kupdf com audtheory test bank

An independent audit aids in the communication of economic data because the audit a.Confirms the accuracy of management's financial representations.. b.Assess the presentation of managem

Test Bank

b 1 To become a Certified Public Accountant (CPA), an

individual must pass the Uniform CPA Examination and

a Demonstrate his or her independence

b.Comply with state education and experience

requirements

c Obtain employment with a public accounting firm

d Become a member of the AICPA

b 2 Which of the following statements is an example of an assertion made by management in an

entity's financial statements?

a The financial statements were prepared in an unbiased manner

b Reported inventory balances reflect all related transactions for the period

c Reported accounts receivable do not include any uncollectible accounts

d The scope of the auditors' investigation was not

limited in any way by management

d 3 Statements on Auditing Standards

a Relate to the filing requirements and enforcement activities of the SEC

b Describe procedures to be applied in specific areas of audit activity to eliminate inconsistencies in audit practice

c Are intended to limit the degree of auditor judgment needed to fulfill the attest function

d Interpret standards that provide guidelines or measures of quality for an independent audit

d 4 The primary purpose of an independent financial statement audit is to

a Provide a basis for assessing management's performance

b Comply with state and federal regulatory requirements

c Assure management that the financial statements are unbiased and free from material error

d Provide users with an unbiased opinion about the fairness of information reported in the financial statements

(AICPA ADAPTED)

b 5 Independent auditing can best be described as a

a Branch of accounting

b Discipline that attests to the results of accounting

and other operations and data

c Professional activity that measures and communicates

financial and business data

d.Regulatory function that prevents the issuance of

improper financial information

b 6 An independent audit aids in the communication of economic data because the audit

a.Confirms the accuracy of management's financial

representations

b Lends credibility to the financial statements

c Guarantees that financial data are fairly presented

d Assures the readers of financial statements that any

fraudulent activity has been corrected

(AICPA ADAPTED)

c 7 Which of the following types of audits are most similar?

a Operational audits and compliance audits

b Independent financial statements audits and operational

audits

c Compliance audits and independent financial statements

audits

d Internal audits and independent financial statements

audits

c 8 The Auditing Standards Board

a Sets rules and regulations that govern public accounting

firms

b Is an arm of the Financial Accounting Standards Board

c Is a senior technical body of the AICPA designated to

issue authoritative auditing pronouncements

d.Reports directly to the Securities and Exchange

Commission

c 9 The essence of the attest functions is to

a Detect fraud

b Examine individual transactions so that the auditor can

certify as to their validity

c Determine whether the client's financial statements are

fairly stated

d Ensure the consistent application of correct accounting

procedures

d 10 Which of the following criteria is unique tot he independent auditor's attest function?

a General competence

b Familiarity with the particular industry of each client

c Due professional care

d Independence

c 11 The definition of auditing contained within A Statement of Basic Auditing concepts

recognizes that auditing includes both a(n)

a Documentation process and an evaluation process

b Evaluation process and a reporting process

c Investigative process and a reporting process

d Documentation process and a reporting process

a 12 An operational audit is designed to

a Assess the efficiency and effectiveness of management's

operating procedures

b.Assess the presentation of management's financial

statements in accordance with generally accepted accounting principles

c Determine whether management has complied with applicable

laws and regulations

d Determine whether the audit committee of the board of

directors is effectively discharging its responsibility to oversee management's operations

b 13 The market for auditing services is driven by

a The regulatory authority of the Securities and Exchange

Commission

b A demand by external users of financial statements

c Pronouncements issued by the Auditing Standards Board

d Congress at the federal level and elected legislative

bodies at the state level

c 14 The first contemporary audit related legislation was the

a Securities Act of 1933

b Securities Exchange Act of 1934

c British Joint Stock Companies Act of 1844

d Companies Act of 1942

c 15 The first authoritative auditing pronouncement in the U.S

was

a.Statement on Auditing Procedures No 1 "Extensions of

Auditing Procedures."

b Statement on Auditing Standards No 1 "Codification of SaSS."

c "Uniform Accounting: A Tentative Proposal Submitted by the Federal Reserve Board (1917)"

d "Examination of Financial Statements by Independent PublicAccounts (1936)."

c 16 The first authoritative audit standards setting body empowered to issue auditing

pronouncements in the U.S was the

a Committee on Auditing Procedure

b Auditing Standards Executive committee

c Auditing Standards Board

d Accounting and Review Services Committee

c 17 Which of the following incorrectly matches the authoritative body with its authoritative

pronouncements?

