Question 1

Which one of the following is the service in which the CPA firm issues a written communication that expresses a conclusion about the reliability of a written assertion that is the responsibility of another party?
A) consulting service
B) attest service
C) accounting service
D) compilation service
E) examination service

Accepted Answer

Attest services involve the CPA firm issuing a written communication that provides an opinion on the reliability of a written assertion made by another party. This is a core aspect of attest services, distinguishing them from other types of services like consulting, accounting, or compilation services, where such a formal opinion on reliability is not provided.

Question 2

Which one of the following consists primarily of inquiries of an entity's management and comparative analyses of financial information?
A) audit
B) compilation
C) agreed-upon procedures
D) review
E) examination

Accepted Answer

A review engagement primarily consists of inquiries of an entity's management and analytical procedures applied to financial data, which is less in scope than an audit but more than a compilation.

Question 3

Which one of the following services is often performed on public companies' interim financial statements and nonpublic companies' annual financial statements?
A) examination
B) accounting
C) auditing
D) review
E) consulting

Accepted Answer

A review is often performed on public companies' interim financial statements and nonpublic companies' annual financial statements. Unlike an audit, a review does not require the auditor to obtain an understanding of internal control or assess fraud risk, nor does it require the auditor to express an opinion on the financial statements.

Question 4

Which of the following are independent private sector standard-setting bodies?
A) SEC and IRS
B) AICPA and IIA
C) NASBA and AAA
D) FASB and GASB
E) GAO and FAA

Accepted Answer

FASB (Financial Accounting Standards Board) and GASB (Governmental Accounting Standards Board) are independent organizations responsible for establishing and improving financial accounting and reporting standards. Unlike government agencies, they operate in the private sector to ensure transparency and integrity in financial reporting.

Question 5

Internal auditors are primarily involved with:
A) compliance audits.
B) operational audits.
C) compliance audits and operational audits.
D) financial statement audits.
E) governmental audits.

Accepted Answer

Internal auditors are primarily involved with both compliance audits, ensuring adherence to laws, regulations, and policies, and operational audits, assessing the efficiency and effectiveness of operations within an organization.

Question 6

The need for independent audits of financial statements can be attributed to all of the following conditions except:
A) remoteness.
B) complexity.
C) consequence.
D) validity.
E) conflict of interest.

Accepted Answer

Validity is not a condition that leads to the need for independent audits of financial statements. Independent audits are primarily required due to remoteness (distance between information providers and users), complexity (difficulty in understanding financial information), consequence (importance of financial information in decision-making), and conflict of interest (differences in objectives between information providers and users). Validity, on the other hand, refers to the accuracy and truthfulness of the information, which is what the audit seeks to ascertain, rather than a condition that necessitates an audit.

Question 7

The three types of audits are listed below. Indicate the category to which each statement belongs by placing the following letters in the spaces provided:FSA:Financial Statement Audit,
CA:Compliance Audit, or
OA:Operational Audit.
1.The results of such an audit are distributed to a wide spectrum of users such as
creditors, stockholders, regulatory agencies, and the general public.
2.This type of audit is often called a performance audit.
3.This audit may be based on criteria established by creditors.
4.The scope of such an audit may encompass all the activities of a department.
5.This audit relates to fair presentation of statements in accordance with GAAP.

Accepted Answer

The answer of The three types of audits are listed...

Question 8

An auditor would be most likely to issue a "summary of findings" in connection with which one of the following types of services?
A) a financial statement audit
B) consulting services
C) an operational audit
D) a review
E) accounting services

Accepted Answer

A "summary of findings" is typically issued in connection with an operational audit, where the auditor evaluates the efficiency and effectiveness of any part of an organization's operating procedures and methods. This contrasts with financial audits, reviews, and accounting services, which focus more on financial statements and compliance with accounting standards, and consulting services, which may involve advice and recommendations without the formal issuance of findings.

Question 9

The audit report on internal control is a variation of which type of audit?
A) operational audit
B) financial statement audit
C) compliance audit
D) internal audit
E) external audit

Accepted Answer

The answer of The audit report on internal control is...

Question 10

Which of the following is not one of the four common levels of assurance?
A) reasonable assurance
B) negative assurance
C) agreed-upon procedures
D) compilation without assurance
E) relative assurance

Accepted Answer

The four common levels of assurance include reasonable assurance, negative assurance, agreed-upon procedures, and compilation without assurance. "Relative assurance" is not recognized as one of these common levels.

Question 11

The statement that the reviewer "is not aware of any material modifications that should be made to the statements in order for them to be in conformity with GAAP" is known as:
A) reasonable assurance.
B) negligent performance.
C) negative assurance.
D) necessary ignorance.
E) positive assurance.

Accepted Answer

This statement is an example of negative assurance, where the reviewer is not asserting that the financial statements are correct in all respects, but rather is stating that nothing has come to their attention that causes them to believe the financial statements are not in conformity with GAAP.

Question 12

The three types of auditors are listed below. Indicate the category to which each statement belongs by placing the following letters in the spaces provided:IND:Independent Auditors,
INT:Internal Auditors, or
GOV:Government Auditors.
1.They perform audits as employees of various local , state, and federal agencies.
2.They perform audits as employees of the companies they audit.
3.They render professional auditing services to their clients.
4.They are mainly involved with compliance and operational audits.
5.They perform independent financial statement audits.

