Deck 1: Auditing: Integral to the Economy

Question 1

Independence is an attribute necessary to perform assurance services.

Answer 1

True

Question 2

The audit function is unique because it exists to perform services on a "client" on behalf of shareholders,directors and other parties.

Answer 2

True

Question 3

The American Institute of Certified Public Accountants has the primary authority to set auditing standards for public companies.

Answer 3

False

Question 4

The degree of confidence that users place on management's financial statements is higher than that placed on audited financial statements because few users have direct knowledge of the company's operations and management is the most knowledgeable about operations.

Question 5

Audited financial statements should be presented fairly according to the substance of GAAP.

Question 6

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

Question 7

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 8

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

Question 9

An assertion is a statement about an action,event,condition,or performance over a specified time period.

Question 10

Audited financial statements should be presented fairly according to the substance of GAAS.

Question 11

A CPA automatically qualifies as an assurance provider in all areas of business.

Question 12

An audit of financial statements is a form of attestation service.

Question 13

Internal auditing only provides assurance services to clients.

Question 14

Management is required to comment on the fairness of the company's financial presentation.This reduces the auditor's legal responsibility for the opinion rendered on the financial statements.

Question 15

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

Question 16

Audited financial statements should be free from all errors and fraud.

Question 17

U.S.nonpublic companies will have an audit performed in accordance with generally accepted auditing standards that have been promulgated by the PCAOB.

Question 18

Independence is only required for assurance service providers.

Question 19

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 20

Attestation services are a subset of assurance services and always involve a report that goes to a third party.

Question 21

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

Question 22

Auditors need only understand the rules of accounting as the principles are outdated.

Question 23

The internal audit profession adheres exclusively to standards set by the Public Company Accounting Oversight Board.

Question 24

Generally accepted accounting principles provide the criteria against which the auditor measures the fairness of financial statement presentation.

Question 25

The execution of solutions to issues brought to light by internal auditors are the responsibility of management of the organization.

Question 26

A plan to converge the U.S.generally accepted auditing standards (GAAS)with the International Standards on Auditing (ISAs)was developed by the .AICPA's Auditing Standards Board (ASB).

Question 27

Businesses that use independent auditors do not need the use of internal auditors.

Question 28

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

Question 29

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

Question 30

Attestation is confined to an audit of client financial statements.

Question 31

Governmental audit standards are developed by the Public Company Accounting Oversight Board.

Question 32

Governmental auditors perform operational and financial statement audits.

Question 33

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

Question 34

An auditor must have a good understanding of the risks associated with a client's industry in order to ensure that the financial statements reflect the underlying substance of accounting transactions and the economic effects of such transactions.

Question 35

Operational audits are designed to determine if the company's financial statements are prepared in compliance with GAAP.

Question 36

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

Question 37

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

Question 38

Internal auditing is an objective evaluation function established within an organization.

Question 39

Auditors of public companies need not adhere to the requirements of statutory or regulatory organizations.

Question 40

When the auditor has no reservations about management's financial statements,then the report issued is called a qualified report.

Question 41

Which of the following are part of the attest process?

A)communicating the conclusions reached to a third party
B)guaranteeing the accuracy of the books and records
C)evaluating evidence against objective criteria
D)A and C
E)B and C

Question 42

Independent professional services that are provided on financial or other information that improve the quality of decision making are known as

A)internal auditing.
B)financial auditing.
C)assurance services.
D)attestation services.

Question 43

The purpose of assurance services is to improve the quality of the information provided.

Question 44

Which one of the following is not part of the attest process?

A)gathering evidence about assertions
B)proving the accuracy of the books and records
C)evaluating evidence against objective criteria
D)communicating the conclusions reached

Question 45

Which one of the following is a potential problem with management's communication of financial information that causes third parties to desire the 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)A and C
E)A and B

Question 46

The need for assurance services arises for all of the following reasons EXCEPT:

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 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

Auditing is important in a free market society because

A)the public requires CPAs functioning as divisions of regulatory bodies.
B)auditors detect all errors and fraud made by company employees.
C)it provides reliable information based upon which to judge economic performance.
D)the auditor is an amiable insurance policy for investors.
E)all of the above are true.

Question 49

The internal auditor is a primary provider of operational audits.

Question 50

Third-party users of the audit report expect the auditor to do all of the following except:

A)to evaluate measurements and disclosures made by management
B)to provide a biased evaluation of the financial statements
C)to determine whether financial statements are presented in accordance with GAAP
D)to gather sufficient evidence to support their opinion

Question 51

Users can reasonably expect audited financial statements to be

A)complete and contain all important financial disclosures,be free from material misstatements and be presented fairly according to GAAS.
B)complete and contain all important financial disclosures,be free from material misstatements and be presented fairly according to GAAP.
C)complete,be accurate and be presented fairly according to GAAP.
D)complete and contain all important financial disclosures,be free from all misstatements and be presented fairly according to the substance of GAAS.

Question 52

Which of the following services is the broadest and most inclusive?