a Accounting and Review Services Committee: "Statements on Standards for Accounting and Review Services"

b Auditing Standards Board: "Statements on Auditing Standards."

c Auditing Standards Executive Committee: "Statements on Auditing Procedure."

d Securities and Exchange Commission: "Financial Reporting Releases."

c 18 A license to practice as a certified public accountant is granted by

a The board of accountancy

b PICPA

c PRC

d SEC

b 19 The purpose of a compliance audit for a governmental entity is to determine whether

a Financial statements comply with GAAP and whether the entity is operating efficiently

b Financial statements comply with GAAP and the entity has complied with applicable laws and regulations

c The entity has complied with applicable laws and regulations

d Financial statements comply with GAAP

a 20 The audit process is

a A special application of the scientific method of inquiry

b Regulated by the AICPA

c The only service a CPA is allowed to perform by law

d Performed only CPAs

d 21 Which of the following has historically had the least influence on the practice of public

accounting?

a The Governmental Accounting Standards Board

b The Institute of Internal Auditors

c The Securities and Exchange Commission

d The U.S Congress

b 22 Independent auditing can best be described as a

a Subset of accounting

b Professional activity that attests to the fair

presentation of financial statements

c Professional activity that measures and communicates

financial accounting data

d Regulatory activity that prevents the issuance of

improper financial information

(AICPA ADAPTED)

c 23 An independent audit is important to readers of financial statements because it

a Provides a measure of management's stewardship

function

b Measures and communicates the financial data included

in financial statements

c Objectively examines and reports on management's

financial statements

d Reports on the accuracy of information in the

financial statements (AICPA ADAPTED)

a 24 The reason an independent auditor gathers evidence is to

a Form an opinion on the financial statements

b Detect fraud

c Evaluate management

d Evaluate internal controls

a 1 The professional care requires

a A critical review of the work done at every level of

supervision

b The examination of all corroborating evidence

available

c The exercise of error-free judgment

d A consideration of internal control structure that

includes tests of controls (AICPA ADAPTED)

c 2 The first general standard requires that the audit of financial statements be performed by a

person or persons having adequate technical training and

a Independence with respect to the financial statements and supplementary disclosures

b Exercising professional care as judged by peer reviewers

c Proficiency as an auditor which likely has been acquired from previous experience

d Objectivity as an auditor as verified by proper supervision.(AICPA ADAPTED)

d 3 An auditor while performing an audit, strives to achieve the appearance of independence in

order to

a Reduce risk and liability

b Comply with the generally accepted standards of field

work

c Become independent in fact

d Maintain public confidence in the profession

(AICPA ADAPTED)

d 4 Adequate technical training and proficiency as an auditor encompasses an ability to

understand a computer system sufficiently to identify and evaluate

a The processing and imparting of information

b Essential accounting control features

c All control procedures

d The degree to which programming conforms to the application of generally accepted accounting principles (AICPA ADAPTED)

c 5 Competence as a certified public accountant includes all of the following except

a Having the technical qualifications to perform an engagement

b Possessing the ability to supervise and evaluate the quality of staff work

c Warranting the infallibility of the work performed

d Consulting others if additional technical information is needed.(AICPA ADAPTED)

a 6 Ultimately, the decision about whether or not an auditor is independent must be made by the

a Auditor c Client

b Audit committee d Public

c 7 Madison Corporation has a few large accounts receivable that total $1,000,000 Nassau

Corporation has a great number of small accounts receivable that also total

$1,000,000 The importance of an error in any one account is, therefore, greater for Madison than for Nassau This is an example of the auditor's concept of

a Account bias c Materiality

b Audit risk d Reasonable accuracy

b 8 Which of the following best describes what is meant by generally accepted auditing

standards?

a Acts to be performed by the auditor

b Measures of the quality of an auditor's performance

c Procedures used to gather evidence to support financial statements

d Audit objectives generally determined on audit engagements.(AICPA ADAPTED)

b 9 There is an inverse relationship between the effectiveness of an entity's internal control

structure and the

a Reliability of financial statements

b Extent of detailed audit tests required

c Degree of staff supervision required in the

performance of an audit

d Fairness of management assertions in the financial statements

a 10 Which of the following best describes the character of the three generally accepted auditing

standards classified as general standards?

