Chapter 2

Question 1

For each of the following, identify whether it is most appropriately associated with independence in fact (Fact), independence in appearance (Appearance), both (B), or neither (N).

a. Relates to the auditors’ “state of mind.”

Answer 1

Fact

Question 2

For each of the following, identify whether it is most appropriately associated with independence in fact (Fact), independence in appearance (Appearance), both (B), or neither (N).

b. Relates to others’ perceptions of the auditors’ independence.

Answer 2

Appearance

Question 3

For each of the following, identify whether it is most appropriately associated with independence in fact (Fact), independence in appearance (Appearance), both (B), or neither (N).

c. Reflects an unbiased and impartial perspective with respect to the financial statement audit.

Answer 3

Fact

Question 4

For each of the following, identify whether it is most appropriately associated with independence in fact (Fact), independence in appearance (Appearance), both (B), or neither (N).

d. The auditors’ firm provides extensive consulting services to the client; these services provide revenues to the firm that exceed revenues received from the audit engagement.

Answer 4

Appearance

Question 5

For each of the following, identify whether it is most appropriately associated with independence in fact (Fact), independence in appearance (Appearance), both (B), or neither (N).

e. The spouse of the partner in charge of the audit engagement occupies an executive-level position within the client.

Answer 5

Both

Question 6

For each of the following, identify whether it is most appropriately associated with independence in fact (Fact), independence in appearance (Appearance), both (B), or neither (N).

f. A distant relative of a partner within the firm occupies an entry-level position within the client of the firm. (The audit is conducted by another office of the firm with which the partner has infrequent contact).

Answer 6

Neither

Question 7

For each of the following, identify whether it is most appropriately associated with independence in fact (Fact), independence in appearance (Appearance), both (B), or neither (N).

g. A staff member within the firm owns shares of stock of one of that firm’s clients. (She is not a member of the engagement team serving that client.)

Answer 7

Neither

Question 8

Affected by the information the evidence provides to the audit team

Answer 8

Appropriateness - Relevance

Question 9

b. Refers to the quantity of evidence, which is the number of transactions or components of an account balance of class of transactions examined by the audit team.

Answer 9

Sufficiency

Question 10

c. Refers to the extent to which the audit team can trust the evidence

Answer 10

Appropriateness - Reliability

Question 11

Hierarchy of the source of evidence from the most reliable (1) to least reliable (3).

Answer 11

1. Evidence obtained by the auditor
2. Evidence obtained from external sources
3. Evidence obtained from internal sources.

Question 12

Rank the following components of the standard unqualified opinion for an issuer in order

Answer 12

1. Title
2. Addressee
3. Opinion
4. Basis for Opinion
5. Critical Audit Matters
6. Signature

Question 13

___ is (are) responsible for the financial statements

Answer 13

Management

Question 14

The auditor’s report is the ___ of an audit

Answer 14

end product

Question 15

An unmodified opinion indicates that the financial statements are presented ______

Answer 15

Fairly

Question 16

An audit report indicates that the audit evidence we have obtained is __________ to provide a basis for the opinion.

Answer 16

sufficient

Question 17

Stages of an audit in order:

Answer 17

1. Obtain or Retain Engagement
2. Engagement Planning
3. Risk Assessment
4. Audit Evidence
5. Reporting

Question 18

The Public Company Accounting Oversight Board was established by

Answer 18

The Sarbanes–Oxley Act of 2002

Question 19

An important role of the Public Company Accounting Oversight Board is to oversee the

Answer 19

regulation of firms that audit issuers

Question 20

Generally accepted auditing standards are

Answer 20

standards that guide the conduct of an audit examination

Question 21

Auditors try to achieve independence in appearance in order to:

Answer 21

maintain public confidence in the profession

Question 22

An independent auditor must have which of the following?

Answer 22

Technical training that is adequate to meet the requirements of a professional

Question 23

During which stages of an audit examination are auditors required to exhibit the appropriate use of professional judgment?

Answer 23

Gathering Evidence - Yes
Drawing Conclusions - Yes

Question 24

Which of the following would normally be considered earliest in the audit examination?

Answer 24

Determination of materiality levels for use during the audit

Question 25

The preparation of an audit plan prior to the beginning of field work is appropriately considered documentation of

Answer 25

planning

Question 26

What type of evidence would provide the highest level of assurance in an attestation engagement?

Answer 26

Evidence obtained from independent sources

Question 27

Audit evidence is usually considered sufficient when

Answer 27

there is enough quantity to afford a reasonable basis for an opinion on financial statements

Question 28

The standard auditors’ report refers to standards of the PCAOB and GAAP in which section(s)?

Answer 28

Standards of the PCAOB: Opinion on the Financial Statements and Basis for Opinion; GAAP: Opinion on the Financial Statements

Question 29

Which reporting options do auditors have if the client’s financial statements are not presented according to the applicable financial framework (e.g., GAAP, IFRS)?

Answer 29

Qualified opinion or adverse opinion

Question 30

Which of the following situations would result in the issuance of a disclaimer of opinion?

Answer 30

The auditor is discovered to own a financial interest in the entity

Question 31

An audit of the financial statements of Camden Corporation is being conducted by external auditors. The external auditors are expected to:

Answer 31

give an opinion on the fair presentation of Camden’s financial statements in conformity with the applicable financial reporting framework (e.g., GAAP, IFRS)

Question 32

A periodic review of an audit firm’s system of quality control by the PCAOB is referred to as a(n):

Answer 32

Inspection