Auditing: Chapter 2
Terms in this set (67)
To express an opinion on financial statements, the auditor obtains reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error.
The auditors' report on a corporation's financial statements usually is addressed to the president of the company.
The auditors are primarily responsible for preparing the financial statements and expressing an opinion on whether they follow generally accepted auditing standards.
Partners in CPA firms usually have the responsibility for signing the audit report.
An audit is more likely to detect tax evasion than violations of antitrust laws.
The attestation standards do not supersede generally accepted auditing standards.
A peer review is generally performed by employees of the AICPA.
If the auditors discover illegal acts by a client, they ordinarily must immediately resign from the engagement.
An audit should be designed to obtain reasonable assurance of detecting non-compliance with all laws.
The pronouncements of the International Auditing and Assurance Standards Board do not override the national auditing standards of its members, even when financial statements are issued by a multinational company.
Audits of financial statements are designed to obtain reasonable assurance of detecting misstatement due to
Fraudulent financial reporting and misappropriation of assets
Financial statements are prepared following a(an)
Applicable financial reporting framework
Includes a report on subject matter, or on an assertion about subject matter
an attestation engagement
An audit provides reasonable assurance of detecting which of the following types of material illegal acts?
Which of the following is not a type of auditors' opinion?
Which of the following is one of the elements of AICPA quality control?
A procedure in which a quality control partner periodically tests the application of quality control procedures is most directly related to which quality control element?
Requirements for training, independence and due professional care are included in which group of the generally accepted auditing standards of the PCAOB?
Which of the following is a principle underlying an audit conducted in accordance with generally accepted auditing standards?
An auditor's opinion enhances the degree of confidence that intended users can place in the financial statements.
A set of criteria used to determine measurement, recognition, representation, and disclosure of all material items appearing the in the financial statements is referred to as a(n)
Financial reporting framework.
An audit should be designed to obtain reasonable assurance of detecting material misstatements due to
Errors, fraud, and noncompliance with laws with a direct effect on financial statement amounts.
Which of the following is accurate, as indicated in the principles underlying an audit?
An auditor is unable to obtain absolute assurance that he financial statements are free from material misstatement.
Which of the following is not an underlying premise of an audit?
Management and the auditors have responsibility for the preparation of financial statements in accordance with the applicable financial reporting framework.
By definition, proper professional skepticism on an audit requires
When a Statement Auditing Standards uses the word "should" relating to a requirement, it means that the auditor
Must comply with requirements unless the auditor demonstrates and documents that alternative actions are sufficient to achieve the objectives of the standards.
An unconditional responsibility to follow an AICPA professional standard exists when the professional standard uses the term(s)
Which of the following best describes a portion of the auditors' responsibility regarding noncompliance with laws by clients?
If audit procedures reveal noncompliance, the auditors should take appropriate actions.
The auditors who find that the client has committed an illegal act would be most likely to withdraw from the engagement when the
Management fails to take appropriate corrective action.
Which of the following is not included as a part of the description of the auditor's responsibility in a nonpublic company unmodified report?
The audit was performed in accordance with generally accepted accounting principles.
Primary responsibility for the financial statements lies with
Which of the following is explicitly included as a part of the description of management's responsibility in an unmodified audit report?
Management is responsible for the design, implementation, and maintenance of internal control.
The auditors' report for a nonpublic company should indicate
That the audit was made in accordance with auditing standards generally accepted in the United States of America.
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
Principles Underlying an Audit Conducted in Accordance with GAAS.
A requirement that working papers be reviewed by the supervisor, and any deficiencies be discussed with the preparer is an example of a quality control procedure in the area of
A requirement to design recruitment processes and procedures to help the firm select individuals meeting minimum academic requirements established by the firm is an example of a quality control procedure in the area of
The body that issues international pronouncements providing auditing procedural and reporting guidance is the
International Auditing and Assurance Standards Board.
To present fairly in conformity with generally accepted accounting principles the financial statements must
Reflect transactions and events within a range of reasonable limits
Which of the following is not included in the auditors' standard unmodified audit report?
Accounting principles have been consistently applied.
An audit performed in accordance with generally accepted auditing standards generally should
Not be relied upon to provide absolute assurance that all noncompliance with laws will be detected
When the auditors express an opinion on financial statements their responsibilities extend to
Whether the results of their client's operating decisions are fairly presented in the financial statements.
Authoritative GAAP sources include
An investor reading the financial statements of The Sundby Corporation observes that the statements are accompanied by an unmodified auditors' report. From this the investor may conclude that
Any disputes over significant accounting issues have been settled to the auditors' satisfaction
The auditors' report may be addressed to the company whose financial statements are being examined or to that company's
Board of Directors
Which of the following best describes what is meant by generally accepted auditing standards?
Measures of the quality of the auditors' performance.
If noncompliance with a law is discovered during the audit of a publicly held company, the auditors should first
Report the act to high level personnel within the client's organization and to the audit committee
Which of the following is the name used to describe financial reporting frameworks other than GAAP which include
cash basis, tax basis, regulatory basis, or contractual basis: Special purpose
Which of the following statements best describes the primary purpose of Statements on Auditing Standards?
They are authoritative statements, enforced through the Code of Professional Conduct.
The primary responsibility for the adequacy of disclosure in the financial statements of a publicly held company rests with the
Management of the company
In pursuing a CPA firm's quality control objectives, a CPA firm may maintain records indicating which partners or employees of the CPA firm were previously employed by the CPA firm's clients. Which quality control objective would this be most likely to satisfy?
Relevant ethical requirements.
Within the context of quality control, the primary purpose of continuing professional education and training activities is to enable a CPA firm to provide personnel within the firm with
Knowledge required to fulfill assigned responsibilities and to progress within the firm
A CPA firm establishes quality control policies and procedures for deciding whether to accept a new client or continue to perform services for a current client. The primary purpose for establishing such policies and procedures is
To minimize the likelihood of association with clients whose managements lack integrity
Which of the following is not an element of quality control?
Generally accepted auditing standards established by the AICPA through April of 2003
Have been accepted as interim standards by the Public Company Accounting Oversight Board
The Public Company Accounting Oversight Board has authority to establish which of the following relating to public companies?
Attestation standards and ethics standards
Which of the following is least likely to be directly examined in an inspection performed by the PCAOB?
As compared with the US public company audit report, the international audit report
Includes enhanced explanation of the audit process
A peer review in which the peer reviewers study and appraise a CPA firm's system of quality control to perform accounting and auditing work is referred to as a(n)
An engagement review form of peer review is least likely to include a peer reviewer's detailed analysis of
Overall system of quality control
Of the following, which are current types of peer review?
System review and engagement review
Public companies are ordinarily audited by a CPA firm, with engagement review by the General Accounting Office
Audits provide absolute assurance of detecting material misstatements and reasonable assurance of detecting immaterial misstatements
For audit purposes, professional skepticism includes a questioning mind and a critical assessment of audit evidence and should be maintained throughout the planning and performance of an audit
The Auditing Standards Board issues accounting principles for nonpublic company audits while the Public Company Accounting Oversight Board issues accounting principles for public company audits
Disagree (auditing standards, not accounting principles)
Auditors have a higher responsibility for detecting noncompliance with laws affecting financial statement amounts and disclosures than they do for other laws
When an auditing standard uses the word "should," this indicates that the auditor must in all cases follow it if the requirement is relevant to the company being audited
At one point, the Public Company Oversight Board adopted the AICPA auditing standards in existence as its interim auditing standards
International auditing standards are developed by the International Auditing and Assurance Standards Board