Deck 1: Auditing: Integral to the Economy

Question 1

Internal auditing only provides assurance about internal control effectiveness.

Answer 1

False

Question 2

The Center for Audit Quality has the primary authority to set auditing standards.

Answer 2

False

Question 3

Auditors should conduct their work with an attitude of professional skepticism.

Answer 3

True

Question 4

In an audit,management is considered the "client".

Question 5

The need for assurance services arises because the interests of the users of information may be different from that of the interests of those responsible for providing information.

Question 6

A free market can only exist if there is sharing of perfectly reliable information.

Question 7

Users rely on the auditors' independent assessment of financial statement presentation because few users have direct knowledge of the company's operations.

Question 8

If the auditor has no reservations about management's financial statements then the auditor will issue a qualified opinion.

Question 9

Auditing is the process of verifying the accuracy of the financial statements.

Question 10

The PCAOB is responsible for conducting audits in the United States.

Question 11

Audited financial statements should be presented fairly according to the substance of GAAP.

Question 12

A bank using Milton Company's financial statements to determine the creditworthiness of a potential loan to Milton is a good example of the need for unbiased reporting.

Question 13

Auditing is the process of attesting to assertions about economic actions and events.

Question 14

The PCAOB is a public board,appointed by Congress,to provide oversight of the firms that audit public companies registered with the SEC.

Question 15

Auditing exists because users need unbiased information on which to assess management performance and make economic decisions.

Question 16

Audited financial statements should be free from all errors and fraud.

Question 17

In all states,a CPA must have completed at least 150 hours of college semester hours to receive their license.

Question 18

The Center for Audit Quality was started by the International Federation of Accountants.

Question 19

A financial statement audit is a systematic process of objectively obtaining and evaluating evidence.

Question 20

An integrated audit requires the auditor to assess the effectiveness of internal controls.

Question 21

Internal controls are the responsibility of management.

Question 22

Auditors need only understand the rules of accounting as the principles of accounting are outdated.

Question 23

Though often relying on the FASB,the SEC has authority to establish GAAP for publicly traded companies.

Question 24

The SEC has authority to establish GAAP for all business enterprises.

Question 25

The internal audit profession adheres exclusively to standards set by the Public Company Accounting Oversight Board.

Question 26

CPA certificates for auditors are issued by state boards of accountancy.

Question 27

Being free from material errors is the same as being free from all errors.

Question 28

The SEC provides annual reports to the PCAOB.

Question 29

The SEC is the governmental body with the oversight responsibility for the efficient operation of capital markets in the United States.

Question 30

External auditors frequently serve on the audit committees of their clients.

Question 31

The American Institute of CPAs sets auditing standards for non-publicly traded companies.

Question 32

The Public Company Accounting Oversight Board was established by the AICPA in response to Securities laws.

Question 33

Bondholders are one of the users of financial statements.

Question 34

The external auditors are only responsible for their opinion of the financial statements and internal controls.

Question 35

The FASB provide the criteria against which the auditor can measure the fairness of financial statement presentation.

Question 36

The Public Company Accounting Oversight Board provides the criteria against which the auditor measures the fairness of financial statement presentation.

Question 37

Auditors of public companies need not adhere to the requirements of statutory or regulatory organizations.

Question 38

Only the Big 4 audit firms can conduct audits of private companies in the United States.

Question 39

An auditor must have a good understanding of the risks associated with a client's industry in order to ensure that the financial statements reflect the underlying substance of accounting transactions and the economic effects of such transactions.

Question 40

Internal auditors are considered part of the audit committee.

Question 41

Audit quality is driven,in part,by the audit firm's culture.

Question 42

The purpose of auditing is to improve the quality of the information provided.

Question 43

Which one of the following is not a key attribute needed to perform an audit?

A)Subject matter knowledge.
B)Independence.
C)Established criteria or standards.
D)Accounting skills.

Question 44

What should internal controls be design to do?

A)Detect errors.
B)Detect and prevent errors.
C)Prevent errors.
D)Eliminate the possibility of fraud.

Question 45

Who are the users of the financial statements?

A)Management.
B)Auditors.
C)Taxing Authorities.
D)Both A and C.

Question 46

What is the first phase in an audit?

A)Client acceptance or client continuance.
B)Understanding the client.
C)Understanding internal controls.
D)Testing of account balances.

Question 47

The Sarbanes-Oxley Act sought to improve audit quality by removing the auditor independence requirements.

Question 48

Which the following is not a reason for a public company to receive an audit?

A)Potential bias in providing information.
B)Closeness between a user and the organization.
C)Complexity of the processing systems.
D)Remoteness between a user and the organization.

Question 49

What is the term used to describe a systematic process of objectively obtaining evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users?

A)Internal audit.
B)Financial audit.
C)External audit.
D)Integrated audit

Question 50

A quality audit is one performed "in accordance with generally accepted auditing standards (GAAS)to provide reasonable assurance that the audited financial statements and related disclosures are presented in accordance with generally accepted accounting principles (GAAP)and (2)are not materially misstated whether due to errors or fraud."

Question 51

Which one of the following is a potential problem with management's communication of financial information that causes third parties to desire the independent auditor's assessment of the financial statement presentation?

A)Complexity of transactions affecting the financial statements.
B)Lack of criteria on which to base information.
C)Remoteness of the user from the organization.
D)Both A and C.
E)Both A and B.

Question 52

An Integrated Audit Report provides opinion(s)on which of the following?

A)The financial statements.
B)Internal controls.
C)Both financial statements and internal controls.
D)Neither financial statements or internal controls.

Question 53

What can users can reasonably expect from the audited financial statements?

A)The audited financial statements are complete and contain all important financial disclosures,are free from material misstatements,and are presented fairly.
B)The audited financial statements are complete and contain all important financial disclosures,are free from material misstatements,and are presented fairly according to GAAP.
C)The audited financial statements are complete,accurate,and are presented fairly according to GAAP.
D)The audited financial statements are complete,contain all important financial disclosures,are free from all misstatements,and are presented fairly according to the substance of GAAP.

Question 54

Audit staff performing audit work must be appropriately supervised by partners and managers.

Question 55

To conduct an audit,what must an auditor do?

A)Comply with relevant ethical standards.
B)Exercise perfect judgment.
C)Obtain sufficient appropriate evidence to provide absolute assurance.
D)All of the above.

Question 56

Which one of the following is not a management expectation for independent auditors?

A)An outside source of expertise on accounting matters.
B)Individuals who perform tests and draw conclusions on assertions.
C)A participant in management decision making.
D)A provider of a written communication.

Question 57

What can users of the audit report reasonably expect from the audited financial statements?

A)The financial statements are complete and contain many of the important financial disclosures.
B)The financial statements are presented fairly according to the substance of GAAP.
C)The financial statements are free from all errors.
D)All of the above.
E)None of the above.

Question 58

An "integrated audit" includes an audit of what?

A)The company's internal controls.
B)The company's financial statements.
C)The company's compliance with its rules and policies.
D)Both A and B.

Question 59

Which one of the following is not an example of an independence violation?

A)Audit partner's spouse is the CFO at a client.
B)Audit firm accepts money for conducting the audit.
C)Auditors owning a small amount of stock in a client.
D)Providing investment tips to friends about clients.

Question 60

Who does the public expect the auditor will recognize as the primary users of the audited financial statements?

A)Their clients.
B)The Public Company Accounting Oversight Board.
C)Members of management.
D)Third-party users.

Question 61

What is the management of a company is responsible for?

A)Hiring the auditor.
B)Preparing the financial statements.
C)The audit workpapers.
D)Ensuring auditor independence.

Question 62

Audit committees play an important role in promoting independence of both internal and external auditors.Which of the following is the most important limitation on the effectiveness of audit committees?

