Deck 1: The Demand for Audit and Other Assurance Services

Question 1

The trait that distinguishes auditors from accountants is the

A) auditor's ability to interpret accounting principles generally accepted in the United States.
B) auditor's education beyond the bachelor's degree.
C) auditor's ability to interpret FASB Statements.
D) auditor's expertise in the accumulation and the interpretation of audit evidence.

Answer 1

D

Question 2

One criterion used by an external auditor to evaluate published financial statements is known as generally accepted auditing standards.

Answer 2

False

Question 3

The accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and some established criteria is defined as

A) accounting.
B) financial reporting.
C) tax reporting.
D) auditing.

Answer 3

D

Question 4

When auditing accounting data, auditors focus on

A) determining whether recorded information properly reflects the economic events that occurred during the accounting period.
B) determining if fraud has occurred.
C) determining if taxable income has been calculated correctly.
D) analyzing the financial information to be sure that it complies with government requirements.

Question 5

Auditors do not provide which of the following?

A) assurance on financial statements
B) assurance on the effectiveness of internal controls over financial reporting
C) assurance on corporate sustainability reports
D) absolute assurance on the financial statements including assuming responsibility for them

Question 6

In circumstances where the auditor is being asked to audit subjective types of information, typically, the auditor and the entities being audited should agree in writing about the criteria being audited after the audit starts.

Question 7

The criteria by which an auditor evaluates the information under audit may vary with the information being audited.

Question 8

Recording, classifying, and summarizing economic events in a logical manner for the purpose of providing financial information for decision making is commonly called

A) finance.
B) auditing.
C) accounting.
D) economics.

Question 9

Evidence is paramount to audit and attestation engagements. List the four basic types of audit evidence.

Question 10

Which of the following is considered audit evidence?

A)
B)
C)
D)

Question 11

Auditors focus on determining whether recorded information properly reflects the economic events that occurred during the accounting period.

Question 12

Auditors are not allowed and should not audit subjective information like the effectiveness of computer controls or the efficiency of manufacturing-related operations.

Question 13

Which of the following can be used as a criterion for evaluating information being audited?

A) International Financial Reporting Standards (IFRS)
B) Generally Accepted Accounting Principles (GAAP)
C) Internal Revenue Code (IRC)
D) all of the above

Question 14

To perform an audit, there must be information in a verifiable form and some criteria by which the auditor can evaluate the information.

Question 15

Auditors strive to maintain a high level of independence to keep the confidence of users relying on their reports.

Question 16

In an audit of internal controls over financial reporting, the auditor may rely upon Internal Control - Integrated Framework issued by COSO.

Question 17

An auditor must be competent and have an independent mental attitude.

Question 18

In the auditing process,

A) the types and amounts of evidence remain constant from audit to audit.
B) the criteria for evaluating information will not vary depending on the information being audited.
C) the audit report communicates the auditor's findings to users.
D) records are gathered by the auditor to determine whether the audited information is stated in accordance with SEC standards.

Question 19

Both accountants and auditors must possess expertise in the accumulation and interpretation of audit evidence.

Question 20

An accountant

A) must possess expertise in the accumulation of audit evidence.
B) must decide the number and types of items to test.
C) must have an understanding of the principles and rules that provide the basis for preparing the accounting information.
D) must be a CPA.

Question 21

Financial statement users do not confuse auditing with accounting any longer.

Question 22

Which of the following is not a cause of information risk?

A) Society, today, is not as complex as it used to be.
B) Remoteness of information.
C) The volume and the complexity of data and exchange transactions.
D) The biases and the motives of the information provider.

Question 23

Large businesses, especially, have the ability to reduce information risk. Which of the following is not a way for a large business to reduce information risk?

A) Paying higher interest rates on loans.
B) The user verifies the information they need by any possible means.
C) The user of information shares information risk with management.
D) Having an independent audit performed of the financial statements.

Question 24

Discuss the differences and similarities between the roles of accountants and auditors. What additional expertise must an auditor possess beyond that of an accountant?

Question 25

In the audit of historical financial statements, management asserts that the financial statements are fairly stated in accordance with what standards?

A) regulatory accounting principles
B) applicable international accounting standards
C) applicable U.S. accounting standards
D) B and C

Question 26

A bank loan officer is trying to decide whether the bank should make a loan to a particular company. The interest rate the bank will charge the company is determined by many factors. Which of the following factors is influenced by the auditor's report?

A) the risk-free interest rate risk
B) information risk
C) the business risk for/of the customer
D) All of the above are influenced by the auditor's report.

Question 27

The possibility that a business may not be able to repay a bank loan because of an economic downturn is referred to as

A) materiality risk.
B) information risk.
C) interest rate risk.
D) business risk.

Question 28

________ risk reflects the possibility that the information upon which the business decision was made was inaccurate.

A) Client acceptance
B) Information
C) Business
D) Control

Question 29

A correct relationship among the auditor, the client, and the external users is

A) management of a public company hires the independent auditor.
B) the audit committee of a private company hires the independent auditor.
C) the client provides capital to the external users.
D) the external users can rely upon the auditor's report to reduce information risk.

Question 30

Management is required by GAAP to reduce information risk, even if the costs outweigh the benefits.

Question 31

Explain what is meant by information risk, and list the four causes of this risk.

Question 32

External users of the financial statements

A) value the auditor's report because of the auditor's independence from the client.
B) look to the auditor's report as an indication of the statements' reliability.
C) use the audited information on the assumption that it is reasonably complete, accurate, and unbiased.
D) all of the above.

Question 33

Which of the following is an accurate statement regarding assurance services?

A) Assurance services must be performed by a CPA.
B) An attestation service is not a type of assurance service.
C) Assurance services improve the quality of information for decision makers.
D) Assurance services can only be performed on financial data.

Question 34

Any service that requires a CPA firm to issue a report about the reliability of an assertion that is made by another party is a(n)

A) accounting and bookkeeping service.
B) attestation service.
C) assurance service.
D) tax service.

Question 35

Auditing can have a significant effect on both information risk and business risk.

Question 36

As society becomes more complex, decision makers are more likely to receive reliable information.

Question 37

Which of the following services provides the lowest level of assurance on a financial statement?

A) review
B) audit
C) Neither service provides assurance on financial statements.
D) Each service provides the same level of assurance on financial statements.

Question 38

Three common types of attestation services are

A) audits of historical financial statements, reviews of historical financial statements, and audits of internal control over financial reporting.
B) audits of historical financial information, verifications of historical financial information, and attestations regarding internal controls.
C) reviews of historical financial information, verifications of future financial information, and attestations regarding internal controls.
D) audits of historical financial information, reviews of controls related to investments, and verifications of historical financial information.

Question 39

Accountants are not directly responsible for developing a system that ensures the entity's economic events are properly recorded on a timely basis and at a reasonable cost.

Question 40

The most common way for users to obtain reliable information is to

A) have an internal audit.
B) have an independent audit.
C) verify all information individually.
D) verify the information with management.

Question 41

A high, but not absolute, level of assurance is called

A) probable assurance.
B) reasonable assurance.
C) limited assurance.
D) incomplete assurance.

Question 42

Audits and some types of attestation services are no longer limited by regulation to licensed CPAs.

Question 43

Evaluating internal controls at third-party service providers, such as cloud computing suppliers, is not an attestation type of service which a CPA is allowed to perform today.

Question 44

Most public companies' audited financial statements are available on the SEC's EDGAR database.

Question 45

It is increasingly important for companies to ask their third-party service provider of services, including payroll and other types of transaction processing, for attestation reports covering a review of the effectiveness of internal controls in place at the third-party service provider.

Question 46

Audits

A) are an assurance service, but not an attestation service.
B) are designed to provide absolute assurance that the financial statements are free of material misstatement.
C) are required for publicly traded companies in the United States.
D) do not require the auditor to express their opinion in a written report.

Question 47

CPA firms are never allowed to provide bookkeeping services for clients.

Question 48

One objective of an operational audit is to

A) determine whether the financial statements fairly present the entity's operations.
B) determine if the auditee is in compliance with GAAP.
C) make recommendations for improving performance.
D) report on the entity's relative success in attaining profit maximization.

Question 49

An audit to determine whether an entity is following specific procedures or rules set down by some higher authority is classified as a(n)

A) audit of financial statements.
B) compliance audit.
C) operational audit.
D) production audit.

Question 50

Which one of the following is more difficult to evaluate objectively?

A) presentation of financial statements in accordance with generally accepted accounting principles
B) compliance with government regulations
C) efficiency and effectiveness of operations
D) All three of the above are equally difficult.

Question 51

Two types of attestation services provided by CPA firms are audits and reviews. Discuss the similarities and differences between these two types of attestation services. Which type provides the least assurance?

Question 52

Which of the following audits can be regarded as generally being a compliance audit?

A) IRS agents' examinations of taxpayer returns
B) GAO auditor's evaluation of the computer operations of governmental units
C) an internal auditor's review of a company's payroll authorization procedures
D) a CPA firm's audit of a public company

Question 53

What is an audit of internal control over financial reporting?

