Deck 1: Auditing: Integral to the Economy

Question 1

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

Answer 1

False

Question 2

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

Answer 2

False

Question 3

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

Answer 3

True

Question 4

Auditors generally need quantitative and mathematical skillsets more than they need communication and leadership skills.

Question 5

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

Question 6

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

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

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 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

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

Question 14

Audits of publicly traded companies must be performed by multinational accounting firms.

Question 15

Independence is often referred to as the cornerstone of the auditing profession.

Question 16

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

Question 17

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

Question 18

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

Question 19

Management may have incentive to bias financial information, but the various users of the statements are not likely to have conflicting interests in the financial information.

Question 20

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 21

A key responsibility of the internal audit function is to provide assurance on the reliability of financial reporting to external stakeholders of a company.

Question 22

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

Question 23

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

Question 24

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

Question 25

Effective audit processes, by themselves, are sufficient to achieve audit quality.

Question 26

The AICPA has a peer review program that reviews and evaluates the portions of an audit firm's accounting and audit practice that are not inspected by the PCAOB.

Question 27

The FASB is responsible for creating International Financial Reporting Standards.

Question 28

The Center for Audit Quality is responsible for the oversight of the peer review process for registered audit firms.

Question 29

The overall objective of an audit is to obtain assurance whether the financial statements are free of misstatement.

Question 30

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

Question 31

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

Question 32

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

Question 33

Internal controls are the responsibility of management.

Question 34

Audit firm culture is one of the primary drivers of audit quality.

Question 35

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

Question 36

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

Question 37

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

Question 38

The court system acts as a deterrent to quality controls for the auditing profession.

Question 39

Bondholders are one of the users of financial statements.

Question 40

The SEC provides annual reports to the PCAOB.

Question 41

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 42

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 43

According to the FRC which of the following attributes contributes to the reliability and usefulness of audit reporting?

A) The audit methodology is well structured.
B) Quality technical support is available when auditors require guidance.
C) Auditors appropriately conclude as to the truth and fairness of the financial statements.
D) The audit work is effectively reviewed.

Question 44

An "integrated audit" expresses an opinion on which of the following?

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 45

The SEC and PCAOB independence rules for auditors are identical.

Question 46

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

Question 47

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 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

Who are the users of the financial statements?

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

Question 50

Which phase of the audit opinion formulation process is most commonly thought of as auditing by the general public?

A) Performing risk assessment.
B) Obtaining evidence about internal controls.
C) Obtaining substantive evidence about accounts.
D) Making reporting decisions.

Question 51

Which one of the following is a factor that creates a need for an 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

How is the audit report referred to when the auditor has no reservations about management's financial statements?

A) An unqualified report.
B) A qualified report.
C) An adverse report.
D) An integrated report.

Question 53

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 54

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 55

Which one of the following is not a primary driver of audit quality?

A) Skills and personal qualities of audit staff.
B) Reasonable audit fees.
C) Effective audit processes.
D) Audit firm culture.

Question 56

Which one of the following organizations is recognized for providing guidance on a framework for internal control ?

A) AICPA.
B) PCAOB.
C) IAASB.
D) COSO.

Question 57

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 58

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

Question 59

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

Question 60

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 statement audit.
C) External audit.
D) Program audit

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

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

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

Question 63

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 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 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 66

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 67

Which of the following groups is not typically considered to be a user of the audited financial statements?

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

Question 68

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 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

Who is responsible for internal controls within an organization?

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

Question 71

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

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

Question 72

Which of the following is typically an attribute of a smaller audit firm?

A) The type of work is primarily external audits.
B) The firm has multiple teams that work on the audit of a single entitiy and then disband.
C) The firm has multiple teams that overlap across engagements.
D) The firm has a relatively higher level of staff turnover.

Question 73

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 74

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

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

Question 75

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 76

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

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

Question 77

The scope of the work to be done by the auditor on the audit is described in which document?

A) Contract letter.
B) Management letter.
C) Representation letter.
D) Engagement letter.

Question 78

Which term describes the type of threat which occurs when top management threatens to replace the audit firm because of a disagreement over an accounting issue?

A) Management participation threat.
B) Undue influence threat.
C) Adverse interest threat.
D) Financial self-interest threat.

Question 79

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 80

Who licenses CPAs?

A) The PCAOB.
B) The AICPA.
C) The State Boards of Accountancy.
D) The SEC.