Auditing: Chapter 1

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47 terms

Independent audits of today place more emphasis on sampling than did the audits of the 19th Century.

True

The American Institute of Certified Public Accountants issues CPA certificates and permits to practice.

False

A company is either audited by the GAO or internal auditors, but not both.

False

The SEC does not pass on the merits of the securities that are registered with the agency.

True

The American Institute of Certified Public Accountants has the primary authority to establish accounting standards.

False

An annual peer review is a requirement of the AICPA.

False

Many small companies elect to have their financial statements reviewed by a CPA firm, rather than incur the cost of an audit.

True

Staff assistants in CPA firms generally are responsible for planning and coordinating audit engagements.

False

The Sarbanes-Oxley Act requires that auditors of certain publicly traded companies in the United States perform an integrated audit that includes providing assurance on both the financial statements and on compliance with laws and regulations.

False

Auditing is frequently only a small part of the practice of local CPA firms.

True

A summary of findings rather than assurance is most likely to be included in a(n)

Agreed-upon procedures report

The Statements on Auditing Standards have been issued by the

Auditing Standards Board

The risk associated with a company's survival and profitability is referred to as

Business risk

Historically, which of the following has the AICPA been most concerned with providing

Professional standards for CPAs

The organization charged with protecting investors and the public by requiring full disclosure of financial information by companies offering securities to the public is the

The Securities and Exchange Commission

An engagement in which a CPA firm arranges for a critical review of its practices by another CPA firm is referred to as a(n)

Peer Review Engagement

The serially-numbered pronouncements issued by the Auditing Standards Board over a period of years are known as

Statements on Auditing Standards

The Government Accountability Office (GAO)

Conducts operational audits and reports the results to Congress.

The risk that information is misstated is referred to as

Information risk.

The risk that a company will not be able to meet its obligations when they become due is an aspect of

Business risk.

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

Independence

The attest function

Includes the preparation of a report of the CPA's findings.

Attestation risk is limited to a low level in which of the following engagement(s)

Examinations, but not reviews

When compared to an audit performed prior to 1900, an audit today

Is more likely to include tests of compliance with laws and regulations

Which of the following are issued by the Securities and Exchange Commission

Financial Reporting Releases

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

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

An operational audit differs in many ways from an audit of financial statements

The boundaries of an operational audit are often drawn from an organization chart and are not limited to a single accounting period

The review of a company's financial statements by a CPA firm

Is substantially less in scope of procedures than an audit

Which statement is correct with respect to continuing professional education (CPE) requirements of members of the AICPA

Members, regardless of whether they are in public practice, are required to meet such requirements

The FDIC Improvement Act requires that management of large financial institutions engage auditors to attest to assertions by management about the effectiveness of the institution's internal controls over

Financial reporting

Passage of the Sarbanes-Oxley Act led to the establishment of the

Public Company Accounting Oversight Board

Which of the following professionals has primary responsibility for the performance of an audit

The partner in charge of the engagement

Which of the following types of services is generally provided only by CPA firms

Financial statement audits

The right to practice as a CPA is given by which of the following organizations

State Boards of Accountancy

Which of the following terms best describes the audit of a taxpayer's tax return by an IRS auditor

Compliance audit

Inquiries and analytical procedures ordinarily form the basis for which type of engagement

Review

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

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

Governmental auditing often extends beyond examinations leading to the expression of opinion on the fairness of financial presentation and includes audits of efficiency, economy, effectiveness, and also

Compliance

Operational auditing is primarily oriented toward

Future improvements to accomplish the goals of management

A typical objective of an operational audit is for the auditor to

Make recommendations for improving performance

An integrated audit performed under the Sarbanes-Oxley Act requires that auditors report on

Financial statements and internal control

Develop accounting standards for public and nonpublic companies

Financial Accounting Standards Board

Develop accounting standards for the U.S. Government

Federal Accounting Standards Advisory Board

Formed to improve standards of financial accounting for state and local government entities

Government Accounting Standards Board

Issue auditing standards for public companies

Public Company Accounting Oversight Board

Issue CPA certificates

State Boards of Accountancy

Prepares the CPA exam

American Institute of Certified Public Accountants

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