Question 1

Which reporting options do auditors have if the client's financial statements are not presented according to the applicable financial framework (e.g., GAAP, IFRS) ?

Accepted Answer

A)  Unmodified opinion or disclaimer of opinion.
B)  Qualified opinion or disclaimer of opinion.
C)  Unmodified opinion or adverse opinion.
D)  Qualified opinion or adverse opinion.

Question 2

The responsibilities principle under generally accepted auditing standards does not include which of the following?

Accepted Answer

A)  Competence and capabilities.
B)  Independent attitude.
C)  Due care.
D)  Planning and supervision.

Question 3

Internal evidence

Accepted Answer

A)  is obtained directly from third parties independent of the client.
B)  originates outside of the client's system but has been received and processed by the client.
C)  consists of documents that are produced, used, and stored within the client's information system.
D)  consists of representations made by the client's officers, directors, owners, and employees.

Question 4

Which of the following presumptions does not relate to the reliability of audit evidence?

Accepted Answer

A)  The more effective the client's internal control, the more assurance it provides about the accounting data and financial statements.
B)  The auditors' opinion, to be economically useful, is formed within reasonable time and based on evidence obtained at a reasonable cost.
C)  Evidence obtained from independent sources outside the entity is more reliable than evidence secured solely within the entity.
D)  The independent auditors' direct personal knowledge, obtained through observation and inspection, is of higher quality than information obtained indirectly.

Question 5

PCAOB inspections are conducted by

Accepted Answer

A)  individuals selected by the PCAOB who are not current employees of public accounting firms.
B)  another public accounting firm selected by the firm being inspected.
C)  current employees of another public accounting firm selected by the PCAOB.
D)  the AICPA's Public Oversight Board.

Question 6

Which of the following is least related to the concept of independence in appearance?

Accepted Answer

A)  The auditors' objectivity and ability to act impartially toward the client.
B)  The perceptions of individuals who rely on the financial statements and auditors' opinion on the financial statements.
C)  The ownership of a financial interest in a client by the auditor.
D)  The employment of the auditor's family member in an important position with the client.

Question 7

What type of evidence would provide the highest level of assurance in an attestation engagement?

Accepted Answer

A)  Evidence secured solely from within the entity.
B)  Evidence obtained from independent sources.
C)  Evidence obtained indirectly.
D)  Evidence obtained from multiple internal inquiries.

Question 8

Which of the following is not included in the auditors' standard report representing an unmodified opinion?

Accepted Answer

A)  A brief indication of the responsibility of auditors and management for the financial statements.
B)  An indication that all appropriate disclosures have been made and included in the financial statements.
C)  An indication that the audit was conducted in accordance with standards established by the PCAOB.
D)  The auditors' opinion on the fairness of the financial statements.

Question 9

Which of the following is a definition of control risk?

Accepted Answer

A)  The risk that a material misstatement will not be prevented or detected on a timely basis by the client's internal controls
B)  The risk that the auditor will not detect a material misstatement
C)  The risk that the auditor's assessment of internal controls will be at less than the maximum level
D)  The susceptibility of material misstatement assuming there are no related internal control policies or procedures

Question 10

As it relates to audit evidence, appropriateness refers to the

Accepted Answer

A)  originality of evidence gathered.
B)  quality of evidence gathered.
C)  quantity of evidence gathered.
D)  timeliness of evidence gathered.

Question 11

The Public Company Accounting Oversight Board was established by which of the following?

Accepted Answer

A)  The Financial Accounting Standards Board.
B)  The American Institute of Certified Public Accountants.
C)  The Sarbanes-Oxley Act of 2002.
D)  The International Accounting Standards Board.

Question 12

The three fundamental principles underlying GAAS include all of the following, except:

Accepted Answer

A)  general principle.
B)  performance principle.
C)  reporting principle.
D)  responsibilities principle.

Question 13

The concept of _____ recognizes that a GAAS audit may fail to detect all material misstatements.

Accepted Answer

A)  absolute assurance
B)  due care
C)  reasonable assurance
D)  risk of material misstatement

Question 14

Which of the following procedures would provide the most reliable audit evidence?

Accepted Answer

A)  Inquiries of the client's accounting staff held in private.
B)  Inspection of pre-numbered client shipping documents.
C)  Inspection of bank statements obtained directly from the client's financial institution.
D)  Analytical procedures performed by auditors on the client's trial balance.

