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Flashcards in Old Test Questions Deck (44):
1

The Sarbanes-Oxley Act applies to which of the following companies?

A. All public companies and privately held companies with assets greater than $500 million

B. Public companies

C. Privately held companies

D. All companies

B. Public companies

2

Recording, classifying, and summarizing economic events in a logical manner for the purpose of providing financial information for decision making is commonly called:

a. finance
b. economics
c. auditing
d. accounting

d. accounting

3

______risk reflects the possibility that the information upon which the business decision was made was inaccurate.

a. information
b. business
c. control
d. client acceptance

a. information

4

Which of the following services provides the lowest level of assurance on a financial statement?

a. audit
b. review
c. neither service provides assurance on financial statements
d. each service provides the same level of assurance on financial statements

b. review

5

Which of the following statements is true as it relates to limited liability partnerships?

a. all partners must be AICPA members
b. partners are personally liable for the acts of those under their supervision.
c. only senior partners are liable for the partnership's debts.
d. partners have no liability in a limited liability partnership agreement.

b. partners are personally liable for the acts of those under their supervision.

6

The organization that is responsible for providing oversight for auditors of public companies is the _____.

a. Public Oversight Board
b. Public Company Accounting Oversight Board
c. American Institute of Certified Public Accountants
d. Auditing Standards Board

b. Public Company Accounting Oversight Board

7

Members of the PCAOB are appointed and overseen by:

a. the AICPA
b. the SEC
c. the Auditing Standards Board
d. the U.S. Congress

b. the SEC

8

The AICPA has authority to establish standards and rules in all but which of the following areas?

a. Compilation and review standards
b. Auditing standards applicable to financial statements of private companies
c. Professional conduct
d. Auditing standards applicable to financial statements of private and public companies

d. Auditing standards applicable to financial statements of private and public companies

9

SSARS are issued by the:

a. Professional Ethics Executive Committee
b. Accounting and Review Services Committee
c. Securities and Exchange Commission
d. Financial Accounting Standards Board

b. Accounting and Review Services Committee

10

For privately held companies who is responsible for establishing auditing standards?

a. PCAOB
b. Auditing Standards Board
c. National Association of Accounting
d. SEC

b. Auditing Standards Board

11

If an auditor of a public company cannot find guidance issued by the PCAOB on a particular audit matter, the auditor should generally seek guidance from which of the following sources?

a. Regulations issued by the SEC
b. Statements on Auditing Standards
c. SSARS
c. the AICPA Code of Professional Conduct

b. Statements on Auditing Standards

12

Which of the following is a true statement regarding auditing standards?

a. Prior to the passage of Sarbanes -Oxley, the FASB established auditing principles for U.S. public companies

b. PCAOB auditing standards are applicable to entities outside the U.S.

c. The Auditing Standards Board has revised most of its standards to converge with the international standards

d. There are no similarities between PCAOB and International Standards on Auditing

c. The Auditing Standards Board has revised most of its standards to converge with the international standards

13

Historically, auditing standards have been organized into three categories, including:

a. Purpose of an audit
b. Proper planning and supervision
c. Standards of field work
d. Responsibilities of the auditor

c. Standards of field work

14

Which of the following statements about Generally Accepted Audit Standards are true?

I. They serve as broad guidelines to auditors for conducting an audit engagement
II. They are sufficiently specific to provide any meaningful guide to practitioners.
III. They represent a framework upon which the AICPA can provide interpretations.

a. I and II
b. I and III
c. II and III
d. I, II and III

b. I and III

15

The standard unqualified audit report:

a. is sometimes called a clean opinion
b. is sometimes called a disclaimer report
c. can be issued if only a balance sheet and income statement are included in the financial statements
d. can be issued only with an explanatory paragraph

a. is sometimes called a clean opinion

16

Examples of unqualified opinions which contain modified wording (without adding an explanatory paragraph) include:

a. lack of consistent application of GAAP
b. material uncertainties
c. the use of other auditors
d. substantial doubt about the audited company (or the entity) continuing as a going concern

c. the use of other auditors

17

When there is uncertainty about a company's ability to continue as a going concern, the auditor's concern is the possibility that the client may not be able to continue its operations or meet its obligations for a 'reasonable period of time." For this purpose, a reasonable period of time is considered not to exceed:

a. six months from the date of the audit report
b. one year from the date of the audit report
c. six months from the date of the financial statements
d. one year from the date of the date of the financial statements

d. one year from the date of the date of the financial statements

18

When the auditor concludes that there is substantial doubt about the entity's ability to continue as a going concern, the appropriate audit report could be:

I. an unqualified opinion with an explanatory paragraph
II. a disclaimer of opinion

a. I only
b. II only
c. I or II
d. Neither I or II

c. I or II

19

No reference is made in the auditor's report to other auditors who perform a portion of the audit when:

I. The other auditor audited an immaterial portion of the audit
II. The other auditor is well known or closely supervised by the principle auditor
III. The principle auditor has thoroughly reviewed the work of the other auditor.

a. I and II
b. I and III
c. II and III
d. I, II and III

d. I, II and III

20

All of the following would require an emphasis of matter paragraph EXCEPT for:

a. the existence of material related party transactions
b. important events occurring subsequent to the balance sheet date
c. the lack of auditor independence
d. material uncertainties disclosed in the footnotes

c. the lack of auditor independence

21

Ethical Rulings are:

I. Explanations relating to broad hypothetical circumstances
II. not enforceable, but one must justify departures
III. explanations relating to specific circumstances.

a. I and II
b. I and III
c. II and III
d. I, II and III

c. II and III

22

Four of the six Ethical Principles in the AICPA's Code of Professional Conduct are equally applicable to all members of the AICPA. Which of the following principles applies only to members in public practice?

a. The Public Interest
b. Scope and Nature of Services
c. Integrity
d. Due Care

b. Scope and Nature of Services

23

What does TIP SAS ACDO stand for?

