Question 1

Monitoring is an ongoing process whereby a firm evaluates the effectiveness of the other six elements of quality control.

Accepted Answer

The answer of Monitoring is an ongoing process whereby a...

Question 2

The subject matter of auditing consists of:
A) assertions.
B) established criteria.
C) evidence.
D) written reports.
E) compliance.

Accepted Answer

The answer of The subject matter of auditing consists of:
A)...

Question 3

Of the following entities, which one is not associated with the public accounting profession?
A) state boards of accountancy
B) the FASB
C) state societies
D) practice units
E) the CASB

Accepted Answer

The CASB (Cost Accounting Standards Board) is not associated with the public accounting profession; it is related to cost accounting standards for government contracts.

Question 4

PCAOB stands for the Public Companies Accounting Oversight Board

Accepted Answer

The PCAOB is indeed the Public Company Accounting Oversight Board, which oversees the audits of public companies to protect investors and the public interest by promoting informative, accurate, and independent audit reports.

Question 5

Which one of the following statements is not true of the AICPA?
A) It is public accounting's national professional organization.
B) Membership is mandatory for all CPA firms who practice in more than one state.
C) It operates through a number of divisions.
D) Its publications include the Journal of Accountancy.
E) It provides a broad range of services to members.

Accepted Answer

Membership in the AICPA is not mandatory for all CPA firms who practice in more than one state. Membership is voluntary, and while the AICPA is a significant organization for CPAs, firms can operate across state lines without being members of the AICPA.

Question 6

A CPA performing audits of governmental entities must adhere to standards established by:
A) the AICPA.
B) the GAO.
C) both the GASB and by the GAO.
D) the FASB.
E) both the FASB and by the GAO.

Accepted Answer

The Governmental Accounting Standards Board (GASB) and the Government Accountability Office (GAO) establish standards for audits of governmental entities.

Question 7

The use of negative assurance in a report by a CPA associated with a set of financial statements would be appropriate only in:
A) examinations.
B) reviews.
C) agreed-upon procedures.
D) reviews and agreed-upon procedures.
E) audits.

Accepted Answer

Negative assurance is appropriate in review engagements, where the CPA provides a limited assurance that nothing has come to their attention that causes them to believe the financial statements are not presented fairly, in all material respects. This is less assurance than an audit but more than what is provided in agreed-upon procedures, where specific procedures are agreed upon and no assurance is provided.

Question 8

The PCAOB conducts annual inspections of firms that regularly provide audit reports for over 1000 public companies.

Accepted Answer

The PCAOB conducts annual inspections of firms that regularly provide audit reports for more than 100 issuers, not over 1000.

Question 9

Which one of the following types of services offered by a CPA is not an attest service?
A) examination
B) review
C) performing agreed-upon procedures
D) audit
E) accounting

Accepted Answer

Attest services involve the CPA affirming the reliability of a piece of information or an assertion made by others. This includes examinations, reviews, audits, and performing agreed-upon procedures. Accounting services, however, involve the preparation, analysis, and reporting of financial transactions and are not considered attest services because they do not involve providing assurance on the reliability of the financial information prepared by others.

Question 10

Compliance audits based on criteria established by management are usually made by:
A) internal auditors.
B) external auditors.
C) upper management.
D) the company employees being evaluated.
E) governmental auditors.

Accepted Answer

Internal auditors typically conduct compliance audits based on criteria established by management to ensure that internal processes and controls are functioning as intended.

Question 11

State accountancy laws are administered by:
A) state boards.
B) state societies.
C) the AICPA.
D) the SEC.
E) the GAO.

Accepted Answer

State accountancy laws are administered by state boards, which are responsible for licensing and regulating certified public accountants (CPAs) and public accounting firms within their respective states.

Question 12

An audit that involves obtaining and evaluating evidence about the efficiency and effectiveness of an entity's operating activities in relation to specified objectives is a(n):
A) internal audit.
B) external audit.
C) operational audit.
D) compliance audit.
E) financial statement audit.

Accepted Answer

An operational audit focuses on evaluating the efficiency and effectiveness of an organization's operations, specifically in relation to its objectives. This type of audit aims to identify areas for improvement and enhance operational efficiencies, differing from financial, compliance, and internal audits, which have other primary focuses.

Question 13

Personnel management addresses a variety of procedures within a CPA firm for hiring, promoting, and training accounting professionals.

Accepted Answer

Personnel management involves a range of activities related to hiring, promoting, and training employees within an organization, including a CPA (Certified Public Accountant) firm, to ensure that it has the skilled and competent staff needed to meet its objectives.

