Question 1

PCAOB auditing standards must be followed on all financial statement audits performed in the U.S.

Accepted Answer

False

Question 2

A series of business and related auditing failures led to the passage of the Sarbanes-Oxley Act (2002).

Accepted Answer

The Sarbanes-Oxley Act (2002) was passed in response to a number of high-profile accounting scandals such as Enron, WorldCom, and Tyco International, which exposed weaknesses in the financial reporting and auditing systems. These failures led to a loss of confidence in the integrity of financial information and the need for reform to restore investor confidence.

Question 3

The primary audit context with which an auditor is concerned is the auditee's industry or business.

Accepted Answer

The primary focus of an auditor is on the auditee's industry or business. They examine financial statements and other information to ensure that the auditee is following industry standards and regulations. Understanding the auditee's industry or business is essential for an effective audit.

Question 4

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?
A) Proficiency.
B) Audit risk.
C) Inspection.
D) Due care.

Accepted Answer

The PCAOB generally accepted auditing standard that requires a critical review of the work done and the judgment exercised by those assisting in an audit at every level of supervision is the standard of due care. The other options (proficiency, audit risk, and inspection) do not directly relate to this requirement.

Question 5

The Public Company Accounting Oversight Board's role is to
A) Conduct the final review of auditors' work before the auditor's opinion is issued.
B) Oversee the auditors of public companies in order to protect the interests of investors.
C) Conduct audits of governmental entities.
D) Sanction auditors who fail to follow GAAS.

Accepted Answer

The Public Company Accounting Oversight Board (PCAOB) was created by the Sarbanes-Oxley Act in 2002 to oversee the auditors of public companies in order to protect the interests of investors. The PCAOB sets auditing standards, conducts inspections of audit firms, and imposes sanctions on auditors who fail to follow auditing standards. Therefore, choice B is the best choice. Choice A is incorrect because the final review of auditors' work is generally conducted by the client's management, not the PCAOB. Choice C is incorrect because the PCAOB does not conduct audits of governmental entities - this is the responsibility of the Government Accountability Office. Choice D is partially correct, as the PCAOB does have the authority to sanction auditors who fail to follow auditing standards, but this is just one of many responsibilities of the PCAOB.

Question 6

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
A) A statement of fact by the auditor.
B) An opinion by the auditor.
C) An implied measure of fairness.
D) An objective measure of compliance.

Accepted Answer

The first PCAOB standard of reporting requires that the auditor provides an opinion on whether the financial statements of the company are presented in accordance with generally accepted accounting principles (GAAP). Therefore, option B, which states that it requires an opinion by the auditor, is the best choice. The PCAOB has implemented standards that require auditors to express their opinions on the financial statements of public companies. The purpose of this standard is to ensure that investors can rely on the information presented in the financial statements.

Question 7

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
A) Independence with respect to the financial statements and supplementary disclosures.
B) Exercising professional care as judged by peer reviewers.
C) Proficiency as an auditor which likely has been acquired from previous experience.
D) Objectivity as an auditor as verified by proper supervision.

Accepted Answer

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 proficiency as an auditor which likely has been acquired from previous experience. This means that the auditor must have the necessary technical knowledge and experience to perform the audit effectively. Independence, exercising professional care, and objectivity are also important, but are covered under other general standards.

Question 8

A financial statement audit is generally organized based on the five basic business processes or cycles.

Accepted Answer

A financial statement audit is organized based on the five basic business processes or cycles, which are revenue and receipts, purchases and payments, payroll and personnel, inventory and warehousing, and financing.

Question 9

Which of the following best describes the general character of the three PCAOB generally accepted auditing standards that are classified as standards of fieldwork?
A) The competence, independence, and professional care of persons performing the audit.
B) Criteria for the content of the auditor's report on financial statements and related footnote disclosures.
C) The criteria of audit planning and evidence-gathering.
D) The need to maintain independence in mental attitude in all matters relating to the audit.

Accepted Answer

The three PCAOB generally accepted auditing standards that are classified as standards of fieldwork are:
1. Planning and supervision
2. Internal control
3. Audit evidence gathering
Together, these standards establish the criteria for audit planning and evidence-gathering.

Question 10

The auditor must be independent of the auditee unless
A) The lack of independence does not influence his or her professional judgment.
B) Both parties agree that the independence issue is not a problem.
C) The lack of independence is insignificant.
D) None of the above-the auditor cannot lack independence.

Accepted Answer

The answer of The auditor must be independent of the...

Question 11

What organization is responsible for setting auditing standards for audits of publicly-traded companies in the U.S.?
A) AICPA.
B) FASB.
C) GASB.
D) PCAOB.

