Deck 1: Introduction and Overview of Audit and Assurance

Question 1

Materiality is a relative concept, and it differs from company to company and from year to year for a given company.

Answer 1

True

Question 2

Neither client characteristics nor actions of the auditor affect the audit risk.

Answer 2

False

Question 3

Private companies, or non-issuers, are not required by the U.S.government to have an annual financial statement audit

Answer 3

True

Question 4

Review of financial forecasts falls under attestation services.

Question 5

Identify a service that falls under audit services.

A)examination of historical financial statements
B)compilation of historical financial statements
C)inspection of website security
D)review of financial forecast

Question 6

In an audit report on the effectiveness of ICFR for a public company, the scope paragraph mentions that auditors are only required to obtain reasonable assurance about whether the company maintained, in all material respects, effective ICFR.

Question 7

The Securities Act of 1933 enhances annual financial disclosures for public companies and placed more emphasis on corporate responsibility.

Question 8

In an unqualified audit report on the financial statements of a public company, the concluding statement of the scope paragraph mentions reasonable basis for the audit firm's opinion.

Question 9

A financial statement user's expectations are only impacted by legislation.

Question 10

When auditors determine that the financial statements of a public company are presented fairly in accordance with the applicable financial reporting framework, they issue a type of report that PCAOB standards call "the standard clean report."

Question 11

Within a U.S.context, the applicable financial reporting framework is typically Generally Accepted Accounting Principles (GAAP).

Question 12

Securities Exchange Act of 1934 regulates the ongoing trading of securities after the initial public offering and requires the annual audit of a public company's financial statements.

Question 13

Compared to an audit of historical financial statements, a review engagement is _______.

A)less extensive and also less expensive
B)more extensive and also more expensive
C)less extensive but more expensive
D)more extensive but less expensive

Question 14

In an audit report on the effectiveness of ICFR for a public company, the scope paragraph states the different responsibilities of management and auditors.

Question 15

The audit expectation gap is caused by user expectations such as: The auditor will catch all instances of fraud.

Question 16

GAAP and IFRS are examples of applicable financial reporting framework.

Question 17

Examination of internal controls is a service that comes under _______ services, which fall under _______ services.

A)attestation; assurance
B)assurance; attestation
C)acceptable; assurance
D)attestation; audit

Question 18

In financial accounting, the balance sheet is a statement of financial position

Question 19

Business valuation falls within the purview of non-assurance services.

Question 20

One of the reasons there is a demand for financial statement audits is that users of financial statements often lack accounting and legal knowledge to fully understand complex accounting and disclosure choices.

Question 21

The most common assurance service is the ________.

A)audit of a company's historical financial statements
B)compilation of financial statements
C)review of a company's financial controls
D)review of a company's historical financial statements

Question 22

Which terms does the textbook claim are used interchangeably, but actually represent different types of services?

A)assurance, attestation, and auditing
B)accounting, auditing, and assurance
C)accounting, attestation, and auditing
D)assurance, attestation, and accounting

Question 23

The only professional who can audit a set of historical financial statements for a public or private company in the United States is ________.

A)a Certified Public Accountant (CPA)
B)a Certified Fraud Examiner (CFE)
C)the IRS
D)a loan officer

Question 24

Assurance, attestation, and auditing are similar because all three represent a common process of _______.

A)taking information prepared by someone else and comparing that information to an established set of criteria.
B)compiling and reviewing historical financial statements and providing non-financial information.
C)compiling historical financial statements and providing non-financial information and web security.
D)reviewing financial forecast, examining internal controls, and providing website security.

Question 25

The set of standards used in preparing the historical financial statements, such as GAAP or IFRS, is referred to as ________.

A)the applicable financial reporting framework
B)Generally Accepted Auditing Standards (GAAS)
C)material modifications
D)a review of historical financial statements

Question 26

Which of the following is included as a focus of assurance services?

