ACC 562 MIDTERM EXAM STR UNIVERSITY
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ACC 562 MIDTERM EXAM STR UNIVERSITY
1.
The need for assurance
services arises because the interests of the users of information may be
different from that of the interests of those responsible for providing
information.
True False
True False
2.
An audit of financial
statements is a form of attestation service.
True False
True False
3.
Independence is an
attribute necessary to perform assurance services.
True False
True False
4.
A bank using Milton
Company’s financial statements to determine the creditworthiness of a potential
loan to Milton is a good example of the need for unbiased reporting.
True False
True False
5.
Independence is only
required for assurance service providers.
True False
True False
6.
A CPA automatically
qualifies as an assurance provider in all areas of business.
True False
True False
7.
Attestation services
are a subset of assurance services and always involve a report
that goes to a third party.
True False
True False
8.
The American Institute
of Certified Public Accountants has the primary authority to set auditing
standards for public companies.
True False
True False
9.
The audit function is
unique because it exists to perform services on a “client” on behalf of
shareholders, directors and other parties.
True False
True False
10. Auditing is the process of attesting to assertions
about economic actions and events.
True False
True False
11. Auditing is the process of verifying the
accuracy of the financial statements.
True False
True False
12. Internal auditing only provides assurance
services to clients.
True False
True False
13. Auditing primarily exists because users need
unbiased information on which to assess management performance and make
economic decisions.
True False
True False
14. The degree of confidence that users place on
management’s financial statements is higher than that placed on audited
financial statements because few users have direct knowledge of the company’s
operations and management is the most knowledgeable about operations.
True False
True False
15. U.S. nonpublic companies will have an audit
performed in accordance with generally accepted auditing standards that have
been promulgated by the PCAOB.
True False
True False
16. An assertion is a statement about an action,
event, condition, or performance over a specified time period.
True False
True False
17. Management is required to
comment on the fairness of the company’s financial presentation. This reduces
the auditor’s legal responsibility for the opinion rendered on the financial
statements.
True False
True False
18. Audited financial statements should be free
from all errors and fraud.
True False
True False
19. Audited financial statements should be presented
fairly according to the substance of GAAP.
True False
True False
20. Audited financial statements should be
presented fairly according to the substance of GAAS.
True False
True False
21. A plan to converge the U.S. generally accepted
auditing standards (GAAS) with the International Standards on Auditing (ISAs)
was developed by the .AICPA’s Auditing Standards Board (ASB).
True False
True False
22. Attestation is confined to an audit of client
financial statements.
True False
True False
23. An auditor must have a good understanding of
the risks associated with a client’s industry in order to ensure that the
financial statements reflect the underlying substance of accounting
transactions and the economic effects of such transactions.
True False
True False
24. Public Company Accounting Oversight Board
provides the criteria against which the auditor measures the fairness of
financial statement presentation for public companies.
True False
True False
25. Generally accepted accounting principles
provide the criteria against which the auditor measures the fairness of
financial statement presentation.
True False
True False
26. Businesses that use independent auditors do
not need the use of internal auditors.
True False
True False
27. CPA certificates for auditors are issued by
state boards of accountancy.
True False
True False
28. Internal auditing is an objective evaluation
function established within an organization.
True False
True False
29. Operational audits are designed to determine
if the company’s financial statements are prepared in compliance with GAAP.
True False
True False
30. Governmental auditors perform operational and
financial statement audits.
True False
True False
31. The internal audit profession adheres
exclusively to standards set by the Public Company Accounting Oversight Board.
True False
True False
32. The execution of solutions to issues brought
to light by internal auditors are the responsibility of management of the
organization.
True False
True False
33. Governmental audit standards are developed by
the Public Company Accounting Oversight Board.
True False
True False
34. The American Institute of CPAs sets auditing
standards for non-publicly traded companies.
True False
True False
35. Though often relying on the FASB, the SEC has
authority to establish GAAP for publicly traded companies.
True False
True False
36. The SEC has authority to establish GAAP for
all business enterprises.
True False
True False
37. The Public Company Accounting Oversight Board
was established by the AICPA in response to Securities law.
True False
True False
38. Auditors of public companies need not adhere
to the requirements of statutory or regulatory organizations.
True False
True False
39. When the auditor has no reservations about
management’s financial statements, then the report issued is called a qualified
report.
True False
True False
40. Auditors need only understand the rules of
accounting as the principles are outdated.
True False
True False
41. An audit is a form of an attestation service.
True False
True False
42. An audit and an assurance service both require
a report to a third party.