a.Criteria for competence, independence, and

professional care of individuals performing the

audit

b Criteria for the content of the financial statements and related footnote disclosures

c Criteria for the content of the auditor's report

d The requirements for planning and supervision

(AICPA ADAPTED)

c 11 the generally accepted standards of filed work relate to

a The competence, independence, and professional care of persons performing the audit

b Criteria for the content of the auditor's report on financial statements

c Audit planning and evidence gathering

d The need to maintain independence in mental attitude

(AICPA ADAPTED)

d 12 Which of the following statements is correct concerning the concept of materiality?

a Materiality is determined by reference to AICPA guidelines

b Materiality depends only on the dollar amount involved

c Materiality depends on the nature of an item rather than on the dollar amount

d Materiality is a matter of professional judgment

(AICPA ADAPTED)

a 13 The generally accepted standards of reporting encompass all of the following except

a Consideration of an entity's internal control structure

b Consistent application of accounting principles

c Informative disclosures

d Conformity of financial statements with GAAP

c 14 An objective of the fourth generally accepted standard of reporting, relating to the

expression of an opinion, is to

a Prohibit the auditor from issuing a report that does not include an opinion on the financial statements taken as a whole

b Inform users that the financial statements and related notes are the joint responsibility of the auditor and management

c Prevent users of financial statements from misinterpreting the degree of responsibility assumed by the auditor

d Ensure adequate informative disclosures in the financial statements

d 15 The least important evidence of a public accounting firm's evaluation of its system of

quality controls would concern the firm's policies and procedures with respect to

a Employment (hiring)

b Confidentiality of audit engagement

c Assigning personnel to audit engagement

d Determination of audit fee

a 16 Which of the following is not an element of quality control?

a Documentation c Supervision

b Inspection d Consultation

d 17 Williams & Co., a large international public accounting firm, is due to have a peer

review The peer review will most likely be performed by

a Employees and partners of Williams & Co who are not associated with the particular audits being reviewed

b Audit review staff of the Securities and Exchange Commission

c Audit review staff of the AICPA

d Employees and partners of another firm

(AICPA ADAPTED)

b 18 In a financial statement audit, audit risk represents the probability that

a.Internal control fails and the failure is not

detected by the auditor's procedures

b The auditor unknowingly fails to modify an opinion on materially misstated financial statements

c Inherent and control risk cause errors that could be material to the financial statements

d The auditor is not retained to conduct a financial statement audit in the succeeding year

a 19 In a financial statement audit, inherent risk represents the

a Susceptibility of an account balance to error that could be material

b Risk that error could occur and not be prevented

c Risk that error could occur and not be detected by the auditor's procedures

d Risk that the auditor fails to modify materially misstated financial statements

d 20 What is the magnitude of audit risk if inherent risk is 50, control risk is 40, and detection

risk is 10?

a .20 b .10 c .40 d .04

c 21 The "hallmark" of auditing is

a Available audit technology

b Generally accepted auditing standards

c Professional judgment

d Materiality and audit risk

d 22 An auditor is most likely to refer to one or more of the three general auditing standards in

determining

a The nature of a report qualification

b The scope of auditing procedures

c Requirements for the consideration of internal control

d Whether the auditor should undertake an audit engagement.(AICPA ADAPTED)

a 23 Which of the following is mandatory if the auditor is to comply with the general standards

of the AICPA's generally accepted auditing standards?

a Adequate technical training

b Use analytical procedures

c Use statistical sampling when feasible on an audit

engagement

d Confirmation of material accounts receivable balances

b 24 The first general standard requires that a person or persons have adequate technical training

and proficiency as an auditor This standard is met by

a Understanding business and finance

b Education and experience in auditing

c Continuing professional education

d Knowledge of the Statements of Auditing Standards

(AICPA ADAPTED)

a 25 What is the meaning of the generally accepted auditing standard that requires that the

auditor be independent?

a The auditor must be without bias with respect to the client audited

b The auditor must adopt a critical attitude during the audit

c The auditor's sole obligation is to third parties

d The auditor may have a direct ownership interest in the client's business if it is not material

(AICPA ADAPTED)

d 26 The third general standard states that due care is to be exercised in the performance of an

audit, and should be interpreted to mean that an auditor who undertakes an engagement assumes a duty to perform

a With reasonable diligence and without fault or error

b As a professional who will assume responsibility for losses consequent upon error

of judgment

c To the satisfaction of the client and third parties

d As a professional possessing the degree of skill commonly possessed by others in the field