A)Compilation of historical financial statements
B)Examination of internal controls
C)Review of historical financial statements
D)Review of financial forecast

Question 27

Which of the following is not one of the three E's needed to become a licensed CPA?

A)Education
B)Examination
C)Experience
D)Efficiency

Question 28

A review of historical financial statements is an example of ________.

A)attestation service
B)absolute assurance
C)financial forecast
D)applicable financial reporting framework

Question 29

In assurance services, the term "information" refers to subject matter that is _____________.

A)historical or prospective
B)created by independent or in-house services
C)financial and outside the purview of the non-financial
D)internal to a company only

Question 30

Which are the most specific services provided by the auditor?

A)Compilation services
B)Audit services
C)Attestation services
D)Assurance services

Question 31

The purpose of audit services is to provide ________.

A)financial statement users with an opinion as to the fair presentation of the financial reporting
B)management with an opinion as to the fairness of the company's managerial accounting procedures
C)investment advice to the company
D)limited assurance that no material modifications need to be made to the financial statements

Question 32

What services are defined as independent professional services that improve the quality of information, or its context, for decision makers?

A)assurance services
B)attestation services
C)absolute assurance
D)audit services

Question 33

A key similarity between assurance, attestation, and auditing services is ________.

A)the comparison of information prepared by someone else against an established set of criteria
B)the comparison of actual output to projected output
C)the comparison of financial accounting data to managerial accounting data
D)the comparison of financial audit data to tax audit data

Question 34

Any group that will be using the financial statements to make decisions, such as investors and creditors, is known as ________.

A)intended users
B)groups of standing
C)decision-makers
D)practitioners

Question 35

As attestation services encompass more than just the inspection of historical financial statements, the term _______ is used rather than _______.

A)practitioner; auditor
B)auditor; practitioner
C)intended user; auditor
D)intended user; practitioner

Question 36

Which is the most inclusive or broadest service provided by the auditor?

A)Audit services
B)Attestation services
C)Assurance services
D)A review of historical financial statements

Question 37

The only licensed accounting professionals in the United States are:

A)Certified Public Accountants
B)Chartered Accountants
C)Certified Internal Auditors
D)Certified Fraud Examiners

Question 38

Which of the following is true of assurance services?

A)Both attestation and auditing services fall under the term of assurance services.
B)The term information refers to subject matter that is an entire system, not standalone data.
C)The services are performed by someone who was involved with the creation of the information.
D)The intended user is an independent Certified Public Accountant qualified to perform the auditing service.

Question 39

When CPAs are hired to report on the integrity of financial forecasts and reports on financial reporting processes, it is called an ______________.

A)attestation service
B)absolute assurance
C)applicable financial reporting framework
D)audit service

Question 40

Who are the only licensed accounting professionals in the United States?

A)Certified Public Accountants (CPA)
B)Chartered Accounts (CA)
C)Financial Accountants (FA)
D)Chief financial and operating officer (CFOO)

Question 41

Independent professional attestation services improve the quality of information.Quality is best described as an improvement in informational ________.

A)relevance and reliability.
B)financial and nonfinancial qualities
C)historical and prospective qualities
D)internal and external qualities

Question 42

Which of the following statements is true?

A)Often interested users, like banks, ask private companies or non-users to provide audited financial statements.
B)Public users are required to have three audits a year.
C)Public users are required to have an audit of internal financial forecast reports (IFFRs).
D)For efficiency purposes, the three required audits for public companies are performed at the same time.

Question 43

Which type of entity generally finds a review of historical financial statements to be the most useful?

A)Large public corporations
B)Small public corporations
C)Large private corporations
D)Small private corporations

Question 44

Assurance services are defined as ________.

A)independent professional services that improve the quality of information, or its context, for decision makers
B)individual provisional services to improve internal controls for financial statement users
C)individual prospective financial statement quality
D)independent information improvement

Question 45

Among the various processes relating to auditing and assurance standards, the largest umbrella represents ________ services.