Question 54

Section 404 of the Sarbanes-Oxley Act requires public companies to have an external auditor attest to their internal control over financial reporting.

Question 55

CPA firms perform numerous services that generally fall outside the scope of assurance services. Give three examples of such services.

Question 56

Which of the following is an accurate statement regarding the various types of other assurance services?

A) Assurance services must be about the reliability of another party's assertion about compliance with specified criteria.
B) Other assurance services must meet the definition of an attestation service.
C) The primary purpose of a management consulting engagement is to improve the quality of information.
D) The market for other forms of assurance services is open to non-CPA competitors.

Question 57

An examination of part of an organization's procedures and methods for the purpose of evaluating efficiency and effectiveness is what type of audit?

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

Question 58

The primary purpose of a management consulting engagement is to generate a recommendation to management.

Question 59

What are the four categories of attestation services?

Question 60

The primary purpose of a management consulting engagement is to generate a recommendation to management.

Question 61

Discuss the similarities and differences between the roles of independent auditors, GAO auditors, internal revenue agents, and internal auditors.

Question 62

An integrated approach to auditing considers both the risk of misstatements and operating controls intended to prevent misstatements.

Question 63

Which of the following is not an example of a compliance audit?

A) The accounting personnel at the Chinese subsidiary following the financial statement preparation procedures prescribed in writing by the corporate controller.
B) Is the company paying the minimum wage rates required by state laws?
C) Determine if a company is meeting the financial covenants of a loan agreement with its lenders.
D) Is the computerized processing of payroll at the Indian subsidiary operating effectively and efficiently?

Question 64

Compliance is a secondary objective of audits performed by the GAO of the financial information prepared by the various Federal government agencies before that information is submitted to Congress.

Question 65

To perform an audit, it is necessary for the information to be in a verifiable form and there must be some criteria by which the auditor can evaluate the information. Detail the information and criteria that would be used when
(A) an independent CPA firm audits a company's historical financial statements.
(B) an Internal Revenue Service auditor audits that same company's tax return.
(C) an internal auditor performs an operational audit to evaluate whether the company's computerized payroll processing system is operating efficiently and effectively.

Question 66

Discuss the similarities and differences between financial statement audits, operational audits, and compliance audits. Give an example of each type.

Question 67

List and discuss the three primary requirements to become a CPA.

Question 68

CPA firms are often called and thought of by outsiders as external auditors, independent auditors, or internal auditors.

Question 69

Which type of auditor audits the financial information prepared by various federal government agencies before it is submitted to Congress?

A) internal auditor
B) revenue agent
C) independent auditor
D) GAO auditor

Question 70

Results of compliance audits are typically reported to the company's management rather than to a broad spectrum of outside users.

Question 71

In a financial statement audit, the auditor

A) gathers evidence to determine whether the statements contain material errors or other misstatements.
B) must have a thorough understanding of the entity and its environment.
C) determines whether the financial statements are stated in accordance with specified criteria.
D) all of the above.

Question 72

The three requirements for becoming a CPA include all but which of the following?

A) uniform CPA examination requirement
B) education requirements
C) character requirements
D) experience requirement

Question 73

The primary purpose of a compliance audit is to determine whether the financial statements are prepared in compliance with generally accepted accounting principles.

Question 74

The use of the Certified Public Accountant title is regulated by

A) the federal government.
B) state law through the licensing departments of each state.
C) the American Institute of Certified Public Accountants through the licensing departments of the tax and auditing committees.
D) the Securities and Exchange Commission.

Question 75

The primary role of the United States General Accounting Office is the enforcement of the Federal tax laws as defined by Congress and interpreted by the courts.

Question 76

Which of the following are required to have a written report regarding the assertion of another party?

A)
B)
C)
D)

Question 77

The AICPA completed a significant revision of the CPA examination effective April 1, 2017. In total, the CPA Examination has four sections, and the total number of hours these four sections involve when taking the Examination is

A) 16 hours, 4 hours for each section.
B) 20 hours, 5 hours for each section.
C) 16 hours, 5 hours each for two of the sections, 3 hours for the other two sections.
D) 20 hours, 6 hours for two of the sections, 4 hours for the other two sections.

Question 78

The GAO reports to the Public Company Accounting Oversight Board, which reports to the Securities and Exchange Commission.

Question 79

Internal auditors

A) must be independent of the entity that employs them.
B) report to the accounting department.
C) are employed by all types of organizations.
D) must be CPAs.