EXAM 1 Flashcards
(44 cards)
Which of the following is an element of a system of quality control that should be considered by a public accounting firm in establishing its quality control policies and procedures?
Lending credibility to a client’s financial statements.
Using statistical sampling techniques.
Acceptance and continuance of client relationships and specific engagements.
Membership in the Center for Public Company Audit Firms.
Acceptance and continuance of client relationships and specific engagements
Which of the following presumptions does not relate to the reliability of audit evidence?
The more effective the client’s internal control, the more assurance it provides about the accounting data and financial statements.
The auditors’ opinion, to be economically useful, is formed within reasonable time and based on evidence obtained at a reasonable cost.
Evidence obtained from independent sources outside the entity is more reliable than evidence secured solely within the entity.
The independent auditors’ direct personal knowledge, obtained through observation and inspection, is of higher quality
The auditors’ opinion, to be economically useful, is formed within reasonable time and based on evidence obtained at a reasonable cost.
Which of the following would most likely be a violation of the independence requirement found in the responsibilities principle under generally accepted auditing standards?
An auditor on the engagement has a distant relative who is employed by a vendor that does a significant amount of business with clients.
The client’s Chief Executive Officer graduated from the same university as the partner in charge of the accounting firm.
An auditor on the engagement owns a financial interest in the stock of the client.
The client provides financial support to a number of charitable causes that also receive support from the accounting firm.
An auditor on the engagement owns a financial interest in the stock of the client.
Which of the following statements is generally correct about the appropriateness of audit evidence?
Auditors’ direct personal knowledge, obtained through observation and inspection, is of higher quality than information obtained indirectly from independent outside sources.
To be reliable, audit evidence must be either valid or relevant, but need not be both.
Client accounting data alone may be considered sufficient appropriate audit evidence to issue an unmodified opinion on client financial statements.
Appropriateness of audit evidence refers to the amount of corroborative evidence to be obtained.
Auditors’ direct personal knowledge, obtained through observation and inspection, is of higher quality than information obtained indirectly from independent outside sources.
Which of the following presumptions is correct about the reliability of audit evidence?
Information obtained indirectly from outside sources is the most reliable form of audit evidence.
To be reliable, audit evidence should be convincing rather than persuasive.
Reliability of audit evidence refers to the amount of corroborative evidence obtained.
An effective system of internal control provides more assurance about the reliability of audit evidence.
An effective system of internal control provides more assurance about the reliability of audit evidence.
Which of the following statements is not true with respect to the evidence that would be gathered when assessments of control risk are high?
Auditors would be required to rely on external (rather than internal) forms of evidence.
Auditors would be required to perform procedures at interim periods, rather than at year end.
Auditors would be required to confirm a larger number of customer accounts receivable balances.
Auditors would be required to obtain more evidence through direct personal observation.
Auditors would be required to perform procedures at interim periods, rather than at year end.
The primary purpose of the auditors’ study of internal control for a nonissuer is:
to provide constructive suggestions to the client for improving its internal control.
to report on internal control as required by Auditing Standard No. 5.
to identify and detect fraud and irregularities perpetrated by client personnel.
to determine the nature, timing, and extent of further audit procedures.
Which of the following statements describes an appropriate relationship with respect to the reliability of audit evidence?
Receiving confirmation from third parties as to the existence of securities is more reliable than the auditors’ personal inspection of those securities.
Verbal inquiries received from the client regarding sales made to customers are more reliable than sales invoices prepared by the client for its customers.
A bank confirmation received directly by the auditor is more reliable than a bank confirmation initially received by the client and forwarded to the auditor.
Evidence drawn from a document prepared by the client is more reliable than evidence drawn from a document prepared
A bank confirmation received directly by the auditor is more reliable than a bank confirmation initially received by the client and forwarded to the auditor.
Which of the following is not true with respect to the responsibilities for establishing auditing standards?
Auditing standards for both issuers and non-issuers must be formally approved by the Securities and Exchange Commission.
Interpretive publications are issued by the AICPA to provide guidance on the application of auditing standards in specific circumstances.
The PCAOB is the body with formal authority for the creation of auditing standards for the audits of issuers.
If specific guidance is not provided by PCAOB Auditing Standards, auditors may refer to Statements on Auditing Standards that have not been amended or superseded.
Auditing standards for both issuers and non-issuers must be formally approved by the Securities and Exchange Commission.
Which of the following is true with respect to the PCAOB inspection process?
All firms performing audits of issuers are inspected every year.
PCAOB inspections are conducted by partners of other CPA firms.
PCAOB inspection teams review a sample of audit engagements conducted by the firm as well as the firm’s system of quality control.
Deficiencies from sample audit engagements reviewed by the inspection team and deficiencies in the firm’s system of quality control are publicly disclosed on the PCAOB’s website.
PCAOB inspection teams review a sample of audit engagements conducted by the firm as well as the firm’s system of quality control.
Which of the following courses of action is most appropriate if an auditor concludes that there is a high risk of material misstatement?
Use smaller, rather than larger, sample sizes.
Perform substantive tests as of an interim date.
Select more effective substantive tests.
Increase tests of controls.
Select more effective substantive tests.
indicate through the fundamental principle to which the item is most closely related.
responsibilities principle
reporting principle
performance principle
- Maintaining professional skepticism.
responsibilities principle
indicate through the fundamental principle to which the item is most closely related.
responsibilities principle
reporting principle
performance principle
- An auditors’ overall conclusion of the fairness of the client’s financial statements
reporting principle
indicate through the fundamental principle to which the item is most closely related.
responsibilities principle
reporting principle
performance principle
- The use of an audit plan to identify audit procedures o be performed during the engagement
performance principle
indicate through the fundamental principle to which the item is most closely related.
responsibilities principle
reporting principle
performance principle
- Auditors’ assessment of the risk of material misstatement
performance principle
indicate through the fundamental principle to which the item is most closely related.
responsibilities principle
reporting principle
performance principle
- Accounting firm policies with respect to the level of expected continuing professional education
responsibilities principle
indicate through the fundamental principle to which the item is most closely related.
responsibilities principle
reporting principle
performance principle
- Expressing an opinion in accordance with the auditor’s findings
reporting principle
indicate through the fundamental principle to which the item is most closely related.
responsibilities principle
reporting principle
performance principle
- Proper supervision of assistants on the audit
performance principle
indicate through the fundamental principle to which the item is most closely related.
responsibilities principle
reporting principle
performance principle
- Auditor’s requests to obtain bank statements directly from financial institutions with whom the client does business
performance principle
indicate through the fundamental principle to which the item is most closely related.
responsibilities principle
reporting principle
performance principle
- An indication that an opinion cannot be expressed
reporting principle
indicate through the fundamental principle to which the item is most closely related.
responsibilities principle
reporting principle
performance principle
- determining and applying an appropriate materiality level
performance principle
Which of the following statements is not included in the Auditor’s Responsibilities for the Audit of the Financial Statements Section of the standard (unmodified) report?
“In accordance with accounting principles generally accepted in the United States of America.”
“Our objectives are to obtain reasonable assurance…and to issue an auditor’s report that includes our opinion”
”..it is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement…”
“Reasonable assurance is a high level of assurance but is not absolute assurance…”
“In accordance with accounting principles generally accepted in the United States of America.”
Which of the following scope limitations would ordinarily be of most concern to the auditors?
The inability to observe inventories because auditors were appointed following the date of the financial statements.
Management’s refusal to provide auditors with written representations.
The inability to obtain confirmation of year-end balances from customers because of different billing dates.
The use of the work of component auditors in the audit of group financial
Management’s refusal to provide auditors with written representations.
“As described in Note 5 to the financial statements, General Express changed its statistical method of computing product warranty expense for the year ended December 31, 20x1…” is an illustration of a
consistency change requiring a qualified opinion.
scope limitation.
departure from generally accepted accounting principles.
report with a consistency modification
report with a consistency modification
