Chapter 1 TB

Question 1

(T/F) The need for independent assurance arises because the interests of the users of information may be different from the interests of those responsible for providing information.

Answer 1

TRUE

Question 2

(T/F) A financial statement audit is a systematic process of objectively obtaining and evaluating evidence.

Answer 2

TRUE

Question 3

(T/F) A bank using Milton Company’s financial statements to evaluate Milton’s loan application is an example of a user’s need for unbiased reporting.

Answer 3

TRUE

Question 4

(T/F) An integrated audit requires the auditor to assess the effectiveness of internal controls.

Answer 4

TRUE

Question 5

(T/F) Auditors obtain and evaluate evidence regarding assertions about economic actions and events to verify the accuracy of those assertions.

Answer 5

FALSE

Question 6

(T/F) Auditing is the process of verifying the accuracy of the financial statements

Answer 6

FALSE

Question 7

(T/F) Management may have incentives to present biased financial information, but the various users of the statements are not likely to have conflicting interests in the financial information.

Answer 7

FALSE

Question 8

(T/F) Auditing exists because users need unbiased information on which to assess management performance and make economic decisions.

Answer 8

TRUE

Question 9

(T/F) Management may have incentives to present biased financial information, but the various users of the statements are not likely to have conflicting interests in the financial information.

Answer 9

FALSE

Question 10

(T/F) Auditing exists because users need unbiased information on which to assess management performance and make economic decisions.

Answer 10

TRUE

Question 11

(T/F) Users rely on the auditors’ independent assessment of financial statement presentation because few users have direct knowledge of the company’s operations.

Answer 11

TRUE

Question 12

(T/F) If the auditor has no reservations about management’s financial statements, then the auditor will issue a qualified opinion.

Answer 12

FALSE

Question 13

(T/F) Independence is often referred to as the cornerstone of the auditing profession.

Answer 13

TRUE

Question 14

(T/F) Auditors generally need quantitative and mathematical skills more than they need communication and leadership

Answer 14

FALSE

Question 15

(T/F) The overall objective of an audit is to obtain assurance whether the financial statements are free of misstatement.

Answer 15

FALSE

Question 16

(T/F) The foundation for the audit opinion formulation process relies on obtaining evidence to support the auditor’s opinion.

Answer 16

TRUE

Question 17

(T/F) Complex transactions, information, and processing systems provide an opportunity for management to mislead users of financial statements.

Answer 17

TRUE

Question 18

(T/F) Users of audited financial statements include a company’s bondholders but not its stockholders, who are the owners of the company.

Answer 18

FALSE

Question 19

(T/F) A key responsibility of the internal audit function is to provide assurance on the reliability of financial information reported to external users of audited financial statements.

Answer 19

FALSE

Question 20

(T/F) The audit committee oversees both the internal and external auditors.

Answer 20

TRUE

Question 21

(T/F) A CPA is a certified public accountant who is licensed by a state board of accountancy.

Answer 21

TRUE

Question 22

(T/F) Internal controls are the responsibility of management.

Answer 22

TRUE

Question 23

(T/F) Audit staff performing audit work must be appropriately supervised by partners and managers.

Answer 23

TRUE

Question 24

(T/F) An auditor who has reservations about the effectiveness of a client company’s internal controls would issue an adverse opinion on internal controls.

Answer 24

TRUE

Question 25

(T/F) Audit firm culture is one of the primary drivers of audit quality.

Answer 25

TRUE

Question 26

(T/F) Effective audit processes, by themselves, are sufficient to achieve audit quality.

Answer 26

FALSE

Question 27

(T/F) A quality audit is one performed “in accordance with generally accepted auditing standards (GAAS) to provide reasonable assurance that the audited financial statements and related disclosures are presented in accordance with generally accepted accounting principles (GAAP) and (2) are not materially misstated whether due to errors or fraud.”

Answer 27

TRUE

Question 28

(T/F) Audit quality is driven, in part, by the skills and personal qualities of audit partners and staff.

Answer 28

TRUE

Question 28

(T/F) The Financial Reporting Council’s Audit Quality Framework is the only framework for audit quality recognized by audit professionals worldwide.

Answer 28

FALSE

Question 29

(T/F) Some factors affecting audit quality are outside the direct control of the auditor, such as the amount of time allotted for completion of the audit.

