Chapter 2

LO 2-2

100

To exercise due care, an accountant should a) Take continuing professional education classes b) Report whether the financial statements are in accordance with GAAP c) Gather enough audit evidence to have complete assurance that there is enough support for the opinion on the financial statements d) Conduct the engagement in accordance with GAAS and ensure that the engagement is completed on a timely basis

d) Conduct engagement in accordance with GAAS and ensure engagement is completed on a timely basis

200

Which of the following is most closely related to the responsibilities principle? a) The auditors' responsibility to issue a report as a result of their examination b) The requirement that auditors gather sufficient, appropriate evidence upon which to base an opinion on the financial statements c) The auditors' compliance with relevant ethical requirements of independence and due care d) The auditors' responsibility to plan the audit and properly supervise assistants

c) The auditors' compliance with relevant ethical requirements of independence and due care

300

Kramer, CPA, consulted an independent appraiser regarding the valuation of fine art for a not-for-profit museum. Consultation with a specialist in this case would a) Be considered as exercising proper due care b) Be considered a failure to follow GAAS because Kramer should have known how to value fine art before accepting the engagement c) Not be considered a violation of GAAS because GAAS doesn't apply to not-for-profit entities d) None of the above

a) Be considered as exercising proper due care

400

Which of the following is least related to the standard of due care? a) independence in fact b) Professional skepticism c) Prudent auditor d) Reasonable assurance

d) Reasonable assurance

500

Which of the following best demonstrates the concept of professional skepticism? a) Relying more extensively on external evidence rather than internal evidence b) Focusing on items that have a more significant quantitative effect on the entity's financial statements c) Critically assessing verbal evidence received from the entity's management d) Evaluating potential financial interests held by auditors in the client

c) Critically assessing verbal evidence received from the entity's management

LO 2-3

100

Which of the following categories of principles is most closely related to gathering audit evidence? a) Performance b) Reasonable assurance c) Reporting d) Responsibilities

a) Performance

200

The primary purpose for obtaining an understanding of the entity's environment (including its internal control) in a financial statement audit is to: a) determine the nature/timing/extent of substantive procedures performed b) make consulting suggestions to entity management c) obtain direct sufficient appropriate audit evidence to afford a reasonable basis for an opinion on the financial statements d) determine whether the entity has changed any accounting principles

c) nature/extent/timing of substantial procedures is determined according to the environment

300

Ordinarily, what source of evidence should least affect audit conclusions? a) external documentary evidence b) Inquiry of management c) Documentation prepared by the audit team d) Inquiry of entity legal counsel

B) Inquiry of management

400

DAILY DOUBLE (Answer this question correctly for a chance at a second question for the same amount) The most persuasive evidence regarding the existence of newly-acquired computer equipment is: a) Inquiry of management b) Documentation prepared externally c) Observation of auditee's procedures d) Physical observation

d) Physical observation

500

Which of the following procedures would provide the most reliable audit evidence? a) Inquiries of the client's internal audit staff b) Inspection of prenumbered client purchase orders filed in the vouchers payable department c) Inspection of vendor sales invoices received from client personnel d) Inspection of bank statements obtained directly from the client's financial institution

d) This is external evidence

LO 2-3

100

The evidence considered most appropriate by auditors is best described by: a) Internal documents such as sales invoice copies produced under conditions of strong internal control b) Written representations made by the president of the entity c) Documentary evidence obtained directly from independent external sources d) Direct personal knowledge obtained through physical observation and mathematical recalculation

d) Direct knowledge obtained by the auditors that things are accurate is the most appropriate

200

Auditors' understanding of the internal control in an entity contributes information for a) determining whether members of the audit team have the required competence and capabilities to perform the audit b) ascertaining the independence in mental attitude of members of the audit team c) planning the professional development courses the audit staff needs to keep up to date with new auditing standards d) planning the nature, timing, and extent of substantive procedures on an audit

d) internal control strength determines amount of substantive testing

300

Which of the following elements of a system of quality control is related to firms receiving independence confirmations from its professionals with respect to clients? a) acceptance and continuance of client relationships and specific engagements b) Engagement performance c) Monitoring d) relevant ethical requirements

d) relevant ethical requirements

400

Which of the following recognizes that an audit conducted under GAAS may not detect all material misstatements? a) Absolute assurance b) Professional judgment c) Persuasiveness of audit evidence d) Reasonable assurance