Accepted Answer

The PCAOB (Public Company Accounting Oversight Board) is responsible for setting auditing standards for audits of publicly-traded companies in the U.S. The AICPA (American Institute of Certified Public Accountants) sets auditing standards for private companies. The FASB (Financial Accounting Standards Board) sets accounting standards, not auditing standards. The GASB (Governmental Accounting Standards Board) sets accounting and financial reporting standards for state and local governments.

Question 12

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
A) Objective cynicism.
B) Independent differentialism.
C) Professional skepticism.
D) Impartial conservatism.

Accepted Answer

Professional skepticism is an attitude that requires an auditor to approach the audit with a questioning mind and to be alert to any indications that a material misstatement may exist in the financial statements. This attitude is necessary because there is always a risk of material misstatement due to errors or fraud, and the auditor must be vigilant in their examination of the evidence presented to them. Option A describes a negative and cynical attitude, which is not appropriate for an auditor. Option B is not a recognized term in auditing standards, and Option D does not accurately reflect the necessary mindset for an auditor.

Question 13

PCAOB auditing standards must be followed on all audits of public companies' financial statements.

Accepted Answer

PCAOB auditing standards are mandatory for audits of public companies' financial statements as per the Sarbanes-Oxley Act.

Question 14

The authoritative body designed to promulgate standards concerning a CPA's association with audited financial statements of an entity that is required to file financial statements with the SEC is the
A) Financial Accounting Standards Board.
B) General Accounting Office.
C) Public Company Accounting Oversight Board.
D) Auditing Standards Board.

Accepted Answer

The Public Company Accounting Oversight Board (PCAOB) is the authoritative body that oversees the audits of public companies that file with the SEC. The PCAOB issues auditing standards and establishes rules related to audit reports, auditor independence, and quality control. This body is specifically designed to promulgate standards concerning a CPA's association with audited financial statements of an entity that is required to file financial statements with the SEC. Therefore, option C is the correct choice. The Financial Accounting Standards Board (FASB) is responsible for promulgating generally accepted accounting principles (GAAP) used to prepare financial statements, while the Auditing Standards Board (ASB) is responsible for developing and updating auditing standards for private companies. The General Accounting Office (GAO) is an independent government agency that audits and evaluates government programs and provides support to Congress.

Question 15

A financial statement audit must be conducted based on GAAP.

Accepted Answer

A financial statement audit is conducted based on auditing standards (such as Generally Accepted Auditing Standards (GAAS) in the United States or International Standards on Auditing (ISA) globally), not based on Generally Accepted Accounting Principles (GAAP), which are the guidelines for preparing the financial statements.

Question 16

One of the five basic business processes is the warehousing cycle.

Accepted Answer

The answer of One of the five basic business processes...

Question 17

Generally, the financial statements of U.S. companies must be prepared based on GAAP.

Accepted Answer

Generally, the financial statements of U.S. companies must be prepared based on generally accepted accounting principles (GAAP) as set forth by the Financial Accounting Standards Board (FASB).

Question 18

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.

Accepted Answer

The IAASB and ASB did collaborate on a replacement for the 10 GAAS standards, resulting in the new set of standards known as the clarified International Standards on Auditing (ISAs). These standards outline the principles underlying an audit conducted in accordance with generally accepted auditing standards.

Question 19

The audit committee generally includes senior executives of the organization.

Accepted Answer

The audit committee typically includes a group of independent directors who are not part of the senior management team. This is done to ensure objectivity and independence in reviewing the financial statements and internal controls of the organization. However, senior executives may attend the committee meetings and provide information as needed.

Question 20

The Audit Committee consists of
A) Members of management.
B) A subcommittee of the AICPA who establish the SAS.
C) Members of the Board of Directors.
D) Appointed government overseers.

Accepted Answer

The Audit Committee is typically composed of Members of the Board of Directors.

Quiz 2: The Financial Statement Auditing Environment

PCAOB auditing standards must be followed on all financial statement audits performed in the U.S.

A series of business and related auditing failures led to the passage of the Sarbanes-Oxley Act (2002).

The primary audit context with which an auditor is concerned is the auditee's industry or business.

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?

The Public Company Accounting Oversight Board's role is to

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

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

A financial statement audit is generally organized based on the five basic business processes or cycles.

Which of the following best describes the general character of the three PCAOB generally accepted auditing standards that are classified as standards of fieldwork?

The auditor must be independent of the auditee unless

What organization is responsible for setting auditing standards for audits of publicly-traded companies in the U.S.?

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