A)Audit committees may have close personal and professional friendships with management.
B)Audit committee members are compensated by the PCAOB.
C)Audit committees devote their efforts to external audit concerns and do not pay much attention to internal auditing.
D)Audit committee members are required to have degrees in non-accounting fields.

Question 63

What must an auditor do in an audit?

A)Consider how the economic activity is portrayed in the financial statements.
B)Force management to make operational decisions that will improve the company's financial performance.
C)Disregard independence in order to find the underlying truth of the evidence.
D)Establish new criteria by which financial statements may be compared.

Question 64

What must audit firms do to perform financial statement audits for public companies?

A)Register with the American Institute of Certified Public Accountants.
B)Register with the Institute of Internal Auditors.
C)Register with the U.S.General Accounting Office.
D)Register with the Public Company Accounting Oversight Board.

Question 65

Which one of the following is not an example of a typical review program?

A)Interoffice reviews.
B)Engagement quality review.
C)Peer reviews.
D)Self reviews.

Question 66

Who licenses CPAs?

A)The PCAOB.
B)The AICPA.
C)The state boards of accountancy.
D)The SEC.

Question 67

In the United States,what is the most common criteria against which the auditor measures the fairness of financial statement presentation?

A)Auditing standards.
B)Generally accepted accounting principles.
C)Generally accepted accounting standards.
D)Governmental accounting principles.

Question 68

Who is responsible for internal controls within an organization?

A)The internal auditor.
B)The external auditor.
C)Management.
D)The PCAOB.

Question 69

What document communicates the conclusions of the financial statement audit?

A)The financial statement.
B)Written management assertion.
C)The audit report.
D)None of the above.

Question 70

What is the audit committee of the board of directors of a company is responsible for?

A)Hiring the auditor.
B)Preparing the financial statements.
C)The audit workpapers.
D)Obtaining evidence.

Question 71

Which of the following procedures do third-party users of the audit report not expect the auditor to perform?

A)Evaluate measurements and disclosures made by management.
B)Provide a biased evaluation of the financial statements.
C)Determine whether financial statements are presented in accordance with GAAP.
D)Gather sufficient appropriate evidence to support their opinion.

Question 72

According to the AICPA,which of the following is not a safeguards to the auditing profession?

A)Education.
B)Professional standards.
C)External reviews.
D)Legislation concerning competency requirements.

Question 73

Which of the following is a driver of audit quality?

A)Audit firm culture.
B)Engagement team skills and attributes.
C)Factors outside control of auditors.
D)Investor requirements.
E)A,B,and C only.

Question 74

Why is auditing important in a free market society?

A)The public requires auditors to function as divisions of regulatory bodies.
B)Auditors detect all errors and fraud perpetrated by company employees.
C)It provides reliable information upon which to judge economic performance.
D)The auditor is an amiable insurance policy for investors.
E)All of the above are true.

Question 75

Why does the AICPA remain a valuable organization?

A)Its continued involvement in the enforcement of auditing standards,particularly for public companies.
B)Its continued involvement in the regulation and enforcement of the audit profession.
C)Its continued involvement in the education and administration of the CPA exam.
D)Its continued involvement in the promulgation of accounting standards.

Question 76

Congress authorized which of the following organizations to establish generally accepted accounting principles?

A)SEC.
B)APB.
C)AICPA.
D)FASB.

Question 77

Which of the following is most often the client's preferred audit report?

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

Question 78

Which of the following does the public expect of auditors?

A)Understand and enforce principles that best portray the spirit of FASB concepts.
B)Be neutral to preparers and users of financial information.
C)Recognize that the investing public is the primary user of audit services.
D)Take responsibility for the discovery of fraud.
E)All of the above are expectations of the public.

Question 79

Which governing board performs quality reviews on registered audit firms that audit public companies?

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

Question 80

Which of the following groups is not a user of the audited financial statements?

A)Management.
B)Vendors.
C)Retired Employees.
D)Competitors.