CAAP Practice Quiz 1

Question 1

The Statements on Auditing Standards have been issued by the:

Auditing Standards Board.
Financial Accounting Standards Board.
Securities and Exchange Commission.
Federal Bureau of Investigation.

Answer 1

Auditing Standards Board.

Question 2

The risk that information is misstated is referred to as:

Information risk.
Inherent risk.
Relative risk.
Business risk.

Answer 2

Information risk.

Question 3

Which of the following attributes most clearly differentiates a CPA who audits management’s financial statements as contrasted to management?

Integrity.
Competence.
Independence.
Keeping informed on current professional developments.

Answer 3

Independence.

Question 4

Which of the following is not correct relating to the Sarbanes-Oxley Act?

It toughens penalties for corporate fraud.
It restricts the types of consulting CPAs may perform for audit clients.
It created the Public Company Accounting Oversight Board (PCAOB) as a replacement for the Financial Accounting Standards Board.
It eliminates a significant portion of the accounting profession's system of self-regulation.

Answer 4

It created the Public Company Accounting Oversight Board (PCAOB) as a replacement for the Financial Accounting Standards Board.

Question 5

Which of the following best describes the reason why independent auditors report on financial statements?

A management fraud may exist and it is more likely to be detected by independent auditors.
Different interests may exist between the company preparing the statements and the persons using the statements.
A misstatement of account balances may exist and is generally corrected as the result of the independent auditors' work.
Poorly designed internal control may be in existence.

Answer 5

Different interests may exist between the company preparing the statements and the persons using the statements.

Question 6

Which of the following is not a type of auditors’ opinion?

Adverse.
Ordinary.
Qualified.
Unmodified.

Answer 6

Ordinary

Question 7

Requirements for training, independence and due professional care are included in which group of the generally accepted auditing standards of the PCAOB?

Fieldwork.
General.
Reporting.
Quality control.

Answer 7

General.

Question 8

Which of the following is a principle underlying an audit conducted in accordance with generally accepted auditing standards?

The audit provides reasonable assurance the client will remain in business for at least one year.
The audit report expresses an opinion on whether the financial statements are free of material and immaterial misstatement.
Auditors are responsible for, among other things, maintaining professional objectivism, exercising professional engagement, and obtaining appropriate documentation.
An auditor's opinion enhances the degree of confidence that intended users can place in the financial statements.

Answer 8

An auditor’s opinion enhances the degree of confidence that intended users can place in the financial statements.

Question 9

By definition, proper professional skepticism on an audit requires:

Questioning mind	Subjective assessment of audit evidence
A)		No							No
B)		No							Yes
C)		Yes							No
D)		Yes							Yes

Answer 9

Questioning mind Subjective assessment of auditevidence

C) Yes No

Question 10

The Auditing Standards Board’s guidance on matters such as the purpose of an audit, the premise of an audit, and auditor personal responsibilities is included in:

The 10 Generally Accepted Auditing Standards.
The Code of Professional Conduct.
Accounting Series Releases.
Principles Underlying an Audit Conducted in Accordance with GAAS.

Answer 10

Principles Underlying an Audit Conducted in

Question 11

Financial interests of a CPA’s nondependent children are attributed directly to the CPA.

True or False?

Answer 11

False

Question 12

ABC Company is audited by the Phoenix office of Willingham CPAs. Which of the following individuals would be least likely to be considered a “covered member” by the independence standard?
Staff assistant on the audit.
An audit partner in the Eloi office.
A tax partner in Phoenix who performs no attest services for ABC Company or for any other clients.
The partner in charge of Willingham CPAs (she does no work on the ABC Company Audit).

Answer 12

An audit partner in the Eloi office.

Question 13

Auditors are periodically punished for holding an investment in a client. This violates which ethical rule?
	Integrity.
	Independence.
	Non compliance with GAAP.
	Confidentiality.

Answer 13

Independence.

Question 14

Financial statement assertions are established for classes of transactions:

	Account Balances				Disclosures
A)		Yes							Yes
B)		Yes							No
C)		No							Yes
D)		No							No

Answer 14

Account Balances Disclosures

A) Yes Yes

Question 15

Which of the following is not a financial statement assertion relating to account balances?

Completeness.
Existence.
Rights and obligations.
Recorded value and discounts.

Answer 15

Recorded value and discounts.

Question 16

The inspection of a vendor’s invoice by the auditors is:

Direct evidence about occurrence of a transaction.
Physical evidence about occurrence of a transaction.
Documentary evidence about occurrence of a transaction.
Part of the client's accounting system.

Answer 16

Documentary evidence about occurrence of a transaction.

Question 17

The purpose of obtaining and evaluating evidence is to ascertain the degree of correspondence between the assertions and established criteria.

True or False?

Answer 17

True

Question 18

The PCAOB audit objective related to the completeness assertion is to establish evidence that assets, liabilities, and equities actually exist.

True or False?

Answer 18

False

Question 19

The audit objective of presenting all transactions and accounts in the financial statements are in fact included is related to which of the PCAOB assertions?

Existence.
Rights and obligations.
Completeness.
Valuation.

Answer 19

Completeness.

Question 20

To be proficient as an auditor, a person must first be able to accomplish which of these tasks in a decision-making process?

Identify audit evidence relevant to the verification of assertions management makes in its unaudited financial statements and notes.
Formulate evidence-gathering procedures (audit plan) designed to obtain sufficient, competent evidence about assertions management makes in financial statements and notes.
Recognize the financial assertions made in management's financial statements and footnotes.
Evaluate the evidence produced by the performance of procedures and decide whether management's assertions conform to generally accepted accounting principles and reality.

Answer 20

Recognize the financial assertions made in management’s financial statements and footnotes.