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Which of the following is not a part of the role of internal auditors?

Assisting the external auditors.


Providing reports on the reliability of financial statements to investors and creditors.

Consulting activities.
Operational audits.
Operational auditing is oriented primarily toward
Verification that an entitys financial statements are fairly presented.
The accuracy of data reflected in managements financial records.
Past protection provided by existing internal control.
Future improvements to accomplish the goals of management.
Expressing an opinion about the reliability of a clients financial statements.
Reviewing and
commenting on a
client-prepared
business plan.

II.
I only.

II only.
Both I and II.
Neither I nor II.
Which of the following best places the events of the last decade in proper sequence?
Increased consulting services to audit clients, Sarbanes-Oxley Act, Enron and other scandals, prohibition
of most consulting work for audit clients, establishment of PCAOB.
Sarbanes-Oxley Act, increased consulting services to audit clients, Enron and other scandals, prohibition
of most consulting work for audit clients, establishment of PCAOB.
Increased consulting services to audit clients, Enron and other scandals, Sarbanes-Oxley Act, prohibition
of most consulting work for audit clients, establishment of PCAOB.
Enron and other scandals, Sarbanes-Oxley Act, increased consulting services to audit clients, prohibition
of most consulting work for audit clients, establishment of PCAOB.
Which of the following statements best describes managements and the external auditors respective
levels of responsibility for a public companys financial statements?
Management has the primary responsibility to ensure that the companys financial statements are
prepared in accordance with GAAP, and the auditor provides a guarantee that the statements are free of
material misstatement.
Management has the primary responsibility to ensure that the companys financial statements are
prepared in accordance with GAAP, and the auditor provides reasonable assurance that the statements

are free of material misstatement.


Neither management nor the external auditor has significant responsibility for the fairness of the entitys
financial statements in accordance with GAAP.
Management and the external auditor share equal responsibility for the fairness of the entitys financial
statements in accordance with GAAP.
Which of the following best describes the relationship between business objectives, strategies, processes,
controls, and transactions?
To achieve its objectives, a business formulates strategies and implements processes, which are carried
out through business transactions. The entitys information and internal control systems must be
designed to ensure that the transactions are properly executed, captured, and processed.
To achieve its strategies, a business formulates objectives and implements processes, which are carried
out through the entitys information and internal control systems. Transactions are conducted to ensure
that the processes are properly executed, captured, and processed.
To achieve its business processes, a business formulates objectives, which are carried out through the
entitys strategies. The entitys information and internal control systems must be designed to ensure that
the entitys strategies are properly executed, captured, and processed.
To achieve its objectives, a business formulates strategies to implement its transactions, which are
carried out through business processes. The entitys information and internal control systems must be
designed to ensure that the processes are properly executed, captured, and processed.
The Public Company Accounting Oversight Board
Is a quasi-governmental organization that has a policy to ignore public comment and input in the process
of setting auditing standards.
Is a quasi-governmental organization that has legal authority to set accounting standards for public
companies.
Is a quasi-governmental organization that is independent of the SEC in setting auditing standards.
Is a quasi-governmental organization that has legal authority to set auditing standards for audits of public
companies.
Which of the following is correct regarding the types of audits over which the ASB and the PCAOB,
respectively, have standard-setting authority in the U.S.?
ASB

PCAOB

Nonpublic company audits

Nonpublic company audits

Public company audits

Public company audits

Nonpublic company audits

Public company audits

Public company audits

Nonpublic company audits

Which of the following best describes the general character of the three generally accepted auditing
standards classified as standards of field work?
Criteria for audit planning and evidence gathering.

Criteria for the content of the auditors report on financial statements and related footnote disclosures.
The competence, independence, and professional care of persons performing the audit.
The need to maintain an independence of mental attitude in all matters relating to the audit.
An independent audit aids in the communication of economic data because the audit
Assures the readers of financial statements that any fraudulent activity has been corrected.
Guarantees that financial data are fairly presented.
Lends credibility to the financial statements.

Confirms the exact accuracy of managements financial representations.


Which of the following best describes the reason why an independent auditor is often retained to report on
financial statements?
Different interests may exist between the entity preparing the statements and the persons using the
statements, and thus outside assurance is needed to enhance the credibility of the statements.
An entity may have a poorly designed internal control system.
Management fraud may exist, and it is more likely to be detected by independent auditors than by
internal auditors.
A misstatement of account balances may exist, and all misstatements are generally corrected as a result
of the independent auditors work.
Which of the following best describes relationships among auditing, attest, and assurance services?
Auditing and attest services represent two distinctly different types of services.
Attest is a type of auditing service.
Assurance is a type of attest service.
Auditing is a type of assurance service.
Which of the following statements relating to attest and assurance services is not correct?
Independence is an important attribute of assurance service providers.
In performing an attest service, the CPA determines the correspondence of the subject matter (or an
assertion about the subject matter) against criteria that are suitable and available to users.
Assurance services can be performed to improve the quality or context of information for decision
makers.
Financial statement auditing is a form of attest service but it is not an assurance service.
For what primary purpose does the auditor obtain an understanding of the entity and its environment?
To decide which facts about the entity to include in the audit report.

To limit audit risk to an appropriately high level.


To plan the audit and determine the scope of audit procedures to be performed.

To determine the audit fee.


