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ACC 3016 COMPREHENSIVE REVIEWER AUDITING THEORY
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ACC 3016 COMPREHENSIVE REVIEWER AUDITING THEORY ACC 3016 COMPREHENSIVE REVIEWER AUDITING THEORY ACC 3016 COMPREHENSIVE REVIEWER AUDITING THEORY
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1COMPREHENSIVE REVIEWER
AUDITING THEORY
1. In determining the primary responsibility of the external auditor for an audit of a company‟s
financial statements, the auditor owes primary allegiance to:
A. the management of the audit client because the auditor is hired and paid by
management.
B. the audit committee of the audit client because that committee is responsible for
coordinating and reviewing all audit activities within the company.
C. stockholders, creditors, and the investing public.
D. the Auditing and Assurance Standards Council, because it determines auditing
standards and auditor‟s responsibility.
2. Which of the following would not represent one of the primary problems that would lead the
users to demand for independent audits of a company‟s financial statements?
A. Management bias in preparing financial statements.
B. The downsizing of business and financial markets.
C. The complexity of transactions affecting financial statements.
D. The remoteness of the user from the organization and thus the inability of the user to
directly obtain financial information from the company.
3. Assurance services involve all the following except:
A. improving the quality of information for decision purposes.
B. improving the quality of the decision model used.
C. improving the relevance of information.
D. implementing a system that improves the processing of information.
4. Which of the following is the broadest and most inclusive concept?
A. Audits of financial statements.
B. Internal control audit.
C. Assurance services.
D. Compilation services.
5. Which of the following is a correct statement?
A. An audit provides limited assurance by attesting to the fairness of the client‟s
assertions.
B. A review provides positive assurance by attesting the reliability of the client‟s
assertions.
C. Management consulting services provide attestation in all cases.
D. Accounting services do not provide attestation.
6. Unlike consulting services, assurance services:
A. make recommendation to management
B. report on how to use information
C. report on the quality of information
D. are two-party contracts.
7. Financial statements audits:
A. reduce the cost of capital
B. report on compliance with laws and regulations
C. assess management„s efficiency
D. overlook information risk
8. A summary of findings rather than assurance is most likely to be included in a(n):
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A. Agreed-upon procedures report
B. Compilation report
C. Examination report
D. Review report
9. The risk associated with a company's survival and profitability is referred to as:
A. Business Risk
B. Information Risk
C. Detection Risk
D. Control Risk
10. 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):
A. Peer Review Engagement
B. Quality Control Engagement
C. Quality Assurance Engagement
D. Attestation Engagement
11. Attestation risk is limited to a low level in which of the following engagement(s)?
A. Both examinations and reviews
B. Examinations, but not reviews
C. Reviews, but not examinations
D. Neither examinations nor reviews
12. .An operational audit differs in many ways from an audit of financial statements. Which of
the following is the best example of one of these differences?
A. The usual audit of financial statements covers the four basic statements, whereas the
operational audit is usually limited to either the balance sheet or the income statement
B. The boundaries of an operational audit are often drawn from an organization chart and
are not limited to a single accounting period
C. Operational audits do not ordinarily result in the preparation of a report
D. The operational audit deals with pre-tax income
13. The review of a company's financial statements by a CPA firm:
A. Is substantially less in scope of procedures than an audit
B. Requires detailed analysis of the major accounts
C. Is of similar scope as an audit and adds similar credibility to the statements
D. Culminates in issuance of a report expressing the CPA's opinion as to the fairness of the
statements
14. When performing an engagement to review a nonpublic entity's financial statements, an
accountant most likely would:
A. Obtain an understanding of the entity's internal control.
B. Limit the distribution of the accountant's report.
C. Confirm a sample of significant accounts receivable balances.
D. Ask about actions taken at board of directors' meetings.
15. Which of the following professionals has primary responsibility for the performance of an
audit?
A. The managing partner of the firm
B. The senior assigned to the engagement
C. The manager assigned to the engagement
D. The partner in charge of the engagement
16. Assurance services may include which of the following?
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A. attesting to financial statements
B. examination of the economy and efficiency of governmental operations
C. evaluation of a division's performance for management
D. all of the given choices
17. The auditor of financial statements must make very difficult interpretations regarding
authoritative literature. Additionally, the auditor must
A. proceed beyond PFRS to assess how the economic activity is portrayed in the financial
statements.
