If a company is managing its earnings, which of the ethical theories are they most likely following
A. Rights
B. Fairness
C. Egoism
D. Virtue
C. Egoism
Which of the following is NOT considered "earnings management"?
A. "Earnings management" is done to project smoother earnings from year to year.
B. Management emphasizes achieving long-term results to meet financial goals.
C. A Management uses "cookie-jar
B. Management emphasizes achieving long-term results to meet financial goals.
Which of the following is NOT a motivation to manage earnings?
A. Companies try to meet or beat Wall Street earnings projections in order to grow market capitalization and increase the value of stock options
B. Companies try to accelerate as much revenue
B. Companies try to accelerate as much revenue as possible into early periods regardless of the effects on later periods
Which technique was used by both WorldCom and Waste Management to manage earnings?
A. Manipulating asset net valuation amounts to minimize operating expenses for a period
B. Accelerating the recording of revenue into an earlier period
C. Delaying needed r
A. Manipulating asset net valuation amounts to minimize operating expenses for a period
Which of the following author(s) emphasize(s) a "purposeful act by management in pursuit of its own self-interests as might be the case when earnings are manipulated to get the stock price up in advance of the exercise of stock options."?
A. Dechow and Sk
C. Schipper
Which of the following author(s) focus(es) on "management's intent to deceive the stakeholders by using accounting devices to positively influence reported earnings."?
A. Dechow and Skinner
B. Healy and Wahlen
C. Schipper
D. Thomas E. McKee
B. Healy and Wahlen
Which of the following author(s) link earnings management to choices made in determining earnings that may comprise aggressive, but acceptable, accounting estimates and judgments, as compared to fraudulent practices that are clearly intended to deceive ot
A. Dechow and Skinner
Which of the following author(s) define(s) earnings management as "reasonable and legal management decision making and reporting intended to achieve stable and predictable financial results."?
A. Dechow and Skinner
B. Healy and Wahlen
C. Schipper
D. Thoma
D. Thomas E. McKee
In surveys of managers, which technique to manage earnings was considered most acceptable?
A. Changing inventory valuation in order to influence earnings
B. Accounting manipulation
C. Manipulating operating decisions
D. Establishing cookie jar reserves
C. Manipulating operating decisions
Which of the following is NOT a qualitative factor when assessing materiality?
A. A misstatement that changes a loss into income or vice versa
B. The existence of statutory or regulator reporting requirements that affect materiality thresholds
C. The pote
D. The use of simplistic numerical thresholds and rules of thumb
Vorhies identities four perspectives to help CPAs identify key internal control exceptions under the Sarbanes Oxley Act including:
A. An internal control deficiency caused by accounting manipulations
B. A large variance in an accounting estimate compared
B. A large variance in an accounting estimate compared with the actual determined amount
SAS No. 107 identifies the following aspects of disclosure amounts deemed to be material except for:
A. Disclosing an item in one year but not in the next year
B. Qualitative aspects of the disclosure
C. Quantitative significance of the disclosure
D. Prof
A. Disclosing an item in one year but not in the next year
Each of the following techniques was used by Gemstar TV Guide International in its accounting fraud except for:
A. Created cookie jar reserves of advertising revenue to smooth net income
B. Engaged in round trip transactions whereby Gemstar paid money to
C. Used channel stuffing to accelerate the recording of revenue into earlier periods
The best definition of a financial restatement is:
A. A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information that was previously reported
B. A company, either voluntarily or under prompting
A. A company, either voluntarily or under prompting by its auditors or regulators, revises its public financial information that was previously reported
The SEC requires stealth restatements to be
A. Disclosed only in periodic reports.
B. Disclosed only in an 8-K report or amended 10-K/A or 10-Q/A.
C. Increased to more 50 % of restatements.
D. Disclosed in ten business days after determination of need for
B. Disclosed only in an 8-K report or amended 10-K/A or 10-Q/A.
The SEC Advisory Committee on Improvements in Financial Reporting identified each of the following as a view of equity and credit analysts about investor's views on materiality and financial statement restatements except for:
A. Bright line rules are usef
A. Bright line rules are useful in making materiality judgments
Which of the following is NOT an earnings management technique?
A. Failing to write down or write off impaired assets
B. Releasing questionable reserves into income
C. Failing to record expenses and related liabilities when future obligations remain
D. Cr
D. Creating an allowance for uncollectible accounts and adjusting it at year end
Which of the following was not pointed to by the SEC as a motivation for fraud in the Xerox's case?
A. Xerox misled investors by polishing its reputation on Wall Street and to boost the company's stock price.
B. Xerox top management overrode the internal
B. Xerox top management overrode the internal control to manipulate earnings.
Which of the following earnings management techniques were not used in the Lucent Technologies, Inc.'s case?
A. Shifting Current Revenue to a later period
B. Boosting income with one-time gains
C. Recording revenue too soon or of questionable quality
D. S
A. Shifting Current Revenue to a later period
Which of the following was not true according to the Enron case?
A. Fastow developed the concept of buying up oil and gas companies to establish SPEs
B. Fastow worked to structure ventures that met the conditions under GAAP to keep the partnership activit
A. Fastow developed the concept of buying up oil and gas companies to establish SPEs
Which of the following was not a technique used by Enron to manage earnings?
A. Used reserves to increase earnings when reported amounts were too low.
B. Deliberately over stated the allowance for uncollectibles and adjusted it downward in future years
C.
B. Deliberately over stated the allowance for uncollectibles and adjusted it downward in future years
What is the culture at Enron that discussed in the case?
A. Employees worked later and later.
B. Employees were evaluated in groups; the goal was to remove the bottom 20% of each group every year.
C. Enron had a cutthroat system and encouraged a "yes" cul
D. All of these
Which of the following partnership that Enron created eventually lead to its demise?
A. JEDI
B. Cactus
C. Chewco
D. Ironman
C. Chewco
What was the original motivation by FASB on SPEs?
A. To establish a mechanism to encourage companies to invest in needed assets while keeping related debt of its books
B. To keep the large amount of debt off the books
C. To sell non-producing assets to th
A. To establish a mechanism to encourage companies to invest in needed assets while keeping related debt of its books
There are several aspects of Enron fraud that are dealt with directly in SOX further connecting Enron to reform in the accounting profession. Which of the following is true?
A. SOX permitted the provision of internal audit service for audit clients
B. Off
C. Related-party transactions require disclosure in the notes
The best way to characterize the role of Sherron Watkins in the downfall of Enron is:
A. She directed the internal auditors to examine numerous transactions that led to the discovery of the fraud
B. She gave in to the pressure of Andy Fastow to go along w
D. She tried to alert Ken Lay about the accounting scandal at Enron
The basic ethical principle violated by Andy Fastow in his role as Enron's CFO and involvement with SPEs was:
A. He lied to top management about what he was doing for the SPEs
B. He failed to exercise due care in setting up SPEs
C. He had a conflict of in
C. He had a conflict of interests in his dual roles
Cookie jar reserves" can best be described as:
A. Buying a lot of chocolate chip cookies, storing them for when you have a hunger attack, and then releasing them into your stomach.
B. Overstating or understating allowances and reversing amounts in the fut
B. Overstating or understating allowances and reversing amounts in the future to smooth out net income over time.
All of the following are examples of "Recording revenue too soon or of questionable quality" except for:
A. Recording sales that lack economic substance.
B. Recording revenue when future services remain to be provided.
C. Recording revenue before shipment
A. Recording sales that lack economic substance.
All of the following are examples of "Boosting Income with One-Time Gains" except for:
A. Recording sales that lack economic substance
B. Boosting profits by selling undervalued assets
C. Including investment income or gains as part of revenue
D. Includin
A. Recording sales that lack economic substance
The expression, "Too many corporate managers, auditors, and analysts are participants in a game of nods and winks" is attributable to:
A. Barry Minkow
B. Jerry Seinfeld
C. Thomas E. McKee
D. Arthur Levitt
D. Arthur Levitt
Which of the following is NOT addressed in the Waste Management's case?
A. The misstatements represented 10% of pre-tax income, which was not considered material.
B. The company employed aggressive accounting practices to enhance its earnings.
C. The comp
A. The misstatements represented 10% of pre-tax income, which was not considered material.
Congress passed the "Sarbanes-Oxley Act" on July 30, 2002. Which of the following is NOT true?
A. All companies are required to include in their annual reports a report of management on the company's internal control over financial reporting.
B. New audit
B. New audit standards include a prohibition against independent auditors providing many non-audit services and mandatory audit engagement partner rotation
Earnings management either ignores or does not consider the rights of the investors and creditors to receive accurate, reliable and transparent financial statements." This statement is from:
A. A virtue perspective
B. A utilitarian perspective
C. A right
C. A rights perspective
Inherent risk refers to:
A. The possibility that a material misstatement will occur within the reporting company's accounting information system
B. The possibility that a material misstatement that has occurred will not be detected on a timely basis by th
A. The possibility that a material misstatement will occur within the reporting company's accounting information system
According to AU 320, the evaluation of whether a misstatement could influence economic decisions of users
A. Is essential to determining whether to render an unmodified opinion
B. Is essential to determining whether the financial statements contain fraud
C. Is essential to determining whether such a misstatement is material
Accruals are potentially troublesome because:
A. They can lead to giving an unmodified audit opinion when it should have been modified
B. They provide an opportunity to manage earnings through aggressive or more conservative estimations
C. They always lea
B. They provide an opportunity to manage earnings through aggressive or more conservative estimation
The main difference between a discretionary and nondiscretionary accrual is:
A. Discretionary accruals are items that management has full control over
B. Discretionary accruals are based on changes in the fundamental performance of the firm
C. Discretiona
A. Discretionary accruals are items that management has full control over
In the Matrixx Initiatives v. Siracusano case, the Supreme Court adopted the position about materiality that
A. It should always be determined only through qualitative evaluations
B. It should always be determined through quantitative evaluations
C. It sh
D. It should be determined by considering whether the total mix of information would be viewed by a reasonable investor as possibly accepting judgment
Your professor asks you to consider whether earnings management can be justified by arguing that the net benefits of managing earnings exceeds any harms that may occur. The professor is asking you to apply what reasoning methods to make the analysis?
