AAS1

1st SEM

1. Which of the following did not result at least partially due

to the alleged audit failures of the 1980s and 1990s?

a. The Treadway Report.

b. An SAS further defining the auditor’s responsibility
for fraud detection.
c. Formation of the AICPA Fraud Commission.
d. Formation of the Independence Standards Board.

2. Competence as a certified public accountant includes all of

the following except
a. Having the technical qualifications to perform an
engagement.
b. Possessing the ability to supervise and evaluate the
quality of staff work.
c. Warranting the infallibility of the work performed.
d. Consulting others if additional technical information
is needed.

3. Which of the following is mandatory if the auditor is to

comply with generally accepted auditing standards?
a. Possession by the auditor of adequate technical
training.
b. Use of analytical review on audit engagements.
c. Use of statistical sampling whenever feasible on an
audit engagement.
d. Confirmation by the auditor of material accounts
receivable balances.

4. As a guidance for measuring the quality of the performance

of an auditor, the auditor should refer to
a. Statements of the Financial Accounting Standards Board.
b. Generally Accepted Auditing Standards.
c. Interpretations of the Statements on Auditing Standards.
d. Statements on Quality Control Standards.

5. In addition to auditing, CPAs perform other services for

their clients. Standards governing the quality of these
services are covered in the attestation standards generally,
and performance requirements are more explicitly defined in
AAS1
1st SEM

sets of statements relating to each type of service. Which

of the following is not such a set?
a. Statements on Standards for Consulting Services.
b. Statements on Responsibilities in University Audits.
c. Statements on Standards for Accounting and Review
Services.
d. Statements on Responsibilities in Tax Practice.

6. Which of the following is a violation of Rule 301

(Confidential Client Information) of the Code of
Professional Conduct?
a. The CPA, in response to a court subpoena, submits
auditor-prepared workpapers as evidence of possible
illegal acts perpetrated by the client.
b. The CPA discloses to the board of directors a scheme
concocted by top management to intentionally inflate
earnings.
c. The CPA warns Client B as to the inadvisability of
acquiring Client A. The CPA bases this warning on
knowledge of Client A's financial condition and a
belief that the management of Client A lacks integrity.
This knowledge was obtained by the CPA as a result of
auditing Client A during the past several years.
d. The CPA, when questioned in court, admits to knowledge
of certain illegal acts perpetrated by the client.

7. Which of the following statements best describes why the

CPA profession has deemed it essential to promulgate
ethical standards and to establish means for ensuring their
observance?
a. A requirement for a profession is the establishment
of ethical standards that stress primarily a
responsibility to clients and colleagues.
b. A requirement of most state laws calls for the
profession to establish a code of ethics.
c. An essential means of self-protection for the
profession is the establishment of flexible ethical
standards by the profession.
d. A distinguishing mark of a profession is its
acceptance of responsibility to the public.
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1st SEM

8. Which of the following best describes what is meant by

generally accepted auditing standards?
a. Audit objectives generally determined on audit
engagements.
b. Acts to be performed by the auditor.
c. Measures of the quality of the auditor's performance.
d. Procedures to be used to gather evidence to support
financial statements.

9. Which of the following best describes what is meant by

generally accepted auditing standards?
a. Pronouncements issued by the Auditing Standards Board.
b. Procedures to be used to gather evidence to support
financial statements.
c. Rules acknowledged by the accounting profession because
of their universal compliance.
d. Measures of the quality of the auditor's performance.

10. Under which of the following circumstances may a CPA agree

with a departure from an accounting principle promulgated by
that body designated by AICPA Council to formulate such
principles?
a. When the principle was one formulated by the Accounting
Principles Board inasmuch as the APB is no longer the
body so designated by Council.
b. When the CPA can demonstrate that application of the
principle in question would make the financial
statements materially misleading.
c. When the disputed principle is contrary to industry
practice.
d. When adoption of the principle would cause the
financial statements to be inconsistent with prior
years.

11. Pursuant to the AICPA rules of conduct, the auditor's

responsibility to the profession is defined by
a. The AICPA Code of Professional Conduct.
b. Federal laws governing licensed professionals who are
involved in interstate commerce.
c. Statements on Auditing Standards.
d. The Bylaws of the AICPA.
AAS1
1st SEM

12. An auditor who accepts an audit engagement and does not

possess the industry expertise of the business entity,
should
a. Engage financial experts familiar with the nature of
the business entity.
b. Obtain a knowledge of matters that relate to the
nature of the entity's business.
c. Refer a substantial portion of the audit to another CPA
who will act as the principal auditor.
d. First inform management that an unqualified opinion
cannot be issued.

13. Which of the following factors is most important concerning

an auditor's responsibility to detect errors and fraud?
a. The susceptibility of the accounting records to
intentional manipulations, alterations, and the
misapplication of accounting principles.
b. The probability that unreasonable accounting
estimates result from unintentional bias or
intentional attempts to misstate the financial
statements.
c. The possibility that management fraud, defalcations,
and misappropriation of assets may indicate the
existence of illegal acts.
d. The risk that mistakes, falsifications, and omissions
may cause the financial statements to contain
material misstatements.

14. The standard of due audit care requires the auditor to

a. Apply judgment in a conscientious manner, carefully
weighing the relevant factors before reaching a
decision.
b. Ensure that the financial statements are free from
error.
c. Make perfect judgment decisions in all cases.
d. Possess skills clearly above the average for the
profession.

15. The exercise of due professional care requires that an

auditor
a. Examine all available corroborating evidence.
b. Critically review the judgment exercised at every
level of supervision.
c. Reduce control risk below the maximum.
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1st SEM

d. Attain the proper balance of professional experience

and formal education.

16. A CPA who has never audited a commercial bank

a. May not accept such an engagement.
b. May accept the engagement only if the accounting firm
specializes in the audit of commercial banks.
c. May accept the engagement after attaining a suitable
level of understanding of the transactions and
accounting practices unique to commercial banking.
d. May accept the engagement because training as a CPA
transcends unique industry characteristics.

17. The first general standard requires that a person or

persons have adequate technical training and proficiency as
an auditor. This standard is met by
a. An understanding of the field of business and finance.
b. Education and experience in the field of auditing.
c. Continuing professional education.
d. A thorough knowledge of the Statements on Auditing
Standards.

18. The first general standard recognizes that regardless of

how capable an individual may be in other fields, the
individual cannot meet the requirements of the auditing
standards without the proper
a. Business and finance courses.
b. Quality control and peer review.
c. Education and experience in auditing.
d. Supervision and review skills.

19. In determining estimates of fees, an auditor may take into

account each of the following, except the
a. Value of the service to the client.
b. Degree of responsibility assumed by undertaking the
engagement.
c. Skills required to perform the service.
d. Attainment of specific findings.
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1st SEM

20. A CPA, while performing an audit, strives to achieve

independence in appearance in order to
a. Reduce risk and liability.
b. Comply with the generally accepted standards of field
work.
c. Become independent in fact.
d. Maintain public confidence in the profession.