see attached qustions. red highlight answer only.

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Question 1 of 35 Which of the following statements is false? The class action lawsuit is one of the reasons for increased litigation related to audits? The auditor is permitted to violate the confidentiality rule in providing relevant information to an inquiry by a major shareholder of the client. Loans between the auditor and the client are permitted in some circumstances. Contingent-fee-based compensation for law firms is one of the reasons for increased litigation related to audits? If an auditor discovers evidence of fraud, the planned audit procedures should be adjusted accordingly. Question 2 of 35 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? Adverse interest threat Management participation threat Competitive threat Financial self-interest threat Undue influence threat Question 3 of 35 The public expects which of the following from a firm's external auditors? Recognize that the investing public is the primary user of audit services. Take responsibility for the discovery of fraud. Be neutral to preparers and users of financial information. Understand and enforce principles that best portray the spirit of FASB concepts. The public expects all of these from a firm's external auditors. Question 4 of 35 _________________ is an example of an internal risk for an organization. Increases in substitute services or products. Changes in price of raw materials. Changes in the reliability of source goods. Changes in regulation that make the business model unsustainable. Changes in internal information technology. Question 5 of 35 When an audit firm issues an Integrated Audit Report, it provides opinion(s) on which of the following? Both financial statements and internal controls. Internal controls. Sarbanes-Oxley compliance Neither financial statements or internal controls. The financial statements. Question 6 of 35 All of the following statements are false, except: It is true that the auditor should not consider that fraud is present in revenue accounts because revenue is not typically a very complex account. It is true that rationalization involves the mindset of the fraudster to justify committing the fraud. It is true that effective audit processes, by themselves, are sufficient to achieve audit quality. It is true that the court system acts as a deterrent to quality controls for the auditing profession. It is true that when the risk of fraud is high in financial statements, the auditor should assign less experienced auditors to the engagement. Question 7 of 35 Research consistently shows that there are three factors associated with most frauds. The three factors are: 1. Incentives or Pressures 2. Opportunities 3. Attitudes or Rationalization With each factor, there are indicators that the factor may exist. Which of the following indicators is not associated with the Opportunities factor? Audit firm focus is on consulting for higher fees rather that audit services. Ineffective monitoring by management. Aggressive accounting stance. Weak or nonexistent internal controls. Complex or difficult to understand transactions. Question 8 of 35 If ______________________, the CPA would still be considered independent. The CPA would not be considered independent in any of these situations. A CPA's son works summers at the audit client and has earned 10 shares of stock in the audit client. A CPA's cousin works as a web-site designer at the audit client. A CPA's brother is the Vice-President of Sales at the CPA's audit client. A CPA's father was a salesman at the CPA's audit client and now a major portion of the father's pension fund is invested in the audit client. Question 9 of 35 Auditing is important in a free market society because __________________. Auditors detect all errors and fraud perpetrated by company employees. The public requires auditors to function as divisions of regulatory bodies. It provides reliable information upon which to judge economic performance. The auditor is an amiable insurance policy for investors. All of these are correct. Question 10 of 35 One example of a(an) ______________ is an edit test. processing control input control output control supporting control custody control Question 11 of 35 The Utilitarian Theory requires all of the following actions, except: Identify the rights of the affected parties. None of these answers is correct. Identify the potential impact of actions on each affected party. Identify the desirability of each action. Identify the potential problem. Question 12 of 35 An example of a walk-through would be when _______________________. All of these are examples of walk-throughs. The auditor walks the production line to find inefficiencies in the inventory process and reports them to management. The controller takes a sample of recorded write-offs to ensure they have been properly approved. The auditor traces three purchasing transactions from the purchase order to the financial statement for observation and understanding. The controller reviews the bank reconciliation prepared by the accountant and its resulting journal entries. Question 13 of 35 Jonathan Davis, CPA takes out an automobile loan with Silicon Valley Bank (SVB) of San Jose while attending the Silicon Valley University in San Jose. Jonathan graduates one year later and is hired as an auditor by Better Accountants, LLP. His first assigned audit engagement is with SVB, a client of Better Accountants. As a new audit assistant, Jonathan continues to pay his automobile loan payments each month. According to the AICPA, why is Jonathan considered a covered member for SVB independence purposes? He graduated in the same area as the client is operating. He has a direct financial interest in SVB. None of these answers are correct. He has an immaterial direct financial interest in SVB. He will be working on the engagement. Question 14 of 35 In order for an audit firm to perform financial statement audits for public companies, it must _____________________. Register with the American Institute of Certified Public Accountants. Register with the Internal Revenue Service. Register with the Institute of Internal Auditors. Register with the U.S. General Accounting Office. Register with the Public Company Accounting Oversight Board. Question 15 of 35 The _________________ phase of the audit opinion formulation process is most commonly thought of as auditing by the general public. performing risk assessment obtaining evidence about internal controls None of these answers are correct. obtaining substantive evidence about accounts making reporting decisions Question 16 of 35 Having _________________ is the best description of professional skepticism. an independent appearance an attitude of intrusion and obstinacy a character that does not waiver a questioning mind an intent to deceive Question 17 of 35 The concept of the Third-Party Beneficiary Test was established by the _________________ court case. None of these answers are correct. Rosenblum v. Adler Credit Alliance Corp. v. Arthur Andersen & Co. Ultramares Corp. v. Touche Citizens State Bank v. Timm, Schmidt, & Co. Question 18 of 35 The first phase in an audit is ________________. Understanding the client. None of these answers are correct. Understanding internal controls. Testing of account balances. Client acceptance or client continuance. Question 19 of 35 _____________ is an inherent limitation of internal controls? Collusion. Employee peer review. Lack of auditor independence. Separation of duties. An ethical conflict. Question 20 of 35 All of the following statements are false, except: Effective audit processes, by themselves, are sufficient to achieve audit quality. CPA certificates for auditors are issued by state boards of accountancy. The court system acts as a deterrent to quality controls for the auditing profession. 