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Auditing Chapter 2

23 Questions
Finance Quizzes & Trivia

Quiz based on Auditing and Assurance Services 14e by Arens

Questions and Answers
  • 1. 
    • A. 

      General partnership

    • B. 

      General corporation

    • C. 

      Limited liability company

    • D. 

      Limited liability partnership

  • 2. 
    Which one of the following is not one of the three General Standards?
    • A. 

      Proper planning and supervision.

    • B. 

      Independence of mental attitude.

    • C. 

      Adequate training and proficiency.

    • D. 

      Due professional care.

  • 3. 
    Which one of the following is not a Field Work Standard?
    • A. 

      Adequate planning and supervision.

    • B. 

      Due professional care.

    • C. 

      Understand the entity and its environment including internal control.

    • D. 

      Sufficient appropriate audit evidence.

  • 4. 
    The General Standards stress the importance of:
    • A. 

      Evidence accumulation.

    • B. 

      Personal qualities the auditor should possess.

    • C. 

      Communicating the auditor’s findings to the reader.

    • D. 

      General supervision of the audit.

  • 5. 
    The generally accepted auditing standard that requires “Adequate technical training and proficiency” is normally interpreted as requiring the auditor to have:
    • 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.

  • 6. 
    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.

  • 7. 
    Statements on Auditing Standards provide auditors of privately held companies with ______ guidance regarding the conduct of financial statement audits.
    • A. 

      Fairly extensive

    • B. 

      Some limited

    • C. 

      Practically no

    • D. 

      Specific and detailed

  • 8. 
    Which of the following statements most accurately captures the intent of the standards of field work?
    • A. 

      Field work standards are primarily concerned with personal attributes necessary during the conduct of the audit

    • 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.

  • 9. 
    Prior to the passage of the Sarbanes-Oxley Act, which of the following was responsible for establishing auditing standards?
    • A. 

      Securities and Exchange Commission

    • B. 

      Public Company Accounting Oversight Board

    • C. 

      Auditing Standards Board

    • D. 

      National Association of Accounting

  • 10. 
    Standards issued by the Public Company Accounting Oversight Board must be followed by CPAs who audit:
    • A. 

      Both private and public companies.

    • B. 

      Public companies only.

    • C. 

      Private companies, public companies, and nonprofit entities.

    • D. 

      Private companies only.

  • 11. 
    The Statements on Auditing Standards issued by the Auditing Standards Board:
    • A. 

      Are interpretations of generally accepted auditing standards.

    • B. 

      Are the equivalent of laws for audit practitioners.

    • C. 

      Must be followed in all situations.

    • D. 

      Are optional guidelines which an auditor may choose to follow or not follow when conducting an audit.

  • 12. 
    An auditor need not abide by a particular auditing standard if the auditor believes that:
    • A. 

      The issue in question is immaterial in amount.

    • 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. 
    The Public Company Accounting Oversight Board does not:
    • A. 

      Perform inspections of the quality controls at audit firms that audit public companies.

    • 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.

  • 14. 
    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:
    • A. 

      Form S-1.

    • B. 

      Form 8-K.

    • C. 

      Form 10-K.

    • D. 

      Form 10-Q.

  • 15. 
    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. 

      Form S-1.

    • B. 

      Form 8-K.

    • C. 

      Form 10-K

    • D. 

      Form 10-Q.

  • 16. 
    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:
    • 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. 

      Periodic review of a CPA firm’s quality control procedures.

  • 17. 
    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. 
    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.

  • 19. 
    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.

  • 20. 
    Which of the following statements is true as it relates to limited liability partnerships?
    • A. 

      Only senior partners are liable for the partnership’s debts.

    • B. 

      Partners have no liability in a limited liability partnership arrangement.

    • C. 

      Partners are personally liable for the acts of those under their supervision.

    • D. 

      All partners must be AICPA members.

  • 21. 
    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?
    • 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.

  • 22. 
    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.

  • 23. 
    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.