Chapter 5 – Professional Auditing Standards and the Audit Opinion Formulation Process
1. The auditing standards issued by the PCAOB are identical to the auditing standards issued by the AICPA.
a.
True
b.
False
False
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Generally Accepted Auditing Standards and IAASB Principles
2. The standards of the PCAOB consist of seven principles.
a.
True
b.
False
False
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Generally Accepted Auditing Standards and IAASB Principles
3. The PCAOB’s general standards provide guidance to audit firms in selecting and training their professionals.
a.
True
b.
False
True
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Generally Accepted Auditing Standards and IAASB Principles
4. The PCAOB’s second fieldwork standard requires auditors develop an understanding of the client’s controls
as an important prerequisite to developing specific audit tests.
a.
True
b.
False
True
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Generally Accepted Auditing Standards and IAASB Principles
5. The AICPA’s fundamental principles can be divided into four sections: purpose of the audit, responsibility of
the auditor, performance of the audit, and reporting of the results.
a.
True
b.
False
True
6. Auditors are responsible for having the appropriate competence and capabilities to perform the audit, should
comply with ethical requirements, and maintain professional skepticism throughout the audit.
a.
True
b.
False
True
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Generally Accepted Auditing Standards and IAASB Principles
7. An audit must be performed by persons who can make sound judgments relating to complex accounting
issues.
a.
True
b.
False
True
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Generally Accepted Auditing Standards and IAASB Principles
8. The auditor needs to obtain absolute assurance as to whether the financial statements are free from material
misstatement.
a.
True
b.
False
False
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Generally Accepted Auditing Standards and IAASB Principles
9. The Clarity Project is an initiative of the PCAOB to clarify the links between the standards of the PCAOB
and the AICPA.
a.
True
b.
False
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Generally Accepted Auditing Standards and IAASB Principles
10. The ten standards of auditing, adopted by the PCAOB encompass three broad categories including: general
standards, fieldwork standards and reporting standards.
a.
True
b.
False
True
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Generally Accepted Auditing Standards and IAASB Principles
11. The common purpose of audit standards created by the various authorities is to provide reasonable
assurance that audits are conducted in a quality manner.
a.
True
b.
False
12. The AICPA principles governing an audit explicitly state that an audit has inherent limitations prohibiting
an auditor from obtaining reasonable assurance that the statements are free from misstatement.
a.
True
b.
False
13. If controls are effective, there is a higher likelihood that the financial statements are free of material
misstatement.
a.
True
b.
False
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Professional Audit Standards
14. The reporting standards of the ten generally accepted audit standards of the PCAOB includes consistency,
disclosure, and due professional care.
a.
True
b.
False
False
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Generally Accepted Auditing Standards and IAASB Principles
15. Within each cycle, the audit is designed around the specific audit procedures required by the PCAOB
general standards.
a.
True
b.
False
16. Comparability is one of the five management assertions.
a.
True
b.
False
17. The PCAOB requires the audit be conducted with due professional care, which is a standard of care that
would be expected of a reasonably prudent auditor.
a.
True
b.
False
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Overview of the Phases of the Audit Opinion Formulation Process
18. An auditor should give equal emphasis to all management assertions when testing accounts.
a.
True
b.
False
19. The nature of an audit procedure indicates when the procedure is performed during the audit.
a.
True
b.
False
20. An auditor typically indicates in the engagement letter that the audit will result in an unqualified report on
the financial statements.
a.
True
b.
False
False
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Phase I Making Client Acceptance and Continuation Decisions
21. Evidence is required to be sufficient and appropriate in order to provide a reasonable basis for audit
conclusions.
a.
True
b.
False
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Generally Accepted Auditing Standards and IAASB Principles
22. U.S. auditing standards recommend that a successor auditor on an initial audit obtain client permission to
communicate with the predecessor auditor.
a.
True
b.
False
False
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Phase I Making Client Acceptance and Continuation Decisions
23. Developing an understanding of the client’s business and industry is essential to proficiency as discussed in
the PCAOB’s general standards.
a.
