Audit Theory

Which of the following best describes the operational audit?

• It requires constant review by internal auditors of the administrative controls as they relate to operations of the company

• It concentrates on implementing financial and accounting control in a newly organized company.

• It attempts and is designed to verify the fair presentation of a company's results pf operations.

• It concentrates on seeking out aspects of operations in which waste would be reduced by the introduction of controls.

The auditor's judgement concerning the overall fairness of the presentation of

financial position, results of operations, and changes in financial position is applied within the framework of:

• Generally accepted accounting principles

• Internal Control

• Generally accepted auditing standards

• Information systems control

Which of the following is NOT true about the relationship between quality

control standards and professional standards such as GAAS?

• Quality control standards relate to the conduct of a firm's entire practice whereas professional standards such as GAAS relate to the conduct of an individual engagement

• The adoption of quality control standards increases the likelihood of compliance with professional standards on individual engagements.

• A firm's failure to establish or comply with an appropriate system of quality control implies that the firm has also failed to follow professional standards on individual engagements.

• A firm that has not adopted an appropriate system of quality controo may still be in compliance with professional standards with respect to individual engagements.

Which of the following is an element of a CPA firm's quality controo system that should be considered in establishing its quality control policies and procedures?

• Complying with laws and regulations

• Assigning personnel to engagements

• Using statistical sampling techniques

• Considering audit risk and materiality

Quality control policies and procedures that are established to decide whether to accept a new client should provide the CPA firm with reasonable assurance that:

• The CPA firm's duty to the public concerning the acceptance of new client is satisfied.

• The likelihood of associating with clients whose management lacks integritt is minimized.

• Client prepared schedules that are necessary for the engagement are completed on a timely basis.

• Sufficient corroborating evidence to support the financial statement assertions is available.

The phrase "generally accepted accounting pronciples" is an accounting term that:

• Includes broad guidelines of general application but not dtetailed practices and procedures.

• Encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time.

• Provides a measure of conventions, rules, and procedures governed by the AICPA

• Is included in the audit report to indicate that the audit has been conducted in accordance with generally accepted auditing standards (GAAS)

A CPA who has never audited a commercial bank:

• May not accept such an engagement.

• May accept the engagement only if the accounting firm specializes in the audit of commercial banks.

• May accept the engagement after attaining a suitable level of understanding of the transactions and accounting practices unique to commercial banking.

• May accept the engagement because training as a CPA transcends unique industry characteristics.

Which of the following is mandatory if the auditor is to comply with generally accepted auditing standards?

• Possession by the auditor of adequate technical training.

• Use of analytical review on audit engagements.

• Use of statistical sampling whenever feasible on an audit engagement.

• Confirmation by the auditor of material accounts receivable balances.

Which of the following is mandatory if the auditor is to comply with generally accepted auditing standards?

• Possession by the auditor of adequate technical training.

• Use of analytical review on audit engagements.

• Use of statistical sampling whenever feasible on an audit engagement.

• Confirmation by the auditor of material accounts receivable balances.

Which of the following statements is not a distinction between independent auditing and internal auditing?

• Independent auditors represent third party uses external to the auditee entity, whereas internal auditors report directly to management.

• Although independent auditors strive for both validity and relevance of evidence, internal auditors are concerned almost exclusively with validity.

• Internal auditors are employees of the auditee, whereas independent auditors are independent contractors.

• The internal auditor's span of coverage goes beyond financial auditing to encompass operational and performance auditing.