Which of the following best describes the concept of audit risk?
a) The risk of the auditor being sued because of association with an auditee.
b) The risk that the auditor will provide an unqualified opinion on financial statements that are, in fact, mate
b) The risk that the auditor will provide an unqualified opinion on financial statements that are, in fact, materially misstated.
For publicly held companies, which of the following is integrated into the audit of financial statements?
a) Budgetary information audit.
b) The audit of internal controls.
c) Audit of management forecasts.
d) Audit of interim financial statements.
The audit of internal controls.
In the context of agency theory, information asymmetry refers to the idea that
a) Information can vary in its reliability.
b) Information can vary in its relevance.
c) Management has more information about the entity's true financial position than do the
c) Management has more information about the entity's true financial position than do the absentee owners (i.e. stockholders).
Which of the following best describes why publiclytraded corporations follow the practice of having the external auditor appointed by the board of directors or elected by the stockholders?
a) To promote an adversarial relationship between the auditor and
b) To enhance auditor independence from the management of the corporation.
Auditing is defined as a "systematic process of objectively obtaining and evaluating evidence regarding assertions..." What is meant by "systematic process"?
A) All audits involve obtaining the same evidence.
b) All audits involve evaluating evidence in t
b) All audits involve evaluating evidence in the same manner.
What organization is responsible for setting auditing standards for audits of publicly traded companies in the U.S.?
a) AICPA
b) FASB
c) GASB
d) PCAOB
d) PCAOB
Which of the following best describes the general character of the three PCAOB generally accepted auditing standards that are classified as standards of fieldwork?
a) The competence, independence, and professional care of persons performing the audit.
b)
c) The criteria of audit planning and evidence
gathering.
Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of
a) Objective cynicism.
b) Independent differentialism
c) Profession
c) Professional skepticism.
The accuracy of information included in footnotes accompanying the audited financial statements issued by a company whose shares are traded on a stock exchange is the primary responsibility of
a) The stock exchange officials.
b) The independent auditor
c)
c) The company's management.
Which of the following is NOT a requirement of the SarbanesOxley Act?
a) Audit firms cannot provide most types of nonaudit services to their public company auditees.
b) Audit firms are required to rotate audit partners off audit engagements every five yea
d) A certain number of hours, which is based on the size of the company being audited, must be spent on each audit engagement
Due professional care requires
a) Auditors to plan and perform their duties with the skill and care that is commonly expected of accounting professionals.
b) The examination of all available corroborating evidence.
c) The exercise of error free judgment.
a) Auditors to plan and perform their duties with the skill and care that is commonly expected of accounting professionals.
The four PCAOB standards of reporting are concerned with all of the following except
a) The presentation of the financial statements based on GAAS.
b) The presentation of the financial statements based on GAAP
c) Whether principles are consistently applie
a) The presentation of the financial statements based on GAAS.
Which of the following situations will not result in modification of the auditor's report because of a scope limitation?
a) Restriction imposed by the client.
b) Reliance placed on the report of another auditor.
c) Inability to obtain sufficient appropria
b) Reliance placed on the report of another auditor.
When the audited financial statements of the prior year are presented together with those of the current year, the continuing auditor's report should cover
a) both years
b) only the current year
c) Only the current year, but the prior year's report should
a) both years
If the auditor believes that there is minimal likelihood that resolution of an uncertainty will have a material effect on the financial statements, the auditor would issue a(n)
a) "Except for" opinion.
b) Adverse opinion
c) Unqualified/unmodified opinion
c) Unqualified/unmodified opinion.
An auditor was unable to obtain audited financial statements or other evidence supporting an entity's investment in a large foreign subsidiary. Between which of the following reports should the auditor choose?
a) Adverse and unqualified/unmodified with an
d) Qualified and disclaimer.
An auditor includes a separate paragraph in an otherwise unmodified report to emphasize that the entity being reported on had significant transactions with related parties. The inclusion of this separate paragraph
a) Is considered an "except for" qualific
d) Is appropriate and would not negate the unqualified/unmodified opinion.
When the entity fails to include information that is necessary for the fair presentation of financial statements in the body of the statements or in the related footnotes, it is the responsibility of the auditor to present the information, if practicable,
b) Qualified opinion or an adverse opinion.
Abbot, CPA, as principal auditor for consolidated financial statements, is using a qualified report of another auditor. Abbot does not consider the qualification material relative to the consolidated financial statements and Abbot is willing to accept res
a) He need make no reference.
When an auditor concludes there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time, the auditor's responsibility is to
a) Prepare prospective financial information to verify whether management's p
d) Consider the adequacy of disclosure about the entity's possible inability to continue as a going concern.
When reporting on comparative financial statements where the financial statements of the prior year have been examined by a predecessor auditor whose report is not presented, the successor auditor should make
a) No reference to the predecessor auditor.
b)
d) Reference to the predecessor auditor regardless of the type of opinion expressed by the predecessor auditor.
When are an auditor's reporting responsibilities not met by attaching an explanation of the circumstances and a disclaimer of opinion to the entity's financial statement?
a) When the auditor believes the financial statements are misleading.
b) When the au
a) When the auditor believes the financial statements are misleading.
A CPA who is not independent and is associated with financial statements should disclaim an opinion with respect to those financial statements. The disclaimer should
a) Clearly state the specific reasons for lack of independence.
b) Not mention any reason
c) Not describe the reason for lack of independence but should state specifically that the CPA is not independent.
When audited financial statements are presented in a document containing other information, the auditor
a) Has an obligation to perform auditing procedures to corroborate the other information.
b) Is required to issue an "except for" qualified opinion if
c) Should read the other information to consider whether it is inconsistent with the audited financial statements.
In auditing a privately held entity, an auditor must follow the professional standards established by all of the following except:
a) The AICPA's Auditing Standards Board.
b) The Professional Code of Conduct.
c) The Independence Standards Board.
d) The PC
d) The PCAOB.
Which of the following is allowable for a CPA?
a) A used car loan from a banking client where the client has a lien on the car.
b) An uncollateralized loan from a client.
c) Owning more than five percent of the outstanding shares of client stock in a reti
a) A used car loan from a banking client where the client has a lien on the car.
In which one of the following situations would a CPA be in violation of the AICPA Code of Professional Conduct in determining a fee?
a) A fee based on whether the CPA's report on the client's financial statements results in the approval of a bank loan.
b)
a) A fee based on whether the CPA's report on the client's financial statements results in the approval of a bank loan.
Mavis, CPA, has audited the financial statements of South Bay Sales Incorporated for several years and had always been paid promptly for services rendered. Last year's audit invoices have not been paid because South Bay is experiencing cash flow difficult
c) Inform South Bay's management that the past due audit fees are considered an impairment of auditor independence.
In which of the following instances would the independence of the CPA not be considered to be impaired? The CPA has been retained as the auditor of a
a) Charitable organization in which an employee of the CPA serves as treasurer.
b) Municipality in which
c) Restaurant where the CPA dines frequently.
In determining estimates of fees, an auditor may take into account each of the following, except the:
a) Value of the service to the client.
b) Degree of responsibility assumed by undertaking the engagement
c) Skills required to perform the service.
d) At
d) Attainment of specific findings.
In which of the following circumstances would a CPA be bound by ethics to refrain from disclosing any confidential information obtained during the course of a professional engagement?
a) The CPA is issued a summons enforceable by a court order that orders
b) A major stockholder of a client company seeks accounting information from the CPA after management declined to disclose the requested information.
The independence standards issued by the PCAOB do not prohibit the provision of tax services to an attest client.
a) True
b) False
True
PCAOB rules require tax services provided by a public company auditor to be considered and approved by the company's audit committee.
a) True
b) False
True