(AICPA ADAPTED)

a 27 The first standard of field work, which states that the work is to be adequately planned and

assistants, if any, are to be properly supervised, recognizes that

a.Early appointment of the auditor is advantageous

both to the auditor and to the client

b Acceptance of an audit engagement after the case of the client's fiscal year is generally not permissible

c Appointment of the auditor subsequent to the physical count of inventories requires

a disclaimer of opinion

d Performance of substantial parts of the engagement is necessary at interim dates (AICPA ADAPTED)

b 28 In connection with the third generally accepted auditing standard of field work, an auditor

examines corroborating evidential matter that includes all of the following except

a Client accounting manuals

b Written client representations

c Vendor invoice

d Minutes of board meetings

a 29 Which of the following underlies the application of generally accepted auditing standards,

particularly the standards of field work and reporting?

a The elements of materiality and risk

b The element of internal control

c The element of corroborating evidence

d The element of reasonable assurance (AICPA ADAPTED)

c 30 The fourth generally accepted auditing standard of reporting requires an auditor to render a

report whenever an auditor's name is associated with financial statements The overall purpose of the fourth standard of reporting is to require that reports

a Assure that the auditor is independent with respect to the financial statements audited

b State that the audit has been conducted in accordance with generally accepted auditing standards

c Indicate the character of the engagement and the degree of responsibility assumed

by the auditor

d Express whether the accounting principles used in preparing the financial statements have been applied consistently in the period audited

(AICPA ADAPTED)

d 31 The auditor's judgment concerning the overall fairness of the presentation of financial

positions, results of operations and cash flows is applied within the framework of

a Quality control

b.Generally accepted auditing standards that include

the concept of materiality

c The auditor's evaluation of the audited company's

internal controls

d Generally accepted accounting principles

d 32 The concept of materiality would be least important to an auditor in determining

a Transactions that should be reviewed

b The need for disclosing a particular transaction or

event

c The extent of audit work planned for particular

accounts

d The effects of an auditor's direct financial

interest in a client

b 33 The objective of quality control mandates that a public accounting firm should establish

policies and procedures for professional development that provide reasonable assurance that all entry-level personnel

a Prepare working papers that are standardized in form and content

b Have the knowledge required to enable them to fulfill responsibilities assigned

c Will advance within the organization

d Develop specialties in specific areas of public accounting

b 34 In pursuing its quality control objectives with respect to assigning personnel to

engagements, a public accounting firm may use policies and procedures such as

a Rotating employees from assignment to assignment on a random basis to aid in the staff training effort

b Requiring timely identification of the staffing requirements of specific engagements

so that enough qualified personnel can be made available

c Allowing staff to select the assignments of their choice to promote better client relationships

d Assigning a number of employees to each engagement in excess of the number required so as not to overburden the staff and interfere with the quality of the audit work performed (AICPA ADAPTED)

d 35 A public accounting firm studies its personnel advancement experience to determine

whether individuals meeting stated criteria are assigned increased degrees of responsibility This is evidence of the firm's adherence to

a Generally accepted auditing standards

b Attestation standards

c Supervision and review

d Quality control standards

d 36 Which of the following statements best describes the primary purpose of Statements on

Auditing Standards?

a.Guides intended to set forth auditing procedures

that are applicable to a variety of situations

b Outlines intended to narrow the areas of inconsistency and divergence of auditor opinion

c Authoritative statements, enforced through the code of professional conduct, and intended to limit the degree of auditor judgment

d Interpretations intended to clarify the meaning of generally accepted auditing standards

(AICPA ADAPTED)

c 1 An auditor's report contains the following:

We did not audit the financial statements of B Company, a consolidated subsidiary, which statements reflect total assets and revenues constituting 20 percent and 22 percent, respectively, of the related consolidated totals These statements were audited by other auditors, whose report has been furnished to us, and our opinion insofar as it relates to the amounts included for B Company, is based solely upon the report of the other auditors

These sentences

a Disclaim an opinion

b Qualify the opinion

c Divide responsibility

d Should not be part of the audit report

(AICPA ADAPTED)

c 2 In which of the following situations would the auditor appropriately issue a standard

unqualified report with no explanatory paragraph concerning consistency?

a A change in the method of accounting for specific subsidiaries that comprise the group of companies for which consolidated statements are presented

b A change from an accounting principle that is not generally accepted to one that is generally accepted

c A change in the percentage used to calculate the provision for warranty expense

d Correction of mistake in the application of a generally accepted accounting

principle

(AICPA ADAPTED)

b 3 When financial statements are presented that are not in conformity with generally accepted

accounting principles, an auditor may issue a(n)

Qualified Opinion Adverse Opinion

a Yes No