Question 1

The primary responsibility for the adequacy of disclosures in the financial statements of a publicly held company rests with the

Accepted Answer

The management of the company is ultimately responsible for ensuring that the financial statements are accurate and complete. The auditor's responsibility is to provide assurance on the financial statements, but management has the primary responsibility for preparing and presenting the financial statements in accordance with the applicable accounting standards and regulations. The SEC also plays a role in overseeing the financial reporting of publicly held companies, but the primary responsibility lies with company management.

Question 2

The main difference between SAS and AU is

Accepted Answer

The answer of The main difference between SAS and AU...

Question 3

Forensic audits include all of the following except

Accepted Answer

Forensic audits typically focus on financial fraud and misconduct, including criminal investigations, employee and management fraud. They do not generally address manufacturers' assertions about product quality, which is typically dealt with separately through testing and inspection procedures. Therefore, the correct answer is B.

Question 4

Who bears ultimate responsibility for the financial statements?

Accepted Answer

Management of the organization bears ultimate responsibility for the accuracy and completeness of the financial statements. However, external auditors are responsible for expressing an opinion on the fairness and accuracy of the financial statements. The shareholders rely on both the management and external auditors to provide accurate financial information.

Question 5

A CPA is most likely to refer to one or more of the three PCAOB general auditing standards in determining

Accepted Answer

The PCAOB general auditing standards guide auditors in determining whether they have the necessary competence, independence, and due professional care to undertake an audit engagement.

Question 6

Typically,an external auditor first gets supervisory experience at what level of authority?

Accepted Answer

Typically, an external auditor first gains supervisory experience at the Senior level. At this stage, they are responsible for overseeing the work of associates and ensuring the audit is conducted in accordance with the plan.

Question 7

Which of the following is NOT a requirement of the Sarbanes-Oxley Act?

Accepted Answer

The Sarbanes-Oxley Act does not specify a certain number of hours to be spent on each audit engagement. However, audit firms are required to maintain documentation of the procedures performed and the evidence obtained during the audit engagement.

Question 8

A typical objective of an operational audit is for the auditor to

Accepted Answer

The objective of an operational audit is to evaluate the efficiency and effectiveness of an organization's operations and processes. This includes identifying opportunities for improvement and making recommendations for enhancing performance. The other options listed are not typically objectives of an operational audit.

Question 9

Governmental auditing often extends beyond examinations leading to the expression of an opinion on the fairness of financial presentation and includes audits of efficiency,effectiveness,and

Accepted Answer

Governmental auditing often includes audits of compliance, which assess whether entities are adhering to laws, regulations, and policies.

Question 10

An "in-charge" auditor typically holds the rank of

Accepted Answer

An "in-charge" auditor is typically a Senior, who is responsible for overseeing the audit fieldwork and managing the audit team on-site.

Question 11

Due professional care requires auditors to

Accepted Answer

Exercising professional skepticism is a fundamental requirement of due professional care for auditors. It means that auditors should approach the audit with a questioning mind and critically evaluate the evidence obtained during the audit to ensure that it is reliable and relevant in supporting the audit opinion. The other options are not correct: obtaining independent third-party documentation for all information presented in the financial statements may not always be feasible or necessary, disregarding any evidence generated by the auditee would go against the principle of obtaining sufficient and appropriate evidence, and finding every error in the financial statements may not be possible due to inherent limitations in the audit process.

Question 12

The first PCAOB general standard recognizes that regardless of how capable an individual may be in other fields,the individual cannot meet the requirements of the auditing standards without the proper

Accepted Answer

The first PCAOB general standard recognizes that regardless of how capable an individual may be in other fields, the individual cannot meet the requirements of the auditing standards without the proper education and experience in auditing. Therefore, option C is the correct choice as it reflects the requirement stated in the standard.

Option A is incorrect as business and finance courses may not necessarily provide the required knowledge and skills for auditing. Option B is incorrect as quality control and peer review are part of the auditing process but not the requirement for an individual auditor. Option D is incorrect as supervision and review skills require auditing knowledge and experience, which is the requirement stated in the standard.

Question 13

The AICPA's Statements on Auditing Standards can be described as

Accepted Answer

The AICPA's Statements on Auditing Standards define the minimum standards that auditors must follow when conducting an audit. They do not provide specific guidance on how to perform each activity or guarantee that an incorrect opinion won't be issued. They are developed by the AICPA, not the government.

Question 14

The three PCAOB general standards are concerned with

Accepted Answer

The three PCAOB general standards are independence, adequate training and proficiency, and due professional care. Choice A is partially correct, but it does not include independence as one of the general standards. Choice B only mentions independence and training, but does not include due professional care. Choice C only mentions due professional care and does not include independence or training. Therefore, the best answer is choice D, which includes all three general standards.

Question 15

External auditors are referred to as "external" because

Accepted Answer

External auditors are not employees of the entity being audited, which distinguishes them from internal auditors who are employed by the entity. Option A refers to the audience to whom the auditors report, rather than the employment status of the auditors. Option B refers to payment but does not necessarily indicate the employment status or location of the auditors. Option D refers to the location of the auditors' offices, which may or may not be at the entity's place of business, but does not necessarily indicate their employment status.

Question 16

The accuracy of information included in footnotes accompanying the audited financial statements issued by a company whose shares are traded on a stock exchange is the primary responsibility of

Accepted Answer

The company's management is primarily responsible for the accuracy of information in the financial statements and accompanying footnotes. The independent auditor's role is to provide an opinion on the fairness of the financial statements, but the preparation and accuracy of the information is the responsibility of management.

Question 17

Which is not an attribute of an external auditor?

Accepted Answer

Auditee advocacy means that the auditor is biased towards the organization being audited and is not objective. An external auditor should not have any bias and should maintain objectivity, independence and concern for the public interest.

Question 18

The largest public accounting firms typically are structured as

Accepted Answer

The largest public accounting firms typically choose to structure themselves as limited liability partnerships (LLPs) because they provide a level of personal asset protection to the partners while also allowing for the flexibility of a partnership structure. LLPs also provide pass-through taxation, which allows for the profits and losses of the firm to be reflected on the individual tax returns of the partners rather than being subject to corporate taxation. While other structures such as professional corporations or limited liability corporations may be viable options for some firms, LLPs are the most common choice for the largest public accounting firms.

Question 19

Which of the following best describes the concept of risk assessment on which auditors can provide independent assurance?

Accepted Answer

Risk assessment refers to the process of identifying, analyzing, and evaluating the risks that could affect an organization's ability to achieve its objectives. Auditors can provide independent assurance on whether management has systems in place to evaluate and effectively manage the entity's business risks.

Answer: B 
 Risk assessment relates to the risk that financial statements are misstated because of error or fraud. Auditors can provide independent assurance on whether the financial statements are free from material misstatement due to error or fraud.

Therefore, both option C and option B are correct choices as they both describe the concept of risk assessment on which auditors can provide independent assurance.

Question 20

What is the general character of the work conducted in performing a forensic audit for a company?

Accepted Answer

The general character of the work conducted in performing a forensic audit for a company is to detect or deter fraudulent activity. Forensic auditors are specially trained to investigate and analyze financial data to identify any indications of fraud or corruption. They also work to build a case to prosecute individuals or entities responsible for fraudulent activity.

Quiz 2: The Financial Statement Auditing Environment