Deck 1: Quality Auditing: Why It Matters

Question 1

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

Answer 1

True

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

A bank using Milton Company's financial statements to evaluate Milton's loan application is an example of a user's need for unbiased reporting.

Answer 3

True

Question 4

The audit committee oversees both the internal and external auditors.

Question 5

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

Question 6

Internal controls are the responsibility of management.

Question 7

Auditors obtain and evaluate evidence regarding assertions about economic actions and events to verify the accuracy of those assertions.

Question 8

Users rely on the auditors' independent assessment of financial statement presentation because few users have direct knowledge of the company's operations.

Question 9

A key responsibility of the internal audit function is to provide assurance on the reliability of financial information reported to external users of audited financial statements.

Question 10

The need for independent assurance arises because the interests of the users of information may be different from the interests of those responsible for providing information.

Question 11

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

Question 12

The foundation for the audit opinion formulation process relies on obtaining evidence to support the auditor's opinion.

Question 13

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

Question 14

Users of audited financial statements include a company's bondholders but not its stockholders,who are the owners of the company.

Question 15

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

Question 16

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

Question 17

A CPA is a certified public accountant who is licensed by a state board of accountancy.

Question 18

Complex transactions,information,and processing systems provide an opportunity for management to mislead users of financial statements.

Question 19

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

Question 20

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

Question 21

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

Question 22

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

Question 23

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

Question 24

The International Auditing and Assurance Standards Board sets international standards on auditing and has developed a framework for audit quality.

Question 25

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

Question 26

An auditor who has reservations about the effectiveness of a client company's internal controls would issue an adverse opinion on internal controls.

Question 27

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

Question 28

The Financial Reporting Council's Audit Quality Framework is the only framework for audit quality recognized by audit professionals worldwide.

Question 29

To ensure audit quality,audits of public companies must be performed by multinational accounting firms.

Question 30

In the United States,auditors form conclusions about whether the financial statements are presented fairly in accordance with generally accepted auditing standards (GAAS).

Question 31

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

Question 32

The PCAOB provides the criteria against which the auditor measures the fairness of financial statement presentation.

Question 33

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

Question 34

The PCAOB requires disclosure of the names of engagement partners for all public company audits.

Question 35

Audit quality is driven,in part,by the skills and personal qualities of audit partners and staff.

Question 36

The AICPA sets auditing standards for nonpublic companies.

Question 37

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 38

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

Question 39

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

Question 40

Some factors affecting audit quality are outside the direct control of the auditor,such as the amount of time allotted for completion of the audit.

Question 41

Commissions and referral fees are allowed to audit firms as long as the audit client is informed of the fees.

Question 42

Threats to an auditor's independence may occur when the auditor has a long-standing relationship with an important person associated with the client.

Question 43

A covered member under the AICPA's rules includes individuals on the engagement team,any individual in a position to influence the engagement team,and a partner or manager who provides more than 10 hours of nonattest services to the audit client within a fiscal year.

Question 44

An individual does not need to agree to uphold the AICPA's Code of Professional Conduct in order to become licensed as a CPA.

Question 45

The AICPA's Code of Professional Conduct defines an indirect financial interest as an investment of one percent or less of a client's organization,and because the amount is so small it is considered immaterial.

Question 46

The SEC and PCAOB independence rules for auditors are identical to those of the AICPA.

Question 47

Compliance with the AICPA Code of Professional Conduct depends primarily on the threat of disciplinary actions for violating the Code.

Question 48

A covered member may not have a direct financial interest in an audit client if the interest is material.

Question 49

Safeguards implemented by the audit client include mandatory audit partner rotation requirements for public companies.

Question 50

Auditors are permitted to perform for a contingent fee an audit of the financial statements if the audit committee approves the agreement in advance of the services being provided.

Question 51

A CPA firm may include the name of only one past owner in the firm name.

Question 52

An AICPA member who is not in public practice is not subject to any of the Principles of Professional Conduct.

Question 53

An auditor may not disclose any confidential client information unless the auditor determines that disclosure is in the public interest.

Question 54

Contingent fees are prohibited for tax professionals when preparing tax returns for clients.

Question 55

The AICPA's conceptual framework of "threats and safeguards" included in the Code of Professional Conduct applies only to AICPA members in public practice.

Question 56

When an auditor identifies threats to compliance with the rules of conduct,the auditor must demonstrate that safeguards were applied that totally eliminated the threat.

Question 57

Contingent fees are prohibited for any client for which the auditor performs audit services,but are otherwise permitted.

Question 58

A safeguard is an action or other measure that may eliminate a threat or reduce the threat to an acceptable level.

Question 59

A covered member's investment in a mutual fund that owns stock in a firm being audited by the covered member is a direct financial interest resulting in the impairment of independence.

Question 60

Specific rules of conduct contained in the AICPA Code of Professional Conduct and related interpretations of those rules cover many,but not all,relationships and circumstances that an auditor may encounter.

Question 61

According to the framework for professional decision making,the first step in decision-making is to structure the audit problem.

Question 62

The AICPA may revoke a member's CPA license for violating its Code of Professional Conduct.

Question 63

An ethical dilemma occurs in a situation in which moral duties or obligations conflict.

Question 64

Rule 102,Integrity and Objectivity,of the AICPA Professional Code of Conduct,does not apply to a CPA who is a corporate CFO.

Question 65

Loans between the auditor and the client are permitted in some circumstances.

Question 66

Professional judgment is an attitude that includes a questioning mind and a critical evaluation of audit evidence.

Question 67

A new staff member on an audit engagement may own stock in that client until the audit report is issued.

Question 68

There is a hierarchy of rights to consider when applying rights theory.

Question 69

An ethical dilemma occurs when an ethically correct action may conflict with an individual's immediate self-interest.

Question 70

Utilitarian theory is an approach for addressing ethical problems by identifying a hierarchy of rights that should be considered in solving ethical dilemmas.

Question 71

A covered member's independence would be impaired if an immediate family member was employed by the client company in any position.

Question 72

The auditor is permitted to violate the confidentiality rule in providing relevant information to an inquiry by a major shareholder of the client.

Question 73

Rule 102 on integrity and objectivity applies only to covered members as defined by the AICPA.

Question 74

Rights theory focuses on evaluating actions in terms of the fundamental rights of the parties involved.

Question 75

The AICPA Code of Professional Conduct prohibits an auditor from providing any non-audit services to audit clients because of the threat posed to the auditor's independence.

Question 76

A contingency fee is a situation in which no fee will be charged unless a specified finding or result is attained.

Question 77

According to Rights Theory,the highest-order rights include rights granted by the government,such as civil rights,legal rights,rights to own property,and license privileges.

Question 78

The SEC and PCOAB have independence requirements that apply only to auditors of public companies.

Question 79

Without professional skepticism,auditors are susceptible to accepting weak or inaccurate audit evidence.

Question 80

Both client acceptance decisions and client continuance decisions are based on an evaluation of relative risk and audit fees.