A. E
B. Act utilitarianism
You work for a company that always pushes the envelope with respect to reporting revenues and expenses. You often disagree with the company because its approach to reporting these amounts cannot be justified from a GAAP perspective. You are upset and are
C. Ethical Dissonance
Debbie and Steve are discussing a lecture given by their ethics professor after class one day. The professor said that misstatements of earnings are always unethical. Debbie agrees with this situation but Steve does not. What statement might Steve make to
A. It depends on whether the misstatements were made deliberately
The main accounting issues in the Nortel Networks case were:
A. Premature revenue recognition and hidden cash reserves
B. Capitalization of operating expenses and hidden cash reserves
C. Premature revenue recognition and off-balance-sheet entities
D. Capi
A. Premature revenue recognition and hidden cash reserves
The swap transactions used in the Solutions Network case to manage earnings can best be described as:
A. Going to a swap meet and capitalizing purchases instead of expensing them immediately against swap revenue
B. Recording revenue on software systems tr
B. Recording revenue on software systems transactions in an earlier period than when obligated to buy the same in a later period
The accounting issue in the Cubbies Cable case with respect to cable installations costs is closest to the accounting issue in which case?
A. Enron
B. Gemstar TV Guide
C. Xerox
D. WorldCom
D. WorldCom
The Solway case looks at the accounting issue of:
A. Recording of accruals to manage earnings
B. Recording of asset impairments to manage earnings
C. Premature revenue recognition
D. Setting up SPEs
A. Recording of accruals to manage earnings
The accounting shenanigan used in the Dell Computer case can best be described as:
A. Recording revenue from exclusivity payments too soon or of questionable quality
B. Shifting current revenue from exclusivity payments to a later period
C. Shifting futur
B. Shifting current revenue from exclusivity payments to a later period
In the Sweat Construction case, the company tried to manipulate earnings through the use of which accounting technique
A. Cookie jar reserves
B. Lease capitalization
C. Percentage of completion method
D. The Big Bath accounting
C. Percentage of completion method
Which of the following was not an accounting issue in the Sunbeam case?
A. Cookie jar reserves
B. Channel stuffing
C. Bill and hold sales
D. Swap transactions
D. Swap transactions
The Diamond Foods case addresses each of the following issues except for:
A. Crop payable recorded in the wrong year
B. Increasing revenues but stagnating cash flows
C. Depreciation of almond trees
D. Clawbacks of stock and cash
C. Depreciation of almond trees
The North Face case deals with materiality and how auditors employ that metric in an audit. The following are all true except:
A. North Face accounted for barter transactions with full normal margin recognized.
B. Crawford devised the 1997 barter transact
C. Crawford followed the GAAP methods that Deloitte suggested.
The former CEO of Vivendi Universal, Jean-Marie Messier, used as his defense in the case that:
A. His actions were protected by attorney-client privilege
B. While some of his actions may have turned out to be wrong, there never was an intent to defraud
C.
B. While some of his actions may have turned out to be wrong, there never was an intent to defraud
A common set of accounting standards on an international level can help to achieve each of the following except for:
A. Facilitate the understandability of financial reports prepared outside the home country of a potential investor
B. Facilitate internati
D. Facilitate the enforcement of IFRS
IFRS tends to be more ____________ than U.S. GAAP.
A. rules-based
B. principles-based
C. consistent
D. accurate
B. principles-based
One problem of a more principles-based system that was pointed out in an SEC study is that they:
A. Tend to be rules-based more than objectives-oriented standards
B. May present enforcement problems
C. Use bright-line tests
D. All of these
B. May present enforcement problems
The SEC study of a principles-based system identifies each of the following characteristics that should guide standards setting except for:
A. Be based on an improved and consistently applied conceptual framework
B. Clearly state the accounting objective
D. Minimize the detail and structure so that the standard can be operationalized and applied on a consistent basis
Given that IFRS is not currently required in the U.S., foreign companies that list their stock on the New York Stock Exchange must:
A. Reconcile the financial statements in their home country GAAP to U.S. GAAP
B. Use IFRS in their financial statements
C.
