Exam 1 Flashcards
(75 cards)
1
Q
***1. Users of an issuer’s financial statements demand independent audits because?
A
***Answer: B. Management may not be objective in reporting. (Chapter 1.1)
2
Q
***2. An audit of the financial statements of Camden Corp. is being conducted by an external auditor. The external auditor is expected to.
A
***Answer: A. Express an opinion as to the fairness of Camden’s financial statements. (1.1)
3
Q
***3. The primary reason for an audit by an independent, external audit firm is to
A
***Answer: D. Provide increased assurance to users at so the fairness of the financial statements. (Chapter 1.1)
4
Q
***4. Independent auditor of financial statements perform audits that reduce
A
***Answer: B. Information risk faced by investors
5
Q
***5. Which of the following best describes the relationship between auditing and attestation engagements?
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***Answer: A. Auditing is a subset of attestation engagements that focuses on the certification of the financial statements.
6
Q
- Competence as an independent auditor includes all of the following except.
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Answer: C. Warranting the infallibility of the work performed. (Chapter 1.1)
7
Q
- Audit standards requires that the engagement partner.
A
Answer: B. Be responsible for the assignment of tasks to, and supervision of, assistants
8
Q
- Several sources of U.S. GAAP consulted by an auditor are in conflict as to the application of an accounting
A
Answer: A. FASB Accounting Standards Codification
9
Q
- It would NOT be appropriate for the auditor to initiate discussions with the audit committee concerning
A
Answer: B. Details of the procedures that the auditor intents to apply.
10
Q
- Which of the following services, if any, may an accountant who is not independent provide
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Answer: A. Preparations and compilations but not reviews.
11
Q
- In performing an attest engagement, a CPA most likely
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Answer: C. Expresses a conclusion about a written assertion.
12
Q
- Which of the following professional services is considered an attest engagement?
A
Answer: A. A consulting service engagement to provide computer advice to a client
13
Q
*** 13. Assurance and advisory services are best described as
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***Answer: B. Independent professional services that improve the quality of information, or its context, for decision makers.
14
Q
- An external auditor cannot
A
Answer: C. Express an opinion that the F/S are free from all misstatement
15
Q
- Who establishes GAAS
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Answer: A. Auditing Standards Board and the Public Company Accounting Oversight Board (Chapter 1.1)
16
Q
- Notes that are included with Financial statements are the responsible of the
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Answer: B. Company’s management.
17
Q
- Miro Company is going public … Who is expected to be the primary user of the audited F/S?
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Answer: B. Miro Company’s investors
18
Q
***18. CPAs within each state have formed state societies or associations of CPAs. Which of the following is FALSE?
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***Answer: C. All CPAs in the state must be members of the state association or society.
19
Q
- Through legal precedent, GAAS established by the AICPA apply
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Answer: B. To all CPAs
20
Q
- The financial statement assertions that relate to a client’s classes of transactions include all of the following EXCEPT
A
Answer: B. materiality or risk
21
Q
- A firm of independent auditors must establish and follow quality control policies and procedures because these standards
A
Answer: D. Give reasonable assurance that the firm as a whole will conform with applicable auditing standards.
22
Q
- In connection with the element of human resources, a CPA firm’s system of quality control should ordinarily provide that all personnel
A
Answer: A. Participate in professional development activities that enable them to fulfill responsibilities assigned.
23
Q
- The requirement to promote a culture of quality is most closely associated with which of the following quality control elements
A
Answer: A. Leadership responsibilities for quality within the firm.
24
Q
***24. The audit objective that all transactions are recorded in the proper period is related most closely to which of the ASB
A
***Answer: C. cutoff
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***25. The Audit objective that all balances include items owned by the client is related most closely to which of the ASB
***Answer: B. Rights and obligations
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***26. An auditor most likely would review an entity's periodic accounting for the numerical sequence of shipping documents and invoices to support management’s financial statement assertion of
***Answer: B. completeness
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***27. Auditors try to achieve independence in appearance in order to.
***Answer: A. Maintain public confidence in the profession.
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28. The responsibility principle under GAAS deps NOT include which of the following
Answer: D. planning and supervision
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***29. When a scope limitation has precluded the auditor from obtaining sufficient appropriate. evidence to determine whether certain clients’ acts are illegal
***Answer: C. Either a disclaimer of opinion or a qualified opinion.
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30. The objective of the audit of GAAP-basis financial statement is to
Answer: B. Express an opinion on the fairness with which the statements present financial position, results from operations, and cash flow in accordance with generally accepted accounting principles.