A)assurance
B)attestation
C)audit
D)review

Question 46

What is a compliance audit?

A)an audit to determine whether the entity has conformed with regulations, rules or processes
B)an assessment of the economy, efficiency and effectiveness of an organization's operations
C)an evaluation and improvement of risk management, internal control procedures and elements of the governance process
D)an assessment of the company's financial statements

Question 47

A review of historical financial statements as compared to an audit of historical financial statements ________.

A)is more extensive in terms of the work product required
B)is typically less expensive
C)provides greater assurance
D)provides an opinion

Question 48

Private companies, or non-issuers, in the U.S.are ________.

A)required by the federal government to have quarterly financial statement audits
B)required by the federal government to have annual financial statement audits
C)required by the federal government to have semi-annual financial statement audits
D)not required by the federal government to have financial statement audits

Question 49

Which audit involves gathering evidence to determine whether the person or entity under review has followed the rules, policies, procedures, laws and regulations with which they must conform?

A)A compliance audit
B)A performance audit
C)An integrated audit
D)An internal audit

Question 50

The term practitioner would be least likely to be used when referring to the performance of ________.

A)audit services
B)attestation services
C)assurance services
D)bookkeeping services

Question 51

Public companies, or issuers, in the U.S.are ________.

A)required by the federal government to have quarterly financial statement audits
B)required by the federal government to have annual financial statement audits
C)required by the federal government to have semi-annual financial statement audits
D)not required by the federal government to have financial statement audits

Question 52

What is the applicable financial reporting framework in the U.S.known as?

A)GAAP
B)GAAS
C)IFRS
D)The Internal Revenue Code

Question 53

Which two audits does an integrated audit combine?

A)A financial statement audit and an audit of the effectiveness of ICFR
B)A financial statement audit and a compliance audit
C)A compliance audit and an audit of the effectiveness of ICFR
D)A performance audit and an environmental audit

Question 54

Examination of non-financial information falls under _______ services and outside of_______ services.

A)assurance; audit
B)attestation; assurance
C)audit; assurance
D)attestation; audit

Question 55

Which of the following is a characteristic of an audit of historical financial statements?

A)It provides limited assurance that no material modifications need to be made to the financial statements.
B)It expresses an opinion on the fair presentation of the financial statements.
C)It is the same as an examination of internal controls.
D)It is broader than a review engagement.

Question 56

Within a U.S.context, the applicable financial reporting framework is typically _______.

A)Generally Accepted Accounting Principles (GAAP)
B)International Standard on Quality Control (ISQC)
C)Auditing and Assurance Standards Board (AASB)
D)International Financial Reporting Standards (IFRS)

Question 57

The term independent with respect to assurance services implies that the service is ________.

A)performed by someone who was not involved with the creation of the information.
B)performed by someone who was involved with the creation of the information and, therefore, fully understands it.
C)performed by a company employee.
D)is subjective.

Question 58

Which of the following is not one of the four sections tested on the CPA exam?

A)Auditing and Attestation
B)Business Environment and Concepts
C)Regulation
D)Internal Controls

Question 59

The audit related to which of the following is specifically meant to express an opinion on the effectiveness of the company's system of internal controls over financial reporting?

A)ICFR
B)GAAP
C)FASB
D)AICPA

Question 60

What is the final step in becoming a licensed CPA?

A)Taking the CPA exam
B)Meeting the educational requirements
C)Work experience
D)Evidence of personal integrity

Question 61

Which act created the Public Company Accounting Oversight Board, which oversees the audits of public companies?

A)The SOX Act of 2002
B)The Securities Act of 1933
C)The Securities Exchange Act of 1934
D)The Companies Act 2006

Question 62

Who among the following users of the financial statement of a company may be particularly interested in evaluating whether the company is paying a fair amount of taxes given its reported earnings, and to gain a better understanding of the company's activities?

A)government
B)general pubic
C)employees
D)investors

Question 63

Which of the following comes under the purview of the Public Company Accounting Oversight Board?