Question 14

The SEC plays a major role in linking self-regulation and government regulation.

Accepted Answer

The SEC (Securities and Exchange Commission) oversees and enforces federal securities laws, while also recognizing the role of self-regulatory organizations (SROs) such as FINRA, thus bridging the gap between self-regulation and government regulation in the financial markets.

Question 15

Which one of the following terms is not part of the definition of auditing?
A) communicating the results
B) interested users
C) systematic process
D) evaluating evidence
E) auditing standards

Accepted Answer

Auditing is defined as a systematic process of objectively obtaining and evaluating evidence to ascertain the degree of correspondence between the assertions being made by an entity and established criteria, and communicating the results to interested users. Auditing standards are guidelines for auditors, but they are not part of the definition of auditing itself.

Question 16

Statement of Quality Control Standards No. 1 mandates that a CPA firm shall have a system of Quality Control

Accepted Answer

Statement of Quality Control Standards No. 1, issued by the American Institute of Certified Public Accountants (AICPA), requires CPA firms to have a system of quality control for their accounting and auditing practice.

Question 17

The state board of accountancy regularly asks firms to submit their peer review letters as part of obtaining a license for the firm to perform audit and attest services.

Accepted Answer

State boards of accountancy require firms to undergo peer reviews and submit their peer review letters as part of the licensing process to ensure that the firms maintain high standards of quality in their audit and attest services. This process helps in safeguarding public interest by ensuring that firms adhere to professional standards.

Question 18

An audit that involves obtaining and evaluating evidence in order to determine whether certain financial or operating activities of an entity conform to specified conditions, rules, or regulations is a(n):
A) internal audit.
B) external audit.
C) operational audit.
D) compliance audit.
E) financial statement audit.

Accepted Answer

A compliance audit is specifically designed to evaluate whether an entity is following external laws, regulations, or internal guidelines. This type of audit focuses on verifying adherence to conditions, rules, or regulations that are set by external bodies or by the entity's own policies.

Question 19

Which of the following is not an economic benefit of a financial statement audit?
A) access to capital markets
B) control and operational improvements
C) lower cost of capital
D) decreased inflation rates
E) deterrent to inefficiency and fraud

Accepted Answer

Decreased inflation rates are not a direct economic benefit of a financial statement audit. Audits primarily enhance the reliability of financial statements for investors, creditors, and other stakeholders, which can lead to benefits such as access to capital markets, lower cost of capital, and deterrents to inefficiency and fraud. They may also indirectly help in control and operational improvements. However, influencing the overall inflation rates of an economy is not a direct consequence of financial statement audits.

Question 20

The primary example of an audit service is the:
A) operational audit.
B) financial statement audit.
C) compliance audit.
D) internal audit.
E) external audit.

Accepted Answer

A financial statement audit is the primary example of an audit service, as it involves the examination of an entity's financial statements to ensure accuracy and compliance with accounting standards.

Quiz 1: Auditing and the Public Accounting

Monitoring is an ongoing process whereby a firm evaluates the effectiveness of the other six elements of quality control.

The subject matter of auditing consists of:

Of the following entities, which one is not associated with the public accounting profession?

PCAOB stands for the Public Companies Accounting Oversight Board

Which one of the following statements is not true of the AICPA?

A CPA performing audits of governmental entities must adhere to standards established by:

The use of negative assurance in a report by a CPA associated with a set of financial statements would be appropriate only in:

The PCAOB conducts annual inspections of firms that regularly provide audit reports for over 1000 public companies.

Which one of the following types of services offered by a CPA is not an attest service?

Compliance audits based on criteria established by management are usually made by:

State accountancy laws are administered by:

An audit that involves obtaining and evaluating evidence about the efficiency and effectiveness of an entity's operating activities in relation to specified objectives is a(n) :

Personnel management addresses a variety of procedures within a CPA firm for hiring, promoting, and training accounting professionals.

The SEC plays a major role in linking self-regulation and government regulation.

Which one of the following terms is not part of the definition of auditing?

Statement of Quality Control Standards No. 1 mandates that a CPA firm shall have a system of Quality Control

The state board of accountancy regularly asks firms to submit their peer review letters as part of obtaining a license for the firm to perform audit and attest services.

An audit that involves obtaining and evaluating evidence in order to determine whether certain financial or operating activities of an entity conform to specified conditions, rules, or regulations is a(n) :

Which of the following is not an economic benefit of a financial statement audit?

The primary example of an audit service is the: