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TBCH01 PDF
TBCH01 PDF
MULTIPLE CHOICE
b 1. To become a Certified Public Accountant (CPA), an individual must pass the Uniform CPA
Examination and
a. Demonstrate his or her independence.
b. Comply with state education and experience requirements.
c. Obtain employment with a public accounting firm.
d. Become a member of the AICPA.
b 6. An independent audit aids in the communication of economic data because the audit
a. Confirms the accuracy of management's financial representations.
b. Lends credibility to the financial statements.
c. Guarantees that financial data are fairly presented.
d. Assures the readers of financial statements that any fraudulent activity has been corrected.
(AICPA ADAPTED)
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c 7. Which of the following types of audits are most similar?
a. Operational audits and compliance audits.
b. Independent financial statement audits and operational audits.
c. Compliance audits and independent financial statement audits.
d. Internal audits and independent financial statement audits.
d 10. Which of the following criteria is unique to the independent auditor's attest function?
a. General competence.
b. Familiarity with the particular industry of each client.
c. Due professional care.
d. Independence. (AICPA ADAPTED)
c 11. The definition of auditing contained within A Statement of Basic Auditing Concepts recognizes
that auditing includes both a(an)
a. Documentation process and an evaluation process.
b. Evaluation process and a reporting process.
c. Investigative process and a reporting process.
d. Documentation process and a reporting process.
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a 14. The first contemporary audit related legislation was the
a. Securities Act of 1933.
b. Securities Exchange Act of 1934.
c. British Joint Stock Companies Act of 1844.
d. Companies Act of 1947.
a 16. The first authoritative audit standards-setting body empowered to issue auditing pronouncements
in the U.S. was the
a. The Committee on Auditing Procedure.
b. The Auditing Standards Executive Committee.
c. The Auditing Standards Board.
d. The Accounting and Review Services Committee.
c 17. Which of the following incorrectly matches the authoritative body with its authoritative
pronouncements?
a. Accounting and Review Services Committee: "Statements on Standards for Accounting and
Review Services"
b. Auditing Standards Board: "Statements on Auditing Standards"
c. Auditing Standards Executive Committee: "Statements on Auditing Procedure"
d. Securities and Exchange Commission: "Financial Reporting Releases"
b 19. The purpose of a compliance audit for a governmental entity is to determine whether
a. Financial statements comply with GAAP and whether the entity is operating efficiently.
b. Financial statements comply with GAAP and the entity has complied with applicable laws and
regulations.
c. The entity has complied with applicable laws and regulations.
d. Financial statements comply with GAAP.
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d 21. Which of the following has historically had the least influence on the practice of public
accounting?
a. The Governmental Accounting Standards Board.
b. The Institute of Internal Auditors.
c. The Securities and Exchange Commission.
d. The U.S. Congress.
SHORT ANSWER
Answer:
The Public Oversight Board (POB) is an autonomous body that monitors the performance of the
public accounting firms that audit publicly traded U.S. companies. The POB is comprised of five
members which meets eight times a year and oversees peer reviews, and issues status reports that
recommend improvements in the self-regulation process.
2. Describe two attestation services that are common performed by public accounting firms.
Answer:
(1) Agreed-upon procedures: An engagement where the attestor (or auditing firm) is engaged to
examine an item using procedures agreed upon by the contracting parties.
(2) Reviews: An attestation service for financial statements where the public accounting firm
gives limited assurance about whether an entity’s financial statements conform to generally
accept accounting principles.
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3. What is the economic value of a financial statement audit?
Answer:
Financial statement audits reduce the information risk (the risk that information in financial
statements is misstated materially), and reductions in information risk which in turn reduce a
company’s cost of capital (the cost a company endures to issue equity or incur debt).
Answer:
Auditing is a systematic process of objectively obtaining and evaluating evidence regarding
assertions about economic actions and events to ascertain the degree of correspondence between
those assertions and established criteria and communicating the results to interested users.
PROBLEMS
1. In your role of Chief Financial Officer, you are requested to explain to the Board of Directors
why audits of the company are made by (a) internal auditors, (b) independent auditors, and (c)
governmental auditors. The Board has voiced an opinion that it might be better if the company’s
internal auditors completed all audits. What are the issues that you would need to explain to the
Board?
Answer:
It is important to explain the differences in the roles of the three types of accountants and the
purpose of each different form of audit:
I. Internal auditors are auditors employed by the company to assess the efficiency and
effectiveness of management’s operations. Internal auditors perform operational audits.
Operational audits focus on information systems and operating procedures, not on
recorded dollar amounts or reported financial information, and address an entity’s entire
scope of operations or selected procedures.
II. Independent auditors or governmental auditors perform compliance audits.
Compliance audits may be designed to determine whether an entity’s statements are
presented fairly in accordance with GAAP and may also be designed to determine whether
the entity has complied with applicable laws and regulations that may have a material
effect on financial statements.
III. Independent auditors perform financial statement audits. Financial statement audits are
an attestation service in which an independent auditor offers assurance about
management’s written financial statement assertions.
It is imperative that the Board of Directors understands that the different types of auditors have
different areas of professional expertise and authority. The value of each form of audit would be
negated if completed by the inappropriate audit professional.
2. The AICPA’s “CPA Vision Project: 2011 and Beyond,” contemplates values and competencies
that improve an assurer’s ability to judge the quality of information assured. List and define the
elements outlined within the CPA Vision Project.
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I. Core Values: