Auditing Exam 1 Study Guide.docx

**Chapter 1 Assessment** ### **1. Although independent audits today place more emphasis on sampling compared to the 19th century, changes in information technology are enabling audits of aspects of all transactions in large populations.** - ### **2. The American Institute of Certified Public A...

**Chapter 1 Assessment** ### **1. Although independent audits today place more emphasis on sampling compared to the 19th century, changes in information technology are enabling audits of aspects of all transactions in large populations.** - ### **2. The American Institute of Certified Public Accountants has the primary authority to establish accounting standards.** - ### **3. The Sarbanes-Oxley Act requires auditors of certain publicly traded companies in the United States to perform an integrated audit that includes providing assurance on both the financial statements and on compliance with laws and regulations.** - ### **4. The risk that a company will not be able to meet its obligations when they become due is an aspect of:** - ### **5. When compared to an audit performed prior to 1900, an audit today:** - ### **6. The right to practice as a CPA is given by which of the following organizations?** - ### **7. Operational auditing is primarily oriented toward:** - ### **8. In *United States v. Arthur Young*, the Supreme Court described the auditor's role as requiring independence, complete fidelity to the public trust, and to serve as a(n):** - ### **9. The financial statements of a U.S. public company are most likely to follow:** - ### **10. Attest engagements always have:** - ### **11. To attest to information means to provide assurance as to its:** - ### **12. The forms of attestation engagements include:** - ### **13. Examination engagements provide what level of assurance?** - ### **14. Agreed-upon procedures engagements provide what level of assurance?** - ### **15. A financial statement audit ordinarily:** - ### **16. The organization that promulgates auditing standards for audits of public companies is the:** - ### **17. The financial statement criteria followed in an audit of the financial statements of a public company are most likely to be:** - ### **18. Which of the following terms best describes the audit of a taxpayer\'s tax return by an IRS auditor?** - ### **19. An integrated audit provides an explicit opinion on:** - ### **20. An engagement in which a CPA firm arranges for a critical review of its practices by another CPA firm is referred to as a(n):** - **Chapter 2 Assessment** ### **1. For a public company audit, management is primarily responsible for preparing the financial statements, and auditors express an opinion on whether those financial statements are prepared following generally accepted auditing standards.** - ### **2. An audit should be designed to obtain reasonable assurance of detecting non-compliance with laws that have a direct effect on financial statement amounts and disclosures that are material to the financial statements.** - ### **3. The pronouncements of the International Auditing and Assurance Standards Board do not override the national auditing standards of its members, even when financial statements are issued by a multinational company.** - ### **4. An attestation engagement:** - ### **5. The auditors\' report for a nonpublic company should indicate:** - ### **6. A requirement to design recruitment processes and procedures to help the firm select individuals that meet minimum academic requirements established by the firm is an example of a quality management procedure in the area of:** - ### **7. A peer review in which the peer reviewers study and appraise a CPA firm\'s system of quality management to perform accounting and auditing work is referred to as a(n):** - ### **8. Which of the following is the most likely type of audit opinion when a limitation on the scope of the audit is significant?** - ### **9. Which of the following is a part of professional skepticism?** Questioning mind Critical assessment of audit evidence ------------------ --------------------------------------- Yes Yes Yes No No No No Yes **10. Which of the following is a part of the definition of professional skepticism?** Questioning mind Critical assessment of audit evidence ------------------ --------------------------------------- Yes Yes Yes No No No No Yes ### **11. Which of the following organizations can revoke the right of an individual to practice as a CPA?** - ### **12. The AICPA has played an important role in standards setting. Which of the following standards are currently established by the AICPA?** - ### **13. Which of the following does the FASB consider a source of nonauthoritative guidance for use when there is no authoritative guidance available?** - ### **14. A basic objective of a CPA firm is to provide professional services that conform with professional standards. Reasonable assurance of achieving this basic objective is provided through:** - ### **15. Which AICPA quality management standard is most associated with the resolution of differences of opinion among staff members that may arise on an audit?** - ### **16. International Standards on Auditing are issued by:** **AICPA** **IAASB** --------- ----------- ----------- **(1)** **Yes** **Yes** **(2)** **Yes** **No** **(3)** **No** **Yes** **(4)** **No** **No** ### **17. Financial statements are prepared following a(an):** - ### **18. An attitude that includes a questioning mind, being alert to conditions that may indicate possible misstatements, and a critical assessment of audit evidence is referred to as:** - ### **19. Which of the following is accurate, as indicated in the principles underlying an audit?