Question 1

Firm A performs audits of 60 public entities,while firm B performs audits of 120 public entities.How often must each firm undergo a PCAOB inspection?

Accepted Answer

A)  Both firm A and firm B will be inspected every other year. 
B)  Firm A will be inspected annually and firm B will be inspected every three years. 
C)  Firm A will be inspected every three years and firm B will be inspected annually. 
D)  Both firm A and firm B will be inspected annually. 
A)  Both firm A and firm B will be inspected every other year. 
B)  Firm A will be inspected annually and firm B will be inspected every three years. 
C)  Firm A will be inspected every three years and firm B will be inspected annually. 
D)  Both firm A and firm B will be inspected annually.

Question 2

All of the following statements are true regarding generally accepted auditing standards (GAAS)except

Accepted Answer

A)  departures from auditing standards that impose presumptively mandatory requirements on auditors are not permitted under any circumstances. 
B)  Interim Auditing Standards, issued by the AICPA, may serve as an appropriate source of GAAS for the audits of public entities. 
C)  separate auditing standards have been developed for the audits of U.S. governmental entities and foreign entities. 
D)  Interpretive Publications, which are officially considered less authoritative and less binding than auditing standards, are included as part of GAAS. 
A)  departures from auditing standards that impose presumptively mandatory requirements on auditors are not permitted under any circumstances. 
B)  Interim Auditing Standards, issued by the AICPA, may serve as an appropriate source of GAAS for the audits of public entities. 
C)  separate auditing standards have been developed for the audits of U.S. governmental entities and foreign entities. 
D)  Interpretive Publications, which are officially considered less authoritative and less binding than auditing standards, are included as part of GAAS.

Question 3

The performance principle would include all of the following except

Accepted Answer

A)  the auditors' determination of materiality levels. 
B)  the auditors' evaluation of independence with respect to their clients. 
C)  the auditors' evaluation of the risk of material misstatement. 
D)  the auditors' determination of the nature, timing, and extent of further audit procedures. 
A)  the auditors' determination of materiality levels. 
B)  the auditors' evaluation of independence with respect to their clients. 
C)  the auditors' evaluation of the risk of material misstatement. 
D)  the auditors' determination of the nature, timing, and extent of further audit procedures.

Question 4

The state of mind that characterizes the auditors' appropriate questioning and critical assessment of audit evidence is referred to as

Accepted Answer

A)  due care. 
B)  independence in appearance. 
C)  professional judgment. 
D)  professional skepticism. 
A)  due care. 
B)  independence in appearance. 
C)  professional judgment. 
D)  professional skepticism.

Question 5

What type of evidence would provide the highest level of assurance in an attestation engagement?

Accepted Answer

A)  Evidence secured solely from within the entity 
B)  Evidence obtained from independent sources 
C)  Evidence obtained indirectly 
D)  Evidence obtained from multiple internal inquiries 
A)  Evidence secured solely from within the entity 
B)  Evidence obtained from independent sources 
C)  Evidence obtained indirectly 
D)  Evidence obtained from multiple internal inquiries

Question 6

Which of the following could serve as a source of professional guidance in the audit of a public entity?

Accepted Answer

A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D 
A)  Option A 
B)  Option B 
C)  Option C 
D)  Option D

Question 7

Which of the following types of auditors' reports does not require an additional paragraph to support the opinion?

Accepted Answer

A)  Unmodified opinion 
B)  Adverse opinion 
C)  Qualified opinion 
D)  Disclaimer of opinion 
A)  Unmodified opinion 
B)  Adverse opinion 
C)  Qualified opinion 
D)  Disclaimer of opinion

Question 8

Which of the following presumptions does not relate to the reliability of audit evidence?

Accepted Answer

A)  The more effective the client's internal control, the more assurance it provides about the accounting data and financial statements. 
B)  The auditors' opinion, to be economically useful, is formed within reasonable time and based on evidence obtained at a reasonable cost. 
C)  Evidence obtained from independent sources outside the entity is more reliable than evidence secured solely within the entity. 
D)  The independent auditors' direct personal knowledge, obtained through observation and inspection, is of higher quality than information obtained indirectly. 
A)  The more effective the client's internal control, the more assurance it provides about the accounting data and financial statements. 
B)  The auditors' opinion, to be economically useful, is formed within reasonable time and based on evidence obtained at a reasonable cost. 
C)  Evidence obtained from independent sources outside the entity is more reliable than evidence secured solely within the entity. 
D)  The independent auditors' direct personal knowledge, obtained through observation and inspection, is of higher quality than information obtained indirectly.

Question 9

Which of the following statements is not true with respect to the responsibility for establishing generally accepted auditing standards?

Accepted Answer

A)  The PCAOB issues auditing standards for the audit of public entities, subject to SEC approval 
B)  Standards issued by the Auditing Standards Board after 2003 apply to the audits of both public and private entities 
C)  If not superseded by the PCAOB, Statements on Auditing Standards issued prior to 2003 are applicable to the audit of public entities 
D)  Prior to the Sarbanes-Oxley Act, the Auditing Standards Board issued auditing standards for the audits of both public and private entities 
A)  The PCAOB issues auditing standards for the audit of public entities, subject to SEC approval 
B)  Standards issued by the Auditing Standards Board after 2003 apply to the audits of both public and private entities 
C)  If not superseded by the PCAOB, Statements on Auditing Standards issued prior to 2003 are applicable to the audit of public entities 
D)  Prior to the Sarbanes-Oxley Act, the Auditing Standards Board issued auditing standards for the audits of both public and private entities

Question 10

Alan Fallon was recently promoted to senior accountant.He was put in charge of the Mellow Markets audit because of his experience with other grocery clients.Mellow Markets has a small,but growing,chain of natural food stores.This is the first year Mellow Markets has been audited.Because of their growth,Mellow Markets needs additional capital and intend to use their audited financial statements to secure a loan.
Alan has been assigned two inexperienced staff assistants for the audit.Because this is his first engagement as a senior,he intends to bring the job in on budget.To save time,he provided his assistants with a copy of the audit plan for Happy Time Food Stores.He told them that this would make things go more quickly.He also told them that he could not spend much time with them at the client's place of business,because "my time is billed out at such a high rate,we'll go right over budget." However,he did call them once a day from another audit on which he was working.
After beginning their work,the assistants told Alan that the audit plan did not always match up with what they found at Mellow Markets.Alan responded,"just cross out whatever is not relevant in the audit plan and don't add anything - it will only make us go over the budget." When Alan came to the client near the end of field work,one assistant was concerned that no inventory observation was done at the out-of-town locations of Mellow Markets (the audit plan had stipulated that inventory should be observed for in-town stores only).Happy Time had only one out-of-town location,while three of Mellow Markets' five stores were in other cities.Alan told the assistant to get inventory sheets from the client for the other stores and added "make sure that the inventory balance in the general ledger agrees with the total for all the inventory sheets." The next day,Alan reviewed all audit documentation and submitted the job for review by the manager.
Required:
1.Describe the performance principle of GAAS.
2.Do you believe that the Mellow Markets audit complies with the performance principle? Explain.

Accepted Answer

According to the performance principle,t

Question 11

Which of the following does not directly relate to an auditor's responsibility for having appropriate competence and capabilities to perform the audit?

Accepted Answer

A)  Participating in continuing professional education 
B)  Gaining experience through hands-on practice 
C)  Obtaining reliable documentary evidence 
D)  Attending on-the-job training 
A)  Participating in continuing professional education 
B)  Gaining experience through hands-on practice 
C)  Obtaining reliable documentary evidence 
D)  Attending on-the-job training

Question 12

Which of the following situations would most likely be in conflict with the responsibilities principle?

Accepted Answer

A)  Auditors perform the engagement with the performance level expected of prudent auditors, but not expert auditors. 
B)  Auditors obtain expertise in their client's industry as they are conducting the audit examination. 
C)  Auditors are directly involved with a client manager in a strategic decision-making capacity. 
D)  Auditors fail to document their assessment of control risk following their study of internal control. 
A)  Auditors perform the engagement with the performance level expected of prudent auditors, but not expert auditors. 
B)  Auditors obtain expertise in their client's industry as they are conducting the audit examination. 
C)  Auditors are directly involved with a client manager in a strategic decision-making capacity. 
D)  Auditors fail to document their assessment of control risk following their study of internal control.

Question 13

Internal evidence

Accepted Answer

A)  is obtained directly from third parties independent of the client. 
B)  originates outside of the client's system but has been received and processed by the client. 
C)  consists of documents that are produced, used, and stored within the client's information system. 
D)  consists of representations made by the client's officers, directors, owners, and employees. 
A)  is obtained directly from third parties independent of the client. 
B)  originates outside of the client's system but has been received and processed by the client. 
C)  consists of documents that are produced, used, and stored within the client's information system. 
D)  consists of representations made by the client's officers, directors, owners, and employees.

Question 14

An internal evaluation of the significant judgments made by the audit team and the conclusions reached in formulating its report for engagements meeting specified criteria is known as a(n)

Accepted Answer

A)  engagement quality control review. 
B)  inspection. 
C)  peer review. 
D)  performance control evaluation. 
A)  engagement quality control review. 
B)  inspection. 
C)  peer review. 
D)  performance control evaluation.

Question 15

Which of the following is a definition of control risk?

Accepted Answer

A)  The risk that a material misstatement will not be prevented or detected on a timely basis by the client's internal controls 
B)  The risk that the auditor will not detect a material misstatement 
C)  The risk that the auditor's assessment of internal controls will be at less than the maximum level 
D)  The susceptibility of material misstatement assuming there are no related internal control policies or procedures 
A)  The risk that a material misstatement will not be prevented or detected on a timely basis by the client's internal controls 
B)  The risk that the auditor will not detect a material misstatement 
C)  The risk that the auditor's assessment of internal controls will be at less than the maximum level 
D)  The susceptibility of material misstatement assuming there are no related internal control policies or procedures

Question 16

Which of the following statements describes an appropriate relationship with respect to the reliability of audit evidence?

Accepted Answer

A)  Receiving confirmation from third parties as to the existence of securities is more reliable than the auditors' personal inspection of those securities. 
B)  Verbal inquiries received from the client regarding sales made to customers are more reliable than sales invoices prepared by the client for its customers. 
C)  A bank confirmation received directly by the auditor is more reliable than a bank confirmation initially received by the client and forwarded to the auditor. 
D)  Evidence drawn from a document prepared by the client is more reliable than evidence drawn from a document prepared by an external party that is forwarded to the auditor by the client. 
A)  Receiving confirmation from third parties as to the existence of securities is more reliable than the auditors' personal inspection of those securities. 
B)  Verbal inquiries received from the client regarding sales made to customers are more reliable than sales invoices prepared by the client for its customers. 
C)  A bank confirmation received directly by the auditor is more reliable than a bank confirmation initially received by the client and forwarded to the auditor. 
D)  Evidence drawn from a document prepared by the client is more reliable than evidence drawn from a document prepared by an external party that is forwarded to the auditor by the client.

Question 17

Which of the following is least related to the concept of independence in appearance?

Accepted Answer

A)  The auditors' objectivity and ability to act impartially toward the client 
B)  The perceptions of individuals who rely on the financial statements and auditors' opinion on the financial statements 
C)  The ownership of a financial interest in a client by the auditor 
D)  The employment of the auditor's family member in an important position with the client 
A)  The auditors' objectivity and ability to act impartially toward the client 
B)  The perceptions of individuals who rely on the financial statements and auditors' opinion on the financial statements 
C)  The ownership of a financial interest in a client by the auditor 
D)  The employment of the auditor's family member in an important position with the client

Question 18

The responsibilities principle under generally accepted auditing standards does not include which of the following?

Accepted Answer

A)  Competence and capabilities 
B)  Independent attitude 
C)  Due care 
D)  Planning and supervision 
A)  Competence and capabilities 
B)  Independent attitude 
C)  Due care 
D)  Planning and supervision

Question 19

A level of performance that would be exercised by reasonable auditors in similar circumstances is referred to as

Accepted Answer

A)  due care. 
B)  independence. 
C)  professional judgment. 
D)  professional skepticism. 
A)  due care. 
B)  independence. 
C)  professional judgment. 
D)  professional skepticism.

Question 20

The audit failures of both Enron and WorldCom were examples in which the leadership responsibilities for quality work within the accounting firm were overshadowed by fears that losing a key client would

Accepted Answer

A)  result in shareholder losses from reduced company profitability. 
B)  require additional audit procedures and increase the fees paid by the companies to the accounting firm. 
C)  negatively influence the results of the firm's inspection. 
D)  negatively impact individual auditors' performance evaluations. 
A)  result in shareholder losses from reduced company profitability. 
B)  require additional audit procedures and increase the fees paid by the companies to the accounting firm. 
C)  negatively influence the results of the firm's inspection. 
D)  negatively impact individual auditors' performance evaluations.

Firm A performs audits of 60 public entities,while firm B performs audits of 120 public entities.How often must each firm undergo a PCAOB inspection?

All of the following statements are true regarding generally accepted auditing standards (GAAS)except

The performance principle would include all of the following except

The state of mind that characterizes the auditors' appropriate questioning and critical assessment of audit evidence is referred to as

What type of evidence would provide the highest level of assurance in an attestation engagement?

Which of the following could serve as a source of professional guidance in the audit of a public entity?

Which of the following types of auditors' reports does not require an additional paragraph to support the opinion?

Which of the following presumptions does not relate to the reliability of audit evidence?

Which of the following statements is not true with respect to the responsibility for establishing generally accepted auditing standards?

Which of the following does not directly relate to an auditor's responsibility for having appropriate competence and capabilities to perform the audit?

Which of the following situations would most likely be in conflict with the responsibilities principle?

Internal evidence

An internal evaluation of the significant judgments made by the audit team and the conclusions reached in formulating its report for engagements meeting specified criteria is known as a(n)

Which of the following is a definition of control risk?

Which of the following statements describes an appropriate relationship with respect to the reliability of audit evidence?

Which of the following is least related to the concept of independence in appearance?

The responsibilities principle under generally accepted auditing standards does not include which of the following?

A level of performance that would be exercised by reasonable auditors in similar circumstances is referred to as

The audit failures of both Enron and WorldCom were examples in which the leadership responsibilities for quality work within the accounting firm were overshadowed by fears that losing a key client would

Auditing and Assurance Services

Engagement Planning

Management Fraud and Audit Risk

Risk Assessment: Internal Control Evaluation

Employee Fraud and the Audit of Cash

Revenue and Collection Cycle

Acquisition and Expenditure Cycle

Production Cycle

Finance and Investment Cycle

Completing the Audit

Reports on Audited Financial Statements

Other Public Accounting Services

Professional Ethics

Legal Liability

Internal Audits governmental Audits and Fraud Examinations

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing and Information Technology

Filters

Exam 2: Professional Standards

Firm A performs audits of 60 public entities,while firm B performs audits of 120 public entities.How often must each firm undergo a PCAOB inspection?

All of the following statements are true regarding generally accepted auditing standards (GAAS)except

The performance principle would include all of the following except

The state of mind that characterizes the auditors' appropriate questioning and critical assessment of audit evidence is referred to as

What type of evidence would provide the highest level of assurance in an attestation engagement?

Which of the following could serve as a source of professional guidance in the audit of a public entity?

Which of the following types of auditors' reports does not require an additional paragraph to support the opinion?

Which of the following presumptions does not relate to the reliability of audit evidence?

Which of the following statements is not true with respect to the responsibility for establishing generally accepted auditing standards?

Which of the following does not directly relate to an auditor's responsibility for having appropriate competence and capabilities to perform the audit?

Which of the following situations would most likely be in conflict with the responsibilities principle?

Internal evidence

An internal evaluation of the significant judgments made by the audit team and the conclusions reached in formulating its report for engagements meeting specified criteria is known as a(n)

Which of the following is a definition of control risk?

Which of the following statements describes an appropriate relationship with respect to the reliability of audit evidence?

Which of the following is least related to the concept of independence in appearance?

The responsibilities principle under generally accepted auditing standards does not include which of the following?

A level of performance that would be exercised by reasonable auditors in similar circumstances is referred to as

The audit failures of both Enron and WorldCom were examples in which the leadership responsibilities for quality work within the accounting firm were overshadowed by fears that losing a key client would

Auditing and Assurance Services

Engagement Planning

Management Fraud and Audit Risk

Risk Assessment: Internal Control Evaluation

Employee Fraud and the Audit of Cash

Revenue and Collection Cycle

Acquisition and Expenditure Cycle

Production Cycle

Finance and Investment Cycle

Completing the Audit

Reports on Audited Financial Statements

Other Public Accounting Services

Professional Ethics

Legal Liability

Internal Audits governmental Audits and Fraud Examinations

Overview of Sampling

Attributes Sampling

Variables Sampling

Auditing and Information Technology

Filters