4) Certified Public Accountants perform external audits of a company to confirm that the
financial statements are fairly presented according to GAAP.
5) The agency that requires financial audits of publicly traded companies is the:
A) Financial Accounting Standards Board.
B) Securities and Exchange Commission.
C) Federal Government.
D) Internal Revenue Service.
6) The audit opinion that all companies try to achieve is a(n):
A) disclaimer of opinion.
B) qualified opinion.
C) adverse opinion.
D) unqualified opinion.
7) An audit opinion in which there are material misstatements in the financial statements is the:
A) disclaimer of opinion.
B) qualified opinion.
C) adverse opinion.
D) unqualified opinion.
8) An audit opinion in which the financial statements are fairly presented without exception is
the:
A) disclaimer of opinion.
B) qualified opinion.
C) adverse opinion.
D) unqualified opinion.
9) An audit opinion in which the auditors are unable to express an opinion is the:
A) disclaimer of opinion.
B) qualified opinion.
C) adverse opinion.
D) unqualified opinion.
10) An audit opinion in which the auditors are taking exception to a specific treatment of
accounting information is the:
A) disclaimer of opinion.
B) qualified opinion.
C) adverse opinion.
D) unqualified opinion.
11) Another name for a “clean” audit opinion is a(n):
A) disclaimer of opinion.
B) qualified opinion.
C) adverse opinion.
D) unqualified opinion.
12) Another name for an “except for” audit opinion is a(n):
A) disclaimer of opinion.
B) qualified opinion.
C) adverse opinion.
D) unqualified opinion.
13) Certified public accountants are licensed by the:
A) state.
B) SEC.
C) the college or university from which they earned their accounting degree.
D) AICPA.
14) What is an audit opinion?
A) Prepared by management, this is a written evaluation of the quality of work done by the
independent accountants.
B) Prepared by the independent accountants, this is a written evaluation of the company’s
financial statements.
C) Prepared by management, this is a written evaluation of the quality of work done by the
internal accountants.
D) Prepared by the independent accountants, this is a written evaluation of the goods or services
offered for sale by the company.
15) A qualified opinion is issued when which of the following occurs?
A) The auditors have taken exception to an accounting application.
B) The auditors find the financial statements to be fairly presented in accordance with GAAP.
C) The auditors were unable to gather the necessary information to issue a clean opinion.
D) A and C are both instances when a qualified opinion is issued.
16) Under which circumstance would an adverse opinion NOT be issued?
A) The financial statements are not fairly presented according to GAAP.
B) The auditor lacks independence.
C) There are material misstatements in the financial statements.
D) All of the above would lead to an adverse opinion.
6.5 Questions
1) The Public Company Accounting Oversight Board (PCAOB) reports to the SOX.
2) The law specifies how we expect people to act.
3) Many states require CPAs to participate in continuing education that deals with ethics.
4) Behaving ethically and behaving legally are the same.
5) Ethical conduct refers to how society requires people to act.
6) A person who reports unethical behavior is called a whistleblower.
7) The Sarbanes-Oxley Act requires a company’s stockholders to be more responsible.
8) The Sarbanes-Oxley Act only applies to publicly traded companies.
9) Persons who report unethical behavior are known as:
A) snitches.
B) whistleblowers.
C) enforcers.
D) writers of codes of ethics.
10) In response to a large number of high profile cases involving accounting fraud, the U. S.
Congress in 2002 passed the:
A) Internal Revenue Fraud Act.
B) Securities and Exchange Commission Fraud Act.
C) Sarbanes-Oxley Act.
D) Federal Reserve Act.
11) The Sarbanes-Oxley act applies to:
A) all corporations.
B) all partnerships.
C) all publicly traded companies.
D) international companies doing business in the United States.
12) Under SOX, the external auditors must now report to:
A) the management of the company being audited.
B) an audit committee.
C) the Securities and Exchange Commission.
D) the Public Company Accounting Oversight Board.
13) Under SOX, the Chief Executive Officer and Chief Financial Officer must sign off on:
A) all annual reports by the company.
B) all quarterly reports by the company.
C) all annual and quarterly reports by the company.
D) the external auditor’s opinion.
14) Under Sarbanes-Oxley, those officers signing off on the reports must have evaluated the
company’s internal control within the previous:
A) 90 days.
B) six months.
C) nine months.
D) year.
15) One of the biggest factors in implementing SOX was:
A) reviewing the financial reports.
B) establishing internal control procedures.
C) disclosing deficiencies in internal controls.
D) the cost of implementing the system.
6.6 Questions
1) Book value reports the past while market value focuses on the future.
2) US GAAP uses the cost principle and is less conservative than international standards.
3) Book value and market value refer to the same thing in regards to a company’s stock.
4) Market value is the amount stockholders could expect to receive if they were to sell their
stock.
5) ________ represents what a business was paid for its stock plus the profits that have been
retained in the business.
A) Historical value
B) Market value
C) Replacement value
D) Book value
6) Using U.S. GAAP, book value typically ________ market value.
A) is equal to
B) is lower than
C) is higher than
D) bears no relationship to
7) Using IFRS, book value typically ________ market value.
A) is closer to
B) is lower than
C) is higher than
D) bears no relationship to
8) ________ represents what future owners will pay present owners for their business.
A) Book value
B) Market value
C) Replacement value
D) Future value
9) Giggle has a reported book value of $15 million; however, the market value of Giggle’s stock
is $47 million. This means:
A) the company is not reporting its assets correctly on the Balance Sheet.
B) the market thinks the company is overvalued.
C) the market thinks the company is worth over three times what the Balance Sheet reports.
D) the CEO should get a raise.