True False
True False
43. The purpose of assurance services is to
improve the quality of the information provided.
True False
True False
44. The internal auditor is a primary provider of
assurance services.
True False
True False
45. The internal auditor is a primary provider of
operational audits.
True False
True False
46. The need for assurance services arises for all
of the following reasons EXCEPT:
A. potential bias in providing information.
B. Closeness between a user and the organization.
C. complexity of the processing systems.
D. remoteness between a user and the organization.
A. potential bias in providing information.
B. Closeness between a user and the organization.
C. complexity of the processing systems.
D. remoteness between a user and the organization.
47. Independent professional services that are
provided on financial or other information that improve the quality of decision
making are known as
A. internal auditing.
B. financial auditing.
C. assurance services.
D. attestation services.
A. internal auditing.
B. financial auditing.
C. assurance services.
D. attestation services.
48. Which one of the following is not a critical
component of assurance services?
A. a process on which service is provided
B. an assurance service provider
C. a user who derives value
D. a CPA
A. a process on which service is provided
B. an assurance service provider
C. a user who derives value
D. a CPA
49. Which one of the following is not a
key attribute needed to perform assurance?
A. subject matter knowledge
B. independence
C. established criteria or standards
D. accounting skills
A. subject matter knowledge
B. independence
C. established criteria or standards
D. accounting skills
50. A service that always requires
that a report is provided to a third party is
A. assurance
B. attestation
C. audit
D. Both B and C.
A. assurance
B. attestation
C. audit
D. Both B and C.
51. Which one of the following is not part
of the attest process?
A. gathering evidence about assertions
B. proving the accuracy of the books and records
C. evaluating evidence against objective criteria
D. communicating the conclusions reached
A. gathering evidence about assertions
B. proving the accuracy of the books and records
C. evaluating evidence against objective criteria
D. communicating the conclusions reached
52. Which of the following are part of the attest
process?
A. communicating the conclusions reached to a third party
B. guaranteeing the accuracy of the books and records
C. evaluating evidence against objective criteria
D. A and C
E. B and C
A. communicating the conclusions reached to a third party
B. guaranteeing the accuracy of the books and records
C. evaluating evidence against objective criteria
D. A and C
E. B and C
53. Which one of the following is a potential
problem with management’s communication of financial information that causes
third parties to desire the independent auditor’s assessment of the financial
statement presentation?
A. complexity of transactions affecting the financial statements
B. lack of criteria on which to base information
C. remoteness of the user from the organization
D. A and C
E. A and B
A. complexity of transactions affecting the financial statements
B. lack of criteria on which to base information
C. remoteness of the user from the organization
D. A and C
E. A and B
54. Users of the audit report can reasonably
expect the audited financial statements to be
A. include complete information and contain all financial disclosures.
B. presented fairly according to the substance of GAAP.
C. free from all errors.
D. all of the above.
E. none of the above.
A. include complete information and contain all financial disclosures.
B. presented fairly according to the substance of GAAP.
C. free from all errors.
D. all of the above.
E. none of the above.
55. Which one of the following is not a
management expectation for independent auditors?
A. an outside source of expertise on accounting matters
B. individuals who perform tests and draw conclusions on assertions
C. a participant in management decision making
D. a provider of a written communication
A. an outside source of expertise on accounting matters
B. individuals who perform tests and draw conclusions on assertions
C. a participant in management decision making
D. a provider of a written communication
56. Users can reasonably expect audited financial
statements to be
A. complete and contain all important financial disclosures, be free from material misstatements and be presented fairly according to GAAS.
B. complete and contain all important financial disclosures, be free from material misstatements and be presented fairly according to GAAP.
C. complete, be accurate and be presented fairly according to GAAP.
D. complete and contain all important financial disclosures, be free from all misstatements and be presented fairly according to the substance of GAAS.
A. complete and contain all important financial disclosures, be free from material misstatements and be presented fairly according to GAAS.
B. complete and contain all important financial disclosures, be free from material misstatements and be presented fairly according to GAAP.
C. complete, be accurate and be presented fairly according to GAAP.
D. complete and contain all important financial disclosures, be free from all misstatements and be presented fairly according to the substance of GAAS.
