1 of 25

All of the following statements are true, except:

Bondholders are one of the users of financial statements. Any major disagreement the auditor has with management should be discussed with the audit committee. The audit committee is a subcommittee of the board of directors comprised of independent outside directors. Auditing exists because users need unbiased information on which to assess management performance and make economic decisions. External auditors frequently serve on the audit committees of their clients.Question 2 of 25

The _____________ is recognized for providing guidance on a framework for internal control.

IAASB SEC COSO AICPA PCAOBQuestion 3 of 25

The most common criteria against which the auditor measures the fairness of financial statement presentation for a U.S.-based company is:

Auditing standards Generally accepted accounting standards Generally accepted accounting principles Sarbanes-Oxley compliance Government accounting principlesQuestion 4 of 25

Which of the following statements is true?

Management of companies should have the ability to hire and fire the external auditor. Auditors generally need quantitative and mathematical skillsets more than they need communication and leadership skills. Audits of publicly traded companies must be performed by multinational accounting firms. The overall objective of an audit is to obtain assurance whether the financial statements are free of misstatement. Successful corporate governance depends upon successful management of the company, as management has the primary responsibility for creating a culture of performance with integrity and ethical behavior.Question 5 of 25

All of the following statements are false, except:

The audit committee is a subcommittee of the board of directors comprised of independent outside directors. The Public Company Accounting Oversight Board was established by the AICPA in response to Securities laws. Management of companies should have the ability to hire and fire the external auditor. Corporate governance is a process by which the owners, but not the creditors, exert control and require accountability for the resources entrusted to the organization. The SEC has authority to establish GAAP for all business enterprises.Question 6 of 25

The concept of the Third-Party Beneficiary Test was established by the _________________ court case.

Rosenblum v. Adler Credit Alliance Corp. v. Arthur Andersen & Co. Ultramares Corp. v. Touche Citizens State Bank v. Timm, Schmidt, & Co. None of these answers are correct.

Question 7 of 25

_______________________ are most often involved in perpetrating fraudulent financial reporting.

The shareholders and the chief operating officer. The auditors and the attorneys. The controller and accounting manager. The chief executive and chief financial officers. The treasurer and the board of directors.

Question 8 of 25

Which of the following employment positions could an auditor's spouse hold in a client without violating the independence requirements?

Internal audit director. Order entry staff. Accounting department staff. Controller. Treasurer.

Question 9 of 25

Consider the following scenario: Sally Davis, controller of Silicon Valley University, spends three days researching the accounting statements to find loopholes in the "rules" and to make a case for recognizing revenue earlier, rather than in later years. In the end, Sally and the other members of management determine that they will reduce the company's deferred revenue accounts and begin accounting for all revenues as agreements are signed. What are the motivations of Silicon Valley University management based solely on the information above?

Pressures Convenience Rationalization Opportunity Skepticism

Question 10 of 25

Which term describes the type of threat which occurs when top management threatens to replace the audit firm because of a disagreement over an accounting issue?

Management participation threat Adverse interest threat Competitive threat Undue influence threat Financial self-interest threat

Question 11 of 25

______________ is the audit report referred to when the auditor has no reservations about management's financial statements.

A peer review An adverse report An unqualified report An integrated report A qualified report

Question 12 of 25

Internal control is a process designed to achieve objectives in __________________.

None of these categories. Reliability of financial reporting. Compliance with applicable laws. All of these categories. Operational Effectiveness.

Question 13 of 25

All of the following statements are false, except:

According to Rights Theory, the highest-order rights include rights granted by the government, such as civil rights, legal rights, rights to own property, and license privileges. The court system acts as a deterrent to quality controls for the auditing profession. CPA certificates for auditors are issued by state boards of accountancy. Effective audit processes, by themselves, are sufficient to achieve audit quality. The deep pocket theory represents a misunderstanding whereby shareholders mistakenly believe that they are entitled to recover losses on investments for which the auditor provided an unqualified opinion on the financial statements.

Question 14 of 25

Which of the following statements is false?

It is true that the landmark Enron fraud in the early 2000's involved the movement of significant debt off the books to related, unconsolidated entities. It is true that successful corporate governance depends upon successful management of the company, as management has the primary responsibility for creating a culture of performance with integrity and ethical behavior. It is true that according to the Sarbanes-Oxley Act, the audit committee must have at least 3 independent members. It is true that auditing is the process of attesting to assertions about economic actions and events. It is true that independence is often referred to as the cornerstone of the auditing profession.

Question 15 of 25

_________________ is the first phase in an audit.

Client acceptance or client continuance Testing the revenue cycle Understanding the client Understanding internal controls Testing of account balances

Question 16 of 25

Which of the following statements is false?

It is correct that, according to professional audit standards, the audit team should assemble early in the planning stages of an audit to conduct a fraud "brainstorming" meeting in order to determine the types of fraud that may occur with the client. It is true that if an auditor discovers evidence of fraud, the planned audit procedures should be adjusted accordingly. It is true that users rely on the auditors' independent assessment of financial statement presentation because few users have direct knowledge of the company's operations. It is true that the consideration of fraud in financial statement audits is a relatively new concept derived originally from the Sarbanes-Oxley Act. It is true that auditing exists because users need unbiased information on which to assess management performance and make economic decisions.

Question 17 of 25

Which of the following statements is true?

The Center for Audit Quality was started by the International Federation of Accountants. The five major components of an organization's internal control are: the control environment, risk assessment, control activities, information and communication, and monitoring. Controls to monitor results of operations are considered to be transaction controls. The Center for Audit Quality has the primary authority to set auditing standards. In an audit, management is considered the "client".

Question 18 of 25

_______________ is not a primary driver of audit quality?

Effective audit processes None of these answers are correct. Skills and personal qualities of audit staff Audit firm culture Reasonable audit feesQuestion 19 of 25

_________________ is a specific corporate governance responsibility of Executive Management.

Reviewing the budget of the internal audit function Approving major changes, such as mergers Approving non-audit work performed by the audit firm Setting the compensation structure for the audit team Implementing an effective ethical environment

Question 20 of 25

Which of the following is not an aspect of Rule 201 of the General Standards of the Code of Professional Conduct?

A member firm must not advertise services to competing clients. A member must not take on an engagement that is beyond the member's professional competence. A member must exercise duties prudently and professionally. A member must adequately plan and supervise the performance of professional services. None of these answers are correct.

Question 21 of 25

All of the following statements are false except:

A free market can only exist if there is sharing of perfectly reliable information. The auditor has a responsibility to design the audit to provide absolute assurance of detecting material fraud. Transparency is a desirable, but not critical, element of effective corporate governance. Various types of ways that fraud could be perpetrated should be hypothesized by the auditor prior to conducting audit testing. In an audit, management is considered the "client".

Question 22 of 25

All of the following statements are true except:

It is true that internal controls are the responsibility of management. It is true that corporate governance is a process by which the owners, but not the creditors, exert control and require accountability for the resources entrusted to the organization. It is true that bondholders are one of the users of financial statements. It is true that CPA certificates for auditors are issued by state boards of accountancy. It is true that implementing an effective ethical environment is primarily the responsibility of the audit committee of the Board of Directors.

Question 23 of 25

All of the following statements are false, except:

The SEC and PCAOB independence rules for auditors are identical. Rights theory focuses on evaluating actions in terms of the fundamental rights of the parties involved. The Sarbanes-Oxley Act sought to improve audit quality by removing the auditor independence requirements. Communication between an auditor and an audit client is deemed to be privileged communication in most states. Rule 102, Integrity and Objectivity,of the AICPA Professional Code of Conduct, does not apply to a CPA who is a corporate CFO.

Question 24 of 25

According to the Financial Reporting Council (FRC), when is the culture of an audit firm likely to provide a positive contribution to audit quality?

When the leadership of the audit firm ensures partners and other staff have sufficient time and resources to deal with difficult issues as they arise. When the leadership of the audit firm ensures financial considerations drive actions. When the leadership of the audit firm creates an environment where achieving efficiency is valued, invested in and rewarded. When the audit firm has multinational experience in conducting audits. When the leadership of the audit firm ensures robust systems for client acceptance and continuation based on the likelihood of increased audit fees.Question 25 of 25

________________ is not a way management obtains evidence regarding the effectiveness of internal control over the accounting system?

Taking plant and operational tours. Reviewing system procedures manuals. Making inquiries of banks and attorneys Performing a walkthrough of the accounting system. Reviewing system flowcharts.