Which of the following statements best describes the role of materiality in a financial statement audit?
The higher the level at which the auditor assesses materiality, the greater the amount of evidence the
auditor must gather.
The level of materiality has no bearing on the amount of evidence the auditor must gather.
Materiality refers to the material from which audit evidence is developed.
The lower the level at which the auditor assesses materiality, the greater the amount of evidence the
auditor must gather.
Which of the following is the most important reason for an auditor to gain an understanding of an audit
clients system of internal control over financial reporting?
Understanding a clients system of internal control can help the auditor make valuable recommendations
to management at the end of the engagement.
Understanding a clients system of internal control is not a required part of the audit process.
Understanding a clients system of internal control can help the auditor assess risk and identify areas
where financial statement misstatements might be more likely.
Understanding a clients system of internal control can help the auditor sell consulting services to the
client.
Preliminary engagement activities include
All of the above.

Understanding the client and the clients industry.


Ensuring the independence of the audit team and audit firm.
Determining audit engagement team requirements.
Which of the following statements best describes what is meant by an unqualified audit opinion?
Issuance of an unqualified auditors report indicates that the auditor is expressing different opinions on
each of the basic financial statements regarding whether the clients financial statements are fairly
presented in accordance with agreed-upon criteria.
Issuance of an unqualified auditors report indicates that the auditor is not qualified to express an opinion
that the clients financial statements are fairly presented in accordance with agreed-upon criteria.
Issuance of an unqualified auditors report indicates that in the auditors opinion the clients financial
statements are not fairly enough presented in accordance with agreed-upon criteria to qualify for a clean
opinion.
Issuance of a standard unqualified auditors report indicates that in the auditors opinion the clients
financial statements are fairly presented in accordance with agreed-upon criteria, with no need for the
inclusion of qualifying phrases.

The auditing standards used to guide the conduct of the audit are
Implicitly referred to in the opening paragraph of the auditors standard report.
Explicitly referred to in the opening paragraph of the auditors standard report.
Explicitly referred to in the opinion paragraph of the auditors standard report.
Explicitly referred to in the scope paragraph of the auditors standard report.
Implicitly referred to in the scope paragraph of the auditors standard report.
Implicitly referred to in the opinion paragraph of the auditors standard report.
A client has used an inappropriate method of accounting for its pension liability on the balance sheet. The
resulting misstatement is moderately material, but the auditor does not consider it to be pervasive. The
auditor is unable to convince the client to alter its accounting treatment. The rest of the financial
statements are fairly stated in the auditors opinion. Which kind of audit report would an auditor most likely
issue under these circumstances?
Standard unqualified opinion.
Adverse opinion.
No opinion at all.
Qualified opinion due to departure from GAAP.
An assurance report on information can provide assurance about the informations
Reliability.
Relevance.
Timeliness.
All of the above.
Which of the following professional services would be considered an attest engagement?
Compilation of financial statements from a clients accounting records.
An engagement to report on compliance with statutory requirements.

An income tax engagement to prepare federal and state tax returns.


A management consulting engagement to provide IT advice to a client.
An accountant may accept an engagement to apply agreed-upon procedures to prospective financial
statements, provided that
The prospective financial statements are also examined.

Responsibility for the adequacy of the procedures performed is taken by the accountant.
Distribution of the report is restricted to the specified users.

Negative assurance is expressed on the prospective financial statements taken as a whole.


Which of the following statements concerning prospective financial statements is correct?
Any type of prospective financial statement would normally be appropriate for general use.
Only a financial forecast would normally be appropriate for limited use.
Any type of prospective financial statement would normally be appropriate for limited use.

Only a financial projection would normally be appropriate for general use.


When compiling the financial statements of a nonpublic entity, an accountant should
Inquire of key personnel concerning related parties and subsequent events.
Perform ratio analyses of the financial data of comparable prior periods.
Understand the accounting principles and practices of the entitys industry.

Review agreements with financial institutions for restrictions on cash balances.


Which of the following statements is correct concerning both an engagement to compile and an
engagement to review a nonpublic entitys financial statements?
The accountant should obtain a written management representation letter.
The accountant must be independent in fact and appearance.
The accountant is not required to obtain an understanding of internal control.

The accountant expresses no assurance on the financial statements.


The standard report issued by an accountant after reviewing the financial statements of a nonpublic entity
states that
A review includes assessing the accounting principles used and significant estimates made by
management.
The accountant does not express an opinion or any other form of assurance on the financial statements.
A review includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements.
The accountant is not aware of any material modifications that should be made to the financial
statements.
Financial statements of a nonpublic entity that have been reviewed by an accountant should be
accompanied by a report stating that

A review is greater in scope than a compilation, the objective of which is to present financial statements
that are free of material misstatements.
A review includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements.
All information included in the financial statements is the representation of the management of the entity.

The scope of the inquiry and the analytical procedures performed by the accountant have not been
restricted.
The general accreditation granted by the Institute of Internal Auditors is known as the
CFSA.
CIA.

CFE.
CGAP.
Which of the following is not a Trust Services principle?
Digital certificate authorization.

Online privacy.
Availability.
Processing integrity.
Which of the following assurances is not provided by an unqualified opinion on a SysTrust report?
There are procedures to protect the system against unauthorized physical access.
The financial statements created by the system are free of material misstatements.

Documented system processing integrity objectives, policies, and standards have been communicated to
authorized users and controls are functioning as documented.
The documented system availability objectives, policies, and standards have been communicated to
authorized users and controls are functioning as documented.
PrimePlus engagements are mainly designed to
Assist the elderly in perfecting their shuffleboard techniques.
Provide guidance to assisted-living care facilities to enhance quality of life for the elderly.
Provide guidance to health care providers in giving high-quality health care.
Assist the elderly to maintain their financial independence and desired lifestyle as they age.
Which of the following is not a type of PrimePlus service?

Systems design services.

Assurance services.
Direct services.
Consulting/facilitating services.