Deck 1: An Introduction to Auditing

Question 1

The PCAOB jointly sets audit standards with the AICPA for publicly traded firms.

Answer 1

False

Question 2

CPAs who audit public companies may only perform attest services.

Answer 2

False

Question 3

The Audit Committee of the Board of Directors performs the audit and reports the results to shareholders and the Board of Directors.

Answer 3

False

Question 4

In an ideal situation, internal auditors report to the Audit Committee.

Question 5

If a nonpublic company uses IFRS to prepare its financial statements, it cannot receive an unqualified opinion when audited using the AICPA Statements on Auditing Standards.

Question 6

An auditor's report on an integrated audit will be unqualified if internal control over financial reporting does not have any material weaknesses and the financial statements are fairly presented.

Question 7

An audit of a public company is referred to as an integrated audit.

Question 8

Auditors consider and examine ICFR for all of the same reasons, whether they are auditing a public or a nonpublic company.

Question 9

CPAs who perform financial statement audits of public companies are responsible for the accuracy of the client's financial statements.

Question 10

Because of regulatory requirements, a not-for-profit organization's audit report may be different from that of a for-profit company.

Question 11

Salaried partners of a CPA firm are compensated based on a share in the firm's profit.

Question 12

The Sarbanes-Oxley Act limits the amount of non-attest services that auditors may perform for public companies they audit.

Question 13

Currently, the primary authoritative body that regulates individual CPAs is the Congress of the United States.

Question 14

When there is a material misstatement in the financial statements, the auditor requires management of the company to correct the financial statements so the auditor can issue an audit report.

Question 15

The PCAOB was formed to meet one of the requirements in the Sarbanes-Oxley Act of 2002.

Question 16

The SEC is responsible for setting standards for not-for-profit organizations.

Question 17

The organization of a typical CPA firm is similar to that of a corporation.

Question 18

If management has presented the actual economic events and situation according to the accounting standards, then there is a high degree of correspondence between the underlying evidence and the resulting financial statements.

Question 19

The types of business structures used by CPA firms are designed to make the professionals who own the firms responsible for providing high quality services.

Question 20

Forensic accountants often investigate fraud.

Question 21

COSO:

A) is the body that established an internal control standards framework referenced by the PCAOB.
B) published a document that explains what an internal control system should be like to be effective.
C) is the acronym widely used to refer to the Committee of Sponsoring Organizations of the Treadway Commission.
D) All of the above.

Question 22

For an integrated audit to be possible:

A) Established criteria must exist against which the financial statements and ICFR can be compared.
B) The auditor must have sufficient knowledge of both the AICPA SAS and PCAOB AS.
C) The entity must have sufficient books, records and other underlying evidence so that the auditor can determine whether there is a high degree of correspondence between the underlying evidence and the financial statements.
D) a and c

Question 23

Financial statements must be prepared:

A) in accordance with GAAP.
B) in accordance with IFRS.
C) in accordance with OCBOA.
D) Any of the above, depending on which set of standards the circumstances dictate as applicable.

Question 24

The audit engagement team consists of:

A) more than one partner.
B) associates and seniors.
C) managers.
D) All of the above.

Question 25

Which of the following organizations is considered to be a public company?

A) A firm whose privately held stock is owned exclusively by an individual.
B) A partnership of doctors.
C) A privately-held firm controlled by three family members.
D) A firm whose stock is registered with the SEC.

Question 26

Which of the following is an assertion?

A) A statement made by management regarding the collectability of accounts receivable.
B) The audit firm's estimation of the client's inventory obsolescence.
C) The statement by management regarding the appointment of auditors.
D) The statement by management that the firm will close its branch office because of snow.

Question 27

Assertions are:

A) audited by the auditors.
B)
B) declarations made by management.
C) declarations made by the auditor.
D) Both a and

Question 28

Which of the following best describes the conclusions an auditor makes in an integrated audit that results in an audit report that is unqualified?

A) The financial statements are fair according to GAAP.
B) The financial statements are free of material misstatement based on U.S. GAAP and management's report on internal control over financial reporting states that there are no material weaknesses.
C) The financial statements and internal control over financial reporting are materially correct.
D) The financial statements are free of material misstatement based on U.S. GAAP and based on the audit, the auditor agrees with management's report that internal control over financial reporting is effective and does not have any material weaknesses.

Question 29

A public company must:

A) register with the SEC.
B)
B) undergo an integrated audit.
C) trade on a stock exchange.
D) Both a and

Question 30

Auditing is defined as a:

A) set pattern of tests.
B) random process.
C) systematic process.
D) All of the above.

Question 31

The auditor:

A) prepares the financial statements after the client agrees to all adjustments.
B) writes the footnotes to the financial statements to ensure their accuracy.
C) performs work to reach an opinion on the ICFR and financial statements.
D) None of the above.

Question 32

Errors in financial statements are:

A) never material.
B) intentional.
C)
C) unintentional.
D) Both a and

Question 33

An integrated audit results in:

A) an audit opinion on the financial statements.
B)
B) an audit opinion on ICFR.
C) a series of reports to major stakeholders.
D) Both a and

Question 34

Which of the following would not be considered audit evidence?

A) Invoices received by the company and retained on the company's IT system in electronic form.
B) The electronic work paper program package used by the auditor to produce the electronic work papers.
C) Hard copy minutes of the Board of Directors and Audit Committee meetings.
D) Electronic images of the front and back of checks that the company has written.

Question 35

Auditors communicate audit results to users concerning a company's financial statements by:

A) issuing a report on the effectiveness of ICFR.
B) issuing the financial statements.
C) issuing a report about the financial statements.
D) None of the above.