C. Either reconcile their statements to U.S. GAAP or use IFRS
Gray's study uses secrecy as the preference for confidentiality and restrictions on disclosures; this is associated with all of the following except:
A. Higher power distance
B. Lower masculinity
C. Lower individualism
D. Higher uncertainty avoidance
B. Lower masculinity
The SEC is now calling the movement of U.S. GAAP to IFRS:
A. Comparability
B. Condorsement
C. Convergence
D. Conversion
B. Condorsement
The Norwalk agreement refers to:
A. The commitment of the U.S. and European Union to adopt one set of accounting standards
B. The commitment of FASB and the International Accounting Standards Board (IASB) to adopt one set of accounting standards
C. The co
C. The commitment of FASB and IASB to the convergence of U.S. GAAP and international accounting standards
A study by the SEC notes that imperfections exist when standards are established on either a rules-based or a principles-based basis only. The SEC recommends that standards should have all of the following characteristics except:
A. Enumerate exceptions f
A. Enumerate exceptions from the standard.
The relatively more principles-based IFRS standards requires each of the following except for:
A. Professional judgment based on the substance over form concept
B. Professional judgment in applying the true and fair view override
C. Professional judgment
D. Professional judgment in applying the present fairly concept
The IFAC, IAESB and IESBA ethical principles are similar to those in the AICPA Code except for:
A. Integrity
B. Objectivity
C. True and fair view
D. Professional competence
C. True and fair view
The reason some people are concerned about the possibility for earnings management under IFRS is:
A. The principles-based system might lead preparers of financial statements to try and justify earnings by applying a substance over form concept
B. The prin
B. The principles-based system might lead preparers of financial statements to try and justify specific accounting outcome based on commercial drivers
The U.K. Bribery Act is enforced by the Serious Fraud Office (SFO); the agency has provided a list of corruption indicators. These include all of the following except for:
A. Abnormal cash payments and lavish gifts.
B. Agreeing to contracts favorable to t
B. Agreeing to contracts favorable to the organization.
Lease standards in the U.S. can be manipulated to achieve the desired goal of:
A. Determining lease payments at their present values to record an asset instead of an expense
B. Determining lease payments at their present values to record an expense instea
D. All of these
The rules under IFRS for property, plant, and equipment differ from U.S. GAAP because:
A. U.S. GAAP allows for the revaluation of property, plant, and equipment
B. IFRS allows for the revaluation of property, plant, and equipment
C. U.S. GAAP allows for r
B. IFRS allows for the revaluation of property, plant, and equipment
In the U.S., the word "reserve" always means:
A. Impairment
B. A market value adjustment
C. Provision
D. A depreciation write-down
C. Provision
The difference between provisions and reserves can best be characterized as:
A. Provisions are liabilities recognized by charges against profit whereas a reserve is an element of shareholders' equity
B. Provisions are an element of shareholders' equity wh
A. Provisions are liabilities recognized by charges against profit whereas a reserve is an element of shareholders' equity
A "secret" or "hidden" reserve can occur when a company does one or more of the following
A. Deliberately measure an asset at an unsubstantiated high value
B. Deliberately measures an asset at an unsubstantiated low value
C. Sets up overstated accrual lia
D. All of these
Secret reserves are designed to conceal the true financial position and earnings, which are different than shown on the balance sheet and income statement. The best statement of how secret reserves are related to fraud and ethics is:
A. Secret reserves of
A. Secret reserves often lead to smoothing net income over time.
The term "small and medium-sized" entities in the IASB's pronouncement on IFRS for Small and Medium-sized Entities (SMEs) defines SMEs as:
A. Those entities with public accountability that publish general purpose financial statements
B. Those entities wit
B. Those entities without public accountability that publish general purpose financial statements
Each of the following is an example of the difference between application of full-IFRS and IFRS for SMEs except for:
A. Cost or revaluation method for full-IFRS; cost method only for IFRS for SMEs
B. Revaluation method for full-IFRS; cost or revaluation f
B. Revaluation method for full-IFRS; cost or revaluation for IFRS for SMEs
The CIMA Code of Ethics identifies the following common threats to the fundamental principles of professional behavior except for:
A. Self-motivated threat
B. Self-interest threat
C. Familiarity threat
D. Intimidation threat
A. Self-motivated threat
The Global Survey on Business Ethics reports each of the following results except for:
A. There has been an increase of 10 to 15% in the number of organizations providing both statements of ethical values and a code of ethics
B. A "tone at the top" is fol
B. A "tone at the top" is followed in a majority of the companies
The following is a similarity between the AICPA Code of Professional Ethics and the IFAC Code:
A. To engage in whistleblowing when the audit client refuses to make recommended changes in the financial report
B. To report to the audit committee all differe
C. To identify threats to independence and develop safeguards to mitigate the threats
The 2012 Global Fraud Survey conducted by the ACFE identifies each of the following efforts to combat global fraud except for:
A. Evaluate the legal and regulatory enforcement environment
B. Assess risks to the company's business, brand, and reputation
C.
C. Create a level of independence from accountants and auditors so fraud can be more easily detected
The 2012 Global Fraud Survey of the ACFE points to the need for management to "walk the talk" of ethics by:
A. Clearly demonstrating that noncompliance will lead to firing of the guilty employee
B. Treat different offenses the same to develop consistency
D. Being consistent for particular offenses to avoid the appearance of selective enforcement
The UK Bribery Act establishes six principles to guide adequate procedures to deal with bribery including:
A. Risk assessment
B. Tone at the top
C. Whistleblowing
D. Audit committee
A. Risk assessment
The Serious Frauds Office in the UK identified each of the following as a "red flag" indicating corruption may exist except for:
A. Abnormal cash payments
B. Payments made through a third-party country
C. Payments made behind schedule
D. Agreeing to contr
C. Payments made behind schedule
The exposure draft, Responding to a Suspected Illegal Act, states that a professional accountant who suspects some act or activity may be illegal would be required to do each of the following depending on the outcome of discussions at each stage of the pr
C. Discuss the issue to the external auditors
One feature of corporate governance in Germany that makes it stand out when compared to the U.S. is:
A. A separate audit committee and a board of directors
B. A unitary board of directors system
C. A dual board of directors system
D. Compliance with the S
C. A dual board of directors system
Under a dual board system, the board that carries out management directives for the benefit of various stakeholder groups is:
A. The Management Board
B. The Supervisory Board
C. The Board of Governors
D. The Board of Trustees
A. The Management Board
The primarily role of the Supervisory Board is to:
A. Manage the enterprise for the benefit of various stakeholder groups
B. Work with the auditors in their review of financial statements
C. Work with the managing board in running day-to-day operations
D.
D. Oversee and advise the Managing Board on policy matters
A distinguishing characteristic(s) of corporate governance in China is the importance of:
A. State investors in Chinese entities
B. Family ownership of Chinese entities
C. Blockholders of Chinese entities
D. All of these
A. State investors in Chinese entities
The comply or explain principle refers to:
A. Certification of financial statements by CEOs and CFOs
B. Explain any gaps between existing corporate governance practices and recommendations by authoritative bodies/pronouncements and actual governance polic
B. Explain any gaps between existing corporate governance practices and recommendations by authoritative bodies/pronouncements and actual governance policies
A distinguishing characteristic(s) of corporate governance in India is the importance of:
A. Some government ownership of Indian entities
B. Family ownership of Indian entities
C. A large industrial group may own shares in an Indian entity
D. All of these
D. All of these
A member body of the International Federation of Accountants (IFAC) should follow the provisions of the home country's code of ethics rather than the Code of Ethics for Professional Accountants (IFAC Code) when:
A. The home country standards of the member
A. The home country standards of the member body are more stringent than those in the IFAC Code.
One way to characterize the term "true and fair view is" that it:
A. It is used to determine which international auditing standards should be used
B. It is used to assess whether the entity has met the comply or explain provisions in corporate governance
C. It is a governing criterion by which financial statements are to be judged
According to CLSA Corporate Governance Watch 2012:
A. India's corporate governance score declined by three percentage points from 2010 to 2012
B. China's corporate governance score increased by four percentage points from 2010 to 2012
C. Singapore had the
C. Singapore had the highest corporate governance score
Good ethics is important on a global level because
A. There needs to be a mechanism to punish companies that violate ethical standards outside their home country
B. International enforcement of IFRS depends on ethical behavior in the accounting and financ
C. Multinational companies should strive to act ethically in all activities whether at home or abroad
In the SEC v. Siemens Aktiengesellschaft case, each of the following charges were made against the company's' Managing Board except for:
A. The Board failed to ensure that Siemens met the U.S. regulatory and anti-bribery provisions of the Foreign Corrupt
C. The Board failed to adequately supervise the auditors of Siemens
The trigger event that led to the disclosure of the scandal at Parmalat was:
A. Almost �4 billion of company funds that were supposed to be held in an account at Bank of America did not exist
B. The company stuffed the channels with product that it eventu
A. Almost �4 billion of company funds that were supposed to be held in an account at Bank of America did not exist
The case that deals with conflicts between management and the board of directors and the role of family members in various business entities is:
A. Parmalat
B. Satyam
C. Olympus
D. Royal Dutch Shell
B. Satyam
The primary accounting issue in the Royal Dutch Shell case is:
A. The failure of the company to properly account for oil exploration costs
B. The failure of the company to adhere to provisions of the Foreign Corrupt Practices Act
C. The failure of the com
C. The failure of the company to adhere to SEC rules and the accounting for proved reserves
The Autonomy case deals with which of the following accounting issues:
A. Valuation of the British software company
B. Secret reserves
C. Fraud committed by KPMG
D. All of these
A. Valuation of the British software company
The Olympus case deals with which of the following accounting issues:
A. Booking impairment losses
B. Selling bad assets to make investment losses smaller
C. Concealing investment losses
D. All of these
D. All of these
Financial decision makers demand reliable information that is provided by accountants. TRUE OR FALSE
True
Financial decision makers obtain their accounting information from lenders of funds. TRUE OR FALSE
False
Four conditions that create demand for reliable information are complexity, remoteness, timeliness, and
consequences. TRUE OR FALSE
True
The lending of credibility to financial information is known as certification. TRUE OR FALSE
False
Independent auditors are employees of the client.
True False
False
Assurance service is the systematic process of objectively obtaining and evaluating evidence.
