University of Maryland, University College

ACCT 612

Sample Questions:

1)Which of the following statements is true concerning an auditor's responsibilities regarding financial statements?

1. Making suggestions that are adopted about the form and content of an entity's financial statements impairs an auditor's independence.

2. An auditor may draft an entity's financial statements based on information from management's accounting system.

3. The fair presentation of audited financial statements in conformity with GAAP is an implicit part of the auditor's responsibilities.

4. An auditor's responsibilities for audited financial statements are not confined to the expression of the auditor's opinion.

2. The independent auditor may make suggestions about the form or content of the financial statements or draft them, in whole or in part, based on information from management's accounting system. However, the auditor's responsibility for the financial statements (s)he has audited is confined to the expression of his/her opinion on them. The securities of Donley Corporation are listed on a regional stock exchange and registered with the SEC. The management of Donley engages a CPA to perform an independent audit of Donley's financial statements. The primary objective of this audit is to provide assurance to the             .

1. Regional stock exchange.

2. Investors in Donley securities.

3. Securities and Exchange Commission.

4. Board of directors of Donley.

3. Which of the following is a false statement about the relationship of financial statement assertions and audit procedures?

1. The relationship between financial statement assertions and audit procedures should be one-to-one.

2. Audit procedures should be developed in light of financial statement assertions about the financial statement components.

3. Selection of tests of financial statement assertions should depend upon the understanding of internal control.

4. The auditor should resolve any substantial doubt about any of management's relevant financial statement assertions.

4. Some auditing procedures may relate to more than one assertion. But a combination of auditing procedures may be needed to test a single relevant assertion because audit evidence from different sources or of a different nature may be relevant to the same assertion. For example, when relating controls to assertions, the auditor may determine that multiple controls are needed to address a risk and the related assertion.

The primary reason for an audit by an independent, external audit firm is to

1. Satisfy governmental regulatory requirements.

2. Guarantee that there are no misstatements in the financial statements and ensure that any fraud will be discovered.

3. Relieve management of responsibility for the financial statements.

4. Provide increased assurance to users as to the fairness of the financial statements.

5. The overall objectives of the auditor include obtaining reasonable assurance about whether the financial statements as a whole are free of material misstatement, whether due to fraud or error. This determination permits an auditor to express an opinion on (attest to) whether the financial statements are presented fairly, in all material respects, in accordance with an applicable financial reporting framework (e.g., U.S. GAAP). An audit performed by an independent, external audit firm provides assurance of the objectivity of the auditor's opinion.

Independent CPAs perform audits on the financial statements of issuers. This type of auditing can best be described as

1. An activity whose purpose is to search for fraud.

2. A discipline that attests to financial information presented by management.

3. A professional activity that measures and communicates financial and business data.

4. A regulatory function that prevents the issuance of improper financial information.

6. The overall objectives of the auditor include obtaining reasonable assurance about whether the financial statements as a whole are free of material misstatement, whether due to fraud or error. This determination permits an auditor to express an opinion on (attest to) whether the financial statements are presented fairly, in all material respects, in accordance with an applicable financial reporting framework (e.g., U.S. GAAP).

Users of an issuer's financial statements demand independent audits because                                                .

1. Users demand assurance that fraud does not exist.

2. Management may not be objective in reporting.

3. Users expect auditors to correct management errors.

4. Management relies on the auditor to improve internal control.

7. Management and financial statement users may have an adversarial relationship because their interests in the firm are different. The independent auditor provides assurance that the financial statements are not biased for or against any interest

An audit of the financial statements of Camden Corporation is being conducted by an external auditor. The external auditor is expected to                                                                                       .

1. Express an opinion as to the fairness of Camden's financial statements.

2. Express an opinion as to the attractiveness of Camden for investment purposes and critique the wisdom and legality of its business decisions.

3. Certify the correctness of Camden's financial statements.

4. Make a 100% examination of Camden's records.

8. Auditing standards require the auditor to express an opinion regarding the financial statements as a whole or to assert that an opinion cannot be expressed. An opinion states whether the financial statements are presented fairly, in all material respects, in accordance with an applicable financial reporting framework.

Notes that are included with financial statements are the responsibility of the

                           .

1. Securities and Exchange Commission.

2. Company's management.

3. Independent auditor.

4. Internal auditor.

9. An auditor must obtain professional experience primarily to                                   .

1. Receive a positive employment evaluation.

2. Exercise professional judgment.

3. Receive a favorable peer review.

4. Earn a specialty designation by the AICPA.

10. The Sarbanes-Oxley Act limits the nonaudit services that an audit firm can provide to issuer audit clients. Which of the following services is still an allowable service that an auditor may provide to an issuer client?

1. Internal audit and other specified services.

2. Legal services.

3. Management consulting services.

4. Tax compliance services.

11. Assurance services are best described as                                              .

1. Services designed for the improvement of operations, resulting in better outcomes.

2. Independent professional services that improve the quality of information, or its context, for decision makers.

3. The assembly of financial statements based on information and assumptions of a responsible party.

4. Services designed to express an opinion on historical financial statements based on the results of an audit.

12. The objective of assurance services is to                           .

1. Provide more timely information.

2. Enhance decision making.

3. Compare internal information and policies to those of other firms.

4. Improve the firm's outcomes.

13. Which of the following statements best explains why the CPA profession has found it essential to establish ethical standards and means for ensuring their observance?

1. A distinguishing mark of a profession is its acceptance of responsibility to the public.

2. A requirement for a profession is to establish ethical standards that stress primarily a responsibility to clients and colleagues.

3. Ethical standards that emphasize excellence in performance over material rewards establish a reputation for competence and character.

4. Vigorous enforcement of an established code of ethics is the best way to prevent unscrupulous acts.

14. The AICPA Code of Professional Conduct contains both general ethical principles that are aspirational in character and also a                                                                                   .

1. List of violations that would cause the automatic suspension of a member's license.

2. Set of specific, mandatory rules describing minimum levels of conduct a member must maintain.

3. Description of a member's procedures for responding to an inquiry from a trial board.

4. List of specific acts discreditable to the profession.

15. Which AICPA Conduct Rule applies only to members in the practice of public accounting?

1. General Standards (201).

2. Accounting Principles (203).

3. Independence (101).

4. Compliance with Standards (202).

16. An auditor strives to achieve independence in appearance to                                                  .

1. Maintain public confidence in the profession.

2. Become independent in fact.

3. Comply with the generally accepted auditing standards of field work.

4. Maintain an unbiased mental attitude.

17. Competence as an independent auditor includes all of the following except

1. Having the technical qualifications to perform an engagement.

2. Possessing the ability to supervise assistants.

3. Warranting the infallibility of the work performed.

4. Consulting others if additional technical information is needed.

18. According to the IFAC's Code of Ethics for Professional Accountants,

1. A contingent fee arrangement may create a self-interest threat.

2. An auditor may not receive a referral fee.

3. An auditor may not receive a commission.

4. Fees may be too high but not too low.

19. When Congress passed the Sarbanes-Oxley Act of 2002, it imposed greater regulation on public companies and their auditors and required increased accountability. Which of the following is not a provision of the act?

1. Executives must certify the appropriateness of the financial statements.

2. The act provides criminal penalties for fraud.

3. Auditors may not provide specific nonaudit services for their audit clients.

4. Audit firms must be rotated on a periodic basis.

20. Which of the following factors most likely would cause an auditor to decline a new audit engagement?

1. An inadequate understanding of the entity's internal control.

2. The close proximity to the end of the entity's fiscal year.

3. Failure of management to satisfy the preconditions for an audit.

4. An inability to perform preliminary analytical procedures before assessing control risk.

21. Before accepting an engagement to audit a new client, an auditor is required to

1. Make inquiries of the predecessor auditor after obtaining the consent of the prospective client.

2. Obtain the prospective client's signature to the engagement letter.

3. Prepare a memorandum setting forth the staffing requirements and documenting the preliminary audit plan.

4. Discuss the management representation letter with the prospective client's audit committee.

22. In assessing whether to accept a client for an audit engagement, a CPA should consider the

Client's Business Risk | CPA's Business Risk

1. Yes, Yes

2. Yes, No

3. No. Yes

4. No, No

23. Audit plans should be designed so that

1. Most of the required procedures can be performed as interim work.

2. The risks of material misstatement are assessed at a sufficiently low level.

3. The auditor can make constructive suggestions to management.

4. The audit evidence gathered supports the auditor's conclusions.

24. During the initial planning phase of an audit, a CPA most likely would

1. Identify specific internal control activities that are likely to prevent fraud.

2. Evaluate the reasonableness of the client's accounting estimates.

3. Discuss the timing of the audit procedures with the client's management.