57. Internal auditors may perform all of the
following types of audits except
A. operational audits.
B. compliance audits.
C. computer system audits.
D. all of the above may be performed by internal auditors.
A. operational audits.
B. compliance audits.
C. computer system audits.
D. all of the above may be performed by internal auditors.
58. An “integrated audit” includes an audit of
A. the company’s internal controls.
B. the company’s financial statements.
C. the company’s compliance with its rules and policies.
D. Both A and B.
A. the company’s internal controls.
B. the company’s financial statements.
C. the company’s compliance with its rules and policies.
D. Both A and B.
59. Which of the following services is the
broadest and most inclusive?
A. Audit
B. Attestation
C. Assurance
D. Compliance
A. Audit
B. Attestation
C. Assurance
D. Compliance
60. An expectation of the public is that the
auditor will recognize that the primary users of audit assurance are
A. the clients.
B. the Public Company Accounting Oversight Board.
C. members of management.
D. third-party users.
A. the clients.
B. the Public Company Accounting Oversight Board.
C. members of management.
D. third-party users.
61. Auditing is important in a free market society
because
A. the public requires CPAs functioning as divisions of regulatory bodies.
B. auditors detect all errors and fraud made by company employees.
C. it provides reliable information based upon which to judge economic performance.
D. the auditor is an amiable insurance policy for investors.
E. all of the above are true.
A. the public requires CPAs functioning as divisions of regulatory bodies.
B. auditors detect all errors and fraud made by company employees.
C. it provides reliable information based upon which to judge economic performance.
D. the auditor is an amiable insurance policy for investors.
E. all of the above are true.
62. Third-party users of the audit report expect
the auditor to do all of the following except:
A. to evaluate measurements and disclosures made by management
B. to provide a biased evaluation of the financial statements
C. to determine whether financial statements are presented in accordance with GAAP
D. to gather sufficient evidence to support their opinion
A. to evaluate measurements and disclosures made by management
B. to provide a biased evaluation of the financial statements
C. to determine whether financial statements are presented in accordance with GAAP
D. to gather sufficient evidence to support their opinion
63. CPA firms performing public financial
statement audits must
A. register with the American Institute of Certified Public Accountants.
B. register with the Institute of Auditors.
C. register with the U.S. General Accounting Office.
D. register with the Public Company Accounting Oversight Board.
A. register with the American Institute of Certified Public Accountants.
B. register with the Institute of Auditors.
C. register with the U.S. General Accounting Office.
D. register with the Public Company Accounting Oversight Board.
64. The auditor of financial statements must make
very difficult interpretations regarding authoritative literature.
Additionally, the auditor must
A. consider whether the application of a generally accepted accounting principle best portrays the economic activity of the company.
B. force management to make certain decisions regarding their financial statements.
C. disregard independence in order to find the underlying truth of the evidence.
D. establish new criteria by which financial statements may be compared.
A. consider whether the application of a generally accepted accounting principle best portrays the economic activity of the company.
B. force management to make certain decisions regarding their financial statements.
C. disregard independence in order to find the underlying truth of the evidence.
D. establish new criteria by which financial statements may be compared.
65. Results of the financial statement audit are
communicated to users through a(n)
A. financial statement.
B. written management assertion.
C. audit report.
D. none of the above.
A. financial statement.
B. written management assertion.
C. audit report.
D. none of the above.
66. Assurance services may include which of the
following?
A. attesting to financial statements
B. examination of the economy and efficiency of governmental operations
C. evaluation of a division’s performance for management
D. tax preparation services
E. A, B, and C only
A. attesting to financial statements
B. examination of the economy and efficiency of governmental operations
C. evaluation of a division’s performance for management
D. tax preparation services
E. A, B, and C only
67. The criteria against which the auditor
measures the fairness of financial statement presentation are known as
A. auditing standards.
B. generally accepted accounting principles.
C. generally accepted accounting standards.
D. governmental accounting principles.
A. auditing standards.
B. generally accepted accounting principles.
C. generally accepted accounting standards.
D. governmental accounting principles.
68. Management of a company is responsible for
A. hiring the auditor.
B. preparing the financial statements.
C. the audit workpapers.
D. independence and obtaining evidence.
A. hiring the auditor.
B. preparing the financial statements.
C. the audit workpapers.
D. independence and obtaining evidence.
69. Which one of the following is an example of
management expectations for independent auditors?
A. An expert providing a written communication as the product of the engagement.
B. Individuals who perform day-to-day accounting functions on behalf of the company.
C. An active participant in management decision making.
D. An internal source of expertise on financial and other matters.
A. An expert providing a written communication as the product of the engagement.
B. Individuals who perform day-to-day accounting functions on behalf of the company.
C. An active participant in management decision making.
D. An internal source of expertise on financial and other matters.
70. Which one of the following is not a
provider of assurance services?
