Chapter 2: Additional Practice Questions Flashcards
Which of the following categories of principles is most closely related to gathering audit evidence?
Performance
- Gathering audit evidence is a component of the performance principle.
Which of the following is not related to ethical requirements of auditors?
Professional judgment
- While professional judgment is part of the responsibilities principle, it is not related to the ethical requirements of auditors.
One of an accounting firm’s basic objectives is to provide professional services that conform to professional standards. Reasonable assurance of achieving this objective can be obtained by following:
standards within a system of quality control.
- A system of quality control relates to all professional services of a firm, whereas auditing standards relate solely to audit engagements and accounting principles don’t relate to any professional services.
The primary purpose for obtaining an understanding of the entity’s environment (including its internal control) in a financial statement audit is:
to determine the nature, timing, and extent of substantive procedures to be performed.
The most reliable evidence regarding the existence of newly acquired computer equipment is:
physical observation
Breaux & Company CPAs require that all audit documentation indicates the identity of the preparer and the reviewer. This procedure provides evidence relating to which of the following?
Adequate planning and supervision
- Initials of the preparer and reviewer provide evidence that the documentation was reviewed, which relates to planning and supervision.
Which of the following concepts is least related to the standard of due care?
Reasonable assurance
- Reasonable assurance is related to the auditors’ responsibility for detecting misstatements and procedures performed during the examination, not the concept of due care.
The evidence considered most appropriate by auditors is best described as:
direct personal knowledge obtained through physical observation and mathematical recalculation.
Auditors’ understanding of the internal control in an entity provides information for:
planning the nature, timing, and extent of substantive procedures on an audit.
Which of the following elements of a system of quality control is related to firms receiving independence confirmations from its professionals with respect to clients?
Relevant ethical requirements.
Which of the following is most closely related to the responsibilities principle?
The auditors’ compliance with relevant ethical requirements of independence and due care.
Kramer, CPA, consulted an independent appraiser regarding the valuation of fine art for a not-for-profit museum. Consultation with the appraiser in this case would:
be considered as exercising proper due care.
- Consultation with an appraiser demonstrates due care if auditors do not have expertise in the area in question.
Which of the following topics is not addressed in the auditors’ report for an issuer?
Absolute assurance regarding the fairness of the entity’s financial statements in accordance with GAAP.
Which of the following recognizes that an audit conducted under generally accepted auditing standards may not detect all material misstatements?
Reasonable assurance recognizes that an audit conducted under GAAS may fail to detect all material misstatements.
Which of the following is most closely related to the relevance of audit evidence?
In addition to confirmations of accounts receivable, auditors perform an analysis of the aging of accounts receivable to evaluate the collectability of accounts receivable.
- The aging of accounts receivable will evaluate valuation, which is not directly evaluated through confirmation. Therefore, aging provides relevant evidence with respect to the valuation assertion.
Which of the following statements is not true with respect to the performance principle?
Auditors are required to prepare a written audit plan during the planning stages of initial audits but are not required to do so in continuing audits.
- Written audit plans are required in both initial and continuing audits.
Which of the following is true with respect to PCAOB inspections of accounting firms?
PCAOB inspections review a sample of audits conducted by firms as well as the firm’s systems of quality control.
- In a PCAOB inspection, a sample of audits as well as the firm’s system of quality control are reviewed by the inspection team.
The particular and specialized actions that auditors take to obtain evidence during a specific engagement are known as:
audit procedures
Which of the following combinations of standards and types of audits are most closely related to the activities of the Public Company Accounting Oversight Board?
Develop Auditing Standards for the audits of issuers.
Which of the following best describes the general contents of the first paragraph of the “Basis for Opinion” section of the auditors’ report?
Statements identifying the responsibility of auditors and management in the financial reporting process.
Which of the following opinions would be issued if auditors believed that the entity’s financial statements were not presented in conformity with GAAP?
Adverse opinion
- An adverse opinion is issued for material and pervasive departures from GAAP.
Which of the following principles is most closely associated with the auditors’ conclusion as to the fair presentation of the entity’s financial statements?
Reporting principle
- The reporting principle is related to the contents of the auditors’ report, which expresses an opinion on the entity’s financial statements (or indicates that an opinion cannot be expressed).
