Question 1

The body that issues international pronouncements providing auditing procedural and reporting guidance is the:

Accepted Answer

The International Auditing and Assurance Standards Board (IAASB) is the body responsible for issuing international auditing, assurance, and other related pronouncements. The International Federation of Auditors (IFA) is another international organization but does not issue pronouncements related to auditing procedures and reporting guidance. The Multinational Reporting Commission and AICPA Auditing Standards Board are both domestic organizations and do not issue international pronouncements.

Question 2

An unconditional responsibility to follow an AICPA professional standard exists when the professional standard uses the term(s): $$\begin{array} { | l | l | l | } 
\hline & \text { Must } & \text { Should } \
\hline \text { A. } & \text { Yes } & \text { Yes } \
\hline \text { B. } & \text { Yes } & \text { No } \
\hline \text { C. } & \text { No } & \text { Yes } \
\hline \text { D. } & \text { No } & \text { No } \
\hline
\end{array}$$

Accepted Answer

The term "Must" indicates an unconditional responsibility to follow the standard, while "Should" indicates a presumptively mandatory requirement, allowing for exceptions in rare circumstances.

Question 3

Which of the following best describes a portion of the auditors' responsibility regarding noncompliance with laws by clients?

Accepted Answer

The auditors have a responsibility to design and perform audit procedures to identify possible noncompliance with laws and regulations that may have a material effect on the financial statements. If such noncompliance is identified, the auditors should take appropriate actions, which may include informing management, those charged to govern the entity, and, in some circumstances, regulatory and enforcement authorities. However, the auditors are not responsible for detecting all noncompliance. Their responsibility is limited to detecting material noncompliance.

Question 4

A requirement that working papers be reviewed by the supervisor, and any deficiencies be discussed with the preparer is an example of a quality control procedure in the area of:

Accepted Answer

The requirement for working papers to be reviewed by the supervisor and any deficiencies discussed with the preparer is an example of a quality control procedure in the area of engagement performance, as it ensures the quality of the work performed by the engagement team.

Question 5

Which of the following is not an underlying premise of an audit?

Accepted Answer

All the other options are underlying premises of an audit. The responsibility for the preparation and fair presentation of financial statements lies with management, and the auditor is responsible for expressing an opinion on those financial statements. Management must provide the auditor with all relevant information, and the auditor should have unrestricted access to those within the entity from whom the auditor determines it necessary to obtain audit evidence. Where appropriate, the auditor may also obtain information from those charged with governance.

Question 6

The auditors who find that the client has committed an illegal act would be most likely to withdraw from the engagement when the:

Accepted Answer

If the auditors find that the client has committed an illegal act and management fails to take appropriate corrective action, the auditors may withdraw from the engagement because they cannot provide an unqualified opinion on the financial statements. Additionally, the auditors have a responsibility to report illegal acts to the appropriate authorities, and if management does not take action, the auditors may be forced to do so themselves. The materiality or publicity of the illegal act may also be important factors, but they are not the primary reason for the auditors to withdraw from the engagement. The auditors' ability to estimate the effect of the illegal act on the financial statements is also not the main consideration for withdrawal.

Question 7

When a Statement on Auditing Standards uses the word "should" relating to a requirement, it means that the auditor:

Accepted Answer

If a Statement on Auditing Standards uses the word "should" in relation to a requirement, it means that the auditor must comply with the requirement unless the auditor can demonstrate and document that alternative actions are sufficient to achieve the standards' objectives. In other words, the auditor has some flexibility to deviate from the requirement, but it must be well-documented and justified.

Question 8

To present fairly in conformity with generally accepted accounting principles, the financial statements must:

Accepted Answer

The answer of To present fairly in conformity with generally...

Question 9

An audit should be designed to obtain reasonable assurance of detecting material misstatements due to:

Accepted Answer

An audit should obtain reasonable assurance of detecting material misstatements due to errors, fraud, and noncompliance with laws that have a direct effect on financial statement amounts and disclosures. Noncompliance with all laws may not be relevant to the audit, and detecting immaterial misstatements is not the main objective of the audit.

Question 10

Which of the following is not included as a part of the description of the auditor's responsibility in a nonpublic company unmodified report?

Accepted Answer

The auditor's responsibility in a nonpublic company unmodified report includes obtaining audit evidence about the financial statements, evaluating the appropriateness of accounting policies used, and performing procedures selected based on the auditor's judgment. However, stating that the audit was performed in accordance with generally accepted accounting principles is part of the management's responsibility in preparing the financial statements, not the auditor's responsibility in the audit report.

Question 11

By definition, proper professional skepticism on an audit requires: $$\begin{array} { | c | c | c | } 
\hline & \begin{array} { c } 
\text { Questioning } \
\text { mind }
\end{array} & \begin{array} { c } 
\text { Subjective assessment of audit } \
\text { evidence }
\end{array} \
\hline \text { A. } & \text { No } & \text { No } \
\hline \text { B. } & \text { No } & \text { Yes } \
\hline \text { C. } & \text { Yes } & \text { No } \
\hline \text { D. } & \text { Yes } & \text { Yes } \
\hline
\end{array}$$

Accepted Answer

Proper professional skepticism requires a questioning mind, but not a subjective assessment of audit evidence.

Question 12

Which of the following is explicitly included as a part of the description of management's responsibility in an unmodified audit report?

Accepted Answer

The maintenance of internal control is explicitly included in the description of management's responsibility in an unmodified audit report. This is because management is responsible for establishing and maintaining effective internal controls to ensure the reliability of financial reporting. Choices A, B, and D are not explicitly included in the description of management's responsibility in an unmodified audit report. Choice A refers to a judgment call made by the auditor, not management. Choice B is not explicitly stated, although management is responsible for providing auditors with access to all relevant information. Choice D is not explicitly stated, although management is responsible for identifying and disclosing any known or suspected fraud.

Question 13

Which of the following is accurate, as indicated in the principles underlying an audit?

Accepted Answer

The principle of audit states that the auditor is unable to obtain absolute assurance that the financial statements are free from material misstatement. This is due to the inherent limitations of any audit process, including the possibility of human error, the use of judgment in auditing estimates, and the possibility of fraud or error that may not be detected through normal audit procedures. Therefore, auditors can only provide reasonable assurance that the financial statements are free from material misstatement. The other choices are not accurate principles underlying an audit.

Question 14

The Auditing Standards Board's guidance on matters such as the purpose of an audit, the premise of an audit, and auditor personal responsibilities is included in:

Accepted Answer

The Principles Underlying an Audit Conducted in Accordance with GAAS includes guidance on the purpose of an audit, the premise of an audit, and auditor personal responsibilities. The 10 Generally Accepted Auditing Standards provide guidance on the conduct of the audit, while the Code of Professional Conduct addresses ethical and professional behavior of auditors. Accounting Series Releases pertain to accounting practices and reporting requirements.

Question 15

Primary responsibility for the financial statements lies with: $$\begin{array} { | c | c | c | } 
\hline & \text { Auditors } & \text { Management } \
\hline \text { A. } & \text { Yes } & \text { Yes } \
\hline \text { B. } & \text { Yes } & \text { No } \
\hline \text { C. } & \text { No } & \text { Yes } \
\hline \text { D. } & \text { No } & \text { No } \
\hline
\end{array}$$

Accepted Answer

Management is primarily responsible for the preparation and presentation of financial statements. Auditors are responsible for providing an independent opinion on the financial statements.

Question 16

A requirement to design recruitment processes and procedures to help the firm select individuals meeting minimum academic requirements established by the firm is an example of a quality control procedure in the area of:

Accepted Answer

The requirement to design recruitment processes and procedures to select individuals meeting minimum academic requirements is a quality control procedure related to the area of human resources. This procedure is aimed at ensuring that the firm hires employees that possess the necessary academic qualifications for the job.

Question 17

When the auditors express an opinion on financial statements, their responsibilities extend to:

Accepted Answer

Auditors are responsible for expressing an opinion on whether the financial statements fairly present the results of their client's operating decisions. They are not responsible for the underlying wisdom of management decisions, implementation of advice, or their client's solvency.

Question 18

An audit performed in accordance with generally accepted auditing standards should:

Accepted Answer

An audit performed in accordance with generally accepted auditing standards cannot provide absolute assurance that all noncompliance with laws will be detected. While auditors are required to obtain reasonable assurance that financial statements are free from material misstatement, they are not expected to actively search for all illegalities or violations of laws unrelated to the financial statements. Additionally, even with effective internal control, there is always a risk that noncompliance may not be detected, so absolute assurance cannot be provided.

Question 19

Which of the following is not included in the auditors' standard unmodified audit report?

Accepted Answer

The auditors' standard unmodified audit report does not explicitly state that accounting principles have been consistently applied; this is typically implied if the report is unmodified. The other options describe elements of the audit process that are included in the report.

Question 20

The auditors' report for a nonpublic company should indicate:

Accepted Answer

The auditors' report for a nonpublic company should indicate that the audit was made in accordance with auditing standards generally accepted in the United States of America. While the other options may also be addressed in the report, they are not required or applicable to every nonpublic company audit.

Quiz 2: Professional Standards