Accepted Answer

The answer of The three types of auditors are listed...

Question 13

There are four conditions that give rise to the need for independent audits of financial statements. One of these conditions is complexity. In this context, complexity relates to all of the following except complexity:
A) of the accounting process.
B) in evaluating the quality of financial statements.
C) of financial statement preparation.
D) of the subject matter, or GAAP.
E) of the decision process.

Accepted Answer

Complexity in the decision process is not directly related to the need for independent audits of financial statements. Independent audits are primarily concerned with the complexity of the accounting process, the evaluation of financial statement quality, the preparation of financial statements, and the complexity of the subject matter or Generally Accepted Accounting Principles (GAAP). Complexity in the decision process refers more to the internal decision-making within a company, which is not a direct reason for the need for independent audits.

Question 14

Which one of the following was not listed as an inherent limitation of a financial statement audit?
A) accounting estimates
B) reasonable length of time
C) alternative accounting principles
D) reasonable cost
E) level of complexity

Accepted Answer

The answer of Which one of the following was not...

Question 15

Which one of the following is not among the conditions that give rise to a demand by external users for independent audits of financial statements?
A) remoteness of users
B) complexity of subject matter
C) the securities acts, administered by the SEC
D) potential conflict of interest between users and preparers of the statements
E) consequence for making decisions

Accepted Answer

The securities acts, administered by the SEC, do not directly give rise to a demand for independent audits of financial statements. Instead, they provide a regulatory framework that may require such audits for compliance purposes, but the demand for audits primarily stems from factors like remoteness of users, complexity of subject matter, potential conflicts of interest, and the consequences of making decisions based on the financial statements.

Question 16

There are four conditions that give rise to the need for independent audits of financial statements. One of these conditions is consequence. In this context, consequence means that the:
A) users of the statements may not fully understand the consequences of their actions.
B) auditor must anticipate all possible consequences of the report issued.
C) impact of using different accounting methods may not be fully understood by the users of the statements.
D) financial statements are used for important decisions.
E) financial statements were prepared in accordance with GAAS.

Accepted Answer

Consequence, in the context of the need for independent audits, refers to the significance of the financial statements in making important decisions. This underscores the importance of having accurate and reliable financial statements, as they influence critical business and investment decisions.

Question 17

When providing audit services, the CPA is expected to be:
A) independent of the client.
B) an advocate for the client.
C) an advocate for the general public.
D) indifferent to the effect of the financial statements and the audit report.
E) able to make managerial decisions for the client.

Accepted Answer

The CPA must maintain independence from the client to ensure objectivity and integrity in the audit process, which is essential for providing a fair and unbiased audit opinion.

Question 18

Statement on Quality Control Standards No. 2 identifies certain quality control elements that should be considered when performing which types of services?
A) auditing, accounting, and review services
B) auditing, tax, and review services
C) accounting, tax, and review services
D) auditing, accounting, and tax services
E) auditing, tax, and consulting services

Accepted Answer

Statement on Quality Control Standards No. 2 identifies quality control elements for auditing, accounting, and review services, emphasizing the need for firms to maintain high standards across these specific service areas.

Question 19

Compilation is an example of which one of the following types of services?
A) auditing
B) review
C) consulting
D) examination
E) accounting

Accepted Answer

Compilation is considered an accounting service, where financial data is gathered and formatted into financial statements without the CPA providing any assurance on the accuracy or completeness of the data.

Question 20

The GAO reports directly to the:
A) general public via the news media.
B) SEC.
C) president of the country.
D) IRS.
E) U. S. Congress.

Accepted Answer

The Government Accountability Office (GAO) is an independent, nonpartisan agency that works for Congress. It investigates how the federal government spends taxpayer dollars, making its reports and findings directly available to the U.S. Congress.

Quiz 1: Auditing and the Public Accounting

Which one of the following is the service in which the CPA firm issues a written communication that expresses a conclusion about the reliability of a written assertion that is the responsibility of another party?

Which one of the following consists primarily of inquiries of an entity's management and comparative analyses of financial information?

Which one of the following services is often performed on public companies' interim financial statements and nonpublic companies' annual financial statements?

Which of the following are independent private sector standard-setting bodies?

Internal auditors are primarily involved with:

The need for independent audits of financial statements can be attributed to all of the following conditions except:

An auditor would be most likely to issue a "summary of findings" in connection with which one of the following types of services?

The audit report on internal control is a variation of which type of audit?

Which of the following is not one of the four common levels of assurance?

The statement that the reviewer "is not aware of any material modifications that should be made to the statements in order for them to be in conformity with GAAP" is known as:

There are four conditions that give rise to the need for independent audits of financial statements. One of these conditions is complexity. In this context, complexity relates to all of the following except complexity:

Which one of the following was not listed as an inherent limitation of a financial statement audit?

Which one of the following is not among the conditions that give rise to a demand by external users for independent audits of financial statements?

There are four conditions that give rise to the need for independent audits of financial statements. One of these conditions is consequence. In this context, consequence means that the:

When providing audit services, the CPA is expected to be:

Statement on Quality Control Standards No. 2 identifies certain quality control elements that should be considered when performing which types of services?

Compilation is an example of which one of the following types of services?

The GAO reports directly to the: