Auditing and Assurance Services, 16e (Arens/Elder/Beasley)
Chapter 2 The CPA Profession
2.1 Learning Objective 2-1
1) The legal right to perform audits is granted to a CPA firm by regulation of
A) each state.
B) the Financial Accounting Standards Board (FASB).
C) the American Institute of Certified Public Accountants (AICPA).
D) the Auditing Standards Board.
2) Which of the following is not a characteristic of a small firm?
A) Most small firms have fewer than 25 professionals.
B) Small firms perform audits on small and not-for-profit businesses.
C) Tax services are more important than auditing services to the small firm.
D) Small firms are prohibited by the SEC from auditing publicly traded companies.
3) Sarbanes-Oxley and the Securities and Exchange Commission restrict auditors from providing
many consulting services to their publicly traded audit clients. Which of the following is true for
auditors of publicly traded companies?
I. They are restricted from providing consulting services to privately held companies.
II. There is no restriction on providing consulting services to non-audit clients.
A) I only
B) II only
C) I and II
D) Neither I nor II
4) Which of the following does not describe a size category for a CPA firm?
A) Big Four national firms
B) Big Four international firms
C) local firms
D) national and regional firms
5) ________ is one of the Big Four international CPA firms.
A) Deloitte
B) KPMG
C) Ernst & Young
D) All of the above are classified as Big Four international CPA firms.
6) In which type of service does the CPA assemble the financial statements but provide no
assurance to third parties?
A) audit
B) compilation
C) review
D) bookkeeping
7) In addition to attestation and assurance services, CPA firms provide other services to their
clients. List three of these services.
8) Many small, local accounting firms perform audits as their primary service to their clients.
9) Sarbanes-Oxley and the Securities and Exchange Commission restrict auditors from providing
many consulting services to their publicly traded audit clients.
2.2 Learning Objective 2-2
1) Which of the following statements is true as it relates to limited liability partnerships?
A) Only senior partners are liable for the partnerships debts.
B) Partners have no liability in a limited liability partnership arrangement.
C) Partners are personally liable for the acts of those under their supervision.
D) All partners must be AICPA members.
2) Which staff level in a CPA firm performs most of the detailed audit work?
A) partner
B) staff assistant
C) senior auditor
D) senior manager
3) List and describe the three factors that influence the organizational structure of all CPA firms.
What are the most common forms of CPA firm organization?
4) List and describe the six organizational structures available to CPA firms.
5) All of the Big Four accounting firms and many of the smaller CPA firms now operate as
limited liability partnerships.
6) Limited liability companies are structured and taxed like a general partnership, but their
owners have limited personal liability similar to that of a general corporation.
7) In a CPA firm, the audit partner coordinates the performance of audit procedures.
2.3 Learning Objective 2-3
1) The organization that is responsible for providing oversight for auditors of public companies
is called the
A) Auditing Standards Board.
B) American Institute of Certified Public Accountants.
C) Public Oversight Board.
D) Public Company Accounting Oversight Board.
2) Members of the Public Company Accounting Oversight Board are appointed and overseen by
the
A) U.S. Congress.
B) American Institute of Certified Public Accountants.
C) Auditing Standards Board.
D) Securities and Exchange Commission.
3) The Public Company Accounting Oversight Board
A) performs inspections of the quality controls of firms that audit public companies.
B) establishes auditing standards that must be followed by CPAs on all audits.
C) oversees auditors of private companies.
D) performs all of the above functions.
4) Assume the Public Company Accounting Oversight Board (PCAOB) identifies a violation
during its inspection of a registered accounting firm. The PCAOB
A)
can enforce
disciplinary action
against the accounting
firm
report the matter to
the Securities and
Exchange
Commission
suspend the license to
practice of the CPA
guilty of the violation
Yes
Yes
Yes
B)
can enforce
disciplinary action
against the accounting
firm
report the matter to
the Securities and
Exchange
Commission
suspend the license to
practice of the CPA
guilty of the violation
Yes
Yes
No
C)
can enforce
disciplinary action
against the accounting
firm
report the matter to
the Securities and
Exchange
Commission
suspend the license to
practice of the CPA
guilty of the violation
Yes
No
No
D)
can enforce
disciplinary action
against the accounting
firm
report the matter to
the Securities and
Exchange
Commission
suspend the license to
practice of the CPA
guilty of the violation
No
No
No
5) The Sarbanes-Oxley Act established the Public Company Accounting Oversight Board
(PCAOB). What are the PCAOB’s primary functions?
6) The Public Company Accounting Oversight Board (PCAOB) provides oversight to auditors of
publicly traded and private companies.
7) The PCAOB requires annual inspections of accounting firms that audit more than ten public
companies.
2.4 Learning Objective 2-4
1) The form that must be completed and filed with the Securities and Exchange Commission
whenever a company experiences a significant event that is of interest to public investors is the
A) Form S-1.
B) Form 8-K.
C) Form 10-K.
D) Form 10-Q.
2) The form that must be filed with the Securities and Exchange Commission whenever a
company plans to issue new securities to the public is the
A) Form S-1.
B) Form 8-K.
C) Form 10-K.
D) Form 10-Q.
3) Which of the following is a correct statement regarding the SEC?
A) The Securities Act of 1934 requires most companies planning to issue new securities to the
public to submit a registration statement to the SEC for approval.
B) All public companies must file monthly statements with the SEC.
C) The Form 10-K must be filed within 30 days after the close of the fiscal year.
D) The SEC has the power to establish rules for any CPA associated with audited financial
statements submitted to the commission.
4) With respect to the SEC,
A) the attitude of the SEC is generally considered in any major change proposed by the FASB.
B) the SEC is the sole agency responsible for setting generally accepted accounting principles.
C) the SEC requirements of greatest interest to CPAs are set forth in the their enforcement
regulations.
D) the SEC has the power to establish rules for all CPAs.
5) Discuss the purpose of the Securities and Exchange Commission and its influence on setting
generally accepted accounting principles.
6) The difference between the Securities Act of 1933 and the Securities Act of 1934 is that only
the 1934 act requires audited financial statements.
7) Form 10-K must be filed with the SEC whenever a public company experiences a significant
event.
8) The overall purpose of the Securities and Exchange Commission is to assist in providing
investors with reliable information upon which to make investment decisions.
2.5 Learning Objective 2-5
1) Statements on Standards for Accounting and Review Services (SSARS) are issued by the
A) Accounting and Review Services Committee.
B) Professional Ethics Executive Committee.
C) Securities and Exchange Commission.
D) Financial Accounting Standards Board.
2) The American Institute of Certified Public Accountants (AICPA)
A) is responsible for issuing licenses to new CPAs.
B) restricts its membership to CPAs who are independent auditors.
C) sets auditing standards for both public and private companies.
D) sets rules of conduct that CPAs are required to meet.
3) What are the major functions of the AICPA?
4) Membership in the AICPA is restricted to CPAs who are currently practicing as independent
auditors.
5) Membership in the AICPA is mandatory for all licensed practicing CPAs.
6) A CPA must meet continuing education requirements to maintain their license to practice.
2.6 Learning Objective 2-6
1) Which of the following are audit standards used in professional practice by audit firms?
A)
International
Standards
on Auditing
AICPA Auditing
Standards
PCAOB Auditing
Standards
Yes
No
No
B)
International
Standards
on Auditing
AICPA Auditing
Standards
PCAOB Auditing
Standards
Yes
Yes
No
C)
International
Standards
on Auditing
AICPA Auditing
Standards
PCAOB Auditing
Standards
Yes
Yes
Yes
D)
International
Standards
on Auditing
AICPA Auditing
Standards
PCAOB Auditing
Standards
No
Yes
Yes
2) Who is responsible for establishing auditing standards for privately held companies?
A) Securities and Exchange Commission
B) Public Company Accounting Oversight Board
C) Auditing Standards Board
D) National Association of Accounting
3) Standards issued by the Public Company Accounting Oversight Board must be followed by
CPAs who audit
A) both private and public companies.
B) public companies only.
C) private companies, public companies, and nonprofit entities.
D) private companies only.
4) The International Standards on Auditing (ISA)
A) are issued by the AICPA.
B) override a country’s regulations governing the audit of a company.
C) has many of the same standards as the Auditing Standards Board (ASB).
D) must be followed by companies whose stock is traded in the U.S.
5) ________ are referred to as U.S. generally accepted auditing standards (GAAS).
A) AICPA auditing standards
B) SEC auditing standards
C) PCAOB auditing standards
D) Sarbanes-Oxley standards