Question 1

COSO:
A) is the body that established an internal control standards framework referenced by the PCAOB.
B) published a document that explains what an internal control system should be like to be effective.
C) is the acronym widely used to refer to the Committee of Sponsoring Organizations of the Treadway Commission.
D) All of the above.

Accepted Answer

COSO (Committee of Sponsoring Organizations of the Treadway Commission) is the body that established an internal control standards framework referenced by the PCAOB (Public Company Accounting Oversight Board). Additionally, COSO published a document that explains what an internal control system should be like to be effective. Therefore, all of the above options are correct.

Question 2

For an integrated audit to be possible:
A) Established criteria must exist against which the financial statements and ICFR can be compared.
B) The auditor must have sufficient knowledge of both the AICPA SAS and PCAOB AS.
C) The entity must have sufficient books, records and other underlying evidence so that the auditor can determine whether there is a high degree of correspondence between the underlying evidence and the financial statements.
D) a and c

Accepted Answer

Choice a is correct because established criteria are essential for the auditor to evaluate the financial statements and ICFR. Choice c is also correct because the availability of sufficient books, records and other underlying evidence is crucial for the auditor's assessment of the correspondence between the financial statements and the evidence. Choice b is incorrect because while having knowledge of both AICPA SAS and PCAOB AS is beneficial, it is not essential for an integrated audit to be possible.

Question 3

Financial statements must be prepared:
A) in accordance with GAAP.
B) in accordance with IFRS.
C) in accordance with OCBOA.
D) Any of the above, depending on which set of standards the circumstances dictate as applicable.

Accepted Answer

Financial statements can be prepared in accordance with Generally Accepted Accounting Principles (GAAP), International Financial Reporting Standards (IFRS), or Other Comprehensive Basis of Accounting (OCBOA), depending on the jurisdiction and the specific requirements applicable to the entity preparing the statements.

Question 4

The audit engagement team consists of:
A) more than one partner.
B) associates and seniors.
C) managers.
D) All of the above.

Accepted Answer

The audit engagement team typically includes partners, managers, seniors, and associates who work together to conduct the audit. Therefore, option D ("All of the above") is the best choice.

Question 5

Which of the following organizations is considered to be a public company?
A) A firm whose privately held stock is owned exclusively by an individual.
B) A partnership of doctors.
C) A privately-held firm controlled by three family members.
D) A firm whose stock is registered with the SEC.

Accepted Answer

A public company is a corporation whose ownership is dispersed among general public shareholders via publicly traded shares of stock. The SEC (Securities and Exchange Commission) regulates such companies, and their financial disclosures are available to the public. Therefore, a firm whose stock is registered with the SEC is considered a public company. The other choices - A, B, and C - do not fit the definition of a public company.

Question 6

Which of the following is an assertion?
A) A statement made by management regarding the collectability of accounts receivable.
B) The audit firm's estimation of the client's inventory obsolescence.
C) The statement by management regarding the appointment of auditors.
D) The statement by management that the firm will close its branch office because of snow.

Accepted Answer

An assertion is a statement made by management regarding the financial statements, such as the collectability of accounts receivable. Options B, C, and D are not examples of assertions.

Question 7

Assertions are:
A) audited by the auditors.
B) declarations made by management.
C) declarations made by the auditor.
D) Both a and b

Accepted Answer

Assertions are declarations made by management regarding the financial statements, which are then audited by auditors to ensure their accuracy and reliability.

Question 8

Which of the following best describes the conclusions an auditor makes in an integrated audit that results in an audit report that is unqualified?
A) The financial statements are fair according to GAAP.
B) The financial statements are free of material misstatement based on U.S. GAAP and management's report on internal control over financial reporting states that there are no material weaknesses.
C) The financial statements and internal control over financial reporting are materially correct.
D) The financial statements are free of material misstatement based on U.S. GAAP and based on the audit, the auditor agrees with management's report that internal control over financial reporting is effective and does not have any material weaknesses.

Accepted Answer

The answer of Which of the following best describes the...

Question 9

A public company must:
A) register with the SEC.
B) undergo an integrated audit.
C) trade on a stock exchange.
D) Both a and b

Accepted Answer

The answer of A public company must:
A) register with the...

Question 10

Auditing is defined as a:
A) set pattern of tests.
B) random process.
C) systematic process.
D) All of the above.

Accepted Answer

Auditing is a systematic process, meaning it follows a planned and organized approach rather than being random. While there may be established patterns and tests that auditors commonly use, these are not the defining characteristics of auditing. Therefore, choice A and B are both incorrect.

Question 11

The auditor:
A) prepares the financial statements after the client agrees to all adjustments.
B) writes the footnotes to the financial statements to ensure their accuracy.
C) performs work to reach an opinion on the ICFR and financial statements.
D) None of the above.

