Question 1

Which of the following is not one of the reporting standards of GAAS that guides auditors in formulating the audit opinion?
A)The financial statements have followed GAAP
B)Consistency in the application of GAAP
C)Adequate disclosures exist in the statements
D)Gathering sufficient audit evidence to warrant an opinion

Accepted Answer

The three reporting standards of GAAS (Generally Accepted Auditing Standards) that guide auditors in formulating the audit opinion are: the financial statements have followed GAAP, consistency in the application of GAAP, and adequate disclosures exist in the statements. Gathering sufficient audit evidence to warrant an opinion is part of the standards of fieldwork, not the reporting standards.

Question 2

Which of the following audit deficiencies was identified most often in a study by the Center for Audit Quality of SEC imposed sanctions?
A)Failure to gather sufficient competent evidence
B)Failure to exercise due care
C)Insufficient level of professional skepticism
D)Failure to obtain adequate evidence related to management representations

Accepted Answer

The Center for Audit Quality study found that the most common audit deficiency was failure to gather sufficient competent evidence. This means that auditors were not able to gather enough evidence to support their conclusions and opinions about the accuracy of financial statements. This deficiency was identified in more than 65% of SEC imposed sanctions.

Question 3

Which of the following is not a consideration in determining a measure of materiality?
A)Risks of material misstatements due to fraud
B)Quantitative assessment of the importance of the difference of opinion with client management on an accounting issues
C)Qualitative assessment of the importance of the difference of opinion with client management on an accounting issues
D)Importance of audit committee in the organization

Accepted Answer

The importance of the audit committee in the organization is not a consideration in determining a measure of materiality. Materiality is determined by considering the quantitative and qualitative factors that could impact users' decisions based on the financial statements. The risks of material misstatements due to fraud, as well as the significance of differences of opinion with client management on accounting issues, are important considerations in determining materiality.

Question 4

PCAOB Auditing Standard No.16 requires the auditor to communicate with the audit committee all but:
A)Significant accounting policies and practices
B)Critical accounting practices and policies
C)Significant unusual transactions
D)The procedures followed by the auditor in evaluating evidence

Accepted Answer

PCAOB Auditing Standard No.16 requires the auditor to communicate with the audit committee about significant accounting policies and practices, critical accounting practices and policies, and significant unusual transactions. However, the standard does not require the auditor to communicate the procedures followed in evaluating evidence, therefore option (D) is the correct answer.

Question 5

The auditors' determination of whether the financial statements "present fairly" is based on:
A)Whether the users are able to assess the reliability of the financial statements
B)Whether the statements have been prepared in accordance with the same GAAP used from one year to another
C)Whether the auditor has been able to gather sufficient evidence to warrant the statement that the financial statements present fairly
D)Whether the accounting principles used are appropriate in the circumstances

Accepted Answer

The answer of The auditors' determination of whether the financial...

Question 6

Which of the following summarizes the essence of general standards of GAAS?
A)Quality of professionals that perform an audit
B)Criteria used to judge whether the audit has met quality requirements
C)The standards that guide auditors in issuing the audit report
D)Whether the auditor obtained sufficient competent evidential matter to render an opinion

Accepted Answer

The general standards of GAAS (Generally Accepted Auditing Standards) focus on the qualifications and quality of the professionals conducting the audit, ensuring they have the necessary skills, training, and independence.

Question 7

In an audit,the auditor has a requirement to address risk assessment with respect to:
A)The design and performance of audit procedures to respond to assessed risks
B)Whether the standards close the expectation gap
C)The role and responsibilities of the audit committee in preventing fraud
D)All of the above

Accepted Answer

The auditor is required to design and perform audit procedures to respond to assessed risks, which is a fundamental part of the audit process.

Question 8

Which of the following is not correct about materiality?
A)The concept of materiality recognizes that some matters are more important for fair presentation of financial statements
B)Materiality judgments are made in light of surrounding circumstances and necessarily involve quantitative and qualitative judgments
C)Materiality should be predictable from audit to audit so that the readers of financial statements know what constitutes materiality
D)An auditor's consideration of materiality is influenced by the auditor's perception of the need of the readers of the financial statements

Accepted Answer

Materiality is a relative concept and is dependent on the context and circumstances of each audit engagement. It cannot be predetermined and should not be consistently applied from one engagement to another. Therefore, option C is incorrect. Materiality judgments should be based on professional judgment and should take into account both quantitative and qualitative factors in a particular audit engagement. Options A, B, and D are correct statements about materiality.

Question 9

In gathering audit evidence,the accessibility of information may be a factor thereby influencing which judgment trigger?
A)Confirmation
B)Overconfidence
C)Anchoring
D)Availability

Accepted Answer

The availability judgment trigger is influenced by the accessibility of information. This means that if the auditor has easy access to certain information, they may be more likely to rely on it heavily when making judgments or decisions.

Question 10

The SEC is concerned that auditors don't pay enough attention to qualitative factors affecting materiality because:
A)Qualitative factors may cause quantitatively small misstatements to become material
B)Quantitative factors are not always useful
C)Quantitative factors cannot be accumulated to assess overall materiality
D)All are of concern to the SEC

Accepted Answer

The SEC is concerned that auditors don't pay enough attention to qualitative factors affecting materiality because qualitative factors may cause quantitatively small misstatements to become material. This suggests that option A is the best answer. Options B and C are not accurate, and option D is too general.

Question 11

Audit documentation is critical to evidence gathering because:
A)It demonstrates that an audit has been conducted
B)It demonstrates professional skepticism
C)It substitutes for making audit judgments and estimates
D)All of the above

Accepted Answer

The answer of Audit documentation is critical to evidence gathering...

Question 12

The main reason the PCAOB has charged Chinese affiliates of U.S.audit firms with failing to provide sufficient documentary evidence of audits of Chinese companies listed on U.S.exchanges is:
A)Audit firms are unable to gather sufficient competent evidential matter
B)Audit firms are not knowledgeable enough about Chinese accounting standards
C)Chinese regulatory agencies can be uncooperative in providing access to PCAOB regarding their inspections of audit documents
D)Chinese regulatory agencies conduct inspections of the audit documents of the firms

Accepted Answer

The PCAOB has charged Chinese affiliates of U.S. audit firms with failing to provide sufficient documentary evidence of audits of Chinese companies listed on U.S. exchanges because Chinese regulatory agencies can be uncooperative in providing access to the PCAOB regarding their inspections of audit documents. This hinders the PCAOB's ability to conduct their oversight role and ensure that these companies are complying with U.S. accounting and auditing standards.

Question 13

Because of the risk of material misstatement due to improper management representations,an audit of financial statements in accordance with GAAS should be performed with:
A)Objective judgment
B)Professional skepticism
C)Internal controls
D)Due diligence

Accepted Answer

According to GAAS, the auditor should perform the audit with professional skepticism to assess the risk of material misstatement due to management representations. This means the auditor should question and challenge management's assertions, rather than accepting them at face value. Objective judgment and due diligence are important in conducting an audit, but are not directly related to the risk of material misstatement due to management representations. Internal controls can help mitigate the risk of misstatement, but they do not address the issue of potentially unreliable management representations.

Question 14

PCAOB Standard 14 addresses audit results and requires:
A)Auditor's evaluation of internal controls
B)Auditor's determination of whether the auditor has obtained sufficient appropriate evidence
C)Auditor's evaluation of the applicable financial reporting framework
D)Auditor's independence

Accepted Answer

PCAOB Standard 14 specifically addresses audit results and requires the auditor to determine whether they have obtained sufficient appropriate evidence to support their opinion on the financial statements. While evaluating internal controls, the applicable financial reporting framework, and auditor independence are all important aspects of an audit, they are not directly addressed by Standard 14.

Question 15

Gathering and objectively evaluating audit evidence requires the auditor to consider:
A)Whether an unmodified opinion should be issued
B)Whether a modified opinion should be issued
C)Whether the evidence is adequate to complete the audit
D)Whether the evidence is competent and sufficient enough to render an audit opinion

Accepted Answer

The auditor's main objective is to gather sufficient and competent audit evidence to support their audit opinion. Therefore, the auditor must evaluate whether the evidence collected is both competent (reliable and relevant) and sufficient enough to render an audit opinion. Options A and B refer to the outcome of the audit (opinion) rather than the evaluation of evidence, while Option C is related to the completion of the audit but not specifically to the evaluation of evidence.

