Question 1

Due professional care requires auditors to

Accepted Answer

A)   Obtain independent, third party (non-client)  documentation as evidence for all information presented in the financial statements.
B)   Exercise professional skepticism during the audit.
C)   Disregard any evidence generated by the client during the audit.
D)   Find every error contained in the financial statements prepared by management. B

Question 2

One of the five basic business processes is the warehousing cycle.

Accepted Answer

A) True 
 B)False  False

Question 3

There are several types of audit services that are provided by auditors.Identify and define three of these types of audits.

Accepted Answer

Answer should include any three of the following:
Financial Statement Audit: Auditors test the transactions,balances,and disclosures in a set of financial statements to determine if they are materially correct.
Internal Control Audit: Auditors test the internal controls of a company to determine whether the control system is functioning effectively (i.e.preventing,or detecting and correcting,misstatements in the financial statements).
Compliance Audit: Auditors test the extent to which rules,policies,laws,covenants,or government regulations are followed by the entity.
Operational Audit: Auditors review part or all of an organization's activities to evaluate whether resources are being used effectively and efficiently.The auditor assesses the entity's performance,identifies areas for improvement,and develops recommendations.
Forensic Audit: Auditors conduct forensic audits to detect or deter fraudulent activities.

Question 4

The main difference between SAS and AU is

Accepted Answer

A)   They are the same except that SAS are organized chronologically and the AU are organized by topical area.
B)   SAS are issued by the ASB and AU are issued by the PCAOB.
C)   SAS are issued by the PCAOB and AU are issued by the ASB.
D)   SAS define minimum standards of performance for auditors while AU define financial accounting principles that must be followed according to GAAP.

Question 5

The auditor must be independent of the audit client unless

Accepted Answer

A)   The lack of independence does not influence his or her professional judgment.
B)   Both parties agree that the independence issue is not a problem.
C)   The lack of independence is insignificant.
D)   None of the above-the auditor cannot lack independence.

Question 6

The Public Company Accounting Oversight Board's role is to

Accepted Answer

A)   Conduct the final review of auditors' work before the auditor's opinion is issued.
B)   Oversee the auditors of public companies in order to protect the interests of investors.
C)   Conduct audits of governmental entities.
D)   Sanction auditors who fail to follow GAAS.

Question 7

The IAASB and the ASB have collaborated on the principles underlying an audit conducted in accordance with generally accepted auditing standards.These principles are grouped into four categories.What are the four categories?

Accepted Answer

The answer of The IAASB and the ASB have collaborated...

Question 8

The fourth PCAOB reporting standard requires the auditor's report to contain either an expression of opinion regarding the financial statements taken as a whole or an assertion to the effect that an opinion cannot be expressed.The objective of the fourth standard is to prevent

Accepted Answer

A)   An auditor from reporting on one basic financial statement and not the others.
B)   An auditor from expressing different opinions on each of the basic financial statements.
C)   Management from reducing its final responsibility for the basic financial statements.
D)   Misinterpretations regarding the degree of responsibility the auditor is assuming.

Question 9

The authoritative body designed to promulgate standards concerning an accountant's association with audited financial statements of an entity that is required to file financial statements with the SEC is the

Accepted Answer

A)   Financial Accounting Standards Board.
B)   General Accounting Office.
C)   Public Company Accounting Oversight Board.
D)   Auditing Standards Board.

Question 10

Which of the following describes the PCAOB generally accepted auditing standard requiring a critical review of the work done and the judgment exercised by those assisting in an audit at every level of supervision?

Accepted Answer

A)   Proficiency.
B)   Audit risk.
C)   Inspection.
D)   Due care.

Question 11

Forensic audits include all of the following except

Accepted Answer

A)   Criminal investigations.
B)   Manufacturers' assertions about product quality.
C)   Employee fraud.
D)   Management fraud.

Question 12

The audit committee generally includes senior executives of the organization.

Accepted Answer

A) True 
 B)False

Question 13

The fourth PCAOB standard of reporting requires an auditor to render a report whenever an auditor's name is associated with financial statements.The overall purpose of the fourth standard of reporting is to require that reports

Accepted Answer

A)   State that the examination of financial statements has been conducted in accordance with generally accepted auditing standards.
B)   Indicate the character of the auditor's examination and the degree of responsibility assumed by the auditor.
C)   Imply that the auditor is independent in fact as well as in appearance with respect to the financial statements under examination.
D)   Express whether the accounting principles used in preparing the financial statements have been applied consistently in the period under examination.

Question 14

The first PCAOB general standard recognizes that regardless of how capable an individual may be in other fields,the individual cannot meet the requirements of the auditing standards without the proper

Accepted Answer

A)   Business and finance courses.
B)   Quality control and peer review.
C)   Education and experience in auditing.
D)   Supervision and review skills.

Question 15

Generally,the financial statements of U.S.companies must be prepared based on GAAP.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements regarding the PCAOB is incorrect?

Accepted Answer

A)   It is a public-sector, nonprofit corporation.
B)   It is overseen by the SEC.
C)   It sets standards for public company audits.
D)   It has delegated all of its standard-setting authority to the AICPA.

Question 17

An "in-charge" auditor typically holds the rank of

Accepted Answer

A)   Associate.
B)   Senior.
C)   Manager.
D)   Partner.

Question 18

PCAOB auditing standards must be followed on all audits of public companies' financial statements.

Accepted Answer

A) True 
 B)False

Question 19

The first PCAOB general standard requires that the examination of financial statements is to be performed by a person or persons having adequate technical training and

Accepted Answer

A)   Independence with respect to the financial statements and supplementary disclosures.
B)   Exercising professional care as judged by peer reviewers.
C)   Proficiency as an auditor which likely has been acquired from previous experience.
D)   Objectivity as an auditor as verified by proper supervision.

Question 20

Define corporate governance,the board of directors,and the audit committee and explain how they relate to each other.

Accepted Answer

The answer of Define corporate governance,the board of directors,and the...

Exam 2: The Financial Statement Auditing Environment

Due professional care requires auditors to

One of the five basic business processes is the warehousing cycle.

There are several types of audit services that are provided by auditors.Identify and define three of these types of audits.

The main difference between SAS and AU is

The auditor must be independent of the audit client unless

The Public Company Accounting Oversight Board's role is to

The IAASB and the ASB have collaborated on the principles underlying an audit conducted in accordance with generally accepted auditing standards.These principles are grouped into four categories.What are the four categories?

The fourth PCAOB reporting standard requires the auditor's report to contain either an expression of opinion regarding the financial statements taken as a whole or an assertion to the effect that an opinion cannot be expressed.The objective of the fourth standard is to prevent

The authoritative body designed to promulgate standards concerning an accountant's association with audited financial statements of an entity that is required to file financial statements with the SEC is the

Which of the following describes the PCAOB generally accepted auditing standard requiring a critical review of the work done and the judgment exercised by those assisting in an audit at every level of supervision?

Forensic audits include all of the following except

The audit committee generally includes senior executives of the organization.

The fourth PCAOB standard of reporting requires an auditor to render a report whenever an auditor's name is associated with financial statements.The overall purpose of the fourth standard of reporting is to require that reports

The first PCAOB general standard recognizes that regardless of how capable an individual may be in other fields,the individual cannot meet the requirements of the auditing standards without the proper

Generally,the financial statements of U.S.companies must be prepared based on GAAP.

Which of the following statements regarding the PCAOB is incorrect?

An "in-charge" auditor typically holds the rank of

PCAOB auditing standards must be followed on all audits of public companies' financial statements.

The first PCAOB general standard requires that the examination of financial statements is to be performed by a person or persons having adequate technical training and

Define corporate governance,the board of directors,and the audit committee and explain how they relate to each other.