Question 1

PCAOB auditing standards must be followed on all financial statement audits performed in the U.S.

Accepted Answer

False

Question 2

A financial statement audit must be conducted based on GAAP.

Accepted Answer

A financial statement audit is conducted based on auditing standards (such as Generally Accepted Auditing Standards (GAAS) in the United States or International Standards on Auditing (ISA) globally), not based on Generally Accepted Accounting Principles (GAAP), which are the guidelines for preparing the financial statements.

Question 3

PCAOB auditing standards must be followed on all audits of public companies' financial statements.

Accepted Answer

PCAOB (Public Company Accounting Oversight Board) auditing standards are mandatory for auditors of public companies' financial statements.

Question 4

What organization is responsible for setting auditing standards for audits of publicly-traded companies in the U.S.?
A) AICPA.
B) FASB.
C) GASB.
D) PCAOB.

Accepted Answer

The PCAOB, or the Public Company Accounting Oversight Board, is a nonprofit organization that was created by the Sarbanes-Oxley Act of 2002. It is responsible for setting auditing standards for audits of publicly-traded companies in the U.S. The AICPA, or the American Institute of Certified Public Accountants, sets auditing standards for private company audits. The FASB, or the Financial Accounting Standards Board, sets accounting standards, and the GASB, or the Governmental Accounting Standards Board, sets accounting standards for state and local government entities.

Question 5

Which of the following describes the PCAOB generally accepted auditing standard requiring a critical review of the work done and the judgment exercised by those assisting in an audit at every level of supervision?
A) Proficiency.
B) Audit risk.
C) Inspection.
D) Due care.

Accepted Answer

The PCAOB generally accepted auditing standard requiring a critical review of the work done and the judgment exercised by those assisting in an audit at every level of supervision is known as "due care." This standard requires auditors to exercise reasonable care and skill in the performance of their duties, including maintaining an attitude of skepticism throughout the audit and adequately supervising and reviewing the work of assistants.

Question 6

Which of the following best describes the general character of the three PCAOB generally accepted auditing standards that are classified as standards of fieldwork?
A) The competence, independence, and professional care of persons performing the audit.
B) Criteria for the content of the auditor's report on financial statements and related footnote disclosures.
C) The criteria of audit planning and evidence-gathering.
D) The need to maintain independence in mental attitude in all matters relating to the audit.

Accepted Answer

The three PCAOB generally accepted auditing standards that are classified as standards of fieldwork are the criteria of audit planning and evidence-gathering, including the requirement to obtain sufficient and appropriate audit evidence. Choice A is referring to the standard of independence, which is in a different section of the PCAOB standards. Choice B is referring to the standard of reporting, which is also in a different section. Choice D is a concept that is present throughout all the PCAOB standards, not just the standards of fieldwork.

Question 7

The auditor must be independent of the audit client unless
A) The lack of independence does not influence his or her professional judgment.
B) Both parties agree that the independence issue is not a problem.
C) The lack of independence is insignificant.
D) None of the above-the auditor cannot lack independence.

Accepted Answer

Auditors must maintain independence to ensure objectivity and integrity in their audit work. There are no exceptions that allow for a lack of independence.

Question 8

The audit committee generally includes senior executives of the organization.

Accepted Answer

The audit committee is typically composed of independent members of the organization's board of directors, with financial and accounting expertise. While senior executives may attend committee meetings, they are not typically members of the committee itself.

Question 9

Generally,the financial statements of U.S.companies must be prepared based on GAAP.

Accepted Answer

Generally Accepted Accounting Principles (GAAP) is the set of accounting standards, guidelines, and principles recognized as authoritative by the Financial Accounting Standards Board (FASB) and used to prepare financial statements in the United States. Therefore, the financial statements of U.S. companies must be prepared based on GAAP.

Question 10

The primary audit context with which an auditor is concerned is the client's industry or business.

Accepted Answer

The audit context primarily focuses on the client's industry or business, as this helps the auditor understand the specific risks, regulations, and accounting standards that apply to the client. Other important factors such as the client's size, complexity, and internal control environment also play a role in the audit context, but they are typically viewed in the context of the industry or business in which the client operates.

Question 11

A series of business and related auditing failures led to the passage of the Sarbanes-Oxley Act (2002).

Accepted Answer

The Sarbanes-Oxley Act (2002) was passed in response to a series of business and related auditing failures, including the Enron scandal, WorldCom scandal, and Tyco International scandal. These failures highlighted the need for stronger regulations and oversight in the corporate world.

Question 12

The Audit Committee consists of
A) Members of management.
B) A subcommittee of the AICPA who establish the SAS.
C) Members of the Board of Directors.
D) Appointed government overseers.

Accepted Answer

The Audit Committee is typically composed of independent members of the Board of Directors who have expertise in accounting, finance, or auditing. They are responsible for overseeing the financial reporting process and ensuring it is accurate and transparent.

Question 13

The first PCAOB standard of reporting requires that,"the report shall state whether the financial statements are presented in accordance with generally accepted accounting principles." This passage requires
A) A statement of fact by the auditor.
B) An opinion by the auditor.
C) An implied measure of fairness.
D) An objective measure of compliance.