True False
False
Evidence consists of assertions about economic actions and events.
True False
False
The purpose of obtaining and evaluating evidence is to ascertain the degree of correspondence between
the assertions and established criteria.
True False
True
The AICPA Statement on Auditing Standards defines auditing more broadly than the AAA definition of
auditing.
True False
False
The PCAOB audit objective related to the completeness assertion is to establish evidence that assets,
liabilities, and equities actually exist.
True False
False
The ASB balance audit objective related to valuation or accuracy is to determine whether proper values
have been assigned to assets, liabilities, equities, revenues, and expenses.
True False
True
The objective of internal auditing is to assist members of an organization to effectively perform their
obligations.
True False
True
Internal auditors perform only operational audits.
True False
False
Government auditors perform both financial and performance audits.
True False
True
Expanded scope governmental auditing includes economy and efficiency and program results audits.
True False
True
The AICPA licenses CPAs to practice in the United States.
True False
False
Professional skepticism is an auditor's tendency not to believe anyone.
True False
False
Assurance services are independent professional services that improve the quality of information or its
context for decision makers.
True False
True
The concept "professional skepticism" requires that auditors assume management is dishonest and should
not be trusted.
True False
False
For independent auditors of financial statements in the United States, established criteria largely consist
of the general TRue or False
True
The audit objective of presenting all transactions and accounts in the financial statements are in fact
included is related to which of the PCAOB assertions?
A. Existence.
B. Rights and obligations.
C. Completeness.
D. Valuation.
C. Completeness.
To be proficient as an auditor, a person must first be able to accomplish which of these tasks in a
decision-making process?
A.
Identify audit evidence relevant to the verification of assertions management makes in its unaudited
financial statements and n
C. Recognize the financial assertions made in management's financial statements and footnotes
Which of the following is an underlying condition that in part creates the demand by users for reliable
information?
A. Economic transactions are numerous and complex.
B. Decisions are time sensitive.
C. Users are separated from accounting records by dist
...
Which of the following is not included in The American Accounting Association (AAA) definition of
auditing?
A. Potential conflict of interest.
B. Systematic process.
C. Assertions about economic actions.
D. Established criteria.
...
What is the term used to identify the risk that the client's financial statements may be materially false and
misleading?
A. Business risk.
B. Information risk.
C. Client risk.
D. Risk assessment.
...
Which of the following is not a recommendation usually made following the completion of an operational
audit?
A. Economic and efficient use of resources.
B. Effective achievement of business objectives.
C. Attesting to the fairness of the financial statem
...
In order to be considered as external auditors with respect to government agencies, GAO auditors must
be
A. Organizationally independent.
B. Empowered as the accounting and auditing agency by the U.S. Congress.
C. Funded by the federal government.
D. Guid
...
Which of the following is the essential purpose of the audit function?
A. Detection of fraud.
B. Examination of individual transactions to certify their validity.
C. Determination of whether the client's financial statement assertions are fairly stated.
D
...
The audit objective that all the transactions and accounts presented in the financial statements represent
real assets, liabilities, revenues, and expenses is related most closely to which of the PCAOB assertions?
A. Existence or occurrence.
B. Rights and
...
The audit objective that all transactions are recorded in the proper period is related most closely to which
of the Audit Standards Board (ASB) transaction assertions?
A. Occurrence.
B. Completeness.
C. Cutoff.
D. Accuracy.
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The audit objective that all transactions are recorded in the proper account is related most closely to
which one of the ASB transaction assertions?
A. Occurrence.
B. Completeness.
C. Accuracy.
D. Classification.
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The audit objective that all balances include items owned by the client is related most closely to which
one of the ASB balance assertions?
A. Existence.
B. Rights and obligations.
C. Completeness.
D. Valuation.
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The audit objective that all balances include all items that should be recorded in that account is related
most closely to which one of the ASB balance assertions?
A. Existence.
B. Rights and obligations.
C. Completeness.
D. Valuation.
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The audit objective that footnotes in the financial statements should be clear and expressed so that the
information is easily conveyed to the readers of the financial statements is related most closely with
which of the ASB presentation and disclosure as
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The engineering department at Omni Company built a piece of equipment in the company's own shop
for use in the company's operations. The auditor reviewed all work orders that were capitalized as part of
the equipment costs. Which of the following is the A
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The engineering department at Omni Company built a piece of equipment in the company's own shop
for use in the company's operations. When looking at the ending balance for the fixed asset account, the
auditor examined all work orders, purchased materials,
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Which of the following best describes the primary role and responsibility of the independent external
auditor?
A. Produce a company's annual financial statements and notes.
B. Express an opinion on the fairness of a company's annual financial statements a
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Which of the following best describes the main reason that independent auditors report on management's
financial statements?
A. Management fraud may exist, and it is likely to be detected by independent auditors.
B.
The management that prepares the statem
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The auditor's judgment concerning the overall fairness of the presentation of financial position, results of
operations, and cash flows is applied within the framework of
A. Quality control.
B. Generally accepted auditing standards, which include the conc
...