Accepted Answer

The auditor performs work to reach an opinion on the ICFR (Internal Control over Financial Reporting) and financial statements. Option A is incorrect because the auditor does not prepare the financial statements, but only ensures that they are presented fairly in accordance with the applicable accounting framework. Option B is incorrect because the footnotes are usually prepared by the client as they have the most direct knowledge of the events and transactions being disclosed.

Question 12

Errors in financial statements are:
A) never material.
B) intentional.
C) unintentional.
D) Both a and c

Accepted Answer

Errors in financial statements can be unintentional, resulting from mistakes in data entry, interpretation of accounting standards, or oversight.

Question 13

An integrated audit results in:
A) an audit opinion on the financial statements.
B) an audit opinion on ICFR.
C) a series of reports to major stakeholders.
D) Both a and b

Accepted Answer

An integrated audit results in both an audit opinion on the financial statements and an audit opinion on ICFR. It does not necessarily result in a series of reports to major stakeholders, as those reports may vary depending on the specific engagement and client needs.

Question 14

Which of the following would not be considered audit evidence?
A) Invoices received by the company and retained on the company's IT system in electronic form.
B) The electronic work paper program package used by the auditor to produce the electronic work papers.
C) Hard copy minutes of the Board of Directors and Audit Committee meetings.
D) Electronic images of the front and back of checks that the company has written.

Accepted Answer

The electronic work paper program package is a tool used by the auditor, but it is not considered audit evidence. The other options all represent forms of audit evidence that can support the auditor's opinion. Invoices, meeting minutes, and images of checks all provide information that can be used to verify the accuracy of account balances and financial statements.

Question 15

Auditors communicate audit results to users concerning a company's financial statements by:
A) issuing a report on the effectiveness of ICFR.
B) issuing the financial statements.
C) issuing a report about the financial statements.
D) None of the above.

Accepted Answer

Auditors communicate audit results to users by issuing a report about the financial statements. This report provides an opinion on whether the financial statements are fairly presented and in compliance with accounting standards. While auditors may also issue a report on the effectiveness of internal control over financial reporting (ICFR), this does not directly communicate the audit results related to the financial statements themselves. Similarly, auditors do not issue the financial statements themselves.

Question 16

The audit report states that the audit provides:
A) a guarantee of quality.
B) complete assurance that the financial statements are free from misstatements.
C) absolute assurance that the internal control environment is operating effectively.
D) None of the above.

Accepted Answer

An audit report does not provide a guarantee of quality, complete assurance of the absence of misstatements, or absolute assurance that the internal control environment is operating effectively. The auditor provides a reasonable assurance that the financial statements are fairly presented, in all material respects, in accordance with the applicable financial reporting framework.

Question 17

What is the purpose of a financial statement audit?
A) To provide assurance that the company is solvent.
B) To provide assurance that the company has an effective internal control system that can produce fair financial statements.
C) To provide assurance that the financial statements are reliable.
D) Both b and c

Accepted Answer

The answer of What is the purpose of a financial...

Question 18

Who is responsible for the design and operation of ICFR?
A) The auditor.
B) The company's management.
C) Both a and b
D) None of the above.

Accepted Answer

The company's management is responsible for the design and operation of Internal Control over Financial Reporting (ICFR).

Question 19

The audit engagement team:
A) is chosen by the client.
B) is some combination of partners, managers, seniors and associates.
C) is a mix of CPA firm and client employees.
D) None of the above.

Accepted Answer

The audit engagement team typically consists of a combination of partners, managers, seniors, and associates from the CPA firm conducting the audit. The client does not choose the audit engagement team, and while the client may provide some employees to assist with the audit, the core team is from the CPA firm. Therefore, choices A and C are incorrect.

Question 20

A "clean" audit report states that:
A) there are no errors in the financial statements.
B) the internal control environment is operating well.
C) the auditors evaluated evidence.
D) All of the above.

Accepted Answer

A "clean" audit report, also known as an unqualified opinion, indicates that the auditors have evaluated the evidence and believe the financial statements are presented fairly in all material respects, in accordance with the applicable financial reporting framework. It does not guarantee the absence of errors or assess the internal control environment.

Quiz 1: An Introduction to Auditing

COSO:

For an integrated audit to be possible:

Financial statements must be prepared:

The audit engagement team consists of:

Which of the following organizations is considered to be a public company?

Which of the following is an assertion?

Assertions are:

Which of the following best describes the conclusions an auditor makes in an integrated audit that results in an audit report that is unqualified?

A public company must:

Auditing is defined as a:

The auditor:

Errors in financial statements are:

An integrated audit results in:

Which of the following would not be considered audit evidence?

Auditors communicate audit results to users concerning a company's financial statements by:

The audit report states that the audit provides:

What is the purpose of a financial statement audit?

Who is responsible for the design and operation of ICFR?

The audit engagement team:

A "clean" audit report states that: