Exam 1 Prep

Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements?

• The opinion of an independent party is needed because a company may not be objective with respect to its own financial statements.

• It is management’s responsibility to seek available independent aid in the appraisal of the financial information shown in its financial statements.

• It is difficult to prepare financial statements that fairly present a company’s financial position, operations, and cash flows without the expertise of an independent auditor.

• It is a customary courtesy that all stockholders of a company receive an independent report on management’s stewardship of the affairs of the business.

Which of the following professional services is an attestation engagement?

• A consulting service engagement to provide computer-processing advice to a client

• The preparation of financial statements from a client’s financial records

• An income tax engagement to prepare federal and state tax returns

• An engagement to report on compliance with statutory requirements

Which of the following attributes is likely to be unique to the audit work of CPAs as compared to the work performed by practitioners of other professions?

• Independence

• Competence

• Due professional care

• Complex body of knowledge

Operational audits generally have been conducted by internal auditors and governmental audit agencies but may be performed by certified public accountants. A primary purpose of an operational audit is to provide

• a means of assurance that internal accounting controls are functioning as planned.

• the results of internal examinations of financial and accounting matters to a company’s top-level management.

• a measure of management performance in meeting organizational goals.

Which of the following best describes the operational audit?

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

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

• It focuses on verifying the fair presentation of a company’s results of operations.

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

Compliance auditing often extends beyond audits leading to the expression of opinions on the fairness of financial presentation and includes audits of efficiency, economy, effectiveness, and

• adherence to specific rules or procedures.

• accuracy.

• evaluation.

• internal control.

Which of the following best describes what is meant by U.S. auditing standards?

• Acts to be performed by the auditor

• Measures of the quality of the auditor’s performance

• Procedures to be used to gather evidence to support financial statements

• Audit objectives generally determined on audit engagements

The Responsibilities principle underlying AICPA auditing standards includes a requirement that

• the audit be adequately planned and supervised.

• the auditor’s report state whether or not the financial statements conform to generally accepted accounting principles.

• professional judgment be exercised by the auditor.

• informative disclosures in the financial statements be reasonably adequate.

Who establishes auditing standards applicable to private companies and other nonpublic entities in the U.S.?

• Financial Accounting Standards Board (FASB)

• Public Company Accounting Oversight Board (PCAOB)

• American Institute of Certified Public Accountants (AICPA)

• Securities and Exchange Commission (SEC)

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

• Complying with laws and regulations

• Using statistical sampling techniques

• Managing human resources

• Considering audit risk and materiality