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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. In the audit of historical financial statements, which of the following accounting bases is the
most common?
a. Regulatory accounting principles.
b. Cash basis of accounting.
c. Generally accepted accounting principles.
d. Liquidation basis of accounting.

3. 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.

4. Three common types of attestation services are:


a. audits, reviews, and “other” attestation services.
b. audits, verifications, and “other” attestation services.
c. reviews, verifications, and “other” attestation services.
d. audits, reviews, and verifications.

5. Providing quantitative information that management and others can use to make decisions is
the function of:
a. management information systems.
b. auditing.
c. finance.
d. accounting.

6. An audit of historical financial statements most commonly includes the:


a. balance sheet, the income statement, and the statement of cash flows.
b. income statement, the statement of cash flows, and the statement of net working capital.
c. statement of cash flows, the balance sheet, and the retained earnings statement.
d. balance sheet, the income statement, and the statement of cash flows.

7. An operational audit has as one of its objectives 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.

8. 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.

9. 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.

10. 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.

11. Which of the following is a type of audit evidence?


a. Oral responses to the auditor from employees of the company under audit.
b. Written communications from company employees or outsiders.
c. Observations made by an auditor.
d. Evidence may take any of the above forms.

12. 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.

13. 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.

14. 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.

15. Financial statement users often receive unreliable financial information from companies.
Which of the following is not a common reason for this?
a. Complex business transactions.
b. Large amounts of data.
c. Lack of firsthand knowledge about the business.
d. Each of these choices is a common reason for unreliable financial information.

16. 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.

17. Which of the following can be significantly affected by an audit?


a. Business risk.
b. Information risk.
c. The risk-free interest rate.
d. Inherent risk.

18. 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.

19. Which one of the following is not one of the three General Standards?
a. Proper planning and supervision.
b. Independence of mental attitude.
c. Adequate training and proficiency.
d. Due professional care.

20. Which one of the following is not a Field Work Standard?


a. Adequate planning and supervision.
b. Due professional care.
c. Understand the entity and its environment including internal control.
d. Sufficient appropriate audit evidence.

21. The General Standards stress the importance of:


a. evidence accumulation.
b. personal qualities the auditor should possess.
c. communicating the auditor’s findings to the reader.
d. general supervision of the audit.

22. The generally accepted auditing standard that requires “Adequate technical training and
proficiency” is normally interpreted as requiring the auditor to have:
a. formal education in auditing and accounting.
b. worked for an entity similar to the entity being audited.
c. independence in mental attitude
d. a graduate degree in a business field.

23. The objective of the ordinary audit of financial statements is the expression of an opinion on:
a. the fairness of the financial statements.
b. the accuracy of the financial statements.
c. the accuracy of the annual report.
d. the balance sheet and income statement.

24. If the auditor believes that the financial statements are not fairly stated or is unable to reach
an conclusion because of insufficient evidence, the auditor:
a. should withdraw from the engagement.
b. should request an increase in audit fees so that more resources can be used to conduct
the audit.
c. has the responsibility of notifying financial statement users through the auditor’s report.
d. should notify regulators of the circumstances.

25. Auditors accumulate evidence to:


a. defend themselves in the event of a lawsuit.
b. justify the conclusions they have otherwise reached.
c. satisfy the requirements of the Securities Acts of 1933 and 1934.
d. enable them to reach conclusions about the fairness of the financial statements.

26. The responsibility for adopting sound accounting policies and maintaining adequate internal
control rests with the:
a. board of directors.
b. company management.
c. financial statement auditor.
d. company’s internal audit department.

27. The auditor’s best defense when material misstatements are not uncovered is to have
conducted the audit:
a. in accordance with auditing standards.
b. as effectively as reasonably possible.
c. in a timely manner.
d. only after an adequate investigation of the management team.

28. If management insists on financial statement disclosures that the auditor finds unacceptable,
the auditor can:
Issue an adverse audit Issue a qualified audit report
report
a. Yes Yes
b. No No
c. Yes No
d. No Yes

29. If management insists on financial statement disclosures that the auditor finds unacceptable,
the auditor can do all but which of the following?
a. Issue an adverse audit report.
b. Issue a disclaimer of opinion.
c. Withdraw from the engagement.
d. Issue a qualified audit report.

30. Which of the following is not one of the reasons that auditors provide only reasonable
assurance on the financial statements?
a. The auditor commonly examines a sample, rather than the entire population of
transactions.
b. Accounting presentations contain complex estimates which involve uncertainty.
c. Fraudulently prepared financial statements are often difficult to detect.
d. Auditors believe that reasonable assurance is sufficient in the vast majority of cases.

31. Which of the following statements is most correct regarding errors and fraud?
a. An error is unintentional, whereas fraud is intentional.
b. Frauds occur more often than errors in financial statements.
c. Errors are always fraud and frauds are always errors.
d. Auditors have more responsibility for finding fraud than errors.

32. Which of the following is not one of the three categories of assertions?
a. Assertions about classes of transactions and events for the period under audit
b. Assertions about financial statements and correspondence to GAAP
c. Assertions about account balances at period end
d. Assertions about presentation and disclosure

13. If a short-term note payable is included in the accounts payable balance on the financial
statement, there is a violation of the:
a. completeness assertion.
b. existence assertion.
c. cutoff assertion.
d. classification and understandability assertion.

33. Professional skepticism requires auditors to possess a(n) ______ mind.


a. introspective
b. questioning
c. intelligent
d. unbelieving

34. The auditor has no responsibility to plan and perform the audit to obtain reasonable
assurance that misstatements, whether caused by errors or fraud, that are not ________ are
detected.
a. important to the financial statements
b. statistically significant to the financial statements
c. material to the financial statements
d. identified by the client

35. Fraudulent financial reporting is most likely to be committed by whom?


a. Line employees of the company.
b. Outside members of the company’s board of directors.
c. Company management.
d. The company’s auditors.

36. Which of the following would most likely be deemed a direct-effect illegal act?
a. Violation of federal employment laws.
b. Violation of federal environmental regulations.
c. Violation of federal income tax laws.
d. Violation of civil rights laws.
37. The concept of reasonable assurance indicates that the auditor is:
a. not an insurer of the correctness of the financial statements.
b. not responsible for the fairness of the financial statements.
c. responsible only for issuing an opinion on the financial statements.
d. responsible for finding all misstatements.

38. Tests of details of balances are specific procedures intended to:


a. test for monetary errors in the financial statements.
b. prove that the accounts with material balances are classified correctly.
c. prove that the trial balance is in balance.
d. identify the details of the internal control system.

39. Which of the following is the auditor least likely to do when aware of an illegal act?
a. Discuss the matter with the client’s legal counsel.
b. Obtain evidence about the potential effect of the illegal act on the financial statements.
c. Contact the local law enforcement officials regarding potential criminal wrongdoing.
d. Consider the impact of the illegal act on the relationship with the company’s
management.

40. The auditor gives an audit opinion on the fair presentation of the financial statements and
associates his or her name with it when, on the basis of adequate evidence, the auditor
concludes that the financial statements are unlikely to mislead:
a. investors.
b. management.
c. a prudent user.
d. the reader.

41. The responsibility for the preparation of the financial statements and the accompanying
footnotes belongs to:
a. the auditor.
b. management.
c. both management and the auditor equally.
d. management for the statements and the auditor for the notes.

42. .Assurance services are best described as


a. Services designed for the improvement of operations, resulting in better outcomes.
b. Independent professional services that improve the quality of information, or its context,
for decision makers.
c. The assembly of financial statements based on assumptions of a reasonable party.
d. Services designed to express an opinion on historical financial statements based on the
results of an audit.

43. Assurance services least likely involve


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.
44. Which of the following statements is (are) true regarding the provision of assurance
services?
a. The third party who receives the assurance generally pays for the assurance received.
b. Assurance services always involve a report by one person to a third party on which
anindependent organization provides assurance.
c. Assurance services can be provided either on information or processes.
d. All of the above.

45. In performing an attestation engagement, a CPA typically


a. Supplies litigation support services.
b. Assesses control risk at a low level.
c. Expresses a conclusion about an assertion.
d. Provides management consulting advice.

46. Which of the following services would be most likely to be structured as an attest
engagement?
a. Advocating a client’s position in tax matter.
b. A consulting engagement to develop a new data base system for the revenue cycle.
c. An engagement to issue a report addressing an entity’s compliance with
requirements of specified laws.
d. The compilation of a client’s forecast information.

47. Which of the following is broadest in scope?


a. Audits of financial statements.
c. Internal control audit.
b. Assurance services.
d. Attestation services.

48. Independent auditing can be described as


a. A branch of accounting.
b. A professional activity that measures and communicates financial and business data.
c. A discipline which attests to the results of accounting and other functional operations
and data.
d. A regulating function that prevents the issuance of erroneous or improper financial
information.

49. A financial statement audit is designed to


a. Provide assurance on internal control and to identify reportable conditions.
b. Detect error or fraud in the financial statements, regardless of whether or not the
error or
fraud is material.
c. Obtain reasonable assurance about whether the financial statements are free of
material
misstatement, whether caused by error or fraud.
d. Obtain absolute assurance on the financial statements and express an opinion on the
financial statements.

50. Which of the following best describes why an independent auditor is asked to express an
opinion on the fair presentation of financial statements?
a. It is difficult to prepare financial statements that fairly present a company’s financial
position and changes in financial position and operations without the expertise of an
independent auditor.
b. It is management’s responsibility to make available independent aid in the
preparation of
the financial information shown in the financial statements.
c. The opinion of an independent party is needed because a company may not be
objective
with respect to its own financial statements.
d. It is a customary courtesy that shareholders of a company receive an independent
report
on management’s status in managing the affairs of the business.