Question 15

A periodic review of an audit firm's system of quality control by the PCAOB is referred to as a(n) :

Accepted Answer

A)  inspection.
B)  peer review.
C)  principles review.
D)  quality review.

Question 16

Which of the following would most likely be a violation of the independence requirement found in the responsibilities principle under generally accepted auditing standards?

Accepted Answer

A)  An auditor on the engagement has a distant relative who is employed by a vendor that does a significant amount of business with clients.
B)  The client's Chief Executive Officer graduated from the same university as the partner in charge of the accounting firm.
C)  An auditor on the engagement owns a financial interest in the stock of the client.
D)  The client provides financial support to a number of charitable causes that also receive support from the accounting firm.

Question 17

Which of the following statements is generally correct about the appropriateness of audit evidence?

Accepted Answer

A)  Auditors' direct personal knowledge, obtained through observation and inspection, is of higher quality than information obtained indirectly from independent outside sources.
B)  To be reliable, audit evidence must be either valid or relevant, but need not be both.
C)  Client accounting data alone may be considered sufficient appropriate audit evidence to issue an unmodified opinion on client financial statements.
D)  Appropriateness of audit evidence refers to the amount of corroborative evidence to be obtained.

Question 18

In a system of quality control, leadership responsibilities for quality within the firm are best characterized by:

Accepted Answer

A)  basing personnel performance evaluations on the employees' ability to generate revenues from existing clients or by acquiring new clients.
B)  management's evaluation of the integrity and business reputation of the client.
C)  management's clear and consistent demonstration of its own commitment to quality control and high-quality work.
D)  assigning management responsibilities in such a manner that commercial considerations are the firm's top priority.

Question 19

Audit evidence is usually considered sufficient when

Accepted Answer

A)  it is reliable.
B)  there is enough quantity to afford a reasonable basis for an opinion on financial statements.
C)  it has the qualities of being relevant, objective, and free from unknown bias.
D)  it has been obtained through random selection methods.

Question 20

Which of the following does not directly relate to an auditor's responsibility for having appropriate competence and capabilities to perform the audit?

Accepted Answer

A)  Participating in continuing professional education
B)  Gaining experience through hands-on practice
C)  Obtaining reliable documentary evidence
D)  Attending on-the-job training

Exam 2: Professional Standards

Which of the following is not included in the auditors' standard report representing an unmodified opinion?

Correct AnswerverifiedShow Answer

The responsibilities principle under generally accepted auditing standards does not include which of the following?

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The Public Company Accounting Oversight Board was established by which of the following?

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Which of the following presumptions does not relate to the reliability of audit evidence?

Correct AnswerverifiedShow Answer

Which of the following procedures would provide the most reliable audit evidence?

Correct AnswerverifiedShow Answer

What type of evidence would provide the highest level of assurance in an attestation engagement?

Correct AnswerverifiedShow Answer

Which of the following does not directly relate to an auditor's responsibility for having appropriate competence and capabilities to perform the audit?

Correct AnswerverifiedShow Answer

Which reporting options do auditors have if the client's financial statements are not presented according to the applicable financial framework (e.g., GAAP, IFRS) ?

Correct AnswerverifiedShow Answer

Audit evidence is usually considered sufficient when

Correct AnswerverifiedShow Answer

In a system of quality control, leadership responsibilities for quality within the firm are best characterized by:

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Internal evidence

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The concept of _____ recognizes that a GAAS audit may fail to detect all material misstatements.

Correct AnswerverifiedShow Answer

Which of the following is a definition of control risk?

Correct AnswerverifiedShow Answer

Which of the following is least related to the concept of independence in appearance?

Correct AnswerverifiedShow Answer

Which of the following would most likely be a violation of the independence requirement found in the responsibilities principle under generally accepted auditing standards?

Correct AnswerverifiedShow Answer

As it relates to audit evidence, appropriateness refers to the

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PCAOB inspections are conducted by

Correct AnswerverifiedShow Answer

Which of the following statements is generally correct about the appropriateness of audit evidence?

Correct AnswerverifiedShow Answer

The three fundamental principles underlying GAAS include all of the following, except:

Correct AnswerverifiedShow Answer

A periodic review of an audit firm's system of quality control by the PCAOB is referred to as a(n) :

Correct AnswerverifiedShow Answer

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