Question 36

The audit report states that the audit provides:

A) a guarantee of quality.
B) complete assurance that the financial statements are free from misstatements.
C) absolute assurance that the internal control environment is operating effectively.
D) None of the above.

Question 37

What is the purpose of a financial statement audit?

A) To provide assurance that the company is solvent.
B) To provide assurance that the company has an effective internal control system that can produce fair financial statements.
C)
C) To provide assurance that the financial statements are reliable.
D) Both b and

Question 38

Who is responsible for the design and operation of ICFR?

A) The auditor.
B)
B) The company's management.
C) Both a and
D) None of the above.

Question 39

The audit engagement team:

A) is chosen by the client.
B) is some combination of partners, managers, seniors and associates.
C) is a mix of CPA firm and client employees.
D) None of the above.

Question 40

A "clean" audit report states that:

A) there are no errors in the financial statements.
B) the internal control environment is operating well.
C) the auditors evaluated evidence.
D) All of the above.

Question 41

A CPA firm engaged in the audit of public companies must:

A) Have at least 5 partners.
B) Have multiple offices across the U.S.
C) Hire and train competent personnel.
D) All of the above.

Question 42

Non-assurance type work performed by CPAs includes:

A) Tax preparation.
B) Consulting.
C) Bookkeeping.
D) All of the above.

Question 43

The SEC requires publicly traded companies to file

A) 10Ks that include audited quarterly financial statements and audited management reports on internal control over financial reporting.
B) 10Qs that include audited quarterly financial statements.
C) 10Ks that include audited annual financial statements, with or without a management report on ICFR.
D) 10Ks that include annual financial statements, a management report on ICFR, and the audit opinions resulting from an integrated audit.

Question 44

Regarding the PCAOB, which of the following is INCORRECT? The PCAOB:

A) Is responsible for oversight of audit firms engaged in the audit of public companies.
B) Issues standards that govern audits of public companies.
C) Is a not-for-profit entity.
D) Has authority that is equal in power to the SEC.

Question 45

The GASB:

A) Sets audit standards for auditors engaged in auditing not-for-profit entities.
B) Regulates state and local governments.
C) Set reporting standards for state and local government entities.
D) All of the above.

Question 46

Which functions do audit reports serve for the capital markets?

A) Enhance confidence in financial statements.
B) Provide guarantees regarding the quality of investments.
C) Provide assurance that financial statements and management's reports on internal control over financial reporting provide reliable information.
D) Both a and c

Question 47

Which of the following individuals could be a member of the Audit Committee?

A) A member of the company's Board of Directors.
B) A member of the PCAOB.
C) An audit partner of the CPA firm who performs the annual audit.
D) None of the above.

Question 48

Who is responsible for oversight of the integrated audit function?

A) Shareholders.
B) Officers of the company.
C) The audit committee.
D) None of the above.

Question 49

The Securities and Exchange Commission:

A) Is a government entity.
B) Authorizes all PCAOB standards before they become effective.
C) Can reject company filings or suspend trading of company stocks.
D) All of the above.

Question 50

Forensic auditors:

A) Investigate only fraud.
B) Look for specific and detailed information.
C) Perform engagements that can result in a standard, clean audit report.
D) May not be CPAs.

Question 51

To which of the following would AICPA attest standards not apply?

A) SSARs.
B) Elder care.
C) Loans under TALF.
D) Internal control for a nonpublic company.

Question 52

Auditors consider internal control during the audit of a nonpublic company:

A) For all the same purposes as on an audit of a public company.
B) To identify areas of risk and help to plan the financial statement audit.
C) To help to plan the financial statement audit and issue an opinion on effectiveness.
D) Only if they are sure it will be helpful when performing the financial statement audit.

Question 53

Shareholders use audit reports to monitor management performance. An example of an item that an audit report does NOT provide is:

A) Reasonable assurance on reported information that might be used to provide justification for management's performance-based compensation.
B) Access to foreign markets.
C) An indication of whether or not a company has major in its internal control over financial reporting.
D)

Question 54

Internal auditors may not perform:

A) Audits of financial statements resulting in reports intended for management's use only.
B) Forensic audits.
C) Integrated audits leading to an audit opinion issued in accordance with AICPA or PCAOB standards.
D) All of the above.

Question 55

Which of the following is a current responsibility of the AICPA?

A) Writing and grading the CPA exam that is used by the states.
B) Issuing CPA certificates.
C) Setting international audit standards for nonpublic companies.
D) Writing the code of conduct that is adopted by all of the states.

Question 56

The value of an integrated audit

A) Is limited to its effects on the capital markets since integrated audits are conducted only for publicly traded companies.
B) Extends to various groups and probably is different for the different people and entities.
C) Is exactly the same as the value generated by a financial statement audit of a nonpublic company.
D) None of the above are correct.

Question 57

Which body regulates the audits of nonpublic companies in the United States?

A) PCAOB
B) AICPA
C) IFRS
D) SEC

Question 58

The Board of Directors:

A) Reports to management.
B) Runs the company on a day-to-day basis.
C) Is elected by the shareholders.
D) All of the above.

Question 59

The "highest" level of a CPA firm hierarchy is:

A) The shareholders.
B)
B) The partners.
C) The managers.
D) Both a and

Question 60

The AICPA (American Institute of Certified Public Accountants):

A) Is regulated by Congress.
B) Reports to the PCAOB.
C) Regulates CPAs at the state level.
D) None of the above.

Question 61

Which of the following is NOT a "Big Four" firm?

A) PwC.
B) Grant-Thornton.
C) Deloitte & Touche.
D) Ernst & Young
MATCHING

Question 62

A non-equity partner likely:

A) Shares in all of the work for the firm.
B) Is compensated by sharing in the profits of the firm.
C) Has partner responsibility for work performed.
D) All of the above.