Assurance services involve all of the following except
A. Relevance as well as the reliability of information.
B. Nonfinancial information as well as traditional financial statements.
C. Providing absolute rather than reasonable assurance.
D. Electronic d
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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 judgment.
B. Independent integrity.
C. Professional sk
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Which of the following best describes assurance services?
A. Independent professional services that report on the client's financial statements.
B. Independent professional services that improve the quality of information for decision makers.
C. Independe
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Which of the following is not a PCAOB assertion about inventory related to presentation and disclosure?
A. Inventory is properly classified as a current asset on the balance sheet.
B. Inventory is properly stated at its cost on the balance sheet.
C. Major
...
Which of the following is not an ASB assertion about inventory related to presentation and disclosure?
A. Inventory is properly classified as a current asset on the balance sheet.
B. Inventory is properly stated at cost on the balance sheet.
C. Major inve
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In performing an attestation engagement, a CPA typically
A. Supplies litigation support services.
B. Assesses control risk at a low level.
C. Expresses a conclusion on an assertion about some type of subject matter.
D. Provides management consulting advic
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An attestation engagement is one in which a CPA is engaged to
A.
Issue a report on subject matter or an assertion about the subject matter that is the responsibility of
another party.
B.
Provide tax advice or prepare a tax return based on financial inform
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The underlying conditions that create demand by users for reliable information include all of the
following except
A. Transactions are numerous and complex.
B. Users lack professional skepticism.
C. Users are separated from accounting records by distance
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Cutoff tests designed to detect credit sales made before the end of the year that have been recorded in the
subsequent year provide assurance about the PCAOB assertion of
A. Presentation.
B. Completeness.
C. Rights.
D. Existence.
...
Inquiries of warehouse personnel concerning possible obsolete or slow-moving inventory items provide
assurance about the PCAOB assertion of
A. Completeness.
B. Existence.
C. Presentation.
D. Valuation.
E. Rights and obligations.
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Inquiries of warehouse personnel concerning possible obsolete or slow-moving inventory items provide
assurance about the ASB balance assertion of
A. Completeness.
B. Existence.
C. Presentation.
D. Valuation.
E. Rights and obligations.
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The probability that the information circulated by a company will be false or misleading is referred to
as
A. Business risk.
B. Information risk.
C. Assurance risk.
D. Audit risk.
...
The Sarbanes-Oxley Act of 2002 requires that the key company officials certify the financial statements.
Certification means that the company CEO and CFO must sign a statement indicating
A. They have read the financial statements.
B. They are not aware of
...
The process by which a CPA obtains a certificate and license in a state other than the state in which the
CPA's certificate was originally obtained is referred to as
A. Substantial equivalency.
B. Quid pro quo.
C. Relicensing.
D. Re-examination
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The risk that an entity will fail to meet its objectives is referred to as
A. Business risk.
B. Information risk.
C. Assurance risk.
D. Audit risk.
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The four basic requirements for becoming a CPA in most states relate to
A. Education, the CPA Examination, experience, and substantial equivalency.
B. The CPA Examination, experience, continuing professional education, and a state certificate.
C. Continui
...
The study of business operations for the purpose of making recommendations about the efficient use
of resources, effective achievement of business objectives, and compliance with company policies is
referred to as
A. Environmental auditing.
B. Financial a
...
The accounting, auditing, and investigating agency of the U.S. Congress that is headed by the U.S.
Comptroller General is known as
A. The Federal Bureau of Investigation (FBI).
B. The U.S. General Accountability Office (GAO).
C. The Internal Revenue Servi
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Which of the following would be considered an assurance engagement?
A.
Giving an opinion on a prize promoter's claims about the amount of sweepstakes prizes awarded in the
past.
B.
Giving an opinion on the conformity of the financial statements of a unive
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It is always a good idea for auditors to begin an audit with the professional skepticism characterized by
the assumption that
A.
A potential conflict of interest always exists between the auditor and the management of the enterprise
under audit.
B. In aud
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n an attestation engagement, a CPA practitioner is engaged to
A.
Compile a company's financial forecast based on management's assumptions without expressing any
form of assurance.
B. Prepare a written report containing a conclusion about the reliability o
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A determination of cost savings obtained by outsourcing cafeteria services is most likely to be an
objective of
A. Environmental auditing.
B. Financial auditing.
C. Compliance auditing.
D. Operational auditing.
...
The primary difference between operational auditing and financial auditing is that in operational
auditing
A
.
The operational auditor is not concerned with whether the audited activity is generating information in
compliance with financial accounting sta
...
According to the AICPA, the purpose of an audit of financial statements is to
A. Enhance the degree of confidence that intended users can place in the financial statements.
B.
Express an opinion on the fairness with which they present financial position,
...
Bankers who are processing loan applications from companies seeking large loans will probably ask for
financial statements audited by an independent CPA because
A. Financial statements are too complex to analyze themselves.
B. They are too far away from c
...