A)Audit
B)Attestation
C)Assurance
D)Compliance

Question 53

An expectation of the public is that the auditor will recognize that the primary users of audit assurance are

A)the clients.
B)the Public Company Accounting Oversight Board.
C)members of management.
D)third-party users.

Question 54

The internal auditor is a primary provider of assurance services.

Question 55

Internal auditors may perform all of the following types of audits except

A)operational audits.
B)compliance audits.
C)computer system audits.
D)all of the above may be performed by internal auditors.

Question 56

An audit and an assurance service both require a report to a third party.

Question 57

An audit is a form of an attestation service.

Question 58

Which one of the following is not a key attribute needed to perform assurance?

A)subject matter knowledge
B)independence
C)established criteria or standards
D)accounting skills

Question 59

Which one of the following is not a critical component of assurance services?

A)a process on which service is provided
B)an assurance service provider
C)a user who derives value
D)a CPA

Question 60

Users of the audit report can reasonably expect the audited financial statements to be

A)include complete information and contain all financial disclosures.
B)presented fairly according to the substance of GAAP.
C)free from all errors.
D)all of the above.
E)none of the above.

Question 61

The AICPA remains a valuable organization because of its continuing involvement in

A)the audit standard setting process.
B)regulation and enforcement of the audit profession.
C)education and administration of the CPA exam.
D)promulgation of accounting standards.

Question 62

Which one of the following is an example of management expectations for independent auditors?

A)An expert providing a written communication as the product of the engagement.
B)Individuals who perform day-to-day accounting functions on behalf of the company.
C)An active participant in management decision making.
D)An internal source of expertise on financial and other matters.

Question 63

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

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

Question 64

The criteria against which the auditor measures the fairness of financial statement presentation are known as

A)auditing standards.
B)generally accepted accounting principles.
C)generally accepted accounting standards.
D)governmental accounting principles.

Question 65

The public expects auditors to

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 public are the primary users of audit services.
D)take more responsibility for the discovery of fraud.
E)all of the above are expectations of the public.

Question 66

Which one of the following is not a provider of assurance services?

A)CPAs
B)internal auditors
C)governmental auditors
D)AICPA

Question 67

Management of a company is responsible for

A)hiring the auditor.
B)preparing the financial statements.
C)the audit workpapers.
D)independence and obtaining evidence.

Question 68

Which one of the following statements is not true about internal auditing?

A)Internal auditing is an objective evaluation function.
B)Internal auditing is established within an organization.
C)Internal auditing's purpose is to provide assurance regarding the company's compliance with stated policies and procedures.
D)Internal auditing is established as an independent service to regulatory bodies and creditors.

Question 69

Results of the financial statement audit are communicated to users through a(n)

A)financial statement.
B)written management assertion.
C)audit report.
D)none of the above.

Question 70

The objective of an operational audit is to

A)evaluate whether laws have been broken by management.
B)evaluate fairness of presentation of financial statements.
C)evaluate compliances with company rules and regulations.
D)evaluate the effectiveness and efficiency with which resources are employed.

Question 71

The internal audit profession has emerged and has become active for all of the following reasons except:

A)management's need for an objective appraisal of organizational or departmental performance
B)increased internal and external emphasis on effective procedures to detect or prevent fraud
C)compliance with Section 404 of the Sarbanes-Oxley Act of 2002
D)management's need to delegate the responsibility of the financial statements

Question 72

Assurance services may include which of the following?

A)attesting to financial statements
B)examination of the economy and efficiency of governmental operations
C)evaluation of a division's performance for management
D)tax preparation services
E)A,B,and C only

Question 73

CPAs are licensed by the

A)PCAOB.
B)AICPA.
C)state's board of accountancy.
D)state's society of CPAs.

Question 74

An audit which has as its purpose the evaluation of the economy and efficiency with which resources are employed is known as a(n)

A)financial audit.
B)compliance audit.
C)operational audit.
D)governmental audit.

Question 75

The auditor of financial statements must make very difficult interpretations regarding authoritative literature.Additionally,the auditor must

A)consider whether the application of a generally accepted accounting principle best portrays the economic activity of the company.
B)force management to make certain decisions regarding their financial statements.
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

The audit agency for the U.S.Congress is the

A)SEC.
B)GAO.
C)IIA.
D)AICPA.

Question 77

The audit committee of the board of directors of a company is responsible for

A)hiring the auditor.
B)preparing the financial statements.
C)the audit workpapers.
D)independence and obtaining evidence.

Question 78

CPA firms performing public financial statement audits must

A)register with the American Institute of Certified Public Accountants.
B)register with the Institute of Auditors.
C)register with the U.S.General Accounting Office.
D)register with the Public Company Accounting Oversight Board.

Question 79

The primary governing board that performs quality reviews on registered CPA firms that audit public companies is the

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

Question 80

The Certified Internal Auditor program is administered by the

A)AICPA.
B)IIA.
C)state's board of accountancy.
D)state's society of CPAs.