31
***31. If a company's external auditor expresses an unmodified opinion as a result of the audit of the company’s financial statements, readers of the report can assume that
***Answer: D. Material issues about the application of accounting principles were resolved to the satisfaction of the external auditor.
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32. If financial statements are to meet the required of adequate disclosure
Answer: B. All information believed by the auditor to be essential to the fair presentation of the financial statements must be disclosed, no matter how confidential management believes the data to be.
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33. Late in December, Tech Product Company sold available-for-sale securities that had appreciated in value and then repurchased them the same day. The sale and purchase transactions resulted in a large gain. Without the gain, the company would have reported a loss for the year. Which statement with respect to the auditor is true?
Answer: A. If the sale and repurchase are disclosed, an unmodified opinion should be expressed (15.1.19)
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***34. Green, CPA, was engaged to audit the financial statements of Essex Co. after its fiscal year had ended. The timing of Green’s appointment and the start of fieldwork made confirmation of accounts receivable by direct communication with the customers not feasible. However, Green’s auditor’s report most likely contained
***Answer: A. An unmodified opinion.
35
***35. The auditor's report refers to the U.S GAAP-based financial statements, which are customary considered to include the balance sheet and the statements of
***Answer: C. Income, changes in equity, and cash flows.
36
36. if the auditor obtains satisfaction with respect to the A/R balance by alternative procedures because it is impracticable to confirm A/R, the auditor’s report should be unmodified and could be expected to
Answer: C. Not mention the alternative procedures
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37. an external auditor discovers that a payroll supervisor of the firm being audited has misappropriated (stolen) $1000. The firm’s total assets and before-tax net income are $14 million and $3 million respectively. Assuming no other issues affect the report, the external auditor’s report will most likely contain a(n)
Answer: D. Unmodified opinion
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38. The auditor’s report in an audit of an issuer may be addressed to
Answer: C. The board of directors and shareholders
39
39. The date of the auditor report is important because
Answer: A. The auditor cannot date the report earlier than the date on which sufficient appropriate evidence to support the opinion has been obtained.
40
40. A CPA engaged to audit financial statements observes that the accounting for a certain material but not pervasive item is not in conformity with the applicable financial reporting framework, although the matter is prominently disclosed in a note to the F/S. The CPA should
Answer: D. Qualify the opinion because of the misstatement
41
41. An auditor may not express a qualified opinion when
Answer: D. the auditor lacks independence with respect to the audited entity
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42. in which of the following instances would it be appropriate for the auditor to refer to the work of an appraiser in the auditor’s report?
Answer: C. an adverse opinion is expressed based on a difference of opinion between the client and the auditor’s external specialist.
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43. Under which of the following circumstances might an auditor disclaim an opinion?
Answer: D. the auditor is unable to obtain sufficient appropriate evidence to support management’s assertions concerning an uncertainty.
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44. When a group auditor decides to refer to a component auditor’s audit, the group auditor’s report should indicate clearly, in the auditor’s responsibility section, the
Answer: A. magnitude of the portion of the F/S audited by the component auditor
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45. Sarbanes-Oxley made it illegal for the same accounting firm to perform a client’s external audit and provide
Answer: B. internal audit services
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46. The objective of the auditor’s evaluation of the consistency of F/S is to determine whether
Answer: D. the comparability of F/S between periods has been materially affected by a change in accounting principle
47
47. Seripak Corporation, a nonissuer, made a material change in accounting principle with which the auditor concurs. The auditor should express
Answer: A. an unmodified opinion with an emphasis-of-matter paragraph
48
48. If management of a nonissuer fails to justify a material change in accounting principle, the auditor should
Answer: A. add a basis for modified opinion paragraph to the report and express a qualified or an adverse opinion
49
49. Green Company, an issuer, uses the FIFO method … The different costing methods will cause Green’s auditor to issue a report with a(n)
Answer: D. unqualified opinion
50
50. If a company is experiencing financial difficulty … auditing standards require the auditor to
Answer: D. include in the report a paragraph describing the nature of the difficulties
51
51. An auditor concludes that there is substantial doubt about an issuer entity’s ability to continue as a going concern for a reasonable period of time. … Under these circumstances, the auditor’s report is required to include an explanatory paragraph that specifically uses the phrase(s)
Answer: D. “Except for the effects of such adjustments” (no), “Possible discontinuance of the entity’s operations” (no)
52
52. Comparative F/S include the prior year’s statements that were audited by a predecessor auditor whose report is not presented. If the predecessor’s opinion was modified, the auditor should
Answer: B. Indicated in the auditor’s report that the predecessor auditor expressed an unmodified opinion
53
53. An auditor includes an emphasis-of-matter paragraph in an otherwise unmodified report when the entity being reported on had significant transactions with related parties. The inclusion of this paragraph
Answer: D. Is appropriate and would not negate the unmodified opinion
54
54. An auditor’s engagement letter would most likely include
Answer: A. Management’s acknowledgement of its responsibility for maintaining effective internal control
55
55. Before accepting an engagement to audit a new client, an auditor is required to
Answer: A. make inquiries of the predecessor auditor after obtaining the consent of the prospective client
56
56. Upon discovering material misstatements in a client’s F/S that the client would not revise, a predecessor auditor withdrew from the engagement. If asked by the new auditor about termination of the engagement, the predecessor auditor should
Answer: C. suggest that the auditor obtain the client’s permission to discuss the reasons
57
57. Which of the following is required documentation in an audit in accordance with auditing standards?
Answer: B. an audit plan documenting the procedures to be used to reduce audit risk
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58. In developing written audit plans, an auditor should design specific audit procedures that relate primarily to
Answer: D. F/S assertions
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59. F/S audit plans usually should be developed
Answer: B. after the auditor has established the overall audit strategy
60
60. the audit risk against which the auditor and those who rely on his or her opinion require reasonable … The second is that
Answer: B. material misstatements that occur will not be detected by the audit
61
61. When planning an audit, the auditor should
Answer: B. determine materiality for the F/S as a whole
62
62. A client decides not to correct misstatements communicate by the auditor … Which of the following statements is correct regarding the F/S presentation?
Answer: A. the F/S are free from material misstatement, and no disclosure is required in the notes to the F/S
63
63. Which of the following is an indicator of low audit quality?
Answer: A. restatements
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64. If the auditors plan to use the work of the internal auditors to obtain audit evidence or to provide direct assistance, they should assess the internal auditors’
Answer: A. competence and objectivity
65
65. Which of the following statements is true about the use of the work of an auditor’s specialist?
Answer: D. the auditor should obtain an understanding of the methods and assumptions used by the specialist
66
66. Observation is considered a reliable audit procedure but one that is limited in usefulness. However, it is used in a number of different audit situations. Which of the following statements is true regarding observation as an audit technique?
Answer: C. it is the most persuasive about the performance of a process but is limited to the moment in time at which the observation takes place
67
67. the most reliable form of audit evidence is
Answer: C. the auditor’s direct personal knowledge
68
68. Which of the following is not a part of the standard unmodified audit report?
Answer: D. scope paragraph
69
69. Audit working papers are indexed by means of reference numbers. The primary purpose of indexing is to
Answer: A. permit cross-referencing and simplify the supervisory review
70
70. After audit procedures are completed, a partner of the CPA firm who has not been involved in the audit performs a second or wrap-up audit documentation review. This second review usually focuses on
Answer: A. whether the F/S are consistent with the auditor’s knowledge of the entity
71
71. Audit evidence is usually considered sufficient when
Answer: B. there is enough quantity to afford a reasonable basis for the opinion on F/S
72
72. In which situation is the auditor most likely to not include an emphasis-of-matter paragraph in the auditor’s report of a nonissuer?
Answer: A. an important audit procedure was performed
73
73. The auditors’ responsibility to express an opinion on the F/S is
Answer: B. explicitly represented in the intro paragraph of the auditors’ standard report
74
74. auditors will issue an adverse opinion when
Answer: B. a violation of GAAP is sufficiently material and pervasive that a qualified opinion is not justified
75
75. Which of these situations would require auditors to append an emphasis-of-matter paragraph about consistency to an otherwise unmodified opinion?
Answer: D. entity changed its inventory costing method from FIFO to LIFO