True
b.
False
True
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Generally Accepted Auditing Standards and IAASB Principles
24. Test of controls are a type of substantive procedure.
a.
True
b.
False
25. The Public Company Accounting Oversight Board (PCAOB) does not set specific standards for audits of
public companies.
a.
True
b.
False
False
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Generally Accepted Auditing Standards and IAASB Principles
26. Recalculation involves independently performing procedures or controls that were originally performed by
the client, such as reperforming a bank reconciliation.
a.
True
b.
False
27. Scanning is a type of analytical procedure which involves reviewing accounting data to identify significant
or unusual items, such as examining a credit balance in an account that typically has a debit balance.
a.
True
b.
False
28. Audit procedures can be classified as risk assessment procedures, test of controls or substantive tests.
a.
True
b.
False
29. Assertions about existence address whether assets and liabilities exist and assertions about occurrence
address whether recorded transactions, such as sales transactions, have occurred
a.
True
b.
False
True
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Describe the Assertions Contained in Financial Statements
30. The first stage in an audit is performing a risk assessment.
a.
True
Chapter 5 – Professional Auditing Standards and the Audit Opinion Formulation Process
b.
False
31. Physically examining a client’s assets is an audit procedure.
a.
True
b.
False
32. Audit documentation is frequently called working papers.
a.
True
b.
False
33. Control risk refers to the risk that a misstatement could occur in an assertion about a class of transaction,
account balance, or disclosure and that could be material, either individually or when aggregated with other
misstatements, will not be prevented, or detected and corrected, on a timely basis by the entity’s internal
control.
a.
True
b.
False
True
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Overview of the Audit Process: A Standards-Based Approach
34. Inherent risk refers to the susceptibility of an assertion about a class of transaction, account balance, or
disclosure to a misstatement that could be immaterial, either individually or when aggregated with other
misstatements, before consideration of any related controls.
a.
True
b.
False
Chapter 5 – Professional Auditing Standards and the Audit Opinion Formulation Process
False
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Overview of the Audit Process: A Standards-Based Approach
35. There is an inverse relationship between the assessment of risk of material misstatement in an account and
the amount of evidence required.
a.
True
b.
False
36. The purpose of the audit program is to list the audit procedures to be followed in gathering audit evidence
and to help those in charge of the audit to monitor the progress and supervise the work.
a.
True
b.
False
True
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Overview of the Audit Process: A Standards-Based Approach
37. The effectiveness of entity-wide controls may reduce the extent of testing of transaction controls.
a.
True
b.
False
True
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Phase III Obtaining Evidence about Internal Control Operating Effectiveness
38. When assessing the effectiveness of controls for relevant assertions the auditor tests only transaction
controls.
a.
True
b.
False
False
39. The auditor is not required to test every control related to relevant assertions in a significant account.
a.
True
b.
False
True
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Phase III Obtaining Evidence about Internal Control Operating Effectiveness
40. For an integrated audit, the auditor’s opinion about internal control effectiveness is based on control
effectiveness at year-end as opposed to throughout the year.
a.
True
b.
False
True
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Phase III Obtaining Evidence about Internal Control Operating Effectiveness
41. Research indicates that weaknesses in control components other than control activities do not cause fraud
and other misstatements in financial statements.
a.
True
b.
False
False
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Phase III Obtaining Evidence about Internal Control Operating Effectiveness
42. Assertions are relevant to the audit process because they are the representations of management embodied in
the financial statements.
a.
True
b.
False
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Phase IV Obtaining Evidence about Internal Control Operating Effectiveness
Chapter 5 – Professional Auditing Standards and the Audit Opinion Formulation Process
True
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Describe the Assertions Contained in Financial Statements
43. Presentation and disclosure assertions imply that all transactions and balances are properly presented,
disclosures represent what actually happened, and the footnote disclosures are appropriate and adequate.
a.