The Sarbanes-Oxley Act of 2002 prohibits public accounting firms from providing which of the
following services to an audit client?
A. Bookkeeping services.
B. Internal audit services.
C. Valuation services.
...
Independent auditors of financial statements perform audits that reduce
A. Business risks faced by investors.
B. Information risk faced by investors.
C. Complexity of financial statements.
D. Timeliness of financial statements.
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The primary objective of compliance auditing is to
A. Give an opinion on financial statements.
B. Develop a basis for a report on internal control.
C. Perform a study of effective and efficient use of resources.
D. Determine whether auditee personnel are
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What requirements are usually necessary to become licensed as a certified public accountant?
A. Successful completion of the Uniform CPA Examination.
B. Experience in the accounting field.
C. Education.
D. All of the above.
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The organization primarily responsible for ensuring that public officials are using public funds efficiently,
economically, and effectively is the
A. Governmental Internal Audit Agency (GIAA).
B. Central internal auditors (CIA).
C. Securities and Exchange
...
Performance audits usually include
A. Financial audits.
B. Economy and efficiency audits.
C. Compliance audits.
D. Program audits.
...
The objective in an auditor's review of credit ratings of a client's customers is to obtain evidence related
to management's financial statement assertion about
A. Completeness.
B. Existence.
C. Valuation and allocation.
D. Rights and obligations.
E. Occu
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Jones, CPA, is planning the audit of Rhonda's Company. Rhonda verbally asserts to Jones that all
expenses for the year have been recorded in the accounts. Rhonda's representation in this regard
A. Is sufficient evidence for Jones to conclude that the comp
...
The risk to investors that a company's financial statements may be materially misleading is called
A. Client acceptance risk.
B. Information risk.
C. Moral hazard.
D. Business risk.
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When auditing merchandise inventory at year-end, the auditor performs audit procedures to ensure that all
goods purchased before year-end are received before the physical inventory count. This audit procedure
provides assurance about which management asse
...
When auditing merchandise inventory at year-end, the auditor performs audit procedures to obtain
evidence that no goods held on consignment are included in the client's ending inventory balance. This
audit procedure provides assurance about which manageme
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When an auditor reviews additions to the equipment (fixed asset) account to make sure that repair and
maintenance expenses are not understated, she wants to obtain evidence as to management's assertion
regarding
A. Completeness.
B. Existence.
C. Valuation
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The Sarbanes-Oxley Act of 2002 generally prohibits professional service firms from
A. Acting in a managerial decision-making role for an audit client.
B. Auditing the firm's own work on an audit client.
C. Providing tax consulting to an audit client witho
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Substantial equivalency refers to
A. An auditor's tendency not to believe management's assertions without sufficient corroboration.
B
.
Providing consulting work for another firm's audit client in exchange for the other firm's providing
consulting service
...
Which of the following best describes the relationship between auditing and attestation engagements?
A. Auditing is a subset of attestation engagements that focuses on the certification of financial statements.
B.
Attestation is a subset of auditing that
...
Which of the following is a reason to obtain professional certification?
A. Certification provides credibility that an individual is technically competent.
B.
Certification often is a necessary condition for advancement and promotion within a professional
...
Which of the following is not an underlying condition that creates demand by users for reliable financial
information?
A. Remoteness.
B. Vagueness.
C. Consequences.
D. Complexity.
...
According to the American Accounting Association (AAA), the definition of auditing includes the
following statement
A.
An independent appraisal function established within an organization to examine and evaluate its
activities.
B.
A process of reducing to
...
Which of the following is not a major element of assurance services?
A. Independence.
B. Improving the quality of information.
C. Improving profitability of the client.
D. Improving the context of information.
...
The goal of operational auditing is to
A. Help managers discharge their management responsibilities and improve profitability.
B. Evaluate compliance with specific laws and regulations.
C. Reduce to a socially acceptable level the information risk to user
...
The PCAOB assertions made by management in financial statements do not include
A. Existence.
B. Compliance.
C. Completeness.
D. Presentation.
...
Which of the following is not a role of the AICPA?
A.
Refine the body of professional knowledge, regulate membership admissions, and police conduct of
members.
B. Prepare and grade the uniform CPA examination.
C. License the practices of CPAs in the vario
...
The ASB transaction objective that requires the auditor to establish evidence that all transactions and
accounts that should be presented in the financial statements are included is?
A. Completeness.
B. Existence or occurrence.
C. Rights and obligations.
...
Which of the following is an example of a regulatory auditor?
A. Internal auditors.
B. Big 4 auditors.
C. U.S. Internal Revenue Service auditors.
D. Operational auditors.
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The definition of performance audits does not include
A. Economy audits.
B. Efficiency audits.
C. Financial audits.
D. Program audits.
...
CPA certificates and licenses to practice are issued by the
A. AICPA.
B. States or territories.
C. AICPA Examinations Division.
D. GAO.
...
A code of ethics serves as a reference and benchmark for acceptable professional behavior.
True False
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