ACG4651 Midterm Questions

Question 1

The primary reason for an audit by an independent, external audit firm is to

Answer 1

Provide increased assurance to users as to the fairness of the FS

Question 2

Independent CPAS perform audits on the FS of issuers. This type of auditing can be best described as

Answer 2

A discipline that attests to financial info presented by management

Question 3

Who establishes GAAS

Answer 3

Auditing Standards Board (ASB) & Public Company Accounting Oversight Board (PCAOB)

Question 4

Users of an issuer’s FS demand independent audits because

Answer 4

Management may not be objective in reporting

Question 5

An audit of the FS of a corp is being conducted by an external auditor. The auditor is expected to

Answer 5

Express an opinion to the fairness of the corp’s FS

Question 6

Disclosures included in FS are the responsibility of

Answer 6

Reporting entity’s management

Question 7

Company is going public; its stocks will be listed in stock exchange; Audited FS are required to be filed with SEC. Who are the primary users of the audited FS?

Answer 7

The company’s investors

Question 8

Audit committees have been identified as a major factor in promoting independence in both internal and external auditors. Which of the following is the most important limitation on the effectiveness of audit committees?

Answer 8

Audit committees are composed of independent directors. However, those directors may have close personal and professional friendships.

Question 9

Audit standards require that the engagement partner

Answer 9

Be responsible for the assignment of tasks to, and supervision of assistants

Question 10

Which of the following services, if any, may an accountant who is not independent provide?

Answer 10

Preparations and compilations but not reviews

Question 11

The Conceptual Framework for AICPA Independence Standards

Answer 11

Adopts a risk-based approach to analysis of independence matters

Question 12

Which of the following statements about audit evidence is true?

Answer 12

The sufficiency and appropriateness of an audit evidence is a matter of professional judgement

Question 13

The AICPA Code of Professional Conduct states that a CPA should maintain integrity and objectivity. Objectivity refers to a CPA’s ability

Answer 13

To maintain an impartial attitude on all matters under CPA’s review

Question 14

Under AICPA Code of Prof. Conduct, a CPA may express an unmodified opinion on FS that contains a departure from GAAP… Which of the following is an example of unusual circumstances that could justify such a departure?

Answer 14

New legislation

Question 15

When Congress passed the Sarbanes-Oxley Act of 2002, it imposed greater regulation on public companies and their auditors and required increased accountability. Which of the following is not a provision of the act?

Answer 15

Audit firms must be rotated on a periodic basis

Question 16

Eagle Company’s FS contains a departure from GAAP because. due to unusual circumstances, the statements would otherwise be misleading. The auditor should express an opinion that is

Answer 16

Unmodified and describe the departure in an other-matter paragraph

Question 17

The SOX Act limits the non-audit services that an audit firm can provide to issuer audit clients. Which of the following services is still an allowable service that an auditor may provide to an issuer client?

Answer 17

Tax compliance services

Question 18

Which of the following legal situations would be considered to impair the auditor’s independence?

Answer 18

Actual litigation by the auditor against the current management fraud of deceit

Question 19

With respect to records in a CPA’s possession, the Code of Professional Conduct provides that

Answer 19

Extensive analyses of inventory prepared by the client at the auditor’s request are working papers that belong to the auditor and need not be furnished to the client upon request

Question 20

Audit risk at the assertion level consists of inherent risk, control risk, and detection risk. Which of the following statements is true?

Answer 20

Cash has a greater inherent risk than inventory of coal because it is more susceptible to theft