Answer 29

FALSE

Question 30

(T/F) In the United States, auditors form conclusions about whether the financial statements are presented fairly in accordance with generally accepted auditing standards (GAAS).

Answer 30

FALSE

Question 30

(T/F) The International Auditing and Assurance Standards Board sets international standards on auditing and has developed a framework for audit quality.

Answer 30

TRUE

Question 31

(T/F) Auditors should conduct their work with an attitude of professional skepticism.

Answer 31

TRUE

Question 32

(T/F) To ensure audit quality, audits of public companies must be performed by multinational accounting firms.

Answer 32

FALSE

Question 33

(T/F) The PCAOB requires disclosure of the names of engagement partners for all public company audits.

Answer 33

TRUE

Question 34

(T/F) The PCAOB is a public board, appointed by Congress, to provide oversight of the firms that audit public companies registered with the SEC.

Answer 34

FALSE

Question 35

(T/F) The SEC is the governmental body with oversight responsibility for the efficient operation of capital markets in the United States.

Answer 35

TRUE

Question 36

(T/F) The PCAOB provides the criteria against which the auditor measures the fairness of financial statement presentation.

Answer 36

FALSE

Question 37

(T/F) The AICPA sets auditing standards for nonpublic companies.

Answer 37

TRUE

Question 38

(T/F) Though often relying on the FASB, the SEC has authority to establish GAAP for public companies.

Answer 38

TRUE

Question 39

(T/F) The SEC has authority to establish GAAP for all business enterprises.

Answer 39

FALSE

The SEC has authority to establish GAAP for publicly listed entities.

Question 40

(T/F) The Center for Audit Quality is responsible for the oversight of the peer review process for registered audit firms.

Answer 40

FALSE

The AICPA is responsible for the oversight of the peer review process for registered audit firms.

Question 41

(T/F) The SEC and PCAOB independence rules for auditors are identical to those of the AICPA.

Answer 41

FALSE

Question 42

(T/F) Compliance with the AICPA Code of Professional Conduct depends primarily on the threat of disciplinary actions for violating the Code.

Answer 42

FALSE

Question 43

(T/F) The AICPA’s conceptual framework of “threats and safeguards” included in the Code of Professional Conduct applies only to AICPA members in public practice.

Answer 43

TRUE

Question 44

(T/F) Threats to an auditor’s independence may occur when the auditor has a long-standing relationship with an important person associated with the client.

Answer 44

TRUE

Question 45

(T/F) A safeguard is an action or other measure that may eliminate a threat or reduce the threat to an acceptable level.

Answer 45

TRUE

Question 46

(T/F) Safeguards implemented by the audit client include mandatory audit partner rotation requirements for public companies.

Answer 46

FALSE

Question 46

(T/F) Specific rules of conduct contained in the AICPA Code of Professional Conduct and related interpretations of those rules cover many, but not all, relationships and circumstances that an auditor may encounter.

Answer 46

TRUE

Question 46

(T/F) An AICPA member who is not in public practice is not subject to any of the Principles of Professional Conduct.

Answer 46

FALSE

Question 47

(T/F) An individual does not need to agree to uphold the AICPA’s Code of Professional Conduct in order to become licensed as a CPA.

Answer 47

FALSE

Question 47

(T/F) A covered member’s investment in a mutual fund that owns stock in a firm being audited by the covered member is a direct financial interest resulting in the impairment of independence.

Answer 47

FALSE

Question 47

(T/F) A covered member may not have a direct financial interest in an audit client if the interest is material.

Answer 47

FALSE

Question 47

(T/F) When an auditor identifies threats to compliance with the rules of conduct, the auditor must demonstrate that safeguards were applied that totally eliminated the threat.

Answer 47

FALSE

Question 47

(T/F) Auditors are permitted to perform for a contingent fee an audit of the financial statements if the audit committee approves the agreement in advance of the services being provided.

Answer 47

FALSE

Question 47

(T/F) An auditor may not disclose any confidential client information unless the auditor determines that disclosure is in the public interest.

Answer 47

FALSE

Question 47

(T/F) The AICPA’s Code of Professional Conduct defines an indirect financial interest as an investment of one percent or less of a client’s organization, and because the amount is so small it is considered immaterial.

Answer 47

FALSE

Question 47

(T/F) Contingent fees are prohibited for any client for which the auditor performs audit services, but are otherwise permitted.

Answer 47

FALSE

Question 47

(T/F) Contingent fees are prohibited for tax professionals when preparing tax returns for clients.

Answer 47

TRUE

Question 47

(T/F) Rule 102 on integrity and objectivity applies only to covered members as defined by the AICPA.

Answer 47

FALSE

Question 47

(T/F) Commissions and referral fees are allowed to audit firms as long as the audit client is informed of the fees.

Answer 47

FALSE

Question 47

(T/F) A new staff member on an audit engagement may own stock in that client until the audit report is issued.

Answer 47

FALSE

Question 47

(T/F) A covered member under the AICPA’s rules includes individuals on the engagement team, any individual in a position to influence the engagement team, and a partner or manager who provides more than 10 hours of nonattest services to the audit client within a fiscal year.

Answer 47

TRUE

Question 47

(T/F) A CPA firm may include the name of only one past owner in the firm name.

Answer 47

FALSE

Question 47

(T/F) A contingency fee is a situation in which no fee will be charged unless a specified finding or result is attained.

Answer 47

TRUE

Question 47

(T/F) The AICPA may revoke a member’s CPA license for violating its Code of Professional Conduct.

Answer 47

FALSE

Question 47

(T/F) Rule 102, Integrity and Objectivity, of the AICPA Professional Code of Conduct, does not apply to a CPA who is a corporate CFO.

Answer 47

FALSE

Question 47

(T/F) The auditor is permitted to violate the confidentiality rule in providing relevant information to an inquiry by a major shareholder of the client.

Answer 47

FALSE

Question 47

(T/F) Loans between the auditor and the client are permitted in some circumstances.

Answer 47

TRUE

Question 47

(T/F) A covered member’s independence would be impaired if an immediate family member was employed by the client company in any position.

Answer 47

FALSE

Question 47

(T/F) According to the framework for professional decision making, the first step in decision-making is to structure the audit problem.

Answer 47

TRUE

Question 47

(T/F) The AICPA Code of Professional Conduct prohibits an auditor from providing any non-audit services to audit clients because of the threat posed to the auditor’s independence.

Answer 47

FALSE

Question 47

(T/F) The SEC and PCOAB have independence requirements that apply only to auditors of public companies.

Answer 47

TRUE

Question 47

(T/F) An ethical dilemma occurs in a situation in which moral duties or obligations conflict.

Answer 47

TRUE

Question 47

(T/F) According to Rights Theory, the highest-order rights include rights granted by the government, such as civil rights, legal rights, rights to own property, and license privileges.

Answer 47

FALSE

Question 47

(T/F) Rights theory focuses on evaluating actions in terms of the fundamental rights of the parties involved.

Answer 47

TRUE

Question 47

(T/F) There is a hierarchy of rights to consider when applying rights theory

Answer 47

TRUE

Question 47

(T/F) Utilitarian theory is an approach for addressing ethical problems by identifying a hierarchy of rights that should be considered in solving ethical dilemmas.

Answer 47

FALSE

Question 47

(T/F) Professional judgment is an attitude that includes a questioning mind and a critical evaluation of audit evidence.

Answer 47

FALSE

Question 47

(T/F) Both client acceptance decisions and client continuance decisions are based on an evaluation of relative risk and audit fees.

Answer 47

TRUE

Question 47

(T/F) Without professional skepticism, auditors are susceptible to accepting weak or inaccurate audit evidence.

Answer 47

TRUE

Question 47

(T/F) Auditors consider both quantitative and qualitative risk factors when making client acceptance or continuance decisions.

Answer 47

TRUE

Question 47

(T/F) An auditor is not permitted to contact the predecessor auditor when considering a prospective new client.

Answer 47

FALSE

Question 47

(T/F) Engagement letters issued to new clients do not specify the amount of audit fees to be charged because fees cannot be determined until the audit has been completed.

Answer 47

FALSE

Question 47

Which of the following is a factor that creates a need for an independent auditor’s assessment of the financial statement presentation?

Complexity of transactions affecting the financial statements.
Lack of criteria on which to base information.
Remoteness of the user from the organization.
Both A and C.

Answer 47

Both A and C.

Question 47

Which of the following is not a reason for audits of financial statements of public companies?

Potential bias in providing information.
Greater likelihood of fraud in large public companies.
Complexity of the processing systems.
Remoteness between a user and the organization.

Answer 47

Greater likelihood of fraud in large public companies.

Question 47

An Integrated Audit Report provides opinion(s) on which of the following?

The financial statements.
Internal controls.
Both financial statements and internal controls.
Neither financial statements nor internal controls

Answer 47

Both financial statements and internal controls.

Question 47

Who are the users of the financial statements?
Management.
Auditors.
Taxing Authorities.
Both A and C.

Answer 47

Both A and C.

Question 47

What is the term used to describe a systematic process of objectively obtaining evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users?

Internal audit.
Financial statement audit.
External audit.
Program audit

Answer 47

Financial statement audit.

Question 47

To conduct an audit, what must an auditor do?

Comply with relevant ethical standards.
Exercise perfect judgment.
Obtain sufficient appropriate evidence to provide absolute assurance.
All of the above.

Answer 47

Comply with relevant ethical standards.

Question 47

What is the first phase in an audit?

Client acceptance or client continuance.
Understanding the client.
Understanding internal controls.
Testing of account balances.

Answer 47

Client acceptance or client continuance.

Question 47

How is the audit report referred to when the auditor has no reservations about management’s financial statements?

An unqualified report.
A qualified report.
An adverse report.
An integrated report.

Answer 47

An unqualified report.

Question 47

Why is auditing important in a free market society?

The public requires auditors to function as divisions of regulatory bodies.
Auditors detect all errors and fraud perpetrated by company employees.
Audits provide reliable information upon which to judge economic performance.
The auditor is a form of insurance policy for investors.

Answer 47

Audits provide reliable information upon which to judge economic performance.

Question 47

What must an auditor do in an audit?

Consider how the economic activity is portrayed in the financial statements.
Force management to make operational decisions that will improve the company’s financial performance.
Disregard independence in order to find the underlying truth of the evidence.
Establish new criteria by which financial statements may be compared.

Answer 47

Consider how the economic activity is portrayed in the financial statements.

Question 47

What document communicates the conclusions of the financial statement audit?

The financial statements.
Written management assertions.
The audit report.
None of the above

Answer 47

The audit report.

Question 47

Who is responsible for internal controls within an organization?

The internal auditor.
The external auditor.
Management.
The PCAOB.

Answer 47

Management

Question 48

What is the primary objective of the independent auditor’s report on financial statements?

To report on all instances of fraud.
To assist the board in evaluating management’s effectiveness.
To attest to the credit-worthiness of the client.
To give credibility to management’s prepared financial statements.

Answer 48

To give credibility to management’s prepared financial statements.

Question 48

Which of the following is not part of the systematic process called auditing?

Communicating results of the audit to users.
Procuring and evaluating evidence.
Assisting management in designing internal controls.
Comparing evidence regarding assertions to certain established criteria.

Answer 48

Assisting management in designing internal controls.

Question 48

Which of the following is not a primary driver of audit quality?

Skills and personal qualities of audit staff.
Size of the audit firm.
Effective audit processes.
Audit firm culture

Answer 48

Size of the audit firm.

Question 49

According to the Financial Reporting Council (FRC), which of the following attributes contributes to the reliability and usefulness of audit reporting?
The audit methodology is well structured.
Quality technical support is available when auditors require guidance.
Auditors appropriately conclude as to the truth and fairness of the financial statements.
The audit work is effectively reviewed.

Answer 49

Auditors appropriately conclude as to the truth and fairness of the financial statements.

Question 50

According to the Financial Reporting Council (FRC), when is the culture of an audit firm likely to provide a positive contribution to audit quality?

When the leadership of the audit firm ensures partners and other staff have sufficient time and resources to deal with difficult issues as they arise.
When the leadership of the audit firm ensures robust systems for client acceptance and continuation based on the likelihood of increased audit fees.
When the leadership of the audit firm creates an environment where achieving efficiency is valued, invested in and rewarded.
When the leadership of the audit firm ensures financial considerations drive actions.

Answer 50

When the leadership of the audit firm ensures partners and other staff have sufficient time and resources to deal with difficult issues as they arise.

Question 50

Which of the following is a driver of audit quality?

Audit firm culture.
Engagement team skills and attributes.
Factors outside control of auditors.
All of the above.

Answer 50

All of the above.

Question 50

Which of the following items should an auditor communicate to an audit committee?

Any meaningful threats to auditor objectivity.
The scope of the audit.
The qualitative aspects of the entity’s accounting and reporting and potential ways of improving financial reporting.
All of the above.

Answer 50

All of the above.

Question 50

The Center for Audit Quality is dedicated to enhancing investor confidence in what?

The global capital markets.
Management.
Auditors.
All of the above

Answer 50

The global capital markets.

Question 51

International Standards on Auditing (ISAs) are set by which of the following organizations?

International Center for Audit Quality.
International Auditing and Assurance Standards Board.
American Institute of Certified Public Accountants
All of the above organizations participate in setting ISAs.

Answer 51

International Auditing and Assurance Standards Board.

Question 52

What must audit firms do to perform financial statement audits for public companies?

Register with the American Institute of Certified Public Accountants.
Register with the Institute of Internal Auditors.
Register with the U.S. General Accounting Office.
Register with the Public Company Accounting Oversight Board.

Answer 52

Register with the Public Company Accounting Oversight Board.

Question 52

Which term describes the type of threat that occurs when top management threatens to replace the audit firm because of a disagreement over an accounting issue?

Management participation threat.
Undue influence threat.
Adverse interest threat.
Financial self-interest threat.

Answer 52

Undue influence threat.

Question 53

According to the AICPA, which of the following is not a safeguard to the auditing profession?

Education.
Professional standards.
External reviews.
Legislation concerning competency requirements

Answer 53

Legislation concerning competency requirements

Question 53

Which of the following is a correct statement regarding the Code of Ethics of the International Ethics Standards Board for Accountants (IESBA)?

The IESBA Code applies only to members in public practice.
The five fundamental principles of the IESBA Code are identical to the AICPA’s principles of professional conduct.
The IESBA Code contains specific standards addressing many of the same issues addressed in the AICPA Code of Professional Conduct.
All of the above statements are correct.

Answer 53

The IESBA Code contains specific standards addressing many of the same issues addressed in the AICPA Code of Professional Conduct.

Question 53

Which of the following is not a primary responsibility of the PCAOB regarding public companies in the U.S.?

Issuing CPA licenses to auditors who perform audits of public companies.
Registering audit firms that audit public companies.
Periodically inspecting registered audit firms.
Investigating and disciplining registered audit firms for violations of relevant laws and professional standards.

Answer 53

Issuing CPA licenses to auditors who perform audits of public companies.

Question 54

Congress authorized which of the following organizations to establish generally accepted accounting principles?

SEC.
PCAOB.
AICPA.
FASB.

Answer 54

SEC.

Question 54

Mark Pulley is an auditor at Pulley and Hurst, LLC. If Pulley’s five-year-old daughter owns shares of stock in McBurgers Corporation, then what is Pulley considered to have?
An immaterial indirect financial interest in cc.
A material indirect financial interest in the McBurgers Corporation.
A loophole for claiming independence from McBurgers Corporation.
A direct financial interest in McBurgers Corporation.

Answer 54

A direct financial interest in McBurgers Corporation.

Question 54

Which of the following employment positions could an auditor’s spouse hold in a client without violating the independence requirements?

Controller.
Treasurer.
Order entry staff.
Internal audit director.

Answer 54

Order entry staff.

Question 55

Julie Webb, CPA, takes out an automobile loan with First National Bank of Wellville (FNBW) while attending the University of Wellville. Julie graduates one year later and is hired as an auditor by Best and Driftwood, LLP. Her first assigned audit engagement is with First National Bank of Wellville, a client of Best and Driftwood. As a new audit assistant, Julie continues to pay her automobile loan payments each month. Which of the following best describes Julie’s independence status?

Impaired because Julie has a direct financial interest in FNBW.
Impaired because Julie has a material indirect financial interest in FNBW.
Not impaired because Julie has an immaterial indirect financial interest in FNBW.
Not impaired because Julie is permitted to take normal loans from FNBW.

Answer 55

Not impaired because Julie is permitted to take normal loans from FNBW.

