Audit Exam
Short Description
Audit EXam for an audit class...
Description
Chapter 1 1. easy c
2. E c
3. easy b
4. easy a
5. Easy D
6. easy C
7. Med D
8. MED D
9. MED c
10. MED b
Multiple-Choice Questions 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. auditing. c. accounting. d. economics. In the audit of historical financial statements, which of the following accounting bases is the most common? a. Regulatory accounting principles. b. Cash basis of accounting. c. Generally accepted accounting principles. d. Liquidation basis of accounting. 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. Three common types of attestation services are: a. audits, reviews, and “other” attestation services. b. audits, verifications, and “other” attestation services. c. reviews, verifications, and “other” attestation services. d. audits, reviews, and verifications. The organization that is responsible for providing oversight for auditors of public companies is called the ________. a. Auditing Standards Board. b. American Institute of Certified Public Accountants. c. Public Oversight Board. d. Public Company Accounting Oversight Board. The Sarbanes-Oxley Act applies to which of the following companies? a. All companies. b. Privately held companies. c. Public companies. d. All public companies and privately held companies with assets greater than $500 million. Providing quantitative information that management and others can use to make decisions is the function of: a. management information systems. b. auditing. c. finance. d. accounting. An audit of historical financial statements most commonly includes the: a. balance sheet, the income statement, 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, the balance sheet, and the retained earnings statement. d. balance sheet, the income statement, and the statement of cash flows. The ___________ rate may be defined as approximately the rate a bank could earn by investing in U.S. treasury notes for the same length as the length of a business loan. a. nominal b. stated c. risk-free d. prevailing The use of the Certified Public Accountant title is regulated by: a. the federal government. b. state law through a licensing department or agency of each state. c. the American Institute of Certified Public Accountants through the licensing departments of the tax and auditing committees. d.
the Securities and Exchange Commission.
11.
An operational audit has as one of its objectives to:
MED
a.
determine whether the financial statements fairly present the entity’s operations.
c
b.
evaluate the feasibility of attaining the entity’s operational objectives.
c.
make recommendations for improving performance.
d.
report on the entity’s relative success in attaining profit maximization.
12.
An audit of historical financial statements is most often performed to determine whether the:
MED
a.
organization is operating efficiently and effectively.
d
b.
entity is following specific procedures or rules set down by some higher authority.
c.
management team is fulfilling its fiduciary responsibilities to shareholders.
d.
none of these choices.
13. MED
An examination of part of an organization’s procedures and methods for the purpose of evaluating efficiency and effectiveness is what type of audit?
a
a.
Operational audit.
b.
Compliance audit.
c.
Financial statement audit.
d.
Production audit.
14. MED
An audit to determine whether an entity is following specific procedures or rules set down by some higher authority is classified as a(n):
b
a.
audit of financial statements.
b.
compliance audit.
c.
operational audit.
d.
production audit.
15.
Which of the following is a type of audit evidence?
MED
a.
Oral responses to the auditor from employees of the company under audit.
d
b.
Written communications from company employees or outsiders.
c.
Observations made by an auditor.
d.
Evidence may take any of the above forms.
16.
Which of the following services provides the lowest level of assurance on a financial statement?
MED
a.
A review.
a
b.
An audit.
c.
Neither service provides assurance on financial statements.
d.
Each service provides the same level of assurance on financial statements.
17.
The three requirements for becoming a CPA include all but which of the following?
MED
a.
Uniform CPA examination requirement.
c
b.
Educational requirements.
c.
Character requirements.
d.
Experience requirement.
18.
In “auditing” financial accounting data, the primary concern is with:
MED a
a. determining whether recorded information properly reflects the economic events that occurred during the accounting period. b.
determining if fraud has occurred.
c.
determining if taxable income has been calculated correctly.
d.
analyzing the financial information to be sure that it complies with government requirements.
19. MED
Financial statement users often receive unreliable financial information from companies. Which of the following is not a common reason for this?
d
a.
Complex business transactions.
b.
Large amounts of data.
c.
Lack of firsthand knowledge about the business.
d.
Each of these choices is a common reason for unreliable financial information.
20.
Which of the following is not a Trust Services principle as defined by the AICPA or CICA?
hard
a.
Online privacy.
d
b.
Availability.
c.
Processing integrity.
d.
Operational integrity.
21.
Which one of the following is more difficult to evaluate objectively?
hard c
a.
Presentation of financial statements in accordance with generally accepted accounting principles.
b.
Compliance with government regulations.
c.
Efficiency and effectiveness of operations.
d.
All three of the above are equally difficult.
22. Hard
The Sarbanes-Oxley Act prohibits a CPA firm that audits a public company from providing which of the following types of services to that company?
C
a.
Reviews of quarterly financial statements.
b.
Preparation of corporate tax returns.
c.
Most consulting services.
d.
Tax services.
23.
Which of the following audits can be regarded as generally being a compliance audit?
hard
a.
IRS agents’ examinations of taxpayer returns.
A
b.
GAO auditor’s evaluation of the computer operations of governmental units.
c.
An internal auditor’s review of a company’s payroll authorization procedures.
d.
A CPA firm’s audit of the local school district.
24.
Which of the following can be significantly affected by an audit?
hard
a.
Business risk.
B
b.
Information risk.
c.
The risk-free interest rate.
d.
Inherent risk.
25.
The trait that distinguishes auditors from accountants is the:
hard
a.
auditor’s ability to interpret accounting principles generally accepted in the United States.
D
b.
auditor’s education beyond the Bachelor’s degree.
c.
auditor’s ability to interpret FASB Statements.
d.
auditor’s accumulation and interpretation of evidence related to a company’s financial statements.
26. Hard B
Attestation services on information technology include WebTrust services and SysTrust services. Which of the following statements most accurately describes SysTrust services? a. SysTrust services provide assurance on business processes, transaction integrity and information processes. b.
SysTrust services provide assurance on system reliability in critical areas such as security and data integrity.
c.
ysTrust services provide assurance on internal control over financial reporting.
d. SysTrust services provide assurance as to whether accounting personnel are following procedures prescribed by the company controller.
Chapter 2 1.
Multiple-Choice Questions Which one of the following is not one of the three General Standards?
Easy
a.
Proper planning and supervision.
A
b.
Independence of mental attitude.
c.
Adequate training and proficiency.
d.
Due professional care.
2.
Which one of the following is not a Field Work Standard?
Easy
a.
Adequate planning and supervision.
B
b.
Due professional care.
c.
Understand the entity and its environment including internal control.
d.
Sufficient appropriate audit evidence.
3.
The General Standards stress the importance of:
Easy
a.
evidence accumulation.
B
b.
personal qualities the auditor should possess.
c.
communicating the auditor’s findings to the reader.
d.
general supervision of the audit.
4. Easy
The generally accepted auditing standard that requires “Adequate technical training and proficiency” is normally interpreted as requiring the auditor to have:
A
a.
formal education in auditing and accounting.
b.
worked for an entity similar to the entity being audited.
c.
independence in mental attitude
d.
a graduate degree in a business field.
5. Easy D
Members of the Public Company Accounting Oversight Board are appointed and overseen by: a. the U.S. Congress. b. the American Institute of Certified Public Accountants. c.
the Auditing Standards Board.
d.
the Securities and Exchange Commission.
6. Easy
Statements on Auditing Standards provide auditors of privately held companies with ______ guidance regarding the conduct of financial statement audits.
B
a.
fairly extensive
b.
some limited
c.
practically no
d.
specific and detailed
7. easy C
Which of the following statements most accurately captures the intent of the standards of field work? a. audit.
Field work standards are primarily concerned with personal attributes necessary during the conduct of the
b.
Field work standards provide extensive guidance regarding the conduct of an audit.
c. Field work standards are primarily directed at the auditor’s planning, understanding of internal control, and evidence accumulation. d. Field work standards are primarily concerned with the conduct of substantive testing as opposed to testing of internal controls. 8. easy
Prior to the passage of the Sarbanes-Oxley Act, which of the following was responsible for establishing auditing standards?
C
a.
Securities and Exchange Commission
b.
Public Company Accounting Oversight Board
c.
Auditing Standards Board
d.
National Association of Accounting
9.
Standards issued by the Public Company Accounting Oversight Board must be followed by CPAs who audit:
MED B
a.
both private and public companies.
b.
public companies only.
c.
private companies, public companies, and nonprofit entities.
d.
private companies only.
10.
Which of the following is the least likely form of business for a CPA firm?
MED
a.
General partnership
B
b.
General corporation
c.
Limited liability company
d.
Limited liability partnership
11.
The Statements on Auditing Standards issued by the Auditing Standards Board:
MED
a.
are interpretations of generally accepted auditing standards.
A
b.
are the equivalent of laws for audit practitioners.
c.
must be followed in all situations.
d. audit.
are optional guidelines which an auditor may choose to follow or not follow when
12.
An auditor need not abide by a particular auditing standard if the auditor believes that:
MED
a.
the issue in question is immaterial in amount.
A
b.
more expertise is needed to fulfill the requirement.
c.
the requirement of the standard has not been addressed by the PCAOB.
d.
any of the above three are correct.
13. (SOX ) MED
The Public Company Accounting Oversight Board does not: a.
perform inspections of the quality controls at audit firms that audit public companies.
B
b.
establish auditing standards that must be followed by CPAs on all audits.
c.
oversee auditors of public companies.
d.
perform any of the above functions.
conducting an
14. MED
The form that must be completed and filed with the Securities and Exchange Commission whenever a company experiences a significant event that is of interest to public investors is the:
B
a.
Form S-1.
b.
Form 8-K.
c.
Form 10-K.
d.
Form 10-Q.
15. MED
The form that must be filed with the Securities and Exchange Commission whenever a company plans to issue new securities to the public is the:
A
a.
Form S-1.
b.
Form 8-K.
c.
Form 10-K.
d.
Form 10-Q.
16. MED
The third general standard states that due care is to be exercised in the performance of an audit. This standard is generally interpreted to require:
C
a.
objective review of the adequacy of the technical training of firm personnel.
b.
thorough review of the existing internal control structure.
c.
critical review of work done at every level of supervision.
d. 17. (SOX ) MED D
periodic review of a CPA firm’s quality control procedures.
Assume the Public Company Accounting Oversight Board (PCAOB) identifies a violation during its inspection of a registered accounting firm. a.
The PCAOB may not enforce some disciplinary action against the accounting firm.
b.
The PCAOB may not report the matter to the Securities and Exchange Commission.
c.
The PCAOB may not report the matter to the appropriate state accountancy board
d.
The PCAOB may not suspend the license to practice of the CPA guilty of the violation.
18. MED
Which of the following statements best describes the primary purpose of Statements on Auditing Standards?
d
a.
They are guides intended to set forth auditing procedures that are applicable to a variety of situations.
b. They are procedural outlines that are intended to narrow the areas of inconsistency and divergence of auditor opinion. c. They are authoritative statements, enforced through the Code of Professional Conduct, and are intended to limit the degree of auditor judgment. 19. MED a
20. MED c
21. MED d
22. MED c
23. MED c
24. MED d
25. MED a
26. MED
d. They are interpretations that are intended to clarify the meaning of “generally accepted auditing standards.” Statements on Standards for Accounting and Review Services are issued by the: a. Accounting and Review Services Committee. b. Professional Ethics Executive Committee. c. Securities and Exchange Commission. d. Financial Accounting Standards Board. Consulting Standards are issued by the: a. Accounting and Review Services Committee. b. Securities and Exchange Commission. c. Management Consulting Services Executive Committee. d. Financial Accounting Standards Board. The auditor’s judgment concerning the overall fairness of presentation of financial position, results of operations, and changes in cash flow is applied within the framework of: a. quality control. b. generally accepted auditing standards which include the concept of materiality. c. the auditor’s evaluation of the audited company’s internal control. d. generally accepted accounting principles. A basic objective of a CPA firm is to provide professional services to conform to professional standards. Reasonable assurance of achieving this basic objective is provided through: a. continuing professional education. b. compliance with generally accepted reporting standards. c. a system of quality control. d. a system of peer review. Within the context of quality control, the primary purpose of continuing professional education and training activities is to enable a CPA firm to provide its personnel with: a. technical training that assures proficiency as a valuation expert. b. professional education that is required in order to perform with due professional care. c. knowledge required to fulfill assigned responsibilities. d. knowledge required to perform a peer review. Williams & Co., a member of the Private Companies Practice Section, is to have a “peer review.” The peer review can be performed by: a. a CPA firm selected by Williams & Co. b. a review team selected by the state society. c. internal auditors. d. either a or b. Hansen Corporation’s stock is listed on a national stock exchange and registered with the Securities and Exchange Commission. Hansen’s management hires a CPA to perform an independent audit of Hansen’s financial statements. The primary objective of this audit is to provide assurance to the: a. investors in Hansen Corporation’s stock. b. stock exchange. c. Securities and Exchange Commission. d. management of Hansen Corporation. Which of the following is not an essential component of quality control? a. Policies and procedures to ensure that firm personnel are actively engaged in marketing strategies.
a
b. Policies and procedures to ensure that the work performed by firm personnel meet applicable professional standards. c. Policies to ensure that personnel maintain their independence in fact and in appearance. d. Policies that ensure that monitoring activities are effectively applied. Which of the following is true regarding the AICPA-approved practice monitoring programs? a. The Center for Public Company Audit Firms does not offer a peer review program. b. Firms registered with the PCAOB must not enroll in an ##AICPA-approved practice monitoring program. c. Public accounting firms must be enrolled in an AICPA-approved practice monitoring program for members in the firm to be eligible for membership in the AICPA. d. The AICPA peer review program is administered through the SEC. 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?
27. hard c
29. (SOX ) hard A
a. Statements on Auditing Standards. b. Statements on Standards for Accounting and Review Services. c. Regulations issued by the Securities and Exchange Commission. d. The AICPA Code of Professional Conduct. The SEC requirements of greatest interest to CPAs are set forth in the SEC’s: a. Regulation S-X and Accounting Series Releases. b. S-1 through S-16 forms. c. Director’s newsletter. d. Forms 8-K, 10-K, and 10-Q. The AICPA has authority to establish standards and rules in all but which of the following areas?
30. hard A
31. hard D
a. Auditing standards applicable to financial statements of private companies. b. Compilation and review standards. c. Professional conduct. d. Auditing standards applicable to financial statements of private and public companies. Generally Accepted Auditing Standards (GAAS) and Statements on Auditing Standards (SAS) should be looked upon by practitioners as: a. ideals to work towards, but which are not achievable. b. maximum standards that denote excellent work. c. minimum standards of performance that must be achieved on each audit engagement. d. benchmarks to be used on all audits, reviews, and compilations. Which one of the following is not a requirement for belonging to the Private Companies Practice Section of the American Institute of Certified Public Accountants? a. Adherence to quality control standards. b. Mandatory peer review. c. Partner rotation after a period of ten consecutive years. d. Continuing education. Statements on Auditing Standards issued by the AICPA’s Auditing Standards Board are: a. part of the generally accepted auditing standards under the AICPA Code of Professional Conduct.
32. hard C
33. hard C
34. hard b
b. interpretations of generally accepted auditing standards and departures from such statements must be justified. c. interpretations of generally accepted auditing standards and such standards must be followed in every engagement. d. generally accepted auditing procedures that are not covered by the AICPA Code of Professional Conduct. Chapter 3 1. Auditing standards require that the audit report must be titled and that the title must: easy a. include the word “independent.” A b. indicate if the auditor is a CPA. c. indicate if the auditor is a proprietorship, partnership, or incorporated. d. indicate the type of audit opinion issued. 2. To emphasize the fact that the auditor is independent, a typical addressee of the audit report could be: MED A
a. b. c. d.
Company Controller No No Yes Yes
Shareholders Yes No Yes No
Board of Directors Yes Yes No No
3. easy B
4. easy D
5. easy D
6. easy d
7. easy D
8. easy C
9. easy c
10. easy B
11. MED D
12. easy c
13. easy B
The purpose of the introductory paragraph in the standard unqualified report is: a. to identify that the type of opinion issued is unqualified. b. to identify the financial statements audited and the dates and time periods covered by the report. c. to indicate the CPA followed applicable audit standards. d. to indicate all the financial statements are in accordance with GAAP. The scope paragraph 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. 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 subsequent to the date of the financial statements. As a result of management’s refusal to permit the auditor to physically examine inventory, the auditor has not accumulated sufficient appropriate evidence to conclude whether financial statements are stated in accordance with GAAP. The auditor must depart from the unqualified audit report because: a. the financial statements have not been prepared in accordance with GAAP. b. the scope of the audit has been restricted by circumstances beyond either the client’s or auditor’s control. c. the auditor has lost independence. d. the scope of the audit has been restricted. An adverse opinion is issued when the auditor believes: a. some parts of the financial statements are materially misstated or misleading. b. the financial statements would be found to be materially misstated if an investigation were performed. c. the auditor is not independent. d. the overall financial statements are so materially misstated that they do not present fairly the financial position or results of operations and cash flows in conformity with GAAP. If a misstatement is immaterial to the financial statements of the entity for the current period, but is expected to have a material effect in future periods, it is appropriate to issue a(n): a. adverse opinion. b. qualified opinion. c. unqualified opinion. d. disclaimer of opinion. Whenever an auditor issues an audit report for a public company, the auditor can choose to issue a report in which of the following forms? a. A combined report on financial statements and internal control over financial reporting. b. Separate reports on financial statements and internal control over financial reporting. c. Either a or b. d. Neither a nor b. When determining whether an exception is “highly material,” the extent to which the exception affects different elements of the financial statements must be considered. This concept is called: a. materiality. b. pervasiveness. c. financial analysis. d. ratio analysis. An auditor determines the financial statements include a material departure from GAAP. Which type of opinion may be issued? Disclaimer Qualified Adverse a. Yes No No b. No Yes No c. Yes No Yes d. No Yes Yes If an auditor performs an audit of a public company, the scope paragraph should make reference to which standards? a. Accounting standards. b. Generally accepted auditing standards. c. Standards issued by the PCAOB (U.S.). d. Any of the above standards. If an auditor performs an audit of a private company, the scope paragraph should make reference to which standards? a. b.
Accounting standards. U.S. generally accepted auditing standards.
14. easy A
15. MED C
16. easy C
17. hard d
18. MED B
19. MED B
20. MED B
21. MED D
22. MED C
23. MED A
c. Standards issued by the PCAOB (U.S.). d. Any of the above standards. Examples of unqualified opinions which contain modified wording (without adding an explanatory paragraph) include: a. the use of other auditors. b. material uncertainties. c. substantial doubt about the audited company (or the entity) continuing as a going concern. d. lack of consistent application of GAAP. GAAP requires that changes in accounting principles be to a: a. more conservative principle. b. principle with equal authoritative support. c. preferable principle. d. principle detailed in a FASB pronouncement. A CPA may wish to emphasize specific matters regarding the financial statements even though an unqualified opinion will be issued. Normally, such explanatory information is: a. included in the scope paragraph. b. included in the opinion paragraph. c. included in a separate paragraph in the report. d. included in the introductory paragraph. An auditor who issues a qualified opinion because sufficient appropriate evidence was not obtained should describe the limitations in an explanatory paragraph. The auditor should also refer to the limitation in the: Scope Opinion Notes to the paragraph paragraph financial statements a. Yes No Yes b. No Yes Yes c. No Yes No d. Yes Yes No When the auditor evaluates the effect of a change in accounting principle, the materiality of the change should be evaluated based on: a. the prior years presented. b. the current year effect of the change. c. guidelines included in GAAS. d. the effect on total assets. Conditions requiring a departure from an unqualified audit report include all but which of the following? a. Management refused to allow the auditor to confirm significant accounts receivable for which there were no alternative procedures performed. b. Management decided not to allow the auditor to confirm significant accounts receivable, but the auditor obtained sufficient appropriate evidence by examining subsequent cash receipts. c. The audit partner’s dependent child received a gift of 100 shares of a client’s stock for her birthday from a grandparent. d. Management has determined that fixed assets should be reported in the balance sheet at their replacement values rather than historical costs. The auditors do not concur. The introductory paragraph of the standard audit report 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. The introductory paragraph of the standard audit report states that the financial statements and the opinion expressed about those 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. The introductory paragraph of the standard audit report states that the auditor is: a. responsible for the financial statements and the opinion on them. b. responsible for the financial statements. c. responsible for the opinion on the financial statements. d. jointly responsible for the financial statements with management. PCAOB Auditing Standard No. 2 requires the audit of internal control over financial reporting to be integrated with: a. b.
the audit of the financial statements. the quarterly review of financial information.
24. MED d
25. MED c
26. MED B
27. MED D
28. MED C
29. MED B
30. MED D
31. MED D
32. MED A
33. MED B
34. MED D
c. the review of annual financial statements. d. none of the above. The audit report indicates that (1) management is responsible for the content of the financial statements and (2) the auditor is responsible for evaluating the appropriateness of the accounting principles chosen by management. Which paragraph contains those statements? a. Both are in the introductory paragraph. b. Both are in the scope paragraph. c. Both are in the opinion paragraph. d. None of the above are true. If the balance sheet of a company is dated December 31, 2009, the audit report is dated February 8, 2010, and both are released on February 15, 2010, this indicates that the auditor has searched for subsequent events that occurred up to: a. December 31, 2009. b. January 1, 2010 c. February 8, 2010 d. February 15, 2010. A combined report on financial statements and internal control over financial reporting includes all but which of the following types of paragraphs? a. Inherent limitations paragraph. b. Description paragraph. c. Opinion paragraph. d. Each of the above paragraphs is included. Whenever an auditor issues a qualified opinion, the implication is that the auditor: a. does not know if the financial statements are presented fairly. b. does not believe the financial statements are presented fairly. c. believes the financial statements are presented fairly. d. believes the financial statements are presented fairly “except for” a specific aspect of them. The necessity to issue a disclaimer of opinion may arise because of: a. a severe limitation on the scope of the audit. b. a lack of independence between the auditor and client. c. either a or b. d. neither a nor b. When the auditor determines the financial statements are fairly stated and then determines that the auditor lacks independence, the auditor should issue: a. an adverse opinion. b. a disclaimer of opinion. c. either a qualified opinion or an adverse opinion. d. either a qualified opinion or an unqualified opinion with modified wording. If the auditor lacks independence, a disclaimer of opinion must be issued: a. if the client requests it. b. only if it is highly material. c. only if it is material but not highly material. d. in all cases. Misstatements must be compared with some measurement base before a decision can be made about materiality. A commonly accepted measurement base includes: a. net income. b. total assets. c. working capital. d. all of the above. When comparing misstatements with a measurement base, the auditor must consider the pervasiveness of the misstatement. Of the following examples, the most pervasive misstatement is a(n): a. understatement of inventory. b. understatement of retained earnings caused by a miscalculation of dividends payable. c. misclassification of notes payable as a long-term liability when it should be current. d. misclassification of salary expense as a selling expense when it should be allocated equally to both selling and administrative expense. The dollar amount of some misstatements cannot be accurately measured. For example, if the client were unwilling to disclose an existing lawsuit, the auditor must estimate the likely effect on: a. net income. b. users of the financial statements. c. the auditor’s exposure to lawsuits. d. management’s future decisions. Whenever there is a scope restriction, the appropriate response is to issue a(n): a. disclaimer of opinion. b. adverse opinion.
35. MED A
36. MED d
37. MED D
38. MED d
39. MED C
40. MED c
41. MED C
42. MED b
43. MED D
44. MED C
45. MED
c. qualified opinion. d. unqualified report, a qualification of scope and opinion, or a disclaimer, depending on materiality. Which of the following is least likely to cause uncertainty about the ability of an entity to continue as a going concern? a. A client’s lawsuit against another company which claims the other company has infringed on its patent. b. Loss of major customers. c. Significant recurring operating losses. d. Working capital deficiencies. The client has presented all required financial statements with the exception of the statement of cash flows. The auditor has completed the audit and is satisfied that all other statements are presented fairly. The auditor: a. may issue either an unqualified or a qualified opinion. b. must issue an adverse opinion with “except for” in the opinion paragraph. c. may issue an unqualified opinion. d. must issue a qualified opinion with “except for” in the opinion paragraph. When a disclaimer is issued because the auditor lacks independence: a. no report title is included on the report. b. a one-paragraph audit report is issued. c. the only reason cited for issuing the disclaimer is the lack of independence. d. all of the above are correct. When a client has not applied GAAP consistently from the prior year to the current year, the auditor does not concur with the appropriateness of the change, and the change in GAAP has a material effect on the financial statements, the auditor should issue a(n): a. disclaimer. b. adverse opinion. c. unqualified opinion. d. qualified opinion. Which of the following is not a change that affects consistency and, therefore, does not require an explanatory paragraph? a. Change in accounting principle, such as a change from LIFO to FIFO. b. Change in reporting entity, such as the inclusion of an additional company in combined financial statements. c. Change in an estimate, such as a decrease in the life of an asset for depreciation purposes. d. Correction of errors by changing from non-GAAP to GAAP. Items that materially affect the comparability of financial statements generally require disclosure in the footnotes. If the client refuses to properly disclose the item, the auditor will most likely issue: a. a disclaimer. b. an unqualified opinion. c. a qualified opinion. d. an adverse opinion. Auditors sometimes encounter situations in which the outcome of a matter cannot be reasonably estimated at the time the financial statements are issued. These matters are referred to as: a. inestimable matters. b. non sequiturs. c. uncertainties. d. in-suspense matters. 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 financial statements. b. one year from the date of the financial statements. c. six months from the date of the audit report. d. one year from the date of the audit report. When the auditor concludes that there is substantial doubt about the entity’s ability to continue as a going concern, the appropriate audit report would be: a. an unqualified opinion with an explanatory paragraph. b. a disclaimer of opinion. c. neither a nor b. d. either a or b. An auditor may not issue a qualified opinion when: a. a scope limitation prevents the auditor from completing an important audit procedure. b. the auditor’s report refers to the work of a specialist. c. the auditor lacks independence with respect to the audited entity. d. an accounting principle at variance with GAAP is used. When a company’s financial statements contain a departure from GAAP with which the auditor concurs, the departure should be explained in:
B
46. MED B
47. MED c
48. MED d
49. MED a
50. MED c
51. MED b
52. MED b
53. hard c
54. hard a
55.
a. the scope paragraph. b. an explanatory paragraph that appears before the opinion paragraph. c. the opinion paragraph. d. an explanatory paragraph after the opinion paragraph. Which of the following representations does an auditor make explicitly and which implicitly when issuing an unqualified opinion? Conformity Adequacy of with GAAP disclosure a. Explicitly Explicitly b. Explicitly Implicitly c. Implicitly Explicitly d. Implicitly Implicitly William Gregory, CPA, is the principal auditor for a multi-national corporation. Another CPA has examined and reported on the financial statements of a significant subsidiary of the corporation. Gregory is satisfied with the independence and professional reputation of the other auditor, as well as the quality of the other auditor’s examination. With respect to his report on the consolidated financial statements, taken as a whole, Gregory: a. must not refer to the examination of the other auditor. b. must refer to the examination of the other auditor. c. may refer to the examination of the other auditor. d. may refer to the examination of the other auditor, in which case Gregory must include in the auditor’s report on the consolidated financial statements a qualified opinion with respect to the examination of the other auditor. A company has changed its method of inventory valuation from an unacceptable one to one in conformity with generally accepted accounting principles. The auditor’s report on the financial statements of the year of the change should include: a. no reference to consistency. b. a reference to a prior period adjustment in the opinion paragraph. c. an explanatory paragraph that justifies the change and explains the impact of the change on reported net income. d. an explanatory paragraph explaining the change. Sarbanes-Oxley requires auditors of a public company to audit a company’s financial statements and attest to management’s report on the effectiveness of internal control over financial reporting. What type of assurance does the auditor provide in this report? a. Positive assurance on the financial statements and on the effectiveness of internal control over financial reporting. b. Positive assurance on the financial statements and negative assurance on the effectiveness of internal control over financial reporting. c. Limited assurance on the financial statements and on the effectiveness of internal control over financial reporting. d. There is no guidance on what level of assurance to provide. Whenever the client imposes restrictions on the scope of the audit, the auditor should be concerned that management may be trying to prevent discovery of misstatements. In such cases, the auditor will likely issue a: a. disclaimer of opinion in all cases. b. qualification of both scope and opinion in all cases. c. disclaimer of opinion whenever materiality is in question. d. qualification of both scope and opinion whenever materiality is in question. CPAs issue several types of “special audit reports.” Which of the following circumstances would not require the issuance of a special audit report? a. The client’s financial statements are prepared using the cash basis. b. The client’s financial statements are prepared using the accrual basis. c. The CPA has been retained to audit only the current assets. d. The CPA has been retained to review the internal control system, not the financial statements. When a qualified or adverse opinion is issued, the qualifying paragraph is inserted: a. between the introductory and scope paragraphs. b. between the scope and opinion paragraphs. c. after the opinion paragraph, as a fourth paragraph. d. immediately after the address, as the first paragraph. For the report containing a disclaimer for lack of independence, the disclaimer is in the: a. third or opinion paragraph. b. second or scope paragraph. c. first and only paragraph. d. fourth or explanatory paragraph. Which of the following is not a primary category of attestation report? a. Compilation report. b. Review report. c. Audit report. d. Special audit report based on a basis of accounting other than GAAP. Most auditors believe that financial statements are “presented fairly” when the statements are in accordance with GAAP,
hard b
56. hard d
57. hard d
58. MED a
59. hard d
60. hard b
61. hard d
62. hard c
63. MED c
64. hard a
65. hard C
and that it is also necessary to: a. determine that they are not in violation of FASB statements. b. examine the substance of transactions and balances for possible misinformation. c. review the statements using the accounting principles promulgated by the SEC. d. assure investors that net income reported this year will be exceeded in the future. In which of the following situations would the auditor most likely issue an unqualified report? a. The client valued ending inventory by using the replacement cost method. b. The client valued ending inventory by using the Next-In-First-Out (NIFO) method. c. The client valued ending inventory at selling price rather than historical cost. d. The client valued ending inventory by using the First-In-First-Out (FIFO) method, but showed the replacement cost of inventory in the Notes to the Financial Statements. Which of the following statements is true? a. The auditor is required to issue a disclaimer of opinion in the event of a material uncertainty. b. The auditor is required to issue a disclaimer of opinion in the event of a going concern problem. c. The auditor is required to issue a disclaimer of opinion for a material uncertainty and for a going concern problem. d. The auditor has the option, but is not required, to issue a disclaimer of opinion for a material uncertainty or for a going concern problem. The most common case in which conditions beyond the client’s and auditor’s control cause a scope restriction is an engagement: a. agreed upon after the client’s balance sheet date. b. where the client won’t allow the auditor to confirm receivables for fear of offending its customers. c. where the auditor doesn’t have enough staff to satisfactorily audit all of the client’s foreign subsidiaries. d. where the client is going through Chapter 11 bankruptcy. When the auditor cannot perform procedures and the amounts are so material that a disclaimer of opinion rather than a qualified opinion is required, the: a. opinion paragraph will state “does not present fairly.” b. opinion paragraph will state “presents fairly.” c. scope paragraph will be unchanged from the standard unqualified opinion. d. scope paragraph will be deleted. When misstatements are so material that an adverse opinion is issued, a scope paragraph would be: a. b. c. d.
qualified. unchanged. deleted. expanded to identify the additional procedures which the auditor performed.
When the client fails to make adequate disclosure in the body of the statements or in the related footnotes, it is the responsibility of the auditor to: a. inform the reader that disclosure is not adequate, and to issue an adverse opinion. b. inform the reader that disclosure is not adequate, and to issue a qualified opinion. c. present the information in the audit report and issue an unqualified or qualified opinion. d. present the information in the audit report and to issue a qualified or an adverse opinion. The “unqualified report with explanatory paragraph” and the “unqualified report with modified wording”: a. arise as a result of an incomplete audit. b. arise when the financial statements are not “presented fairly.” c. meet the criteria of a complete audit with satisfactory results. d. meet the criteria of a complete audit but with unsatisfactory results. Which of the following will not cause the auditor to issue a standard unqualified report with an explanatory paragraph or modified wording? a. Emphasis of a matter. b. Reports involving other auditors. c. Auditor disagrees with client’s departure from GAAP. d. Lack of consistent application of GAAP. Which of the following is not one of the principal CPA firm’s alternatives when issuing a report if a different CPA firm performed part of the audit? a. Issue a joint report signed by both CPA firms. b. Make no reference to the other CPA firm in the audit report, and issue the standard unqualified opinion. c. Make reference to the other auditor in the report by using modified wording (a shared opinion or report) d. A qualified opinion or disclaimer, depending on materiality, is required if the principal auditor is not willing to assume any responsibility for the work of the other auditor. Which of the following statements is not true? a. A one-paragraph report is generally used when the auditor is not independent. b. A three-paragraph report ordinarily indicates there are no exceptions in the audit. c. More than three paragraphs in the report indicates there must be some type of qualification in the audit.
d. An unqualified opinion with an explanation or modified wording would require more than three paragraphs. Brown Co.’s financial statements adequately disclose uncertainties that concern future events, the outcome of which are not reasonably estimable. The auditor’s report should include a(n): a. unqualified opinion. b. disclaimer. c. “except for” qualified opinion. d. adverse opinion. 67. Which of the following requires recognition in the auditor’s opinion as to consistency? hard a. The correction of an error in the prior year’s financial statements resulting from a mathematical mistake in c capitalizing interest. b. A change in the estimate of provisions for warranty costs. c. The change from the cost method to the equity method of accounting for investments in common stock. d. A change in depreciation method which has no effect on current year’s financial statements but is certain to affect future years. 68. When an auditor encounters a situation involving more than one of the conditions requiring a departure from a standard hard unqualified report, the auditor should modify his or her opinion for each condition unless one has the effect of neutralizing a the others. In which of the following situations would the auditor not include more than one modification in the report? a. There is a material scope limitation, and the auditor is not independent. b. There is a material GAAP violation, and the auditor is not independent. c. There is a material scope limitation, and there is substantial doubt about the company’s ability to continue as a going concern. d. There is a substantial doubt about the company’s ability to continue as a going concern, and information about the causes of the uncertainties is not adequately disclosed in a footnote. 69.MED Indicate which changes would require an explanatory paragraph in the audit report. 66. hard A
A Correction of an error by changing from an accounting principle that is not generally acceptable to one that is generally acceptable a. Yes b. No c. Yes d. No 70. MED B
Indicate which changes would require an explanatory paragraph in the audit report.
Change in the estimated life of an asset 71. MED A
Change from FIFO to LIFO Yes No No Yes
Indicate which changes would require an explanatory paragraph in the audit report. A departure from GAAP which, due to unusual circumstances, does not require a qualified or adverse opinion. a. Yes b. No c. Yes d. No
73. Easy A
Variation in the format of the financial statements
Indicate which changes would require an explanatory paragraph in the audit report. The CPA concludes there is substantial doubt about the entity’s ability to continue as a going concern a. Yes b. No c. Yes d. No
72. Hard C
Change from LIFO to FIFO Yes No No Yes
The CPA makes reference to the work of another auditor to indicate shared responsibility in an unqualified opinion. Yes No No Yes
Indicate which changes would require an explanatory paragraph in the audit report. Change from LIFO to FIFO a. Yes b. No c. Yes
Change from FIFO to LIFO Yes No No
74. Hard B
d. No Yes Indicate which changes would require an explanatory paragraph in the audit report. Important events occurring subsequent to the balance sheet date The existence of related party transactions a. Yes b. No c. Yes d. No
75. MED C
Yes No No Yes
Which auditor report would require only one paragraph? Adverse opinion due to departure from GAAP Disclaimer due to lack of independence a. Yes b. No c. Yes d. No
MED B
Yes No No Yes
Which auditor report would require only one paragraph? Qualified opinion due to scope restriction Disclaimer due to scope restriction a. Yes b. No c. Yes d. No
77. Hard D
Which auditor report must have at least four paragraphs?
Unqualified opinion indicating shared responsibility with another auditor a. Yes b. No c. Yes d. No 78. Hard C
79. MED A
80. MED D
Yes No No Yes
Unqualified opinion expressing substantial doubt that the company is a going concern Yes No No Yes
Which auditor report must have at least four paragraphs? Disclaimer due to a scope restriction Qualified opinion due to scope restriction a. Yes Yes b. No No c. Yes No d. No Yes Which auditor report must have at least four paragraphs? Qualified opinion due to departure from Adverse opinion due to departure from GAAP GAAP a. Yes Yes b. No No c. Yes No d. No Yes Which auditor report must have at least four paragraphs? Report required due to omission of the Statement of Cash Flows Disclaimer due to lack of independence a. Yes b. No c. Yes d. No
81.
Yes No No Yes
MED c
A CPA would express a qualified opinion with at least four paragraphs for: A justified accounting change, properly accounted for An unjustified accounting change a. Yes b. No c. Yes d. No
82. MED d
Yes No No Yes
A CPA would express an unqualified opinion with at least four paragraphs for: A justified accounting change, properly accounted for An unjustified accounting change a. Yes b. No c. Yes d. No
83. MED b
84. MED d
The reasons for expressing a qualified opinion due to a departure from GAAP are expressed in a paragraph preceding the scope paragraph. following the scope paragraph. following the opinion paragraph. either preceding or following the opinion paragraph, depending on materiality. In which situation would the auditor be choosing between “except for” qualified opinion and an adverse opinion?
a. b. c. d. Chapter 4 1. easy b
2. easy a
3. easy c
4. easy b
5. easy c
6. easy c
Yes No No Yes
The auditor lacks independence A client-imposed scope restriction A circumstance-imposed scope restriction Lack of full disclosure required by footnotes Multiple-Choice Questions Society has attached a special meaning to the term “professional.” A professional is: a. someone who has passed a qualifying exam to enter the job market. b. a person who is expected to conduct himself or herself at a higher level than the requirements of society’s laws or regulations. c. any person who receives pay for the services performed. d. someone who has both an education in the trade and on-the-job experience received under an experienced supervisor. 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. that it provides a safeguard to keep unscrupulous people out. c. that it is required by federal legislation. d. that it allows licensing agencies to have a yardstick to measure deficient behavior. A challenge associated with the Ethical Principles stated in the Code of Professional Conduct is: a. the emphasis on positive activities. b. that they identify ideal conduct. c. the difficulty of enforcing principles, or general ideals. d. that there are too many to remember. For which of the following professional services must CPAs be independent? a. Management advisory services. b. Audits of financial statements. c. Preparation of tax returns. d. All three of the above. “Independence” in auditing means: a. maintaining an indirect financial interest. b. not being financially dependent on a client. c. taking an unbiased and objective viewpoint. d. being an advocate for a client. When CPAs are able to maintain their actual independence, it is referred to as independence in: a. conduct. b. appearance. c. fact.
7. MED a
8. easy a
9. easy c
10. easy d
11. easy d
12. easy b
13. easy a
14. easy c
15. easy d
16. MED b
d. total. Which of the following statements is true? The CPA firm will lose its independence if: a. a staff auditor providing audit services to the client acquires stock in that client. b. a staff tax preparer who provides 15 hours of non-audit services to the client acquires stock in that client. c. an audit manager in an office different than the office providing audit services has a direct, immaterial financial interest in the audit client. d. a covered member has an indirect, immaterial financial interest in an audit client. Interpretations of Rule 101 prohibit covered members from owning any stock or other direct investment in audit clients. Covered members include all but which of the following? a. All partners in an office that has no responsibility for the engagement. b. The firm and its employee benefit plans. c. Individuals on the attest engagement. d. All of the above describe covered members. In some situations, the interpretations of the Rules of Conduct permit former partners to have relationships with a client of the firm without affecting the firm’s independence. Which of the following situations would not cause a loss of independence? a. The former partner invests in a current client of the firm and receives retirement benefits from the CPA firm, which are dependent upon the firm’s financial performance. b. The former partner uses the CPA firm’s office space and has significant influence over a client. c. The former partner severs relations with the firm and accepts employment with the firm’s client after having been retired for 18 months. d. The former partner is held out as an associate of the firm and takes part in the firm’s business activities. The financial interests of which of the following parties would not be included as a “direct financial interest” of the CPA? a. Spouse. b. Dependent child. c. Relative supported by the CPA. d. Sibling living in the same city as the CPA. Interpretations of the rules regarding independence allow an auditor to serve as: a. a director or officer of an audit client. b. an underwriter for the sale of a client’s securities. c. a trustee of a client’s pension fund. d. an honorary director for a not-for-profit charitable or religious organization. When the question arises whether a CPA firm may do both bookkeeping and auditing services for the same public company client, the Interpretations of the AICPA’s Code of Professional Conduct: a. encourage it. b. prohibit it. c. allow it. d. allow each firm to determine the answer on a case-by-case basis. The CPA must not subordinate his or her professional judgment to that of others in any: a. engagement. b. audit engagement. c. engagement excluding tax services. d. engagement excluding management advisory services. Which of the following would be a violation of the rule requiring “objectivity” by the CPA? a. The auditor accepts management’s opinion regarding the collection of accounts receivable without an independent evaluation. b. In preparing a client’s tax return, the CPA encourages a client to take a deduction which the CPA believes is risky, but unlikely to be found during an IRS audit. c. Either a or b would be a violation of the rule. d. Neither a nor b would be a violation of the rule. Several months after an unqualified audit report was issued, the auditor discovers the financial statements were materially misstated. The client’s CEO agrees that there are misstatements, but refuses to correct them. She claims that “confidentiality” prevents the CPA from informing anyone. a. The CEO is correct and the auditor must maintain confidentiality. b. The CEO is incorrect, but because the audit report has been issued it is too late. c. The CEO is correct, but to be ethically correct the auditor should violate the confidentiality rule and disclose the error. d. The CEO is incorrect, and the auditor has an obligation to issue a revised audit report, even if the CEO will not correct the financial statements. A member in public practice may perform for a contingent fee any professional services for a client for whom the member or member’s firm performs: a. an audit. b. consulting services.
17. easy a
18. MED b
19. easy b
20. easy b
21. M d
22. MED d
23. MED b
24. MED d
25. MED d
26. MED b
c. preparation of an original tax return. d. preparation of an amended tax return. Which of the following activities is allowed for a CPA firm’s attestation clients? a. Contingent fees based on savings due to implementation of an information system. b. Commissions for referring a review client to an insurance agency for insurance coverage. c. Preparation of tax returns for which fees are based upon client refunds. d. Each of the above is allowed. A member in public practice shall neither receive from, nor pay to, a client a commission when the member or member’s firm also performs certain services for that client. Are commissions allowed if the CPA performs: A compilation that will be used by a An audit of prospective financial information third party a. Yes Yes b. No No c. Yes No d. No Yes If the board of accountancy in the state in which a CPA firm is licensed has rules that are different than the AICPA’s rules, the CPA firm must follow: a. whichever rules are less restrictive. b. whichever rules are more restrictive. c. the rules of the AICPA. d. the rules of the state’s board of accountancy. Elise, CPA, owns a public accounting firm and wishes to establish a separate partnership to offer data processing services to the public and other public accountants. a. Elise cannot be a partner in any separate partnership that offers data processing services. b. Elise may form a separate partnership. c. Elise may form a separate partnership as long as partners are CPAs. d. Elise may form a separate partnership, but must give up the public accounting practice. The Sarbanes-Oxley Act requires which employees of an accounting firm to rotate off the engagement every five years? In-Charge Auditor Partner responsible for concurring review a. Yes Yes b. No No c. Yes No d. No Yes The AICPA’s Code of Professional Conduct states that a CPA should maintain integrity and objectivity. The term “objectivity” in the Code refers to a CPA’s ability to: a. choose independently between alternate accounting principles and auditing standards. b. distinguish between accounting practices that are acceptable and those that are not. c. be unyielding in all matters dealing with auditing procedures. d. maintain an impartial attitude on matters that come under the CPA’s review. Which of the following is required for a firm to designate itself “Member of the American Institute of Certified Public Accountants” on its letterhead? a. At least one of the partners must be a member of the AICPA. b. All partners must be members of the AICPA. c. The partners whose names appear in the firm name must be members of the AICPA. d. A majority of the partners must be members of the AICPA. CPAs are prohibited from which of the following forms of advertising? a. Self-laudatory advertising. b. Celebrity endorsement advertising. c. Use of trade names, such as “Awesome Auditors.” d. Use of phrases, such as “Guaranteed largest tax refunds in town!” Anna Greer, a CPA in public practice, contacts Blake Sawyers, an employee of Jackson & Jackson, LLP, and makes him an offer of employment without first notifying Jackson & Jackson, LLP. According to the AICPA’s Code of Professional Conduct, Anna’s behavior: a. is a violation of the Code of Professional Conduct. b. is a violation only if Greer and Sawyers are CPAs. c. is a violation only if Jackson & Jackson LLP is a CPA firm. d. is not a violation. CPAs may provide bookkeeping services to their non-public audit clients, but there are a number of conditions that must be met if the auditor is to maintain independence. Which of the following conditions is not necessary? a. b. c.
The CPA must not assume a management role or function. The client must hire an external CPA to approve all of the journal entries prepared by the auditor. The auditor must comply with GAAS when auditing work prepared by his/her firm.
27. MED d
28. MED c
29. MED b
30. MED d
31. MED c
32. MED c
33. MED d
34. MED d
35. MED b
36. MED b
d. The client must accept responsibility for the financial statements. Which of the following statements is not true with respect to audit committees? a. Individuals not on a firm’s board of directors should comprise the audit committee. b. The audit committee generally helps in resolving conflicts between the auditors and company management. c. All companies listed on the NYSE are required to have an audit committee. d. Audit committees are required for all companies. To emphasize auditor independence from management, many corporations: a. appoint a partner of the firm conducting the audit to the corporation’s audit committee. b. establish a policy of discouraging social contact between employees of the corporation and the staff of the independent auditor. c. have the independent auditor report to an audit committee of outside members of the board of directors. d. request that a representative of the independent auditor be on hand at the annual stockholders’ meeting. Which of the following statements is true when the CPA has been engaged to perform an audit of financial statements? a. The CPA firm is engaged and paid by the client; therefore, the firm has primary responsibility to be an advocate for the client. b. The CPA firm is engaged and paid by the client, but the primary beneficiaries of the audit are those who rely on the financial statements. c. Should a situation arise where there is no convincing authoritative standard available, and there is a choice of actions which could impact a client’s financial statements, the CPA is free to endorse the choice which is in the investors’ interests. d. The CPA firm has primary responsibility to the FASB. 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. One of the AICPA’s Ethical Principles deals with the public interest. It states that members should accept the obligation to act in a way that will: Honor the public trust Serve the client’s interest a. Yes Yes b. No No c. Yes No d. No Yes 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 MAS services. Of the various parts of the AICPA’s Code of Professional Conduct, the: a. Principles are enforceable. b. Ethical Rulings are enforceable. c. Interpretations are enforceable. d. Rules of Conduct are enforceable. Which of the following statements best describes the enforceability of the Interpretations of the Rules of Conduct? a. The Interpretations are not enforceable. b. The Interpretations are enforceable. c. The Interpretations may be enforceable if they have been reviewed and approved by the AICPA’s Division of Professional Ethics. d. The Interpretations are not enforceable, but a practitioner must justify departure from them. Of the four parts of the AICPA’s Code of Professional Conduct, which part is enforceable? a. Ethical Rulings. b. Rules of Conduct. c. Principles. d. Interpretations. Ethical Rulings are: a. issued by the AICPA’s Board of Governors. b. explanations relating to specific factual circumstances. c. explanations relating to broad hypothetical circumstances. d. enforceable.
37. MED a
38. MED d
39. MED a
40. MED c
41. MED c
42. MED a
43. hard a
44. MED b
45. MED d
46. MED b
47.
The AICPA’s Code of Professional Conduct requires independence for all: a. attestation engagements. b. services performed by accountants in public practice. c. accounting and auditing services performed. d. professional work performed by CPAs. Rules of Conduct contained in the Code of Professional Conduct apply to all AICPA members for all services provided, whether or not the member is in the practice of public accounting: a. in all circumstances. b. for non-attestation services. c. except for the single exception of a tax practice. d. unless it is specifically stated otherwise in the Code. A member firm of the AICPA is not only responsible for its compliance with the Rules of Conduct, but it is also responsible for compliance by its: Employees Shareholders a. Yes Yes b. No No c. Yes No d. No Yes An example of an “indirect ownership interest in a client” would be ownership of a client’s stock by a member’s: a. dependent child. b. spouse. c. non-dependent grandfather. d. All of the above are examples of indirect ownership. When determining whether independence is impaired because of an ownership interest in a client company, materiality will affect whether ownership is a violation of Rule 101: a. in all circumstances. b. only for direct ownership. c. only for indirect ownership. d. under no circumstances. Interpretations of Rule 101 regarding a “direct financial interest” have presumed that a violation exists in which of the following circumstances, unless other circumstances offset such a presumption? a. When close relatives such as nondependent children, brothers, and sisters have a significant financial interest in the client. b. When close relatives such as nondependent children, brothers, and sisters have any financial interest in the client. c. When the CPA owns shares in a mutual fund that has an ownership interest in the client. d. When close relatives such as brother, sister, or in-laws are employed by client. Which of the following circumstances would ordinarily not impair the auditor’s independence? a. Litigation by a client against an audit firm related to tax services. b. Litigation by a client against an audit firm claiming a deficiency in the previous audit. c. Litigation by an audit firm against a client claiming management fraud or deceit. d. Client’s intent to start a lawsuit at some future date, after the current audit is completed, claiming a deficiency in the previous audit. Interpretations to the Rules of Conduct permit a CPA firm to do both bookkeeping and auditing for the same client if three criteria are met. Which of the following is not one of those criteria? a. The client must accept full responsibility for the financial statements. b. The client is required to file an annual report, including audited financial statements, with the Securities and Exchange Commission. c. The CPA must not assume the role of employee or of manager. d. The CPA must follow applicable auditing standards. Which of the following services is not prohibited by the SEC whenever a CPA also audits the company? a. Internal audit outsourcing. b. Legal services unrelated to the audit. c. Appraisal or valuation services. d. Services related to assessing the effectiveness of internal control over financial reporting. Which of the following services is not prohibited by the SEC whenever a CPA also audits the company? a. Actuarial services. b. Assisting the company in preparing certain SEC registration statements (e.g., 10-Q, 10-K). c. Investment banker services. d. Bookkeeping services. The members of a client’s “audit committee” should be:
MED b
48. MED a
49. MED d
50. MED a
51. MED
d
52. MED c
53. MED a
54. MED b
55. (SOX) MED b
56. MED a
a. members of management. b. directors who are not a part of company management. c. non-directors and non-managers. d. directors and managers. An increasing number of companies require stockholders to approve the selection of a new CPA firm or the continuation of the existing CPA firm because: a. stockholders are presumably more objective than management. b. the SEC requires it. c. the AICPA requires it. d. the stockholders are in a better position to evaluate the performance of previous or potential auditors. Rule 301 of the AICPA’s Code of Professional Conduct requires CPAs to maintain the confidentiality of client information. This rule would be violated if a CPA disclosed information without a client’s consent as a result of a: a. subpoena or summons. b. peer review. c. complaint filed with the trial board of the Institute. d. request by a client’s largest stockholder. Which one of the following statements is false? a. The auditor’s responsibility to follow PCAOB standards is greater than the responsibility for confidentiality. b. Information that a CPA obtains from a client is generally not privileged. c. When a CPA firm conducts an AICPA-authorized peer review of the quality controls of another CPA firm, permission of the client is not needed to examine audit documentation. d. A CPA firm which observes substandard audit documentation of another firm can initiate a complaint of substandard performance with the AICPA Ethics Division trial board notwithstanding the confidentiality rule. A CPA is allowed to accept a referral fee for recommending a client to another CPA if: The client pre-approves the transaction Payment of the referral fee is disclosed to the client a. Yes Yes b. No No c. Yes No d. No Yes Rule 505 of the AICPA’s Code of Professional Conduct permits CPA firms to organize as: a. proprietorships or partnerships only. b. proprietorships, partnerships, or professional corporations. c. proprietorships, general partnerships, general corporations, professional corporations, limited liability companies, and limited liability partnerships if permitted by state law. d. single proprietorships, partnerships, professional corporations if permitted by state law, or regular corporations. According to the profession’s ethical standards, an auditor would be considered independent in which of the following instances? a. The auditor’s checking account, which is fully insured by a federal agency, is held at a client financial institution. b. The auditor is also an attorney who advises the client as its general counsel. c. An employee of the auditor serves as treasurer of a charitable organization that is a client. d. The client owes the auditor fees for two consecutive annual audits. If a nonpublic company asks an accountant to perform a review engagement, and the accountant has an immaterial direct financial interest in the company, the accountant is: a. independent because the financial interest is immaterial and, therefore, may issue a review report. b. not independent and, therefore, may not issue a review report. c. not independent and, therefore, may not be associated with the financial statements. d. not independent and, therefore, may issue a review report, but may not issue an auditor’s opinion. The Sarbanes-Oxley Act requires a cooling off period of how long before a member of an audit team can work for a client in a key management position? a. Eighteen months. b. Twelve months. c. Thirty-six months. d. It is not specified; instead it is left to the auditor’s discretion. In determining independence with respect to any audit engagement, the ultimate decision as to whether or not the auditor is independent must be made by the: a. auditor. b. client. c. audit committee. d. public.
57. MED c
58. MED b
60. hard a
61. hard a
62. hard c
63. hard d
64. hard d
65. hard c
A CPA firm should decline an offer to perform management advisory services engagement if: a. the proposed engagement is not accounting-related. b. recommendations made by the CPA firm are to be subject to review by the client. c. acceptance would require the CPA firm to make management decisions for an audit client. d. any of the above is true. In which of the following circumstances would a CPA be bound by ethics to refrain from disclosing any confidential information about a client? a. The CPA is issued a summons enforceable by a court order which orders the CPA to present confidential information. b. A major stockholder of a client company seeks accounting information from the CPA after management declined to disclose the requested information. c. 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. d. An inquiry by a disciplinary body of a state CPA society requests confidential client information. 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. Scope and Nature of Services. b. Integrity. c. Due Care. d. The Public Interest. Interpretations of the AICPA Code of Professional Conduct are dominated by the concept of: a. independence. b. compliance with standards. c. accounting. d. acts discreditable to the profession. An audit committee, consisting of members of the client’s board of directors who are not a part of company management, is required for all companies: a. that have audits performed by AICPA member firms. b. that must file 10-K reports with the SEC. c. listed on the New York Stock Exchange. d. in all circumstances. The Code of Professional Conduct is established by the membership of the AICPA, and the Interpretations of the Rules of Conduct are prepared by the: a. Financial Accounting Standards Board. b. Securities and Exchange Commission. c. CPA licensing agencies within each state. d. Professional Ethics Executive Committee of the AICPA. Generally, loans between a CPA firm or its members and an audit client are prohibited because they create a financial relationship. Which of the following is not an exception to this rule? a. Automobile loans. b. Loans fully collateralized by cash deposits at the same financial institution. c. Home mortgages. d. Unpaid credit card balances not exceeding $15,000. Generally, loans between a CPA firm or its members and an audit client are prohibited because it is a financial relationship. Which of the following, made under normal lending procedures, is not an exception to this rule? a. b. c. d.
66. MED d
67. hard a
Immaterial loans. Home mortgages. Material loans. Secured loans. Rule 101 indicates that materiality is a consideration for: Evaluating direct investments made by the CPA Evaluating indirect ownership investments a. Yes Yes b. No No c. Yes No d. No Yes It is not a violation of the AICPA’s Code of Professional Conduct for a CPA to: a. charge fees as an expert witness determined by the amount awarded to the plaintiff, even though the CPA also performs a compilation for client use . b. base consulting fees on a percentage of a bond issue, even though the CPA performs a review of the client’s financial statements. c. base fees for a tax service on the amount of the refund that the client will receive.
d. base consulting fees on a percentage of a bond issue, even though CPA performs an audit of the client’s financial statements. 68. Which of the following is not defined as an act discreditable in either the Rules or the Interpretations MED of the AICPA’s Code of Professional Conduct? d a. The CPA firm has issued the standard unqualified audit report after auditing a governmental agency, although GAAS was not followed because the government required procedures different from GAAS. b. The CPA firm discriminates in its hiring practices based on the age of the applicant. c. The CPA retains the client’s books and records to enforce past-due payment of the CPA’s bill, even after the client has demanded they be returned. d. The CPA firm’s partner-in-charge was arrested recently on his way home from the firm’s holiday party. He was a passenger in a car driven by his wife and she was charged with “driving while intoxicated.” 69. There are a number of offenses for which a CPA may be expelled from membership in the AICPA. hard Which of the following is not one of these offenses? c a. The willful failure to file any income tax return that the CPA, as an individual taxpayer, is required by law to file. b. The willful filing of a fraudulent income tax return on a client’s behalf. c. Conviction of a crime punishable by imprisonment of 6 months. d. The willful aiding in the preparation of a false and fraudulent income tax return. 70. Which of the following statements regarding professional and regular corporations is not true? hard a. Shareholders in both professional corporations and regular corporations are individually a liable in litigation against the CPA firm. b. The shareholders, officers, and employees must comply with all Code of Professional Conduct requirements. c. Stock in a public accounting corporation must be held by only those CPAs who are qualified to practice. d. The firm name must meet the same requirements as those for a single proprietorship and partnership. 71. In which of the following instances would the independence of the CPA most likely not be considered to be impaired? hard The CPA has been retained as the auditor of a: c a. charitable organization in which an employee of the CPA serves as treasurer. b. municipality in which the CPA owns $250,000 of the $2,500,000 indebtedness of the municipality. c. cooperative apartment house in which the CPA owns an apartment and is not part of the management. d. company in which the CPA’s investment club owns a one-tenth interest. 72. Rule 201 - General Standards requires members to comply with certain standards and interpretations. Which of the hard following is not a standard specifically addressed in Rule 201? a a. Professional integrity. b. Due professional care. c. Planning and supervision. d. Sufficient relevant data. 73. Which of the following statements is correct? (SOX) a. Non-audit services that are not prohibited by Sarbanes-Oxley or the SEC rules must be approved by hard management of the client. d b. Non-audit services that are not prohibited by Sarbanes-Oxley or the SEC rules must be approved by staff of the PCAOB. c. Non-audit services that are not prohibited by Sarbanes-Oxley or the SEC rules must be approved by staff of the PCAOB and the SEC. d. Non-audit services that are not prohibited by Sarbanes-Oxley or the SEC rules must be approved by the company’s audit committee. Chapter 25 Multiple-Choice Questions 1. The standards which govern the CPA’s association with unaudited financial statements of private companies are the: easy a. AICPA’s Code of Professional Conduct. d b. Statements on Auditing Standards (SASs). c. Statements of Standards on Attestation Engagements (SSAEs). d. Statements on Standards for Accounting and Review Services (SSARS). 2. The two types of services provided in connection with the Statements on Standards for Accounting and Review Services easy are: b a. audit and examination services. b. compilation and review services. c. examination and review services. d. management advisory services and compilations. 3. Statements on Standards for Attestation Engagements are established by the: easy a. Securities and Exchange Commission. c b. Public Company Accounting Oversight Board.
4. easy c
5. easy b
6. easy c
7. easy a
8. easy c
9. easy d
10. easy b
11. easy a
12. easy a
13. easy b
14. easy d
15. easy
c. Auditing Standards Board. d. Accounting and Review Services Committee. Because the same CPA firm does both the annual audit and the public company interim financial statement review, they are referred to as _______. a. bookkeepers b. accountants c. auditors d. CPAs Practitioners who perform reviews and compilations are referred to in the SSARS standards as: a. bookkeepers. b. accountants. c. auditors. d. CPAs. A(n) _______ results in a conclusion that represents positive assurance. a. review b. compilation c. examination d. agreed upon procedure engagement Compilation reports may be of all but which of the following types? a. Compilation with limited independence. b. Compilation with full disclosure c. Compilation without independence. d. Compilation that omits substantially all disclosures. An examination results in a conclusion that represents _______ assurance. a. limited assurance b. negative c. positive d. unequivocal A CPA firm can issue a compilation report: a. only if the partners are independent. b. only if all the partners and the staff in the office performing the engagement are independent. c. if the partners have no material or direct immaterial interest in client. d. even if it is not independent. Which of the following meets the attestation standards’ definition of an examination? a. Preparing a corporation’s annual tax returns. b. An audit of the financial statements. c. A review of the financial statements. d. A compilation of the financial statements. Which of the following would not be included in a CPA’s report based upon a review of the financial statements of a nonpublic entity? a. A statement that the review was in accordance with generally accepted auditing standards. b. A statement that all information included in the financial statements is the representation of management. c. A statement describing the principal procedures performed. d. A statement describing the auditor’s conclusions based upon the results of the review. The distribution of which of the following types of reports is unrestricted? a. Examinations and reviews b. Reviews and agreed-upon procedures c. Examinations and agreed-upon procedures d. Examinations, reviews, and agreed-upon procedures The statement that “Nothing came to our attention which would indicate that these statements are not fairly presented” expresses which of the following? a. Disclaimer of an opinion. b. Negative assurance. c. Negative confirmation. d. Shared opinion. For reviews, an accountant does which of the following? Obtain an understanding Perform tests of Perform tests of of internal control. controls. transactions. a. Yes Yes No b. Yes No Yes c. No Yes Yes d. No No No An auditor who conducts an examination in accordance with generally accepted auditing standards and concludes that the financial statements are fairly presented in accordance with a comprehensive basis of accounting other than GAAP,
b
16. MED d
17. MED a
18. MED a
19. MED c
20. MED c
21. MED a
22. MED a
23. MED a
24. (Public) MED b 26. MED d
27. MED
should issue a: a. review report. b. special report. c. qualified opinion. d. disclaimer of opinion. Specific attestation standards have been developed in all but which of the following areas? a. Pro forma financial information. b. Compliance with laws and regulations. c. Prospective financial statements. d. Standards have been developed for all of the above. Reports on agreed-upon procedures are intended to be distributed: a. to only the involved parties, who would have the requisite knowledge about those procedures and the level of assurance resulting from them. b. to only the involved parties, who would have the requisite knowledge about those procedures but not the level of assurance resulting from them. c. to any party to whom the client wishes. d. only to the stockholders of the client. Which of the following is not an area of emphasis in a review conducted under the SSARS? a. Tests of internal controls. b. Make inquiries of management. c. Obtain knowledge of the client. d. Obtain knowledge of the accounting principles and practices of the client’s industry. Distribution of which of the following types of reports is limited? a. Audit b. Review c. Agreed-upon procedures d. Examination In which type of report would you read the following statement: “We believe that our examination provides a reasonable basis for our opinion.”? a. Review b. Audit c. Examination d. Agreed-upon procedures Which of the following forms of review are permissible under SSARS? a. Review without positive assurance. b. Review on financial statements that omit substantially all disclosures. c. Reviews without CPA independence. d. Review without limited procedures. Evidence for a review engagement consists primarily of: Inquiries Analytical procedures Tests of details a. No Yes No b. Yes Yes No c. No No Yes d. Yes No Yes Which of the following services is performed under the attestation standards? WebTrust SysTrust a. Yes Yes b. No No c. Yes No d. No Yes The Securities and Exchange Commission requires quarterly financial information as a part of the: a. 10-K report. b. 10-Q report. c. 8-K report. d. auditor’s report. The WebTrust service requires that a CPA update its testing of the e-commerce aspects of a entity’s Web site at least every: a. ninety days. b. month. c. six months. d. twelve months. Reports on debt compliance and similar engagements may be issued as a separate report or as part of a report that expresses the auditor’s opinion on the financial statements. When they are issued as a part of the report on the financial
b
28. MED a
29. MED d
30. MED b
31. MED a
32. MED d
33. MED c
34. MED c
statements, it is done by: a. adding a middle paragraph before the opinion paragraph. b. adding a paragraph after the opinion paragraph. c. adding an additional phrase or sentence within the opinion paragraph. d. adding a paragraph between the introductory and scope paragraphs. Auditors frequently audit statements that were prepared on a comprehensive basis of accounting other than GAAP. When this occurs: a. generally accepted auditing standards apply to these engagements and the reporting requirements differ. b. generally accepted auditing standards apply to these engagements and the reporting requirements are the same as well. c. generally accepted auditing standards do not apply to these examinations and the reporting requirements differ also. d. generally accepted auditing standards do not apply to this engagement and the reporting requirements remain the same for the CPA. Which of the following is not a standard contained in both the Statement on Standards for Attestation Engagements and the Statement on Auditing Standards? a. The examination is to be performed by a person having adequate technical training. b. An independence in mental attitude is to be maintained. c. Sufficient evidence is to be obtained. d. The practitioner must obtain a sufficient understanding of the client’s internal control. Which of the following is not one of the types of engagements and related forms of conclusions that are defined by the attestation standards? a. Reviews. b. Compilations. c. Examinations. d. Agreed-upon procedures. Which of the following types of engagement reports would provide positive assurance? a. An examination. b. A review. c. An agreed-upon procedures engagement. d. A compilation. Which of the following is not one of the general types of prospective financial statements included in the attestation standards? Forecasts Projections Earnings estimates a. No No Yes b. No Yes No c. Yes Yes No d. Yes No Yes A report on an examination is _______ as to the distribution by the client after it is issued. a. restricted b. limited c. unrestricted d. directed Which are prospective financial statements that present an entity’s expected financial position, results of operations, and cash flows, to the best of the responsible party’s knowledge and belief?
a
a. b. c. d.
Forecasts Yes No Yes No
Projections Yes No No Yes
35. MED d
Which are prospective financial statements that present an entity’s financial position, results of operations, and cash flows, to the best of the responsible party’s knowledge and belief, given one or more hypothetical assumptions?
A
Forecasts Projections a. Yes Yes b. No No c. Yes No d. No Yes Professional standards prohibit one of the following types of engagements for prospective financial statements from being undertaken. a. A compilation.
36. MED b
37. MED b
38. MED c
39. MED d
40. MED c
41. MED c
42. MED d
43. MED d
44. (Public) MED c
45. MED d
46. MED c
47.
b. A review. c. An examination. d. An agreed-upon procedures engagement. General use statements are prepared for use by ________. a. known contractual parties b. any third party c. regulators d. internal auditor. An agreed-upon procedures engagement is one in which: a. the auditor and management agree that procedures will be applied to all accounts and circumstances. b. the auditor and management agree that procedures will not be applied to all accounts and circumstances. c. the auditor and management or a third party agree that the engagement will be limited to certain specific procedures. d. the auditor and management or a 3rd party agree that the auditor will apply his or her judgment to determine procedures to be performed. Statements on Accounting and Review Services are issued by the: a. Auditing Standards Board. b. Securities and Exchange Commission. c. Public Company Accounting Oversight Board. d. Accounting and Review Services Committee of the AICPA. Assurance provided by a review is substantially less than an audit. Which of the following statements is true regarding these services? a. A review requires more substantive evidence than an audit. b. An audit requires less evidence related to internal control than a review. c. A review requires less evidence than an audit. d. None of the above statements is true. An accountant who reviews the financial statements of a nonpublic entity should issue a report stating that a review: a. is substantially equivalent in scope to an audit. b. is substantially more in scope than a compilation. c. is substantially less in scope than an audit. d. provides only limited assurance that the financial statements are fairly presented. Which of the following procedures is not included in a review engagement of a nonpublic entity? a. Inquiries of management. b. Inquiries regarding events subsequent to the balance sheet date. c. Any procedures designed to identify relationships among data that appear to be unusual. d. A study and evaluation of internal control. When an accountant performs more than one level of service (for example, a compilation and a review, or a compilation and an audit) concerning the financial statements of a nonpublic entity, the accountant generally should issue the report that is appropriate for: a. a review engagement. b. a compilation engagement. c. the lowest level of service rendered. d. the highest level of service rendered. The title of a review report issued for a public company’s quarterly financial statements is titled with which of the following? a. Report of Independent Public Accountants. b. Report of Independent Auditors. c. Report of Independent Registered Public Accounting Firm. d. Report of Certified Public Accountant. You are a CPA retained by the manager of a cooperative retirement village to do “write-up work.” You are expected to prepare unaudited financial statements with each page marked “unaudited” and accompanied by a disclaimer of opinion stating no audit was performed. In performing the work, you discover that there are no invoices to support a claim for a $25,000 disbursement. The manager informs you that all the disbursements are proper. What should you do? a. Submit the expected statements but omit $25,000 of unsupported disbursements. b. Include the unsupported disbursements in the statements since you are not expected to make an audit. c. Obtain from the manager a written statement that you informed him of the missing invoices and include his assurance that the disbursements are proper. d. Notify the owners that some of the claimed disbursements are unsupported and withdraw if the situation is not satisfactorily resolved. Debt compliance letters are ordinarily addressed to: a. underwriters of securities. b. the client’s audit committee. c. creditor financial institutions. d. the Securities and Exchange Commission. Why do standards prohibit accepting an engagement on a projection for general use?
MED c
48. MED b
49. MED a
50. MED b
51. MED a
52. MED a
53. hard b
54. hard a
56. hard a
57. hard c
a. The CPA’s procedures would violate SSARS. b. Reports on projections are not well understood by the general public. c. Underlying hypothetical assumptions are difficult to interpret without obtaining additional information. d. The CPA is not qualified to report on the use of GAAP in the projected financial statement Which of the following is not an element of examining a forecast? a. Evaluating the preparation of the prospective financial statements. b. Understanding internal controls. c. Evaluating the support underlying the assumptions. d. Issuing an examination report. An accountant may accept an engagement to apply agreed-upon procedures to prospective financial statements provided that: a. distribution of the report is to be restricted to the specified users involved. b. the prospective financial statements are also examined. c. responsibility for the adequacy of the procedures performed is taken by the accountant. d. negative assurance is expressed on the prospective financial statements taken as a whole. Non-accounting data included in a long-form report have been subjected to auditing procedures. The auditor’s report should state this fact and should explain that the non-accounting data are presented for analysis purposes. In addition, the auditor’s report should state whether the non-accounting data are: a. audited, unaudited, or reviewed on a limited basis. b. fairly stated in all material respects in relation to the basic financial statements taken as a whole. c. beyond the scope of the normal engagement and therefore, not covered by the opinion on the financial statements. d. within the framework of generally accepted auditing standards, which apply to the financial statements taken as a whole. An auditor has been asked to report on the balance sheet of Kane Company but not on the other basic financial statements. The auditor will have access to all information underlying the basic financial statements. Under these circumstances, the auditor: a. may accept the engagement because such engagements merely involve limited reporting objectives. b. may accept the engagement but should disclaim an opinion because of an inability to apply the procedures considered necessary. c. should refuse the engagement because there is a client-imposed scope limitation. d. should refuse the engagement because of a departure from generally accepted auditing standards. A CPA who has been engaged to audit financial statements that were prepared on a cash basis: a. must ascertain that there is proper disclosure of the fact that the cash basis has been used, the general nature of material items omitted, and the net effect of such omissions. b. may not be associated with such statements which are not in accordance with generally accepted accounting principles. c. must render a qualified report explaining the departure from generally accepted accounting principles in the opinion paragraph. d. must restate the financial statements on an accrual basis and then render the standard (short-form) report. One example of a “special report,” as defined by Statements on Auditing Standards, is a report issued in connection with: a. a feasibility study. b. price-level basis financial statements. c. a limited review of interim financial information. d. compliance with a contractual agreement not related to the financial statements. In a review service where the client has failed to follow GAAP, the accountant is: a. not required to determine the effect of a departure if management has not done so, but that fact must be disclosed in the report. b. required to determine the effect of a departure if management has not done so, and that fact must be disclosed in the report. c. not required to determine the effect of a departure if management has not done so, and that fact need not be disclosed in the report. d. required to determine the effect of a departure if management has not done so, and that fact need not be disclosed in the report. The engagement and report on debt compliance letters should be limited to compliance matters that the auditor is qualified to evaluate. Which of the following engagements would be inappropriate for the CPA to attempt to evaluate? a. Determining whether the client has properly restricted its business activities to the requirements of an agreement. b. Determining whether principal and interest payments were made when due. c. Determining whether the proper limitations were maintained on dividends, working capital, and debt ratios. d. Determining whether the accounting records were adequate for conducting an ordinary audit. Prospective financial statements are for general use or for limited use. General use refers to use by any third party, whereas limited use refers to use by third parties with which the responsible party is negotiating directly. Which of the following statements is not correct? a. Forecasts can be provided for general use. b. Forecasts can be provided for limited use.
58. hard b
59. hard d
60. hard d
61. hard b
62. hard b
63. hard c
64. hard a
65. hard c
c. Projections can be provided for general use. d. Projections can be provided for limited use. Before performing a review of a nonpublic entity’s financial statements, an accountant should: a. complete a series of inquiries concerning the entity’s procedures for recording, classifying, and summarizing transactions. b. obtain a sufficient level of knowledge of the accounting principles and practices of the industry in which the entity operates. c. inquire whether management has omitted substantially all of the disclosures required by generally accepted accounting principles. d. apply analytical procedures to provide limited assurance that no material modifications should be made to the financial statements. An auditor who was engaged to perform an examination of the financial statements of a nonpublic entity has been asked by the client to refrain from performing various audit procedures and change the nature of the engagement to a review of the financial statements in accordance with standards established by the AICPA. The client’s request was made because the cost to complete the examination was significant. Under these circumstances, the auditor would most likely: a. qualify the auditor’s report and refer to the scope limitation. b. view the request as an indication of a possible irregularity. c. complete the examination that was in progress. d. honor the client’s request. An accountant’s standard report on a compilation of a projection should not include a: a. statement that a compilation of a projection is limited in scope. b. separate paragraph that describes the limitations on the presentation’s usefulness. c. disclaimer of responsibility to update the report for events occurring after the report’s date. d. statement that the accountant expresses only limited assurance that the results may be achieved. Attestation standards allow a CPA to perform all but which of the following services for a forecast or projection? a. Compilation b. Review c. Examination d. Agreed-upon procedures Under what standards are WebTrust and SysTrust engagements performed? a. SSAR b. SSAE c. SAS d. SSARS Negative assurance is not permissible in: a. reports based upon a review engagement. b. letters required by security underwriters for data pertinent to SEC registration statements. c. reports based on an audit of interim financial statements of a closely held business entity. d. reports relating to the results of agreed-upon procedures to one or more specified elements, accounts, or items of financial statement. The auditor’s best course of action with respect to “other financial information” included in an annual report containing the auditor’s report is to: a. read and consider the manner of presentation of the “other financial information.” b. indicate in the auditor’s report that the “other financial information” is unaudited. c. consider whether the “other financial information” is accurate by performing a limited review. d. obtain written representations from management as to the accuracy of the “other financial information.” A CPA who is not independent and is associated with financial statements should disclaim an opinion with respect to those financial statements. The disclaimer should: a. clearly state the specific reasons for lack of independence. b. not mention any reason for the disclaimer other than that the CPA was unable to conduct the examination in accordance with generally accepted auditing standards. c. not describe the reason for lack of independence but should state specifically that the CPA is not independent. d. include a middle paragraph clearly describing the CPA’s association with the client and explaining why the CPA was unable to gather sufficient competent evidential matter to warrant the expression of an opinion.
View more...
Comments
