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6) Which of the following is a true statement regarding auditing standards?
A) Prior to the passage of Sarbanes-Oxley, the FASB established auditing principles for U.S.
public companies.
B) PCAOB auditing standards are applicable to entities outside the U.S.
C) There are no similarities between PCAOB standards and International Standards on Auditing.
D) The Auditing Standards Board has revised most of its standards to converge with the
international standards.
7) Which of the following is true with regards to the various auditing standards?
A) Statements on Auditing Standards (SASs) are issued by the PCAOB.
B) The ASB Clarity Project was intended to make the U.S. auditing standards easier to read,
understand, and apply.
C) The ASB redrafted existing AICPA auditing standards to align them with respective ISAs.
D) Both B and C are correct.
8) The PCAOB considers International Standards on Auditing (ISA) when developing its
standards.
9) International Standards on Auditing are issued by the International Auditing and Assurance
Standards Board (IAASB).
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10) The ASB has revised its audit standards to converge with international standards.
2.7 Learning Objective 2-7
1) Historically, auditing standards have been organized into three categories, including
A) standards of field work.
B) purpose of an audit.
C) responsibilities of the auditor.
D) proper planning and supervision.
2) The “Principles Underlying an Audit in Accordance with Generally Accepted Auditing
Principles” provides a framework to help auditors
A) understand the ten GAAS standards.
B) obtain complete assurance that the financial statements are free from any error.
C) report on the financial statements.
D) prevent fraud.
3) Which of the following is not one of the responsibilities of an auditor under the principles
underlying an audit?
A) possess appropriate competence and capabilities
B) comply with ethical requirements
C) plan work and supervise assistants
D) maintain professional skepticism and exercise professional judgment
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4) To obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, the auditor must fulfill several performance responsibilities,
including
A) verifying that all audit work is performed by a CPA with a minimum of three years’
experience.
B) obtaining sufficient, appropriate audit evidence.
C) exercising professional judgment.
D) providing an opinion on the financial statements.
5) The Statements on Auditing Standards issued by the Auditing Standards Board
A) are regarded as authoritative literature.
B) mandate the amount of evidence that must be obtained.
C) must be followed in all situations.
D) are optional guidelines which an auditor may choose to follow or not follow when conducting
an audit.
6) An auditor need not abide by a particular auditing standard if the auditor believes that
A) the issue in question is immaterial in amount.
B) more expertise is needed to fulfill the requirement.
C) the requirement of the standard has not been addressed by the PCAOB.
D) fraud is involved.
7) When assessing the risk of material misstatements in the financial statements,
A) inadequate internal control procedures will mitigate client business risk.
B) GAAS specifies in detail how much and what types of evidence the auditor needs to obtain.
C) company management is responsible for determining materiality levels.
D) the auditor must have an understanding of the client’s business and industry.
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8) In order to properly plan and perform an audit, an important fact for both the auditor and the
client to understand is that
A) the internal control policies and procedures are developed by the auditors.
B) the purpose of an audit is to prevent fraud.
C) management is responsible for the preparation of the financial statements.
D) management can restrict the auditor’s access to important information relevant to the financial
statements.
9) The principles underlying an audit
A) contain the procedures that must be followed during an audit.
B) carry the same authority as AICPA auditing standards.
C) only apply to the audits of public companies
D) provide structure for the clarified Codification.
10) The AICPA principles underlying an audit are organized around four principles. Which of
the following is not one of those principles?
A) fairness
B) responsibilities
C) reporting
D) performance
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11) Which of the following statements about Generally Accepted Audit Standards are true?
I. They serve as broad guidelines to auditors for conducting an audit engagement.
II. They are sufficiently specific to provide any meaningful guide to practitioners.
III. They represent a framework upon which the AICPA can provide interpretations.
A) I and II
B) I and III
C) II and III
D) I, II and III
12) The AICPA principles and the auditing standards should be viewed by practitioners as
A) ideals to work towards, but which are not achievable.
B) maximum standards that denote excellent work.
C) minimum standards of performance that must be achieved on each audit engagement.
D) benchmarks to be used on all audits, reviews, and compilations.
13) Which of the following is an accurate statement regarding principles and auditing standards?
A) The principles underlying an audit give specific guidance to an auditor when a problem arises
in an audit.
B) The principles underlying an audit state that the only objective of an audit is to provide
financial statement users with an opinion.
C) All auditing standards issued by the PCAOB are given two classification numbers.
D) The SAS number identifies the order in which it was issued in relation to other SASs.
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14) ________ is an attitude that includes a questioning mind, being alert to conditions that might
indicate possible misstatements due to fraud or error, and a critical assessment of audit evidence.
A) Reasonableness
B) Diligence
C) Professional skepticism
D) Competence
15) To obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, the auditor fulfills several performance responsibilities, including
A) complying with the AICPA Code of Professional Conduct.