Accepted Answer

The passage is referring to the auditor's opinion on whether the financial statements adhere to generally accepted accounting principles. Therefore, the answer is an opinion by the auditor, which is choice B.

Question 14

The Public Company Accounting Oversight Board's role is to
A) Conduct the final review of auditors' work before the auditor's opinion is issued.
B) Oversee the auditors of public companies in order to protect the interests of investors.
C) Conduct audits of governmental entities.
D) Sanction auditors who fail to follow GAAS.

Accepted Answer

The Public Company Accounting Oversight Board (PCAOB) was created to oversee the auditors of public companies in order to protect the interests of investors. The PCAOB sets audit standards, conducts inspections, and investigates potential violations by auditors of public companies. Option A is not correct because the PCAOB does not conduct the actual audit or review of the auditor's work. Option C is not correct because the PCAOB's focus is on public companies, not governmental entities. Option D is partially correct, as the PCAOB can sanction auditors who fail to follow GAAS, but this is not their primary role.

Question 15

Because of the risk of material misstatement,an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of
A) Objective cynicism.
B) Independent differentialism.
C) Professional skepticism.
D) Impartial conservatism.

Accepted Answer

Professional skepticism is critical to the audit process as it requires the auditor to approach the engagement with a questioning mindset and to critically evaluate the information and evidence obtained. This attitude is essential to reducing the risk of material misstatement and ensuring the accuracy and integrity of financial statements. Objective cynicism, independent differentialism, and impartial conservatism are not recognized attitudes within auditing standards.

Question 16

A financial statement audit is generally organized based on the five basic business processes or cycles.

Accepted Answer

This is true. The five basic business processes or cycles that are typically audited include the revenue cycle, expenditure cycle, financing cycle, fixed assets cycle, and payroll cycle.

Question 17

The IAASB and the ASB collaborated on a replacement for the 10 GAAS standards which include principles underlying an audit conducted in accordance with generally accepted auditing standards.

Accepted Answer

The IAASB and the ASB have indeed collaborated on a replacement for the 10 GAAS standards, which include principles underlying an audit conducted in accordance with generally accepted auditing standards. The new framework is called the Clarity Standards.

Question 18

One of the five basic business processes is the warehousing cycle.

Accepted Answer

The answer of One of the five basic business processes...

Question 19

The first PCAOB general standard requires that the examination of financial statements is to be performed by a person or persons having adequate technical training and
A) Independence with respect to the financial statements and supplementary disclosures.
B) Exercising professional care as judged by peer reviewers.
C) Proficiency as an auditor which likely has been acquired from previous experience.
D) Objectivity as an auditor as verified by proper supervision.

Accepted Answer

The first PCAOB general standard requires that the examination of financial statements is to be performed by a person or persons having adequate technical training and proficiency as an auditor which likely has been acquired from previous experience. This means that the auditor should possess the necessary skills, knowledge, and experience to perform the audit effectively. Independence (choice A), professional care (choice B), and objectivity (choice D) are covered by other general standards.

Question 20

The authoritative body designed to promulgate standards concerning an accountant's association with audited financial statements of an entity that is required to file financial statements with the SEC is the
A) Financial Accounting Standards Board.
B) General Accounting Office.
C) Public Company Accounting Oversight Board.
D) Auditing Standards Board.

Accepted Answer

The Public Company Accounting Oversight Board is the only authoritative body specifically designed to promulgate standards for auditors of companies required to file financial statements with the SEC. The Financial Accounting Standards Board sets accounting standards, the General Accounting Office serves as an auditing and evaluation arm of Congress, and the Auditing Standards Board sets auditing standards for private companies.

Quiz 2: The Financial Statement Auditing Environment

PCAOB auditing standards must be followed on all financial statement audits performed in the U.S.

A financial statement audit must be conducted based on GAAP.

PCAOB auditing standards must be followed on all audits of public companies' financial statements.

What organization is responsible for setting auditing standards for audits of publicly-traded companies in the U.S.?

Which of the following describes the PCAOB generally accepted auditing standard requiring a critical review of the work done and the judgment exercised by those assisting in an audit at every level of supervision?

Which of the following best describes the general character of the three PCAOB generally accepted auditing standards that are classified as standards of fieldwork?

The auditor must be independent of the audit client unless

The audit committee generally includes senior executives of the organization.

Generally,the financial statements of U.S.companies must be prepared based on GAAP.

The primary audit context with which an auditor is concerned is the client's industry or business.

A series of business and related auditing failures led to the passage of the Sarbanes-Oxley Act (2002).

The Audit Committee consists of

The first PCAOB standard of reporting requires that,"the report shall state whether the financial statements are presented in accordance with generally accepted accounting principles." This passage requires

The Public Company Accounting Oversight Board's role is to

Because of the risk of material misstatement,an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of

A financial statement audit is generally organized based on the five basic business processes or cycles.

The IAASB and the ASB collaborated on a replacement for the 10 GAAS standards which include principles underlying an audit conducted in accordance with generally accepted auditing standards.

One of the five basic business processes is the warehousing cycle.

The first PCAOB general standard requires that the examination of financial statements is to be performed by a person or persons having adequate technical training and

The authoritative body designed to promulgate standards concerning an accountant's association with audited financial statements of an entity that is required to file financial statements with the SEC is the