Reference no: EM13862758

Multiple Choice Questions

1) A correct relationship among the auditor, the client, and the external users is:

A) management of a public company hires the independent auditor.
B) the audit committee of a private company hires the independent auditor.
C) the client provides capital to the external users.
D) the external users can rely upon the auditor's report to reduce information risk.

2) The most common way for users to obtain reliable information is to:

A) have an internal audit.
B) have an independent audit.
C) verify all information individually.
D) verify the information with management.

3) In the audit of historical financial statements, what accounting criteria is most common?

A) Regulatory accounting principles
B) Applicable international accounting standards
C) Applicable U.S. accounting standards
D) B and C
E) All of the above

4) Any service that requires a CPA firm to issue a report about the reliability of an assertion that is made by another party is a(n):

A) accounting and bookkeeping service.
B) attestation service.
C) assurance service.
D) tax service.

5) Three common types of attestation services are:

A) audits of historical financial statements, reviews of historical financial statements, and audits of internal control over financial reporting.
B) audits of historical financial information, verifications of historical financial information, and attestations regarding internal controls.
C) reviews of historical financial information, verifications of future financial information, and attestations regarding internal controls.
D) audits of historical financial information, reviews of controls related to investments, and verifications of historical financial information.

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

A) A review
B) An audit
C) Neither service provides assurance on financial statements.
D) Each service provides the same level of assurance on financial statements.

7) Which of the following is not a SysTrust Services principle as defined by the AICPA?

A) Online privacy
B) Availability
C) Processing integrity
D) Operational integrity

8) An audit of historical financial statements most commonly includes the:

A) balance sheet, statement of retained earnings, and the statement of cash flows.
B) income statement, the statement of cash flows, and the statement of net working capital.
C) statement of cash flows, balance sheet, and the statement of retained earnings.
D) balance sheet, income statement, statement of cash flows, and the statement of changes in stockholders' equity.

9) Auditing standards require that the audit report must be titled and that the title must:

A) include the word &independent.&
B) indicate if the auditor is a CPA.
C) indicate if the auditor is a proprietorship, partnership, or corporation.
D) indicate the type of audit opinion issued.

10) The auditor's responsibility section of the standard unqualified audit report states that the audit is designed to:

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

11) The audit report date on a standard unqualified report indicates:

A) the last day of the fiscal period.
B) the date on which the financial statements were filed with the Securities and Exchange Commission.
C) the last date on which users may institute a lawsuit against either client or auditor.
D) the last day of the auditor's responsibility for the review of significant events that occurred after the date of the financial statements.

12) Which of the following is not explicitly stated in the standard unqualified audit report?

A) The financial statements are the responsibility of management.
B) The audit was conducted in accordance with generally accepted accounting principles.
C) The auditors believe that the audit evidence provides a reasonable basis for their opinion.
D) An audit includes assessing the accounting estimates used.

13) The standard unqualified audit report for a non-public entity must:

A) have a report title that includes the word &CPA.&
B) be addressed to the company's stockholders and creditors.
C) be dated.
D) include an explanatory paragraph.

14) The management's responsibility section of the standard audit report for a non-public company states that the financial statements are:

A) the responsibility of the auditor.
B) the responsibility of management.
C) the joint responsibility of management and the auditor.
D) none of the above.

15) Ethics are:

A) needed in the professions, but is not needed for society in general.
B) a set of moral principles or values.
C) not formed by life experiences.
D) always incorporated in laws.

16) ________ means that a person acts according to conscience, regardless of the situation.

A) Caring
B) Fairness
C) Integrity
D) Respect

17) A six-step approach is often used to resolve an ethical dilemma. The first step in this process is to:

A) identify the alternative actions available.
B) identify the ethical issues from the facts.
C) determine who will be affected by the outcome of the dilemma.
D) obtain the relevant facts.

18) The underlying reason for a code of professional conduct for any profession is:

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

19) Which of the following is(are) true concerning the Ethical Principles of the Code of Professional Conduct?

I. They identify ideal conduct.
II. They are general ideals and are not enforceable.
A) I only
B) II only
C) I and II
D) Neither I nor II

20) Which of the following is not one of the four parts of the AICPA's Code of Professional Conduct?

A) Principles
B) Rules of Conduct
C) Interpretations
D) Definitions

21) According to the Principles section of the Code of Professional Conduct, all members:

A) should be independent in fact and in appearance at all times.
B) in public practice should be independent in fact and in appearance at all times.
C) in public practice should be independent in fact and in appearance when providing auditing and other attestations services.
D) in public practice should be independent in fact and in appearance when providing auditing, tax, and other attestation services.

22) A(n) ________ failure occurs when an auditor issues an erroneous opinion because it failed to comply with requirements of auditing standards.

A) business
B) audit
C) ethics
D) process

23) The expectation gap:

A) exists between the auditor and the SEC.
B) exists because auditors guarantee the accuracy of the financial statements.
C) often results in unwarranted lawsuits against the auditor.
D) is a legal concept supported by the federal courts.

24) In the performance of an audit, a CPA:

A) is legally liable for detecting an immaterial client fraud.
B) must strictly follow GAAP for privately held clients.
C) must exercise constructive professional care in the performance of their audit responsibilities.
D) must exercise due professional care in the performance of their audit responsibilities.

25) If an auditor fails to fulfill a certain requirement in the contract, they may be guilty of:

A) contract fraud.
B) breach of contract.
C) constructive fraud.
D) criminal neglect.

26) Recklessness in the case of an audit is present if the auditor knew an adequate audit was not done but still issued an opinion, even though there was no intent to deceive financial statement users. This description is the legal term for:

A) ordinary negligence.
B) gross negligence.
C) constructive fraud.
D) fraud.

27) 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) common law doctrine.
C) constructive care concept.
D) vigilant person concept.

28) The objective of an audit of the financial statements is an expression of an opinion on:

A) the fairness of the financial statements in all material respects.
B) the accuracy of the financial statements.
C) the accuracy of the annual report.
D) the accuracy of the balance sheet and income statement.

29) If the auditor believes that the financial statements are not fairly stated or is unable to reach a conclusion because of insufficient evidence, the auditor:

A) should withdraw from the engagement.
B) should request an increase in audit fees so that more resources can be used to conduct the audit.
C) has the responsibility of notifying financial statement users through the auditor's report.
D) should notify regulators of the circumstances.

30) Auditors accumulate evidence to:

A) defend themselves in the event of a lawsuit.
B) determine if the financial statements are correct.
C) satisfy the requirements of the Securities Acts of 1933 and 1934.
D) reach a conclusion about the fairness of the financial statements.

31) The responsibility for adopting sound accounting policies and maintaining adequate internal control rests with the:

A) board of directors.
B) company management.
C) financial statement auditor.
D) company's internal audit department.

32) The auditor's best defense when material misstatements are not uncovered is to have conducted the audit:

A) in accordance with generally accepted auditing standards.
B) as effectively as reasonably possible.
C) in a timely manner.
D) only after an adequate investigation of the management team.

33) An audit must be performed with an attitude of professional skepticism. Professional skepticism consists of two primary components: a questioning mind and:

A) the assumption that upper-level management is dishonest.
B) a critical assessment of the audit evidence.
C) the assumption that all employees are motivated by greed.
D) verification of all critical information by independent third parties.

34) Which of the following is not one of the reasons that auditors provide only reasonable assurance on the financial statements?

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

35) Which of the following statements is the most correct regarding errors and fraud?

A) An error is unintentional, whereas fraud is intentional.
B) Frauds occur more often than errors in financial statements.
C) Errors are always fraud and frauds are always errors.
D) Auditors have more responsibility for finding fraud than errors.

36) A(n) ________ is the detailed instruction that explains the audit evidence to be obtained during the audit.

A) audit objectives
B) audit procedure
C) audit assertion
D) audit program

37) Which of the following is not one of the four decisions about what evidence to gather and how much of it to accumulate?

A) Which audit procedures to use
B) Which accounts must agree to the general ledger
C) When to perform the procedures
D) What sample size to select for a given procedure

38) Which of the following statements is the most correct regarding errors and fraud?

A) An error is unintentional, whereas fraud is intentional.
B) Frauds occur more often than errors in financial statements.
C) Errors are always fraud and frauds are always errors.
D) Auditors have more responsibility for finding fraud than errors.

39) When an auditor believes that an illegal act may have occurred, the auditor should first:

A) obtain an understanding of the nature and circumstances of the act.
B) consult with legal counsel or others knowledgeable about the illegal act.
C) discuss the matter with the audit committee.
D) withdraw from the engagement.

40) The auditor has no responsibility to plan and perform the audit to obtain reasonable assurance that misstatements, whether caused by errors or fraud, that are not ________ are detected.

A) important to the financial statements
B) statistically significant to the financial statements
C) material to the financial statements
D) identified by the client

41) Fraudulent financial reporting is most likely to be committed by whom?

A) Line employees of the company
B) Outside members of the company's board of directors
C) Company management
D) The company's auditors

42) Which of the following would most likely be deemed a direct-effect illegal act?

A) Violation of federal employment laws
B) Violation of federal environmental regulations
C) Violation of federal income tax laws
D) Violation of civil rights laws

43) A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unqualified opinion has been issued is the:

A) inherent risk.
B) acceptable audit risk.
C) statistical risk.
D) financial risk.

44) A measure of the auditor's assessment of the likelihood that there are material misstatements in an account before considering the effectiveness of the client's internal control is called:

A) control risk.
B) acceptable audit risk.
C) statistical risk.
D) inherent risk.

45) 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 acceptable audit risk

A) D, B, C, A
B) B, A, C, D
C) B, D, A, C
D) D, C, B, A

46) The auditor uses knowledge gained from the understanding of the client's business and industry to assess:

A) client business risk.
B) control risk.
C) inherent risk.
D) audit risk.

47) &The auditor should not assume that management is dishonest, but the possibility of dishonesty must be considered.& This is an example of:

A) unprofessional behavior.
B) an attitude of professional skepticism.
C) due diligence.
D) a rule in the AICPA's Code of Professional Conduct.

48) If the auditor were responsible for making certain that all of management's assertions in the financial statements were absolutely correct:

A) bankruptcies could no longer occur.
B) bankruptcies would be reduced to a very small number.
C) audits would be much easier to complete.
D) audits would not be economically practical.

49) One of the characteristics of professional skepticism is ________, which is the conviction to decide for oneself, rather than accepting the claims of others.

A) interpersonal understanding
B) autonomy
C) suspension of judgment
D) self-esteem

50) When dealing with laws and regulations that do not have a direct effect on the financial statements, the auditor:

A) should inquire of management about whether the entity is in compliance with such laws and regulations.
B) has no responsibility to determine if any violations of these laws has occurred.
C) must report all violations, including inconsequential violations, to the audit committee.
D) should perform the same procedures as for violations having a direct effect on the financial statements.