1) The Sarbanes-Oxley Act applies to which of the following companies? A) All companies.
B) Privately held companies.
C) Public companies.
D) All public companies and privately held companies with assets greater than $500 million.
2) Which of the following is considered audit evidence?
3) Evidence is paramount to audit and attestation engagements. List the four basic types of audit evidence.
4) The criteria by which an auditor evaluates the information under audit may vary with the information being audited.
A) True
B) False
5) The criteria used by an external auditor to evaluate published financial statements are known as generally accepted auditing standards.
A) True
B) False
6) The Sarbanes-Oxley Act establishes standards related to the audits of privately held companies. A) True
B) False
7) The Sarbanes-Oxley Act is widely viewed as having ushered in sweeping changes to auditing and financial reporting.
A) True
B) False
8) Only companies that file annual statements with the Securities and Exchange Commission are required to have an annual external audit.
A) True
B) False
Learning Objective 1-2
1) Recording, classifying, and summarizing economic events in a logical manner for the purpose of providing financial information for decision making is commonly called:
A) finance.
B) auditing.
C) accounting.
D) economics.
2) Which department provides quantitative information in order for management and others to make decisions?
A) management information systems.
B) auditing.
C) finance.
D) accounting.
3) In "auditing" financial accounting data, the primary concern is with:
A) determining whether recorded information properly reflects the economic events that occurred during the accounting period.
B) determining if fraud has occurred.
C) determining if taxable income has been calculated correctly.
D) analyzing the financial information to be sure that it complies with government requirements.
4) The trait that distinguishes auditors from accountants is the:
A) auditor's ability to interpret accounting principles generally accepted in the United States.
B) auditor's education beyond the Bachelor's degree.
C) auditor's ability to interpret FASB Statements.
D) auditor's accumulation and interpretation of evidence related to a company's financial statements.
5) Discuss the differences and similarities between the roles of accountants and auditors. What additional expertise must an auditor possess beyond that of an accountant?
Learning Objective 1-3
1) ________ risk reflects the possibility that the information upon which the business decision was made was inaccurate.
A) Client acceptance
B) Information
C) Business
D) Control
2) The use of the Certified Public Accountant title is regulated by:
A) the federal government.
B) state law through a licensing department or agency of each state.
C) the American Institute of Certified Public Accountants through the licensing departments of the tax and auditing committees.
D) the Securities and Exchange Commission.
3) Financial statement users often receive unreliable financial information from companies. Which of the following is not a common reason for this?
A) Complex exchange transactions.
B) Voluminous data.
C) Remoteness of information.
D) Each of these choices is a common reason for unreliable financial information.
4) Explain what is meant by information risk, and list the four causes of this risk.
Learning Objective 1-4
1) An audit of historical financial statements is most often performed to determine whether the: A) organization is operating efficiently and effectively.
B) entity is following specific procedures or rules set down by some higher authority.
C) management team is fulfilling its fiduciary responsibilities to shareholders.
D) none of these choices.
Learning Objective 1-5
1) In the audit of historical financial statements, what accounting criteria is most common? A) Regulatory accounting principles.
B) International financial reporting standards.
C) Generally accepted accounting principles.
D) B and C
E) All of the above.
2) Any service that requires a CPA firm to issue a report about the reliability of an assertion that is made by another party is a(n):
A) accounting and bookkeeping service.
B) attestation service.
C) assurance service.
D) tax service.
3) Three common types of attestation services are:
A) audits, reviews, and attestations regarding internal controls.
B) audits, verifications, and attestations regarding internal controls. C) reviews, verifications, and attestations regarding internal controls. D) audits, reviews, and verifications.
4) Which of the following services provides the lowest level of assurance on a financial statement? A) A review.
B) An audit.
C) Neither service provides assurance on financial statements.
D) Each service provides the same level of assurance on financial statements.
5) Which of the following is not a SysTrust Services principle as defined by the AICPA? A) Online privacy.
B) Availability.
C) Processing integrity.
D) Operational integrity.
6) The Sarbanes-Oxley Act prohibits a CPA firm that audits a public company from providing which of the following types of services to that company?
A) Reviews of quarterly financial statements.
B) Preparation of corporate tax returns.
C) Most consulting services. D) Tax services.
7) Which of the following are required to have a written report regarding the assertion of another party?
8) Attestation services on information technology include WebTrust services and SysTrust services. Which of the following statements most accurately describes SysTrust services?
A) SysTrust services provide assurance on business processes, transaction integrity and information processes.
B) SysTrust services provide assurance on system reliability in critical areas such as security and data integrity.
C) SysTrust services provide assurance on internal control over financial reporting.
D) SysTrust services provide assurance as to whether accounting personnel are following procedures prescribed by the company controller.
9) Two types of attestation services provided by CPA firms are audits and reviews. Discuss the similarities and differences between these two types of attestation services. Which type provides the least assurance?
10) What is an engagement to attest on internal control over financial reporting?
11) What are the five categories of attestation services?
12) What is a WebTrust engagement? What is a SysTrust engagement? How do they differ?
13) CPA firms are never allowed to provide bookkeeping services for clients. A) True
B) False
14) Section 404 of the Sarbanes-Oxley Act requires public companies to have an external auditor attest to their internal control over financial reporting.
A) True
B) False
15) Most public companies' audited financial statements are available on the SEC's EDGAR database. A) True
B) False
Learning Objective 1-6
1) One objective of an operational audit is to:
A) determine whether the financial statements fairly present the entity's operations. B) evaluate the feasibility of attaining the entity's operational objectives.
C) make recommendations for improving performance.
D) report on the entity's relative success in attaining profit maximization.
2) An examination of part of an organization's procedures and methods for the purpose of evaluating efficiency and effectiveness is what type of audit?
A) Operational audit.
B) Compliance audit.
C) Financial statement audit.
D) Production audit.
3) An audit to determine whether an entity is following specific procedures or rules set down by some higher authority is classified as a(n):
A) audit of financial statements.
B) compliance audit.
C) operational audit.
D) production audit.
4) Which one of the following is more difficult to evaluate objectively?
A) Presentation of financial statements in accordance with generally accepted accounting principles. B) Compliance with government regulations.
C) Efficiency and effectiveness of operations.
D) All three of the above are equally difficult.
5) Which of the following audits can be regarded as generally being a compliance audit? A) IRS agents' examinations of taxpayer returns.
B) GAO auditor's evaluation of the computer operations of governmental units.
C) An internal auditor's review of a company's payroll authorization procedures.
D) A CPA firm's audit of a public company.
6) Discuss the similarities and differences between financial statement audits, operational audits, and compliance audits. Give an example of each type.
7) To do an audit, it is necessary for information to be in a verifiable form and some criteria by which the auditor can evaluate the information. Detail the information and criteria that would be used for:
(A) an independent CPA firm audits a company's historical financial statements.
(B) an Internal Revenue Service auditor who audits that same company's tax return.
(C) an internal auditor use when performing an operational audit to evaluate whether the company's computerized payroll processing system is operating efficiently and effectively.
8) The primary purpose of a compliance audit is to determine whether the financial statements are prepared in compliance with generally accepted accounting principles.
A) True
B) False
9) Results of compliance audits are typically reported to someone within the organizational unit being audited rather than to a broad spectrum of outside users.
A) True
B) False
Learning Objective 1-7
1) Match the engagement described to the (A) type of audit and (B) auditor that would perform the engagement. Each engagement will have an answer from List-A and List-B. An answer can be used once, more than once, or not at all.
2) Discuss the similarities and differences between the roles of independent auditors, GAO auditors, internal revenue agents, and internal auditors.
3) The primary role of the United States General Accounting Office is the enforcement of the federal tax laws as defined by Congress and interpreted by the courts.
A) True
B) False
1) The three requirements for becoming a CPA include all but which of the following? A) Uniform CPA examination requirement.
B) Educational requirements.
C) Character requirements.
D) Experience requirement.
2) List and discuss the three primary requirements to become a CPA.