T - Technical training and proficiency of auditor
I - Independence in fact and in appearance
P - Professional Care in performing the audit

S - Supervision of assistants and planning of the fragment
A - Assess risk of material misstatement
S - Sufficient appropriate evidence (tests of controls and substantive procedures)

A - According to GAAP
C - Consistency
D - Disclosures adequate
O - Opinion expressed

24

A public company with common equity >= 700 million is called a(n) ____________

accelerated filer

25

According to the AICPA, the auditor of a component is called the ___________ auditor.

component

26

Constructive fraud

a. requires an intent to deceive
b. involves collusion with the client
c. is also known as breach of contract
d. is also known as recklesness

d. is also known as recklesness

27

When an auditor believes that an illegal act may have occured, the auditor should first:

a. obtain an understanding of the nature and circumstances of the act.
b. discuss the matter with the audit committee
c. withdraw from the engagement
d. consult with legal counsel or others knowledgeale about the illegal act

a. obtain an understanding of the nature and circumstances of the act.

28

Tests of details of balances are specific audit procedures that are intended to:

a. prove that the trial balance is in balance
b. test for monetary misstatements in the financial statements
c. identify the details of the internal control system.
d. prove that the accounts with material balances are classified correctly.

b. test for monetary misstatements in the financial statements

29

Which of the following is an illustration of liability to clients under common law?

a. the federal government prosecutes the auditor for knowingly issuing an incorrect audit report

b. client sues auditor for not discovering a theft of assets by an employee

c. combined group of stockholders sue auditor for not discovering materially misstated financial statements

d. bank sues auditor for not discovering that borrower's financial statements are misstated.

b. client sues auditor for not discovering a theft of assets by an employee

30

The basic legal concept which was affirmed in the 1985 New York case, Credit Alliance, was that:

a. the auditor's defense of privity of contract is still valid against third parties

b. the auditor's defense of contributory negligence is no longer valid

c. the auditor is liable for ordinary negligence to specifically foreseen third parties

d. the auditor is liable for ordinary negligence to reasonably foreseeable third parties

a. the auditor's defense of privity of contract is still valid against third parties

31

"Physical examination" is the inspection or count by the auditor of items such as:

a. cash, inventory, securities, notes receivable, and tangible fixed assets

b. cash, inventory, canceled checks, and tangible fixed assets

c. cash, inventory, canceled checks, sales documents

d. cash, inventory, and payroll timecards

a. cash, inventory, securities, notes receivable, and tangible fixed assets

32

Auditing standards require that records for audits of private companies be retained for a minimum of seven years.

a. true
b. false

b. false - 5 years

33

Which of the following is not one of the three categories of assertions?

a. assertions about classes of transactions and events for the period under audit

b. assertions about account balances at period end

c. assertions about presentation and disclosure

d. assertions about financial statements and correspondence to GAAP

d. assertions about financial statements and correspondence to GAAP

1) Classes of transactions and events
2)Account balances
3) Presentation and disclosure

34

What are the three categories of assertions?

1) Classes of transactions and events
2)Account balances
3) Presentation and disclosure

35

The term "audit failure" refers to the situation when the auditor has followed auditing standards yet still fails to discover that the client's financial statements are materially misstated.

a. true
b. false

b. false

Audit failure is when the auditor issues an incorrect audit opinion because it failed to comply with the requirements of auditing standards

36

This occurs when a business is unable to repay its lenders or meet the expectations of its investors because of economic or business conditions.

Business failure

37

Represents the risk that the auditor will conclude that the financial statements are fairly stated and an unqualified opinion can be issued when, in fact, they are materially misstated.

Audit risk

38

The standard of due care to which the auditor is expected to adhere to in the performance of the audit is referred to as the:

a. prudent person concept.
b. constructive care concept
c. vigilant person concept
d. common law doctrine

a. prudent person concept.

39

Which of the following types of documentary evidence should the auditor consider to be the most reliable?

a. a sales invoice issued by the client and supported by a delivery receipt from an outside trucker.

b. confirmation of an account payable balance mailed by and returned directly to the auditor

c. a check, issued by the company and bearing the payee's endorsement, that is included with the bank statements mailed directly to the auditor.

d. an audit schedule prepared by the client's controller and reviewed by the client's treasurer

b. confirmation of an account payable balance mailed by and returned directly to the auditor

40

Sarbanes-Oxley provides for Criminal Penalties for up to ______ years.

20

41

Name the five components of the COSO internal control framework:

C- Control environment
R - Risk assessment
C - Control activities
I - Information & Communication
M - Monitoring

42

Describe ways that GAGAS goes beyond GAAS.

Control
Compliance
Crimes

43

Auditors test for relevant assertions. A mnemonic for assertions is CAVE CROC. What does it stand for?

C- Completeness
A - Accuracy
V - Valuation and Allocation
E - Existence

C - Cut off
R - Rights & Obligations
O - Occurrence
C - Classification & Understandability

44

________ ________ is the risk of an incorrect conclusion based upon a sample.

Sampling risk