Quiz 1
1. The generally accepted auditing standard that requires "Adequate techical training and proficiency" is normally interpreted as requiring the auditor to have

adequatel practical experience for the work being performed
continuing professtional education
formal education in auditing and accounting
all of the above

2. In connection with the audit of financial statements, an independent auditor could be responsible for failure to detect a material fraud if

accountants performing important parts of the work failed to diecover a close relationship between the treasurer and the cashier
mstatistical smapling techniques were not used in the audit engagement
the auditor planned the work in a hasty and inefficient manner
the fraud was perpetrated by one client employee, who circumvented the existing internal controls.

3. Which of the following most accurately describes constructive fraud?

Extreme or unusual negligence without the intent to deceive.
Lack of slight care
Knowledge and intent to deceive
Absense of reasonable care

4. The purpose of an engagement letter is to

document the terms of the engagement to writing in order to minimize misunderstandings
document the CPA firm's responsibility to external users of the audited financial statements.
notify the audit staff of an upcoming engagement so that personnel scheduling can be familitated.
all of the above.

5. The third general standard states that due professional care is to be exercised in the performance of an audit. This standard is generally interpreted to require

objective review of the adequacy of the technical training and proficiency of firm personnel.
thorough review of the existing internal control structure.
periodic review of a CPA firm's quality control procedures.
critical review of work done at every level of supervision.

6. An understanding of a client's external environment includes

regulatory requirements
the extent of competition within the indusry.
general economic conditions
all of the above

7. When planning the audit, if the auditor has no reason to believe that illegal acts exist, the auditor should

make inquiries of management regarding their policies for detecting and preventing illegal acts and regarding their knowledge of violations, and then rely on normal audit procedures to detect errors, irregularities, and illegalities.
ignore the topic
include audit procedures which have a strong possibility of detecting illegal acts.
still include some audit procedures designed specifically to uncover illegalities.

8. Of the various parts of the AICPA's Code of Professional Conduct,

the Rules of Conduct are enforceable
the Interpretations are enforceable.
the Ethicl Rulings are enforceable.
the Principles are enforceable.

9. Generally accepted auditing standards are

general guidelines to aid auditors
rules imposed by the SEC.
rules imposed by the American Institute of CPAa.
rules imposed by the US Congress.

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

6 months from date of audit report
6 months from the date of the financial statements
1 year from date of audit report
1 year from date of the financial statements

11. The necessity to issue a disclaimer of opinion may arise because of

A. A non-independent relationship between auditor and client.
B. a severe limitation on the scope of the audit examination.
either A or B above
none of the above.

12. Which of the following "decisions" are relevant tot he auditor's evidence accumulation?

Type of audit procedure to use.
Timing of audit procedures.
# of items to examine
All of the above are relevant.

13. To emphasize the fact that the auditor is independent, the addressee of the audit report is urually

A. the company's management
B. the stockholders of the client company.
C. the B o D of the client company
either B of C

14. Which of the auditor's four defenses is ordinarily not available in 3rd-party lawsuits?

Absence of causal connections.
Non-negligent performance
Lack of Duty
Contributory negligence

15. Which of the following auditor's defenses, when used in a 3rd-party lawsuit, usually means non-reliance on the financial statements by the user?

Lack of Duty
Contributory negligence
Non-negligent performance
Absence of causal connections

16. Which of the following statements about existence and completeness objectives is not true?

Existence deals with understatements and completeness deals with overstatements.
The existence and completeness objectives emphasize opposite audit concerns.
The completeness objective deals with unrecorded transactions.
Existence deals wth overstatements and completeness deals with understatments.

17. Evidence is generally considered competent when

it has the qualities of being relevant, onjective, and free from known bias.
it has been obtained by random selection.
it consists of written statements made by managers of the enterprise under audit.
there is enough of it to afford a reasonable basis for an opintion on financial statements.

18. The scope paragraph of the standard unqualified audit report states that the audit is designed to

discover all errors and/or irregularities.
obtain reasonable assurance whether the statements are free of material misstatement.
conform to generally accepted accounting principles.
discover material errors and/or irregularities.

19. A(n) _______ results in a conclusion that is in a positive form.

none of the above

20. The introductory paragraph of the standard audit report states that the financial statements and the opinion expressed about those statements are

the responsibility of management.
the joint responsibility of management and the auditor
the responsibility of the auditor.
none of the above

21. The purpose of the introductory paragraph in the standard unqualified report is

to distinguish the audit report from a compilation or review report.
to communicate the responsibilities of management in preparing the financial statements and to clarify the respective roles of management and the auditor.
to identify the financial statements which were audited and the dates and time periods covered by the report.
all of the above

22. The underlying reason for a code of professional conduct for any profession is

the need for public confidence in the quality of service of the profession.
that it provides a safeguard to keep unscrupulous people out.
that it allows licensing agencies to have a yardstick to measure deficient performance.
that it is required by federal legislation.

23. Which of the following is not one of the 4 parts of th AICPAs Code of Professional Conduct?

Rules of Conduct.

24. Whenever an auditor issues an unqualified opinion, the implication is that the auditor

is satisfied that the statements are presented faily in accordance with GAAP except for a specific aspect of them.
does not beleive the statements are presented fairly in accordance with GAAP.
is satisfied that the statements are presented fairly in accordance with GAAP.
does not know if the statements are presented fairly in accordance with GAAP.

25. An adverse opinion is issued when the auditor beleives

the financial statements will be found to be misleading or misstated, if an adequate investigation is performed.
the audit firm is not independent.
some parts of the financial statements are materially misstated or misleading.
the overall financial ststements are so materially misstated or misleading as a whole that they do not present faily the financial position or results of operations and cash flows in conformity with GAAP.

26. One means of informing the client that the auditor is not responsible for the diecovery of all acts of fraud is the

client letter
representation letter
engagement letter.
resposinility letter.

27. The primary purpose of performing analytical procedures in the testing phase of an audit is to

indicate possible misstatements (attention directing)
assess the going concern assumption.
help the auditor obtain an understanding of the client's industry and business.
reduce tests of details of balances.

28. Whenever an auditor issues a qualified opinion, the implication is that the auditor

does not believe the statements are presented faily.
is satisfied that the statements are presented faily "except for" a specific aspect of them
does not know if the statements are presented fairly.
is satisfied that the statements are presented fairly.

29. The statement that "nothing came to our attention which would indicate that these statements are not fairly presented" expresses which of the following?

Disclaimer of opinion
Negative confirmation
negative assurance
piecemeal opinion.

30. Which of the following is not one of the reasons that auditors provide reasonable, nut not absolute assurance on the financial statements?

Accounting presentations contain complex estimates which inherently involve uncertainty.
Fraudulently prepared financial statements are often difficult to detect.
The auditor commonly examines a sample, rather than the entire population of transactions.
Auditors believe that reasonable assurance is sufficient in the vast majority of cases.

31. The permanent files included in the audit documentation includes all, but which of the following?

A copy of the current and prior years' audit programs
Copies of articles of incorporation, bylaws and contracts.
Results of analytical procedures from prior years.
Information related to the understanding of internal control.

32. The challenge associated with the Ethical Principles stated in the Code of Professional Conduct is

the difficulty of enforcing general ideals, or principles
that they identify ideal conduct
the emphasis on positive activities.
that there are too many to remember

33. A measure of the auditor's assessment of the likelihood that there are material misstatements in am account before considering the effectiveness of the client's internal control is

acceptable audit risk
control risk
statistical risk
inherent risk

34. An audit of financial statements is conducted to determine whether the

members of the management team are fulfilling their fiduciary responsibilities to shareholders
entity is following specific procedures or rules set down by some higher authority
organization is operating efficiently and effectively
none of the above

35. An examination results in a conclusion that is in a _________ form.

limited assurance

36. Which of the following representations does an auditor make explicitly and which implicitly when issuing an unqualified opinion? Conformity with GAAP Adequacy of disclosure

Implicitly Implicitly
Explicitly Explicitly
Implicitly Explicitly
Explicitly Implicitly

37. In which of the following circumstances would a CPA be bound by ethics to refrain from disclosing any confidential information obtained during the course of a professional engagement?

An inquiry by a disciplinary body of a state CPA society requests confidential client information
The CPA is issued a summons enforceable by a court order which orders the CPA to present confidential information.
Confidential client information is made available as part of a quality review of the CPA's practice by a peer review team authorized by the AICPA
A major stockholder of a client company seeks accounting information from the CPA after management declined to disclose the requested information.

38. when analytical procedures reveal no unusual fluctuations, the implication is that

that are no material fraud.
there are no material errors
the possibility of a material error or fraud is lessened
there are no material errors or fraud.

39. The responsibility for the preparation of the financial statements and the accompanying foornotes belongs to

management for the statements and the auditor for the notes.
the auditor.
bothe management and the auditor equally

40. An agreed-upon procedures engagement is one in which

the auditor and management agree that procedures will not be applied to all acccounts and circumstances
the auditor and management agree that procedures will be applied wo all accounts and circumstances.
the auditor and management or a third party agree that the audit will be limited to certain specific audit procedures.
none of the above.

41. In what order should the following steps occur? A. Assess client business risk B. Understand the client's business and industry C. Perform preliminary analytical procedures D. Assess risk of material misstatements.


42. To succeed in an action against the auditor, the client must be able to show that

there is a written contract
there is a close causal connection between the auditor's breach of the standard of due care and the damages suffered by the client
the auditor was fraudulent
the auditor was grossly negligent

43. In "auditing" financial accounting data, the primary concern is with

determining if fraud has occurred.
determining if taxable income has been calculated correctly.
analyzing the financial information to be sure that it complies with government requirements
determining whether recorded information properly reflects the economic events that occurred during the accounting period.

44. For the report containing a disclaimer for lack of independence, the disclaimer is in the

first and only paragraph
second, or scope paragraph
fourth or explanatory paragraph
third or opinion paragraph

45. Which of the following statements about the SEcurities Act of 1933 is not true?

The 3rd party user does not have the burden of proof that the loss was caused by the misleading statements
the third party user does have the burden of proof that the auditor was either negligent or fraudulent in doing the audit
The 3rd party user does not have the burden of proof that he/she relied on the financial statements
Any 3rd party that purchased securities described in the registration statement may sue the auditor for material misrepresentations or omissions in the audited financial statements.

46. The tow types of services provided in connection with the Statements on Standards for Accounting and Review Services are

compilation and review services
audit and examination services
management advisory services and compilations
examination and review services.

47. What is the overall objective of audit documentation?

provide reasonable assurance that the audit was conducted in accordance with GAAS.
provide a basis for reviewing the work of subordinates
defend against claims of a deficient audit
none of the above

48. Which of the following statements best describes the primary purpose of Statements on Auditing Standards?

They are interpretations which are intended to clarify the meaning of GAAS.
they are authoritative statements, enforced through the Code of Professional Conduct,m and are intended to limit the degree of auditor judgement
they are guides intended to set forth auditing procedures which are applicable to a variety of situations.
they are procedural outlines which are intended to narrow the areas of inconsistency and divergence of auditor opinion.

49. GAAS and SAS should be looked on by practitioners as

maximum standards which denote excellent work
minimum standards of performance which must be achieved on each audit engagement
ideals to work towards, but which are not achievable
benchmarks to be used on all audits, reviews, and compilations

50. A measure of how willing the auditor is to accept that the financial statements may be materially missstated after the audit is completed and an unqualified opinion has been issued is the

inherent risk
financial risk
statistical risk
acceptable audit risk

51. Which one of the following is not one of the characteristics of competent evidence?

degree of objectivity
effectiveness of internal control structure
independence of provider
size of the sample

52. Which of the following is not one of the 3 main reasons why the auditor should properly plan engagements?

to avoid misunderstandings with the client
to help keep audit costs reasonable
to enable the auditor to obtain sufficient competent evidence
to enable proper on the job training of employees

53. Which of the following statements is not correct with respect to analytical procedures?

SAS 56 emphasizes expectations developed by the auditor.
analytical procedures should be performed in every phase of the audit
analytical procedures use comparison and relationships to assess whether account balances appear to be reasonable.
Analytical procedures may be performed at any time during the audit.

54. Which of the following statements most accurately captures the intent of the standards of fieldwork

Fieldwork standards are primarily directed at the auditor's planning, understanding of internal control, and evidence accumulation.
Fieldwork standards provide extensive guidance regarding the conduct of an audit
Fieldwork standards are primarily concerned with personal attributes necessary during the conduct of the audit.
Fieldwork standards are primarily concerned with the conduct of substantive testing as opposed to testing of internal controls.

55. An assurance provided by a review is substantially less than an audit. Which of the following statements is true regarding these services?

An audit requires less evidence related to internal control than a review.
A review requires less evidence than an audit.
A review requires more substantive evidence than an audit.
None of the statements is true.

56. A basic objective of a CPA firm is to provide professional services to conform to professional standards. Reasonable assurance of achieving the basic objective is provided through

a system of quality control
continuing professional education.
a system of peer review
compliance with generally accepted reporting standards.

57. Managaement assertions are

stated in the footnotes to the financial statements.
provided to the auditor in the assertions letter, but are not disclosed on the financial statements.
explicitly expressed representations about the financial statements.
implied or expressed representations about classes of transactions and the related accounts in the financial statements.

58. A disclaimer of opinion may be issued in which of the foloowing instances?

A. An auditor's scope has been restricted due to circumstances beyond the client's control.
B. There are highly material misstatements in the financial statements.
C. The substantial doubts related to an entity's ability to continue as a going concern.
A disclaimer may be issued for circumstances discussed in A and C.

59. The auditor is likely to accumulate more evidence when the audit is for a company

which is to be sold in the near future
which has extensive indebtedness
whose stock is publicly held
all of above

60. Which of the following would not be included in a CPAs report based on a review of the financial statements of a nonpublic entity?

A statement that all information included in the financial statements is the representation of management.
A staement describing the auditor's conclusions based upon the results of the review.
A statement that the review was in accordance with GAAS.
a statement describing the priciple procedures performed.

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