Question 56

Julie Webb, CPA takes out an automobile loan with First National Bank of Wellville (FNBW) while attending the University of Wellville. Julie graduates one year later and is hired as an auditor by Best and Driftwood, LLP. Her first assigned audit engagement is with First National Bank of Wellville, a client of Best and Driftwood. As a new audit assistant, Julie continues to pay her automobile loan payments each month. According to the AICPA, why is Julie is considered a covered member for FNBW independence purposes?

She will be working on the engagement.
She has a direct financial interest in FNBW.
She graduated in the same area as the client is operating.
She has an immaterial direct financial interest in FNBW.

Answer 56

She will be working on the engagement.

Question 57

Which of the following is a principle of the Code of Ethics of the International Ethics Standards Board for Accountants but not a principle found in the AICPA Code of Professional Conduct?

Integrity
Professional Behavior
Confidentiality
Objectivity

Answer 57

Professional Behavior

Question 57

Which of the following represents a situation in which an auditor is independent of its client?

The audit fee paid by the client represents 10% of the auditor’s annual gross revenue.
The auditor takes a personal loan from the president of the company.
The auditor’s dependent son holds 25 shares of the client’s common stock.
The auditor has not received payment for the previous audit services.

Answer 57

The audit fee paid by the client represents 10% of the auditor’s annual gross revenue.

Question 57

For which of the following engagements are members of the AICPA required to act with integrity and objectivity?

Tax preparation.
Financial statement review services.
Financial statement audits.
All engagements.

Answer 57

All engagements.

Question 58

Which of the following is not an aspect of Rule 201 of the General Standards of the Code of Professional Conduct?

A member must not take on an engagement that is beyond the member’s professional competence.
A member must exercise duties prudently and professionally.
A member must adequately plan and supervise the performance of professional services.
A member firm must not advertise services to competing clients.

Answer 58

A member firm must not advertise services to competing clients.

Question 59

A member of the AICPA must safeguard the confidentiality of client information. Which of the following is not a valid reason to disclose information to non-clients?

To discuss information relating to inadequate disclosure in an audit report.
To comply with a validly issued and enforceable subpoena or summons.
To accommodate the review of client audit work papers under AICPA, PCAOB, or State Board of Accountancy authority.
To explain to shareholders the likelihood that the company will not meet its earnings projections.

Answer 59

To explain to shareholders the likelihood that the company will not meet its earnings projections.

Question 60

From whom should a CPA not accept a commission for recommending a product or service?

A tax client.
An audit client.
A financial-planning client.
Any of the above.

Answer 60

An audit client.

Question 60

In which of the following situations would a CPA be considered independent?

A CPA has obtained an auto loan from a banking client.
A CPA has obtained a 90-day signature loan from a client.
A CPA has obtained a loan for investment purposes from a client.
A CPA has obtained an interest-free loan from a banking client.

Answer 60

A CPA has obtained an auto loan from a banking client.

Question 61

In which of the following situations would a CPA be considered independent?

A CPA’s brother is the Vice-President of Sales at the CPA’s audit client.
A CPA’s father was a salesman at the CPA’s audit client, and now a major portion of the father’s pension fund is invested in the audit client.
A CPA’s cousin works as a web-site designer at the audit client.
A CPA’s son works summers at the audit client and has earned 10 shares of stock in the audit client.

Answer 61

A CPA’s cousin works as a web-site designer at the audit client.

Question 61

The auditor is normally not permitted to divulge confidential information obtained from a client. Which of the following situations would be a violation of this standard?

To respond to the information request of a major shareholder.
To respond to a quality review request of the state board of accountancy.
To initiate a complaint with the AICPA’s ethics division.
To ensure adequate disclosure in accordance with GAAP.

Answer 61

To respond to the information request of a major shareholder.

Question 62

Under the AICPA definition, who among the following would not be considered a covered member?

An individual on the audit engagement team.
An individual in a position to influence the audit engagement.
A partner in the office of the lead engagement partner.
All would be considered covered members.

Answer 62

All would be considered covered members.

Question 62

Rule 201 - General Standards of the AICPA Code of Professional Conduct does not include which of the following factors?

Due professional care.
Integrity and objectivity.
Planning and supervision.
Sufficient relevant data.

Answer 62

Integrity and objectivity.

Question 63

Independence is required for which of the following types of services?

Audit work.
Tax work.
Consulting.
Independence is always required of the CPA.

Answer 63

Audit work.

Question 63

Independence in mental attitude is required of auditors on all audit engagements. Which statement best describes the highest goal for independence?

To comply with the AICPA Code of Professional Conduct.
To be independent in fact and appearance.
To be an advocate for shareholders and other users of financial information.
To comply with SEC regulations.

Answer 63

To be independent in fact and appearance.

Question 64

Under Rule 201, what best describes how an AIPCA member should act?

With professional competence.
With due professional care.
With adequate planning and with appropriate supervision.
All of the above

Answer 64

All of the above

Question 65

Commissions and referral fees are not permitted for which types of services?
Tax services.
Financial planning services.
Audits.
Both B and C.

Answer 65

Audits.

Question 66

Auditors of public companies have additional requirements that extend beyond those of the AICPA. Which of the following is not one of those additional requirements?

Pre Approval of audit services and permissible non audit services by the client’s audit committee.
Disclosure by the client of all fees paid to its auditors for audit, audit-related, tax, and other services.
Changing audit firms every seven years with a two-year cooling off period.
Rotating lead audit partners every five years with a five-year cooling off period.

Answer 66

Rotating lead audit partners every five years with a five-year cooling off period.

Question 66

What does utilitarian theory hold?

There is a decision that exists that is optimal for all people.
What is ethical is the action that achieves the least bad for the greatest number of people.
What is ethical is the action that achieves the greatest good for the greatest number of people.
What is ethical is the action that achieves the greatest good for all people.

Answer 66

What is ethical is the action that achieves the greatest good for the greatest number of people.

Question 67

An auditor who is professionally skeptical will do which of the following?

Critically question contradictory audit evidence.
Carefully evaluate the reliability of audit evidence, especially in situations in which fraud risk is high.
Reasonably question the authenticity of documentation, while accepting that documents are to be considered genuine unless there is reason to believe the contrary.
All of the above.

Answer 67

All of the above.

Question 67

Which term best describes a situation in which an individual is morally or ethically required to do something that conflicts with his or her immediate self-interest?

An ethical dilemma.
An ethical problem.
An ethical theory.
None of the above.

Answer 67

An ethical dilemma.

Question 67

Which of following is not part of the ethical framework derived from utilitarianism and rights theories?

Determination of relevant legal issues.
Determination of affected parties and their rights.
Determination of the most important rights.
Development of alternative courses of action

Answer 67

Determination of relevant legal issues.

Question 68

What is the purpose of an ethical framework?

To provide a defined methodology to solve the ethical problem.
To provide a defined methodology to aid the user in making complex ethical decisions.
To provide a defined program to solve ethical dilemmas.
All of the above.

Answer 68

To provide a defined methodology to aid the user in making complex ethical decisions.

Question 69

According to the framework for ethical decision making, which of the following should the decision maker consider?

All possible alternative courses of action.
The consequences associated with possible actions.
Whether the rights framework would cause any course of action to be added.
All of the above.

Answer 69

The consequences associated with possible actions.

Question 70

Which of the following is not an action required by utilitarian theory?

Identify the potential problem.
Identify the potential impact of actions on each affected party.
Identify the rights of the affected parties.
Identify the desirability of each action.

Answer 70

Identify the rights of the affected parties.

Question 71

As it relates to an audit, which of the following statements about professional skepticism is true?

Professional skepticism is not taken into consideration.
Professional skepticism relates only to the nature of procedures performed.
Professional skepticism is an attitude.
Professional skepticism is determined based upon the importance to a user of the financial statements.

Answer 71

Professional skepticism is an attitude.

Question 72

Which of the following is a reason an audit firm might decide not to accept a company as a client?

The company is in a weak financial position.
The company culture does not match the audit firm culture.
The company is part of an industry that tends to have volatile stock prices.
All of the above.

Answer 72

The company is in a weak financial position.

Question 73

Which of the following is an important consideration in client acceptance and continuance decisions?

Integrity of the client company’s management.
Effectiveness of the client company’s internal controls.
The audit firm’s growth strategy.
All of the above.

Answer 73

All of the above.

Question 74

The scope of the work to be done by the auditor on the audit is described in which document?

Contract letter.
Engagement letter.
Representation letter.
Management letter.

Answer 74

Engagement letter.