True
b.
False
True
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Describe the Assertions Contained in Financial Statements
44. The PCAOB does not currently have a mandate for convergence with other auditing standards.
a.
True
b.
False
True
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Describe the Assertions Contained in Financial Statements
45. Substantive analytical procedures are optional for significant tests and disclosures.
a.
True
b.
False
46. In performing substantive tests on account balances, the auditor performs tests for all five assertions.
a.
True
b.
False
47. If the auditor assesses internal controls to be effective, less substantive testing is likely.
a.
True
b.
False
48. If the auditor’s assessment is that there is high risk due to the subjectivity of the accounting process,
substantive procedures should be more rigorous.
a.
True
b.
False
49. An Integrated Audit requires the issuance of separate reports for the opinions expressed on the financial
statements and on internal control..
a.
True
b.
False
False
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Completing the Audit and Making Reporting Decisions
50. In an integrated audit, the auditor issues an opinion on both the financial statements and internal control.
a.
True
b.
False
True
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Phase IV Obtaining Substantive Evidence
51. The first general standard of the PCAOB requires that an audit be performed by which type of person?
a.
An auditor with seasoned judgment in varying degrees of supervision and review.
b.
An auditor with appropriate technical training and proficiency.
c.
An auditor with adequate knowledge of the standards of field work and reporting.
d.
An auditor satisfying the independence standards.
b
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Generally Accepted Auditing Standards and IAASB Principles
52. Which auditing standards apply to private companies?
a.
The AICPA Standards.
b.
The IASSB Standards.
c.
The Standards of the PCAOB.
d.
All of the above.
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Generally Accepted Auditing Standards and IAASB Principles
53. The AICPA Principles Governing an Audit include which of the following categories that guide the conduct
of an audit?
a.
Purpose of an audit and premise upon which an audit is conducted.
b.
Responsibilities.
c.
Performance.
d.
All of the above.
54. What is the scope of applicability of the auditing standards of the AICPA?
a.
Nonpublic companies traded in non-U.S. markets.
b.
Nonpublic companies in the U.S.
c.
Public companies traded in non-U.S. markets.
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Phase V Completing the Audit and Making Reporting Decisions
Chapter 5 – Professional Auditing Standards and the Audit Opinion Formulation Process
d.
Public companies traded in the U.S.
b
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Generally Accepted Auditing Standards and IAASB Principles
55. To satisfy the fieldwork standards, what must an auditor do?
a.
Act with due care.
b.
Gather sufficient appropriate evidence.
c.
Be independent in mental attitude.
d.
Have adequate knowledge about the client’s industry.
e.
All of the above.
b
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Generally Accepted Auditing Standards and IAASB Principles
56. Which one of the following organizations provides auditing standards for public companies?
a.
GAO.
b.
AICPA.
c.
GAAP.
d.
PCAOB.
d
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Generally Accepted Auditing Standards and IAASB Principles
57. Which one of the following has the most affect on the reliability of financial statements?
a.
The size of the client
b.
The industry of the client
c.
The client’s internal control structure.
d.
The client’s trend of earnings.
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58. The standards of competence, independence, and due professional care are covered by which section of the
generally accepted auditing standards?
a.
General standards.
b.
Standards of fieldwork.
c.
Reporting standards.
d.
None of the above.
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Generally Accepted Auditing Standards and IAASB Principles
59. What are the PCAOB standards that present guidance in testing assertions and planning for the audit are
known as?
a.
General standards.
b.
Fieldwork standards.
c.
Reporting standards.
d.
None of the above.
b
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Generally Accepted Auditing Standards and IAASB Principles
60. Which of the following is the primary assertion related to testing inventory on hand to see if it includes
consignment goods ?
a.
Existence
b.
Completeness
c.
Valuation
d.
Rights and Obligations
61. Which assertion is most closely related to the determination of the adequacy of the allowance for doubtful
accounts?
a.
Existence
b.
Valuation
c.
Rights and Obligations