Question 1

The PCAOB jointly sets audit standards with the AICPA for publicly traded firms.

Accepted Answer

The PCAOB (Public Company Accounting Oversight Board) independently sets audit standards for publicly traded companies, while the AICPA (American Institute of Certified Public Accountants) sets standards for private companies.

Question 2

CPAs who audit public companies may only perform attest services.

Accepted Answer

CPAs who audit public companies can also provide other non-attest services, such as tax preparation and advisory services, as long as these services do not impair their independence with respect to the audit client.

Question 3

The Audit Committee of the Board of Directors performs the audit and reports the results to shareholders and the Board of Directors.

Accepted Answer

The Audit Committee of the Board of Directors oversees the audit process but does not perform the audit itself; this is done by independent external auditors. The committee then reviews and discusses the audit results with these auditors before reporting to shareholders and the Board of Directors.

Question 4

In an ideal situation, internal auditors report to the Audit Committee.

Accepted Answer

In an ideal situation, internal auditors should report directly to the Audit Committee. This allows for independence and objectivity in the auditing process and helps to ensure that any issues or concerns are brought to the attention of an unbiased group within the organization.

Question 5

If a nonpublic company uses IFRS to prepare its financial statements, it cannot receive an unqualified opinion when audited using the AICPA Statements on Auditing Standards.

Accepted Answer

The statement is false. The AICPA allows use of IFRS for financial statements prepared by nonpublic companies, and auditors can issue unqualified opinions if the financial statements comply with the framework of IFRS. Auditors must also comply with the relevant AICPA auditing standards, regardless of the financial reporting framework used.

Question 6

An auditor's report on an integrated audit will be unqualified if internal control over financial reporting does not have any material weaknesses and the financial statements are fairly presented.

Accepted Answer

An unqualified auditor's report on an integrated audit indicates that the auditor has found no material weaknesses in internal control over financial reporting and that the financial statements are fairly presented.

Question 7

An audit of a public company is referred to as an integrated audit.

Accepted Answer

An integrated audit refers to the audit of financial statements, internal control over financial reporting, and compliance with laws and regulations applicable to the company conducted by the same audit firm. This type of audit is required for public companies in the United States.

Question 8

Auditors consider and examine ICFR for all of the same reasons, whether they are auditing a public or a nonpublic company.

Accepted Answer

While auditors consider Internal Control over Financial Reporting (ICFR) in both public and nonpublic company audits, the extent, nature, and purpose of considering ICFR can differ significantly. Public companies, especially those subject to Sarbanes-Oxley Act (SOX) Section 404, require an explicit audit of ICFR, whereas for nonpublic companies, the focus on ICFR is more about understanding the controls to plan the financial statement audit, rather than providing an opinion on the effectiveness of ICFR.

Question 9

CPAs who perform financial statement audits of public companies are responsible for the accuracy of the client's financial statements.

Accepted Answer

CPAs who perform financial statement audits are responsible for providing an opinion on whether the financial statements are free of material misstatement, whether due to fraud or error. The management of the company is responsible for the preparation and accuracy of the financial statements.

Question 10

Because of regulatory requirements, a not-for-profit organization's audit report may be different from that of a for-profit company.

Accepted Answer

Not-for-profit organizations may have specific regulatory requirements related to their funding sources and mission that affect their financial reporting and audit report. These requirements may result in differences between their audit report and that of a for-profit company.

Question 11

Salaried partners of a CPA firm are compensated based on a share in the firm's profit.

Accepted Answer

The answer of Salaried partners of a CPA firm are...

Question 12

The Sarbanes-Oxley Act limits the amount of non-attest services that auditors may perform for public companies they audit.

Accepted Answer

The Sarbanes-Oxley Act does indeed limit the amount of non-attest services that auditors may perform for public companies they audit. This is intended to enhance auditor independence and reduce conflicts of interest.

Question 13

Currently, the primary authoritative body that regulates individual CPAs is the Congress of the United States.

Accepted Answer

The primary authoritative body that regulates individual CPAs in the United States is actually the state boards of accountancy. They oversee the licensing, certification, and continuing education requirements for CPAs in their respective states. The American Institute of Certified Public Accountants (AICPA) also plays a role in setting professional standards and promoting ethical behavior among CPAs. However, the Congress of the United States does not directly regulate individual CPAs.

Question 14

When there is a material misstatement in the financial statements, the auditor requires management of the company to correct the financial statements so the auditor can issue an audit report.

Accepted Answer

The answer of When there is a material misstatement in...

Question 15

The PCAOB was formed to meet one of the requirements in the Sarbanes-Oxley Act of 2002.

Accepted Answer

The PCAOB (Public Company Accounting Oversight Board) was formed as a result of the Sarbanes-Oxley Act of 2002 in order to oversee and regulate auditing and accounting practices of public companies.

Question 16

The SEC is responsible for setting standards for not-for-profit organizations.

Accepted Answer

The SEC (Securities and Exchange Commission) is a regulatory agency that oversees public securities markets and protects investors. They do not set standards for not-for-profit organizations. Non-profit organizations are regulated by the Internal Revenue Service (IRS) and are required to follow guidelines set by the IRS for tax-exempt status.

Question 17

The organization of a typical CPA firm is similar to that of a corporation.

Accepted Answer

A typical CPA firm is organized as a partnership or a professional corporation, which differs from the structure of a typical corporation in terms of ownership, governance, and profit distribution.

Question 18

If management has presented the actual economic events and situation according to the accounting standards, then there is a high degree of correspondence between the underlying evidence and the resulting financial statements.

Accepted Answer

If management presents the actual economic events and situation according to the accounting standards, then the financial statements should accurately reflect those events and situation, resulting in a high degree of correspondence between the underlying evidence and the financial statements.

Question 19

The types of business structures used by CPA firms are designed to make the professionals who own the firms responsible for providing high quality services.

Accepted Answer

The types of business structures used by CPA firms, such as sole proprietorships, partnerships, limited liability companies (LLCs), and corporations, are designed to legally and financially separate the owners from the business itself. However, regardless of the business structure, all CPA firms are responsible for providing high quality services to their clients, and the professionals who own the firms are ultimately accountable for the firm's performance and reputation.

Question 20

Forensic accountants often investigate fraud.

Accepted Answer

Forensic accountants are specifically trained to investigate various types of financial fraud and financial crimes. They use their accounting, auditing, and investigative skills to analyze financial statements, transaction records, and other relevant financial documentation to look for evidence of fraudulent activity.

Quiz 1: An Introduction to Auditing