Chapter 02 – The Financial Statement Auditing Environment
1. A series of business and related auditing failures led to the passage of the Sarbanes-Oxley
Act (2002).
2. The primary audit context with which an auditor is concerned is the client’s industry or
business.
3. The audit committee generally includes senior executives of the organization.
Chapter 02 – The Financial Statement Auditing Environment
4. A financial statement audit is generally organized based on the five basic business processes
or cycles.
5. One of the five basic business processes is the warehousing cycle.
6. The IAASB and the ASB collaborated on a replacement for the 10 GAAS standards which
include principles underlying an audit conducted in accordance with generally accepted
auditing standards.
Chapter 02 – The Financial Statement Auditing Environment
7. PCAOB auditing standards must be followed on all financial statement audits performed in
the U.S.
8. A financial statement audit must be conducted based on GAAP.
9. Generally, the financial statements of U.S. companies must be prepared based on GAAP.
Chapter 02 – The Financial Statement Auditing Environment
10. PCAOB auditing standards must be followed on all audits of public companies’ financial
statements.
11. The Audit Committee consists of
12. What organization is responsible for setting auditing standards for audits of publicly-traded
companies in the U.S.?
Chapter 02 – The Financial Statement Auditing Environment
13. The Public Company Accounting Oversight Board’s role is to
14. The authoritative body designed to promulgate standards concerning an accountant’s
association with audited financial statements of an entity that is required to file financial
statements with the SEC is the
Chapter 02 – The Financial Statement Auditing Environment
16. Which of the following describes the PCAOB generally accepted auditing standard
requiring a critical review of the work done and the judgment exercised by those assisting in an
audit at every level of supervision?
17. Which of the following best describes the general character of the three PCAOB generally
accepted auditing standards that are classified as standards of fieldwork?
Chapter 02 – The Financial Statement Auditing Environment
18. The first PCAOB general standard requires that the examination of financial statements is
to be performed by a person or persons having adequate technical training and
19. The first PCAOB standard of reporting requires that, “the report shall state whether the
financial statements are presented in accordance with generally accepted accounting
principles.” This passage requires
Chapter 02 – The Financial Statement Auditing Environment
20. Because of the risk of material misstatement, an audit of financial statements in accordance
with generally accepted auditing standards should be planned and performed with an attitude
of
21. The accuracy of information included in footnotes accompanying the audited financial
statements issued by a company whose shares are traded on a stock exchange is the primary
responsibility of
Chapter 02 – The Financial Statement Auditing Environment
22. The primary responsibility for the adequacy of disclosures in the financial statements of a
publicly held company rests with the
23. The largest public accounting firms typically are structured as
24. Typically, an external auditor first gets supervisory experience at what level of authority?
Chapter 02 – The Financial Statement Auditing Environment
25. An “in-charge” auditor typically holds the rank of
26. Which of the following best describes the concept of risk assessment on which auditors can
provide independent assurance?
27. Forensic audits include all of the following except
Chapter 02 – The Financial Statement Auditing Environment
28. A typical objective of an operational audit is for the auditor to
29. Governmental auditing often extends beyond examinations leading to the expression of an
opinion on the fairness of financial presentation and includes audits of efficiency, effectiveness,
and
30. External auditors are referred to as “external” because
Chapter 02 – The Financial Statement Auditing Environment
31. Which is not an attribute of an external auditor?
32. What is the general character of the work conducted in performing a forensic audit for a
company?
Chapter 02 – The Financial Statement Auditing Environment
33. Which of the following is NOT a requirement of the Sarbanes-Oxley Act?
34. A CPA is most likely to refer to one or more of the three PCAOB general auditing standards
in determining
Chapter 02 – The Financial Statement Auditing Environment
35. Who bears ultimate responsibility for the financial statements?
36. The three PCAOB general standards are concerned with
Chapter 02 – The Financial Statement Auditing Environment
37. The first PCAOB general standard recognizes that regardless of how capable an individual
may be in other fields, the individual cannot meet the requirements of the auditing standards
without the proper
38. The main difference between SAS and AU is
Chapter 02 – The Financial Statement Auditing Environment
39. The AICPA’s Statements on Auditing Standards can be described as
40. Due professional care requires auditors to