PART 1: A) True and false questions, 20 points. For each statement indicate if the statement is correct (T) or false (F),USE THE LEFT SIDE FOR YOUR ANSEWRS. 1) Professional skepticism must be maintained only if the auditor suspects fraud. 2) The term "audit failure" refers to the situation when the auditor has followed auditing standards yet still fails to discover that the client's financial statements are materially misstated. 3) The best defense an auditor can have in litigation against him is that the audit was done in accordance with ISA and his work papers can support that. 4) A financial institution sues the audit firm for failure to discover that a borrower's financial statements a are materially misstated. This is an example of liability to third parties 5) Knowledge and intent to deceive is most accurately describes fraud. 6) Ethics are a set of moral principles or values. 7) One of the main reasons people act unethically is that they choose to act selfishly. 8) A rationalization method that can easily result in unethical behavior is the argument that everybody does it". 9) An advantage of the principles of professional conduct in the Code of Professional Conduct is that they are more easily enforced than are the specific rules of conduct 10) Under Rule 101, Independence, independence is considered to be impaired if fees remain unpaid for professional services provided more than six months before the date of the current year's report. 11) The criteria by which an auditor evaluates the information under audit may vary with the information being audited 12) The criteria used by an external auditor to evaluate published financial statements are known as generally accepted auditing standards. 13) An auditor must be competent and have an independent mental attitude. 14) CPA firms are never allowed to provide bookkeeping services for clients. 15) The primary purpose of a compliance audit is to determine whether the financial statements are prepared in compliance with generally accepted accounting principles. 16) Many small, local accounting firms do not perform audits as their primary services to their clients they offer other services include accounting and tax 17) The overall purpose of the Securities and Exchange Commission is to assist in providing investors with reliable information upon which to make investment decisions. 18) Membership in the AICPA is restricted to CPAs who are currently practicing as independent auditors. 19) Any public accounting firm can be a member of the AICPA If the firm meets the membership requirements. 20) International Standards on Auditing are issued by the International Auditing and Assurance Standards Board