B) issuing a written report on the financial statements.
C) determining and applying materiality levels.
D) having the appropriate competence to perform the audit.
16) List the four principles underlying an audit.
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17) Principles related to the auditor’s responsibilities in the audit stress three important personal
qualities that the auditor should possess. List and discuss these three qualities.
18) Performance is one of the principles underlying an audit. List three performance
responsibilities.
19) Professional skepticism must be maintained only if the auditor suspects fraud.
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20) Statements on Auditing Standards (SASs) are issued by the Public Company Accounting
Oversight Board.
21) The AU-C number identifies the order in which it was issued in relation to all other codified
auditing standards.
2.8 Learning Objective 2-8
1) Quality control for a CPA firm
A) includes the organizational structure of the firm and the procedures it establishes.
B) is tailored to each specific audit engagement.
C) is a guarantee that auditing standards are followed.
D) is required only for firms auditing SEC companies.
2) The methods used by a CPA firm to ensure that the firm meets is professional responsibilities
to clients and others is
A) continuing professional education.
B) compliance with generally accepted reporting standards.
C) quality control.
D) peer review.
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3) Within the context of quality control, the primary purpose of continuing professional
education and training activities is to enable a CPA firm to provide its personnel with
A) technical training that assures proficiency as a valuation expert.
B) professional education that is required in order to perform with due professional care.
C) knowledge required to fulfill assigned responsibilities.
D) knowledge required to perform a peer review.
4) The purpose of establishing quality control policies and procedures to accept or continue a
client relationship is to
A) provide reasonable assurance that personnel are adequately trained to fulfill their
responsibilities.
B) monitor the risk factors concerning misstatements that arise from the misappropriation of
assets.
C) document objective criteria for the CPA firm’s peer review.
D) minimize the likelihood of associating with a client whose management may lack integrity.
5) Which of the following is an element of the CPA’s quality control system that should be
considered in establishing its quality control policies and procedures?
A) considering audit risk and materiality
B) using statistical sampling techniques
C) assigning personnel to engagements
D) complying with laws and regulations
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6) Which of the following is not an essential component of quality control?
A) policies and procedures to ensure that firm personnel are actively engaged in marketing
strategies
B) policies and procedures to ensure that the work performed by firm personnel meet applicable
professional standards
C) policies to ensure that personnel maintain their independence in fact and in appearance
D) policies that ensure that monitoring activities are effectively applied
7) Which one of the following is not true regarding the American Institute of Certified Public
Accountants peer review requirement?
A) A CPA firm must develop and adhere to quality control standards.
B) Peer reviews are mandatory.
C) A CPA firm will lose AICPA eligibility if a peer review is not performed.
D) Firms required to be registered with and inspected by the PCAOB are exempt.
8) Discuss the relationship between quality control and generally accepted auditing standards.
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9) List and describe the six elements of quality control. Who establishes the standards for quality
control?
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10) Listed below are policies or procedures that the Crystal Cove audit firm has in place. For
each identified policy or procedure state if it is an auditing standard or a quality control standard.
Audit firm Policy or Procedure
1. Determination on whether to accept or
reject a new client.
2. A client evaluation form.
3. All personnel participate in continuing
professional education.
4. Conducting the audit with professional
skepticism.
5. Answering an independence
questionnaire.
6. Determine and apply materiality levels.
7. Audit staff workpapers are reviewed by
audit seniors, then managers.
8. Plan work and supervise assistants.
Standards Category
a. auditing standard
b. quality control standard
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11) The following are definitions of terms that are listed on the right. Match the definition with
its associated term. Each term can be used once, more than once or not at all.
Definition
1. an organizational structure where professional
services are provided by one or more shareholders
2. the grantor of the right to practice public
accounting.
3. a report filed to indicate a significant event
4. sets professional standards and rules for
members.
5. oversees accounting firms who audit public
companies
6. an organizational structure where the owners are
taxed like a partnership and have limited personal
liability
7. a report that is filed when a company wishes to
issue new securities
8. the methods used to ensure the firm meets its
professional responsibilities to clients and others
9. assists in providing investors with reliable
information
10. requires annual inspections of accounting firms
auditing more than 100 public companies
11. practice monitoring by a CPA firm for another
CPA firm
12. fulfilling duties diligently and carefully
13. requires a registration statement
Audit Term
a. AICPA
b. PCAOB
c. Securities Exchange Commission
d. Form 10-K
e. IAASB
f. Form S-1
g. due professional care
h. limited liability partnership
i. professional corporation
j. limited liability company
k. peer review
l. 1933 Securities Act
m. 1934 Securities Act
n. Form 8-K
o. state regulation
p. Code of Professional Conduct
q. quality control standards
r. auditing standards
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12) Quality controls are established for the entire CPA firm whereas auditing standards are
applicable to the individual engagement.