Quiz Week 2

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QUESTION 1

1. What is a compliance audit?

		A. an audit to determine whether the entity has conformed with regulations, rules or processes
		B. an assessment of the economy, efficiency and effectiveness of an organization’s operations
		C. an evaluation and improvement of risk management, internal control procedures and elements of the governance process
		D. an assessment of the company’s financial statements

3 points

QUESTION 2

1. In an unqualified audit report on the financial statements of a public company, what does the first statement of the opinion paragraph state?

		A. An audit was conducted, which financial statements were audited, and the dates of the financial statements.
		B. PCAOB audit standards were followed since it is a public company.
		C. The audit firm believes that its audit provides a reasonable basis for its opinion.
		D. Management is responsible for the fair presentation of the financial statements.

3 points

QUESTION 3

1. Which of the following statements is true?

		A. Often interested users, like banks, ask private companies or non-users to provide audited financial statements.
		B. Public users are required to have three audits a year.
		C. Public users are required to have an audit of internal financial forecast reports (IFFRs).
		D. For efficiency purposes, the three required audits for public companies are performed at the same time.

3 points

QUESTION 4

1. Which of the following is a private professional membership organization of CPAs representing the accounting profession?

		A. AICPA
		B. PCAOB
		C. ASB
		D. IAASB

3 points

QUESTION 5

1. Public companies, or issuers, in the U.S. are ________.

		A. required by the federal government to have quarterly financial statement audits
		B. required by the federal government to have annual financial statement audits
		C. required by the federal government to have semi-annual financial statement audits
		D. not required by the federal government to have financial statement audits

3 points

QUESTION 6

1. To be meaningful, a code of ethics must strike a balance between being _______.

		A. above the law but below the ideal
		B. below the law but above the ideal
		C. above the law but below practical
		D. below the law but above practical

3 points

QUESTION 7

1. If a CFO of a company is dealing with an ethical situation, which section of the AICPA’s Code of Professional Ethics might he/she refer?

		A. Part I
		B. Part II
		C. Part III
		D. Some other section

3 points

QUESTION 8

1. Although codes of ethics may be designed in part to encourage ideal behavior, they must also be _______.

		A. practical and enforceable
		B. idealistic and above the law
		C. easy to remember and basic
		D. balanced and confidential

3 points

QUESTION 9

1. If a public practice CPA firm is concerned about the ethical nature of the firm’s advertising, which section of the AICPA’s Code of Professional Ethics would provide guidance?

		A. Part I
		B. Part II
		C. Part III
		D. Some other section

3 points

QUESTION 10

1. The AICPA Code of Professional Conduct can be found online and is organized in four sections. Which section is first?

		A. Part I on ethical rules.
		B. Preface applicable to all members.
		C. Introduction to the History of the Code of Conduct.
		D. Foreword about AICPA membership.

3 points

QUESTION 11

1. If a company refuses permission to contact its previous audit firm, what should the new auditor do?

		A. Consider the implications of that refusal when deciding whether to accept the engagement.
		B. Contact potential third parties to gain information about the client firm.
		C. Review newspaper and magazine articles about the client.
		D. Do a background check on the CEO of the company.

2 points

QUESTION 12

1. If management is preoccupied with meeting specific accounting numbers, this is a negative factor that should influence client acceptance and retention and is associated with _______.

		A. the integrity of management
		B. competence issues within the audit firm
		C. independence issues within the audit firm
		D. special circumstances and unusual risks

2 points

QUESTION 13

1. If new information comes to light that would cause the auditor to establish a different level of planning materiality, then the auditor _______.

		A. should examine the information and make adjustments to materiality as needed
		B. issue a qualified opinion as part of the audit report
		C. follow the auditing standards that recommend an appropriate percentage of total assets as a benchmark for planning materiality for all companies
		D. have management of the company select the appropriate benchmark for planning materiality

2 points

QUESTION 14

1. The use of performance materiality should:

		A. reduce the probability that the sum of immaterial and/or undetected misstatements in the financial statements is greater than materiality for the financial statements as a whole.
		B. increase the probability that the sum of immaterial and/or undetected misstatements in the financial statements is greater than materiality for the financial statements as a whole.
		C. reduce the probability that the sum of immaterial and/or undetected misstatements in the financial statements is less than materiality for the financial statements as a whole.
		D. increase the probability that the sum of immaterial and/or undetected misstatements in the financial statements is less than materiality for the financial statements as a whole.

2 points

QUESTION 15

1. Which overview defines audit strategy?

		A. The determination of the amount of time to spend testing the client’s internal controls and conducting detailed testing of transactions and account balances.
		B. Gaining an understanding of the client, including identifying risk factors.
		C. Performing tests of controls and detailed substantive testing of transactions and accounts.
		D. Evaluation of results of the detailed testing in light of the auditor’s understanding of the client and forming an opinion on the fair presentation of the client’s financial statements.

2 points

QUESTION 16

1. Sustainable cash flows from operations are those that are adjusted for _______ influences.

		A. one-time
		B. unexpected
		C. seasonal
		D. annual

2 points

QUESTION 17

1. Inherent risk related to closing procedures would generally be increased when _______.

		A. a client is found to have strong closing procedures, and sound internal control practices relating to closing
		B. no errors and omissions are located when auditing the closing process
		C. staff assigned to deal with closing procedures are relatively inexperienced
		D. the closing process is relatively straightforward

2 points

QUESTION 18

1. Which of the following indicates the ability of a company to generate income from its average investment in total assets?

		A. Return on assets
		B. Return of stockholders’ equity
		C. Gross profit margin
		D. Profit margin

2 points

QUESTION 19

1. Which of the following choices would indicate an appropriate change in the auditor’s approach to the audit, when an increased level of risk is present in a certain area?

		A. Assignment of personnel with specialized skills for the area of increased risk
		B. Assigning less audit staff to the engagement
		C. Withdraw from the audit
		D. Obtain management assurances in writing pertaining to the increased area of risk

2 points

QUESTION 20

1. A comparison of account balances to a single line item, such as total assets, is termed ________.

		A. common-size analysis
		B. trend analysis
		C. substantive procedures

2 points

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