect financial interest in the client.An indirect financial interest includes

A)a material financial interest in a company associated with the client
B)stock ownership in the client
C)stock ownership in the client by a distant cousin
D)a loan to or from the client
E)an investment in a mutual fund that owns shares of stock in the company
F)both A and E
G)both B and C
H)both D and E

Question 58

To be independent in appearance

A)the accountant has no financial dealings with the client
B)the accountant conforms to the rules in the professional code of conduct and the additional independence requirements imposed by the SEC and PCAOB for audits of public companies
C)the accountant should be judged from the prospective of an outside reader of the financial statements
D)the accountant is subject to no undue influence by the client

Question 59

Which of the following are principles that establish the basic framework for the professional code of conduct in the U.S.?

A)responsibility
B)reliability
C)integrity
D)relevance
E)proficiency
F)both A and C
G)both B and E
H)both D and E

Question 60

For any engagement,the independence rules apply to all members of the engagement team and additional partners

A)who provide more than 100 hours of nonaudit services to the client
B)who provide more than 500 hours of nonaudit services to the client
C)who provide more than 10 hours of nonaudit services to the client
D)who provide more than 50 hours of nonaudit services to the client

Question 61

Which of the following is a defense that an auditor might use to defend himself against client lawsuits?

A)lack of damages
B)non-negligent performance
C)lack of negligence
D)contributory damages
E)absence of causal connection
F)both A and D
G)both B and E
H)both C and E

Question 62

Which of the following is a defense that an auditor might use to defend himself against client lawsuits?

A)lack of duty
B)non-negligent connection
C)lack of damages
D)contributory negligence
E)absence of causal performance
F)both A and D
G)both B and E
H)both C and E

Question 63

The international code of ethics is written by

A)the International Federation of Accountants
B)the International Ethics Standards Board for Accountants
C)the International Financial Reporting Standards Board
D)the International Institute of Accountants

Question 64

Common law liability arises from

A)liability established from prior case law
B)violations of laws
C)violations or regulations
D)violations of local ordinances

Question 65

What is the legal liability for management under the Sarbanes-Oxley Act?

Question 66

The auditor faces legal liability from which of the following sources?

A)audit clients
B)second party liability under common law
C)civil liability under the federal banking laws
D)criminal liability
E)civil liability under state securities laws
F)both A and D
G)both B and E
H)both C and D

Question 67

In the U.S. ,in order for a firm to state that it is a "Member of the AICPA"

A)all partners must be members of the AICPA
B)all partners and managers must be members of the AICPA
C)all partners,managers,and CPAs must be members of the AICPA
D)all partners,managers,and auditors must be members of the AICPA

Question 68

When the accountant performs an audit that involves a public client outside the U.S.that reports to the SEC in the U.S.

A)he follows the guidelines of the profession listed in Statements on Auditing Standards
B)he follows the guidelines of the profession issued by the Public Companies Accounting and Oversight Board
C)he follows the guidelines of the profession listed in Statements on Standards for Accounting and Review Services
D)he follows the guidelines of the profession listed in Statements on Standards for Attestation Engagements

Question 69

Legal liability for auditors under the Securities Act of 1934 comes from the requirement that prohibits any fraudulent activities involving the sale or purchase of a security.This requirement has been interpreted to apply to auditors if

A)they were negligent in performing the audit
B)the audited financial statements contained a material misrepresentation or omission
C)they were diligent in performing the audit
D)they intentionally or recklessly misrepresent information given to third parties

Question 70

The SEC has the power to

A)sanction an auditor or accounting firm
B)impose a jail sentence on violators
C)prevent a firm from doing any audit work
D)require a firm to perform community service free of charge

Question 71

Why is the AICPA Rule 101 considered one of the most important rules in the professional code of conduct?

Question 72

The auditor faces legal liability from which of the following sources?

A)audit liability
B)third party liability under common law
C)civil liability under the federal securities laws
D)criminal clients
E)civil liability under state securities laws
F)both A and B
G)both B and C
H)both D and E

Question 73

To hold auditors liable under the Securities Act of 1933,third parties have to show

A)the auditor was negligent in performing the audit
B)the audited financial statements contained a material misrepresentation or omission
C)the auditor was fraudulent in performing the audit
D)the auditor attempted to deceive users of the financial statements