CAAP Audit Class Quiz 1

Question 1

Which of the following is an underlying condition that in part creates the demand by users for reliable information?

Economic transactions that are numerous and complex
Decisions are time-sensitive
Users separated from accounting records by distance and time
Financial decisions that are important to investors and users
All of these

Answer 1

All of these

Question 2

What is the term used to identify the risk that the client’s financial statements may be materially false and misleading?

Business risk
    Information risk
Client risk
Risk assessment

Answer 2

Information risk

Question 3

Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of

objective judgment.
independent integrity.
professional skepticism.
impartial conservatism.

Answer 3

professional skepticism.

Question 4

A series of business and related auditing failures led to the passage of the Sarbanes-Oxley Act (2002).

True or False?

Answer 4

True

Question 5

PCAOB auditing standards must be followed on all financial statement audits performed in the U.S.

True or False?

Answer 5

False

Question 6

What organization is responsible for setting auditing standards for audits of publicly-traded companies in the U.S.?

AICPA.
FASB.
GASB.
PCAOB.

Answer 6

PCAOB.

Question 7

The first PCAOB standard of reporting requires that, “the report shall state whether the financial statements are presented in accordance with generally accepted accounting principles.” This passage requires

A statement of fact by the auditor.
An opinion by the auditor.
An implied measure of fairness.
An objective measure of compliance.

Answer 7

An opinion by the auditor.

Question 8

The primary responsibility for the adequacy of disclosures in the financial statements of a publicly held company rests with the

Partner assigned to the audit engagement.
Management of the company.
Auditor in charge of the fieldwork.
Securities and Exchange Commission.

Answer 8

Management of the company.

Question 9

External auditors are referred to as “external” because

They report to users outside of the audited entity.
They are paid by parties outside of the audited entity.
They are not employees of the entity being audited.
Their offices are not at the entity's place of business.

Answer 9

They are not employees of the entity being audited.

Question 10

Which is not an attribute of an external auditor?

Independence.
Auditee advocacy.
Objectivity.
Concern for the public interest.

Answer 10

Auditee advocacy.

Question 11

The basic purpose of a financial statement audit is to

Detect fraud.
Examine individual transactions so that the auditor may certify as to their validity.
Provide assurance regarding whether the auditee's financial statements are fairly stated.
Assure the consistent application of correct accounting procedures.

Answer 11

Provide assurance regarding whether the auditee’s financial statements are fairly stated.

Question 12

In the context of agency theory, information asymmetry refers to the idea that

Information can vary in its reliability.
Information can vary in its relevance.
Management has more information about the entity's true financial position than do the absentee owners (i.e. stockholders).
Management likely will not act in the best interests of the absentee owners.

Answer 12

Management has more information about the entity’s true financial position than do the absentee owners (i.e. stockholders).

Question 13

Auditing is defined as a “systematic process of objectively obtaining and evaluating evidence regarding assertions…” What is meant by “systematic process”?

All audits involve obtaining the same evidence.
All audits involve evaluating evidence in the same manner.
There should be a well-planned approach for obtaining and evaluating evidence.
All assertions are equally important for all audits.

Answer 13

There should be a well-planned approach for obtaining and evaluating evidence.

Question 14

An investor is reading the financial statements of the Stankey Corporation and observes that the statements are accompanied by an auditor’s unqualified report. From this, the investor may conclude that

Any disputes over significant accounting issues have been settled to the auditor's satisfaction.
The auditor is satisfied that Stankey will be highly profitable in the future.
The auditor is certain that Stankey's financial statements have been prepared accurately and that all account balances are precisely correct.
The auditor has determined that Stankey's management is not qualified to lead the company.

Answer 14

Any disputes over significant accounting issues have been settled to the auditor’s satisfaction.

Question 15

An auditor would issue an adverse opinion if

The auditor encounters adverse attitudes toward the auditor on the part of company management.
A qualified opinion cannot be given because the auditor is not qualified to do so.
An immaterial misstatement is present.
The statements taken as a whole do not fairly present the financial condition and results of operations of the company.

Answer 15

The statements taken as a whole do not fairly present the financial condition and results of operations of the company.

Question 16

Which of the following is true with respect to the auditor’s report?

The report indicates that the company's financial statements were audited in accordance with generally accepted accounting standards.
The report indicates that the company's financial statements were audited in accordance with applicable auditing standards.
The report indicates that the company's financial statements were audited in accordance with the auditor's best judgment.
The report indicates that the company's financial statements were audited in accordance with statements issued by the FASB.

Answer 16

The report indicates that the company’s financial statements were audited in accordance with applicable auditing standards.

Question 17

Which of the following best describes “attest” services?

The auditor attests to the quality of some type information.
The auditor attests to the source of some type of information.
The auditor attests to the accuracy of some type of information.
The auditor attests to the quantity of some type of information.

Answer 17

The auditor attests to the accuracy of some type of information.

Question 18

When the auditors are unable to comply with generally accepted auditing standards, they should issue an opinion that is unmodified, but include an additional emphasis-of-matter paragraph in the report.

True or False?

Answer 18

False

Question 19

When there is a significant question about a company’s ability to remain a going concern, the report issued is usually unmodified with an emphasis-of-matter paragraph.

    True or False?

Answer 19

True

Question 20

When financial statements are affected by a material departure from generally accepted accounting principles, the auditors should:

Issue an unmodified opinion with a basis for modification paragraph.
Withdraw from the engagement.
Issue an "except for" qualification or an adverse opinion.
Issue an "except for" qualification or a disclaimer of opinion.

Answer 20

Issue an “except for” qualification or an adverse opinion.

Question 21

A client has changed the salvage values of a number of its fixed assets. The auditors believe that the salvage values are realistic. The appropriate report on the financial statements is:

Standard unmodified.
Unmodified with explanatory language as to consistency.
Qualified for consistency.
Disclaimer.

Answer 21

Standard unmodified.

Question 22

CPA Firm A has performed most of the audit of Consolidated Company’s financial statements and qualifies as the group auditor. CPA Firm B did the remainder of the work. Firm A wishes to assume full responsibility for Firm B’s work. Which of the following statements is correct?

Such assumption of responsibility violates the profession's standards.
In such circumstances, when appropriate requirements have been met, Firm A should issue a standard unmodified opinion on the financial statements.
In such circumstances, when appropriate requirements have been met, Firm A should issue an unmodified opinion on the financial statements but should make appropriate reference to Firm B in the audit report.
CPA firm A should normally qualify its audit report on the basis of the scope limitation involved when another CPA firm is involved.

Answer 22

In such circumstances, when appropriate requirements have been met, Firm A should issue a standard unmodified opinion on the financial statements.

Question 23

A scope restriction is least likely to result in a(an):

Qualified opinion.
Disclaimer of opinion.
Adverse opinion.
Standard unmodified opinion.

Answer 23

Adverse opinion.

Question 24

Under which of the following set of circumstances might the auditors disclaim an opinion?

The financial statements contain a departure from generally accepted accounting principles, the effect of which is material.
The group auditors decide to make reference to the report of component auditor who audited a subsidiary.
There has been a material change between periods in the method of application of accounting principles.
There are significant scope limitations on the audit.

Answer 24

There are significant scope limitations on the audit.

Question 25

Historically, which of the following has the AICPA been most concerned with providing?

Professional standards for CPAs.
Professional guidance for regulating financial markets.
Standards guiding the conduct of internal auditors.
Staff support to Congress.

Answer 25

Professional standards for CPAs.