** - ### **20. A procedure in which a firm sets rotation periods for all audit engagement partners relates most directly to which quality management component?** - **Chapter 3 Assessment** ### **1. Some of the rules included in the AICPA Code of Professional Conduct do not apply to CPAs in business.** - ### **2. Statements on Accounting and Review Services are enforceable under the AICPA Code of Professional Conduct.** - ### **3. The communications between CPAs and their clients are confidential, but not privileged under federal law.** - ### **4. Which of the following individuals would be least likely to be considered a \"covered member\" by the independence standard for the audit of the Wingo Company performed by a CPA firm with one office?** - ### **5. Auditors may be restricted from holding an investment in a client. This violates which ethical rule?** - ### **6. A small CPA firm provides audit services to a large local company. Almost eighty percent of the CPA firm\'s revenues come from this client. Which statement is most likely to be true?** - ### **7. Which of the following forms of organization is most likely to protect the personal assets of any partner or shareholder who has not been involved on an engagement resulting in litigation?** - ### **8. If a CPA violates the AICPA Code of Professional Conduct, the AICPA Trial Board may do which of the following?** - ### **9. Which of the following is an authoritative body that the AICPA Code of Professional Conduct authorizes to promulgate auditing and attestation standards?** - ### **10. A retired sole practitioner is most likely to violate the AICPA Code of Professional Conduct by:** - ### **11. Contingency fee-based pricing of accounting services is:** - ### **12. Which of the following is least likely to impair a CPA firm\'s independence with respect to a nonpublic audit client of the Kansas City office of a national CPA firm?** - ### **13. Which of the following family relationships is most likely to impair a CPA\'s independence with respect to a particular audit client on which the CPA works as a \"covered member\"?** - ### **14. AICPA independence requirements suggest that a CPA should evaluate whether a particular threat to independence would lead a reasonable person, aware of all the relevant facts, to conclude that:** - ### **15. If the AICPA Code of Professional Conduct does not specifically address a threat to auditor independence, the auditor should:** - ### **16. Which of the following is not a broad category of safeguards that mitigate or eliminate threats to independence?** - ### **17. Which of the following statements is correct?** - ### **18. When a threat to independence arises, an auditor should consider:** - ### **19. Which of the following attributes is more closely associated with attestation services performed by a CPA firm than with other lines of professional work?** - ### **20. Which of the following types of employees must be independent of an audit client?** - **Chapter 4 Assessment** ### **1. Most of the burden of affirmative proof is on the defendant under common law.** - ### **2. The results of the Continental Vending Corporation case did not result in the criminal prosecution of auditors for gross negligence.** - ### **3. Most charges made against auditors under common law are criminal.** - ### **4. Under Section 10 of the 1934 Securities Exchange Act auditors are liable to security purchasers for:** - ### **5. CPAs should not be liable to any party if they perform their services with:** - ### **6. The Private Securities Litigation Reform Act of 1995 imposes proportionate liability on the CPA who:** - ### **7. Under common law, which of the following statements most accurately reflects the liability of a CPA who fraudulently gives an opinion on an audit of a client\'s financial statements?** - ### **8. Under the Ultramares rule, to which of the following parties will an accountant be liable for ordinary negligence?** +-----------------------------------+-----------------------------------+ | Parties in privity | Foreseen parties | +===================================+===================================+ | A. | Yes | +-----------------------------------+-----------------------------------+ | B. | No | +-----------------------------------+-----------------------------------+ | C. | Yes | +-----------------------------------+-----------------------------------+ | D. | No | +-----------------------------------+-----------------------------------+ ### **9. Under which act (or acts) must a client prove that a CPA has performed an audit with due diligence to establish that CPA's liability?** +-----------------------------------+-----------------------------------+ | Securities Act of 1933 | Securities Exchange Act of 1934 | +===================================+===================================+ | E. | Yes | +-----------------------------------+-----------------------------------+ | F. | No | +-----------------------------------+-----------------------------------+ | G. | Yes | +-----------------------------------+-----------------------------------+ | H. | No | +-----------------------------------+-----------------------------------+ ### **10. Which of the following related to auditor common law liability is sometimes referred to as the "foreseen user" approach?** -