A. CPAs
B. internal auditors
C. governmental auditors
D. AICPA
A. CPAs
B. internal auditors
C. governmental auditors
D. AICPA
71. The internal audit profession has emerged and
has become active for all of the following reasons except:
A. management’s need for an objective appraisal of organizational or departmental performance
B. increased internal and external emphasis on effective procedures to detect or prevent fraud
C. compliance with Section 404 of the Sarbanes-Oxley Act of 2002
D. management’s need to delegate the responsibility of the financial statements
A. management’s need for an objective appraisal of organizational or departmental performance
B. increased internal and external emphasis on effective procedures to detect or prevent fraud
C. compliance with Section 404 of the Sarbanes-Oxley Act of 2002
D. management’s need to delegate the responsibility of the financial statements
72. Which one of the following statements is not true
about internal auditing?
A. Internal auditing is an objective evaluation function.
B. Internal auditing is established within an organization.
C. Internal auditing’s purpose is to provide assurance regarding the company’s compliance with stated policies and procedures.
D. Internal auditing is established as an independent service to regulatory bodies and creditors.
A. Internal auditing is an objective evaluation function.
B. Internal auditing is established within an organization.
C. Internal auditing’s purpose is to provide assurance regarding the company’s compliance with stated policies and procedures.
D. Internal auditing is established as an independent service to regulatory bodies and creditors.
73. An audit which has as its purpose the
evaluation of the economy and efficiency with which resources are employed is
known as a(n)
A. financial audit.
B. compliance audit.
C. operational audit.
D. governmental audit.
A. financial audit.
B. compliance audit.
C. operational audit.
D. governmental audit.
74. The audit committee of the board of directors
of a company is responsible for
A. hiring the auditor.
B. preparing the financial statements.
C. the audit workpapers.
D. independence and obtaining evidence.
A. hiring the auditor.
B. preparing the financial statements.
C. the audit workpapers.
D. independence and obtaining evidence.
75. The AICPA remains a valuable organization
because of its continuing involvement in
A. the audit standard setting process.
B. regulation and enforcement of the audit profession.
C. education and administration of the CPA exam.
D. promulgation of accounting standards.
A. the audit standard setting process.
B. regulation and enforcement of the audit profession.
C. education and administration of the CPA exam.
D. promulgation of accounting standards.
76. The objective of an operational audit is to
A. evaluate whether laws have been broken by management.
B. evaluate fairness of presentation of financial statements.
C. evaluate compliances with company rules and regulations.
D. evaluate the effectiveness and efficiency with which resources are employed.
A. evaluate whether laws have been broken by management.
B. evaluate fairness of presentation of financial statements.
C. evaluate compliances with company rules and regulations.
D. evaluate the effectiveness and efficiency with which resources are employed.
77. The primary governing board that performs
quality reviews on registered CPA firms that audit public companies is the
A. PCAOB
B. GAO
C. AICPA
D. FASB
A. PCAOB
B. GAO
C. AICPA
D. FASB
78. Congress authorized which of the following
organizations to establish generally accepted accounting principles for public
companies?