Question 16

Which of the following is NOT one of the most common audit deficiencies identified in PCAOB inspections?
A)Inadequate internal controls over financial reporting
B)Lack of independent audits
C)Lack of due care
D)Inability to exercise the appropriate level of professional skepticism

Accepted Answer

Lack of independent audits is not one of the most common audit deficiencies identified in PCAOB inspections. The other options listed, inadequate internal controls over financial reporting, lack of due care, and inability to exercise appropriate level of professional skepticism, are all common deficiencies identified during PCAOB inspections.

Question 17

Which of the following summarizes the essence of field work standards of GAAS?
A)Quality of professionals that perform an audit
B)Criteria for judging the quality of audit work
C)Whether the auditor was independent in conducting the audit
D)Whether the auditor reviewed the client's financial statements for adherence to GAAP

Accepted Answer

GAAS field work standards provide criteria that assist auditors in evaluating the quality of their work. These standards include planning and supervision, obtaining sufficient and appropriate evidence, keeping adequate documentation, and exercising professional skepticism. The other choices are also important considerations in an audit, but they do not fully capture the essence of GAAS field work standards.

Question 18

Audit procedures are different than audit evidence because:
A)Audit procedures address the competency and sufficiency of audit evidence
B)Audit procedures are specific acts performed by the auditor to gather evidence about whether specific assertions are being met
C)Audit procedures are specific acts to assess whether the financial statements "present fairly"
D)Audit procedures do not have to be determined based on risk assessment

Accepted Answer

Audit procedures are the specific acts performed by the auditor to gather evidence about whether specific assertions are being met. Audit evidence, on the other hand, refers to the information that the auditor uses to arrive at the audit opinion. While audit procedures are used to gather audit evidence, they do not address the competency and sufficiency of the evidence. Furthermore, audit procedures are determined based on a risk assessment of the client and its financial statements. Finally, audit procedures are designed to assess whether the financial statements "present fairly" in accordance with applicable accounting standards.

Question 19

PCAOB Standard 7 addresses engagement quality reviews and have as its objectives to:
A)Assess how an audit has been conducted and the appropriateness of the audit opinion
B)Assess the firm's own quality controls and the appropriateness of the audit opinion
C)Assess how an audit has been conducted and the firm's own quality control procedures
D)Assess whether materiality has been properly evaluated

Accepted Answer

The answer of PCAOB Standard 7 addresses engagement quality reviews...

Question 20

PCAOB Auditing Standard No.16 requires the auditor to communicate with the audit committee all but:
A)Going concern issues
B)Whether the auditor expects to modify the opinion
C)Any disagreements with management
D)The procedures followed to comply with generally accepted auditing standards

Accepted Answer

PCAOB Auditing Standard No.16 requires the auditor to communicate with the audit committee regarding going concern issues, any disagreements with management, and whether the auditor expects to modify the opinion. However, communicating the procedures followed to comply with generally accepted auditing standards is not a requirement under this auditing standard.

Quiz 5: Fraud in Financial Statements and Auditor Responsibilities

Which of the following is not one of the reporting standards of GAAS that guides auditors in formulating the audit opinion?

Which of the following audit deficiencies was identified most often in a study by the Center for Audit Quality of SEC imposed sanctions?

Which of the following is not a consideration in determining a measure of materiality?

PCAOB Auditing Standard No.16 requires the auditor to communicate with the audit committee all but:

The auditors' determination of whether the financial statements "present fairly" is based on:

Which of the following summarizes the essence of general standards of GAAS?

In an audit,the auditor has a requirement to address risk assessment with respect to:

Which of the following is not correct about materiality?

In gathering audit evidence,the accessibility of information may be a factor thereby influencing which judgment trigger?

The SEC is concerned that auditors don't pay enough attention to qualitative factors affecting materiality because:

Audit documentation is critical to evidence gathering because:

The main reason the PCAOB has charged Chinese affiliates of U.S.audit firms with failing to provide sufficient documentary evidence of audits of Chinese companies listed on U.S.exchanges is:

Because of the risk of material misstatement due to improper management representations,an audit of financial statements in accordance with GAAS should be performed with:

PCAOB Standard 14 addresses audit results and requires:

Gathering and objectively evaluating audit evidence requires the auditor to consider:

Which of the following is NOT one of the most common audit deficiencies identified in PCAOB inspections?

Which of the following summarizes the essence of field work standards of GAAS?

Audit procedures are different than audit evidence because:

PCAOB Standard 7 addresses engagement quality reviews and have as its objectives to:

PCAOB Auditing Standard No.16 requires the auditor to communicate with the audit committee all but: