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Flashcards in A1-2 Deck (9)
1

Which of the following accurately depicts the auditor's responsibility with respect to Statements on Auditing Standards?

a.

The auditor is generally required to follow the guidance provided by the Standards, unless following such guidance would result in an audit that is not cost-effective.

b.

The auditor is required to follow the guidance provided by the Standards, without exception.

c.

The auditor is generally required to follow the guidance provided by Standards with which he or she is familiar, but will not be held responsible for departing from provisions of which he or she was unaware.

d.

The auditor is generally required to follow the guidance provided by the Standards, and should be able to justify any departures.

Choice "d" is correct. The auditor is generally required to follow the guidance provided by the Standards, and should be able to justify any departures.

Choice "b" is incorrect. On rare occasions, the auditor may depart from the guidance provided by the SASs, but he or she must justify such departures. 

Choice "c" is incorrect. Lack of familiarity with a SAS is not a valid reason for departing from its guidance. The auditor is expected to have sufficient knowledge of the SASs to identify those that are applicable to a given audit engagement.

Choice "a" is incorrect. The cost associated with following the guidance provided by a SAS is not an acceptable reason for departing from its guidance.

2

When financial statements contain a departure from U.S. GAAP because, due to unusual circumstances, the statements would otherwise be misleading, the auditor should express an opinion that is:

a.

Unmodified.

b.

Qualified or adverse, depending on pervasiveness.

c.

Adverse.

d.

Qualified.

Choice "a" is correct. When circumstances indicate that a financial presentation in accordance with U.S. GAAP would be misleading, a departure from U.S. GAAP is permissible. In such cases, the auditor should issue an unmodified opinion because the financial statements are not materially misstated.

Choices "d", "c", and "b" are incorrect. The auditor's opinion need not be qualified or adverse because the financial statements are presented fairly.

3

When a PCAOB auditing standard indicates that an auditor "could" perform a specific procedure, how should the auditor decide whether and how to perform the procedure?

a.

By comparing the PCAOB standard with related AICPA auditing standards.

b.

By exercising professional judgment in the circumstances.

c.

By soliciting input from the issuer's audit committee.

d.

By evaluating whether the audit is likely to be subject to inspection by the PCAOB.

 

Choice "b" is correct. The words "may," "might," and "could" describe actions and procedures that auditors have a responsibility to consider. Matters described in this fashion require the auditor's attention and understanding. How and whether the auditor implements these matters in the audit will depend on the exercise of professional judgment in the circumstances consistent with the objectives of the standard.

Choice "a" is incorrect. "Could" does not mean that the auditor should compare the PCAOB standard with the related AICPA standards.

Choice "c" is incorrect. The auditor should not solicit input from the issuer's audit committee, as audit procedure decisions need to be made by the auditor.

Choice "d" is incorrect. Whether the audit is likely to be subject to inspection by the PCAOB should not be a factor on the auditor's decision to perform a procedure.

4

An auditor of a nonissuer must conduct the audit in accordance with:

I.

ASB standards.

II.

PCAOB standards.

a.

Either I or II, but not both.

b.

Both I and II.

c.

II.

d.

I.

Choice "d" is correct. An auditor of a nonissuer must conduct the audit in accordance with ASB standards.

Choice "b" is incorrect. An auditor of a nonissuer is not required to conduct the audit in accordance with PCAOB standards.

Choice "a" is incorrect. While an auditor is only required to conduct the audit in accordance with ASB standards, the auditor may choose to follow PCAOB standards as well.

Choice "c" is incorrect. An auditor of a nonissuer is not required to conduct the audit in accordance with PCAOB standards.

5

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:

a.

Independent integrity.

b.

Professional skepticism.

c.

Impartial conservatism.

d.

Objective judgment.

Choice "b" is correct. The auditor should plan and perform the audit with an attitude of professional skepticism. This attitude includes a questioning mind and a critical assessment of audit evidence, and recognizes that circumstances may exist that cause the financial statements to be materially misstated..

Choices "d", "a", and "c" are incorrect. Objectivity, independence, integrity, and impartiality are basic ethical characteristics and professional qualities embodied in the applicable ethical requirements of the profession.

6

Which of the following actions should a CPA firm take to comply with the AICPA's quality control standards?

a.

Use attributes sampling techniques in testing internal controls.

b.

Establish procedures that comply with the standards of the Sarbanes-Oxley Act.

c.

Consider inherent risk and control risk before determining detection risk.

d.

Establish policies to ensure that the audit work meets applicable professional standards.

 

Choice "d" is correct. A quality control system consists of policies and procedures designed, implemented, and maintained to ensure that the firm complies with professional standards and appropriate legal and regulatory requirements, and that any reports issued are appropriate in the circumstances.

Choice "b" is incorrect. Although Sarbanes-Oxley promulgated many legal requirements, this would not be the best all inclusive answer, as there are other professional standards that must be met as well.

Choice "a" is incorrect. These steps would be performed to comply with GAAS, but they are not a part of following quality control standards.

Choice "c" is incorrect. These steps would be performed to comply with GAAS, but they are not a part of following quality control standards.

7

Which of the following is not an example of the application of professional skepticism?

a.

Inquiring of prior year engagement personnel regarding their assessment of management's honesty and integrity.

b.

Obtaining corroboration of management's explanations through consultation with a specialist.

c.

Designing additional auditing procedures to obtain more reliable evidence in support of a particular financial statement assertion.

d.

Using third party confirmations to provide support for management's representations.

Choice "a" is correct. The auditor should consider that fraud might occur regardless of any past experience with the entity. An assessment of management's honesty and integrity performed during the previous year would not necessarily be relevant to the current year's audit.

Choice "c" is incorrect. An auditor might apply professional skepticism by performing additional audit procedures designed to improve the reliability of evidence.

Choice "b" is incorrect. Corroborating management's explanations is an example of the application of professional skepticism, since the auditor is obtaining additional support rather than simply accepting the explanation as given.

Choice "d" is incorrect. Using third party confirmations to provide support for management's representations is an example of the application of professional skepticism, since the auditor is obtaining additional support rather than simply accepting the explanation as given.

8

The Public Company Accounting Oversight Board was established by which of the following?

a.

The International Accounting Standards Board.

b.

The Financial Accounting Standards Board.

c.

The Sarbanes-Oxley Act of 2002.

d.

The American Institute of Certified Public Accountants.

 

Choice "c" is correct. The Public Company Accounting Oversight Board was established by the Sarbanes-Oxley Act of 2002.

Choices "b", "d", and "a" are incorrect per the explanation above.

9

Which of the following provides the most authoritative guidance for the auditor of a nonissuer?

a.

An AICPA audit and accounting guide that provides specific guidance with respect to the accounting practices in the client's industry.

b.

Specific guidance provided by an interpretation of a Statement on Auditing Standards.

c.

General guidance provided by a Statement on Auditing Standards.

d.

A Journal of Accountancy article discussing implementation of a new standard.

Choice "c" is correct. General guidance provided by a Statement on Auditing Standards is the most authoritative of level of auditing guidance for audits of nonissuers. Auditors are required to comply with SASs, and should be prepared to justify any departures therefrom.

Choices "a" and "b" are incorrect. AICPA audit and accounting guides and SAS interpretations are interpretive publications that provide guidance regarding how SASs should be applied in specific situations. They are not as authoritative as SASs.

Choice "d" is incorrect. Journal of Accountancy articles have no authoritative status but may be helpful to the auditor.