A. SEC
B. APB
C. AICPA
D. FASB
A. SEC
B. APB
C. AICPA
D. FASB
79. The public expects auditors to
A. understand and enforce principles that best portray the spirit of FASB concepts.
B. be neutral to preparers and users of financial information.
C. recognize that the public are the primary users of audit services.
D. take more responsibility for the discovery of fraud.
E. all of the above are expectations of the public.
A. understand and enforce principles that best portray the spirit of FASB concepts.
B. be neutral to preparers and users of financial information.
C. recognize that the public are the primary users of audit services.
D. take more responsibility for the discovery of fraud.
E. all of the above are expectations of the public.
80. CPAs are licensed by the
A. PCAOB.
B. AICPA.
C. state’s board of accountancy.
D. state’s society of CPAs.
A. PCAOB.
B. AICPA.
C. state’s board of accountancy.
D. state’s society of CPAs.
81. The Certified Internal Auditor program is
administered by the
A. AICPA.
B. IIA.
C. state’s board of accountancy.
D. state’s society of CPAs.
A. AICPA.
B. IIA.
C. state’s board of accountancy.
D. state’s society of CPAs.
82. The audit agency for the U. S. Congress is the
A. SEC.
B. GAO.
C. IIA.
D. AICPA.
A. SEC.
B. GAO.
C. IIA.
D. AICPA.
83. The organization that issued the Internal
Control, Integrated Framework which serves as the primary criterion
for evaluating the quality of a company’s internal control system is
A. PCAOB
B. COSO
C. AICPA
D. GAO
A. PCAOB
B. COSO
C. AICPA
D. GAO
84. Auditing is a systematic process that includes
all of the following except:
A. communicating results to users
B. procuring and evaluating evidence
C. providing important managerial decisions for a client
D. comparing evidence regarding assertions to certain established criteria
A. communicating results to users
B. procuring and evaluating evidence
C. providing important managerial decisions for a client
D. comparing evidence regarding assertions to certain established criteria
85. As it relates to an audit, materiality is
A. not taken into consideration.
B. related only to the sufficiency of procedures performed.
C. based upon audit fees.
D. determined based upon the importance to a user of the financial statements.
A. not taken into consideration.
B. related only to the sufficiency of procedures performed.
C. based upon audit fees.
D. determined based upon the importance to a user of the financial statements.
86. Which of the following is not a
component of assurance services?
A. information or a process on which the assurance services is provided.
B. report to a third party.
C. a user or a group of users who derive value from the service provided.
D. a service provider.
A. information or a process on which the assurance services is provided.
B. report to a third party.
C. a user or a group of users who derive value from the service provided.
D. a service provider.
87. Which type of auditor may perform a financial
statement audit?
A. external auditor.
B. internal auditor.
C. governmental auditor.
D. Both A and C.
E. All of the above.
A. external auditor.
B. internal auditor.
C. governmental auditor.
D. Both A and C.
E. All of the above.
88. Which type of auditor would typically perform
an operational audit?
A. external auditor.
B. internal auditor.
C. governmental auditor.
D. Both B and C.
E. All of the above.
A. external auditor.
B. internal auditor.
C. governmental auditor.
D. Both B and C.
E. All of the above.
89. What is the criteria used in an operational
audit?
A. GAAP.
B. effectiveness and efficiency.
C. rules and regulations.
D. company policies.
E. Both B and C.
A. GAAP.
B. effectiveness and efficiency.
C. rules and regulations.
D. company policies.
E. Both B and C.
90. What is the criteria used in a compliance
audit?
A. GAAP.
B. effectiveness and efficiency.
C. rules and regulations.
D. company policies.
E. Both C and D.
A. GAAP.
B. effectiveness and efficiency.
C. rules and regulations.
D. company policies.
E. Both C and D.
91. Attributes of assurance providers
Discuss
the three or more attributes that an assurance professional must possess in
order to maintain credibility. Explain the importance of these attributes to
the assurance process.
92. Users of financial statements
Identify
at least three types of users of financial statements. Describe their primary
use of the financial statements and how the misstatement of those statements
might injure the user.
93. Overview of Financial Statement Audit
Define auditing and discuss how its components fit into an overview of a financial statement audit.
Define auditing and discuss how its components fit into an overview of a financial statement audit.
94. Professional and regulatory organizations
Identify
at least four professional or regulatory organizations. Explain how and why
they assist and/or monitor the audit and assurance profession.
95. Internal and external auditors
Compare and contrast the work of an internal and an independent external auditor.
Compare and contrast the work of an internal and an independent external auditor.
96. Objectives of different audit types
Compare and contrast the objectives of financial, compliance, operational and governmental audits. Include in your answer who performs each type of audit.
Compare and contrast the objectives of financial, compliance, operational and governmental audits. Include in your answer who performs each type of audit.
97. Regulatory and professional bodies
Write the full name of the following regulatory and professional acronyms and describe the function of each entity:PCAOBAICPASEC
Write the full name of the following regulatory and professional acronyms and describe the function of each entity:PCAOBAICPASEC
IIA
FASB
98. Requirements of auditors in public accounting
Recent landscape changes in accounting and auditing developed from corporate fraud and, arguably, auditor failure. In order to continually lead and adapt to the dynamics of regulation, principles based accounting practices and auditing standards, what types of skills and traits are auditors required to possess?
Recent landscape changes in accounting and auditing developed from corporate fraud and, arguably, auditor failure. In order to continually lead and adapt to the dynamics of regulation, principles based accounting practices and auditing standards, what types of skills and traits are auditors required to possess?
99. The need for assurance services
Identify three reasons for the rise of assurance services.
Identify three reasons for the rise of assurance services.
100. Attestation versus assurance
Distinguish between attestation services and assurance services.
Distinguish between attestation services and assurance services.
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