A)Auditing Standards (AS)
B)Statements on Auditing Standards (SAS)
C)Statements on Standards for Attestation Engagement (SSAE)
D)Statements on Quality Control Standards (SQCS)

Question 64

Most financial accounting and disclosure choices being made by the company are complicated and often require significant technical knowledge and experience in order to understand.What term captures this problem?

A)Complexity
B)Remoteness
C)Competing incentives
D)Reliability

Question 65

Pressures of time and money may affect the audit due to all of the following EXCEPT ________.

A)clients want to issue their financial statements by a certain date
B)clients refusing to pay additional fees for additional audit effort and time
C)pressures within the CPA firm to complete all audits on a timely basis to avoid incurring costs that may not be recovered
D)pressures by shareholders to find all misstatements in the financial reports

Question 66

The nature of audit procedures refers to the ________.

A)reliance on evidence provided by the client and its management
B)use of judgment when preparing financial statements due to the subjectivity required when arriving at accounting estimates
C)materiality of misstatement
D)pressures auditors face to complete their audit within a certain time frame at a reasonable cost

Question 67

Those charged with governance are the ________.

A)CEO, CFO, and COO
B)board of directors and management of an entity
C)stockholders
D)auditors

Question 68

If the auditors do not have access to all the information relevant to the audit, this is known as a(an) ________.

A)material misstatement
B)limitation in scope
C)estimate
D)sampling technique

Question 69

What type of audit is conducted to provide assurance about various aspects of an organization's activities rather than the reliability of financial statements? a(an)

A)compliance audit
B)operational audit
C)financial statement audit
D)internal audit

Question 70

Which of the following falls within the purview of financial accounting?

A)Changes in equity
B)Management consulting
C)Business valuation
D)Mergers and acquisitions

Question 71

What type of audit is concerned with the economy, efficiency and effectiveness of an organization's activities?

A)A compliance audit
B)An operational audit
C)A financial statement audit
D)An integrated audit

Question 72

What type of audit provides an opinion by the auditor about whether the financial statements are presented fairly in accordance with an applicable financial reporting framework?

A)A compliance audit
B)An operational audit
C)A financial statement audit
D)An audit on the effectiveness of ICFR

Question 73

Which of the following is a private professional membership organization of CPAs representing the accounting profession?

A)AICPA
B)PCAOB
C)ASB
D)IAASB

Question 74

Since users of financial statements make financial decisions that have real consequences, it is very important that users can depend on the information contained in the financial statements.What term captures this problem?

A)reliability
B)competing incentives
C)complexity
D)remoteness

Question 75

Among the reasons why users demand an audit of financial statements, what is the problem of competing incentives?

A)The company has a reason to disclose information in a way that presents it in favorable light.
B)Financial statement users lack accounting and legal knowledge to understand accounting and disclosure choices.
C)Financial statement users to not have access to the company under review and thus face difficulty in determining whether the statements are fair.
D)Financial statement users need reliable information in order to make decisions that have real consequences.

Question 76

ICFR stands for:

A)internal controls over financial reporting.
B)internal controls for reporting.
C)international controls over financial reporting.
D)internal controls over forecast reports.

Question 77

What type of audit involves gathering evidence to determine whether the person or entity under review has followed the rules?

A)A compliance audit
B)An operational audit
C)A financial statement audit
D)An integrated audit

Question 78

The nature of audit procedures can refer to the concept of ________.

A)consistency
B)timeliness
C)effectiveness
D)materiality

Question 79

In the United States, what entities are required by the federal government to have an annual financial statement audit?

A)public companies or issuers
B)private companies or issuers
C)public companies or non-issuers
D)private companies or non-issuers

Question 80

The limitations of an audit are NOT caused by ________.

A)the nature of financial reporting.
B)the nature of audit procedures.
C)the need for the audit to be conducted within a reasonable period of time at a reasonable cost.
D)a guarantee that the financial statements are free from error