Question 1

The activities performed by the auditor throughout the opinion formulation process are determined by whether the auditor is conducting a financial statement audit only or an integrated audit.

Accepted Answer

False

Question 2

The AICPA principles governing an audit explicitly state that an audit has inherent limitations prohibiting an auditor from obtaining reasonable assurance that the statements are free from misstatement.

Accepted Answer

False

Question 3

Comparability is one of the five management assertions.

Accepted Answer

Comparability is not one of the five management assertions; the five management assertions are existence or occurrence, completeness, rights and obligations, valuation or allocation, and presentation and disclosure. Comparability is a qualitative characteristic of financial information.

Question 4

Auditors are responsible for having the appropriate competence and capabilities to perform the audit,complying with ethical requirements,and maintaining professional skepticism throughout the audit.

Accepted Answer

This statement accurately reflects the responsibilities of auditors. They are expected to have the necessary knowledge, skills, and abilities to conduct audits effectively, to follow ethical principles and standards, and to approach their work with a critical and questioning mindset. These elements help ensure the quality and integrity of the audit process and the resulting financial statements.

Question 5

If controls are effective,there is a higher likelihood that the financial statements are free of material misstatement.

Accepted Answer

Effective controls increase the reliability and accuracy of the financial statements, reducing the likelihood of material misstatements.

Question 6

An audit must be performed by persons who can make sound judgments relating to complex accounting issues.

Accepted Answer

This is true because an audit requires the examination of complex financial transactions and the evaluation of accounting policies and procedures. Auditors must be able to understand and apply accounting principles and be able to make informed judgments about the accuracy and completeness of financial statements.

Question 7

The auditing standards issued by the PCAOB are identical to the auditing standards issued by the AICPA.

Accepted Answer

While the PCAOB's standards are based on and generally consistent with the AICPA's standards, they are not identical. The PCAOB has its own set of standards that are specifically tailored to auditing public companies.

Question 8

The auditor needs to obtain absolute assurance as to whether the financial statements are free from material misstatement.

Accepted Answer

The auditor aims to obtain reasonable assurance, not absolute assurance, that the financial statements are free from material misstatement, due to inherent limitations in auditing.

Question 9

An audit firm's portfolio management includes client acceptance and continuance decisions that occur before the audit opinion formation process is initiated.

Accepted Answer

The answer of An audit firm's portfolio management includes client...

Question 10

The common purpose of auditing standards created by the various authorities is to provide reasonable assurance that audits are conducted in a quality manner.

Accepted Answer

The auditing standards created by the various authorities aim to ensure that audits are conducted in a consistent, systematic, and quality manner, ultimately providing reasonable assurance that financial statements are free of material misstatements.

Question 11

The PCAOB is committed to merging its standards with those of the AICPA and the IAASB.

Accepted Answer

The PCAOB (Public Company Accounting Oversight Board) operates independently and, while it may consider the standards of the AICPA (American Institute of Certified Public Accountants) and the IAASB (International Auditing and Assurance Standards Board) for insight or guidance, it does not have a commitment to merge its standards with those of the AICPA and the IAASB.

Question 12

The AICPA's fundamental principles can be divided into four sections: purpose of the audit,responsibility of the auditor,performance of the audit,and reporting of the results.

Accepted Answer

The fundamental principles of the AICPA are indeed divided into these four sections.

Question 13

Making client acceptance and continuance decisions is the first phase of the audit opinion formulation process.

Accepted Answer

Client acceptance and continuance decisions are made in the first phase of the audit opinion formulation process. This involves evaluating the potential risks and benefits of accepting or continuing with a client, as well as assessing the firm's independence, integrity, and ability to perform the audit. Once these decisions are made, the auditor can move on to planning and executing the audit, and ultimately forming the opinion on the financial statements.

Question 14

In some circumstances,the auditor will not express an opinion on the financial statements but will instead state that an opinion cannot be expressed.

Accepted Answer

This statement is true. There may be situations where the auditor is unable to obtain sufficient evidence to form an opinion on the financial statements, or there may be significant limitations or uncertainties that prevent the expression of an opinion. In these cases, the auditor would issue a disclaimer of opinion, stating that an opinion cannot be expressed.

Question 15

Auditors in the U.S.follow guidance issued by the PCAOB,AICPA,and the IAASB.

Accepted Answer

The Public Company Accounting Oversight Board (PCAOB), the American Institute of Certified Public Accountants (AICPA), and the International Auditing and Assurance Standards Board (IAASB) issue guidance that auditors in the U.S. are expected to follow.

Question 16

An auditor would follow the PCAOB's guidance when auditing a company whose stock is traded on the London Stock Exchange if the company conducts operations in multiple U.S.cities.

Accepted Answer

The PCAOB (Public Company Accounting Oversight Board) oversees the audits of public companies to protect investors and the public interest in the United States. If a company's stock is traded on the London Stock Exchange and not on any U.S. exchanges, the company would primarily follow the auditing standards relevant to the U.K. or those set by the International Auditing and Assurance Standards Board (IAASB), unless it also is listed on a U.S. exchange or is required to follow U.S. regulations for other reasons.

Question 17

The revenue cycles includes transactions related to revenue such as sales,receivables,and gain or loss from disposal of equipment.

Accepted Answer

The revenue cycle includes transactions related to sales and receivables, but gain or loss from disposal of equipment is part of the fixed asset cycle, not the revenue cycle.

Question 18

PCAOB guidance includes standards on certain auditor responsibilities related to SEC filings.

Accepted Answer

PCAOB guidance includes standards on auditor responsibilities related to SEC filings, including requirements for the auditor to review and respond to management's disclosures and to assess and report on internal control over financial reporting.

Question 19

An auditor should give equal emphasis to all management assertions when testing accounts.

Accepted Answer

An auditor should not give equal emphasis to all management assertions when testing accounts. The level of emphasis should depend on the assessment of risk of material misstatement for each assertion. Assertions related to significant risks should receive higher emphasis than those related to lower risks.

Question 20

The cycle approach to auditing is a convenient way to break the audit into manageable time periods.

Accepted Answer

The cycle approach to auditing is a method that divides an audit into several segments based on related types of transactions or accounts, rather than dividing it by time periods.

Quiz 5: Professional Auditing Standards and the Audit Opinion Formulation Process