MULTIPLE-CHOICE QUESTIONS
1. Which of the following statements is correct regarding the setting of auditing standards in the U.S.?
a. The AICPA is responsible for the setting auditing standards for audits of nonpublic entities.
b. The PCAOB is responsible for setting auditing standards for audits of public companies.
c. The AICPA is responsible for setting auditing standards for audits of both public and nonpublic entities.
d. The SEC sets auditing standards for auditors of public and nonpublic entities.
e. Both (a) and (b) are correct.
2. The following describes a situation in which an auditor has to determine the most appropriate standards to follow. The audited company is headquartered in Paris but has substantial operations within the United States (60% of all operations) and has securities registered with the SEC and is traded on the NYSE. The company uses International Financial Reporting Standards (IFRS) for its accounting framework. What would be the most appropriate set of auditing standards to follow?
a. PCAOB.
b. Either PCAOB or AICPA.
c. Either IAASB or AICPA.
d. Only the AICPA standards would be appropriate.
3. Which of the following is not required as part of the fieldwork standards?
a. An audit should be properly planned and supervised.
b. Auditors should develop an understanding of the client's controls as an important prerequisite to developing specific audit tests.
c. Auditors should obtain sufficient appropriate audit evidence by performing audit procedures to provide a reasonable basis for the audit opinion being provided.
d. All of the above are required by the fieldwork standards.
4. Which of the following is included as part of the AICPA's principles governing an audit?
a. Auditors need to obtain a high level of assurance that the financial statements are free of all misstatements.
b. An audit has inherent limitations such that auditor cannot provide absolute assurance about whether the financial statements are free of misstatement.
c. Auditors need to maintain professional skepticism only on audits where there is a high risk of material misstatement.
d. All of the above are included as part of the AICPA's principles governing an audit.
5. Which of the following statements is true about the audit opinion formulation process presented in this chapter?
a. The audit opinion formulation process is significantly different for the financial statement only audit and the integrated audit.
b. The audit opinion formulation process is based on the premise that management has responsibility to prepare the financial statements and maintain internal control over financial reporting.
c. The audit opinion formulation process is comprised of seven phases.
d. All of the above are true statements regarding the audit opinion formulation process.
6. Which of the following activities is not part of the activities within the audit opinion formulation process?
a. The auditor develops a common understanding of the audit engagement with the client.
b. The auditor determines the appropriate nonaudit consulting services to provide to the client.
c. The auditor identifies and assesses risks of material misstatements and then responds to those identified risks.
d. The auditor determines the appropriate audit opinion(s) to issue.
7. Which of the following is a reason that the auditor uses an accounting cycle approach when performing an audit?
a. The accounting cycle approach allows the auditor to focus exclusively on either the balance sheet or income statement.
b. COSO internal control components are based on the accounting cycles.
c. The accounting cycles provide a convenient way to break the audit up into manageable pieces.
d. The auditor needs to be able to provide an opinion related to each accounting cycle.
8. Which of the following accounts would not be included in the Acquisition and Payment for Long-Lived Assets Cycle?
a. Revenue.
b. Depreciation expense.
c. Gain on disposal.
d. Equipment.
9. Which of the following is not one of the management assertions?
a. Completeness.
b. Existence.
c. Rights and obligations.
d. Valuation.
e. They are all management assertions.
10. Which management assertion addresses whether the components of the financial statements are properly classified, described, and disclosed?
a. Completeness.
b. Existence.
c. Rights and obligations.
d. Presentation and disclosure.
e. None of the above address whether the components of the financial statements are properly classified, described, and disclosed.