d) Reasonable assurance

500

Which of the following would provide the auditor the most persuasive evidence? (Source of evidence, effectiveness of internal control) a) Internal, More effective b) Internal, Less effective c) External, More effective d) External, Less effective

c) external source, more effective internal control

LO 2-3 to 2-4

100

Which of the following topics is not addressed in teh auditors' report for a public entity? a) Responsibilities of the auditor and management int eh financial reporting process b) Absolute assurance regarding the fairness of the entity's financial statements in accordance with GAAP c) A description of an audit engagement d) A summary of the auditors' opinion on the effectiveness of the entity's internal control over financial reporting

b) We don't provide absolute assurance, that's not possible

200

Which of the following is most closely related to the relevance of audit evidence? a) Auditors decide to physically inspect investment securities held by a custodian instead of obtaining confirmations from a custodian b) In addition to confirmations of A/R, auditors perform an analysis of the aging of A/R to evaluate the collectibility c) In response to less effective internal control, auditors increase the number of customer accounts receivable confirmations mailed compared to that in prior year d) Because of a large number of transactions occurring near year-end, auditors decide to confirm a larger number of receivables following YE instead of during the interim period

b) In addition to confirmations of A/R, auditors perform an analysis of the aging of A/R to evaluate the collectibility

300

Which of the following statements is not true with respect to the performance principle? a) Auditors are required to prepare a written audit plan during the planning stages of initial audits but are not required to do so in continuing audits. b) Audit teams consider materiality in planning hte audit, performing the audit, and evaluating the effect of misstatements on the entity's financial statements c) In assessing the risk of material misstatements, the audit team considers teh effectiveness of the entity's internal controls in preventing and detecting misstatements d) Auditors are required to consider both the relevance and reliability of evidence in evaluating whether the evidence they have gathered is appropriate

a) Nope, not true.

400

Which of the following best describes the general contents of hte introductory paragraph of the auditors' report? a) Description of an audit examination, including the fact that the audit was conducted under standards established by the PCAOB b) Auditors' conclusion with respect to the fairness of the entity's financial statements c) Statements identifying the responsibility of auditors and management in the financial reporting process d) The auditors' conclusion with respect to hte effectiveness of the entity's internal control over financial reporting

c) this is in the intro paragraph

500

Which of the following opinions would be issued if auditors believed that the entity's financial statements were not presented in conformity with GAAP? a) Adverse b) Disclaimer of Opinion c) Qualified Opinion d) Unqualified Opinion

a) Adverse

2-4 to 2-7

100

Which of the following principles is most closely associated with the auditors' conclusion as to the fair presentation of the entity's financial statements? a) Communication principle b) Performance principle c) Reporting principle d) Responsibilities principle

c) Reporting principle

200

One of an accounting firm's basic objectives is to provide professional services that conform to professional standards. Reasonable assurance of achieving this objective can be obtained by following: a) GAAS b) Standards within a system of quality control c) GAAP d) International auditing standards (IAS)

b) Standards within a system of quality control

300

Which of the following is true with respect to PCAOB inspections of accounting firms? a) All firms performing audits of public companies are required to have annual inspections b) PCAOB inspections review a sample of audits conducted by firms as well as the firm's system of quality control c) All results of PCAO inspections are made available to the public following the inspection d) Firms performing audits of 100 or fewer public entities may elect to have a peer review conducted through the AICPA in leu of PCAOB inspection

b) PCAOB inspections review a sample of audits conducted by firms as well as the firm's system of quality control

400

DAILY DOUBLE: Worth double points (automatically) Which of the following is a conceptual difference between attestation standards and GAAP? a) The attestation standards provide a framework for the attest function beyond historical financial statements b) The requirement that the practitioner be independent is not required under attestation standards c) The attestation standards do not permit an attestation engagement to examine prospective "what-if" financial statements d) Requirements related to evidence are not included in the attestation standards

a) The difference is the framework going beyond historical financials

500

The attestation standards do NOT contain a requirement that auditors obtain a) adequate knowledge in the subject matter of the assertions being examined b) An understanding of the client's internal controls c) Sufficient evidence for the conclusions expressed in an an attestation report d) Independence in mental attitude

b) An understanding of client internal controls is not required for attestation clients