MULTIPLE-CHOICE QUESTIONS
1. Which of the following factors does not create a demand for external audit services?
a. Potential bias by management in providing information.
b. Requirement of the Center for Audit Quality (CAQ).
c. Complexity of the accounting processing systems.
d. Remoteness between a user and the organization.

2. Which of the following expectations can users of the audit report reasonably expect with regards to the audited financial statements?
a. The financial statements include all financial disclosures desired by users.
b. The financial statements are presented fairly according to the substance of GAAP.
c. The financial statements are free from all errors.
d. All of the above are reasonable expectations.
e. None of the above are reasonable expectations.

3. Which of the following parties are involved in preparing and auditing financial statements?
a. Management.
b. Audit committee.
c. Internal audit function.
d. External auditor.
e. All of the above.

4. Which of the following are the responsibilities of the external auditor in auditing financial statements?
a. Maintaining internal controls and preparing financial reports
b. Providing internal assurance on internal control and financial reports
c. Providing internal oversight of the reporting process
d. All of the above.
e. None of the above.

5. In which of the following categories do Big 4 audit firms operate?
a. Sole-practitioner firms.
b. Local firms.
c. Regional firms.
d. Multinational firms.

6. In terms of technical knowledge and expertise, which of the following should external auditors do?
a. Understand accounting and auditing authoritative literature.
b. Develop industry and client-specific knowledge.
c. Develop and apply computer skills.
d. All of the above.
e. None of the above.

7. The AICPA remains a valuable organization to the external auditing profession because of its continuing involvement in which of the following activities?
a. The audit standard setting process for audits of publicly traded companies.
b. Regulation and enforcement of the internal audit profession.
c. Education and administration of the CPA exam.
d. Promulgation of financial accounting standards.

8. Which of the following organizations is the primary organization that performs inspections of registered external audit firms that audit public companies?
a. PCAOB
b. CAQ
c. AICPA
d. FASB

9. Audit quality involves which of the following?
a. Performing an audit in accordance with GAAS to provide reasonable assurance that the audited financial statements and related disclosures are presented in accordance with GAAP and providing assurance that those financial statements are not materially misstated whether due to errors or fraud.
b. Performing an audit in accordance with GAAP to provide reasonable assurance that the audited financial statements and related disclosures are presented in accordance with GAAS and providing assurance that those financial statements are not materially misstated, whether due to errors or fraud.
c. Performing an audit in accordance with GAAS to provide absolute assurance that the audited financial statements and related disclosures are presented in accordance with GAAP and providing assurance that those financial statements are not materially misstated whether due to errors or fraud.
d. Performing an audit in accordance with GAAS to provide reasonable assurance that the audited financial statements and related disclosures are presented in accordance with GAAP and providing assurance that those financial statements contain no misstatements due to errors or fraud.

10. Which of the following factors is not a driver of audit quality as discussed by the FRC?
a. Audit firm culture.
b. Skills and personal qualities of client management.
c. Reliability and usefulness of audit reporting.
d. Factors outside the control of auditors.

11. Strict client acceptance/continuance guidelines should be established by external auditors to screen out which of the following types of clients?
a. Those that are in financial and/or organizational difficulty.
b. Those that constitute a disproportionate percentage of the audit firm's total practice.
c. Those that are disreputable.
d. Those that offer an unreasonably low fee for the auditor's services.
e. All of the above.

12. The PCAOB performs external inspections of audit firms registered to audit publicly traded clients. Which of the following is accurate regarding the timing of those inspections?
a. Inspections occur once a year for audit firms that conduct over 50 public clients in a given year.
b. Inspections occur once every three years for audit firms that conduct over 100 public clients in a given year.
c. Inspections occur once a year for audit firms that conduct over 100 public clients in a given year.
d. Inspections occur once every five years for audit firms that conduct over 50 public clients in a given year.