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 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 21 of 35 In smaller audit firms, it is typical that __________________________. The firm has multiple teams that overlap across engagements. The type of work is primarily external audits. None of these answers are correct. The firm has a relatively higher level of staff turnover. The firm has multiple teams that work on the audit of a single entitiy and then disband. Question 22 of 35 Which of the following are management responsibilities under the Sarbanes-Oxley Act of 2002? Certify the accuracy of financial statements. All of these are management responsibilities. Designing internal controls. Establish a corporate code of conduct. Ensuring financial statements and disclosures are accurate. Question 23 of 35 The Sarbanes-Oxley Act strengthened auditor independence by _______________. requiring the lead partner to rotate off the audit engagement at least every five years. requiring all audit staff members to be certified public accountants. requiring auditors to provide reports in accordance with the Foreign Corrupt Practices Act. requiring auditors to report the nature of any auditor-client disagreements to the SEC. requiring a different audit firm from the one that performs the audit to prepare the client's tax return. Question 24 of 35 Which of the following statements is true? Obtaining evidence about internal controls is the phase of the audit opinion formulation process that is most commonly thought of as auditing by the general public. The AICPA has a peer review program that reviews and evaluates the portions of an audit firm's accounting and audit practice that are not inspected by the PCAOB. Internal audit is the term used to describe a systematic process of objectively obtaining evidence regarding assertions about economic actions and events to ascertain the degree of correspondence between those assertions and established criteria and communicating the results to interested users. The SEC and PCAOB independence rules for auditors are identical. 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. Question 25 of 35 If _________________________, this would indicate that fraud is pervasive throughout the company under audit. The company's management drives luxury vehicles and takes vacations to exotic places. The company's management takes an overly aggressive approach to revenue recognition. The company's management negotiates deals with vendors in such a manner as to pay lower prices. The company's management estimates bad debts using an aged accounts receivables ledger rather than as a percent of sales. All of these would indicate that fraud is pervasive. Question 26 of 35 _________________ is a specific corporate governance responsibility of Executive Management. Approving non-audit work performed by the audit firm Reviewing the budget of the internal audit function Setting the compensation structure for the audit team Implementing an effective ethical environment Approving major changes, such as mergers Question 27 of 35 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 financial considerations drive actions. 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 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. When the leadership of the audit firm creates an environment where achieving efficiency is valued, invested in and rewarded. Question 28 of 35 __________________ would be an example of a physical control to safeguard assets. Separation of duties. Locks on the warehouse doors. All of these are examples of physical controls to safeguard assets. Safety audits on the production-line. Hiring only trustworthy cashiers. Question 29 of 35 If an auditor were to divulge confidential information obtained from a client in order to __________________. It would be considered a violation of the standard of confidentiality. To ensure adequate disclosure in accordance with GAAP. All of these would be violations of the standard of confidentiality. To respond to a quality review request of the state board of accountancy. To respond to the information request of a shareholder. To initiate a complaint with the AICPA's ethics division. Question 30 of 35 In each of the following situations, a CPA would be considered not independent except when: A CPA has obtained a 90-day signature loan from a client. A CPA has obtained a loan for investment purposes from a client. A CPA is a business partner of a client's spouse. A CPA has obtained an auto loan from a banking client. A CPA has obtained an interest-free loan from a banking client. Question 31 of 35 ________________ is not a way management obtains evidence regarding the effectiveness of internal control over the accounting system? Reviewing system flowcharts. Making inquiries of banks and attorneys Performing a walkthrough of the accounting system. Reviewing system procedures manuals. Taking plant and operational tours. Question 32 of 35 The _______________ is responsible for setting International Standards of Auditing. IAASB FASB IFRS IASB AICPA Question 33 of 35 _______________________ are most often involved in perpetrating fraudulent financial reporting. The treasurer and the board of directors. The auditors and the attorneys. The chief executive and chief financial officers. The shareholders and the chief operating officer. The controller and accounting manager. Question 34 of 35 ______________ is the audit report referred to when the auditor has no reservations about management's financial statements. An integrated report A qualified report A peer review An adverse report An unqualified report Question 35 of 35 The best definition of a scienter is _________________________. A wrongful state of mind when making a misrepresentation. A causal connection between a misstatement and a material loss. A material omission of facts. None of these choices is correct. Fraudulent conduct in the purchase of a security