B. force management to make certain decisions regarding their financial statements.
C. disregard independence in order to find the underlying truth of the evidence.
D. establish new criteria by which financial statements may be compared.
18. Which one of the following is not a part of the attest process?
A. gathering evidence about assertions
B. proving the accuracy of the books and records
C. evaluating evidence against objective criteria
D. communicating the conclusions reached
19. Which one of the following is not a reason why the users of financial statements desire for an
independent assessment of the financial statement presentation?
A. complexity of transactions affecting the financial statements
B. lack of criteria on which to base information
C. remoteness of the user from the organization
D. all of them are potential reasons
20. Independent professional services that are provided on financial or other information that
improve the quality of decision making are known as
A. internal auditing.
B. financial auditing.
C. assurance services.
D. attestation services.
21. An audit which determines whether organizational policies are being followed and whether
external mandates are being met is known as
A. a financial audit.
B. a compliance audit.
C. an operational audit.
D. none of the above
22. May a CPA hire for the CPA‟s public accounting firm a non-CPA systems analyst who
specializes in developing computer systems?
A. Yes, provided the CPA is qualified to perform each of the specialist‟s tasks.
B. Yes, provided the CPA is able to supervise the specialist and evaluate the specialist‟s
end product.
C. No, because non-CPA professionals are not permitted to be associated with CPA firms
in public practice.
D. No, because developing computer systems is not recognized as a service performed by
public accountants.
23. Which of the following services may a CPA perform in carrying out a consulting service
for a client?
I. Analysis of the client‟s accounting system
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II. Review of the client‟s proposed business plan
III. Preparation of information for obtaining financing
A. I and II only
B. I and III only
C. II and III only
D. I, II, and III
24. Which of the following describes how the objective of a review of financial statements
differs from the objective of a compilation engagement?
A. The primary objective of a review engagement is to test the completeness of the
financial statements prepared, but a compilation tests for reasonableness.
B. The primary objective of a review engagement is to provide positive assurance that the
financial statements are fairly presented, but a compilation provides no such assurance.
C. In a review engagement, accountants provide limited assurance, but a compilation
expresses no assurance.
D. In a review engagement, accountants provide reasonable or positive assurance that the
financial statements are fairly presented, but a compilation provides limited assurance.
25. Which of the following factors most likely would cause a CPA to decline a new audit
engagement?
A. The CPA does not understand the entity's operations and industry.
B. Management acknowledges that the entity has had recurring operating losses.
C. The CPA is unable to review the predecessor auditor's working papers.
D. Management is unwilling to permit inquiry of its legal counsel.
26. When a firm or a member of the assurance team holds a direct financial interest or a material
indirect financial interest in the assurance client as a trustee, a self-interest threat may be
created by the possible influence of the trust over the assurance client. Accordingly, such an
interest cannot be held when:
A. The member of the assurance team, an immediate family member of the member of
the assurance team, and the firm are beneficiaries of the trust.
B. The interest held by the trust in the assurance client is not material to the trust.
C. The trust is not able to exercise significant influence over the assurance client.
D. The member of the assurance team or the firm does not have significant influence over
any investment decision involving a financial interest in the assurance client.
27. An inadvertent violation of the Independence rules as it relates to a financial interest in an
assurance client would not impair the independence of the firm, the network firm or a
member of the assurance team when:
A. The firm, and the network firm, has established policies and procedures that require all
professionals to report promptly to the firm any breaches resulting from the purchase,
inheritance or other acquisition of a financial interest in the assurance client.
B. The firm, and the network firm, promptly notifies the professional that the financial
interest should be disposed of.
C. The disposal occurs at the earliest practical date after identification of the issue, or the
professional is removed from the assurance team.
D. All of the given choices.
28. If a firm, or a network firm, has a direct financial interest in a financial statement audit client
of the firm, the appropriate safeguard against the self-interest threat created would be:
A. Dispose the entire financial interest.
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