Auditing Chapter 2

1. The generally accepted auditing standard that requires "Adequate technical training and proficiency" is normally interpreted as requiring the auditor to have:

Formal education in auditing and accounting.

Worked for an entity similar to the entity being audited.

Independence in mental attitude

A graduate degree in a business field.

2. Which one of the following is not a Field Work Standard?

Adequate planning and supervision.

Due professional care.

Understand the entity and its environment including internal control.

Sufficient appropriate audit evidence.

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

Both private and public companies.

Public companies only.

Private companies, public companies, and nonprofit entities.

Private companies only.

4. Which one of the following is not one of the three General Standards?

Proper planning and supervision.

Independence of mental attitude.

Adequate training and proficiency.

Due professional care.

5. Which of the following statements most accurately captures the intent of the standards of field work?

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

Field work standards provide extensive guidance regarding the conduct of an audit.

Field work standards are primarily directed at the auditor’s planning, understanding of internal control, and evidence accumulation.

Field work standards are primarily concerned with the conduct of substantive testing as opposed to testing of internal controls.

6. The Statements on Auditing Standards issued by the Auditing Standards Board:

Are interpretations of generally accepted auditing standards.

Are the equivalent of laws for audit practitioners.

Must be followed in all situations.

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

7. 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:

Form S-1.

Form 8-K.

Form 10-K

Form 10-Q.

8. 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:

Investors in Hansen Corporation’s stock.

Stock exchange.

Securities and Exchange Commission.

Management of Hansen Corporation.

9. The General Standards stress the importance of:

Evidence accumulation.

Personal qualities the auditor should possess.

Communicating the auditor’s findings to the reader.

General supervision of the audit.

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

Securities and Exchange Commission

Public Company Accounting Oversight Board

Auditing Standards Board

National Association of Accounting

11. Which of the following is the least likely form of business for a CPA firm?

General partnership

General corporation

Limited liability company

Limited liability partnership

12. Members of the Public Company Accounting Oversight Board are appointed and overseen by:

The U.S. Congress.

The American Institute of Certified Public Accountants.

The Auditing Standards Board.

The Securities and Exchange Commission.

13. The Public Company Accounting Oversight Board does not:

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

Establish auditing standards that must be followed by CPAs on all audits.

Oversee auditors of public companies.

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:

Form S-1.

Form 8-K.

Form 10-K.

Form 10-Q.

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

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

Partners have no liability in a limited liability partnership arrangement.

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

All partners must be AICPA members.

16. 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?

Statements on Auditing Standards.

Statements on Standards for Accounting and Review Services.

Regulations issued by the Securities and Exchange Commission.

The AICPA Code of Professional Conduct.

17. Generally Accepted Auditing Standards (GAAS) and Statements on Auditing Standards (SAS) should be looked upon by practitioners as:

Ideals to work towards, but which are not achievable.

Maximum standards that denote excellent work.

Minimum standards of performance that must be achieved on each audit engagement.

Benchmarks to be used on all audits, reviews, and compilations.

18. Assume the Public Company Accounting Oversight Board (PCAOB) identifies a violation during its inspection of a registered accounting firm.

The PCAOB may not enforce some disciplinary action against the accounting firm.

The PCAOB may not report the matter to the Securities and Exchange Commission

The PCAOB may not report the matter to the appropriate state accountancy board

The PCAOB may not suspend the license to practice of the CPA guilty of the violation.

19. 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:

Objective review of the adequacy of the technical training of firm personnel.

Thorough review of the existing internal control structure.

Critical review of work done at every level of supervision.

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

20. The SEC requirements of greatest interest to CPAs are set forth in the SEC's:

Regulation S-X and Accounting Series Releases.

S-1 through S-16 forms.

Director’s newsletter.

Forms 8-K, 10-K, and 10-Q.

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

The issue in question is immaterial in amount.

More expertise is needed to fulfill the requirement.

The requirement of the standard has not been addressed by the PCAOB.

Any of the above three are correct.

22. 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:

Quality control.

Generally accepted auditing standards which include the concept of materiality.

The auditor’s evaluation of the audited company’s internal control.

Generally accepted accounting principles.

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

Fairly extensive

Some limited

Practically no

Specific and detailed