Question 1

When researching the requirements to become a CPA, one should first look at

a) AICPA rules and regulations on professional careers

b) GAAP rules

c) PCBOA laws

d) State laws

Question 2

When a new auditing standard is proposed it is:

a) immediately adopted

b) reviewed by the Committee on Audit Standards of the AICPA for adoption

c) sent to members for review and input

d) sent to the IRS for review and adoption by the Auditing Oversight Board

Question 3

Auditing standards for non-public companies are set by

a)AICPA

b)PCAOB

c)FASB

d)the state where the auditor is licensed

Question 4

Audit risk represents the risk that

a)Auditors will issue an adverse audit report, when in fact, they should have issued an unqualified opinion

b)Auditors will issue a disclaimer of opinion, when in fact, they should have issued an adverse opinion

c)Auditors will give an opinion that the financial statements are not fairly stated, when in fact, they were fairly stated

d)Auditors will give an opinion that the financial statements are fairly stated, when in fact, they were materially misstated

Question 5

One of the initial steps in the audit process is to obtain a _______ that is used as an agreement between a CPA firm and a client for the conduct of an audit and related services.

a)10-Q filed with the SEC

b)Assessment report

c)Audit and risk report

d)Engagement letter

Question 6

An auditor must consider both acceptable audit risk and inherent risk when planning an audit. These two types of risk affect the:

a)Amount of evidence that needs to be gathered and staffing

b)Amount the auditor pays to the client's attorney and reporting

c)Cost and the amount of the client's staff that can be employed by the auditor

d)Types of auditing standards the auditor chooses to use

Question 7

One of the instruments an auditor may use during the audit process is an internal control questionnaire. The purpose of an internal control questionnaire is

a)To determine if management has written internal control procedures

b)To determine if the company has answered all of the SEC questions during their 10-K audit

c)To show that the auditor has followed generally accepted auditing standards during the course of the audit

d)To uncover aspects of internal control that may be inadequate

Question 8

An auditor selects the type of tests to perform, when planning an audit. The type of test represented by a calculation of a current ratio for the client would be:

a)Analytical procedures

b)Test of internal controls

c)Substantive tests of transactions

d)Test of details of balances

Question 9

Auditing includes the concept of materiality. Which of the following would be considered material?

a)The auditor confirms accounts receivable and notices one company has not sent in the confirmation form

b)The auditor discovers a $200 error in the inventory account balance of $500,000

c)The auditor discovers related-party transactions are not recorded

d)The auditor notices the name of the new CEO, hired in January 20x2 is not included in the annual report for 20x1

Question 10

Substantive procedures would include:

a)Gathering evidence to ensure the engagement letter is properly written

b)Review of internal controls are in substantial compliance with COSO procedures

c)Tests of account balances

d)Writing recommendations for internal control procedures over cash

Question 11

Analytical procedures would consist of all of the follow except:

a)Common-size financial statements

b)Cross-wire horizontal financial analysis

c)Leverage ratios

d)Liquidity ratios

Question 12

Sampling risk is the risk that the

a)Auditor did not perform proper audit procedures on documents and transactions reviewed

b)Auditor's conclusions may not be representative of the population

c)Monitoring controls were not in place when samples were drawn from the population

d)Samples were taken shortly after the audit was concluded

Question 13

An example of audit sampling would be:

a)analyzing the confidence level and standard deviation for the number of transactions selected by a senior auditor

b)calculating the percentage of increase or decrease for the years covered in the audit period for only assets accounts on the balance sheet

c)reviewing all transactions related to the purchase of new equipment

d)reviewing every 25th invoice prepared checking for proper authorization

Question 14

The term confirmation in auditing referrers to

a)The notation in the auditors work papers that states all of the account balances have been verified by the client for accuracy

b)The notations on the primary auditors work papers that correspond to those of the managing auditor

c)The receipt of a written or oral response from an independent third party verifying the accuracy of information requested by the auditor

d)The written verification by the client to the auditor stating that all of the work they agreed upon has been completed

Question 15

Auditors communicate with clients in a number of ways. The initial communication is through a(n)

a)assessment report

b)audit letter

c)audit risk report

d)engagement letter

Question 16

A client calls you and says he refuses to pay for the audit because after thinking over the fees he has decided they are high. He wants you to provide your work papers so he can take them to another, less expensive, auditor. The work papers property of the

a)Auditor and do not have to be given to the client

b)Client since the auditor works for the client, however a civil law suit must be filed

c)State authorities that regulate the audit profession in the state where the audit was performed so the client needs to contact the state to obtain the work papers

d)SEC and AICPA so the client would need to contact either of these agencies

Question 17

_____ has established a Code of Professional Conduct containing rules of conduct for accountants

a)Accounting Ethics Review Committee

b)American Ethics Committee

c)American Institute of Certified Public Accountants

d)Governmental Accounting Standards Board

Question 18

Auditors communicate the results of an audit in an audit report. Of the four categories of audit reports, which one indicates that while the auditor believes the financial statements are fairly presented, very material departures from GAAP, and the scope of the audit may have been substantially restricted?

a)Adverse or disclaimer

b)Qualified

c)Standard unqualified

d)Unqualified with explanatory paragraph

Question 19

When communicating the purpose of internal controls, it is important to note that internal controls

a)can be one hundred percent effective

b)can never be completely effective

c)are the sole responsibility of the auditor

d)are optional for public companies yet required for private companies

Question 20

To emphasize the importance of professional conduct, CPA's can be liable for audits performed under

a)Common law

b)Statutory law

c)Theory of liability law

d)Both common and statutory law